The Company is a fertilizer-related
products and equipment exporter. We will sell production equipment to buyers on an international basis. We have a twenty year contract
with Harbin Haixin Biological Fertilizer Co., Ltd., and will work towards modernizing production technology to make sure that individuals
and producers the world over may economically produce natural fertilizer. For example, the Harbin Haixin Biological Fertilizer
Co., Ltd., currently produces 5000 tons of natural fertilizer annually. In 2010 at the local county in which they reside, half
of the 82 villages there used Harbin Haixin Biological Fertilizer Co. products, and the acreage utilizing the product totaled 8600
mu. Harbin Haixin Biological Fertilizer Co., Ltd., currently forecasts that sales of fertilizer will grow to 100,000 tons annually,
with a total investment profit of 60,000,000.
The Company entered a cooperation
agreement to form a joint venture with an unrelated foreign company on October 31, 2010. The agreement “merely creates a
trading relationship” with our potential joint venture partner and lays out the intent of the partners for the terms of a
joint venture. The agreement confirms their mutual intent to identify and work for certain projects together in the next 20 years.
There is no time limit for the start of the Joint Venture and the agreement merely creates a trading relationship at this time.
If the parties enter into a formal Joint Venture in the future the registrants percentage will be 16.25% of the Joint Venture.
The trading partner is a well established entity in the PRC operating and generating revenue for a number of years.
Harbin Haixin Biological
Fertilizer Co., Ltd., currently produces 5000 tons of natural fertilizer annually. In 2010, half of the 82 villages in the local
county there used Haixin Brand Organic Fertilizer; the acreage utilizing the product totaled more than 5 million square meter according
to Harbin Haizin Biological Fertilizer Co., Ltd.. Harbin Haixin Biological Fertilizer Co., Ltd., currently forecasts that sales
of fertilizer will grow to 100,000 tons annually, with a total investment profit of 60,000,000 RMB.
The other party to the cooperation intent joint venture agreement
was formed in 2009 and has 35 employees according to information provided by the company. Green industries are very popular and
growing especially in the Heilongjiang Province in China.
3
The Chinese party to the cooperation agreement is located in Heilongjiang
Province China. The following are taken from “Overview of Green Food Industry in Heilongjiang China” provided by the
Department of Commerce of Heilongjiang Province:
Heilongjiang, located in the northeast of China, is the Northernmost
province and of the highest latitude in China, named after the largest river inside its territory.
Heilongjiang Habitats the cold temperate zone continental monsoon
climate with an average temperature altering from -4degrees to 5degrees C, long winters, high temperature, abundant rainfall and
long sunshine period in summers, which is appropriate for the growth of crops. In addition, as Heilongjiang possesses one of the
three world famous black soil zones, the organic content of the soil is higher than other parts of China, Black Soil, Chernozem
and Meadow Soil occupying more than 70% of its arable land, as a result, Heilongjiang is an important commodity grain base and
green food processing base in China, the home of food crops like soybean, rice, corn, wheat and potato; and of economic crops like
sugar beet, flax and cured tomato. Being one of the key pasturing areas, Heilongjiang boasts 4.33-million-hectacre grasslands with
high quality forage of high-value nutrition, proper for developing animal husbandry.
In the early 1990s, Heilong started to develop green food products.
Until 2011, the areas certified by Green Food standard have reached 4,287,000 hectacres, one quarter of the total areas in China;
national-level standardized material production base of green food has extended to 3,4000,000 hectacres, half of the total amount
in China; the total output of green food in Heilong has achieved 29,500,000 metric tons, the total output value over 100 billion
rmb yuan; there are 520 green food manufacturers that can produce eight types of food including green rice, dairy and mountain
products, etc. Apart from that, there have been over 1200 green food sales outlets at home and more than 200 sales outlets at abroad,
mostly in the US, Japan and Southeast Asia. By the end of 2012, the certificated area of place of origin of green food will have
reached 4,467,000 hectacres, a predicted output of 31,500,000 metric tons.
In 2009, green (organic) food processing enterprises in the province
developed to 500, sales income reached RMB 28.5 billion Yuan. 15 green food products were awarded as “Famous Brand in China”.
Under the contract with Harbin
Haixin Biological Fertilizer Co., Ltd., if the Joint Venture moves forward, the Company will be a 16.25% partner in a Joint Venture
for the production of organic biological fertilizer and organic rice. The duties of the Company under the contract are a $1,000,000
capital contribution, to assist the purchase in the United States of the facilities and equipment needed in the project and shipped
to Chinese ports, to assist in all relevant matters such as the purchase of machinery and equipment, and materials outside China
commissioned by the parties, to provide the needed equipment for installation, debugging and trial production, as well as technical
personnel, production and testing technicians, to train the technical personnel and workers required by the project, to assist
and handle the related formalities for Chinese workers, of the project to enter the United States, and to be responsible for handling
other matters entrusted by the partners.
We will work hard to scour
the United States and elsewhere for companies producing the very best in the industrial-scale agricultural equipment used in producing
natural fertilizer. It may take us several months to build a network of business contacts to facilitate the commencement of purchase
of equipment. Once adequate efficiencies are achieved in logistics and supply, we may begin an international marketing campaign,
at first maximizing the personal contacts of our founders, to guarantee a suitable market for our products.
The company plans especially
to target the lucrative China market. According to our research, 10% of the Chinese market would amount to 14,000,000 tons of natural
fertilizer sales. Each ton of natural fertilizer sells for 500 to 1,200 RMB. In areas such as Heilongjiang Province in China, which
is experiencing a boom in rice production (41,533,000 mu of land in 2010), natural fertilizer is in especially high demand. Production
of that amount of fertilizer will call for a large amount of modern equipment, which we plan to be able to provide to such companies.
Developing an adequate knowledge-base
in terms of the regulations governing import and export of such equipment, and the network of providers and manufacturers involved,
will take some time. That is why we plan to spend a considerable amount of labor and effort in obtaining the requisite knowledge,
and/or recruiting suitable personnel to do the job.
According to the October 8, 2012, report in Harbin Tonghe County
television, after Dadi Fertilizer Technology International (USA) Ltd. and Harbin HaiXin Biological Fertilizer Co., Ltd. reached
an agreement, through the use of organic fertilizer from the cooperation projects of US Dadi Company, it had achieved great success
in helping Tonghe County water rice cooperatives to plant “Daohuaxiang #7.” The success caused a big stir in Tonghe
County. According to the introduction of Chairman Liu Haitao of Dadi Fertilizer Technology International (USA) Ltd., the successful
work of “seed transplant” owed thanks to the superb quality and performance of the company’s fertilizer products,
therefore each co-op is required to use 800 tons of “Hai Lu Xin” organic fertilizer next year, the result is the cumulative
increase sales will reach 10 million yuans or more.
4
November 20, 2012, Harbin City TV news channels reported: Dadi Fertilizer
Technology International (USA) Limited's "HaiXin water rice farmer cooperatives" collected a harvest on the organic water
rice, the total output of 2,000 hectares was up to 16,700 tons, yielding 9% more than other plots, thanks to an antagonistic bio-organic
fertilizer developed by the latest technology of Chinese Academy of Science, and produced by US Dadi Company. The great harvest
provided the most powerful protection to the supply of raw materials of "Ma Lang He" brand of organic rice. The great
harvest also will greatly stimulate next year’s fertilizer sales and the rapid expansion of water rice production base.
According to Harbin TV News Channels reports of two advanced cases
on December 8, 2012 and December 9, 2012: Teng Yanhua, a farmer from Harbin Tonghe County Fulin Township Chalin Village, and Ba
Zhanlong, another farmer from Tonghe County Xiangshun Town Xinglong Village, their 120 acres of paddy fields were applied “Hai
Lu Xin” brand bio-organic fertilizer produced by US Dadi Fertilizer Company for three consecutive years, and their production
had increased for three consecutive years. Two farmers have applied the fertilizer since 2010, the annual increase is more than
10%, and have significantly improved the quality of rice. It is more gratifying that the land with application of bio- fertilizer,
the organic matter in the soil is increased by 0.4%, and the expansion of populations of beneficial microbes in the soil is increased,
the agricultural production of the ecological cycle begins to take shape. To this end, the county propaganda department instructed
Tonghe County television stations to broadcast the news in "Tonghe News" and "Country Voice Playback".
According to the reports of Heilongjiang satellite television and
Heilongjiang provincial government website, on January 17 & 18, 2013, Heilongjiang Governor Wang Xiankui , Deputy Governor
Lv Weifeng , Harbin Mayor Song XiBin and other leaders visited Tonghe County, and conducted research on agricultural farming structure
along the Songhua River, production development planning and construction of industrial projects. In the modern agriculture demonstration
area of Tonghe County Nong River Sun Valley, Governor Wang Xiankui and other leaders listened to Haixin water rice planting cooperatives
affiliated of US Dadi Fertilizer Company, on the experience of extracting Songhua River water to increase rice production, Wang
Xiankui governor was very pleased of the report, and suggested to make the full use of resources along Sonhua River, to convert
the resource advantages into economic advantages, optimizing planting structure, carrying water to expand rice production, forming
large farmers' cooperative association , to expand the cultivation of new agricultural subject "cold field black soil, green
and organic agricultural products,” and to establish a plan in 2013 to bear the tasks to expand the five millions and four
hundred thousand acres of water rice fields.
On April 3, 2013, Chinese government network and CCTV "News
Network" reported: In order to implement the 2013 central document #1, the State Council determined that Heilongjiang Province
would be the first to conduct the modern agriculture advance reform pilot program. The launch of this important policy will provide
a golden opportunity of development for US Dadi Company, which is based in Heilongjiang to engage bio-organic fertilizer production
and organic rice production. Therefore the company will accomplish a great deal.
In February 2013, Chairman Liu Haitao of US Dadi Fertilizer Company
and Mr. Li Jingtao, Manager of Bayer Company of Germany signed a contract to act as a regional sales agent in Tonghe area for some
of Bayer agricultural products. Bayer is the world's leading large enterprises, a world leader in agricultural product quality.
The cooperation can provide worldwide superior agricultural products to local farmers, and services to the development of local
farmers.
The cooperation project team of Dadi Fertilizer Technology International
(USA) Limited successfully developed a wonder drug to effectively eradicate river barnyardgrass, and it solved the long-lasting
unsolved problem in the rice fields. According to the introduction of Chairman Liu Haitao, the company, after three consecutive
years of field application and technical improvement, is actively planning trademark registrations and product patents applications.
The products not only ensure the organic rice farm production and stable income of "Haixin water rice farmer cooperatives,”
which is the affiliated agency of US Dadi Company, it also increases the quality of “Ma Lang He” brand organic rice,
a product of Dadi Company, at the same time it brings the benefits to the majority of rice farmers. Therefore, it is a good product
which is beneficial to the company as well as to the others.
Liu Haitao, Chairman of US Dadi Fertilizer Company, and Liu Zhaorong,
Chairman of Harbin Hai Xin Biological Fertilizer Co., Ltd. arrived in Hong Kong on August 6, 2013. Under the arrangement of Liu
Cheng Qingxin, President of American Sino-US New Rural Development Advocacy Association, both chairmen engaged in a wide range
of communication and negotiation with Hong Kong World SMEs Trade Association on the issues such as how to improve production standards
( European standards ) of organic fertilizer produced by US Dadi Fertilizer Company, fertilizer product sales, development and
sales of green organic rice , Heilongjiang green non-genetically modified soybeans, crush-type technology to produce soybean oil
(without adding any chemical substances ), and to enter the international markets. Hong Kong businessmen had made three suggestions
toward US Dadi Fertilizer Company: First, hoping the produced fertilizer able to pass " European certification standards;”
second, hoping to reduce the excessive heavy metals in fertilizers for the production of traditional Chinese medicine "Schisandra;”
third, hoping to produce a lower nuclear leak contaminated soil fertilizer. After consulting with Mr. He Suicheng, who is from
Shenyang Research Institute of Applie Ecology of Chinese Academy of Science, Liu Zhaorong of Harbin HaiXin Company gave satisfactory
answers to Hong Kong businessmen: I. making fertilizer products as early as possible to meet EU standards in order to facilitate
access for the products to international markets; II. with the Chinese Academy of Science's advanced technology, developing a product
which can purifying, degrading, and reducing absorption of heavy metals by plants and nuclear elements of pollution. The talks
achieved satisfactory results.
5
August 7, 2013, Hong Kong World SMEs and Trade Union news: To work
together to promote and carry out in Hong Kong to establish Heilongjiang high-quality agricultural organic fertilizer sales base,
and to promote organic fertilizer products produced by US Dadi Fertilizer Company in order to enter the international market, by
mutual agreement , both parties in Hong Kong signed a cooperation framework agreement. Following the spirit of honesty, long-term
stability, gradual development, and the principle of mutual benefit, before the project was officially launched and implemented,
both parties signed a specific trade cooperation contract.
On August 10, 2013 , Chairman Liu Zhaorong of
Harbin HaiXin Biological Fertilizer Co. Ltd., and Chairman Liu Haitao of US Dadi Fertilizer Company, on their way back from Hong
Kong, had made a special trip to Chinese Academy of Science Shenyang Institute of Applied Ecology, discussed research issues with
the researcher He Suicheng, deputy director of the new fertilizer center, on the development of manufacturing organic fertilizer
which can be decomposed, purifying heavy metals and some core elements of contaminated soil bio-organic fertilizer. Director He
Suicheng pointed out that he can assist Harbin Haixin Biological Fertilizer Co. Ltd. to develop and produce the kind of organic
fertilizer with special features, and hope that through the Hong Kong World SMEs Trade Association, this special function of bio-organic
fertilizer can be recommended to Japan Fukushima nuclear leakage area in order to apply experiments.
Employees
As of December 31, 2015,
we had no employees, including management all work is done on a sub contract basis. We have no agreements with any of our management/subcontractors
for any services. We consider our relations with our subcontractors to be good.
The Company does not carry key person life
insurance on any of its Directorial personnel. The loss of the services of any of its executive officers or other directors could
have a material adverse effect on the business, results of operations and financial condition of the Company. The Company's future
success also depends on its ability to retain and attract highly qualified technical and managerial personnel.
There can be no assurance that the Company
will be able to retain its key managerial and technical personnel or that it will be able to attract and retain additional highly
qualified technical and managerial personnel in the future. The inability to attract and retain the technical and managerial personnel
necessary to support the growth of the Company's business, due to, among other things, a large increase in the wages demanded by
such personnel, could have a material adverse effect upon the Company's business, results of operations and financial condition.
ITEM 1A. RISK FACTORS.
Risks Relating to Our Business
Foreign Officers and Directors could result in difficulty
enforcing rights.
The officers and directors
of the Company are located in China and as such investors may have difficulty in enforcing their legal rights under the United
States securities laws.
The prolonged downturn
in the global economy could materially and adversely affect our business and results of operations.
The global market and economic
conditions during the years 2008 through 2015 are unprecedented and challenging, with recessions occurring in most major economies.
Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues,
and the availability and cost of credit have contributed to increased market volatility and diminished expectations for economic
growth around the world. The difficult economic outlook has negatively affected businesses and consumer confidence and contributed
to volatility of unprecedented levels.
The PRC economy faces challenges.
The PRC government has implemented various measures to curb inflation. If economic growth continues to slow or the economic downturn
continues, our business and results of operations may be materially and adversely affected.
We may not maintain sufficient insurance coverage for the
risks associated with our business operations.
Risks associated with our business and operations include, but
are not limited to, claims for wrongful acts committed by our officers, directors, employees and other representatives, the loss
of intellectual property rights, the loss of key personnel and risks posed by natural disasters. Any of these risks may result
in significant losses. We do not carry business interruption insurance. In addition, we cannot provide any assurance that our insurance
coverage is sufficient to cover any losses that we may sustain, or that we will be able to successfully claim our losses under
our insurance policies on a timely basis or at all. If we incur any loss not covered by our insurance policies, or the compensated
amount is significantly less than our actual loss or is not timely paid, our business, financial condition and results of operations
could be materially and adversely affected.
6
We will not own 100%
of the equity interests in the potential Joint Venture, which may not be as stable and effective in providing operational control
as 100% ownership, and potential exists for conflict of interests.
We
operate our business through our future joint venture arrangement with
Harbin Haixin Biological Fertilizer Co., Ltd.
The
Company entered a cooperation agreement to form a joint venture with an unrelated foreign company on October 31, 2010. The agreement
confirms their mutual intent to identify and work for certain projects together in the next 20 years.The agreement “merely
creates a trading relationship” with our potential joint venture partner and lays out the intent of the partners for the
terms of a joint venture.
If there are disagreements between
Harbin Haixin Biological
Fertilizer Co., Ltd.
and us regarding the business and operations of the Joint Venture, we
cannot provide any assurance that we will be able to resolve those disagreements in a manner that will be in our best interests.
In addition,
Harbin Haixin Biological Fertilizer Co., Ltd.
may (i) have economic or
business interests or goals that are inconsistent with ours; (ii) take actions contrary to our instructions, requests, policies
or objectives; (iii) be unable or unwilling to fulfill its obligations; (iv) have financial difficulties; or (v) have disputes
with us as to the scope of its responsibilities and obligations. Any of these and other factors may materially and adversely affect
the performance of the Joint Venture, which may in turn materially and adversely affect our financial condition and results of
operations.
Any failure by the future Joint Venture to perform its obligations
pursuant to applicable third party contractual arrangements would have a material adverse effect on our business and financial
condition.
If the Joint Venture fails to perform its obligations pursuant
to applicable third party contractual arrangements, we may have to incur substantial costs in connection with any dispute resolution
regarding enforcement of those arrangements and rely on legal remedies available pursuant to applicable PRC laws. All of these
contractual arrangements are governed by PRC law. The Company entered a cooperation agreement to form a joint venture with an unrelated
foreign company on October 31, 2010. The agreement confirms their mutual intent to identify and work for certain projects together
in the next 20 years.The agreement “merely creates a trading relationship” with our potential joint venture partner
and lays out the intent of the partners for the terms of a joint venture. The legal environment in China is not as developed as
in some other jurisdictions, such as the United States.
If the applicable PRC authorities invalidate these contractual
arrangements for violation of PRC laws and regulations by the Joint Venture, the Joint Venture terminates the contractual arrangements,
or the Joint Venture fails to perform its obligations pursuant to those contractual arrangements, the Joint Venture’s business
operations would be materially disrupted and our revenue could decrease substantially.
In addition, if all or part of the Joint Venture’s assets
become subject to liens or rights of third party creditors, the Joint Venture may be unable to continue some or all of its business,
which could materially and adversely affect our financial condition and results of operations. If the Joint Venture becomes subject
to a voluntary or involuntary liquidation proceeding, its unrelated third-party creditors may claim rights to some or all of its
assets, which could materially harm our business and our ability to generate revenue and cause the market price of our common stock
to decline significantly.
We do not have a set date for the starting of the Joint Venture
making the date of the start of operations uncertain.
We do not have a set date for the starting of the Joint Venture
making the date of the start of operations uncertain and thus the Company may never have any revenues.
Unmerited legal actions or threats by our employees, consultants
or other associates in an attempt to extract payments or benefits from us could have an adverse effect on our business and reputation.
In recent years, as the number of foreign companies doing business
in China has increased, there has been an increasing number of unmerited legal actions and threats by current and former employees,
consultants or other associates of these companies, in an attempt to extract payments or benefits from them. We may face increasing
risks of similar legal actions and threats. Although we expect to vigorously defend ourselves against any such actions if we believe
they are frivolous, we cannot provide any assurance that we will prevail in those actions, or will not be subject to any material
liability as a result of those actions. Furthermore, regardless of success in our legal defenses, those actions and the threats
of those actions would probably be time-consuming and expensive to resolve and would divert our management’s time and attention.
Our reputation and profitability may also be harmed as a result.
We depend upon the Joint Venture’s acquisition and
maintenance of licenses to conduct its business in the PRC.
In order to conduct its business, the Joint Venture will be required
to obtain and maintain various licenses from the appropriate Chinese government authorities, including general business licenses
and permits specific to its operations. We can provide no assurance that the Joint Venture will be successful in obtaining all
of the appropriate licenses and permits to conduct its business. Nor can we provide any assurance that if those licenses or permits
are acquired, those licenses and permits will be renewed.
7
The PRC government may amend relevant laws and discontinue approval
of renewal of certain licenses or permits. Further, fees for such licenses or permits may increase in the future. The Joint Venture’s
failure to obtain or maintain those licenses or permits and any change of the relevant PRC laws regarding the appropriate licenses
or permits to the Joint Venture’s disadvantage will have a material adverse impact on our business and financial condition.
Also, if increasing compliance costs associated with governmental standards and regulations restrict or prohibit any part of the
Joint Venture’s operations, it may adversely affect our profitability.
Material weaknesses in our internal controls and financial
reporting, and our lack of a chief financial officer with sufficient U.S. GAAP experience may limit our ability to prevent or detect
financial misstatements or omissions. As a result, our financial reports may not be in compliance with U.S. GAAP. Any material
weakness, misstatement or omission in our financial statements will negatively affect the market and the price of our stock, which
could result in significant loss to our investors.
None of the members of our current management has experience managing
and operating a public company, and they rely in many instances on the professional experience and advice of third parties. While
we are obligated to hire a qualified chief financial officer to enable us to satisfy our reporting obligations as a U.S. public
company, we do not have a chief financial officer with any significant U.S. GAAP experience presently.
Although we are actively
seeking such a chief financial officer, qualified individuals are often difficult to find, or the individual may not have all of
the qualifications that we require. Therefore, we may, in turn, experience “weakness” and potential problems in implementing
and maintaining adequate internal controls as required under Section 404 of the “Sarbanes-Oxley” Act of 2002. This
“weakness” also includes a deficiency, or combination of deficiencies, in internal controls over financial reporting,
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not
be prevented or detected on a timely basis. If we fail to achieve and maintain the adequacy of our internal controls, as such requirements
are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis
that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.
Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent
fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information,
and the trading price of our common stock, if a market ever develops, could drop significantly.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required
to include in our annual reports our assessment of the effectiveness of our internal control over financial reporting as of the
end of our fiscal years. We have not yet completed any assessment of the effectiveness of our internal control over financial reporting.
We expect to incur additional expenses and diversion of management’s time as a result of performing the system and process
evaluation, testing and remediation required in order to comply with the management certification.
We conduct our business by means of a joint venture arrangement.
If the Chinese government determines that this arrangement does not comply with applicable regulations, our business could be adversely
affected. If the PRC regulatory agencies determine that the agreements that establish the structure and relationship for operating
our business in China do not comply with PRC regulatory restrictions on foreign investment, we could be subject to severe penalties.
In addition, changes in such Chinese laws and regulations may materially and adversely affect our business.
There are uncertainties regarding the interpretation and application
of PRC laws, rules and regulations, including, but not limited to, the laws, rules and regulations governing the validity and enforcement
of the joint venture arrangement between Harbin Haixin Biological Fertilizer Co. Ltd. and us. Although we believe, based on our
understanding of the current PRC laws, rules and regulations, the structure for operating our business in China (including the
joint venture arrangement with Harbin Haixin Biological Fertilizer Co. Ltd.) complies with all applicable PRC laws, rules and regulations
and does not violate, breach, contravene or otherwise conflict with any applicable PRC laws, rules or regulations, we cannot assure
you that the PRC regulatory authorities will not determine that such joint venture arrangement does not violate PRC laws, rules
or regulations. If the PRC regulatory authorities determine that our joint venture arrangement with Harbin Haixin Biological Fertilizer
Co. Ltd. is in violation of applicable PRC laws, rules or regulations, such joint venture arrangement may become invalid or unenforceable,
which will substantially affect our operations adversely.
The Chinese government has broad discretion in dealing with violations
of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.
In particular, licenses and permits issued or granted by relevant governmental agencies may be revoked at a later time by other
regulatory agencies. We cannot predict the effect of the interpretation of existing or new Chinese laws or regulations on our business.
Any of these or similar actions could significantly disrupt our operations or restrict us from conducting a substantial portion
of our operations, which could materially and adversely affect our business, financial condition and results of operations.
8
Non-compliance with the social insurance and housing fund
contribution regulations in the PRC could lead to imposition of penalties or other liabilities.
The PRC governmental authorities have passed a variety of laws
and regulations regarding social insurance and housing funds, such as the Regulation of Insurance for Labor Injury, the Regulation
of Insurance for Unemployment, the Provisional Insurance Measures for Maternity of Employees, Interim Provisions on Registration
of Social Insurance, Interim Regulation on the Collection and Payment of Social Insurance Premiums, Regulations on Management of
Housing Fund and other related laws and regulations. Pursuant to these regulations, we will be required to obtain and renew the
social insurance registration certificate and the housing fund certificate and make enough contributions to the relevant local
social insurance and housing fund authorities for our PRC employees. Failure to comply with such laws and regulations would subject
us to various fines and legal sanctions and supplemental contributions to the local social insurance and housing fund authorities.
The Companies funding requirements will be funded through equity, debt or related party loans.
We must comply with the Foreign Corrupt Practices Act.
We are required to comply with the United States Foreign Corrupt
Practices Act, which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the
purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC. If our competitors
engage in these practices, they may receive preferential treatment from personnel of some companies, giving those competitors an
advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would
put us at a disadvantage. We could suffer severe penalties if our employees or other agents were determined to have engaged in
such practices.
If we are unable to retain key personnel, it will have an
adverse effect on our business. We do not maintain “key man” life insurance policies on our key personnel.
The conduct of our business is dependent on retaining the services
of qualified personnel. The loss of key management, the inability to secure or retain such key personnel with unique knowledge
of our business or our inability to attract and retain sufficient numbers of other qualified personnel would adversely affect our
business and could have a material adverse effect on our business, operating results, and financial condition.
We do not have “key man” life insurance policies for
any of our key personnel. If we were to obtain “key man” insurance for our key personnel, of which there can be no
assurance, the amounts of such policies may not be sufficient to pay losses experienced by us as a result of the loss of any of
those personnel.
Risks Related to Doing Business in China
The PRC Labor Contract Law and its implementing rules may
adversely affect our business and results of operations.
On June 29, 2007, the Standing Committee of the National People’s
Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. On September 18, 2008, the State Council
adopted the implementing rules for the Labor Contract Law, which became effective upon adoption. This labor law and its implementing
rules have reinforced the protection for employees, who, under the existing PRC Labor Law, already have certain rights, such as
the right to have written labor contracts, the right to enter into labor contracts with no fixed terms under specific circumstances,
the right to receive overtime wages when working overtime, and the right to terminate or alter terms in the labor contracts. In
addition, the Labor Contract Law and its implementing rules have made some amendments to the existing PRC Labor Law and added some
clauses that could increase cost of labor to employers. For example, under the Labor Contract Law, employers are required to base
their decisions to dismiss employees on seniority, as opposed to merit, under certain circumstances. As the Labor Contract Law
and its implementing rules are relatively new, there remains significant uncertainty as to their interpretation and application
by the PRC government authorities. At this time there are no operations of the registrant in the PRC but in the future employees
such as a sales force or marketing may be employed in the PRC and such labor laws would increase our labor cost and thus lower
the registrants profitability. In the event that we decide to significantly reduce our workforce, the Labor Contract Law and its
implementing rules could adversely affect our ability to effect these changes cost-effectively or in the manner we desire, which
could lead to a negative impact on our business and results of operations.
Due to the nature of our business, we will be subject to
certain environmental regulation in the PRC.
Our operations are subject to environmental and safety regulation
in the PRC. Such regulation covers a wide variety of matters, including, without limitation, prevention of waste, pollution and
protection of the environment, labor regulations and worker safety. In particular, the acceptable level of pollution and the potential
clean-up costs and obligations and liability for toxic or hazardous substances for which we may become liable as a result of our
activities may be impossible to assess against the current legal framework and current enforcement practices of the PRC. In addition,
environmental legislation and permit regimes are likely to evolve in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and heightened
degree of responsibility for companies and their directors and employees.
9
Adverse changes in economic and political policies of the
PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.
A significant portion of our business operations is conducted in
the PRC. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic,
political and legal developments in China. China’s economy differs from the economies of most developed countries in many
respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign
exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 30 years or so, growth
has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various
measures to encourage economic development and guide the allocation of resources. While some of these measures benefit the overall
PRC economy, they may also have a negative effect on us. For example, our financial condition and results of operations may be
adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.
Although the PRC government has implemented measures since the
late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets
and the establishment of improved corporate governance in business enterprises, the PRC government still owns a substantial portion
of productive assets in China. In addition, the PRC government continues to play a significant role in regulating industry development
by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through
the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing
preferential treatment to particular industries or companies. Actions and policies of the PRC government could materially affect
our ability to operate our business, which could adversely affect our business.
We face risks related to health epidemics, severe weather
conditions and other catastrophes, which could materially and adversely affect our business.
Our business could be materially and adversely affected by the
outbreak of avian flu, severe acute respiratory syndrome, or SARS, another health epidemic, severe weather conditions or other
catastrophes. In April 2009, Influenza A (H1N1), a new strain of flu virus commonly referred to as “swine flu,” was
first discovered in North America and quickly spread to other parts of the world, including China. In January and February 2008,
a series of severe winter storms inflicted extensive damages and significantly disrupted people’s lives in large portions
of southern and central China. In May 2008, an earthquake measuring 8.0 on the Richter scale hit Sichuan Province in southwestern
China, causing huge casualties and property damages. Because the vast majority of our business operations is conducted in China
and rely heavily on the efforts of persons residing in China, any prolonged recurrence of avian flu or SARS, or the occurrence
of other adverse public health developments such as influenza A (H1N1), severe weather conditions, such as the massive snow storms
in January and February 2008, and other catastrophes, such as the Sichuan earthquake, may significantly disrupt our operations,
thus causing a material and adverse effect on our business.
Uncertainties with respect to the PRC legal system could
adversely affect us.
We conduct our business primarily through our joint venture relationship
with Harbin Haixin Biological Fertilizer Co., Ltd. in China. Our operations in China are governed by PRC laws and regulations.
Accordingly, we are generally subject to laws and regulations applicable to foreign investments in China. The PRC legal system
is based on written statutes. Prior court decisions may be used for reference, but have limited precedential value.
Although since 1979, PRC legislation and regulations have significantly
enhanced the protections afforded to various forms of foreign investments in China, China has not developed a fully integrated
legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China.
In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions
and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties that could
limit the reliability of the legal protections available to us. In addition, the PRC legal system is based in part on government
policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As
a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any
litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
We cannot predict the effects of future developments in the PRC
legal system. We may be required in the future to procure additional permits, authorizations and approvals for operations, which
may not be obtainable in a timely fashion or at all. An inability to obtain such permits or authorizations may have a material
adverse affect on our business, financial condition and results of operations.
Any deterioration of political relations among the United
States and the PRC could impair our operations.
The relationship between the United States and the PRC is subject
to sudden fluctuation and periodic tension. Changes in political conditions in the PRC and changes in the state of Sino-U.S. relations
are difficult to predict and could adversely affect our operations. Such a change could lead to a decline in our profitability.
Any weakening of relations among the United States and the PRC could have a material adverse effect on our operations.
10
Fluctuation in the value of the RMB may have a material adverse
effect on your investment.
The value of the RMB against the U.S. Dollar and other currencies
may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government
changed its decade-old policy of pegging the value of the RMB to the U.S. Dollar. Under the new policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in
significant appreciation of the RMB against the U.S. Dollar since that change. However, under the current global financial and
economic conditions, it is impossible to predict with any certainty how the RMB will move vis-à-vis the U.S. Dollar in the
future.
We will rely entirely on distribution of funds paid to us as our
share of the profits of the Joint Venture, which has its operations in China. Any significant appreciation or depreciation of the
RMB against the U.S. Dollar may affect our cash flows, revenues, earnings and financial position. For example, an appreciation
of the RMB against the U.S. Dollar would make any new RMB-denominated investments or expenditures more costly to us, to the extent
that we are required to convert U.S. Dollars into the RMB for such purposes. Conversely, a significant depreciation of the RMB
against the U.S. Dollar may significantly reduce the U.S. Dollar equivalent of our reported earnings and adversely affect the price
of our common stock.
Compensation for our future employees may make us potentially
less profitable.
In recent years, compensation in various industries in China has
increased and may continue to increase in the future. In order to attract and retain skilled personnel, we may need to increase
the compensation of our employees. Compensation may, also, increase as inflationary pressure increases in China. In addition, under
the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than
one year for a specific employer are entitled to a paid vacation ranging from 5 to 15 days, depending on length of service. Employees
who waive such vacation time at the request of employers must be compensated for three times their normal salaries for each waived
vacation day. This mandated paid-vacation regulation, coupled with the trend of increasing compensation, may result in increase
in our employee-related costs and expenses and decrease in our profit margins.
PRC regulation of direct investments in PRC entities by offshore
companies may delay or prevent us from contributing our funds to the Joint Venture.
Any funds we contribute to the Joint Venture may be subject to approval
by or registration with relevant governmental authorities in China. According to the relevant PRC regulations regarding foreign-invested
enterprises in China, capital contributions to the Joint Venture may be subject to the approval of the PRC Ministry of Commerce
or its local branches. Such authorities are required to conclude the approval process regarding capital contribution within 30
days. There is no statutory requirement in the PRC to complete such registration process within certain time period. The PRC government
does not charge any fee for any of the foregoing approvals and registrations process.
In addition, on August 29, 2008, SAFE promulgated Circular 142,
a notice regulating the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted
RMB may be used. Circular 142 requires that RMB converted from the foreign currency-denominated capital of a foreign-invested company
may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for
equity investments within the PRC, unless specifically provided for otherwise in its business scope. In addition, the State Administration
of Foreign Exchange (“SAFE”) strengthened its oversight over the flow and use of RMB funds converted from the foreign
currency-denominated capital of a foreign-invested company. The use of such RMB fund may not be changed without approval from SAFE
or its local counterparts. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth
in the Foreign Exchange Administration Regulations.
We cannot
provide any assurance that we will be able to obtain the required government registrations or approvals on a timely basis, if at
all, with respect to contributions made by us to the Joint Venture. If we fail to receive such registrations or approvals, our
ability to contribute to the capital of the Joint Venture would be negatively affected, which would adversely and materially affect
our business.
As the registrant does not yet have funds to start the Joint Venture and only
have established a trading relationship at this time, no application has been prepared or submitted to the PRC Ministry of Commerce
for approval of the Joint Venture contribution.
11
We may be classified as a “resident enterprise”
for PRC enterprise income tax purposes; such classification could result in unfavorable tax consequences to us and our non-PRC
shareholders.
Under the
PRC Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both effective from January 1, 2008, an enterprise
established outside of China with “de facto management bodies” within China is considered a resident enterprise and
will be subject to enterprise income tax at the rate of 25% on its worldwide income. The implementing rules define the term “de
facto management bodies” as establishments that carry out substantial and overall management and control over the manufacturing
and business operations, personnel, accounting, properties, etc. of an enterprise. The State Administration of Taxation issued
the
Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises
on the Basis of De Facto Management Bodies
, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria
for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is
located in China, which include all of the following conditions (1) the location where senior management members responsible for
an enterprise’s daily operations discharge their duties; (2) the location where financial and human resource decisions are
made or approved by organizations or persons; (3) the location where the major assets and corporate documents are kept; and (4)
the location where more than half of all directors with voting rights or senior management have their habitual residence.
However, the EIT Law and its implementing rules are relatively new and ambiguous in terms of certain definitions, requirements
and detailed procedures, and currently no official interpretation or application of the “resident enterprise” definition
is available. Therefore, it is unclear how PRC tax authorities will determine the tax residency of each company based on the facts
and circumstances of the specific company. If we are treated as a resident enterprise for PRC tax purposes, we will be subject
to PRC tax on our worldwide income at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse
effect on our net income and results of operations, although dividends distributed from our PRC subsidiaries to us could be exempt
from PRC dividend withholding tax, since such income is exempted under the new EIT Law to a PRC resident recipient.
Although Circular 82 only applies to offshore enterprises controlled
by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria
set forth in Circular 82 may indicate the State Administration of Taxation’s general position on how the “de facto
management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether
they are controlled by the PRC enterprises or PRC enterprise groups or individuals or by foreign individuals. If we were considered
as a PRC “resident enterprise,” we would be subject to a PRC enterprise income tax on our worldwide income at a tax
rate of 25%.
In addition, under the New EIT Law and its implementation regulations
issued by the State Council, a 10% PRC withholding tax is applicable, unless otherwise reduced or exempted by relevant tax treaties,
to dividends paid by a PRC resident enterprise to investors that are “non-resident enterprises,” which do not have
an establishment or place of business in the PRC, or which have such establishment or place of business, but the dividends are
not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within
the PRC. Similarly, if we are considered a “PRC resident enterprise”, any gain realized on the transfer of our common
stock by investors is, also, subject to PRC tax, at a rate of 10% unless otherwise reduced or exempted by relevant tax treaties,
if such gain is regarded as income derived from sources within the PRC. If we were considered a PRC resident enterprise, it is
unclear whether dividends paid on our common stock, or any gain realized from the transfer of our common stock, would be treated
as income derived from sources within the PRC and would as a result be subject to PRC taxation. It is also unclear whether, if
we are considered a PRC resident enterprise, holders of our common stock would be able to claim the benefit of income tax treaties
or agreements entered into among China and other countries or areas. If dividends payable to our non-PRC investors, or gains from
the transfer of our common stock by such investors are subject to PRC tax, the value of your investment in our common stock may
be materially and adversely affected.
There are differences between PRC and U.S. Generally Accepted
Accounting Principles.
Our profits will be derived from the business of the Joint Venture,
which is established in the PRC. The profits available for distribution for companies established in the PRC are determined in
accordance with PRC accounting standards, which may differ from the amounts determined under U.S. GAAP. In the event that the amount
of the profits determined under the PRC accounting standard in a given year is less than that determined under the U.S. GAAP, our
results of operations may be affected adversely.
Future inflation in China may inhibit economic activity and
adversely affect our operations.
The Chinese economy has experienced periods of rapid expansion in
recent years, which has resulted in high rates of inflation and deflation. This has caused the PRC government to, from time to
time, enact various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation.
Significant inflation may, in the future, cause the PRC government to once again impose controls on credit and/or prices, or to
take other action, which could inhibit economic activity in China. Any action on the part of the PRC government that seeks to control
credit and/or prices may adversely affect our business.
12
We may be restricted from freely converting the Renminbi (“RMB”)
to other currencies in a timely manner.
At the present time, the RMB is not a freely convertible currency.
We will receive the vast majority of our revenue in RMB, which may need to be converted to other currencies, primarily U.S. dollars,
in order to be remitted outside of the PRC. Effective July 1, 1996, foreign currency “current account” transactions
by foreign investment enterprises are no longer subject to the approval of State Administration of Foreign Exchange (“SAFE”),
but need only a ministerial review, according to the Administration of the Settlement, Sale and Payment of Foreign Exchange Provisions
promulgated in 1996 (the “FX regulations”). “Current account” items include international commercial transactions,
which occur on a regular basis, such as those relating to trade and provision of services. Distributions to Participants also are
considered “current account transactions.” Other non-current account items, known as “capital account”
items, remain subject to SAFE approval. Under current regulations, we can obtain foreign currency in exchange for RMB from swap
centers authorized by the government. No assurance can be given that foreign currency shortages or changes in currency exchange
laws and regulations by the PRC government will not restrict us from freely converting RMB in a timely manner.
Approval from appropriate government authorities is required where
RMB is to be converted into foreign currency and remitted out of China to pay capital expenses. The PRC government may, also, at
its discretion, restrict access in the future to foreign currencies for current account transactions. Under our joint venture structure,
the primary source of our income will be payments from the Joint Venture, which is subject to China law. Shortages in the availability
of foreign currency may restrict the ability of the Joint Venture to remit sufficient foreign currency to make payments to us,
or otherwise satisfy foreign currency denominated obligations. If the foreign exchange control system prevents us from obtaining
sufficient foreign currency to satisfy our currency needs, our operations will be adversely affected.
If we make equity compensation grants to persons who are PRC
citizens, they may be required to register with SAFE. We may also face regulatory uncertainties that could restrict our ability
to adopt equity compensation plans for our directors and employees under PRC laws.
In 2005, the PRC State Administration of Foreign Exchange (“SAFE”)
promulgated regulations which require registrations with, and approval from, SAFE on direct or indirect offshore investment activities
by PRC legal person resident and/or natural person resident. On April 6, 2007, SAFE issued the “Operating Procedures for
Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed
Company”, also known as “Circular 78”. It is not clear whether Circular 78 covers all forms of equity compensation
plans or only those which provide for the granting of stock options. For any plans which are so covered and are adopted by a non-PRC
listed company, such as us, after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with, and
obtain approvals from, SAFE prior to their participation in any such plan.
If we adopt an employee stock option plan or any other equity incentive
plan and make stock option grants under any such plan to our officers, directors and employees, some of whom are PRC citizens,
they may be required to register with SAFE. If it is determined that any of our equity compensation plans are subject to Circular
78, failure to comply with such provisions may subject us and participants of our equity compensation plans who are PRC citizens
to fines and legal sanctions and prevent us from being able to grant equity compensation to our PRC employees. In that case, our
ability to compensate our employees and directors through equity compensation would be hindered and our business operations may
be adversely affected. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome
and time consuming.
SAFE regulations relating to offshore investment activities
by PRC residents may increase our administrative burdens. If our shareholders who are PRC residents fail to make any required applications,
registrations and filings under such regulations, we may be unable to distribute profits and may become subject to liability under
PRC laws.
SAFE has promulgated several regulations, including Notice on Relevant
Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Oversea Special
Purpose Vehicles, or “Circular No. 75”, issued on October 21, 2005 and effective as of November 1, 2005 and certain
implementation rules issued in recent years, requiring registrations with, and approvals from, PRC government authorities in connection
with direct or indirect offshore investment activities by PRC residents and PRC corporate entities. These regulations apply to
our shareholders and beneficial owners who are PRC residents.
Although we have requested our PRC shareholders to complete the
SAFE Circular No. 75 registration, there is no assurance that all of our PRC shareholders will be able to comply with the requirements
imposed by Circular 75. The failure or inability of our PRC shareholders to receive any required approvals or make any required
registrations may subject us to fines and legal sanctions, limit our ability to make distributions or pay dividends, or affect
our ownership structure, as a result of which our operations and our ability to distribute profits to you could be materially and
adversely affected.
13
Contractual arrangements entered into may be subject to audits
or challenges by the PRC tax authorities, and a finding that we may owe taxes could materially and adversely impact our financial
condition and results of operations.
Under applicable PRC laws, rules and regulations, arrangements and
transactions among related parties may be subject to audits or challenges by the PRC tax authorities. We cannot assure you that
each of our transactions with Harbin Haixin Biological Fertilizer Co. Ltd. will be regarded by the PRC tax authorities as arm’s-length
transactions. The relevant tax authorities may determine that our contractual relationships with Harbin Haixin Biological Fertilizer
Co. Ltd. were not entered into on an arm’s-length basis. If the PRC tax authorities determine that any of those transactions
are not on an arm’s length basis, or result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations,
the PRC tax authorities may adjust our income, expenses, profits and losses, which could in turn increase our tax liabilities.
In addition, the PRC tax authorities may impose late payment fees and other penalties for underpaid taxes. Our net income may be
adversely and materially affected if our tax liabilities increase or if it is found to be subject to late payment fees or other
penalties.