Attached files
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EX-5 - EXHIBIT 10.5 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-5.txt |
EX-1 - EXHIBIT 10.1 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-1.txt |
EX-3 - EXHIBIT 10.3 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-3.txt |
EX-7 - EXHIBIT 10.6 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-6.txt |
EX-10 - EXHIBIT 23.2 - Zhongke Biotec Agriculture (USA), Inc. | ex_23-2.txt |
EX-9 - EXHIBIT 10.8 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-8.txt |
EX-4 - EXHIBIT 10.4 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-4.txt |
EX-2 - EXHIBIT 10.2 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-2.txt |
EX-8 - EXHIBIT 10.7 - Zhongke Biotec Agriculture (USA), Inc. | ex_10-7.txt |
EX-11 - EXHIBIT - CODE OF ETHICS - Zhongke Biotec Agriculture (USA), Inc. | ex_codeofethics.txt |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 4 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ZHONGKE BIOTEC AGRICULTURE (USA), INC.
----------------------------------------------
(Exact Name of Registrant as Specified)
NEVADA 2870 26-4113729
---------------------------- ---------------------------- -------------------
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
ZHONGKE BIOTEC AGRICULTURE (USA), INC.
FIFTH FLOOR, HIGH-TECH MANSION, GAOXIN ROAD
HI-TECH ZONE, XI'AN P. R. CHINA 712100
F 086 29-88331685
--------------------------------------------------------------------------
(Address and telephone number of principal executive offices and principal
place of business)
Silver Shield Services, Inc.
P. O. Box 3540
Silver Springs, NV 89429
(775) 577-4822
---------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
CHEN MIN, PRESIDENT
ZHONGKE BIOTEC AGRICULTURE (USA), INC.
FIFTH FLOOR, HIGH-TECH MANSION, GAOXIN ROAD
HI-TECH ZONE, XI'AN P. R. CHINA 712100
(086) 29-88331685
CHARLES BARKLEY, ESQ.
6201 FAIRVIEW ROAD, SUITE 200
CHARLOTTE, NC 28210
(704) 944-4290
(704) 944-4280 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
If any 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,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
TO BE REGISTERED REGISTERED (1) MAXIMUM OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION FEE
PER SECURITY (2) OFFERING PRICE (2)
--------------------------------- -------------- ---------------------- ------------------ ----------------
Shares of common stock, $0.001 par value 2,979,021 $.10 $297,790 11.71
Total 2,979,021 $.10 $297,790 11.71
(1) The registration fee for the shares of the selling security holders is
based upon a value of $.10. All shares of common stock registered pursuant to
this registration statement are to be offered by the selling stockholders. In
the event of a stock split, stock dividend or similar transaction involving our
common stock, in order to prevent dilution, the number of shares registered
shall be automatically increased to cover the additional shares in accordance
with Rule 416(a).
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) promulgated under the Securities Act
of 1933, as amended. The selling security holders are offering 2,979,021 of the
shares, which we are registering. These shares will be sold at $.10 unless and
until the shares are traded and thereafter at prevailing market prices. If the
selling security holders sell to more than 25 persons, the Company will
undertake efforts to have markets established for the trading of the
securities. If such a market begins before all securities offered hereby are
sold, then the remaining securities will be sold at market prices.
We hereby amend this registration statement on such date or dates as may be
necessary to delay its effective date until we 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 this Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a) may determine.
The information contained in this prospectus is not complete and may be
changed. Our selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and neither
this prospectus nor the selling stockholders is soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED JANUARY 27, 2010
ZHONGKE BIOTEC AGRICULTURE (USA), INC.
2,979,021 SHARES OF COMMON STOCK
This is a prospectus for the resale of up to 2,979,021 shares of our
common stock, par value $0.001 per share, by the selling stockholders of
Zhongke Biotec Agriculture (USA), Inc. identified in this prospectus under
"Selling Securityholders" who are offering shares at a selling price of $.10
per share. The selling shareholders paid $0.002 per share by contributing
property valued at $181,935 in exchange for the issuance of 84,999,000 shares.
These shares may be sold by the selling stockholders from time to time in
the over-the-counter market, other national securities exchanges, or an
automated interdealer quotation system on which our common stock is then traded
or quoted, through negotiated transactions at negotiated prices or otherwise at
market prices prevailing at the time of sale. An arbitrary determination of the
offering price increases the risk that purchasers of the shares in the offering
will pay more than the value the public market ultimately assigns to the shares
and more than an independent appraisal value.
Our common stock is presently not traded on any market or securities
exchange and we have not begun to take steps to make the shares available for
trading. The sales price to the public is fixed at $.10 per share. The Company
is not able to apply for OTC Bulletin Board trading on its own. We anticipate
seeking sponsorship for the quotation of our common stock on the OTC Bulletin
Board upon effectiveness of the registration statement we have filed with the
SEC in connection with this offering. However, we can provide no assurance that
our shares will be listed for quotation on the OTC Bulletin Board. If the
selling security holders sell to more than 25 persons, the Company will
undertake efforts to have markets established for the trading of the
securities. If we are unable to obtain a market maker, we expect our securities
to trade over the counter on the Pink Sheets after the conclusion of this
offering, but there can be no assurance that we will be successful.
The shares of Common Stock offered from time to time by the selling security
holders under this prospectus consist of 2,979,021 shares exchanged in a
private placement during 2008. All selling security holders are statutory
underwriters.
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted. The
distribution of the shares by the selling stockholders is not subject to any
underwriting agreement. We will receive none of the proceeds from the sale of
the shares by the selling stockholders. We will bear all expenses of
registration incurred in connection with this offering (currently estimated to
be $89,530, but all selling and other expenses incurred by the selling
stockholders will be borne by them. An arbitrary determination of the offering
price increase the risk that purchasers of the shares in the offering will pay
more than the value the public market ultimately assigns to our common stock
and more than an independent appraisal value.
Until ________________, 2010 (60 days after the commencement of this
offering), all dealers that buy, sell or trade the securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to any unsold
allotments or subscriptions.
For investors outside the United States: Neither we nor any of the statutory
underwriters have done anything that would permit this offering or possession
or distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to
inform yourselves about and to observe any restrictions relating to this
offering and the distribution of this prospectus.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. WE URGE YOU TO
CAREFULLY CONSIDER THE ``RISK FACTORS'' ON PAGE 8 ELSEWHERE IN THIS PROSPECTUS
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary
- Our Business 3
- About this Offering 3
- Corporate Information History 3
The Offering 4
Risk Factors 4
- Risks related to our business and industry 4
- Risks relating to our securities 7
Special note regarding forward looking statements 12
Where you can find more information 13
Use of Proceeds 13
Determination of Offering Price 13
Market for our Securities and Related stockholder matters 13
Management Discussion and Analysis and Plan of Operation 13
Business 24
Industry Overview 25
Patents and Intellectual Property 25
Legal Proceedings 27
Directors, Executive Officers, Promoters, and Control Persons 28
Executive Compensation 28
Certain relationships and related transactions 29
Selling Stockholders 30
- Selling Stockholder Table 31
Plan of distribution 32
Description of securities 33
Transfer Agent 35
Limitation of Liability and Indemnification 35
Legal Matters 35
Experts 35
Financial Information 36
2
SUMMARY FINANCIAL DATA
At present, our monthly "burn rate" is about $10,248, and the sales of
spaceflight products (such as vegetable and vegetable seeds, crop seeds) will
be the main source of our revenue in the future. Our principal shareholders
will continue to invest parts of their funds for operation of the company.
Because this is only a summary of our financial information, it does not
contain all of the financial information that may be important to you.
Therefore, you should carefully read all of the information in this prospectus
and any prospectus supplement, including the financial statements and their
explanatory notes and the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," before making a
decision to invest in our common stock. The information contained in the
following summary is derived from our financial statements for the years ending
December 31, 2007 and 2008.
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED JUNE 30,
2007 2008 2008 2009
----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues $ 14,932 $ 41,162 $ 25,518 $ 131,347
Operating expenses 805,417 989,641 989,641 259,406
Net loss (790,485) (948,479) (354,066) (128,059)
BALANCE SHEET DATA:
Total cash and cash equivalents $ 352,887 $ 61,392 $ 19,237
Total assets 1,319,308 568,470 540,687
Stockholders' equity (2,697,615) (3,826,982) (3,726,420)
SUMMARY
You should read the following summary together with the more detailed
information contained elsewhere in this prospectus, including the section
titled "Risk Factors," regarding us and the common stock being sold in this
offering. Unless the context otherwise requires, "we," "our," "us" and similar
phrases refer to Zhongke Biotec Agriculture (USA), Inc.., a Nevada corporation.
OUR BUSINESS
Business focuses on development certain new seed varieties, including
Hangfeng I cotton seeds. Currently, Hangmai 126 wheat seeds and Hangfeng III
cotton seeds are being regionally tested in primary wheat-producing regions
such as Shaanxi, Henan, Shanxi, Xinjiang, etc., and are expected to enter full-
scale production in two to three years. Persistent company effort remains in
the field of space-mutation breeding, also known as spaceflight breeding. The
sale of such spaceflight-bred varieties as crop seeds, germchit, vegetables,
flowers, etc., is a primary source of revenue. We are actively marketing the
Hangfeng I cotton seeds to several large-scale domestic cotton efforts in the
Shaanxi province, and efforts to expand marketing efforts and target base are
increasing. We strive to sell directly to the farmers.
We expect that our principal sources of revenue will be from the sales of
genetically modified seeds on a bulk sales basis to farmers and farm supply
companies. While we have proprietary rights to a number of such seeds, each
must be certified for sale by the central or provincial government. Currently,
we have one seed, Hang Feng number 1 (a form of genetically modified cotton)
which has been approved for sale in the Shaanxi province of China. We have
applications pending for several varieties of wheat but have not yet obtained
approval. Even with government approval, we need several growing cycles to
produce seeds in sufficient quantities to make bulk sales to farmers and supply
companies. We expect to generate revenues from the sale of our Hang Feng cotton
during the next growing season and believe that we will be able to add
additional precuts and additional provinces thereafter.
In the interim we sell all of our seeds on an experimental or research basis.
Our revenues today have come from sales of plants and their seeds on an
experimental basis. Revenues from sales of experimental seeds are not
considered revenues from operations and may not occur on a consistent basis. We
may also consider licensing and joint ventures arrangements to supplement
revenues in the future.
CORPORATE INFORMATION AND HISTORY
We were founded in 2007 as Zhongke Biotec Agriculture (USA), Inc., a Nevada
corporation on October 25, 2007. Our principal office is located at A-28,VAN
METROPOLIS,#35 TANGYAN ROAD, XI'AN, SHAANXI, PRC, (710065). . The Company's
telephone number is +86-29-8883-0106 (OFFICE).The CEO of the Company is Ms.
Chen, Min.
RECENT TRANSACTIONS
In October, 2007 we established the Company for the purpose of effecting a
reverse acquisition. We issued securities to our securities counsel in reliance
upon exemption from registration contained in section 4(2)of the Securities Act
and to for Chinese nationals in reliance upon registration exemption contained
in Regulation S. A plan of merger between Success Mater and the Company was
executed in July 2008. Under the terms of the plan of merger, we acquired
Success Mater by issuing 84,999,000 shares to a non-U. S. company under
Regulation S. In exchange, we received 100% of the shares of Success Mater.
Thereafter, Success Mater exchanged the shares held to their non-U. S.
shareholders, being the shareholders of Zhongke in the People's Republic of
China. As a result of these transactions the business of Success Mater and its
subsidiaries became the business of the Company. Upon the effectiveness of this
registration certain of the shareholders will offer for resale certain of the
shares issued by the Company in those transactions.
We believe the securities offered in the exchange, including the common
stock, were issued and sold in reliance upon exemptions from registration
contained in Regulation S promulgated there under, which exempt transactions by
an issuer not involving any public offering and issuances to non-US persons.
The issuance of the shares was undertaken without general solicitation or
advertising. Each recipient of the shares was a non- US person as defined in
Regulation S, was acquiring the shares of for investment purposes and not with
a view to any public resale or other distribution and otherwise met the
requirements of Regulation S. In addition, the stock certificate representing
these shares contained a legend that they are restricted securities under the
Securities Act of 1933 pursuant to Regulation S.
3
THE OFFERING
THE OFFERING
All selling security holders are statutory underwriters and will be required
to comply with all obligations imposed on statutory underwriters under the
Securities Act of 1933. and any broker-dealer executing sell orders on behalf
of the selling stockholders will be deemed to be ``underwriters'' within the
meaning of the Securities Act of 1933, and any commissions or discounts given
to any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act of 1933. The selling stockholders have
informed us that they do not have any agreement or understanding, directly or
indirectly, with any person to distribute their common stock.
Common stock offered by the selling stockholders:
Common stock outstanding 86,000,000 shares (1)
Use of proceeds We will receive none of the
proceeds from the sale of the
shares by the selling
stockholders.
Risk Factors You should read the section
titled "Risk Factors"
beginning on page 11 as well
as other cautionary statements
throughout this prospectus
before investing in any shares
offered hereunder.
Risk Factors
You should read the section titled "Risk Factors" elsewhere in this prospectus
as well as other cautionary statements throughout this prospectus before
investing in any shares offered hereunder.
SELLING STOCKHOLDERS
Under Rule 416 of the Securities Act, this prospectus, and the
registration statement of which it is a part, covers a presently indeterminate
number of shares of common stock issuable on the occurrence of a stock split,
stock dividend or other similar transaction.
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES
A HIGH DEGREE OF RISK. WE CANNOT ASSURE THAT WE WILL EVER GENERATE SIGNIFICANT
REVENUES, DEVELOP OPERATIONS, OR MAKE A PROFIT.
WE ARE A DEVELOPMENT STAGE COMPANY WITH NO OPERATING HISTORY FOR YOU TO
EVALUATE AND WE HAVE NOT PROVEN OUR ABILITY TO GENERATE PROFITS.
We are a developmental stage company entering an unproven industry with limited
resources. Although we have developed working prototypes of genetically
modified seed, we have not established a market for our product. We have no
meaningful operating history so it will be difficult for you to evaluate an
investment in our securities. From our inception to date, we have had no
revenues from our planned operation. We may never be able to become profitable.
You will be furnishing venture capital to us and will bear the risk of complete
loss of your investment if we are unsuccessful.
An investor should also consider the uncertainties and difficulties frequently
encountered by companies, such as ours, in their early stages of development.
Our revenue and income potential is unproven and our business model is still
emerging. If our business model does not prove to be profitable, investors may
lose all of their investment.
4
OUR AUDITORS HAVE NOTED THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO OPERATE
AS A GOING CONCERN
As indicated in the accompanying consolidated financial statements, we had an
accumulated shareholders' equity deficit of $3,726,420at September 30, 2009
that includes losses of $127,607 and $933,529 for the nine months ended
September 30, 2009 and the year ended December 31, 2008, respectively. In
addition, we had a working capital deficiency of $4,131,293 and a shareholders'
deficiency of $3,726,420 at September 30, 2009. We may be forced to try to
raise capital from external forces of substantially curtail or seize our
current business activities. Financial markets have reported a serious downturn
during 2008 which limits the opportunities for small developmental stage
companies to obtain capital. There can be no assurance that capital will be
available to the company on any terms at all. Even if the company locates
sources of capital, the terms could be unattractive and could have a
significant diluted effect on the company's existing shareholders
WE HAVE HAD NO REVENUES AND ANTICIPATE LOSSES FOR THE FORESEEABLE FUTURE.
Since inception we have had no revenues from planned operations, but have sold
modified goods on an experimental basis. Since inception through September 30,
2009, the total sales of experimental materials have been $189,832 We have
not achieved profitability and expect to continue to incur net losses
throughout fiscal 2009 and subsequent fiscal periods. We expect to incur
significant operating expenses and, as a result, will need to generate
significant revenues to achieve profitability, which may not occur. Even if we
do achieve profitability, we may be unable to sustain or increase profitability
on an ongoing basis.
COMPETITION IN SEEDS AND AGRICULTURAL PRODUCT IS INTENSE AND DOMINATED BY MUCH
LARGER, BETTER FINANCED COMPETITORS
Competition for seed and genetically modified seed is dominated on a worldwide
basis by the Monsanto Company of Saint Louis, Missouri. The genetically
modified seed segment of Monsanto is roughly a $1 Billion annual revenue
enterprise and they routinely obtain patents or legal protections for various
commercial hybrid seeds, germplasms and related products. While we believe that
our genetically modified seed in a zero gravity environment will offer
competitive advantages, we may be unable to successfully compete on price,
marketing, availability, performance or related services. We currently do not
have any protections for our hybrid seed and we may be unable to stand
challenges for such protections should they occur.
WE MAY BE UNABLE TO DEFEND CLAIMS AGAINST OUR INTELLECTUAL PROPERTY RIGHT AND
EVEN A SUCCESSFUL DEFENSE CAN BE EXTENSIVE AND MATERIALLY EFFECT OUR
PROFITABILITY OR ABILITY TO CONTINUE IN BUSINESS
In the event that we are able to successfully obtain intellectual property
protections for our hybrid seeds and agricultural products, we may face legal
challenges or unlawful infringement. The cost to defend intellectual property
right can be prohibited and, even if successful, can have a material adverse
effect on revenues and earnings. If we are unable to successfully defend our
intellectual property or if the costs to such defense are too burdensome, our
ability to continue in business can be threatened. Further, pilfering, reverse
or other engineering or technological advances could render our products
obsolete or diluted unexpectedly. We expect the pace of technological advances
in genetically modified and other hybrid seeds to accelerate. Further, we may
experience difficulty licensing our technology in circumstances where the
intellectual property rights are in question.
5
OUR HYBRID SEEDS CANDIDATES ARE BASED ON NEW AND UNPROVEN TECHNOLOGIES
Our hybrid seed candidates are in development based on new and unproven
technology utilizing a zero gravity environment in combination with established
processes of mutation. While we believe these technologies will yield
substantial improvements in crops grown from our modified seeds, the current
state of science in this area has many unanswered questions and we may be
unable, with our limited resources, to successfully resolve issues that may
arise.
OUR INDUSTRY IS SUBJECT TO SUBSTANTIAL REGULATION FROM A VARIETY OF
JURISDICTIONS AND IT MAY BE PROHIBITIVELY EXPENSIVE OR IMPOSSIBLE TO COMPLY
WITH ALL REGULATORY REQUIREMENTS
The research, development, manufacture, sale and distribution of modified or
hybrid seeds are subject to intense and expensive regulatory scrutiny. To
commercialize our products we will need to obtain patents, or other plant
protections including environmental, food and drug approvals, plant and
planting approvals and other legislative or regulatory hurdles. In some
instances approval will be required from multiple jurisdictions or multiple
regulatory bodies even if we successfully obtain workable prototypes for our
hybrid seeds, there is no assurance that we will be able to manage the
financial and scientific resources needed to obtain and maintain regulatory
approval.
Our hybrid seed and crops grown there from may be subject to commercial,
governmental or public disapproval.
While we believe the regulatory hurdles necessary for the same and distribution
of out hybrid seeds will sufficiently protect the interests of the public, we
expect that serious issues may be raised from a number of interested parties of
groups about the potential for harmful or adverse effects. Current issues
involving disorders in honey bees and other wild life concerns may implicate
genetically modified or hybrid seeds and crops grown there from. We may not be
able to predict the various complaints or arguments that may be raised with
respect to our product specifically or the industry in general. There have been
reports of outsiders devastating fields in the process of growing genetically
modified products. To the extent that any wild life or public health concern
becomes associated with our products or industry we would expect significant
adverse consequences to our revenues and earnings which may make it difficult
or impossible to continue our operations.
IF WE FAIL TO IMPLEMENT OUR COMMERCIALIZATION STRATEGY, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED.
Our future financial performance and success are dependent in large part upon
our ability to implement our commercialization strategy successfully. We have
not engaged third party consultants to identify potential clients for our
technology. We may not be able to successfully implement our commercialization
strategy with or without the involvement of third parties. If we are unable to
do so, our long-term growth and profitability may be adversely affected. Even
if we are able to successfully implement some or all of the initiatives of our
business plan, our operating results may not improve to the extent we expect,
or at all.
Implementation of our commercialization strategy could also be affected by a
number of factors beyond our control, such as increased competition, legal
developments, general economic conditions or increased operating costs or
expenses. In addition, to the extent we have misjudged the nature and extent of
industry trends or our competition, we may have difficulty achieving our
strategic objectives. We may also decide to alter or discontinue certain
aspects of our business strategy at any time. Any failure to successfully
implement our business strategy may adversely affect our business, financial
condition and results of operations and thus our ability to service our
indebtedness, including our ability to make principal and interest payments on
our indebtedness.
6
WE MAY HAVE INSUFFICIENT LIQUIDITY TO CONTINUE.
The Company will not receive any proceeds from the sale of common stock. We are
devoting substantially all of our present efforts to establishing a new
business and will need additional capital to continue implementing our business
plan. We have generated no revenue. We will have to seek other sources of
financing or we will be forced to curtail or terminate our business plans.
There is no assurance that additional sources of financing will be available at
all or at a reasonable cost.
WE MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH CORPORATE GOVERNANCE
AND ACCOUNTING REQUIREMENTS.
We expect to incur significant costs associated with our public company
reporting requirements, costs associated with applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the SEC. We expect all of these applicable rules and
regulations to increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. While we have no experience as
a public company, we estimate that these additional costs will total
approximately $60,000 per year. We also expect that these applicable rules and
regulations may make it more difficult and more expensive for us to obtain
director and officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. As a result, it may be more difficult for
us to attract and retain qualified individuals to serve on our board of
directors or as executive officers. We are currently evaluating and monitoring
developments with respect to these newly applicable rules, and we cannot
predict or estimate the amount of additional costs we may incur or the timing
of such costs.
RISKS RELATING TO OUR SECURITIES
WE HAVE NEVER PAID DIVIDENDS ON OUR COMMON STOCK AND YOU MAY NEVER RECEIVE
DIVIDENDS. THERE IS A RISK THAT AN INVESTOR IN OUR COMPANY WILL NEVER SEE A
RETURN ON INVESTMENT AND THE STOCK MAY BECOME WORTHLESS.
We have never paid dividends on our common stock. We intend to retain earnings,
if any, to finance the development and expansion of our business. Future
dividend policy will be at the discretion of the Board of Directors and will be
contingent upon future earnings, if any, our financial condition, capital
requirements, general business conditions and other factors. Future dividends
may also be affected by covenants contained in loan or other financing
documents, which may be executed by us in the future. Therefore, there can be
no assurance that cash dividends of any kind will ever be paid. If you are
counting on a return on your investment in the common stock, the shares are a
risky investment.
7
THERE IS CURRENTLY NO MARKET FOR OUR COMMON STOCK AND NO ASSURANCE THAT ONE
WILL DEVELOP.
There is currently no trading market for our shares of Common Stock, and there
can be no assurance that a more substantial market will ever develop or be
maintained. Any market price for shares of our Common Stock is likely to be
very volatile, and numerous factors beyond our control may have a significant
adverse effect. In addition, the stock markets generally have experienced, and
continue to experience, extreme price and volume fluctuations which have
affected the market price of many small capital companies and which have often
been unrelated to the operating performance of these companies. These broad
market fluctuations, as well as general economic and political conditions, may
also adversely affect the market price of our Common Stock. Further, there is
no correlation between the present limited market price of our Common Stock and
our revenues, book value, assets or other established criteria of value. The
present limited quotations of our Common Stock should not be considered
indicative of the actual value of the Company or our Common Stock.
Future sales of our common stock could put downward selling pressure on our
shares, and adversely affect the stock price. There is a risk that this
downward pressure may make it impossible for an investor to sell his shares at
any reasonable price.
Future sales of substantial amounts of our common stock in the public market,
or the perception that such sales could occur, could put downward selling
pressure on our shares, and adversely affect the market price of our common
stock. Such sales could be made pursuant to Rule 144 under the Securities Act
of 1933, as amended, as shares become eligible for sale under the Rule.
AN ARBITRARY DETERMINATION OF THE OFFERING PRICE INCREASES THE RISK THAT
PURCHASERS OF THE SHARES IN THE OFFERING WILL PAY MORE THAN THE VALUE THE
PUBLIC MARKET ULTIMATELY ASSIGNS TO OUR COMMON STOCK AND MORE THAN AN
INDEPENDENT APPRAISAL VALUE OF US.
The offering price for the shares of $0.10 was arbitrarily determined by our
management. The offering price bears no relation to our assets, revenues, book
value or other traditional criteria of value. Investors may be unable to
resell their shares at or near the offering price, if they are able to resell
the shares at all. Selling security holders are offering shares at a selling
price of $.010 per share until a market for the shares is established and
thereafter at prevailing market prices. If the selling security holders sell to
more than 25 persons, the Company will undertake efforts to have markets
established for the trading of the securities. If such a market begins before
all securities offered hereby are sold, then the remaining securities will be
sold at market prices.
BECAUSE OUR SHARES ARE DEEMED HIGH RISK "PENNY STOCKS," YOU MAY HAVE DIFFICULTY
SELLING THEM IN THE SECONDARY TRADING MARKET.
The Commission has adopted regulations which generally define a "penny stock"
to be any equity security that has a market price (as therein defined) less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. Additionally, if the equity security is not
registered or authorized on a national securities exchange, the equity security
also constitutes a "penny stock." As our common stock falls within the
definition of penny stock, these regulations require the delivery, prior to any
transaction involving our common stock, of a risk disclosure schedule
explaining the penny stock market and the risks associated with it. These
regulations generally require broker-dealers who sell penny stocks to persons
other than established customers and accredited investors to deliver a
disclosure schedule explaining the penny stock market and the risks associated
with that market. Disclosure is also required to be made about compensation
payable to both the broker-dealer and the registered representative and current
quotations for the securities. These regulations also impose various sales
practice requirements on broker-dealers. In addition, monthly statements are
required to be sent disclosing recent price information for the penny stocks.
The ability of broker/dealers to sell our common stock and the ability of
shareholders to sell our common stock in the secondary market is limited. As a
result, the market liquidity for our common stock is severely and adversely
affected. We can provide no assurance that trading in our common stock will not
be subject to these or other regulations in the future, which would negatively
affect the market for our common stock.
8
IF A MARKET DEVELOPS FOR OUR SECURITIES THE COULD BE VOLATILE AND MAY NOT
APPRECIATE IN VALUE.
If a market should develop for our securities, of which we have no assurance,
the market price is likely to fluctuate significantly. Fluctuations could be
rapid and severe and may provide investors little opportunity to react. Factors
such as changes in results from our operations, and a variety of other factors,
many of which are beyond the control of the Company, could cause the market
price of our common stock to fluctuate substantially. Also, stock markets in
penny stock shares tend to have extreme price and volume volatility. The market
prices of shares of many smaller public companies securities are subject to
volatility for reasons that frequently unrelated to the actual operating
performance, earnings or other recognized measurements of value. This
volatility may cause declines including very sudden and sharp declines in the
market price of our common stock. We cannot assure investors that the stock
price will appreciate in value, that a market will be available to resell your
securities or that the shares will retain any value at all.
RISKS RELATING TO DOING BUSINESS IN THE PEOPLE'S REPUBLIC OF CHINA
WE ARE SUBJECT TO THE POLITICAL AND ECONOMIC POLICIES OF THE PEOPLES REPUBLIC
OF CHINA, AND GOVERNMENT REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
INTENDED BUSINESS.
All of our assets and operations are in the PRC. As a result our operating
results and financial performance as well as the value of our securities could
be affected by any adverse changes in economic, political and social conditions
in China.
The Chinese government adopted an "open door" policy to transition from a
planned economy to a market driven economy in 1978. Since then the economy of
the PRC has undergone rapid modernization although the Chinese government still
exerts a dominant force in the nation's economy. This continues to include
reservation to the state of land use rights and includes controls on foreign
exchange rates and restrictions or prohibitions on foreign ownership in various
industries including agriculture. All lands in China are state owned and only
restricted "land use rights" are conveyed to business enterprises or
individuals.
The Chinese government operates the economy in many industries through various
five-year plans and even annual plans. A large degree of uncertainty is
associated with potential changes in these plans. Since the economic reforms
have no precedent, there can be no assurance that future changes will not
create materially adverse conditions on our business.
Due to the limited effectiveness of judicial review, public opinion and popular
voting there are few avenues available if the governmental action has a
negative effect. Any adverse changes in the economic conditions, in government
policies, or in laws and regulations in China could have a material adverse
effect on the overall economic growth, which in turn could lead to a reduction
in demand for our products and consequently have a material adverse effect on
our business.
THERE ARE RISKS INHERENT IN DOING BUSINESS IN CHINA OVER WHICH WE HAVE NO
CONTROL.
The political and economic systems of the PRC are very different from the
United States and more developed countries. China remains volatile in its
social, economic and political issues which could lead to revocation or
adjustment of reforms. There are also issues between China and the United
States that could result in disputes or instabilities. Both domestically and
internationally the role of China and its government remain in flux and could
suffer shocks, or setbacks that may adversely affect our business.
THE CHINESE LEGAL SYSTEM IS MUCH DIFFERENT FROM THAT OF THE UNITED STATES WITH
CONSIDERABLY LESS PROTECTION FOR INVESTORS, AND IT MAY BE EXTREMELY DIFFICULT
FOR INVESTORS TO SEEK LEGAL REDRESS IN CHINA AGAINST US OR OUR OFFICERS AND
DIRECTORS, INCLUDING CLAIMS THAT ARE BASED UPON U.S. SECURITIES LAWS.
All of our current operations are conducted in China. All of our current
directors and officers are nationals or residents of China. It may be difficult
for shareholders to serve us with service of process in legal actions. All of
the assets of these persons are located outside the United States in China. 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. As a result there is no established body of law
that has precedential value as is the case in most western legal systems.
Differences in interpretations and rulings can occur with little or no
opportunity for redress or appeal.
9
As a result, it may not be possible to effect service of process within the
United States or elsewhere outside China upon our officers and directors. Even
if service of process was successful, considerable uncertainty exists as to
whether Chinese courts would enforce U. S. laws or judgments obtained in the
United States. Federal and state securities laws in the U. S. confer
substantial rights to investors and shareholders that have no equivalent in
China. Therefore a claim against us or our officers and/or directors or even a
final judgment in the U. S. based on U. S. may not be heard or enforced by the
Chinese courts.
In 1979, the PRC began to adopt a complex and comprehensive system legal system
and has approved many laws regulating economic and business practices in the
PRC including foreign investment. Currently many of the approvals required for
our business can be obtained at a local or provincial level. We believe that
it is generally easier and faster to obtain provincial approval than central
government approval. Changes to existing laws that repeal or alter the local
regulatory authority and replacements by national laws could negatively affect
our business and the value of our securities.
China's regulations and policies include limits on foreign investments
including investment in agriculture businesses and are still evolving.
Definitive regulations and may affect percentage ownership allowed to foreign
investment or even controls on the return on equity. Further, the various
proposals are conflicting and we may not be aware of possible violations.
NEW CHINESE LAWS MAY RESTRICT OUR ABILITY TO CONTINUE TO MAKE ACQUISITIONS OF
BUSINESSES IN CHINA.
New regulations on the acquisition of businesses commonly referred to as "SAFE"
regulations (State Administration of Foreign Exchange) were jointly adopted on
August 8, 2006 by six Chinese regulatory agencies with jurisdictional
authority. Known as the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors the new Rule requires creation of offshore
Special Purpose Ventures, or SPVs, for overseas listing purposes. Acquisitions
of domestic Chinese companies require approval prior to listing securities on
foreign exchanges.
We obtained the approvals that we believe are required in making the
acquisitions that formed the present company. Nonetheless, our growth has
largely been by acquisition and we intend to continue to make acquisitions of
Chinese businesses. Since the "SAFE" rules are very recent there are many
ambiguities and uncertainties as to interpretation and requirements. These
uncertainties and any changes or revisions to the regulations could limit or
eliminate our ability to make new acquisitions of Chinese businesses in the
future.
WE MAY BE AFFECTED BY RECENT CHANGES TO CHINA'S FOREIGN INVESTMENT POLICY,
WHICH WILL CHANGE THE INCOME TAX RATE FOR FOREIGN ENTERPRISES.
On January 1, 2008 a new Enterprise Income Tax Law will take effect. The new
law revises income tax policy and sets a unified income tax rate for domestic
and foreign companies at 25 percent. It also abolishes favorable treatment for
foreign invested enterprises. When the new law takes effect, foreign invested
enterprises will no longer receive favorable tax treatment. Any earnings we
may obtain may be adversely affected by the new law.
CHINA CONTROLS THE CURRENCY CONVERSION AND EXCHANGE RATE OF ITS CURRENCY, WHICH
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
The Chinese government imposes control over the conversion of the Chinese
currency, the Renminbi, into foreign currencies, although recent pronouncements
indicate that this policy may be relaxed. Under the current system, the
People's Bank of China publishes a daily exchange rate based on the prior day's
activity which controls the inter-bank foreign exchange market. Financial
institutions are permitted a narrow range above or below the exchange rate
based on then current market conditions. Since 1997 the State Council has
prohibited restrictions on certain international payments or transfers for
current account items. The regulations also permit conversion for distributions
of dividends to foreign investors. Investment in securities, direct investment,
and loans, and security investment, are still subject to certain restrictions.
10
For more than a decade the exchange rate for the Renminbi ("RMB") was pegged
against the United States dollar leaving the exchange rates relatively stable
at roughly 8 RMB for 1 US Dollar. The Chinese government announced in 2005 that
it would begin pegging the Renminbi exchange rate against a basket of
currencies, instead of relying solely on the U.S. dollar. This has recently
caused the dollar to depreciate as against the RMB. As of November 23, 2007,
the rate was 7.3952 RMB for 1 US Dollar. Since all of our expected operations
are in China, significant fluctuations in the exchange rate may materially and
adversely affect our revenues, cash flow and overall financial condition.
CHINESE LAW REQUIRES APPROVAL BY CHINESE GOVERNMENT AGENCIES AND COULD LIMIT OR
PROHIBIT THE PAYMENT OF DIVIDENDS FROM ANY PROCEEDS OBTAINED FROM LIQUIDATION
OF OUR ASSETS.
All of our assets are located inside the Peoples Republic of China. Chinese law
governs the distributions that can be made in the event of liquidation of
assets of foreign invested enterprises. While dividend distribution is allowed
it is subject to governmental approval. Liquidation proceeds would also be
subject to foreign exchange control. We are unable to predict the outcome in
the event of liquidation insofar as it affects dividend payment to non- Chinese
nationals.
CHINA HAS BEEN THE LOCALE FOR THE OUTBREAK OF VARIOUS DISEASES AND A PANDEMIC
CAUSED BY DISEASES SUCH AS SARS, THE AVIAN FLU, OR SIMILAR DISEASES COULD HAVE
A MATERIALLY ADVERSE EFFECT ON OUR WORKERS AND EVEN THE CHINESE ECONOMY IN
GENERAL, WHICH MAY ADVERSELY AFFECT BUSINESS.
The World Health Organization reported in 2004 that large scale outbreaks of
avian flu throughout most of Asia, including China, had nearly caused a
pandemic that would have resulted in high mortality rates and which could cause
wholesale civil and societal disruption. There have also been several
potential outbreaks of similar pathogens in China with the potential to cause
large scale disruptions, such as SARS, pneumonia and influenza. Any future
outbreak which infiltrates the areas of our operations would likely have an
adverse effect on our ability to conduct normal business operations.
11
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 with the U.S.
Securities and Exchange Commission, or the SEC, to register the shares of our
common stock being offered by this prospectus. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules of the Commission. For
further information pertaining to the Company, reference is made to the
Registration Statement. Statements contained in this prospectus or any
documents incorporated herein by reference concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission. Copies of the Registration Statement are on file at
the offices of the Commission, and may be inspected without charge at the
offices of the Commission, the addresses of which are set forth above, and
copies may be obtained from the Commission at prescribed rates. The
Registration Statement has been filed electronically through the Commission's
Electronic Data Gathering, Analysis and Retrieval System and may be obtained
through the Commission's Web site (http:// www.sec.gov).
You may read and copy any reports, statements or other information that we
file at the SEC's public reference facilities at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information regarding the public reference facilities. The SEC maintains a
website, http://www.sec.gov, that contains reports, proxy statements and
information statements and other information regarding registrants that file
electronically with the SEC, including us. Our SEC filings are also available
to the public from commercial document retrieval services.
12
We will become subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith file reports and
other information with the Securities and Exchange Commission.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders who will receive all of
the proceeds from the sale of the shares. We will not receive any proceeds from
the sale of shares of common stock in this offering. We will bear all expenses
of registration incurred in connection with this offering, but all commissions,
selling and other expenses incurred by the selling stockholders to
underwriters, agents, brokers and dealers will be borne by them. We estimate
that our expenses in connection with the filing of the registration statement
of which this prospectus is a part will be approximately $89,530.
DETERMINATION OF OFFERING PRICE
The selling security holders will sell their shares at $.10 per share. Prior to
this offering, there has been no market for our shares. If the selling security
holders sell to more than 25 persons, the Company will undertake efforts to
have markets established for the trading of the securities. The offering price
of $.10 per share was arbitrarily determined and bears no relationship to
assets, book value, net worth, earnings, actual results of operations, or any
other established investment criteria. Among the factors considered in
determining this price were our historical sales levels, estimates of our
prospects, the background and capital contributions of management, the degree
of control which the current shareholders desired to retain, current conditions
of the securities markets and other information.
MARKET FOR OUR SECURITIES AND RELATED STOCKHOLDER MATTERS
DIVIDEND POLICY
We do not expect to pay a dividend on our common stock in the foreseeable
future. The payment of dividends on our common stock is within the discretion
of our board of directors, subject to our certificate of incorporation. We
intend to retain any earnings for use in our operations and the expansion of
our business. Payment of dividends in the future will depend on our future
earnings, future capital needs and our operating and financial condition, among
other factors.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR
SUCCESS MATER INVESTMENT, LTD.,
A DEVELOPMENT STAGE COMPANY
The discussion contained in this prospectus contains "forward-looking
statements" that involve risk and uncertainties. These statements may be
identified by the use of terminology such as "believes", "expects", "may", or
"should", or "anticipates", or expressing this terminology negatively or
similar expressions or by discussions of strategy. The cautionary statements
made in this prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this prospectus. Our actual
results could differ materially from those discussed in this prospectus.
Important factors that could cause or contribute to such differences include
those discussed under the caption entitled "risk factors," as well as those
discussed elsewhere in this prospectus.
13
Cautionary statement identifying important factors that could cause actual
results to differ from those projected in forward looking statements.
This document contains both statements of historical facts and forward looking
statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual result to differ materially from those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to, (i) projection of revenues, income
or loss, earnings per share, capital expenditures, dividends, capital
structure, and other financial items, (ii) statements of our plans and
objectives with respect to business transactions and enhancement of shareholder
value, (iii) statements of future economic performance, and (iv) statements of
assumptions underlying other statements and statements about our business
prospects. This document also identifies important factors that could cause
actual results to differ materially from those indicated by the forward looking
statement. These risks and uncertainties include the factors discussed under
the heading "Risk Factors" beginning at page 6 of this Prospectus.
The section "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with our audited
consolidated or un-audited condensed consolidated financial statements and the
notes thereto appearing elsewhere in this prospectus.
OVERVIEW
Zhongke Biotec Agriculture (USA) Company ("Zhongke USA" or the "Company") was
incorporated on October 25, 2007 in the State of Nevada. The Company was
formed for the purpose of seeking and consummating a merger or acquisition with
a business entity organized as a private corporation, partnership, or sole
proprietorship as defined by Statement of Financial Accounting Standards (SFAS)
No. 7. The individuals establishing the Zhongke USA Nevada shell company were
not the same individuals that formed Success Mater or Zhongke. The Nevada shell
company was established by the current securities counsel and consultants to
the Company. These persons did not have any ownership of the subsidiary
companies originally, the consultants intended to reverse merge Success Mater
into an existing "pink sheet shell" that was incorporated in Delaware. Zhongke
USA was established for the purpose of reincorporating the Delaware entity to
Nevada. The originally planned reverse merger failed and Success Mater resolved
to effect the reverse merger through the existing Nevada Corporation instead.
On July 25, 2008, the shareholder of Zhongke USA entered into a Plan of
Exchange Agreement (the "Plan") with the shareholders of Success Mater
Investment Limited ("Success Mater"), pursuant to which Zhongke USA agreed to
acquire 100% of Success Mater in exchange for 84,999,000 shares of Zhongke
USA's common stock. Subsequent to the completion of the Plan, Success Mater
became a wholly-owned subsidiary of Zhongke USA.
Success Mater Investment Limited "Success Mater"). a Hong Kong corporation was
formed on September 17, 2004, for the purpose of seeking and consummating a
merger or acquisition with a private corporation. In April, 2007, we acquired
100% of the ownership of Shaanxi Qinyuan Agriculture Technology Development
Co., Inc. ("Qinyuan") Qinyuan was established to seek and consummate a merger
or acquisition with a private company. Qinyuan, in turn, had acquired 97.72 %
of the ownership of Shaanxi Zhongke Spaceflight Agriculture Development Stock
Co, Inc. ("Zhongke") on January 5, 2007.
Zhongke is a corporation organized under the laws of the PRC on August 26,
2003. On December 27, 2007 Zhongke entered a joint venture with Mr. Zhang
Hongjun under the name Shaanxi Zhongke Lvxiang Development, Ltd, ("Lvxiang")
which is now a subsidiary of the Zhongke. All of our operations are conducted
through Zhongke and its subsidiary, Lvxiang. Except when clearly specified,
references to "Zhongke USA" or the "Company" include the consolidated results
of all Success Mater, Qinyuan, Zhongke, and Lvxiang.
Zhongke is located in the Shaanxi Province in Northwest China. We are
researching the breeding, producing, vending of seeds that have been modified
in a zero gravity atmosphere outside the earth's atmosphere. We hope to develop
seed with substantially greater yields, increased resistance to disease, and
heartier crops through this process. Our products are expected to include seeds
and Chinese herbals.. We also are experimenting in cultivation of a variety
of horticultural crops, flowers and vegetation. We expect to obtain patents on
a variety of genetically mutated space bred crops, tissues and creams. Lvxiang
is developing fruit juice production and distribution.
The sales of spaceflight vegetables are our main business that we consider to
be revenues from operation. We expect to generate the revenues by December
2009. Because of the improvement of modern cultivation techniques, currently
there have been no seasonal limitations for the production of vegetables.
Basically, it can be produced all four seasons of the year.
Under normal circumstances, the cottonseed life cycle is about 185 days to 200
days. These seeds should be sown in April each year, and should be harvested in
October of the same year. The wheat seed life cycle is about 240 days. These
seeds should be sown in early October each year, and should be harvested in
June or July in the following year. In addition, the seed life cycle of tomato,
eggplant and hot pepper is about 130 days.
Testing under zero-gravity-like conditions is a new approach of breeding that
we are seeking. Space breeding makes use of special environmental mutagenesis
(including: zero gravity, high vacuum, cosmic radiation, microgravity, weak
geomagnetic field, etc) of space to make the seeds generate variability. In
addition, space breeding combines some interdisciplinary high-new technologies
such as space flight, genetics, radiation, breeding and so on. The seeds that
have traveled in space must be selected and identified over several consecutive
years. Then, the major clique among those seeds can become genuine " space
seeds" after testing, examining and approval by the authorizative department.
Some new crop varieties that can be used for the large-scale production in
agriculture were selected through space breeding. Therefore, space breeding can
be an effective method and approach to improve production and quality of crops.
14
For sales in the course of operations, we must first obtain certification from
government authorities. Sales are permitted on an experimental basis and for
research purposes without such approval. We have had some limited sales of non-
government approved seeds to researchers which are included in our revenues but
are not considered to be revenues from operations. We have gained some
proceeds from the sale of spaceflight vegetables which we grew in our research
and development process. In June, 2009 we obtained approval from the government
of the Shaanxi province for sale of HangeFeng No.1 (cotton)- a type of
genetically modified cotton. Approval was not obtained in time for significant
sales in the 2009 season. We are cultivating the HangFeng cotton to create
sufficient quantities of the seed for sales in bulk to farmers and suppliers in
the next season. We therefore believe that we should begin to generate revenues
from operations from the sale of Hang Feng cotton in the next season if we are
able to generate sufficient quantities.
We believe that we will be able to obtain additional approvals for other
genetically modified products within the next year. Following government
approval we must then generate several life cycles of the product to create a
sufficient backlog of seed to begin commercial sales. We believe that this
process will be complete for the HangFeng cotton seed in time for the next
season and we expect to add additional products from time to time thereafter.
Our business is to generate in sale seeds that have been modified for higher
yield including seeds that have been modified in a zero gravity environment.
Through our association with the space program in China, we have seeds that
were genetically modified. The seeds were genetically modified in a zero
gravity environment during various space missions.. While the genetic
modifications to place in an actual zero environment the seeds are then
germinated under ordinary growing conditions for several generations in order
to procure sufficient quantities of seeds for bulk sales. We do not plan to
actually grow the plants from the modified seeds in a zero gravity or simulated
zero gravity environment. Other than growing plants to create sufficient
quantities of seed available for sale we do not presently plan to cultivate the
plants or resale the fruits, vegetables, or other products derived there from.
Seeds are tested under zero-gravity like conditions by the use of radiation
doses and correlation parameters by space relevant ions, which was carried out
under the supervision of the Chinese Academy of Science. We are primarily
responsible for the seed separation on the ground, and the observation and seed
selection after tests are performed.
The PRC is currently the world's most populous country. China is dry and farmed
intensely. So the Chinese farmers rely more on fertilizers to boost yield.
Currently, fertilizer use in China is more than three times the global average
for one of the largest consumers of agricultural products. Roughly half of the
PRC's labor force is engaged in agriculture, even though only about 10% of the
land is suitable for cultivation. In addition, "desertification", caused by
strong winds and dust storms, has been estimated to cause losses of
approximately 900 square miles of farm land each year. Although the PRC hopes
to further increase agricultural production, incomes for Chinese farmers are
stagnating. Despite the Chinese government's continued emphasis on agricultural
self-sufficiency, inadequate port facilities and a lack of warehousing and cold
storage facilities impedes the domestic agricultural trade.
We are a development stage company and have not generated revenues from
operations. As reflected in the accompanying financial statements, the Company
had an accumulated deficit of $3,711,621 at September 30, 2009 that includes
losses of $124,699 and $933,529 for the nine months ended September 30, 2009
and the year ended December 31, 2008, respectively. As of December 31, 2008,
the Company had an accumulated deficit of $3,586,922 that includes operating
losses of $948,479 and $790,485 for the years ended December 31, 2008 and 2007,
respectively. As a result, our auditors have expressed substantial doubt about
our ability to continue as a going concern. In view of the matters described
above, recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of the
company, which in turn is dependent upon the Company's ability to raise
additional capital, obtain financing and succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
There are substantial uncertainties in doing business in the PRC that are not
faced by American and Western European companies. The Company is subject to the
laws of the Peoples Republic of China ("PRC") and all of its assets are located
there. The PRC's economy is in a transition from a planned economy to a market-
oriented economy subject to five-year and annual plans adopted by the
government that set national economic development goals. The political and
economic systems of the PRC are substantially different from more developed
countries. Policies of the PRC government can have significant effects on
economic conditions. PRC laws and regulations are sometimes vague and may be
subject to future changes, and their official interpretation and enforcement
may involve substantial uncertainty. The social, economic and political
challenges of the PRC could produce major shocks and instabilities.
15
LAND USE RIGHT
All land belongs to the State in the PRC. Enterprises and individuals can pay
the State a fee to obtain a right to use a piece of land for commercial purpose
or residential purpose for an initial period of 50 years or 70 years,
respectively. The land use right can be sold, purchased, and exchanged in the
market. The successor owner of the land use right will reduce the amount of
time which has been consumed by the predecessor owner.
The Company owns the right to use a piece of land, approximately 235 acre,
located in the Heyang County, Shanxi Province for a forty-four-year period
ended December 30, 2048; and a piece of land, approximately 1,060 acre, also
located in the Heyang County, Shaanxi Province for a forty-seven-year period
ended October 13, 2051. The cost of these land use rights are amortized over
their respective useful period, using the straight-line method with no residual
value.
LIQUIDITY AND CAPITAL RESOURCES AND RESULTS OF OPERATIONS AS OF SEPTEMBER 30,
2009 AND 2008 AND FOR THE NINE MONTHS THEN ENDED (UNAUDITED)
We are a development stage company and there was no cash provided by operating
activities, although we have sold certain genetically modified seeds on an
experimental basis. For the nine months period ending Sept 30, 2009 we sold
experimental material totaling $131,347 as compared to $25,518 for the same
period ending September 30, 2008. We experienced a net loss from operation of
$(128,059) for the nine months ended September 30, 2009 as compared to a loss
of $(354,066) for the same period of 2008. Minority interest for the nine
months ended September 30, 2009 was $(2,908), as compared to $(8,224) for the
same period of 2008. Depreciation increased to $42,783 from $37,885 for the
same respective periods. Also, amortization increased to $974 from $953.
Changes in operating assets and liabilities included an increase in inventory
from $785 for the nine months ended September 30, 2008 to $33,629 for the same
period in 2009. Payables improved to $662 from $12,531 for the same periods.
Similarly, the increase in deferred revenues improved to $36,017 from $167,884
for the nine-month period ended September 30, 2009 and 2008 respectively. Net
cash used by operating activities grew from $107,338 for the nine months ended
September 30, 2008 to $121,819 for the same period ended 2009.
Purchase of fixed assets for the nine months ended September 30, 2008 were
$78,401 to $1,183 for the same period of 2009. As there were no other investing
activities, the net cash used by investing activities were also $78,401 and
$1,183 for the nine months ended September 30, 2008 and 2009 respectively.
Net cash provided by financing activities improved from $124,254 for the nine
months ended September 30, 2008 to $84,724 for the same period of 2009. The
change was entirely attributable to loans from related parties. Cash declined
from $61,392 to $19,237 for the nine months ended September 30, 2009, and from
$352,887 to 24,230 for the nine months ended September 30, 2008.
We have curtailed our monthly operating expenses in 2009 and currently
anticipate expenses approximately of $26,700 per month for the next 12 months.
We do not presently have sufficient capital on hand to satisfy our obligation
for the next 12 months. In June 2009 we obtained provincial approval to sale
Hang Feng no. 1 cotton in the Shaanxi province of China. Our approval came too
late for sales in the current cycle but we expect to generate from sales in the
next growing cycle. We also expect to continue sales on an experimental or
research basis. We currently have applications for wheat seeds under review.
Our Officers and Directors have indicated that they are financially able and
willing to advance sufficient funds to maintain operation over the next 12
months. The Officers and Directors are under no obligation to do so and the
Company cannot compel such contributions.
It is expected that our 2 wheat varieties or so will be approved before
September 2010. Therefore, we anticipate generating revenues from sales of the
wheat seeds by September 2010.
Access to short and long term sources of cash is important to the continuation
of our research and development and commencement of our operations. Our ability
to operate is limited by our financial capacity to obtain cash and additional
lines of credit in the future.
We use cash primarily for:
- research and development
- general and administrative costs
- and other operating expenses.
So far, we have received cash primarily from shareholder loans and paid in
capital.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
REVENUE
The Company is a development stage company and had extremely limited revenues
for the nine months ended September 30, 2009 or the nine months ended September
30, 2008. There were no revenues from planned operations, but were sold on
experimental bases to third party researchers. To generate sales from normal
operations the company must apply for and obtain certification by one or more
of the various governing bodies of the Peoples Republic of China. National
certification can be had only from the central government, while provincial
sales from the provincial governments. In June 2009 the company obtained
certification from the provincial government in the Shaanxi province for a
genetically modified cotton seed. Approval was obtained too late in the 2009
season to commence sales to farmers or suppliers. Further, the company must
grow several generations of each product to generate sufficient quantity of
seeds for commercial sales. Management believes that commercial sales of the
certified cotton seed should commence during the next growing season. The
company expects to obtain certification of additional products in the future.
SALES OF EXPERIMENTAL MATERIALS
Experimental materials are side products from Zhongke's research and
development process. During its research and development process of hybrid
seeds, Zhongke grows various plants and their seeds. These products
included some seeds that have been successfully carried by spacecraft, have
passed ground separation, observation and seed selection, have a stable and
mature trait but still have not been approved by the relevant departments, such
as Hangmai126 wheat seeds and HangfengIII cotton seeds. Pursuant to the "Seed
Law of PRC", seeds must be approved by Nation or State government before they
can be sold to public. Zhongke sales some plants and seeds grew from it
research and development process to third parties for trial and therefore
generates other operating income. Sales of experimental materials increased
from $25,518 to $131,347 for the nine months ended September 30, 2008 and 2009
respectively.
16
OPERATING EXPENSES
Total operating expenses from operations totaled $259,406 and $379,584 for the
nine months ended September 30, 2009and September 30, 2008, respectively.
Losses from operations improved from ($354,066) to ($128,059) for the nine
months ended September 30, 2008 and 2009, respectively. Most of the change can
be attributed to a reduction of professional fees from $45,910 for the period
ended September 30, 2008 to $12,869 for the same period of 2009. Similarly,
payroll improved from $45,801 to $33,397 for those same periods. Travel and
entertainment expenses likewise improved from $ 50,248 to $24,299 and office
expenses showed similar irnprovements from $37,388 to $29,276
Employee benefits for the nine months ended September 30, 2009 and 2008 were
$2,422 and $2,160 respectively.
Depreciation and amortization expenses were $43,757 as compared to $38,838 for
the nine months ended September 30, 2009 and 2008 respectively. Vehicle expense
also improved to $15,796 from $29,576 for those periods. Conference expenses
increased to $1,262 from $8,550for the comparable periods.
There were professional fees for the September 30, 2008 nine months were
$45,910 but we had professional expenses of $12,689 for the same period in
2009. As stated above we decreased our expenses from consultancy from $23,434
for the nine months ended September 30, 2008 to $0 in the same nine months for
2009. These changes stem largely from the activities associated with our
acquisitions. As a result we have reduced our consulting fees, professional
fees, and related office, vehicle, and conference expenses.
Research and development expenses improved from $79,434 for the period ended
September 30, 2008 to $65,593 for the same period in 2009. We are significantly
curtailing our researching in plant varieties that mimic the properties of
statin drugs.
On the basis of curtailing some costs in project development, the company has
superiority in some crops which are planted on a large scale at home, and
invests more development expense in the breeding research of cotton, wheat and
so on. The planting areas of these crops are very large in China. For example,
the area of cotton planted is more than 6 million hectares all over the
country, and the area of wheat planted is more than 20 million hectares all
over the country.
As a result, total operating expenses improved by $259,406 from $379,584 for
the period ending September 30, 2008 to$259,406 for the same period in 2009.
The loss from operations improved by $226,007 from ($354,066) to ($128,059) for
the Nine months ended September 30, 2008 and 2009, respectively.
LIQUIDITY AND CAPITAL RESOURCES AND RESULTS OF OPERATIONS AS OF DECEMBER 31,
2008 AND 2007 AND FOR THE YEARS THEN ENDED
The results of operations for the years ended December 31, 2007 and December
31, 2008.
REVENUES
Zhongke is a development stage company and has had extremely limited revenues.
All revenues have come from sales of experimental materials. For the year ended
December 31, 2008 the total revenues were $41,162 as compared to 14,932 for
the year ended December 31 2007.
17
EXPENSES
The Company for the years ending December 31, 2008 and December 31, 2007,
respectively incurred operating expenses of $989,641 and $805,417. Since the
Company has extremely limited revenues our losses from operations total
$948,479 in the year ended December 31, 2008 and $790,485 in the year ended
December 31, 2007.
Depreciation and amortization expense increased from $42,311for the year ended
December 31, 2007 to $52,335 for the year ended December 31, 2008. Office
expense decreased for the same periods from $77,561 to $44,536
respectively, vehicle expense increased from $8,849 for the year ended December
31, 2007 to $37,603 for the year end December 31, 2008, conference
expenses increased as of the same periods from $7,240 to $11,712 respectively.
Professional fees decreased to $74,639 as of December 31, 2008 from $83,719
as of December 31, 2007. There was a commensurate decline in consultancy fees
for the same periods from $227,626 to $32,388.
Research and development expenses increased dramatically from $128,776 as
December 31, 2007 to
$608,182 as of December 31, 2008. For the same periods travel and entertainment
expense decreased from $160,269 to $66,993 respectively.
For the years ending December 31, 2007 and December 31, 2008, our payroll
expenses increased from $51,452 to $57,471. Employee benefit and pension
expense decreased slightly from $8,889 for the year ended December 31, 2007 to
$2,896 for the year ended December 31, 2008.
Loss before income tax and minority interest was $955,306 as of December 31,
2008 and $785,781 as of December 31, 2007 as there was no prevision for income
tax. This figure included interest income of $858 for December 31, 2008 and
$4,704 for December 31, 2007. Our net loss was $933,529 at December 31, 2008
and $768,052 for December 31, 2007. This included minority interest of $21,777
as of December 31, 2008 and $17,729 for 2007. The conversion of our currency
from RMB to U. S. dollars also generated losses. For the year ended
December 31, 2008 our foreign currency conversion experienced a loss of
$195,838, while those losses were $150,122 for the year ended December 31,
2007.
Our comprehensive loss for December 31, 2008 was $1,129,367 and $918,174 for
2008 and 2007 respectively. Again, this increase is largely the result of
the significant increase in research and development expense and the effects of
foreign currency conversion.
18
LIQUIDITY AND CAPITAL RESOURCES
The company will not receive any proceeds from the sale of common stock. We
will have to seek other sources of financing or we may have to curtail our
business plans. There is no assurance that any other sources of financing will
be available or at a reasonable cost. We anticipate expenses as described
elsewhere in this prospectus we are a development stage company that has not
generated any material revenues. We were established in October , 2007 and
have relied on unsecured loans from officers and directors that are payable
on demand. Our auditors have noted that a number of factors raise
Substantial doubt about our ability to operate as a going concern. As of
September 30, 2009, we had a working capital deficit of $4,131,293 and a
shareholders' deficiency of $3,956,407, as compared to $3,441,923 and
$3,238,308 at September 30, 2008, respectively. On December 31, 2009, we have
a working capital deficit of $4,032,530 and a shareholders' deficiency
of $3,826,982, as compared to $2,809,166 and $2,697,615 at December 31, 2007,
respectively.
Net cash used by operating activities experienced a substantial change
improving to ($115,298) at December 31, 2008 from ($999,253) at December 31,
2007.
Net cash used by investing activities also experienced a change to ($116,007)
for the year ended December 31, 2008 from ($198,595) for the year ended
December 31, 2007. Most of the change can be attributed to cash used to
acquire Qinyuan in 2007 of ($128,200) and loans to related parties of ($866)
for the year ended December 31, 2007. Purchases of fixed assets went to
($114,859) from ($69,529) at December 31, 2008 and 2007 respectively.
Net cash provided by financing activities decreased to ($79,261) for the
year ended December 31, 2008 from $513,835 for the year ended December 31,
2007 representing a total decline of $593,096. This change was largely
occasioned by the loans from related parties in 2007 of $257,423 and proceeds
from capital contributions in 2007 of $256,412. In 2008, there were no proceeds
from capital contributions or loans from related parted and payback of loans
from related parties of ($79,261).
Cash at the end of the period declined $291,495 from $352,887at December 31,
2007 to $61,392 at December 31, 2008. For the period ended December 31, 2007
effects of exchange rates was $160,423 and decreased to $19,071 at December
31, 2008. Cash at the beginning of the period declined to $352,887 at
December 31, 2008 and had been $876,477 at December 31, 2007
IMPACT OF INFLATION.
We believe that inflation will have a negligible effect on operations. The
Company can offset inflationary increases in the cost of labor by increasing
sales and improving operating efficiencies.
ASSETS
As of December 31, 2008, we had total assets of $568,470 as compared to assets
at December 31, 2007, of $1,319,308. The change was due to a reduction in cash
and cash equivalents from $352,887 to $61,392 and prepaid expenses decreased
from $581,906 at December 31, 2007 to $29,471 at December 31, 2008. Current
assets were $969,067 which included the cash as well as $581,906 in prepaid
expenses and $2,691 in supplies and $247 in other receivables at December 31,
2007. Current assets were $130,330 at December 31, 2008 which included $29,471
in prepaid expenses, $4,249 in supplies and $1,778 in other receivables.
19
LIABILITIES
As of December 31, 2008, we had current liabilities of $4,162,860, consisting
of $100,091 in accrued expenses and $1,628 in other payables. As of December
31, 2007, we had current liabilities of $3,778,233, consisting of $40,976 in
accrued expenses and $14,730 in other payables. The largest liability was an
amount due to related parties of $3,597,601, up from $3,446,744 at December 31,
2007. We had deferred revenue of $424,147 as compared to$ 238,869 and $39,393
as compared to $36,914 in employee's security deposits at December 2007. All of
our liabilities were current liabilities and we had no non-current liabilities.
STOCKHOLDER'S EQUITY
The number of our common stocks issued and outstanding was 86,000,000 and
84,999,000 as of December 31, 2008 and 2007, respectively. Our registered
capital was $19,022,716 as of December 31, 2008 and 2007, of which $18,926,781
and $18,925,780 was to be received as of December 31, 2008 and 2007,
respectively.
"Capital to-be received" principally represents the difference between the
historical cost and the appraised value of the property, which the owners
contributed to Zhongke. The Company does not expect to collect any portion of
this sum, but reflects this amount on its financial statements as set forth
below.
In PRC, when a company is formed, its articles of incorporation are filed with
the local government and must indicate the amount of capital that the owners
will contribute to the company, which is called registered capital. The
owners can contribute the registered capital within certain period of time
after the company is formed.
When Zhongke was established in 2003, the owners contributed the use rights of
two pieces of land to Zhongke toward the registered capital. An independent
appraiser certificated by local government valued the price of the land use
rights at $16,555,515 (RMB 137,020,000). Therefore, Zhongke debited
"Intangible asset - land use rights" of $16,555,515, and credited "Registered
capital" of $16,555,515, which amount was included into the amount of
registered capital as indicated on its business license issued by local
government. However, the historical cost of the land use rights for the owners
was only $54,930, resulting in a difference of $16,500,585. In according with
ASC 360-10-30 "Initial measurement" the value of the property should be
recorded at its historical cost instead of its appraisal value, the Management
made adjustments to reduce the book value of the land use rights to their
historical cost by debiting "Capital to-be received" of $16,500,585 and
crediting "Intangible asset - land use rights" of $16,500,585.
Similarly, the owners of Zhongke contributed a set of fruit production
equipment to Zhongke toward registered capital in November 2006. While the
appraisal value of the equipment was $2,538,360 (RMB 19,800,000), the
Management believed that the value of the equipment should be zero as it has
been put into service for seven year. The variance was $2,538,360. To reflect
the carrying value is zero, Zhongke debited "Capital to-be received" of
$2,538,360 and credited "Fixed asset-Fruit juice production equipment" of
$2,538,360.
See summary below:
Appraisal Value Historical Costs Difference
Property USD RMB USD RMB USD RMB
------------ ---------- ----------- ------ ------- ---------- -----------
Land use
rights 16,555,515 137,020,000 54,930 444,661 16,500,585 136,575,339
------------ ---------- ----------- ------ ------- ---------- -----------
Fruit juice
production
equipment 2,538,360 19,800,000 - - 2,538,360 19,800,000
------------ ---------- ----------- ------ ------- ---------- -----------
Total 19,038,945 156,375,339
Less: prtion allocated to non-controlling interest: 198,152 1,640,100
---------- -----------
18,840,793 154,735,239
========== ===========
We had an accumulated deficiency of $(3,586,922). Our total owner's deficiency
was $3,862,982 at December 31, 2008 as compared to $2,697,615 at December 31,
2007, which included $(421,995) and ($226,157) in accumulated other
comprehensive income at December 31, 2008 and 2007 respectively.
If we are able to commence operations, we will likely need additional financing
as we will not likely be able to substantially rely on the revenue from our
business. If the projected revenues fall short of needed capital we may not be
able to commence operations or sustain our projected growth. There can be no
assurance that additional capital in the future will be available to us when
needed or available on terms favorable to the Company.
OFF-BALANCE SHEET ARRANGEMENTS.
None.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with generally accepted accounting principles generally accepted in
the United States (or "GAAP"). The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amount of
assets and liabilities at the date of our financial statements. Actual results
may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or
uncertainties, and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies. SEE ALSO NOTE 2 TO CONSOLIDATED
FINANCIAL STATEMENTS, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES".
20
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenue
and expenses during the reporting period. Actual results when ultimately
realized could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks with
maturities of three months or less, and all highly liquid investments which are
unrestricted as to withdrawal or use, and which have original maturities of
three months or less.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents. The Company maintains its cash
and cash equivalents with high-quality institutions. Deposits held with banks
may exceed the amount of insurance provided on such deposits. Generally these
deposits may be redeemed upon demand and therefore bear minimal risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including cash and cash
equivalents, receivables, accounts payable and accrued expenses, approximates
their fair value due to the relatively short-term nature of these instruments.
SUPPLIES
Supplies are materials used in growing process, such as insecticides and
fertilizer. Zhongke uses these materials principally for its research and
development purpose. Actual cost is used to value these materials and
supplies.
FOREIGN CURRENCY TRANSLATION
. The functional currency of Qinyuan, Zhongke, and Lvxiang is the RMB.
Transactions denominated in currencies other than RMB are translated into RMB
at the exchange rates prevailing at the date of the transactions. Monetary
assets and liabilities denominated in currencies other than RMB are translated
into RMB using the applicable exchange rates at the balance sheet dates.
Exchange differences are included in the statements of changes in shareholders'
equity. Gain and losses resulting from foreign currency transactions are
included in operations.
Monetary assets and liabilities denominated in currencies other than RMB are
translated into RMB using the applicable exchange rates at the balance sheet
dates. Exchange differences are included in the statements of changes in
shareholders' equity. Gain and losses resulting from foreign currency
transactions are included in operations.
The Company's financial statements are translated into the reporting currency,
the United States Dollar ("US$"). Assets and liabilities of the Company are
translated at the prevailing exchange rate at each reporting period end.
Contributed capital accounts are translated using the historical rate of
exchange when capital is injected. Income and expense accounts are translated
at the average rate of exchange during the reporting period. Translation
adjustments resulting from translation of these financial statements are
reflected as accumulated other comprehensive income (loss) in the owners'
equity.
21
ADVERTISING COSTS
Advertising costs are expensed as incurred and included as part of selling and
marketing expenses in accordance with the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 93-7, "Reporting for
Adverting Costs".
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. The cost of repairs and
maintenance is expensed as incurred; major replacements and improvements are
capitalized. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the reporting period of disposition.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the assets without residual value. The percentages or depreciable life
applied are:
Building and warehouses 20 years
Machinery and equipment 7-10 years
Office equipment and furniture 5 years
Motor vehicles 5 years
VALUATION OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
REVENUE RECOGNITION
Revenues are recognized when finished products are shipped to unaffiliated
customers, both title and the risks and rewards of ownership are transferred or
services have been rendered and accepted, and collectability is reasonably
assured.
Freight and other transportation costs are included in cost of goods sold.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income as defined includes all changes in equity during a period from non-owner
sources. Accumulated comprehensive income, as presented in the accompanying
statement of changes in shareholders' equity consists of changes in unrealized
gains and losses on foreign currency translation. This comprehensive income is
not included in the computation of income tax expense or benefit.
RELATED PARTIES
For the purposes of these financial statements, parties are considered to be
related if one party has the ability, directly or indirectly, to control the
party or exercise significant influence over the party in making financial and
operating decisions, or vice versa, or where the Company and the party are
subject to common control or common significant influence. Related parties may
be individuals or other entities.
INCOME TAXES
The Company accounts for income tax using SFAS No. 109 "Accounting for Income
Taxes", which requires the asset and liability approach for financial
accounting and reporting for income taxes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. 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. A valuation allowance is provided to reduce the amount of
deferred tax assets if it is considered more likely than not that some portion
of, or all of the deferred tax assets will not be realized.
Effective at the beginning of the year 2007, the Company adopted the provisions
of FIN 48, "Accounting for Uncertainty in Income Taxes-an interpretation of
FASB Statement No. 109." FIN 48 contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance with SFAS No.
109, "Accounting for Income Taxes." The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained
on audit, including 50% likely of being realized upon ultimate settlement.
Management does not anticipate any potential future adjustments would result in
a material change to its financial position. As a result, there is no
unrecognized tax benefits.
The Company accounts for income taxes in interim periods as required by
Accounting Principles Board Opinion No. 28 "Interim Financial Reporting" and as
interpreted by FASB Interpretation No. 18, "Accounting for Income Taxes in
Interim Periods". The Company has determined an estimated annual effect tax
rate. The rate will be revised, if necessary, as of the end of each successive
interim period during the Company's fiscal year to its best current estimate.
The estimated annual effective tax rate is applied to the year-to-date ordinary
income (or loss) at the end of the interim period.
22
SALES TAX AND SALE-RELATED TAXES
Pursuant to the tax laws and regulation of PRC, a company is obligated to pay
totally 5.5% of gross sales as sales tax and sales-related taxes. Since the
Company is in the agriculture industry which is encouraged by the PRC
government, the Company is exempt from sales tax and sales-related taxes.
PENSION AND EMPLOYEE BENEFITS
Full time employees of the PRC entities participate in a government mandated
multi-employer defined contribution plan pursuant to which certain pension
benefits, medical care, unemployment insurance, employee housing fund and other
welfare benefits are provided to employees. Chinese labor regulations require
the Company to accrue for these benefits based on certain percentages of the
employees' salaries. The Management believes full time employees who have
passed the probation period are entitled to such benefits.
STATUTORY RESERVES
Pursuant to the laws applicable to the PRC, PRC entities are required to make
appropriations to three non-distributable reserve funds, the statutory surplus
reserve, statutory public welfare fund, and discretionary surplus reserve,
based on after-tax net earnings as determined in accordance with the PRC GAAP.
Appropriation to the statutory surplus reserve should be at least 10% of the
after-tax net earnings until the reserve is equal to 50% of the Company's
registered capital. Appropriation to the statutory public welfare fund is 10%
of the after-tax net earnings. The statutory public welfare fund is
established for the purpose of providing employee facilities and other
collective benefits to the employees and is non-distributable other than in
liquidation. No appropriations to the discretionary surplus reserve are made
at the discretion of the Board of Directors. Since the Company has been
accumulating deficiency, no statutory surplus reserve fund and statutory public
welfare reserve fund have been made.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share are computed on the basis of the
weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share are computed on the basis of the weighted
average number of common shares and dilutive securities (such as convertible
preferred stock) outstanding. Dilutive securities having an anti-dilutive
effect on diluted earnings (loss) per share are excluded from the calculation.
RESEARCH AND DEVELOPMENT COSTS
Research is planned search or critical investigation aimed at discovery
of new knowledge with the hope that such knowledge will be useful in developing
a new product or service or a new process or technique or in bringing about a
significant improvement to an existing product or process. Development is the
translation of research findings or other knowledge into a plan or design for a
new product or process or for a significant improvement to an existing product
or process whether intended for sale or use. It includes the conceptual
formulation, design, and testing of product alternatives, construction of
prototypes, and operation of pilot plants. It does not include routine or
periodic alterations to existing products, production lines, manufacturing
processes, and other on-going operations even though those alterations may
represent improvements and it does not include market research or market
testing activities. Elements of costs shall be identified with research and
development activities as follows: The costs of materials and equipment or
facilities that are acquired or constructed for research and development
activities and that have alternative future uses shall be capitalized as
tangible assets when acquired or constructed. The cost of such materials
consumed in research and development activities and the depreciation of such
equipment or facilities used in those activities are research and development
costs. However, the costs of materials, equipment, or facilities that are
acquired or constructed for a particular research and development project and
that have no alternative future uses and therefore no separate economic values
are research and development costs at the time the costs are incurred.
Salaries, wages, and other related costs of personnel engaged in research and
development activities shall be included in research and development costs. The
costs of contract services performed by others in connection with the research
and development activities of an enterprise, including research and development
conducted by others in behalf of the enterprise, shall be included in research
and development costs.
PLAN OF OPERATION
To date we have financed our activities from private placements and loans
received from related and non-related parties. Until we begin to generate
revenues we expect to continue to rely on loans from our directors and related
parties. We will rely on the loans from our officers until we begin to generate
revenues. We have no other sources of capital and there can be no guarantee
that the Company will be able to meet its obligations or obtain sufficient
capital to complete its plan of operations for the next twelve (12) months.
There is no assurance that our officers can or will provide such funds when the
need arises. Other than the oral assurances given by the directors, we have no
other sources of capital and there can be no guarantee that the Company will be
able to meet its obligations or obtain sufficient capital to complete its plan
of operations for the next twelve (12) months.
We are principally engaged in the business of research and development,
production and distribution of hybrid seeds. Pursuant to the PRC Seed Law,
every newly developed hybrid seed needs approval from nation or province
department of agriculture before it can be sold to distributors and farmers.
Also, upon approval from nation or province department, the developer can apply
legal protection for the hybrid seed it successfully developed. On April 29,
2009, we successfully developed our first hybrid, "Hangfeng I", which is a
cotton seed and was approved by Shaanxi Province. Currently, we have sent
another hybrid seed, "Hangmai 126" to the province department for approval. In
2010, we will send following our newly developed hybrid seeds to the province
department for approval, and the estimated costs to get approval are outlined
as following:
Item # Name of Hybrid Seed Plant Variety Estimated Costs to Get Approval
------ ------------------- ------------- -------------------------------
1 Hangmai 126 wheat $14,648
2 Hangfeng III Cotton $14,648
Before we generated revenue from sales of Hangfeng I, we were a development
stage company. We have been financing our operations from capital contribution
and loans from related-party. Before we can generate sufficient revenue from
sales our successfully developed hybrids, we expect to continue to rely on
loans from our directors, officers, and related parties to finance our
operations. While these affiliates guaranteed to continue to finance our
operations, there is no assurance that they can provide such funds when the
need arises. We have been in constant communication with the bank, for the
purpose of taking part of our 1,060 acres of land as a mortgage to take out a
loan. Meanwhile, our management is actively seeking a target company so as to
invest, to solve any financial matters that may be encountered during our
operations. However, there can be no guarantee that the Company will be able
to meet its obligations or obtain sufficient capital to complete its plan of
operations for the next twelve (12) months.
23
Currently, we are testing Hangmai 126 wheat seeds and Hangfeng III cotton
seeds. As such, we will rely on the revenue generated from the sale of
spaceflight-bred vegetables and Hangfeng I cotton seeds, as well as the sale of
red wine. We believe that we can obtain permission to sell our wine within the
next 3 to 6 months and commence revenue generation for wine sales. We have
received all licenses for wine production from the manufacturer. We are only in
charge of sales. In addition, we originally received the selling license of
wine production. We anticipate generating revenues from sales of wine
production in the second quarter of 2010. According to the current marketing
channel we own in wine production, we believe we are able to generate revenues
of about 3,000,000 dollars from wine production.
To finance these activities, we have been in constant communication with the
bank, for the purpose of taking part of our 1,060 acres of land as a mortgage
to take out a loan. Meanwhile, our management is actively seeking a target
company so as to invest, to solve any financial matters that may be encountered
during the development stage. There is no guarantee that an acquisition would
solve our financial issues.
BUSINESS
We are developmental stage company and currently have no material revenues. We
were incorporated in the state of Nevada on October 25, 2007 for the purpose of
effecting a merger with Success Mater, a wholly owned foreign enterprise "WOFE"
in Hong Kong. Success Mater, in turn owns 100% of Shaanxi Qinyuan Agriculture
Technology Development Co., Inc. Success Mater Investment Limited ("Success")
was incorporated in Hong Kong on September 17, 2004. On March 9, 2007 Success
acquired Shaanxi Qinyuan Agriculture Technology Development Co., Inc
("Qinyuan"). As of January 5, 2007 Qinyuan had acquired 97.72% of the equity
interest of Shaanxi Zhongke Spaceflight Agriculture Development Stock Co., Ltd.
("Zhongke"). At the time of its acquisition, Zhongke owned 95.65 %of the equity
interest of Shaanxi Zhongke Lvxiang Fruit Industry Development, Inc.
("Lvxiang").
A chart of the business organization is as follows:
Zhongke Biotec Agriculture (USA) Company
"Zhingke USA"
Incorporated in the State of Nevada
on October 25, 2007
/
/
/
/
/
/ Acquiring 100% equity interest on 7/25/2008
------------------------------------------------------------
Success Mater Investment Limited
"Success "
Incorporated in Hong Kong
on September 17, 2004
/
/
/
/
/
/ Acquiring 100% equity interest on 3/9/2007
------------------------------------------------------------
Shaanxi Qinyuan Agriculture Technology Development Co., Inc.
"Qinyuan"
Incorporated in Shaanxi Province, PRC
on December 27, 2006
/
/
/
/
/
/ Acquiring 97.72% equity interest on 1/5/2007
-------------------------------------------------------------
Shaanxi Zhongke Spaceflight Agriculture Development Stock Co.Ltd.
"Zhongke"
Incorporated in Shaanxi Province, PRC
on August 26, 2003
/
/
/
/
/ Owning 95.65% equity interest
/ since inception on 1/5/2007
------------------------------------------------------------
Shaanxi Zhongke Lvxiang Fruit Industry Development, Inc.
"Lvxiang"
Incorporated in Shaanxi Province, PRC
on January 5, 2007
24
Success and Qinyuan are holding companies and the business of the company is
expected to be primarily conducted through its Zhongke subsidiaries. Zhongke is
engaged in research and development of various plant seeds, including seeds
that have been developed in a zero gravity atmosphere. To date, Zhongke has not
developed any seeds that have received legal protections and has not yet
generated revenue from its planned operations.
On December 27, 2006 Zhongke entered into a joined venture with Mr. Zhang
Hongjun to establish Lvxiang under the terms of which Zhongke contributed cash
of $769,200 along with various equipment for the production of fruit juice.
Seed Development Business
Shaanxi Zhongke Spaceflight Agriculture Development Stock Co., Ltd, with the
approval of governmental correspondence[2004] No.40 of Shaanxi Provincial
People's Government, was incorporated on August 26, 2003. Zhongke is
principally engaged in the business of research and development of various
plant seeds.
Zhongke has spent a significant portion of its resources in the research and
development of the breeding of seeds that have been modified in zero gravity
outside the earth's atmosphere. As of June30, 2009, the company has accrued
research and development expenses of $1,603,456..
The research and development was in conjunction with the Institute of Genetics
and Development Biology of the Chinese Academy of Sciences and China Space
Laboratory. Management believes that these seeds will yield substantially
greater yields, increased resistance to disease, and heartier crops through
this process.
Zero gravity experiments in modifications of food stuffs is in its earliest
stages. NASA ISS Science Officer Don Pettit performed in-flight experiments for
NASA aboard the destiny laboratory. Typically, gravity plays an important role
in seed development by sending roots down and stems up. Roots essentially have
to fight foliage on a rectilinear plane. The surface area for foliage becomes
limited as the roots fight through soil, rock and impediments and the plant is
forced to grow upwards.
Without gravity, every direction is the same. Officer Pettit observed that
"Roots and stems may exit the seed pod and grow in any direction within the
plane of the spherical surface. The lighting provided an outward growing cue
however its effects were small compared to the effects of capillary forces.
Capillary forces, subtle in nature and derived from the water interface on the
damp layers of gauze, convinced the sprouts to ignore the outward direction of
the light and to grow in the surface plane of the sphere."
Around 20 varieties of five series searched and developed by Zhongke
Spaceflight such as the space cotton, space tomato, space eggplant, and space
cucumber have been authenticated by relevant state organs and granted major
products in the Certificate of Vegetable New Variety Right.
The company has not applied for or obtained patents for any of their products.
We currently rely on the intellectual properties protection granted by the
governmental license process in the Peoples Republic of China. In the event
that we commence operations outside of China we expect to apply for patents.
25
Product Name Product quality Product output Product advantage
------------ --------------- -------------- -----------------
Spaceflight cotton Big trunk, mature early, long Average yeild per mou of cotton is Advantage in natural defense
velveteen, more fruits; strong 180kg, about 70kg higher than application
adaptation to dry, think and ordinary cotton.
kaline soil.
Spaceflight tomato Content of beta carotene is Yield per mou is 13,000 catty. High yield & high quality
96-3 three times higher than that of
ordinary tomato, and good
resistance to salt and alkali.
Spaceflight Big and strong trunk, green A single fruit can weigh 2.5kg, High yield & stable
eggplant leaves and eggplants; and the yield per mou is around production
"Shenzhou I" resistant to salt and alkali, 6,000kg.
hot, drought, and flood;
dense and sweet fruit, less
fiber, high quality, and
endure transport.
Spaceflight Obvious output growth, strong Average yield per mou is around Contents of main nutrients
cucumber "Hangyi I" adaptation, striking adversity 850kg, up by 20%. such as dissolvable solids,
resistance and high economic vitatmin C, and iron are
return. higher than that of ordinary
cucumber.
.
ZHONGKE LVXIANG FRUIT
In 2006, Zhongke Spaceflight acquired equipment, customer lists and brand of
Shaanxi Lvxiang Fruit Group and established Zhongke Lvxiang Fruit. The company
expects to utilize Italian and German condensed apple juice production lines.
Condensed apple juice is produced with pollution-free apples growing in the
tableland of Weibei through techniques such as high-pressure washing, juicing,
enzymolysis, filtering and settling, vacuum condensation, transient
sterilization, and sterilized packaging. As a natural and healthy beverage, it
contains various vitamins and amino acids as well as microelements such as
zinc, iron, and copper. Annual output of qualified condensed apple juice can
potentially reach 10,000 to 15,000 tons.. The company has not yet commenced
the juice production, and anticipates commencing production in 2011. In
addition, the Company is exploring vintage grape `cabernet sauvigon'
production, which has been made adaptable in Qinling by years of cross
breeding with the wild grapes in Qinling.s
Employees
26
The Company employs 39 people, including 10 various engineering technicians'
and5 senior agronomists,
LEGAL PROCEEDINGS
We are not presently involved in any litigation that is material to our
business. We are not aware of any pending or threatened legal proceedings. In
addition, none of our officers, directors, promoters or control persons has
filed or been involved for the past five years:
- in any conviction of a criminal proceeding or involved in a pending
criminal proceeding (excluding traffic violations and minor offenses)
- is subject to any order, judgment or decree enjoining, barring
suspending or otherwise limiting their involvement in any type of
business, securities, or banking activities,
- or has been found to have violated a federal or state securities or
commodities law.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Name Age Title
Ms. Chen, Min 34 CEO/Director
Mr. Nie, Pingjun 41 Chairman of the Board
Ms. Li, Ping 56 CFO
Mr. Ao, Jiangfeng 37 President
Our Bylaws provide that we shall have that number of directors determined by
the majority vote of the board of directors. Currently we have two directors.
Each director will serve until our next annual shareholder meeting.
Directors are elected for one year terms. Our Board of Directors elects our
officers at the regular annual meeting of the Board of Directors following
the annual meeting of shareholders. Vacancies may be filled by a majority
vote of the remaining directors then in office. Our directors and executive
officers are as follows:
MS. CHEN, MIN - Founder, CEO and Director, graduated from Xi'an Jiao Tong
University Kai Yuan College, majoring in management in July 1998. After that
she tool further education in Northwest University majoring in HR from 1998 to
2001, then she took the HRM certification. Then Ms. Chen served as HR
Attach{e'} in Shaanxi Xi Deng Hui Enterprise Technology Stock Co., Ltd in 2001,
which is a holding company of Baishui Dukang liquor. After 2 years she was
promoted to manager of HR of the company. In 2005, she was assigned working in
the Shareholder Service Department as manager. Ms. Chen has been named as
director in Zhongke Biology Agriculture (US) Co., Ltd.
MR. NIE, PINGJUN - Chariman of the Board
Mr. Nie graduated from Tsinghua Economics and Management College, majoring in
Economics and Management in 2003. He has served as sales manager in Weinan
Dansheng Group from July 1997 to June 1998. Then he has served as Assistant
Production Manager of Weinan Noble Prince Liquor. In 2000, he accepted the
occupation offered by Shaanxi Xidenghui Technology Stock CO.LTD supplement,
serving as Manager until he was named as chairman of the board of Zhongke
Biography Agriculture (US ) Co., Ltd.
MR. AO, JIANGFENG - President
Mr. Ao, Jiangfeng graduated from Northwest University, majoring in Economics
and management. He served in Shaanxi Longmen Iron Factory from August 1995 to
December 1996. Then he became project manager in Xi'an Tianwang Computer Co.,
Ltd. from January 1997 to March 2001. During that period he took training, in
project management in Northwest University in China. After that in 2001, he
accepted the position as CEO and board secretary of Shaanxi XIdenghui
Technology Stock CO.LTD., until the present.
MS. LI, PING - CFO,
Ms. Li Ping as born on July 1963, graduated from China University of
Geosciences (Wu Han) majoring in economic management from September 1987 to
July 1989. She have been worked in finance department of the thirteenth
geological team of Shaanxi Provincial Geology & Mineral Bureau from December
1980 to August 1987. She worked in Planning and Finance Division of Shaanxi
Provincial Geology & Mineral Bureau from September 1989 to May 1991. She served
asaccountant in charge in Zhengyuan Advertisement Company of PLA Political
Academy from November 1992 to October 1994, and served as accountant in charge
in Shaanxi Helen Trading Co., Ltd. from December 1994 to December 2002. Then
she was back to Zhengyuan Advertisement Company to serve as accountant in
charge from February 2007 to July 2008. From August 2008 until now, she has
been served as CFO of Zhongke Biotech Agriculture (USA) Inc..
27
PRINCIPAL SHAREHOLDERS
The following table contains certain information as of June 1, 2009 as to the
number of shares of Common Stock beneficially owned by (i)each person known by
the Company to own beneficially more than 5% of the Company's Common Stock,
(ii) each person who is a Director of the Company, (iii)all persons as a group
who are Directors and Officers of the Company, and as to the percentage of
the outstanding shares held by them on such dates and as adjusted to give
effect to this Offering.
CURRENT AFTER OFFERING
Name and Position Shares Percentage Percentage
MS. CHEN, MIN, CEO DIRECTOR 4,000,000 4.55% 4.55%
MR. NIE, PINGJUN, CHAIRMAN 9,081,963 10.32% 10.32%
MR. AO, JIANGFENG, PRESIDENT 4,217,560 4.79% 4.79
SHENGLI WANG 4,244,947 4.82% 4.82%
LI PING, CFO 0 0 0
TOTALS 21,544,470 24.48% 24.48 %
Executive Compensation
No compensation was awarded to or paid to any executive officer or director of
the Company during the years 2008, 2007, and 2006 other than as shown in the
table below.
The following table and the accompanying notes provide summary information for
each of the last three fiscal years concerning cash and non-cash compensation
paid or accrued.
SUMMARY COMPENSATION TABLE
Name and Year Salary Bonus Other Restricted Securities LTIP Other
Principal Position (1) (5) Annual Stock Award(s) Underlying Options Payouts
($) ($) Compensation ($) (#) ($) ($)
($)
------------------ ---- ------ ----- ----------- -------------- ------------------ ------- -----
Ms. Chen, Min 2006 2,151 0 0 0 0 0 0
CEO 2007 3,474 0 0 0 0 0 0
2008 3,026 0 0 0 0 0 0
Ms. Li Ping 2006 0 0 0 0 0 0 0
CFO 2007 0 0 0 0 0 0 0
2008 0 0 0 0 0 0 0
Mr. Ao, Jiangfeng 2006 2,454 0 0 0 0 0 0
President 2007 3,150 0 0 0 0 0 0
2008 3,447 0 0 0 0 0 0
Mr. Nie, Pingjun 2006 2,956 0 0 0 0 0 0
Chairman of the Board 2007 3,150 0 0 0 0 0 0
2008 3,447 0 0 0 0 0 0
([1]SALARIES REFLECT ACTUAL CASH AMOUNTS PAID CONVERTED TO U.S. DOLLARS)
28
CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS
THE COMPANY HAS OBTAINED LOANS FROM RELATED PARTIES TO COVER ITS OPERATING
EXPENSES SINCE INCEPTION. THE AMOUNTS DUE TO RELATED PARTIES AT 12/31/2008 AND
9/30/2009 ARE SET FOR THE BELOW. The chart below shows the amount involved in
the transaction and includes the largest aggregate amount of principal
outstanding during the period listed. No principal or interest was paid during
the periods for which disclosure is provided. The related parties have not
charged any interest and there is no interest payable on the indebtedness
although interest may be imputed under IRS regulations.
Due to related parties consists of the following:
September 30, December 31,
Name of Related Party Description 2009 2008
(unaudited)
--------------------- ----------- ---------- ----------
Shaanxi Lantian Fupin Investment Co., Ltd. Affiliates $ 51,128 $ 29,180
Shaanxi Dukang Group Co., Ltd. Affiliates 29,216 29,180
Mr. Hongjun Zhang Director 365,198 316,457
Ms. Ming Chen Director 542,175 541,510
Ms. Ping Li Director 661,277 660,466
Mr. Shengli Wang Director 834,507 833,483
Mr. Pingjun Nie Director 974,480 969,162
Mr. Hua Li Director 218,431 218,163
---------- ----------
Total $3,676,412 $3,597,601
========== ==========
Ms. Min Chen is the Chief Executive Officer of the Company. She does not own 5%
of the outstanding stock. Mr. PingJun Nie is Chairman of the Board and owns
9,081,963 shares of the Company. Mr. ZHANG HONG JUN owns 2,085,898 shares of
the company. Ping Li owns 4,162,786. Mr. Shengli Wang owns 4,244,947 shares of
the company.
On December 27, 2006, Zhongke executed an agreement with Mr. Zhang Hongjun, a
PRC citizen, to establish a joint venture, Shaanxi Zhongke Lvxiang Fruit
Industry Development, Inc. ("Lvxiang"). Pursuant to the agreement, Zhongke
contributed cash of $769,200 (RMB 6,000,000) and a set of fruit juice
production equipment to Lvxiang, and owns 95.65% ownership therein. Lvxiang
was subsequently incorporated on January 5, 2007. Subsequent to the
completion of incorporation, Lvxiang became a majority-owned subsidiary of the
Zhongke. Lvxiang plans on becoming involved in the business of production and
distribution of various fruit juice. There is no assurance, however, that
Lvxiang will achieve its objectives or goals.
On March 9, 2007, Success Mater entered into a Share Purchase Agreement (the
"Agreement") with the owners of Shaanxi Qinyuan Agriculture Technology
Development Co., Inc. ("Qinyuan"), a limited liability company incorporated in
the People's Republic of China ("PRC") on December 27, 2006 with a registered
capital of $128,200 (RMB1,000,000). Pursuant to the Agreement, Success Mater
agreed to purchase 100% of the ownership in Qinyuan for a cash consideration
of $128,200 (RMB1,000,000). Subsequent to the completion of the Agreement,
Qinyuan became a wholly-owned subsidiary of Success.
Both Shaanxi Lantian Fupin Investment Co., Ltd. and Shaanxi Dukang Group Co.,
Ltd. are directly or indirectly, majority-owned and controlled by directors and
main shareholders of the Company.
Zhongke outsources some of the research and development projects to its
affiliates,which are majority owned and controlled by directors of the Company.
Research and development expenses paid to the affiliates are summarized as
following:
For the Period
August 26, 2003
For the Six Months Ended (inception) through
June 30, March 31,
2009 2008 2009
Name of Affiliate (unaudited) (unaudited) (unaudited)
----------------- ---------- ---------- -------------------
Shaanxi Basishui Dukang Wine
Development Co., Ltd. $ - $ - $ 282,936
Shaanxi Changjiang Investment
Management Co., Ltd. - - 42,359
Shaanxi Zhongke Research and
Development Center Co., Ltd. - - 367,010
Weinan Huihuang
Trading Co., Ltd. - - 76,214
Shaanxi Changjiang Petroleum
Development Co., Ltd. - - 502,705
Heyang Reserach and Development
Basis Co., Ltd. - - 36,634
---------- ---------- -------------------
$ - $ - $ 1,307,858
========== ========== ===================
29
STOCK OPTION AGREEMENTS
The Company has not entered into stock option agreements with any individuals
or companies. The management does anticipate that to secure the services of
certain prospective employee that a stock option plan will need to be
effective in the very near future. The company anticipates that such a plan
would allow for options at competitive market rates.
SELLING SHAREHOLDERS
The following table presents information regarding the selling shareholders.
Unless otherwise noted, the shares listed below represent the shares that each
selling shareholder beneficially owned on December 31, 2008.
We are registering the above-referenced shares to permit each of the selling
shareholders and their pledges, donees, transferees or other successors-in-
interest that receive their shares from the selling shareholders as a gift,
partnership distribution or other non-sale related transfer after the date of
this prospectus to resell the shares.
Unless otherwise noted, the following table sets forth the name of each selling
shareholder, the number of shares owned by each of the selling shareholders as
of December 31, 2008, the number of shares that may be offered under this
prospectus and the number of shares of our common stock owned by the selling
shareholders after this offering is completed, assuming all of the shares being
offered are sold. Except as otherwise disclosed below, none of the selling
shareholders has, or within the past three years has had, any position, office
or other material relationship with us. The number of shares in the column
"Shares Offered" represents all of the shares that a selling shareholder may
offer under this prospectus.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated
by the SEC under the Exchange Act. The percentages of shares beneficially owned
are based 86,000,000shares of our common stock outstanding as of December 31,
2008, including the shares beneficially owned by the respective selling
shareholder, as set forth in the following table and more fully described in
the applicable footnotes.
30
NAME OF SELLING SHARES BENEFICIALLY PERCENTAGE OF SHARES SHARES SHARES BENEFICIALLY PERCENTAGE OF SHARES
SHAREHOLDER OWNED BEFORE THE OUTSTANDING BEFORE THE BEING OWNED AFTER THE BENEFICIALLY OWNED AFTER
OFFERING OFFERING OFFERED OFFERING THE OFFERING
--------------- ------------------- ---------------------- ------- ------------------- ------------------------
YUAN GEN CHE 85447 0.09936% 85447 0 0.000%
HUI FU SI 21362 0.02484% 21362 0 0.000%
TING XI ZHOU 5477 0.00637% 5477 0 0.000%
HONG RONG YANG 5477 0.00637% 5477 0 0.000%
DE LI MA 8216 0.00955% 8216 0 0.000%
SHUANG BAI 4272 0.00497% 4272 0 0.000%
QIAN LUO 12324 0.01433% 12324 0 0.000%
GUI HUA ZHANG 12050 0.01401% 12050 0 0.000%
HONG ZENG 11502 0.01337% 11502 0 0.000%
SHUN QUAN XIAO 16432 0.01911% 16432 0 0.000%
YAN GENG 57512 0.06687% 57512 0 0.000%
JIN YAN LIANG 16432 0.01911% 16432 0 0.000%
HU JIE NA 38341 0.04458% 38341 0 0.000%
YING SUN 13146 0.01529% 13146 0 0.000%
XIU QING SHI 8216 0.00955% 8216 0 0.000%
JIAN TANG 104070 0.12101% 104070 0 0.000%
FAN YANG 6573 0.00764% 6573 0 0.000%
XIU LAN SHI 82160 0.09553% 82160 0 0.000%
NAI FEN BAI 6025 0.00701% 6025 0 0.000%
MEI XIA HE 164321 0.19107% 164321 0 0.000%
XIAO LONG YV 32864 0.03821% 32864 0 0.000%
GANG CHUI LIN 16432 0.01911% 16432 0 0.000%
JIN DE TAO 98592 0.11464% 98592 0 0.000%
YAN ZOU 71206 0.08280% 71206 0 0.000%
ZE JIAN LIU 11502 0.01337% 11502 0 0.000%
CHUN RONG XIAN 10955 0.01274% 10955 0 0.000%
SHU JUAN CHEN 11502 0.01337% 11502 0 0.000%
JING HAI LIU 19718 0.02293% 19718 0 0.000%
QING YV ZHENG 23005 0.02675% 23005 0 0.000%
MING TING TONG 27387 0.03185% 27387 0 0.000%
YV FENG HOU 7121 0.00828% 7121 0 0.000%
LIAN QIAO YANG 18897 0.02197% 18897 0 0.000%
GUO DONG LI 2465 0.00287% 2465 0 0.000%
GUO QING WANG 9859 0.01146% 9859 0 0.000%
QIN DI GUO 19718 0.02293% 19718 0 0.000%
ZU JIANG CHEN 6847 0.00796% 6847 0 0.000%
CHANG LIN LIU 2739 0.00318% 2739 0 0.000%
PEI YING CHEN 12324 0.01433% 12324 0 0.000%
SU NA WANG 10955 0.01274% 10955 0 0.000%
FENG YING JIANG 8216 0.00955% 8216 0 0.000%
YI KUN GE 9859 0.01146% 9859 0 0.000%
LI LIU 6573 0.00764% 6573 0 0.000%
XIAO PENG JIN 32864 0.03821% 32864 0 0.000%
FENG MEI WANG 8216 0.00955% 8216 0 0.000%
XING SHU LI 5477 0.00637% 5477 0 0.000%
JUAN ZHAO 36151 0.04204% 36151 0 0.000%
GUI XIANG LIU 4108 0.00478% 4108 0 0.000%
FENG XUE 6573 0.00764% 6573 0 0.000%
SHOU BEN NIU 6573 0.00764% 6573 0 0.000%
BI RONG QING 8216 0.00955% 8216 0 0.000%
GUO GANG DENG 1752752 2.03808% 1752752 0 0.000%
TOTAL 2979021 3.5%
31
PLAN OF DISTRIBUTION
DISTRIBUTION BY SELLING STOCKHOLDERS
We are registering the shares of our common stock covered by this
prospectus for the selling stockholders. Each selling stockholder, the
"selling stockholders," of the common stock and any of their pledgees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock through the OTC Bulletin Board or any other stock
exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. A
selling stockholder may use any one or more of the following methods when
selling shares:
. ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers,
. block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction,
. purchases by a broker-dealer as principal and resale by the broker-dealer
for its account,
. an exchange distribution in accordance with the rules of the applicable
exchange,
. privately negotiated transactions,
. settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part,
. broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share,
. through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise,
. a combination of any such methods of sale, or
. any other method permitted pursuant to applicable law.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares will be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder
has informed us that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, that would exceed eight percent (8%).
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with broker-
dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
32
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares will be considered "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling stockholder has
informed us that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the common
stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%).
Because selling stockholders will be considered "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 there under. In addition,
any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the shares by the selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The shares will be sold
only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the shares
may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act
of 1934, any person engaged in the distribution of the shares may not
simultaneously engage in market making activities with respect to the common
stock for the applicable restricted period, as defined in Regulation M, prior
to the commencement of the distribution. In addition, the selling stockholders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the common stock by the selling stockholders
or any other person. We will make copies of this prospectus available to the
selling stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale
(including by compliance with Rule 172 under the Securities Act).
We are required to pay certain fees and expenses incurred by us incident
to the registration of the shares. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
The selling stockholders may offer all of the shares of common stock for
sale. Further, because it is possible that a significant number of shares could
be sold at the same time under this prospectus, such sales, or that
possibility, may have a depressive effect on the market price of our common
stock. We cannot assure you, however, that any of the selling stockholders will
sell any or all of the shares of common stock they may offer.
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 250,000,000 shares of Common
Stock and 50,000,000 shares of convertible preferred shares, each with par
value $.001. In 2008 we issued 86,000,000 shares of Common Stock, which
are currently outstanding and no preferred shares.
33
Common Stock
Holders of our common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Our stockholders may not cumulate
their votes. Except as otherwise required by applicable law, the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation (or, if any holders of
shares of Preferred Stock are entitled to vote together with the holders of
Common Stock, as a single class with such holders of shares of Preferred
Stock). Holders of common stock are entitled to share in all dividends that the
board of directors, in its discretion, declares from legally available funds.
Each share of Common Stock shall be entitled to the same rights and privileges
as every other share of Common Stock.
Holders of our common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to our
common stock. The Common Stock shall be subject to the express terms of the
Preferred Stock and any series of Preferred stock.
In the event of any voluntary or involuntary liquidation, distribution or
winding up of the Corporation, after distribution in full of preferential
amounts to the holders of shares of Preferred Stock, the common stockholders
will be entitled to receive all of the remaining assets of the Corporation.
Each stockholder is entitled to a ratable distribution in proportion to the
number of shares of Common Stock held by them. The Common Stock shall be
subject to the express terms of the Preferred Stock and any series thereof.
Each share of Common Stock shall be equal to every other share of Common Stock,
except as otherwise provided herein or required by law.
Subject to the preferential and other dividend rights applicable to Preferred
Stock, holders of Common Stock shall be entitled to such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors from time to time out of assets or funds of
the Corporation legally available therefore. All dividends and distributions on
the Common Stock payable in stock of the Corporation shall be made in shares of
Common Stock.
Preferred Stock
Under Nevada law, we have authorized up to a total of 50,000,000 preferred
shares "blank check" preferred stock. Nevada law permits broad discretion is
determining the rights and preferences of blank check preferred stock. Our
board of directors is authorized, without further stockholder approval, to
issue blank check preferred shares from time-to-time in one or more series,
convertible to common stock at a ratio of ten shares of common stock. As of the
date of this private placement memorandum, there are no outstanding shares of
preferred stock. The Board of Directors may confer voting rights on the
preferred stock which shall have priority over the voting rights of common
stock. The votes of the class of Preferred Stockholders may be weighted more
heavily than the votes of the common stock class.
The Board of Directors is authorized to cause preferred shares to be issued in
one or more classes or series and with may designate preferences with respect
to each such class or series. Each class or series may have designations,
powers, preferences and rights with respect to the shares of each such series
as well as qualifications, limitations or restrictions.
Subject to certain limitations prescribed by law and the rights and preferences
of the preferred stock. Each new series of preferred stock may have different
rights and preferences that may be established by our board of directors. We
may offer preferred stock to our officers, directors, holders of 5% or more of
any class of our securities, or similar parties except on the same terms as the
preferred stock is offered to all other existing or new stockholders.
The Board may determine the rights and preferences of future series of
preferred stock such as:
- Shares;
- Dividends;
- Conversion rights to common stock or other securities;
- Voting rights;
- Preferential payments upon liquidation;
- Establishment of reserves for preferred payments; and
- Redemption prices to be paid upon redemption of the preferred stock.
34
General
TRANSFER AGENT AND REGISTRAR
The Company transfer agent is Island Stock Transfer, Inc., 100 Second Avenue
South, Suite 705S, St. Petersburg, Florida 33701, a transfer agent in Tampa,
Florida.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
Our articles of incorporation provide that we will indemnify any person who is
or was a director, officer, employee, agent or fiduciary of our company to the
fullest extent permitted by applicable law. Nevada law permits a Nevada
corporation to indemnify its directors, officers, employees and agents against
liabilities and expenses they may incur in such capacities in connection with
any proceeding in which they may be involved, if (i) such director or officer
is not liable to the corporation or its stockholders due to the fact that his
or her acts or omissions constituted a breach of his or her fiduciary duties as
a director or officer and the breach of those duties involved intentional
misconduct, fraud or a knowing violation of law, or (ii) he or she acted in
good faith and in a manner reasonably believed to be in or not opposed to our
best interests, or that with respect to any criminal action or proceeding, he
or she had no reasonable cause to believe that his or her conduct was unlawful.
In addition, our bylaws include provisions to indemnify our officers and
directors and other persons against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with the action,
suit or proceeding against such persons by reason of serving or having served
as officers, directors, or in other capacities, if such person either is not
liable pursuant to Nevada Revised Statutes 78.138 or acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of our company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendre or its equivalent will not, of
itself, create a presumption that the person is liable pursuant to Nevada
Revised Statutes 78.138 or did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of our
company and, with respect to any criminal action or proceeding, had reasonable
cause to believe that such person's conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant 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 such Act and is,
therefore, unenforceable.
There are no provisions in our articles of incorporation or bylaws that would
delay, defer or prevent a change or control.
LEGAL MATTERS
Charles W. Barkley, our counsel, will pass upon the validity of the shares of
common stock offered in this prospectus. Mr. Barkley owns 151,000 restricted
shares of our common stock which are not being registered in this offering.
EXPERTS
The financial statements included in this prospectus have been audited by Keith
K. Zhen, CPA 2070 West 6th Street Brooklyn, NY 11223, independent registered
public accountants to the extent and for the periods set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of that firm as experts in auditing and accounting.
35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
FINANCIAL INFORMATION
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
FINANCIAL REPORT
At September 30, 2009 and December 31, 2008 and
For the Three and Nine Months Ended September 30, 2009 and 2008
36
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
INDEX
PAGE
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF CASH FLOWS F-4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-28
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2009 2008
(unaudited)
-------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 19,237 $ 61,392
Others receivable 10,373 1,778
Prepaid expenses (Note 6) 34,991 29,471
Inventory 37,912 4,249
Due from related parties (Note 10) 33,481 33,440
-------------- --------------
Total current assets 135,994 130,330
Property and Equipment, net (Note 7) 348,955 381,318
Land use right, net (Note 8) 55,918 56,822
-------------- --------------
Total Assets $ 540,867 $ 568,470
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 17,657 $ -
Accrued expenses (Note 9) 55,666 100,091
Others payable 2,294 1,628
Deferred revenue 461,208 424,147
Due to related parties (Note 11) 3,691,020 3,597,601
Employee Security deposit 39,442 39,393
-------------- --------------
Total Current Liabilities 4,267,287 4,162,860
-------------- --------------
Commitments and Contingencies (Note 22) - -
Shareholders' Equity:
Zhongke Biotec Agriculture (USA) Company Shareholders' Equity
Preferred stock, par value $0.001, 50,000,000 shares authorized;
none issued and outstanding as of no shares outstanding as of - -
September 30, 2009 and December 31, 2008
Common stock, par value $0.001, 250,000,000 shares authorized;
86,000,000 shares issued and outstanding as of
September 30, 2009 and December 31, 2008 86,000 86,000
Registered capital 19,022,716 19,022,716
Registered capital to-be-received (18,926,781) (18,926,781)
Deficit accumulated during the development stage (3,711,621) (3,586,922)
Accumulated other comprehensive income (426,721) (421,995)
-------------- --------------
Total Zhongke Biotec Agriculture (USA)
Company Shareholders' equity (3,956,407) (3,826,982)
Noncontrolling Interest 229,987 232,592
-------------- --------------
Total Liabilities and Shareholders' Equity $ 540,867 $ 568,470
============== ==============
See Notes to Consolidated Financial Statements
F-2
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period
August 26, 2003
For the Three Months Ended For the Nine Months Ended (inception) through
September 30, September 30, September 30,
2009 2008 2009 2008 2009
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ---------- -----------
Revenues
Sales $ - $ - $ - $ - $ -
Costs of Sales - - - - -
---------- ---------- ---------- ---------- -----------
Gross Profit - - - - -
---------- ---------- ---------- ---------- -----------
Sales of Experimental Materials 104,382 9,920 131,347 25,518 189,832
---------- ---------- ---------- ---------- -----------
Operating Expenses
Payroll 10,328 13,339 33,397 45,801 230,989
Employee benefit and pension 736 735 2,422 2,160 30,343
Depreciation and amortization expenses 15,083 13,372 43,757 38,838 163,881
Office expenses 13,325 6,387 29,276 37,688 317,626
Vehicle expenses 3,363 11,179 15,796 29,576 96,575
Conference expenses 9,162 2,343 11,262 8,550 245,920
Professional fees 4,654 45,062 12,869 45,910 246,205
Consultancy fees - 1,411 - 23,434 526,090
Research and development expenses 22,595 43,030 65,593 79,438 1,626,051
Travel and entertainment 20,735 17,941 45,034 68,189 478,556
---------- ---------- ---------- ---------- -----------
Total Operating Expenses 99,981 154,799 259,406 379,584 3,962,236
---------- ---------- ---------- ---------- -----------
Income (Loss) from Operation 4,401 (144,879) (128,059) (354,066) (3,772,404)
Other Income (Expenses)
Interest income 31 24 48 803 10,689
Charity donation - - - (7,144) (7,182)
Other income (expense) (7) (517) 404 (500) (99)
---------- ---------- ---------- ---------- -----------
Total other income (expenses) 24 (493) 452 (6,841) 3,408
---------- ---------- ---------- ---------- -----------
Income before Provision for Income Tax 4,425 (145,372) (127,607) (360,907) (3,768,996)
Provision for Income Tax - - - - -
---------- ---------- ---------- ---------- -----------
Net Income (Loss) 4,425 (145,372) (127,607) (360,907) (3,768,996)
Less: Net income attributable to
noncontrolling interest (97) 3,312 2,908 8,224 57,375
---------- ---------- ---------- ---------- -----------
Net Income attributable to
Zhongke Biotec Agriculture (USA) Company $ 4,328 $ (142,060) $ (124,699) $ (352,683) $(3,711,621)
========== ========== ========== ========== ===========
Basic and Fully Diluted Earnings per Share $ 0.00 $ (0.00) $ (0.00) $ (0.00) $ (0.04)
========== ========== ========== ========== ===========
Weighted average shares outstanding 86,000,000 85,727,989 86,000,000 85,244,667 85,192,989
========== ========== ========== ========== ===========
See Notes to Consolidated Financial Statements
F-3
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD AUGUST 26, 2003 (INCEPTION) THROUGH September 30, 2009
Common Stock Additional Registered
$0.001 Par Value Paid-in Registered Capital
Shares Amount Capital Capital to-be-received
----------- ---------- ---------- ----------- -------------
Balances at
August 26, 2003 (inception) - $ - $ - $16,672,707 $ (16,672,707)
Capital contribution with
land use rights-Zhongke - - - - 53,722
Comprehensive income
Net income - - - - -
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
Total other comprehensive income
Total comprehensive income
----------- ---------- ---------- ----------- -------------
Balances at
December 31, 2003 - $ - $ - $16,672,707 $ (16,618,985)
=========== ========== ========== =========== =============
Proceeds from issuance of 10 shares of
Success Mater's common stocks 10 1 - - -
Comprehensive income
Net income - - - - -
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
Total other comprehensive income
Total comprehensive income
----------- ---------- ---------- ----------- -------------
December 31, 2004 10 $ 1 $ - $16,672,707 $ (16,618,985)
=========== ========== ========== =========== =============
Comprehensive income
Net income - - - - -
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
Total other comprehensive income
Total comprehensive income
----------- ---------- ---------- ----------- -------------
Balances at
December 31, 2005 10 $ 1 $ - $16,672,707 $ (16,618,985)
=========== ========== ========== =========== =============
Increase in registered capital-Zhongke - - - 2,663,160 (2,663,160)
Proceeds from
capital contribution-Zhongke - - - - 124,800
Minority interest adjustment-Zhongke - - - (441,351) 316,551
Comprehensive income
Net income - - - - -
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
Total other comprehensive income
Total comprehensive income
----------- ---------- ---------- ----------- -------------
Balances at
December 31, 2006 10 $ 1 $ - $18,894,516 $ (18,840,794)
=========== ========== ========== =========== =============
Registered capital-Zhongke - - - - -
Registered capital-Qinyuan - - - 128,200 (128,200)
Proceeds from
capital Contribution-Qinyuan - - - - 128,200
Proceeds from issuance of 90 shares of
Success Mater's common stocks 90 12 - - -
Proceeds from additional paid-in capital
contribution-Success Mater - - 128,200 - -
Cash used for Success Mater to
acquire Qinyuan - - (128,200) - -
Common stocks issued for
acquisition of Success Mater
(Reverse merger) 84,999,000 84,999 - - (84,999)
Success Mater
share exchange (100) (13) - - 13
Comprehensive income
Net income - - - - -
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
Total other comprehensive income
Total comprehensive income
----------- ---------- ---------- ----------- -------------
Balances at
December 31, 2007 84,999,000 $ 84,999 $ - $19,022,716 $ (18,925,780)
=========== ========== ========== =========== =============
Reverse merger adjustment* 1,001,000 1,001 - - (1,001)
Comprehensive income
Net income - - - - -
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
Total other comprehensive income
Total comprehensive income
----------- ---------- ---------- ----------- -------------
Balances at
December 31, 2008 86,000,000 $ 86,000 $ - $19,022,716 $ (18,926,781)
=========== ========== ========== =========== =============
Comprehensive income
Net income - - - - -
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
Total other comprehensive income
Total comprehensive income
----------- ---------- ---------- ----------- -------------
Balances at
September 30, 2009 86,000,000 $ 86,000 $ - $19,022,716 $ (18,926,781)
=========== ========== ========== =========== =============
See Notes to Consolidated Financial Statements
F-4
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD AUGUST 26, 2003 (INCEPTION) THROUGH September 30, 2009
(CONTINUED)
Accumulated
Retained Other Total
Earnings Comprehensive Noncontrolling Shareholders' Comprehensive
(Deficit) Income Interest Equity Income
----------- ---------- ---------- ------------ -------------
Balances at
August 26, 2003 (inception) $ - $ - $ - $ -
Capital contribution with
land use rights-Zhongke - - - 53,722
Comprehensive income
Net income (10,286) - - (10,286) $ (10,286)
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
-------------
Total other comprehensive income -
-------------
Total comprehensive income $ (10,286)
----------- ---------- ---------- ------------ ============
Balances at
December 31, 2003 $ (10,286) $ - $ - $ 43,436
=========== ========== ========== ============
Proceeds from issuance of 10 shares of
Success Mater's common stocks - - - 1
Comprehensive income
Net income (401,370) - - (401,370) $ (401,370)
Other comprehensive income, net of tax:
Effects of foreign currency conversion - - - - -
-------------
Total other comprehensive income -
-------------
Total comprehensive income $ (401,370)
----------- ---------- ---------- ------------ =============
Balances at
December 31, 2004 $ (411,656) $ - $ - $ (357,933)
Comprehensive income
Net income (832,464) - - (832,464) $ (832,464)
Other comprehensive income, net of tax:
Effects of foreign currency conversion - (21,558) - (21,558) (21,558)
-------------
Total other comprehensive income (21,558)
-------------
Total comprehensive income $ (854,022)
----------- ---------- ---------- ------------ =============
Balances at
December 31, 2005 $(1,244,120) $ (21,558) $ - $ (1,211,955)
=========== ========== ========== ============
Increase in registered capital-Zhongke - - - -
Proceeds from
capital contribution-Zhongke - - - 124,800
Minority interest adjustment-Zhongke - - 124,800 -
Comprehensive income
Net income (641,221) - (14,961) (656,182) $ (656,182)
Other comprehensive income, net of tax:
Effects of foreign currency conversion - (54,477) 3,087 (51,390) (51,390)
-------------
Total other comprehensive income (51,390)
-------------
Total comprehensive income $ (707,572)
----------- ---------- ---------- ------------ =============
Balances at
December 31, 2006 $(1,885,341) $ (76,035) $ 112,926 $ (1,794,727)
=========== ========== ========== ============
Registered capital-Zhongke - - 130,280 130,280
Registered capital-Qinyuan - - - -
Proceeds from
capital Contribution-Qinyuan - - - 128,200
Proceeds from issuance of 90 shares of
Success Mater's common stocks - - - 12
Proceeds from additional paid-in capital
contribution-Success Mater - - - 128,200
Cash used for Success Mater to
acquire Qinyuan - - - (128,200)
Common stocks issued for
acquisition of Success Mater
(Reverse merger) - - - -
Success Mater
share exchange - - - -
Comprehensive income
Net income (768,052) - (17,729) (785,781) $ (785,781)
Other comprehensive income, net of tax:
Effects of foreign currency conversion - (150,122) 13,213 (136,909) (136,909)
-------------
Total other comprehensive income (136,909)
-------------
Total comprehensive income $ (922,690)
----------- ---------- ---------- ------------ =============
Balances at
December 31, 2007 $(2,653,393) $ (226,157) $ 238,690 $ (2,458,925)
=========== ========== ========== ============
Reverse merger adjustment* - - - -
Comprehensive income
Net income (933,529) - (21,777) (955,306) $ (955,306)
Other comprehensive income, net of tax:
Effects of foreign currency conversion - (195,838) 15,679 (180,159) (180,159)
-------------
Total other comprehensive income (180,159)
-------------
Total comprehensive income $ (1,135,465)
----------- ---------- ---------- ------------ =============
Balances at
December 31, 2008 $(3,586,922) $ (421,995) $ 232,592 $ (3,594,390)
=========== ========== ========== ============
Comprehensive income
Net income (124,699) - (2,908) (127,607) $ (127,607)
Other comprehensive income, net of tax:
Effects of foreign currency conversion - (4,726) 303 (4,423) (4,423)
-------------
Total other comprehensive income (4,423)
-------------
Total comprehensive income $ (132,030)
----------- ---------- ---------- ------------ =============
Balances at
September 30, 2009 $(3,711,621) $ (426,721) $ 229,987 $ (3,726,420)
=========== ========== ========== ============
See Notes to Consolidated Financial Statements
F-5
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period
August 26, 2003
For the Nine Months Ended (inception) through
September 30, September 30,
2009 2008 2009
(unaudited) (unaudited) (unaudited)
---------- ---------- ---------------
Operating Activities
Net income (loss) $ (124,699) $ (352,683) $ (3,711,621)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Minority interest (2,908) (8,224) (57,375)
Depreciation 42,783 37,885 154,920
Amortization 974 953 8,961
Changes in operating assets and liabilities:
(Increase)/Decrease in others receivable (8,585) (12,197) (10,236)
(Increase)/Decrease in prepaid expenses (5,445) 23,992 (24,575)
(Increase)/Decrease in inventory (33,629) 785 (37,394)
(Increase)/Decrease in due from related parties - - 574,520
Increase/(Decrease) in accounts payable and accrued expenses (26,989) 46,798 64,997
Increase/(Decrease) in other payable 662 (12,531) 10
Increase/(Decrease) in deferred revenue 36,017 167,884 431,991
Increase/(Decrease) in employee security deposit - - 33,480
---------- ---------- ---------------
Net cash provided (used) by operating activities (121,819) (107,338) (2,572,322)
---------- ---------- ---------------
Investing Activities
Cash used for Success to acquire Qinyuan - - (128,200)
Purchase of fixed assets (1,183) (78,401) (446,911)
Purchase of trade mark - - (1,148)
Loans to related parties - - (553,671)
---------- ---------- ---------------
Net cash (used) by investing activities (1,183) (78,401) (1,129,930)
---------- ---------- ---------------
Financing Activities
Proceeds from capital contribution - - 381,213
Loans from related parties 84,724 - 3,163,344
Payback of loans from related parties - (124,254) -
---------- ---------- ---------------
Net cash provided (used) by financing activities 84,724 (124,254) 3,544,557
Increase (decrease) in cash (38,278) (309,994) (157,695)
Effects of exchange rates on cash (3,877) (18,664) 176,932
Cash at beginning of period 61,392 352,887 -
---------- ---------- ---------------
Cash at end of period $ 19,237 $ 24,230 $ 19,237
========== ========== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during year for:
Interest $ - $ - $ -
========== ========== ===============
Income taxes $ - $ - $ -
========== ========== ===============
See Notes to Consolidated Financial Statements
F-6
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
The accompanying unaudited financial statements of Zhongke Biotec Agriculture
(USA) Company and subsidiaries, (the "Company" or "Zhongke USA") were prepared
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. Management of the
Company ("Management") believes that the following disclosures are adequate to
make the information presented not misleading. These financial statements
should be read in conjunction with the audited financial statements and the
notes for the year ended December 31, 2008.
These unaudited financial statements reflect all adjustments, consisting only
of normal recurring adjustments that, in the opinion of Management, are
necessary to present fairly the financial position and results of operations of
the Company for the periods presented. Operating results for the three and nine
months ended September 30, 2009, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009.
NOTE 2-ORGANIZATION AND BUSINESS BACKGROUND
Zhongke Biotec Agriculture (USA) Company ("Zhongke USA" or the "Company") was
incorporated on October 25, 2007 in the State of Nevada. The Company was
formed for the purpose of seeking and consummating a merger or acquisition with
a business entity organized as a private corporation, partnership, or sole
proprietorship as defined by Statement of Financial Accounting Standards (SFAS)
No. 7.
On July 25, 2008, the shareholder of Zhongke USA enter into a Plan of Exchange
Agreement (the "Plan") with the shareholders of Success Mater Investment
Limited ("Success Mater"), pursuant to which Zhongke USA agreed to acquire 100%
of Success Mater in exchange for 84,999,000 shares of Zhongke USA's common
stock. Subsequent to the completion of the Plan, Success Mater became a
wholly-owned subsidiary of Zhongke USA.
Success Mater was incorporated on September 17, 2004 in Hong Kong under the
Companies Ordinance as a limited liability company. The Company was formed for
the purpose of seeking and consummating a merger or acquisition with a business
entity organized as a private corporation, partnership, or sole proprietorship.
F-7
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2-ORGANIZATION AND BUSINESS BACKGROUND (CONTINUED)
On March 9, 2007, Success Mater entered into a Share Purchase Agreement (the
"Agreement") with the owners of Shaanxi Qinyuan Agriculture Technology
Development Co., Inc. ("Qinyuan"), a limited liability company incorporated in
the People's Republic of China ("PRC") on December 27, 2006 with a registered
capital of $128,200 (RMB1,000,000). Pursuant to the Agreement, Success Mater
agreed to purchase 100% of the ownership in Qinyuan for a cash consideration
of $128,200. Subsequent to the completion of the Agreement, Qinyuan became a
wholly-owned subsidiary of Success Mater.
Qinyuan was formed for the purpose of seeking and consummating a merger or
acquisition with a business entity organized as a private corporation,
partnership, or sole proprietorship. On January 5, 2007, Qinyuan executed a
share exchange agreement (the "Share Exchange") with Shaanxi Zhongke
Spaceflight Agriculture Development Stock Co., Ltd. ("Zhongke"), whereby the
shareholders of Qinyuan exchanged 97.72% of the equity ownership in Qinyuan for
97.72% of the equity ownership in Zhongke. Subsequent to completion of the
Share Exchange, Zhongke became a majority-owned subsidiary of Qinyuan.
Zhongke was incorporated in Yangling City, Shanxi Province, PRC on August 26,
2003 under the Company Law of PRC. Zhongke is principally engaged in the
business of research and development of various plant seeds. Zhongke has not
developed any plant seeds with plant variety protections to date, and has not
generated revenue from its planned principle operations. Beginning from
January 2009, Zhongke plans on becoming involved in the business of production
and distribution of wine. There is no assurance, however, that Zhongke will
achieve its objectives or goals.
On December 27, 2006, Zhongke executed an agreement with Mr. Zhang Hongjun, a
PRC citizen, to establish a joint venture, Shaanxi Zhongke Lvxiang Fruit
Industry Development, Inc. ("Lvxiang"). Pursuant to the agreement, Zhongke
contributed cash of $769,200 (RMB 6,000,000) and a set of fruit juice
production equipment to Lvxiang, and owns 95.65% ownership therein. Lvxiang
was subsequently incorporated on January 5, 2007. Subsequent to the completion
of incorporation, Lvxiang became a majority-owned subsidiary of the Zhongke.
Lvxiang plans on becoming involved in the business of production and
distribution of fruit juice. There is no assurance, however, that Lvxiang will
achieve its objectives or goals.
F-8
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Zhongke and Lvxiang are the two of these affiliated companies that are engaged
in business operations. Zhongke USA, Success Mater, and Qinyuan are holding
companies, whose business is to hold an equity ownership interest in Zhongke
and its subsidiary, Lvxiang. All these affiliated companies are hereafter
referred to as the "Company", whose structure is outlined as following:
Zhongke Biotec Agriculture (USA) Company
"Zhingke USA"
Incorporated in the State of Nevada
on October 25, 2007
/
/
/
/
/
/ Acquiring 100% equity interest on 7/25/2008
------------------------------------------------------------
Success Mater Investment Limited
"Success "
Incorporated in Hong Kong
on September 17, 2004
/
/
/
/
/
/ Acquiring 100% equity interest on 3/9/2007
------------------------------------------------------------
Shaanxi Qinyuan Agriculture Technology Development Co., Inc.
"Qinyuan"
Incorporated in Shaanxi Province, PRC
on December 27, 2006
/
/
/
/
/
/ Acquiring 97.72% equity interest on 1/5/2007
-------------------------------------------------------------
Shaanxi Zhongke Spaceflight Agriculture Development Stock Co.Ltd.
"Zhongke"
Incorporated in Shaanxi Province, PRC
on August 26, 2003
/
/
/
/
/ Owning 95.65% equity interest
/ since inception on 1/5/2007
------------------------------------------------------------
Shaanxi Zhongke Lvxiang Fruit Industry Development, Inc.
"Lvxiang"
Incorporated in Shaanxi Province, PRC
on January 5, 2007
F-9
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2-ORGANIZATION AND BUSINESS BACKGROUND (CONTINUED)
The share exchange between Zhongke USA and Success Mater is being accounted for
as a "reverse merger," since the stockholders of Success Mater own a majority
of the outstanding shares of the Company's common stock immediately following
the share exchange. Success Mater is deemed to be the acquirer in the reverse
merger. Consequently, the assets and liabilities and the historical operations
that will be reflected in the financial statements for periods prior to the
share exchange will be those of Success Mater and its subsidiaries and will be
recorded at the historical cost basis. After completion of the share exchange,
the Company's consolidated financial statements will include the assets and
liabilities of both Zhongke USA and Success Mater, the historical operations of
Success Mater and the operations of the Company and its subsidiaries from the
closing date of the share exchange.
Currently, the Company is principally engaged in the business of research and
development of hybrid seeds. The Company has not yet developed any hybrid
seeds with plant variety protections to date. The Company also plans on
becoming involved in the business of production and distribution of fruit
juice. Beginning from January 2009, the Company plans on becoming involved in
the business of production and distribution of wine. There is no assurance,
however, that the Company will achieve its objectives or goals.
The Company is considered to be a development stage company, as it has not
generated revenue from its planned principle operations.
NOTE 3-CONTROL BY PRINCIPAL OWNERS
The directors, executive officers, their affiliates, and related parties own,
directly or indirectly, beneficially and in the aggregate, the majority of the
voting power of the outstanding capital of the Company. Accordingly, directors,
executive officers and their affiliates, if they voted their shares uniformly,
would have the ability to control the approval of most corporate actions,
including approving significant expenses, increasing the authorized capital and
the dissolution, merger or sale of the Company's assets.
F-10
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4-GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company
has an accumulated deficit of $3,711,621 at September 30, 2009 that includes
losses of $124,699 and $933,529 for the nine months ended September 30, 2009
and the year ended December 31, 2008, respectively. In addition, The Company
has a working capital deficiency of $4,131,293 and a shareholders' deficiency
of $3,956,407 at September 30, 2009. These factors raise substantial doubt
about its ability to continue as a going concern.
Management has taken steps to revise the Company's operating and financial
requirements. The Company is actively pursuing additional funding and a
potential merger or acquisition candidate and strategic partners, which would
enhance owners' investment. However, there can be no assurance that sufficient
funds required during the next year or thereafter will be generated from
operations or that funds will be available from external sources such as debt
or equity financings or other potential sources. The lack of additional capital
resulting from the inability to generate cash flow from operations or to raise
capital from external sources would force the Company to substantially curtail
or cease operations and would, therefore, have a material adverse effect on its
business. Furthermore, there can be no assurance that any such required funds,
if available, will be available on attractive terms or that they will not have
a significant dilutive effect on the Company's existing stockholders.
The accompanying financial statements do not include any adjustments related to
the recoverability or classification of asset-carrying amounts or the amounts
and classification of liabilities that may result should the Company be unable
to continue as a going concern.
During the period August 26, 2003 (inception) to September 30, 2009, the
Company relied heavily for its financing needs on its shareholder/directors as
more fully disclosed in Note 11.
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States of America
("US GAAP"). This basis of accounting differs from that used in the statutory
accounts of the Company, which are prepared in accordance with the "Accounting
Principles of China " ("PRC GAAP").
F-11
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The consolidated financial statements include the accounts of the Company and
all its majority-owned subsidiaries which require consolidation. Inter-company
transactions have been eliminated in consolidation.
FOREIGN CURRENCIES TRANSLATION
The Company maintains its books and accounting records in PRC currency
"Renminbi" ("RMB"), which is determined as the functional currency.
Transactions denominated in currencies other than RMB are translated into RMB
at the exchange rates quoted by the People's Bank of China ("PBOC") prevailing
at the date of the transactions. Monetary assets and liabilities denominated in
currencies other than RMB are translated into RMB using the applicable exchange
rates quoted by the PBOC at the balance sheet dates. Exchange differences are
included in the statements of changes in owners' equity. Gain and losses
resulting from foreign currency transactions are included in operations.
The Company's financial statements are translated into the reporting currency,
the United States Dollar ("US$"). Assets and liabilities of the Company are
translated at the prevailing exchange rate at each reporting period end.
Contributed capital accounts are translated using the historical rate of
exchange when capital is injected. Income and expense accounts are translated
at the average rate of exchange during the reporting period. Translation
adjustments resulting from translation of these consolidated financial
statements are reflected as accumulated other comprehensive income (loss) in
the consolidated statement of shareholders' equity.
Translation adjustments resulting from this process are included in accumulated
other comprehensive income (loss) in the statement of changes in owners' equity
and amounted to $426,721and $421,995 as of September 30, 2009 and December 31,
2008, respectively. The balance sheet amounts with the exception of equity at
September 30, 2009 were translated at 6.838 RMB to $1.00 USD as compared to
6.854 RMB at December 31, 2008. The equity accounts were stated at their
historical rate. The average translation rates applied to income statement
accounts for the nine months ended September 30, 2009 and 2008 were 6.843 RMB
and 7.00 RMB, respectively.
F-12
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENT OF CASH FLOWS
In accordance with FASB guidance, cash flows from the Company's operations is
calculated based upon the functional currency. As a result, amounts related to
assets and liabilities reported on the statement of cash flows may not
necessarily agree with changes in the corresponding balances on the balance
sheet.
REVENUE RECOGNITION
The Company recognizes revenue when the earnings process is complete. This
generally occurs when products are shipped to unaffiliated customer, title and
risk of loss have been transferred, collectability is reasonably assured and
pricing is fixed or determinable.
DEFERRED REVENUE
Deferred revenue consists of prepayments to the Company for products that have
not yet been delivered to the customers. Payments received prior to satisfying
the Company's revenue recognition criteria are recorded as deferred revenue.
USE OF 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 disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Actual results when ultimately realized could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks with
maturities of three months or less, and all highly liquid investments which are
unrestricted as to withdrawal or use, and which have original maturities of
three months or less.
F-13
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents. The Company maintains its cash
and cash equivalents with high-quality institutions. Deposits held with banks
in PRC may not be insured or exceed the amount of insurance provided on such
deposits. Generally these deposits may be redeemed upon demand and therefore
bear minimal risk.
OTHERS RECEIVABLE
Others receivable principally includes advance to employees who are working on
projects on behalf of the Company. After the work is finished, they will
submit expense reports with supporting documents to the accounting department.
Upon being properly approved, the expenses are debited into the relevant
accounts and the advances are credited out. Cash flows from these activities
are classified as cash flows from operating activities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including cash and cash
equivalents, receivables, prepaid expenses, accounts payable, and accrued
expenses, approximates their fair value due to the relatively short-term nature
of these instruments.
SUPPLIES
Supplies are experimental materials used for research and development purpose.
Actual cost is used to value these materials and supplies.
INVENTORY
Inventories are stated at the lower of cost or market value. Actual cost is
used to value raw materials and supplies. Finished goods and work-in-progress
are valued on the weighted-average-cost method.
F-14
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. The cost of repairs and
maintenance is expensed as incurred; major replacements and improvements are
capitalized.
When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included
in income in the year of disposition.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the assets without residual value. The percentages or depreciable life
applied are:
Building and warehouses 20 years
Machinery and equipment 7-10 years
Office equipment and furniture 5 years
Motor vehicles 5 years
IMPAIRMENT OF LONG-LIFE ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-15
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LAND USE RIGHT
All land belongs to the State in PRC. Enterprises and individuals can pay the
State a fee to obtain a right to use a piece of land for commercial purpose or
residential purpose for an initial period of 50 years or 70 years,
respectively. The land use right can be sold, purchased, and exchanged in the
market. The successor owner of the land use right will reduce the amount of
time which has been consumed by the predecessor owner.
The Company owns the right to use a piece of land, approximately 235 acre,
located in the Heyang County, Shanxi Province for a forty-four-year period
ended December 30, 2048; and a piece of land, approximately 1,060 acre, also
located in the Heyang County, Shanxi Province for a forty-seven-year period
ended October 13, 2051. The costs of these land use rights are amortized over
their prospective beneficial period, using the straight-line method with no
residual value.
RELATED PARTIES
For the purposes of these financial statements, parties are considered to be
related if one party has the ability, directly or indirectly, to control the
party or exercise significant influence over the party in making financial and
operating decisions, or vice versa, or where the Company and the party are
subject to common control or common significant influence. Related parties may
be individuals or other entities.
DUE FROM/TO AFFILIATES
Due from/to affiliates represent temporally short-term loans to/from
affiliates, which are majority owned and controlled by directors of the
Company. These loans are unsecured, non-interest bearing and have no fixed
terms of repayment, therefore, deemed payable on demand. Cash flows from due
from related parties are classified as cash flows from investing activities.
Cash flows from due to related parties are classified as cash flows from
financing activities.
F-16
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS FROM DIRECTORS AND OFFICERS
Loans from directors and officers are temporally short-term loans from our
owners and officers to finance the Company's operation due to lack of cash
resources. These loans are unsecured, non-interest bearing and have no fixed
terms of repayment, therefore, deemed payable on demand. Cash flows from these
activities are classified as cash flows from financing activates.
SALES OF EXPERIENTIAL MATERIALS
During its research and development process of hybrid seeds, Zhongke grows
various plants, such as fruit and vegetable. For the extra items that Zhongke
no longer needs in its research and development process, it sales to third
parties and therefore generates other operating income.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed when incurred. The major components
of these research and development costs include experimental materials, labor
cost, and payments to contractors who perform research and development function
for the Company. The research and development costs were $65,593 and $79,425
for the nine months ended September 30, 2009 and 2008, respectively
ADVERTISING COSTS
Advertising costs are expensed as incurred in accordance with the American
Institute of Certified Public Accountants ("AICPA") Statement of Position 93-7,
"Reporting for Adverting Costs". The advertising costs were $11,262, and
$4,644 for the nine months ended September 30, 2009 and 2008, respectively.
F-17
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENSION AND EMPLOYEE BENEFITS
Full time employees of the PRC entities participate in a government mandated
multi-employer defined contribution plan pursuant to which certain pension
benefits, medical care, unemployment insurance, employee housing fund and other
welfare benefits are provided to employees. Chinese labor regulations require
the Company to accrue for these benefits based on certain percentages of the
employees' salaries. The Management believes full time employees who have
passed the probation period are entitled to such benefits. The total
provisions for employee pension was $2,208, and $2,160 for the nine months
ended September 30, 2009 and 2008, respectively.
SALES TAX AND SALE-RELATED TAXES
Pursuant to the tax laws and regulation of PRC, a PRC resident company is
obligated to pay a value-added tax ("VAT") at a rate of 17% of the gross sales
price or at a rate approved by the local government. Since the Company is in
the agriculture industry which is encouraged by the PRC government, the Company
is exempt from value-added tax.
INCOME TAXES
In accordance with FASB guidance, the Company accounts for income tax using the
asset and liability approach for financial accounting and reporting for income
taxes. Under this approach, deferred income taxes are provided for the
estimated future tax effects attributable to temporary differences between
financial statement carrying amounts of assets and liabilities and their
respective tax bases, and for the expected future tax benefits from loss carry-
forwards and provisions, if any. Deferred tax assets and liabilities are
measured using the enacted tax rates expected in the years of recovery or
reversal and the effect from a change in tax rates is recognized in the
statement of operations in the period of enactment. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered more
likely than not that some portion of, or all of the deferred tax assets will
not be realized.
F-18
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
Effective January 1, 2007, the Company adopted a new FASB guidance, which
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements. The new FASB guidance prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in
a tax return. The new FASB guidance also provides guidance on de-recognition
of tax benefits, classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure, and transition. In accordance with
the new FASB guidance, the Company performed a self-assessment and concluded
that there were no significant uncertain tax positions requiring recognition in
its consolidated financial statements.
The Company has accumulated deficit in its operation. Because there is no
certainty that we will realize taxable income in the future, we did no record
any deferred tax benefit as a result of these losses.
The Company accounts for income taxes in interim periods in accordance with
FASB guidance. The Company has determined an estimated annual effect tax rate.
The rate will be revised, if necessary, as of the end of each successive
interim period during the Company's fiscal year to its best current estimate.
The estimated annual effective tax rate is applied to the year-to-date ordinary
income (or loss) at the end of the interim period.
The estimated annual effective tax rate is applied to the year-to-date ordinary
income (or loss) at the end of the interim period.
F-19
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATUTORY RESERVES
Pursuant to the applicable laws in PRC, PRC entities are required to make
appropriations to three non-distributable reserve funds, the statutory surplus
reserve, statutory public welfare fund, and discretionary surplus reserve,
based on after-tax net earnings as determined in accordance with the PRC GAAP,
after offsetting any prior years' losses. Appropriation to the statutory
surplus reserve should be at least 10% of the after-tax net earnings until the
reserve is equal to 50% of the Company's registered capital. Appropriation to
the statutory public welfare fund is 5% to 10% of the after-tax net earnings.
The statutory public welfare fund is established for the purpose of providing
employee facilities and other collective benefits to the employees and is non-
distributable other than in liquidation. Beginning from January 1, 2006,
enterprise is no more required to make appropriation to the statutory public
welfare fund. The Company does not make appropriations to the discretionary
surplus reserve fund. Since the Company has been accumulating deficiency, no
statutory surplus reserve fund and statutory public welfare reserve fund have
been made.
Since the Company has been accumulating deficiency, no statutory surplus
reserve fund and statutory public welfare reserve fund have been made.
COMPREHENSIVE INCOME
FASB guidance establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income as
defined includes all changes in equity during a period from non-owner sources.
Accumulated comprehensive income, as presented in the accompanying statements
of changes in owners' equity consists of changes in unrealized gains and losses
on foreign currency translation. This comprehensive income is not included in
the computation of income tax expense or benefit.
SEGMENT REPORTING
FASB guidance establishes standards for reporting information about operating
segments on a basis consistent with the Company's internal organization
structure as well as information about geographical areas, business segments
and major customers in financial statements. The Company currently operates in
one principal business segment.
F-20
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION
The unaudited balance sheet, the unaudited statements of income and cash flows
have been prepared in accordance with United States generally accepted
accounting principles for interim financial information. In our opinion, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation of the financial position, results of
operations and cash flows as at September 30, 2009, and 2008, have been
included. Readers of these financial statements should note that the interim
results for the nine-month periods ended September 30, 2009, and September 30,
2008, are not necessarily indicative of the results that may be expected for
the fiscal year as a whole.
EARNINGS (LOSS) PER SHARE
The Company reports earnings per share in accordance with FASB guidance, which
requires presentation of basic and diluted earnings per share in conjunction
with the disclosure of the methodology used in computing such earnings per
share. Basic earnings (loss) per share is computed by dividing income (loss)
available to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. There are no potentially dilutive securities outstanding
(options and warrants) for the period August 26, 2003 (inception) through
September 30, 2009.
F-21
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF MEASUREMENTS
Accounting principles generally accepted in the United States define fair value
as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants at the
measurement date. Additionally, the inputs used to measure fair value are
prioritized based on a three-level hierarchy. This hierarchy requires entities
to maximize the use of observable inputs and minimize the use of unobservable
inputs. The three levels of inputs used to measure fair value are as follows:
LEVEL 1: Unadjusted quoted prices in active markets for identical assets or
liabilities
LEVEL 2: Input other than quoted market prices that are observable, either
directly or indirectly, and reasonably available. Observable inputs reflect
the assumptions market participants would use in pricing the asset or liability
and are developed based on market data obtained from sources independent of the
Company.
LEVEL 3: Unobservable inputs. Unobservable inputs reflect the assumptions that
the Company develops based on available information about what market
participants would use in valuing the asset or liability.
An asset or liability's level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value measurement.
Availability of observable inputs can vary and is affected by a variety of
factors. The Company uses judgment in determining fair value of assets and
liabilities and Level 3 assets and liabilities involve greater judgment than
Level 1 and Level 2 assets or liabilities.
SUBSEQUENT EVENTS
The Company evaluated subsequent events through the time of filing this
Quarterly Report on Form S-1 on January 29, 2010. We are not aware of any
significant events that occurred subsequent to the balance sheet date but prior
to the filing of this report that would have a material impact on our financial
statements.
F-22
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board ("FASB") amended its
guidance on accounting for variable interest entities ("VIE"). Among other
things, the new guidance requires a qualitative rather than a quantitative
analysis to determine the primary beneficiary of a VIE; requires continuous
assessments of whether an enterprise is the primary beneficiary of a VIE;
enhances disclosures about an enterprise's involvement with a VIE; and amends
certain guidance for determining whether an entity is a VIE. Under the new
guidance, a VIE must be consolidated if the enterprise has both (a) the power
to direct the activities of the VIE that most significantly impact the entity's
economic performance, and (b) the obligation to absorb losses or the right to
receive benefits from the VIE that could potentially be significant to the VIE.
This new guidance will be effective as of the beginning of each reporting
entity's first annual reporting period that begins after November 15, 2009, and
for interim periods within that first annual reporting period. Earlier
application is prohibited. The Management does not expect that the adoption of
this new guidance would have a material effect on the Company's financial
position and results of operations.
In May 2009, the FASB issued new accounting and disclosure guidance for
recognized and non-recognized subsequent events that occur after the balance
sheet date but before financial statements are issued. The new guidance also
requires disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. The new accounting guidance was
effective for our Company beginning with our Quarterly Report on Form 10-Q for
the three and six months ended June 30, 2009, and is being applied
prospectively. This change in accounting policy had no impact on our
consolidated financial statements.
In April 2009, the FASB issued new guidance regarding accounting for assets
acquired and liabilities assumed in a business combination that arise from
contingencies. This new guidance amends and clarifies the accounting,
measurement and recognition provisions and the related disclosures arising from
contingencies in a business combination. The Company adopted this new guidance
on January 1, 2009. There was no significant impact upon adoption, and its
effects on future periods will depend on the nature and significance of
business combinations subject to this guidance.
F-23
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In April 2009, the FASB issued new guidance regarding determining fair value
when the volume and level of activity for the asset or liability have
significantly decreased and identifying transactions that are not orderly. This
new guidance provides additional guidance for estimating fair value when the
volume and level of market activity for an asset or liability have
significantly decreased when compared with normal market activity for the asset
or liability. If there is a significant decrease in the volume and activity for
the asset or liability, transactions or quoted prices may not be determinative
of fair value in an orderly transaction and further analysis and adjustment of
the transactions or quoted prices may be necessary. This new guidance was
applied prospectively and was effective for interim and annual periods ending
after June 15, 2009 with early adoption permitted for periods ending after
March 15, 2009. The adoption of this new guidance did not have a material
effect on the Company's financial position and results of operations.
In April 2009, the FASB issued new guidance regarding recognition and
presentation of other-than-temporary impairments. This new guidance amends the
method for determining whether another-than-temporary impairment exists and the
classification of the impairment charge for debt securities and the related
disclosures. This new guidance was applied prospectively and was effective for
interim and annual periods ending after June 15, 2009 with early adoption
permitted for periods ending after March 15, 2009. The adoption of this new
guidance did not have a material effect on the Company's financial position and
results of operations.
In December 2007, the FASB amended its guidance on accounting for business
combinations. The new accounting guidance is being applied prospectively to all
business combinations subsequent to the effective date. Among other things, the
new guidance amends the principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. It also establishes new disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. The Company adopted this new guidance on January 1, 2009. There
was no material impact on the Company's financial position and results of
operations upon adoption, and their effects on future periods will depend on
the nature and significance of business combinations subject to this guidance.
F-24
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In December 2007, the FASB issued new accounting and disclosure guidance
related to noncontrolling interests in subsidiaries (previously referred to as
minority interests), which resulted in a change in our accounting policy
effective January 1, 2009. Among other things, the new guidance requires that a
noncontrolling interest in a subsidiary be accounted for as a component of
equity separate from the parent's equity, rather than as a liability. The new
guidance is being applied prospectively, except for the presentation and
disclosure requirements, which have been applied retrospectively. The adoption
of this new accounting policy did not have a significant impact on our
consolidated financial statements.
In December 2007, the FASB issued new accounting guidance that defines
collaborative arrangements and establishes reporting requirements for
transactions between participants in a collaborative arrangement and between
participants in the arrangement and third parties. It also establishes the
appropriate income statement presentation and classification for joint
operating activities and payments between participants, as well as the
sufficiency of the disclosures related to those arrangements. This new
accounting guidance was effective for our Company on January 1, 2009, and its
adoption did not have a significant impact on our consolidated financial
statements.
In September 2006, the FASB issued new accounting guidance that defines fair
value, establishes a framework for measuring fair value, and expands disclosure
requirements about fair value measurements. However, in February 2008, the FASB
delayed the effective date of the new accounting guidance for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until January 1, 2009. The adoption of this new accounting
guidance for our nonfinancial assets and nonfinancial liabilities did not have
a significant impact on our consolidated financial statements.
F-25
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6-PREPAID EXPENSES
Prepaid expenses consist of the following:
September 30, December 31,
2009 2008
(unaudited)
--------- -------
Prepaid rental expenses $ 1,152 $13,435
Prepaid office expenses 33,839 16,036
--------- -------
Total $ 34,991 $29,471
NOTE 7-PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
September 30, December 31,
2009 2008
(unaudited)
----------- -----------
Building and warehouses $ 276,154 $ 128,463
Machinery and equipment 2,915,015 2,910,259
Office equipment and furniture 57,837 56,892
Motor vehicles 157,182 156,989
----------- -----------
3,406,188 3,252,603
Less: Accumulated depreciation (3,057,233) (3,010,757)
----------- -----------
362,838 241,846
Add: Construction in progress - 139,472
Total $ 348,955 $ 381,318
=========== ===========
Depreciation expense charged to operations was $42,783 and $37,885 for the nine
months ended September 30, 2009 and 2008, respectively.
F-26
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8-LAND USE RIGHT
The following is a summary of land use right, less amortization:
September 30, December 31,
2009 2008
(unaudited)
----------- -----------
Land use right $ 66,125 $ 66,043
Less: Amortization (10,207) (9,221)
Accounts receivable, net $ 55,918 $ 56,822
Amortization expense charged to operations was $974 and $953 for the nine
months ended September 30, 2009 and 2008, respectively.
NOTE 9- ACCRUED EXPENSES
Accrued expenses consist of the following:
September 30, December 31,
2009 2008
(unaudited)
----------- -----------
Accrued employee benefit and pension $ 27,308 $ 31,675
Accrued professional fees 28,358 68,416
Total $ 55,666 $ 100,091
NOTE 10-DUE FROM RELATED PARTIES
Due from related parties consists of the following:
September 30, December 31,
2009 2008
(unaudited)
----------- -----------
Name of Related Party
Shaanxi Xidenghui Shiye Co., Ltd. $ 33,481 $ 33,440
Total $ 33,481 $ 33,440
F-27
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11- DUE TO RELATED PARTIES
Due to related parties consists of the following:
September 30, December 31,
2009 2008
Name of Related Party Description (unaudited)
--------------------- ----------- ---------- -----------
Shaanxi Dukang Group Co., Ltd. Affiliates $ 65,736 $ 29,180
Shaanxi Lantian Fupin
Investment Co., Ltd. Affiliates 29,216 29,180
Mr. Hongjun Zhang Director 365,198 316,457
Ms. Ming Chen Director 542,175 541,510
Ms. Ping Li Director 661,277 660,466
Mr. Shengli Wang Director 834,507 833,483
Mr. Pingjun Nie Director 974,480 969,162
Mr. Hua Li Director 218,431 218,163
---------- -----------
Total $3,691,020 $ 3,597,601
========== ===========
F-27
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12-RELATED PARTY TRANSACTIONS
Zhongke outsources some of the research and development projects to its
affiliates, which are majority owned and controlled by directors of the
Company. Research and development expenses paid to the affiliates are
summarized as following:
For the Period
August 26, 2003
For the nine Months (inception)
Ended September 30, through
2009 2008 September 30,
2009
(unaudited) (unaudited) (unaudited)
--------- --------- ----------
Name of Affiliate
Shaanxi Baishui Dukang Wine
Development Co.,Ltd. $ - $ - $ 282,936
Shaanxi Changjiang Investment
Management Co., Ltd. - - 42,359
Shaanxi Zhongke Research and
Development Center Co., Ltd. - - 367,010
Weinan Huihuang Trading Co., Ltd. - - 76,214
Shaanxi Changjiang Petroleum
Development Co., Ltd. - - 502,705
Heyang Research and Development
Basis Co., Ltd. - - 36,634
--------- --------- ----------
$ - $ - $1,307,858
========= ========= ==========
NOTE 13-STATEMENT OF CONSOLIDATED COMPRESENTATIVE INCOME
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
Net income $ (4,425) $ (145,373) $ (127,607) $ (360,908)
Other comprehensive income, net of tax:
Effects of foreign currency conversion 1 (7,624) (4,423) (172,299)
Total other comprehensive, not of tax 1 (7,624) (4,423) (172,199)
Comprehensive income 4,426 (152,997) (132,030) (533,107)
Comprehensive income attributable to
the noncontrolling interest (97) 2,722 (2,605) (7,586)
Comprehensive income attributable to
Zhongke Biotec Agriculture (USA) Company $ 4,329 $ (150,275) (129,425) (540,693)
F-28
ZHONGKE BIOTEC AGRICULTURE (USA) COMPANY
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14-COMMITMENTS AND CONTINGENCIES
THE COMPANY'S ASSETS ARE LOCATED IN PRC AND REVENUES ARE DERIVED FROM
OPERATIONS IN PRC.
In terms of industry regulations and policies, the economy of PRC has been
transitioning from a planned economy to market oriented economy. Although in
recent years the Chinese government has implemented measures emphasizing the
utilization of market forces for economic reforms, the reduction of state
ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of productive assets
in PRC are still owned by the Chinese government. For example, all lands are
state owned and are leased to business entities or individuals through
governmental granting of Land Use Rights. The Chinese government also exercises
significant control over PRC's economic growth through the allocation of
resources and providing preferential treatment to particular industries or
companies. Uncertainties may arise with changing of governmental policies and
measures.
The Company faces a number of risks and challenges not typically associated
with companies in North America and Western Europe, since its assets exist
solely in the PRC, and its revenues are derived from its operations therein.
The PRC is a developing country with an early stage market economic system,
overshadowed by the state. Its political and economic systems are very
different from the more developed countries and are in a state of change. The
PRC also faces many social, economic and political challenges that may produce
major shocks and instabilities and even crises, in both its domestic arena and
in its relationships with other countries, including the United States. Such
shocks, instabilities and crises may in turn significantly and negatively
affect the Company's performance.
F-28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration Fees* $ 30
Federal Taxes -
State Taxes -
Legal Fees and Expenses 25,000
Transfer Agent and Printing 10,000
Accounting Fees and Expenses 47,000
Miscellaneous (1) 7,500
--------
Total $ 89,530
--------
* Estimated Figures
(1) Includes costs for Edgar filings and all other costs anticipated.
Item 14. Indemnification of Directors and Officers. Our articles of
incorporation provide that we will indemnify any person who is or was a
director, officer, employee, agent or fiduciary of our company to the fullest
extent permitted by applicable law. Nevada law permits a Nevada corporation to
indemnify its directors, officers, employees and agents against liabilities
and expenses they may incur in such capacities in connection with any
proceeding in which they may be involved, if
(i) such director or officer is not liable to the corporation or its
stockholders due to the fact that his or her acts or omissions
constituted a breach of his or her fiduciary duties as a director or
officer and the breach of those duties involved intentional
misconduct, fraud or a knowing violation of law, or
(ii) he or she acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of our company, or that
with respect to any criminal action or proceeding, he or she had no
reasonable cause to believe that his or her conduct was unlawful.
In addition, our bylaws include provisions to indemnify its officers
and directors and other persons against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in
connection with the action, suit or proceeding against such persons
by reason of serving or having served as officers, directors, or in
other capacities, if such person either is not liable pursuant to
Nevada Revised Statutes 78.138 or acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best
interests of our company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendre or its equivalent will not, of itself, create a
presumption that the person is liable pursuant to Nevada Revised
Statutes 78.138 or did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best
interests of our company and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct
was unlawful.
37
Item 15. Recent Sales of Unregistered Securities.
At inception, the company privately offered 150,000 founder shares to
Charles Barkley, its attorney and present securities counsel and 850,000
founder shares of Common Stock at inception to four Chinese individuals who
were non-US persons as defined by Regulation S. One Thousand Shares were issued
to our securities counsel in October, 2007 and the remaining shares were issued
in July, 2008. These shares were issued in exchange for the costs and services
in establishing the newly created entity.
We believe, the securities offered in these transactions were exempt from
registration in accordance with Section 4(2) of the Securities Act an
Regulation D promulgated there under( as to Mr. Barkley) and Regulation S as to
the four Chinese individuals who were non-US persons.
As part of the reverse merger we issued 85 Million shares in July 2008
entirely to non-US persons who were shareholders of the PRC entities acquired
in exchange for the outstanding shares of the PRC entities as set forth
herein..
The securities offered, including the common stock, were in reliance upon the
exemption from registration contained in Regulation S promulgated there under,
which exempts transactions by an issuer not involving any public offering.
We believe that the securities exchanged to the non-US persons were
private placements, and were exempt from registration under Regulation S,
promulgated under the Securities Act. Each purchaser of the shares
represented in the purchase agreement, among other things, that (a) it was a
"non-US person", as defined in Regulation S promulgated under the
Securities Act of 1933, (b) it had obtained sufficient information from us to
evaluate the merits and risks of an investment in the shares of our common
stock and (c) it was acquiring the shares of our common stock for investment
purposes and not with a view to any public resale or other distribution in
violation of the Securities Act of 1933 or the securities laws of any state. In
addition, the stock certificate representing these shares contained a legend
that they are restricted securities under the Securities Act of 1933. These
securities may not be offered or sold in the United States in the absence of an
effective registration statement or exemption from the registration
requirements under the Securities Act.
Item 16. Exhibits.
The following is a list of Exhibits filed as part of this registration
statement:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- ----------------------
3.1 * Articles of Incorporation
3.2 * Bylaws
4.1 * Form of Stock Certificate
5.1 Legal Opinion* (Filed herewith)
14.1 Code of Ethics
23.1 Consent of Charles Barkley, Attorney (Included in exhibit 5)
23.2 Consent of Greg Lamb, CPA (Filed Herewith)
----
* Previously Filed
- Filed herewith
38
ITEM 17.
UNDERTAKINGS
Reg. {section}229.512. Item 512. Include each of the following undertakings
that is applicable to the offering being registered. 69
(a) Rule 415 offering.1 Include the following if the securities are registered
pursuant to Rule 415 under the Securities Act ({section}230.415 of this
chapter): 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 in the registration statement. 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
maximum20offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) ({section} 230.424(b) of this chapter)
if, in the aggregate, the changes in volume and price represent no more than a
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; Provided,
however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply
if the registration statement is on Form S-3 ({section}239.13 of this chapter)
or Form S-8 ({section}239.16b of this chapter) or Form F-3 ({section} 239.33 of
this chapter), and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement. Provided further, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is for an
offering of asset-backed securities on Form S-1 ({section} 239.11 of this
chapter) or Form S-3 ({section} 239.13 of this chapter), and the information
required to be included in a post-effective amendment is provided pursuant to
Item 1100(c) of Regulation AB ({section} 229.1100(c)).
(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) If the registration is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by {section}210.3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F- 3 ({section} 239.33 of this chapter), a
post-effective amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or {section} 210.3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(b) Filings incorporating subsequent Exchange Act documents by reference.
Include the following if the registration statement incorporates by reference
any Exchange Act document filed subsequent to the effective date of the
registration statement: The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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. 1
Paragraph (a) reflects proposals made in Securities Act Release No. 6334 (Aug.
6, 1981).70
(c) Warrants and rights offerings. Include the following, with appropriate
modifications to suit the particular case, if the securities to be registered
are to be offered to existing security holders pursuant to warrants or rights
and any securities not taken by security holders are to be reoffered to the
public: The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(d) Competitive bids. Include the following, with appropriate modifications to
suit the particular case, if the securities to be registered are to be offered
at competitive bidding: The undersigned registrant hereby undertakes (1) to use
its best efforts to distribute prior to the opening of bids, to prospective
bidders, underwriters, and dealers, a reasonable number of copies of a
prospectus which at that t time meets the requirements of section 10(a) of the
Act, and relating to the securities offered at competitive bidding, as
contained in the registration statement, together with any supplements thereto,
and (2) to file an amendment to the registration statement reflecting the
results of bidding, the terms of the reoffering and related matters to the
extent required by the applicable form, not later than the first use,
authorized by the issuer after the opening bids, of a prospectus relating to
the securities offered at competitive bidding, unless no further public
offering of such securities by the issuer and no reoffering of such securities
by the purchasers is proposed to be made.
(e) Incorporated annual and quarterly reports. Include the following if the
registration statement specifically incorporates by reference (other than by
indirect incorporation by reference through a Form 10-K ({section}249.310 of
this chapter) report) in the prospectus all or any part of the annual report to
security holders meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act ({section}240.14a-3 and 240.14c-3 of this chapter): The
undersigned registrant hereby undertakes to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given,
the latest annual report to security holders that is incorporated by reference
in the prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(f) Equity offerings of nonreporting registrants. Include the following if
equity securities of a registrant that prior to the offering had no obligation
to file reports with the Commission pursuant to section 13(a) or 15(d) of the
Exchange Act are being registered for sale in an underwritten offering: The
undersigned registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(g) Registration on Form S-4 or F-4 of securities offered for resale. Include
the following if the securities are being registered on Form S-4 or F-4
({section}239.25 or 34 of this chapter) in connection with a transaction
specified in paragraph (a) of Rule 145 ({section}230.145 of this chapter).
(1) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (h)(1) immediately preceding, or
(ii) that purports to meet the requirements of section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule 415
({section}230.415 of this chapter), will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes 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.
(h) Request for acceleration of effective date or filing of registration
statement on Form S-8. Include the following if accelerate ion is requested of
the effective date of the registration statement pursuant to Rule 461 under the
Securities Act ({section}230.461 of this chapter), or, if the registration
statement is filed on Form S-8, and (1) any provision or arrangement exists
whereby the registrant may indemnify a director, officer or controlling person
of the registrant against liabilities arising under the Securities Act, or (2)
the underwriting agreement contains a provision whereby the registrant
indemnifies the underwriter or controlling persons 71 of the underwriter
against such liabilities and a director, officer or controlling person of the
registrant is such an underwriter or controlling person thereof or a member of
any firm which is such an underwriter, and (3) the benefits of such
indemnification are not waived by such persons: 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 controlling20person 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.
(i) Include the following in a registration statement permitted by Rule 430A
under the Securities Act of 1933 ({section}230.430A of this chapter): The
undersigned registrant hereby undertakes that: (1) For purposes of determining
any liability under the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective. (2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
(j) Qualification of trust indentures under the Trust Indenture Act of 1939 for
delayed offerings. Include the following if the registrant intends to rely on
section 305(b)(2) of the Trust Indenture Act of 1939 for determining the
eligibility of the trustee under indentures for securities to be issued,
offered, or sold on a delayed basis by or on behalf of the registrant: The
undersigned registrant hereby undertakes to file an application for the purpose
of determining the eligibility of the trustee to act under subsection (a) of
section 310 of the Trust Indenture Act ("Act") in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the Act.
(k) Filings regarding asset-backed securities incorporating by reference
subsequent Exchange Act documents by third parties. Include the following if
the registration statement incorporates by reference any Exchange Act document
filed subsequent to the effective date of the registration statement pursuant
to Item 1100(c) of Regulation AB ({section} 229.1100(c)): The undersigned
registrant hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 of a
third party that is incorporated by reference in the registration statement in
accordance with Item 1100(c)(1) of Regulation AB (17 CFR 229.1100(c)(1)) 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. (l) Filings regarding asset-backed
securities that provide certain information through an Internet Web site.
Include the following if the registration statement is to provide information
required by Item 1105 of Regulation AB ({section} 229.1105) through an Internet
Web site in accordance with Rule 312 of Regulation S-T ({section} 232.312 of
this chapter): The undersigned registrant hereby undertakes that, except as
otherwise provided by Item 1105 of Regulation AB (17 CFR 229.1105), information
provided in response to that Item pursuant to Rule 312 of Regulation S-T (17
CFR 232.312) through the specified Internet address in the prospectus is deemed
to be a part of the prospectus included in the registration statement. In
addition, the undersigned registrant hereby undertakes to provide to any person
without charge, upon request, a copy of the information provided in response to
Item 1105 of Regulation AB pursuant to Rule 312 of Regulation S-T through the
specified Internet address as of the date of the prospectus included in the
registration statement if a subsequent update or change is made to the
information.
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(1) If the registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to
a purchaser with a time of contract of sale prior to such first use, supersede
or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements of filing of Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Guangzhou, China on Januray 29, 2010.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the date stated.
ZHONGKE BIOTEC AGRICULTURE (USA), INC.
/s/ Chen, Min
--------------
By: Chen, Min
Title: CEO, Director
ZHONGKE BIOTEC AGRICULTURE (USA), INC.
/s/ Li Ping
------------
By: Li Ping
Title: Chief Financial Officer, Director
/s/ Ao, Jiang Feng
-------------------
By: Ao, Jiang Feng
Title: President
(Principal Accounting Officer)
Date: January 29, 2010
A Majority of the Board of Directors
/s/ Nie, Pingjun
-----------------
By: Nie, Pingjun
Title: Chairman and Director
/s/ Chen, Min
-------------
By: Chen, Min
Title: CEO and Director
/s/ Li Ping
------------
By: Li Ping
Title: CFO and Director
40