FORM S-1
 
 
REGISTRATION STATEMENT
 
 
UNDER
 
 
THE SECURITIES ACT OF 1933
 
 
GSP-2, INC.
(Exact Name of Registrant in its Charter)

Nevada
 
100
 
27-3120454
(State or other Jurisdiction of Incorporation)
 
(Primary Standard Industrial Classification Code)
 
(IRS Employer Identification No.)
 
Gongzhuling State Agriculture Science and Technology Park, location of 998 kilometers, Line 102,
Gongzhuling city, Jilin province, China
Tel.: +86-434-627-8415
 (Address and Telephone Number of Registrant’s Principal
Executive Offices and Principal Place of Business)

 (Name, Address and Telephone Number of Agent for Service)
 
Copies of communications to:
Gregg E. Jaclin, Esq.
Anslow & Jaclin, LLP
195 Route 9 South, Suite204
Manalapan, NJ 07726
Tel. No.: (732) 409-1212
 Fax No.: (732) 577-1188
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, 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 of 1933, please check the following box and list the Securities Act registration Statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
x
                                        
 
 

 
                                                                                        
CALCULATION OF REGISTRATION FEE
 
Title of Each Class Of Securities to be Registered
 
Amount to be
Registered (1)
   
Proposed Maximum
Aggregate Offering
Price per share
   
Proposed Maximum
Aggregate
Offering Price
   
Amount of
Registration fee
 
Common Stock issuable upon exercise of the Preferred Shares (1)
   
752,200
    $
2.00 (2)
    $
1,504,400
    $
172.40
 
Common Stock issuable upon exercise of the Agent Warrants  (1)
   
75,220
    $
2.40
    $
300,950.40
    $
34.49
 
Common Stock, par value $0.0001 (3)
   
62,598 (3)
    $
1.50
    $
93,897
    $
10.76
 
Common Stock, par value $0.0001 (4)
   
597,000 (4)
    $
2.00
    $
1,194,000
    $
136.84
 

(1)  
This Registration Statement covers the resale by our selling shareholders of up to 752,200 shares of common stock underlying the Preferred Shares previously issued to such selling shareholders, as well as 75,220 shares of common stock underlying the warrants issued to the placement agents regarding the placement of securities sold in the offering completed on December 20, 2011 (the “Agent Warrants”).

(2)  
The offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(o). Our common stock is not traded on any national exchange and in accordance with Rule 457; the offering price was determined by the price of the shares that were sold to our shareholders in a private placement memorandum. The price of $2.00 is a fixed price at which the selling security holders may sell their shares until our common stock is quoted on the OTCBB at which time the shares may be sold at prevailing market prices or privately negotiated prices. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.
 
(3)  
Represents 62,398 shares of common stock held by the selling security holder, Bay Peak 2 Opportunity Corp. (“Bay Peak”). These shares were distributed to the shareholders of Bay Peak on January 19, 2012 (the “Bay Peak Shareholders”).
 
(4)  
Represents shares of common stock issued to the selling stockholders pursuant to the terms of that certain share exchange agreement dated February 11, 2011 whereby we completed a reverse acquisition transaction with Shiny Gold Holdings Limited, a British Virgin Islands company (“Shiny Gold”), whereby we acquired all of the issued and outstanding ordinary shares of Shiny Gold in exchange for 12,800,000 shares of our common stock, par value $0.001 per share, which shares constituted approximately 92.8% of our issued and outstanding shares, as of and immediately after the consummation of the reverse acquisition (the “Share Exchange”).  As a result of the reverse acquisition, Shiny Gold became our wholly owned subsidiary and the former shareholders of Shiny Gold became our controlling stockholders. 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the U.S. Securities and Exchange Commission (“SEC”) is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
 
 

 
 
EXPLANATORY NOTE
 
This Registration Statement contains one prospectus as set forth below:

Resale Prospectus. A prospectus to be used for the resale by selling stockholders of 1,487,018 shares of Common Stock, including (1) 752,200 shares of common stock underlying the Preferred Shares previously issued to such selling shareholders; (2) 75,220 shares of Common Stock issuable upon exercise of outstanding Agent Warrants at an exercise price of $2.40 per share, that were issued in connection with the private placement that closed on December 20, 2011; (3) 62,598 shares of common stock to the Bay Peak Shareholders obtained by the Bay Peak Shareholders on January 19, 2012; and (4) 597,000 shares of common stock to our shareholders that obtained their shares through the Share Exchange.
 
 
 

 

PRELIMINARY PROSPECTUS
Subject to completion, dated January __, 2012
 
GSP-2, INC.

1,487,018 SHARES OF COMMON STOCK
 
The selling security holders named in this prospectus are offering all of the shares of common stock offered through this prospectus. We will not receive any proceeds from the sale of the common stock covered by this prospectus.

Our common stock is presently not traded on any market or securities exchange. The selling security holders have not engaged any underwriter in connection with the sale of their shares of common stock.  The common stock underlying the Preferred Shares being registered in this registration statement may be sold by selling security holders at a fixed price of $2.00 per share until our common stock is quoted on the OTC Bulletin Board (“OTCBB”) and thereafter at a prevailing market prices or privately negotiated prices or in transactions that are not in the public market. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority (“FINRA”), which operates the OTCBB, nor can there be any assurance that such an application for quotation will be approved. We have agreed to bear the expenses relating to the registration of the shares of the selling security holders.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 3 to read about factors you should consider before buying shares of our common stock.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.  
 
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the SEC is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

GSP-2, INC.

The Date of This Prospectus is: January __, 2012
 
 
 

 
 
TABLE OF CONTENTS
 
 
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F-1
 
 
 

 
 
ITEM 3.  Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges
 
PROSPECTUS SUMMARY
 
This summary highlights selected information contained elsewhere in this prospectus.  This summary does not contain all the information that you should consider before investing in the common stock.  You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision. In this Prospectus, the terms “GSP-2, Inc.,” “Company,” “we,” “us” and “our” refer to GSP-2, Inc.

Overview
 
We were incorporated in the State of Nevada on December 31, 2009 as a blank check development stage company formed for the purpose of acquiring an operating business, through a merger, stock exchange, asset acquisition or similar business combination.  On February 11, 2011 we entered into a reverse merger and acquired Shiny Gold Holdings Limited, a British Virgin Islands company (“Shiny Gold”). Prior to our reverse acquisition, we had made no efforts to identify a possible business combination and had not previously conducted negotiations or entered into a letter of intent concerning any target business.
 
On February 11, 2011, we completed a reverse acquisition transaction through a share exchange with Shiny Gold whereby we acquired all of the issued and outstanding ordinary shares of Shiny Gold in exchange for 12,800,000 shares of our common stock, par value $0.001 per share, which shares constituted approximately 92.8% of our issued and outstanding shares, as of and immediately after the consummation of the reverse acquisition.  As a result of the reverse acquisition, Shiny Gold became our wholly owned subsidiary and the former shareholders of Shiny Gold became our controlling stockholders.  The share exchange transaction with Shiny Gold was treated as a reverse acquisition, with Shiny Gold as the acquirer and the Company as the acquired party.  Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Shiny Gold and its respective consolidated subsidiaries.

Private Offering
 
On December 20, 2011 we completed a private offering consisting of 752,200 shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share, at a purchase price of $2.00 per share to certain accredited investors (the “Preferred Shares”). The investors entered into a securities purchase agreement (the “Securities Purchase Agreement”) (see Exhibit 10.1). An aggregate of 752,200 Preferred Shares were sold in the Offering for gross proceeds to the Company of $1,504,400. As a result of the Offering, the Company issued an aggregate of 752,200 Shares as well as warrants to acquire an aggregate of 50,176 shares of our Common Stock to the placement agent, at an exercise price of $2.40 per share (the “Agent Warrants”). In connection with the securities purchase agreement, the Company agreed to register the Common Stock underlying the Preferred Shares for resale. In addition, we agreed to register the Common Stock underlying the Agent Warrants.
 
Where You Can Find Us

Our principal executive office is located at Gongzhuling State Agriculture Science and Technology Park, location of 998 kilometers, Line 102, Gongzhuling city, Jilin province, China and our telephone number is +86-434-627-8415.

The Offering

Common stock offered by selling security holders
 
1,487,018 shares of common stock, consisting of:
 
(i) 752,200 shares of common stock underlying the Preferred Shares and the 75,220 shares of common stock underlying the Agent Warrants with respect to the private offering of securities completed on December 20, 2011;
 
(ii) 62,598 shares of common stock held by the Bay Peak Shareholders; and
 
(iii) 597,000 shares of common stock issued to the selling stockholders pursuant to the terms of that certain share exchange agreement dated February 11, 2011 whereby we completed a reverse acquisition transaction with Shiny Gold whereby we acquired all of the issued and outstanding ordinary shares of Shiny Gold in exchange for 12,800,000 shares of our common stock, par value $0.001 per share, which shares constituted approximately 92.8% of our issued and outstanding shares, as of and immediately after the consummation of the reverse acquisition (the “Share Exchange”).  As a result of the reverse acquisition, Shiny Gold became our wholly owned subsidiary and the former shareholders of Shiny Gold became our controlling stockholders. 
     
Common stock outstanding before the offering
 
14,000,000
     
Common stock outstanding after the offering
 
14,827,420 common shares as of January 27, 2012, assuming the full conversion of the Preferred Shares as well as the full exercise of the Agent Warrants.
     
Use of proceeds
 
We are not selling any shares of the common stock covered by this prospectus.
     
Risk Factors
 
The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 3.
 
 
1

 

Summary of Financial Information

The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis,” “Plan of Operation” and the Financial Statements and Notes thereto, included elsewhere in this prospectus. The statement of operations and balance sheet data for the fiscal years ended December 31, 2010 and 2009 are derived from our audited financial statements and the statement of operations and balance sheet data for the nine months ended September 30, 2011 and 2010 are derived from our unaudited interim financial statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and the related notes included in this prospectus.

   
September 30
   
December 31
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash
 
$
14,624,060
   
$
12,867,137
 
Restricted cash
   
-
     
109
 
Accounts receivable
   
20,105,837
     
15,617,336
 
Advance payments to suppliers
   
13,668,130
     
-
 
Prepaid taxes
   
-
     
440,477
 
Inventories
   
14,942,455
     
6,510,886
 
Biological assets
   
323,464
     
-
 
Prepaid expenses and other assets
   
644,578
     
22,818
 
                 
Total Current Assets
   
64,308,524
     
35,458,763
 
                 
PROPERTY AND EQUIPMENT - net
   
12,777,530
     
8,786,661
 
                 
OTHER ASSETS:
               
Loan receivable
   
-
     
6,049,790
 
Investment in related party company
   
156,206
     
-
 
Land use rights, net
   
12,977,904
     
2,674,006
 
                 
Total Other Assets
   
13,134,110
     
8,723,796
 
                 
Total Assets
 
$
90,220,164
   
$
52,969,220
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
CURRENT LIABILITIES:
               
Loans payable - current portion
 
$
15,620,607
   
$
-
 
Accounts payable
   
1,350,300
     
6,029,060
 
Facility and land use right payable
   
16,033,643
     
-
 
Advances from customers
   
12,258,470
     
7,957,658
 
Other Payable
   
270,147
     
94,620
 
Taxes Payable
   
675,911
     
-
 
Due to related parties
   
4,088,264
     
4,222,574
 
                 
Total Current Liabilities
   
50,297,342
     
18,303,912
 
                 
LOANS PAYABLE, net of current portion
   
-
     
1,512,447
 
                 
Total Liabilities
   
50,297,342
     
19,816,359
 
                 
SHAREHOLDERS' EQUITY:
               
                 
Preferred stock ($0.001 par value; 100,000,000 shares authorized, none issued
               
and outstanding)
   
-
     
-
 
Common Stock ($0.001 par value, 100,000,000 shares authorized, 13,800,000 and 12,800,000
               
shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively)
   
13,800
     
12,800
 
Additional paid-in capital
   
8,731,420
     
5,658,339
 
Retained earnings
   
28,363,794
     
25,856,413
 
Statutory reserves
   
347,445
     
342,957
 
Accumulated other comprehensive income - foreign currency translation adjustment
   
2,466,363
     
1,282,352
 
                 
Total Shareholders' Equity
   
39,922,822
     
33,152,861
 
                 
Total Liabilities and Shareholders' Equity
 
$
90,220,164
   
$
52,969,220
 
 
 
2

 
 
RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.

Risks Relating to our Business and Industry

We are subject to the risks that are inherent in farming.

Our results of operations may be adversely affected by numerous factors over which we have little or no control and that are inherent in farming, including reductions in the market prices for our products, adverse weather and growing conditions, pest and disease problems, and new PRC regulations regarding farming and the marketing of agricultural products.

Our earnings are sensitive to fluctuations in market prices and demand for our products.

Excess supplies often cause severe price competition in our industry. Growing conditions in various parts of the PRC, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product.

Fresh produce is highly perishable and generally must be brought to market and sold soon after harvest. The selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market, and the availability and quality of competing types of produce.

In addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. To the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products.

Adverse weather conditions could reduce supply and/or demand for our products.

The supply of and demand for our products fluctuate significantly with weather conditions, which could have either a positive or negative effect on production. If any natural disasters, such as flood, drought, hail, tornadoes or earthquakes, occur, supply for our products would likely be reduced.
 
We may not be able to obtain regulatory or governmental approvals for our products.

The manufacture and sale of our agricultural products in the PRC is regulated by the PRC and the local Provincial Government. The legal and regulatory regime governing our industry is evolving, and we may become subject to different, including more stringent, requirements than those currently applicable to us. We may be vulnerable to local and national government agencies or other parties who wish to renegotiate the terms and conditions of, or terminate their agreements or other understandings with us, or implement new or more stringent requirements, which may require us to suspend or delay production of their products. Our many permits and licenses related to the agricultural and food industries may expire and there is not guarantee the government or certifying agency will renew our licenses and/or certifications.

Potential environmental liability could have a material adverse effect on our operations and financial condition.

To the knowledge of our management team, neither the production nor the sale of our products constitutes activities, or generates materials that create any environmental hazards or violates PRC environmental laws. Although it has not been alleged by PRC government officials that we have violated any current environmental regulations, we cannot assure you that the PRC government will not amend the current PRC environmental protection laws and regulations. Our business and operating results may be materially and adversely affected if we were to be held liable for violating existing environmental regulations or if we were to increase expenditures to comply with environmental regulations affecting our operations.
 
 
3

 

Any significant fluctuation in price of our raw materials may have a material adverse effect on the manufacturing cost of our products.

The prices for the raw materials that we use in the manufacture of our fertilizer products are subject to market forces largely beyond our control, including the price of coal, our energy costs, organic chemical feedstock costs, market demand, and freight costs. The prices for these raw materials may fluctuate significantly based upon changes in these forces. If we are unable to pass any raw material price increases through to our customers, we could incur significant losses and a diminution of the market price of our common stock.

We require short-term financing to fund our working capital, especially due to the seasonal nature of our business.

The nature of the agricultural corn distribution and seed production industry involves expenses and revenue cycles that are seasonal in nature. From period to period, we may face costs that are in excess of our cash flow sources. The advance payments made to our corn and seed producing farmers may exceed the amount of deposits received from our customers, the distributors and end users. As a result, we sometimes rely upon short term loans to cover our expenses pending receipt of cash payment from our customers at the time of corn and seed purchases.  Although historically we have had access to sufficient financing to manage our cash flow cycles, we cannot be certain that we will be able to obtain sufficient debt financing on terms that are satisfactory to us to maintain consistent operating results given changing credit conditions worldwide and internal PRC policies.  Downgrades in our credit rating, tightening of related credit facilities or financial markets or other limitations on our ability to access short-term financing would increase our interest costs and adversely affect our operating results and operations.

Because of the nature of our business, which has seasonal variation, it is likely that our future financial performance will fluctuate from period to period.

Our operating results likely will fluctuate due to a number of factors, many of which are beyond our control. Our quarterly and annual revenues and costs and expenses as a percentage of our revenues may be significantly different from our historical rates. Our operating results in future quarters may fall below expectations. The industry in which we operate is seasonal in nature.  As several of our major corn customers are governmental entities, the timing of their purchases may vary based on the fluctuations in the granary reserve level. The historical sales season of our corn seeds concentrated from October December.  As a result, if we are unable to generate sufficient working capital from cash flow from operations and working capital facilities, we may encounter liquidity difficulties from the period to period, which may harm our operations. The seasonal nature of our business causes our operating results to fluctuate from quarter to quarter. Any unexpected seasonal or other fluctuations could cause the price of our common shares to fall. As a result, you may not rely on comparisons of our quarterly operating results as an indication of our future performance.

We may experience major accidents in the course of our operations, which may cause significant property damage and personal injuries.

We may experience major accidents in the course of our operations, which may cause significant property damage and personal injuries. Significant industry-related accidents and natural disasters may cause interruptions to various parts of our operations, or could result in property or environmental damage, increase in operating expenses or loss of revenue. The occurrence of such accidents and the resulting consequences may not be covered adequately, or at all, by the insurance policies we carry. In accordance with customary practice in China, we do not carry any business interruption insurance or third party liability insurance for personal injury or environmental damage arising from accidents on our property or relating to our operations other than our automobiles. Losses or payments incurred may have a material adverse effect on our operating performance if such losses or payments are not fully insured.

We could face increased competition.

We believe that competitors will try to expand their sales and build up their distribution networks in our principal market. We believe this trend will continue and probably accelerate. Increased competition may have a material adverse effect on our financial condition and results of operations.

Our failure to comply with increasingly stringent environmental regulations and related litigation could result in significant penalties, damages and adverse publicity for our business.

In recent years, the government of China has become increasingly concerned with the degradation of China’s environment that has accompanied the country’s rapid economic growth. In the future, we expect that our operations and properties will be subject to extensive and increasingly stringent laws and regulations pertaining to, among other things, the discharge of materials into the environment or otherwise relating to protection of the environment. Failure to comply with any laws and regulations and future changes to them may result in significant consequences to us, including civil and criminal penalties, liability for damages and negative publicity. Additional environmental issues may require currently unanticipated investigations, assessments or expenditures, or that requirements applicable to us will not be altered in ways that will require us to incur significant additional costs.
 
 
4

 

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

Our sales performance could be adversely affected if consumers lose confidence in the safety and quality of our products. Consumers in the PRC are increasingly conscious of food safety and nutrition. Consumer concerns could discourage them from buying certain of our products and cause our results of operations to suffer.
We may be subject to substantial liability should the consumption of any of our products cause personal injury or illness, and we do not maintain product liability insurance to cover our potential liabilities.

The sale of food products for human consumption involves an inherent risk of injury to consumers, and we do not have product liability or any other insurance covering such risks. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertions that our products caused personal injury or illness could adversely affect our reputation with customers and our corporate and brand image. We do not maintain product liability insurance. Product liability claims may be asserted against us, which could have a material adverse effect on our revenues, profitability and business reputation.

The government of the PRC has broad powers to set price controls, which, if adopted, could impair our profitability.

The government of the PRC has broad powers to adopt price controls, and has recently expressed concern about the effect of the rising prices of food. Although it has not sought to apply price controls to grains, the government has the power to do so. If price controls are adopted, our revenue would be affected.

We require various licenses and permits to operate our business, and the loss of or failure to renew any or all of these licenses and permits could require us to suspend some or all of our production or distribution operations.

 In accordance with PRC laws and regulations, we are required to maintain various licenses and permits in order to operate our business. We are required to comply with applicable hygiene and food safety standards in relation to our production processes. Our premises and transportation vehicles are subject to regular inspections by the regulatory authorities for compliance with applicable regulations. Failure to pass these inspections, or the loss of or failure to renew our licenses and permits, could require us to temporarily or permanently suspend some or all of our production or distribution operations, which could disrupt our operations and adversely affect our revenues and profitability.

Adverse weather conditions could reduce supply and/or demand for our products.

The supply of and demand for our grain products fluctuate significantly with weather conditions, which could have either a positive or negative effect on production. If any natural disasters, such as flood, drought, hail, tornadoes or earthquakes, occur, supply for our products would likely be reduced.

We may encounter substantial competition in our business and our failure to compete effectively may adversely affect our ability to generate revenue.

We believe that existing and new competitors will continue to improve their products and to introduce new products with competitive price and performance characteristics. We expect that we will be required to continue to invest in product development and productivity improvements to compete effectively in our markets. Our competitors could develop a more efficient product or undertake more aggressive and costly marketing campaigns than ours, which may adversely affect our marketing strategies and could have a material adverse effect on our business, results of operations and financial condition.

Our major competitors may be better able than we to successfully endure downturns in our sector. In periods of reduced demand for our products, we can either choose to maintain market share by reducing our selling prices to meet competition or maintain selling prices, which would likely sacrifice market share. Sales and overall profitability would be reduced in either case. In addition, we cannot assure you that additional competitors will not enter our existing markets, or that we will be able to compete successfully against existing or new competition.

We may not be able to obtain regulatory or governmental approvals for our products.

The manufacture and sale of our agricultural products in the PRC is regulated by the PRC and the local Provincial Government. The legal and regulatory regime governing our industry is evolving, and we may become subject to different, including more stringent, requirements than those currently applicable to us. We may be vulnerable to local and national government agencies or other parties who wish to renegotiate the terms and conditions of, or terminate their agreements or other understandings with us, or implement new or more stringent requirements, which may require us to suspend or delay production of their products. Our many permits and licenses related to the agricultural and food industries may expire and there is not guarantee the government or certifying agency will renew our licenses and/or certifications.
 
 
5

 
 
Potential environmental liability could have a material adverse effect on our operations and financial condition.

To the knowledge of our management team, neither the production nor the sale of our products constitutes activities, or generates materials that create any environmental hazards or violates PRC environmental laws. Although it has not been alleged by PRC government officials that we have violated any current environmental regulations, we cannot assure you that the PRC government will not amend the current PRC environmental protection laws and regulations. Our business and operating results may be materially and adversely affected if we were to be held liable for violating existing environmental regulations or if we were to increase expenditures to comply with environmental regulations affecting our operations.

Any significant fluctuation in price of our raw materials may have a material adverse effect on the manufacturing cost of our products.

The prices for the raw materials that we use in the manufacture of our grain products are subject to market forces largely beyond our control, including the price of coal, our energy costs, market demand, and freight costs. The prices for these raw materials may fluctuate significantly based upon changes in these forces. If we are unable to pass any raw material price increases through to our customers, we could incur significant losses and a diminution of the market price of our common stock.

We may need to hire additional employees.

Our future success also depends upon our continuing ability to attract and retain highly qualified personnel. Expansion of our business and our management and operations will require additional managers and employees with industry experience, and our success will be highly dependent on our ability to attract and retain skilled management personnel and other employees. There can be no assurance that we will be able to attract or retain highly qualified personnel. Competition for skilled personnel in the agriculture industry is significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees.

We may not be able to meet the accelerated filing and internal control reporting requirements imposed by the Securities and Exchange Commission resulting in a possible decline in the price of our common stock and our inability to obtain future financing.

As directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release No. 33-8934 on June 26, 2008, the Securities and Exchange Commission adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports.  In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. Commencing with our annual report for fiscal year 2011, we will be required to include a report of management on its internal control over financial reporting.  The internal control report must include a statement:

of management’s responsibility for establishing and maintaining adequate internal control over its financial reporting;
of management’s assessment of the effectiveness of its internal control over financial reporting as of year end; and
of the framework used by management to evaluate the effectiveness of our internal control over financial reporting.

While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule.  In the event that we are unable to, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.

In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the Securities and Exchange Commission, which could also adversely affect the market price of our securities and our ability to secure additional financing as needed.

Our operations are currently focused in China, and any adverse change to the economy or business environment in China could significantly affect our operations, which would lead to lower revenues and reduced profitability.

Our operations are currently concentrated in China. Because of this concentration in a specific geographic location, we are susceptible to fluctuations in our business caused by adverse economic or other conditions in this region, including natural or other disasters. A stagnant or depressed economy in China, or in any of the other markets that we serve, could adversely affect our business, results of operations and financial condition.
 
 
6

 
 
Labor disputes could significantly affect our operations.

Labor disputes with our employees or labor disputes, work stoppages or slowdowns at any of its subcontractors or suppliers could significantly disrupt operations or expansion plans. Delays caused by any such disruptions could materially affect projections for increased capacity, production and revenues, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Relating to the People's Republic of China

Certain political, geographic and economic factors relating to operating in the PRC could adversely affect our company.

The PRC is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the PRC's economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of restrictions on currency conversion in addition to those described below.

The uncertain applications of many relatively new PRC laws that may apply to us create an unpredictable environment for our business operations and could have a material adverse effect on us.

The PRC legal system is a civil law system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value. In 1979, the PRC began to promulgate a comprehensive system of laws and has since introduced many laws and regulations to provide general guidance on economic and business practices in the PRC and to regulate foreign investment. Progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could have a negative impact on our business and business prospects.

Labor costs may be increased due to the implementation of the new PRC Labor Contract Law.

The PRC Labor Contract Law was adopted by the Standing Committee of the National People’s Congress of PRC on June 29, 2007 and became effective on January 1, 2008. The implementation of the new law, especially the following provisions, may increase our labor costs: (a) an employer shall make monetary compensation, which shall be based on the number of an employee’s working years with the employer at the rate of one month’s wage for each year, to the employee upon termination of the employment contract with certain exceptions (for example, in the circumstances where the term of a fixed-term employment contract expires and the employee does not agree to renew the contract even though the conditions offered by the employer are the same as or better than those stipulated in the current contract); (b) the wages of an employee on probation may not be less than the lowest wage level for the same job with the employer or less than 80% of the wage agreed upon in the employment contract, and may not be less than the local minimum wage rate; (c) if an employee has been working for the employer for a consecutive period of not less than 10 years, or if a fixed-term employment contract with an employee was entered into on two consecutive occasions, generally the employer should enter into an open-ended employment with such employee, unless the employee requests for a fixed-term employment contract; (d) if an employer fails, in violation of the related provisions, to enter into an open-ended contract with an employee, it shall each month pay to the employee twice his wage, starting from the date on which an open-ended employment contract should have been entered into; (e) if an employer fails to enter into a written employment contract with an employee more than one month but less than one year after the date on which the employer started using him, the employer shall each month pay to the employee twice his wage; and (f) if an employer hires an employee whose employment contract with another employer has not yet been terminated or ended, causing the other employer to suffer a loss, it shall be jointly and severally liable with the employee for the compensation of such loss. Our labor costs may increase due to the implementation of the new PRC Labor Contract Law and our business and results of operations may be materially and adversely affected.
 
 
7

 

Currency conversion could adversely affect our financial condition.

The PRC government imposes control over the conversion of Renminbi into foreign currencies. Under the current unified floating exchange rate system, the People's Bank of China publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day's dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.

Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs, for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in the PRC. Conversion of Renminbi into foreign currencies for capital account items, including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.

Enterprises in the PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or “SAFE,” effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.

Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE and its relevant branches must be sought.

Furthermore, the Renminbi is not freely convertible into foreign currencies nor can it be freely remitted abroad. Under the PRC’s Foreign Exchange Control Regulations and the Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, Foreign Invested Enterprises are permitted either to repatriate or distribute its profits or dividends in foreign currencies out of its foreign exchange accounts, or exchange Renminbi for foreign currencies through banks authorized to conduct foreign exchange business. The conversion of Renminbi into foreign exchange by Foreign Invested Enterprises for recurring items, including the distribution of dividends to foreign investors, is permissible. The conversion of Renminbi into foreign currencies for capital items, such as direct investment, loans and security investment, is subject, however, to more stringent controls.

Exchange rate volatility could adversely affect our financial condition.

Since 1994, the exchange rate for Renminbi against the United States dollar has remained relatively stable. However, in 2005, the Chinese government announced that it would begin pegging the exchange rate of the Chinese Renminbi against a number of currencies, rather than just the U.S. dollar and, the exchange rate for the Renminbi against the U.S. dollar became RMB8.02 to $1.00. If we decide to convert Chinese Renminbi into United States dollars for other business purposes and the United States dollar appreciates against this currency, the United States dollar equivalent of the Chinese Renminbi we convert would be reduced. There can be no assurance that future movements in the exchange rate of Renminbi and other currencies will not have an adverse effect on our financial condition.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.

We are dependent on our relationship with the local government in the province in which we operate our business. Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.

Future inflation in China may inhibit our ability to conduct business in China. In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability. These factors have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.
 
 
8

 

Since most of our assets are located in the PRC, any dividends of proceeds from liquidation are subject to the approval of the relevant Chinese government agencies.

Our assets are predominantly located inside PRC. Under the laws governing Foreign Invested Enterprises in PRC, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to the relevant government agency's approval and supervision as well as the foreign exchange control. This may generate additional risk for our investors in case of dividend payment and liquidation.

Risks Associated with our Securities

Our securities are restricted securities with limited transferability.

Our securities should be considered a long-term, illiquid investment. Our Common Stock has not been registered under the Act, and cannot be sold without registration under the Act or any exemption from registration. In addition, our Common Stock is not registered under any state securities laws that would permit their transfer. Because of these restrictions and the absence of an active trading market for the securities, a shareholder will likely find it difficult to liquidate an investment.

We may be subject to penny stock rules which will make the shares of our common stock more difficult to sell.

We may be subject now and in the future to the SEC’s “penny stock” rules if our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a per share price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

In addition, the penny stock rules require that prior to a transaction the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
 
Our shares of common stock are not currently traded on any exchange, and the price may not reflect our value and there can be no assurance that there will be an active market for our shares of common stock in the future.
 
Our shares of common stock are not currently traded on any exchange. There can be no assurance that there will be an active market for our shares of common stock in the future. Investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business.
 
USE OF PROCEEDS
 
We will not receive any proceeds from the sale of common stock by the selling security holders. All of the net proceeds from the resale of our common stock will go to the selling security holders as described below in the sections entitled “Selling Security Holders” and “Plan of Distribution.” We have agreed to bear the expenses relating to the registration of the common stock for the selling security holders.
 
A portion of the shares of common stock covered by this prospectus are issuable upon exercise of the Warrants. We may receive proceeds in the event some or all of the Warrants held by the selling security holders are exercised for cash. Any proceeds received from the exercise of the warrants will be used for working capital and other general corporate purposes.
 
 
9

 
 
DETERMINATION OF OFFERING PRICE

The offering price of the Preferred Shares and the Agent Warrants do not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market.
 
Although our Common Stock underlying the Preferred Shares and Agent Warrants are not listed on a public exchange, we will be filing to obtain a listing on the OTCBB after the effectiveness of our Registration Statement. In order to be quoted on the OTCBB, a market maker must file an application on our behalf in order to make a market for our Warrants. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.
 
SELLING SECURITY HOLDERS
 
The common shares being offered for resale by the selling stockholders consist of 1,487,018 shares of our Common Stock, $0.001 par value, including (i) 752,200 shares of Common Stock underlying the Preferred Shares sold in the private placement that closed on December 20, 2011; (ii) 75,220 shares of Common Stock issuable upon exercise of the Agent Warrants, which were issued in the private placement that closed on December 20, 2011; (iii) 62,598 shares of common stock held by the Bay Peak Shareholders; and (iv) 597,000 shares of common stock issued to the selling stockholders pursuant to the terms of the Share Exchange.

The following table sets forth the names of the selling stockholders, the number of shares of common stock beneficially owned by each of the selling stockholders as of January 27, 2012 and the number of shares of common stock being offered by the selling stockholders. The shares being offered hereby are being registered to permit public secondary trading, and the selling stockholders may offer all or part of the shares for resale from time to time. However, the selling stockholders are under no obligation to sell all or any portion of such shares nor are the selling stockholders obligated to sell any shares immediately upon effectiveness of this prospectus. All information with respect to share ownership has been furnished by the selling stockholders.
 
Name of Selling Stockholder
Shares Beneficially
Owned Prior To Offering
Shares to
be Offered
Amount Beneficially
Owned After Offering
Percent Beneficially
Owed after Offering
China – Ground Floor Holdings IX LP (2)
127,200
127,200
0
0%
China Canadian Opportunity IX LP (3)
500,000
500,000
0
0%
Qun Zhao
125,000
125,000
0
0%
2025494 Ontario Inc. (4)
234
234
0
0%
4042450 MB LTD. (5)
234
234
0
0%
Cynthia Aasen
234
234
0
0%
Ace Max Capital Enterprises, LLC (6)
937
937
0
0%
Brad Anaka
234
234
0
0%
Connie Anaka
234
234
0
0%
Jason Anderson
234
234
0
0%
George Ansell
234
234
0
0%
James Ansell
234
234
0
0%
Richard Ansell
234
234
0
0%
Robert Ansell
234
234
0
0%
Tina Ansell
234
234
0
0%
Jens Richard Bach
234
234
0
0%
Lynn Balter
234
234
0
0%
Neil Balter
234
234
0
0%
Dorothy Barbour
234
234
0
0%
Scott Barras
234
234
0
0%
Mary Barras
234
234
0
0%
Jatinder Basran
234
234
0
0%
John Bean
937
937
0
0%
Amardeep Bratch
234
234
0
0%
Manjinder Bratch
234
234
0
0%
James Brebner
468
468
0
0%
Albert Bushell
234
234
0
0%
Gordon Bushell
234
234
0
0%
 
 
10

 
 
Robert Busse
234
234
0
0%
Christopher Callahan
234
234
0
0%
Cynthia Callahan
234
234
0
0%
Richard Callahan
234
234
0
0%
Joan Carpenter
234
234
0
0%
John Carpenter
234
234
0
0%
Jennifer Carroll
234
234
0
0%
Phil Carroll
234
234
0
0%
Gary Castrucci
703
703
0
0%
Lester Cey
234
234
0
0%
Gordon Clements
703
703
0
0%
Angela Crowder
234
234
0
0%
Martyn Crowder
234
234
0
0%
Candice Davidson
234
234
0
0%
William Davidson
234
234
0
0%
Terry Dempsey
468
468
0
0%
Steve Dengate
703
703
0
0%
Jill Drever
234
234
0
0%
Mike Drever
234
234
0
0%
Emilie Dupont
234
234
0
0%
Phyllis Dutchak
234
234
0
0%
Andy Eisenbock
234
234
0
0%
Sandra Eisenbock
234
234
0
0%
Peter Elkington
1,171
1,171
0
0%
Robert Elkington
1,405
1,405
0
0%
Peter Eshenko
468
468
0
0%
Haneef Esmail
1,874
1,874
0
0%
David Farca
234
234
0
0%
Maria Farca
234
234
0
0%
James Ferrie
468
468
0
0%
Robert Florek
234
234
0
0%
Dianna Follack
234
234
0
0%
Neil Friesen
1,171
1,171
0
0%
Dick Friss
234
234
0
0%
Sylvianne Friss
234
234
0
0%
Dean Gagon
234
234
0
0%
Cecilia Giacobbi
234
234
0
0%
Steven Giacobbi
234
234
0
0%
Amaninder Gill
234
234
0
0%
Barry Goldstin
234
234
0
0%
Branden Grehan
234
234
0
0%
Elaine Grehan
234
234
0
0%
Liam Grehan
234
234
0
0%
Paul Grehan
234
234
0
0%
Kevin Haakstad
234
234
0
0%
Amy Hahn
234
234
0
0%
Cheryl Hahn
234
234
0
0%
Jeff Hahn
234
234
0
0%
Justin Hansen
234
234
0
0%
Randy Hansen
234
234
0
0%
Shirley Hansen
234
234
0
0%
Abby Harbour
234
234
0
0%
David Habrour
234
234
0
0%
Jay Harris
234
234
0
0%
Richard Harris
234
234
0
0%
David Haskins
234
234
0
0%
Sally Haxthow
234
234
0
0%
Richard Hayward
2,576
2,576
0
0%
Kathy Heise
234
234
0
0%
Lilian Heise
234
234
0
0%
Linda Heise
234
234
0
0%
Raymond Heise
234
234
0
0%
Kelly Hennessey
234
234
0
0%
 
 
11

 
 
David Hlufman
234
234
0
0%
Elaine Hlufman
234
234
0
0%
Honeysuckle Holding Ltd. (7)
234
234
0
0%
Karen Horner
234
234
0
0%
Robert Horner
234
234
0
0%
R. Adam Hornung
234
234
0
0%
Heidi Hornung-Scherr
234
234
0
0%
Paul Adrian Jaques
234
234
0
0%
Rosemary Jaques
234
234
0
0%
Steve Jillings
937
937
0
0%
Sunita Singh
234
234
0
0%
Laurie Jonhston
234
234
0
0%
Ryan Johnston
234
234
0
0%
Tina Louis Kam
234
234
0
0%
Kema Management Ltd. (8)
234
234
0
0%
Brian Key
234
234
0
0%
Joseph Klassen
234
234
0
0%
Theresa Klassen
234
234
0
0%
Donna Klym
234
234
0
0%
Regina Korby
234
234
0
0%
Aleksander Kot
234
234
0
0%
Patricia Lalonde
234
234
0
0%
Dale Lawson
234
234
0
0%
Mary Lawson
234
234
0
0%
Nicholas Leitch
937
937
0
0%
Praxede Lepine
234
234
0
0%
Michel Levesque
234
234
0
0%
Lower Mainland Bailiff Ltd. (9)
234
234
0
0%
Douglas Macleod
234
234
0
0%
Ed Maggard
234
234
0
0%
Jonathan Mara
937
937
0
0%
L. Joan Mara
234
234
0
0%
Larry Marchman
234
234
0
0%
Tom McKeown
234
234
0
0%
Joannne Mellquist
234
234
0
0%
Kennith Mellquist
703
703
0
0%
David Mills
234
234
0
0%
Carolyn Murphy
234
234
0
0%
Mark Murphy
234
234
0
0%
Amand Events & Décor (10)
234
234
0
0%
Gerard O’Mahoney
234
234
0
0%
Daniel Orton
234
234
0
0%
Pamela Orton
234
234
0
0%
John Partridge
234
234
0
0%
Sally Perchaluk
234
234
0
0%
David Peters
234
234
0
0%
Jozef Povazan
234
234
0
0%
James Psaki
234
234
0
0%
Craig Richman
234
234
0
0%
Lisa Richman
234
234
0
0%
Lawrence Rosenberg
234
234
0
0%
Sharon Rosenberg
234
234
0
0%
Paul Ross
234
234
0
0%
Ryebridge Capital Corp. (11)
234
234
0
0%
Pauline Sandhu
234
234
0
0%
Nevin Sangha
234
234
0
0%
Tammy Sangha
234
234
0
0%
Ron Sarrasin
234
234
0
0%
Peter Schulhof
1,639
1,639
0
0%
Earl Scudder
234
234
0
0%
Mark Scudder
234
234
0
0%
Kathy Sharan
234
234
0
0%
Rahoul Sharan
234
234
0
0%
Glenn Shreuer
234
234
0
0%
 
 
12

 
 
Dianne Speranza
234
234
0
0%
April Stacy
234
234
0
0%
Tony Stacy
234
234
0
0%
David Steele
1,639
1,639
0
0%
Peter Steele
234
234
0
0%
James Stewart
468
468
0
0%
Jason Stych
234
234
0
0%
Debra Taggart
234
234
0
0%
Malik Talib
1,171
1,171
0
0%
Rahim Talib
937
937
0
0%
Debra Tammaro
234
234
0
0%
Clinton Thierman
234
234
0
0%
Elisabeth Thompson
234
234
0
0%
Gab-Riel Turenne
234
234 0 0%
Uluru Management Co. Ltd. (12)
234
234
0
0%
Richard Unrau
234
234
0
0%
Tanya Unrau
234
234
0
0%
Janet Wallace
937
937
0
0%
John Warner
234
234
0
0%
Darren Wiebe
234
234
0
0%
Jennifer Wilkinson
234
234
0
0%
Cindy Williams
234
234
0
0%
Ying Xu
234
234
0
0%
Gary Yurkovich
234
234
0
0%
Rodney Zawalykut
234
234
0
0%
Ning Zhang
234
234
0
0%
Kema Management (USA), Inc. (13)
1,502
1,502
0
0%
Grandview Capital (14)
25,044
25,044
0
0%
Ground Floor Capital Management Ltd. (15)
38,476
38,476
   
Tyler Doherty (16)
9,000
9,000
0
0%
Rhonda Reed (17)
2,700
2,700
0
0%
Ally Joy Investments Limited (18)
406,629
406,629
0
0%
Ever Expert Investments Limited (19)
29,745
29,745
0
0%
Perfect Precise Investments Limited (20)  
29,745
29,745
0
0%
Richever Limited (21)
6,068
6,068
0
0%
CFO Oncall Asia, Inc.. (25)
10,617
10,617
0
0%
David Delk and Shiyuan Jia
608
608
0
0%
Litian Hou
6,068
6,068
0
0%
Lina Li
6,068
6,068
0
0%
Junmin Zou
6,068
6,068
0
0%
Qiang Ma
6,068
6,068
0
0%
Zhaozhen Chang
19,420
19,421
0
0%
Bestrate Capital Limited (22)
28,645
28,645
0
0%
Adam Wasserman
3,034
3,034
0
0%
Elsa Sung
1,517
1,517
0
0%
Fang-Lan Wang
1,517
1,517
0
0%
Peter Goldstein
25,837
25,837
0
0%
Trilogy Capital Partners, Inc. (23)
8,796
8,796
0
0%
Vstock Transfer, LLC (24)
550
550
0
0%
TOTAL
1,487,018
1,487,018
0
0%
 
(1)
These shares represent the shares underlying the Preferred Shares sold in the Offering completed on December 20, 2011. This stockholder has represented to us that David Steele is the natural person with voting and investment control over these shares.
(2)
These shares represent the shares underlying the Preferred Shares sold in the Offering completed on December 20, 2011. This stockholder has represented to us that David Steele is the natural person with voting and investment control over these shares.
(3)
These shares represent the shares underlying the Preferred Shares sold in the Offering completed on December 20, 2011. This stockholder has represented to us that David Steele is the natural person with voting and investment control over these shares.
(4)
This stockholder has represented to us that Steve Dengate is the natural person with voting and investment control over these shares.
(5)
This stockholder has represented to us that Paul Perchaluk is the natural person with voting and investment control over these shares.
(6)
This stockholder has represented to us that Max Cohen is the natural person with voting and investment control over these shares.
 
 
13

 
 
(7)
This stockholder has represented to us that Pat Delesalle is the natural person with voting and investment control over these shares.
(8)
This stockholder has represented to us that David Steele is the natural person with voting and investment control over these shares.
(9)
This stockholder has represented to us that Richard Hayward is the natural person with voting and investment control over these shares.
(10)
This stockholder has represented to us that Amaninder Gill is the natural person with voting and investment control over these shares.
(11)
This stockholder has represented to us that Paul Grehan is the natural person with voting and investment control over these shares.
(12)
This stockholder has represented to us that Rahim Talib is the natural person with voting and investment control over these shares.
(13)
This stockholder has represented to us that David Steele is the natural person with voting and investment control over these shares.
(14)
These shares represent the shares underlying the Agent Warrants. This stockholder has represented to us that Peter Goldstein is the natural person with voting and investment control over these shares.
(15)
These shares represent the shares underlying the Agent Warrants. The placement agent assigned their rights to 38,746 of the Agent Warrants to this individual. This stockholder has represented to us that David Steele is the natural person with voting and investment control over these shares.
(16)
These shares represent the shares underlying the Agent Warrants. The placement agent assigned their rights to 9,000 of the Agent Warrants to this individual.
(17)
These shares represent the shares underlying the Agent Warrants. The placement agent assigned their rights to 2,700 of the Agent Warrants to this individual.
(18)
This stockholder has represented to us that the sole shareholder of this entity is Jian Xin but the sole director is Yushan Wei, our Chief Executive Officer Yushan Wei is the natural persons with voting and investment control over these shares.
(19)
This stockholder has represented to us that Yongchun Lin is the natural person with voting and investment control over these shares.
(20)
This stockholder has represented to us that Wem Zhu is the natural person with voting and investment control over these shares.
(21)
This stockholder has represented to us that Chaoying Li is the natural person with voting and investment control over these shares.
(22)
This stockholder has represented to us that Xizowei Feng is the natural person with voting and investment control over these shares.
(23)
This stockholder has represented to us that A.J. Cervantes is the natural person with voting and investment control over these shares.
(24)
This stockholder has represented to us that Seth Farbman is the natural person with voting and investment control over these shares.
(25)
This stockholder has represented to us that Adam Wasserman is the natural person with voting and investment control over these shares.
 
To our knowledge, none of the selling stockholders or their beneficial owners:
 
-
has had a material relationship with us other than as a shareholder at any time within the past three years; or
-
has ever been one of our officers or directors or an officer or director of our predecessors or affiliates
-
are broker-dealers or affiliated with broker-dealers.
 
PLAN OF DISTRIBUTION
 
This prospectus relates to the resale of up to 1,487,018 shares of our Common Stock, including (i) 752,200 shares of Common Stock underlying the Preferred Shares sold in the private placement that closed on December 20, 2011; (ii) 75,220 shares of Common Stock issuable upon exercise of the Agent Warrants, which were issued in the private placement that closed on December 20, 2011; (iii) 62,598 shares of common stock held by the Bay Peak Shareholders; and (iv) 597,000 shares of common stock issued to the selling stockholders pursuant to the terms of the Share Exchange.
 
Each selling stockholder of our 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 covered hereby on the principal trading market 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:
 
 
14

 
 
·
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;
 
·
in transactions through broker-dealers that 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 may also sell shares under Rule 144 under the Securities Act, 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 FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA 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 create 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).
 
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may 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 the Company 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%).
 
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares.  The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
 
Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.  The selling stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.
 
 
15

 
 
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 or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 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 resale 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 resale shares of Common Stock covered hereby 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 Exchange Act, any person engaged in the distribution of the resale 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).

DESCRIPTION OF SECURITIES
 
In the discussion that follows, we have summarized selected provisions of our articles of incorporation relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified in its entirety by reference to our articles of incorporation and our bylaws. You should read the provisions of our articles of incorporation and our bylaws as currently in effect for provisions that may be important to you.
 
Authorized Stock

We are authorized by our Articles of Incorporation to issue an aggregate of 200,000,000 shares of capital stock, of which 100,000,000 are shares of common stock, par value $0.001 per share (the “Common Stock”) and 100,000,000 are shares of blank check preferred stock, par value $0.001 per share (the “Preferred Stock” or “Preferred Shares”). As of, January 27, 2012, 13,800,000 shares of Common Stock and 752,200 shares of Preferred Stock were issued and outstanding.

Common Stock
 
All outstanding shares of Common Stock are of the same class and have equal rights and attributes. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. All stockholders are entitled to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. In the event of liquidation, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative or preemptive rights.
  
Series A Preferred Stock

As part of the private placement which closed on December 20, 2011, we issued shares of Preferred Stock that are mandatorily convertible in their entirety upon the effectiveness of a registration statement filed by the Corporation with the Securities and Exchange Commission.  The holders of our Preferred Stock shall be paid 10% dividends on an annual basis, payable semi-annually.  The Preferred Shares are eligible to be converted into shares of our Common Stock at anytime, and at the sole election of the holder. The Preferred Shares contains provisions that protect its holder against dilution by adjustment of the conversion in certain events such as stock dividends, stock splits and other similar events.  In addition, if the we agree to issue or issues shares of common stock or securities convertible into or exchangeable or exercisable for common stock, for a consideration at a price per share, or having a conversion, exchange or exercise price per share less than the conversion price of the Preferred Stock (as defined in the Certificate of Designation) immediately in effect prior to such sale or issuance, then immediately prior to such sale or issuance the conversion price of the Preferred Stock shall be reduced to such other lower price.

Agent Warrants

As part of the private placement which closed on December 20 2011, the Company issued warrants to our placement agent to purchase up to 75,220 shares of our Common Stock.  Each warrant entitles the holder to purchase share of common stock for five years at an exercise price of $2.40 per share (the “Exercise Price”). We are prohibited from effecting the exercise of the warrant to the extent that as a result of such exercise the holder of the exercised warrant beneficially owns more than 4.99% (or, if such limitation is waived by the holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of the issued and outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of our common stock upon the exercise of the warrant and upon conversion of the shares of Preferred Stock. The warrant contains provisions that protect its holder against dilution by adjustment of the exercise price in certain events such as stock dividends, stock splits and other similar events.
 
 
16

 
 
This summary description of the Agent Warrants is qualified in its entirety by reference to the Form of Agent Warrant attached hereto as Exhibit 10.2.

Dividends

We have not paid any cash dividends to shareholders. The declaration of any future cash dividends is at the discretion of our board of directors and depends  upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions.  It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
 
INTERESTS OF NAMED EXPERTS AND COUNSEL
 
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
 
The consolidated balance sheets as of December 31, 2010 and 2009 and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years then ended included in this prospectus have been audited by Sherb & Co., LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the registration statement, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
 
The validity of the issuance of the common stock hereby will be passed upon for us by Anslow & Jaclin, LLP, Manalapan, New Jersey.
 
DESCRIPTION OF BUSINESS

Our Corporate History and Background

We were incorporated in the State of Nevada on December 31, 2009 as a blank check development stage company formed for the purpose of acquiring an operating business, through a merger, stock exchange, asset acquisition or similar business combination.  Prior to our reverse acquisition of Shiny Gold on February 11, 2011, we made no efforts to identify a possible business combination and had not previously conducted negotiations or entered into a letter of intent concerning any target business.

On February 11, 2011, we completed a reverse acquisition transaction through a share exchange with Shiny Gold whereby we acquired all of the issued and outstanding ordinary shares of Shiny Gold in exchange for 12,800,000 shares of our common stock, par value $0.001 per share, which shares constituted approximately 92.8% of our issued and outstanding shares, as of and immediately after the consummation of the reverse acquisition.  As a result of the reverse acquisition, Shiny Gold became our wholly owned subsidiary and the former shareholders of Shiny Gold became our controlling stockholders.  The share exchange transaction with Shiny Gold was treated as a reverse acquisition, with Shiny Gold as the acquirer and the Company as the acquired party.  Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Shiny Gold and its respective consolidated subsidiaries.

Upon the closing of the reverse acquisition, Peter Goldstein resigned from all offices that he held effective immediately.  In addition, Mr. Goldstein resigned from his position as our sole director, which will become effective on the tenth day following our mailing of an information statement (the “Information Statement”) to our stockholders in compliance with the requirements of Section 14f-1 of the Exchange Act. The Information Statement was mailed to our stockholders on or about February 15, 2011.

Also upon the closing of the reverse acquisition, our board of directors appointed Yushan Wei to fill the vacancy created by the resignation of Mr. Goldstein. Such appointment will become effective on the tenth day following our mailing of the Information Statement to our stockholders. In addition, our board of directors appointed Yushan Wei to serve as our President and Chief Executive Officer and Yufeng Wei as our Chief Operating Officer, effective immediately at the closing of the reverse acquisition.
 
 
17

 
 
As a result of our acquisition of Shiny Gold, Shiny Gold became our wholly owned subsidiary and we have assumed the business and operations of Shiny Gold and its subsidiaries. We plan to change our name to more accurately reflect our new business operations.

Corporate Structure

GSP-2, Inc. owns all of the Ordinary Shares of Shiny Gold.  Shiny Gold was formed under the laws of the British Virgin Islands on May 20, 2010.  Shiny Gold owns all of the share capital of Heng Chang HK.  Heng Chang HK owns all of the share capital of Hengchang Business Consultants, a wholly foreign owned enterprise located in the PRC.  On February 10, 2011, Hengchang Business Consultants entered into a series of agreements (the “Contractual Arrangements”) with each of the Operating Companies and their respective shareholders.  
 
Shiny Gold controls and receives the economic benefits of their business operations through the Contractual Arrangements, but does not own any equity interests in the Operating Companies.  In addition, as a result of the Contractual Arrangements, the Operating Companies are deemed to be Shiny Gold’s variable interest entities and, accordingly, Shiny Gold consolidates the Operating Companies’ results, assets and liabilities into its financial statements.
 
Shiny Gold’s organizational structure was developed to permit the infusion of foreign capital under the laws of the PRC and to maintain an efficient tax structure, as well as to foster internal organizational efficiencies.  The corporate structure of the Company as a result of the Share Exchange is as follows:
 
 
Our Industry

China’s economy has grown rapidly in recent years making China one of the fastest growing economies in the world. China’s agricultural industry has also grown significantly, driven by the growth of the overall economy.  According to the China Statistical Abstract, the increase in China’s agricultural production is the result of an increase in the consumption of food products such as crops and meat proteins for human and animal nutrition, as well as food products for industrial uses such as fuels and materials.  However, while domestic productions have grown, it has not kept pace with consumption resulting in imports of many agricultural products such as corn.
 
 
18

 
 
Despite its recent rapid growth, the agricultural industry in China remains at an early stage of modernization, with significant manual labor and less usage of advanced machinery and irrigation than that of developed economies. The Chinese agricultural sector is primarily made up of small, family-oriented farms. In an effort to modernize and promote development of the agricultural industry in China, the Chinese government has provided substantial financial support to agricultural and related business through low interest loans, preferential tax treatments, financial subsidies and other measures.  In the mean time, Chinese farmers are increasingly using improved production techniques and products, including hybrid seeds.

Corn

Increasingly, corn is becoming an important crop in China because it has a number of uses, including the use as livestock feed, source of industrial products and a source of fuel in the form of ethanol. In addition, rice is an important human food crop, cotton is an important industrial crop and canola is used to produce cooking oil.

China is the world’s second largest corn producer after the United States.  Coincident with the growth of its economy and the agricultural industry, corn production in China has grown at a rate more than twice the growth rate of the United States.  Corn is used primarily as animal feed particularly for chickens and pigs as well as food for human consumption.  According to the China National Grain and Oil Information Center, almost three quarters of China’s total corn production was used to produce animal feed and 20% was used to produce ethanol, and the other 5% was used for human consumption.
 
 
The increasing demand for corn in China has been partially driven by the increasing demand for animal feed, which in turn has been driven by the significant growth in meat consumption as a result of the recent rapid growth in per capita disposable income in China.   For more than two decades, China was one of the world’s largest net corn exporting countries. However, due to the rapid increase on domestic demand for corn in China, China now exports significantly less corn than it used to and its imports of corn have increased considerably.

We believe production of, and demand for, corn are likely to continue to rise as Chinas economy further develops, driven by increasing demands across all major uses of corn.  Given limitations on land available for corn production, we believe use of hybrid corn seeds that can produce corn with characteristics such as high yielding drought or pest resistant or high oil content is also likely to continue to increase.  As competition for suitable land in China for other crops continues while demand for corn increases, Chinese farmers may be inclined to utilize better production methods to increase yields and improve the quality and attributes of their corn products.  We believe that the relatively low corn consumption per capita in China coupled with the rapid increase in domestic demand for corn demonstrates significant potential for China’s corn market to further grow.

Corn Seed

The Chinese agricultural seed industry is fragmented, with the corn seed market in particular being served by approximately 5,000 small, local seed suppliers. Most of these seed companies were established in the 1960s and 1970s by local county governments to address Chinese central government agricultural initiatives. They were designed at the time to provide service and support to local farmers. These local seed providers usually sell varieties of agricultural seeds that have been grown in their respective locales for years. Improved seed products have been generally available in China through large multinational suppliers, the largest being Pioneer Hi-Bred International, Inc., or Pioneer, Monsanto Company, or Monsanto, and Syngenta AG, or Syngenta, each of which established operations in China more than a decade ago.
 
 
19

 
 
The average lifespan of a typical product in our industry is five to seven years. After this period, the product begins to lose potency and develops material genetic weaknesses that make the product significantly less attractive in the marketplace. New hybrids are approved every year and the speed at which technology changes is driven by the amount of high quality hybrids produced in the local region for the local seed type. One product may dominate a particular region for a three to five year time period, and then dominance may shift depending on the available seeds for the local soil types.
 
Participation in the crop seed business is a highly regulated activity in the PRC. In July 2000, China enacted its Seed Law, which became effective on December 1, 2000. The Seed Law was revised in August 2004. The Seed Law sets forth provisions concerning the development, government approval, production, and distribution of crop seeds. Various provinces have enacted regulations to implement the Seed Law.

Under the Seed Law, for a company to engage in the seed business, it must obtain two licenses. One is the production license, which is issued at the provincial level, entitling the holder to engage in seed production in that province. The production license specifies the types of seeds that may be produced, the location of the production of the seeds, and the term of the production license. The second is a license to distribute seeds. Generally, a distribution license is issued by the government at the county level or above. A seed company must obtain a provincial-level license to distribute major crop seeds in that province. In addition, a national level license is necessary for a seed company to distribute seeds nationwide. Among other standards, the amount of the licensee’s registered capital determines if the distribution license is issued at the national or local level, along the following lines:
 
· 
 
to obtain a national distribution license, the licensee must have a registered capital of at least RMB30 million (approximately US$4,418,327);
· 
 
to obtain a provincial license to distribute hybrid seed varieties, the licensee must have a registered capital of at least RMB5 million (approximately US$736,388); and
· 
 
to obtain a provincial license to distribute non-hybrid seed varieties, the licensee must have a registered capital of at least RMB1 million (approximately US$147,278).

We have a provincial hybrid seed distribution license, which entitles us to sell major crop seeds in Jilin province in the PRC. Our general business license includes provincial hybrid seed distribution as a part of our permissible operating items. As such, we are not required to obtain a separate license for our seed distribution business.
 
Our Products

We purchase, store and sell corn and corn seed in China. We currently have the capacity to purchase and store up to 350,000 tons of corn and corn seeds on an annual basis.

Corn

We purchase, store and sell corn. We purchase almost all of our corn in Jiling province from local farmers and sell approximately 90% of our corn product to Nanning Granary Reserve and Liuzhou Granary Reserve in Guangxi province. Our corn product is primarily used for commercial livestock feeding, and a small portion of our corn products are used for renewable energy uses and raw materials for corn starch.

Corn Seed

New crop seeds must pass examination and approval by national or provincial governmental authorities before they are marketed and distributed. The examination and approval committees usually consist of professionals and experts from the agricultural and forestry governmental agencies. Once they pass the test and verification, these types of corn may be marketed and distributed

The chart below provides selected summary information about our corn seed products:

Name
 
Promoting Area
 
Growth Area
Defeng 359
 
Jilin Province
 
Mid-Late maturity
Hongyu  29
 
Jilin Province
 
Mid-Late maturity

 
20

 
 
Defeng Seed Co., Ltd. (“Defeng”) has the production and planting rights of Defeng 359 and Hongyu 29; the two seeds have passed the examination and obtained approval from the Jilin Crop Variety Examination and Approval Committee. The two seed have been widely planted in three northeastern provinces and in certain areas in Inner Mongolia. Through contractual arrangements, we have joint use rights to Defeng 359 and Hongyu 29 with Defeng. Under the joint use right agreements, we paid Defeng a total of 3.0 million RMB (approximately $463,000) for land lease, processing, storage and shipping expenses and Defeng provides us with parent seeds and the technical support to enable us to breed the seeds for commercial resale. We are permitted to breed, operate and sell the two seed varieties. We contracted a large seed breeder in Xinjiang in 2011and several small seed breeders in Jilin provinces in 2010 to breed the seeds for us and we purchase seeds from them at harvest. We provide the parent seeds combinations to the seed breeders and guarantee for the yield rate per acre and the hybrid seed purchase price at harvest. The seed breeder is responsible for breeding the seeds in accordance to a set of hybrid corn seed production process. At harvest, we have the exclusive right to purchase all seeds produced by the seed breeder we contracted. We sell our seed products to local farmers in Jilin province. Besides Defeng, we believe we are the primary grower and distributor of the two seed varieties in Jilin province. Defeng 359 accounted for approximately 90% of our annual seed sales volume.
 
 
 
Customers

Three customers and two customers accounted for approximately 100% of our revenue during the three months periods ended September 30, 2011 and 2010. Three customers and two customers accounted approximately 100% of our revenue during the nine month periods ended September 30, 2011 and 2010.  For the years ended December 31, 2010 and 2009, three customers accounted for 94.0% and 72.4% of the Company’s revenues, respectively.  

All of our customers are located in the PRC. Our major customers are granary reserves in the Guangxi province and a seed company in Jinlin province. Below is a list of our largest customers:

·
 
Guangxi Nanning Granary Reserve;
 
·
 
Guangxi Liuzhou Granary Reserve; and
 
·
 
Jilin Defeng Seed Co. Ltd.
 
Guangxi Nanning Granary Reserve and Guangxi Liuzhou Granary Reserve accounted for approximately 90% of our total corn sales. Our contracts with Guangxi Nanning Granary Reserve provides for us to receive a payment when the products are delivered. Our contracts with Guangxi Liuzhou Granary Reserve generally require Guangxi Liuzhou Granary Reserve to make 50% of prepayments prior to the products are delivered.  Jilin Defeng Seed Co. Ltd. (“Defeng”) accounted for approximately 83% of our total seed sales and  Defeng is required to make payments when seeds are delivered. No other customer accounted for more than 10% of our sales.

Suppliers

Four suppliers accounted approximately for 84.8% and 76.9% during the three month and nine month periods ended September 30, 2011 respectively, of our purchases. We did not have any supplier accounted for more than 10% of its total purchase prior to December 31, 2010. Prior to December 31, 2010, we primarily purchased our corn directly from local farmers and small local brokers. In 2011, as the demand for our corn product continues to grow, we secured purchase agreements with large companies and brokers in Jilin province to ensure we can meet our customers’ demand. Below is a list of our largest suppliers:

·
 
Jinlin Lishu Caijia Zhonggu National Granary Reserve;
 
·
 
Gongzhuling Jinyu Grain Purchase and Storage Co., Ltd.;
 
·
 
Gongzhuling Shuangyin Agricultural Development Co., Ltd.; and
 
·
 
Zhuang Weizhou ( Grain Broker)
 
 
21

 
 
Our purchase agreements generally require us to make certain amount of prepayments prior to the products being delivered to us. We do not have formal contracts with Zhuang Weizhou and we make payments to him as the products are delivered. No other suppliers accounted for more than 10% of our sales.

Research & Development

We believe that our future success depends on our ability to provide high quality and advanced products to our customers. We currently do not have a dedicated research team in-house. We conduct research and development in cooperation with the Corn Research Institute at Jilin Academy of Agricultural Sciences (“Jilin Academy”). We have a seed research and development agreement with Jilin Academy. Under the agreement with Jilin Academy, we agree to utilize Academy’s nationally recognized corn and sorghum seed experts and senior technicians to conduct research and development activities on various seed varieties. We will provide financial incentives to Jilin Academy when new crop seeds are approved by national or provincial governmental authorities. We will have the primary commercial rights to the crop seeds developed by Jilin Academy under the agreement and Jilin Academy will receive royalty payments when we start to sell the crop seeds.
  
Quality Control

We believe our product quality standards are generally higher than the national industry standards in China.

Intellectual Property
 
Many elements of our proprietary information, such as production processes, technologies, know-how and data are not patentable in China.  We rely primarily on a combination of trade secrets, trademarks, and confidentiality agreements with employees and third parties to protect our intellectual property.

Growth Strategy

We anticipate growing our business through acquisition of additional land use rights, cultivation of that land, and modernization of farming techniques.  We have recently obtained approximately 7,400 acres of farming land use right and expect to begin cultivating and farming the land in the summer of 2012.  This will produce approximately 30, 000 tons of corn.  Our state of the art facilities are set up to separate, store and distribute the corn products for us and the local farmers.  This unique operating process facilitates the sales of the seed and fertilizer all the way through to the distribution and sales of the harvested corn.   Additional growth strategy for us is in our acquisition of land use rights.  We anticipate acquiring 17,000 additional land use acreage rights by end of 2013 but have not yet entered into any agreements to acquire this land.  With us reaching our ultimate goal to cultivate and harvest more than 50,000 acres of corn by 2015, we will more than double our current volume, and with the increase in efficiency we expect we will continue to increase our  profits.

We formed two agricultural cooperative associations with several other individuals in 2011. Being a founding member of the cooperative associations will enable us to have direct access to farmer members’ crop products, and obtain the crop products at a better price which in turn will allow us to enjoy higher profit margin.  We will also be able to distribute our seed products directly to farmer members. Through the agricultural cooperative associations, our farmer members will be able to purchase seeds from us at a lower than market price while we are able to sell our seeds to the members at a price higher than we sell to distributors.
 
Marketing and Customer Support
 
Our product marketing and our customer support are closely linked. Approximately 90% of our corn product is sold to customers in Guangxi province with the rest of our corn customers in other provinces. We supply our seed products to over 120,000 farmers; majority of the farmers are located in Jilin province, with a small portion of the farmers in Liaoning and Heilongjiang provinces and Inner Mongolia Autonomous Region.  We have assigned nine sales representatives to Jilin province and twelve sales representatives in Heilongjiang, Liaoling, Guangxi, Guizhou, and Xinjiang provinces. We also distribute through 35 distributors in Jilin province, and 73 distributors in  Heilongjiang, Liaoling, Guangxi, Guizhou, and Xinjiang provinces.

Competition

The agricultural industry in China is highly fragmented, largely regional and competitive. We do expect future competition; however, there is no immediate or direct competitor with us in our corn business, as we are the largest seller in the Gongzhulin province.  Additionally, starting in 2010, there has been a shortage of corn supply globally and the supply in the PRC is limited.  We do not believe we will have difficulties in selling all of our corn crop inventories.
 
 
22

 
 
In our seed business, we face competition at three primary levels, including other private Chinese companies, smaller local seed companies, and large multinational hybrid and genetic modified seed producers.  Currently, we believe that we can compete effectively with each of these competitors and that we can continue to do so in the future.

We do not directly compete with the multinational Seed Companies. Although these companies typically have competitive advantages from the standpoint of their financial resources, the high quality of their seed products, and biotechnological capabilities. However, the unique aspects of the Chinese crop seed market, which distinguish it from the market in Western countries, have proven a significant barrier to entry for these very large companies, even though they have come to the market through joint ventures formed with existing Chinese seed companies. The principal difference between the Chinese and Western markets is that in China a large number of low volume sales are made to local farmers, while in the West, relatively few sales of very large volumes make up the majority of product sales. As a result, success in China depends on marketing and distributing effectively to a very large number of small customers.

Relatively few Chinese companies have achieved any degree of success in doing so, and the international competitors have not succeeded to any meaningful degree. These multinationals rely heavily on genetically modified seed products.  Genetically modified seed products have only begun to be accepted in China, and the extent of this acceptance is not yet determinable. Should genetically modified seed products become approved by the government on a larger scale and begin to gain broader acceptance in the market, as we expect will occur in the future, the large biotech companies would become more serious competitors. However, they will also continue to face numerous obstacles in competing with us, including the significant lead time associated with obtaining approval of a new seed (usually at least six years) and the need to establish effective sales, marketing and distribution networks to manage the large volume of small purchases that is characteristic of the Chinese market.

We believe our seed products have better brand recognition amongst local farmers and they are more suitable for the soil in the region, as such, we believe we can effectively compete with other larger domestic seed companies and smaller local seed companies. While there are six seed companies that control roughly 25% of the corn seed market of China and most of the largest crop seed companies have been in existence for much longer periods of time than we have.  Some of these larger entities are evolved state owned enterprises. We compete within these large domestic seed companies with our consistent product quality, customer and technical support, competitive pricing and widely established network amongst local farmers. The local seed companies in China are the legacy of the centrally planned agricultural economy that was predominant in China until recently. We believe the majority of these local companies lack the scale and the resources to compete with us as they do not have effective capital resources, marketing, advertising, technical support or customer service operations.
 
Competitive Advantages

We believe that the following strengths have contributed to our current market position in the corn seed business:
 
We have expanded the production capacity in the corn seed segment by obtaining access to additional farmland across major geographic regions in China. We currently have access to approximately 3,800 acres of farmland in Jilin and Xinjiang provinces for corn seed production.
 
Our seed products have one or more of the following special characteristics: high yield, disease resistance; drought resistance; high starch content; and stress tolerance. We are developing more varieties of corn seeds with these characteristics, as well as seeds for corn with high oil content and pest resistant corn.
 
Our core production base is strategically located in the Jilin province in the northern region of China, which is one of the largest corn seed production areas in China and is highly suited to growing corn and corn seeds due to its geographical and climate conditions.
 
 
We are members of two agricultural cooperative associations. We have direct access to cooperative association farmer members’ crop products. We will be able to obtain the crop products at a better price which in turn will allow us to enjoy higher profit margin.  We will also be able to distribute our seed products directly to farmer members without distributors’ markup. Through the agricultural cooperative associations, our farmer members will be able to purchase seeds from us at a lower than market price while we are able to sell our seeds to the members at a price higher than we sell to distributors.
 
Our state of the art facilities separate, store and distribute the corn products for the farmers.  This unique operating process facilitates the sales of the seed all the way through to the distribution and sales of the harvested corn. We have negotiated contracts with the government for sales of the harvested corn products.  We own our own railroad tracks that allow it to load up to 29 carts of corn at one time.  Each cart holds approximately 65 tons of corn. As our main customers are grain reserves in Guangxi province, the railroad tracks ensure that we are able to get the rail time needed to ship the products to Guangxi on time.
 
Our quality management for the production of our corn seed involves rigorous quality control and inspection procedures. For corn seed production, we carefully select parent seeds before growing seeds on a mass scale. During the entire production process, we continually provide technical guidance to the village collectives and seed production companies that are contracted to grow our seeds, and we supervise the production and harvest process.

 
23

 
 
Facilities
 
Our principal executive offices are located in the Gongzhuling State Agricultural Technology Park. We operate the separation, storage and distribution processes along with the business offices on approximately 42 acres of land. We have 9 storage warehouses that can have a total capacity of 350,000 tons of product.  All storage facilities are covered with cooling and air circulating systems, and are equipped with electronic grain temperature inspection systems.  We also have approximately ¼ mile of rail tracks for distribution purposes that can hold 29 train cars, each which holds approximately 65 tons of corn.

In addition, we signed an asset transfer agreement to purchase Jiling National Agriculture Technology Demonstration Park (“Demonstration Park”) for RMB 87 million (approximately $13.6 million) in March 2011 from Jilin Nongke Hi-Tech Industry Development Co., Ltd. (the “Seller”). We paid the sell price in full in October 2011. The land certificate and property ownership certificate of the Demonstration Park were originally issued in the name of the Seller when the Demonstration Park was first established. Currently, we do not directly own the land use rights, but lease the rights from the Seller. We are in the process of working with the Seller to have the land use rights formally transfer to us and we expect the process will take several months to a year to complete.  The Demonstration Park is currently not in operation due to the winter season; however we plan to begin trial planting of a new corn seed in summer of 2012.

LEGAL PROCEEDINGS
 
We are not presently parties to any litigation, nor to our knowledge and belief is any litigation threatened or contemplated.
 
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
There is presently no public market for our shares of common stock. We anticipate applying for quoting of our common stock on the OTCBB. However, we can provide no assurance that our shares of common stock will be quoted on the OTCBB or, if quoted, that a public market will materialize.
 
Rule 144 Shares
 
As of the date of this registration statement, we do not have any shares of our common stock that are currently available for sale to the public in accordance with the volume and trading limitations of Rule 144.

HOLDERS
 
As of January 27, 2012, we had approximately 245 record holders of our common stock, holding 14,000,000 shares.
 
Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights.
 
Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation.
 
Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect.
 
Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
 
 
24

 
 
The issued and outstanding shares of our Common Stock were issued in accordance with the exemptions from registration afforded by Section 4(2) of the Securities Act of 1933.
 
DIVIDEND POLICY
 
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
  
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
 
TRANSFER AGENT AND REGISTRAR
 
Our independent stock transfer agent is VStock Transfer, LLC, 77 Spruce Street, Suite 201, Cedarhurst, NY 11598.
 
 
25

 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
 
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form S-1. The following discussion contains forward-looking statements relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

Overview
 
We were incorporated in the State of Nevada on December 31, 2009 as a blank check development stage company formed for the purpose of acquiring an operating business, through a merger, stock exchange, asset acquisition or similar business combination.  Prior to the reverse acquisition of Shiny Gold Holdings Limited, a British Virgin Islands company (“Shiny Gold”) on February 11, 2011, we made no efforts to identify a possible business combination and had not previously conducted negotiations or entered into a letter of intent concerning any target business.
 
On February 11, 2011, we completed the reverse acquisition of Shiny Gold through the Share Exchange whereby we acquired all of the issued and outstanding ordinary shares of Shiny Gold in exchange for 12,800,000 shares of our common stock, par value $0.001 per share, which shares constituted approximately 92.8% of our issued and outstanding shares, as of and immediately after the consummation of the Share Exchange.  As a result of the Share Exchange, Shiny Gold became our wholly owned subsidiary and the former shareholders of Shiny Gold became our controlling stockholders.  The share exchange transaction with Shiny Gold was treated as a reverse acquisition, with Shiny Gold as the acquirer and the Company as the acquired party.
 
Upon the closing of the Share Exchange, Peter Goldstein resigned from all offices that he held.  In addition, Mr. Goldstein resigned from his position as our sole director.  Also upon the closing of the reverse acquisition, our Board of Directors appointed Yushan Wei to fill the vacancy created by the resignation of Mr. Goldstein.  In addition, our Board of Directors appointed Yushan Wei to serve as our President and Chief Executive Officer and Yufeng Wei as our Chief Operating Officer.
 
As a result of the Share Exchange, the Company is now a China-based agriculture company which engages in research and genetic development of corn seed, cultivation, production, purchasing, storage, and distribution of corn and other agriculture products. The Company sells high quality agricultural products as raw materials for commercial livestock feeding and other renewable energy uses.  We plan to change our name to more accurately reflect our new business operations.

Critical Accounting Policies

While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements for the year ended December 31, 2010, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Our combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, and income taxes. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the combined financial statements.

Accounts receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable.  We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt.  Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
 
As a basis for accurately estimating the likelihood of collection, we consider a number of factors when determining reserves for uncollectable accounts.   We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
 
 
26

 
 
Inventories

Inventories, consisting of raw materials, work in process and finished goods related to our products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates.  We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

Biological assets

Biological assets are purchased male and female lines of parent corn seeds for cross-pollinating. Management believes the parent will produce seed products which when sold to their customers, will allow the Company’s customers to grow faster and better quality crops.  The Company has contracted to have a third party using the purchased parent corn seeds to grow hybrid seed products.  The costs to purchase and ship these seeds to the third party are capitalized as biological assets until they become commercially viable. The third party is responsible for growing hybrid seed products and all other costs including labor to cultivate the seedlings, fertilizer and other products used to grow the seedlings and resulting plants and sell the hybrid seed products to the Company at harvest. The cost of the parent corn seeds and the cost of purchasing the hybrid seed products will be allocated into inventory when the Company receives the commercially viable seed products. If management determines that biological assets are not growing in accordance to desired results, at such time, management impairs the biological assets to the extent that desired results are not achieved.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Additions and major replacements and improvements to plant and equipment accounts are recorded at cost. The cost of repairs and maintenance is expensed as incurred.  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. We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Included in property and equipment is construction-in-progress which consists of leasehold improvements and equipment  pending installation and includes the costs of construction and installation and any interest charges arising from borrowings used to finance these assets during the period of construction or installation. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use. Depreciation is computed using the straight-line method (after taking into account their respective estimated residual value) over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

  
 
Useful Life
Building and building improvements
   
8 - 20
 
Years
Manufacturing equipment
   
5 - 10
 
Years
Office equipment and furniture
   
5
 
Years
Vehicle
   
4 -10
 
Years

Land Use Rights

All land in the PRC is owned by the PRC government and cannot be sold to any individual or company. The Company has recorded the amounts paid to the PRC government to acquire long-term interests to utilize land underlying the Company’s facilities as land use rights. This type of arrangement is common for the use of land in the PRC. Land use rights are amortized on the straight-line method over the terms of the land use rights.

Revenue Recognition

Pursuant to the guidance of ASC Topic 605, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. We derive our revenue primarily from the sale of corn crop, soybean crop and branded corn seeds.
 
 
27

 
 
The sales price of product sold is stated in the sales contract and is final and not subject to adjustment. The Company generally does not accept sales returns and does not provide customers with price protection. We assess a customer’s creditworthiness before accepting sales orders. Based on the above, we record revenue related to product sales upon delivery of the product to the customers.
 
Research and Development

Research and development costs are expensed as incurred. These costs primarily consist of fees paid to third parties and cost of material used and salaries paid for the development of our products.

Income Taxes

We are governed by the Income Tax Law of the People’s Republic of China.  We account for income taxes using the liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence; it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

Foreign Currency Translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the local currency, the Chinese Renminbi (“RMB”). Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.   Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. We do not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at September 30, 2011 and December 31, 2010 were translated at 6.4018 RMB to $1.00 and at 6.6118 RMB to $1.00, respectively. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the periods ended September 30, 2011 and 2010 were 6.50601 RMB and 6.8164 RMB to $1.00, respectively. Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Accumulated Other Comprehensive Income

Comprehensive income is comprised of net income and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders Comprehensive income presently includes net income and unrealized gains from foreign currency translation adjustments.

Recent Accounting Pronouncements

In September 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2010-25,  Plan Accounting—Defined Contribution Pension Plans (Topic 962): Reporting Loans to Participants by Defined Contribution Pension Plans  (“ASU 2010-25”). ASU 2010-25 clarifies how loans to participants should be classified and measured by defined contribution plans and how IFRS compare to these provisions. The amendments in this update are effective for fiscal years ending after December 15 2010. The Company’s adoption of ASU 2010-25 did not have material impact on the Company’s consolidated financial statements.

In December 2010, FASB issued ASU 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts  (“ASU 2010-28”). ASU 2010-28 modified Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. For public entities, the amendments in the ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not expect that the adoption of ASU 2010-28 will have a material impact on the Company’s consolidated financial statements.
 
 
28

 
 
In December 2010, FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”). ASU 2010-29 specifies that, if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 is effective prospectively for business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company does not expect that the adoption of ASU 2010-29 will have a material impact on the Company’s consolidated financial statements.

In January 2011, FASB issued ASU 2011-01, Receivables (“Topic 310”) - Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20  (“ASU 11-01”).  ASU 11-01 temporarily deferred the effective date for disclosures related to troubled debt restructurings (“TDRs”) to coincide with the effective date of the ASU, discussed below, related to troubled debt restructurings.

In April 2011, FASB issued ASU 2011-02, Receivables (“Topic 310”) - A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU 11-02”).  ASU 11-02 amends the content in ASC 310 related to identifying TDRs and effectively nullifies ASU 2011-01. This ASU removes the deferral of the TDR disclosure requirements of ASU 2010-20 for public entities and thus establishes the effective date for those disclosures.  ASU 2011-02 is effective for the first interim or annual period beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the fiscal year of adoption. Early adoption is permitted.   The Company does not expect that the adoption of ASU 11-02 will have a material impact on the Company’s financial position, results of operations, or cash flows.

In May 2011, FASB issued amendments to the FASB Accounting Standard Codification (ASC) relating to fair value measurements, ASU 2011-04,   Fair Value Measurement, ASC Topic 820. The amendments clarify the application of existing fair value measurement requirements and results in common measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). The Company will apply these amendments prospectively beginning in the first quarter of fiscal 2012. Management does not believe that the adoption of this ASU will have a material impact on the Company’s financial position, results of operations, or cash flows.

In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220). This amendment gives an entity two options to present the total of comprehensive income, the components of net income, and the components of other comprehensive income. An entity can elect to present comprehensive income in either (1) a single continuous statement of comprehensive income, or (2) in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The Company will apply this amendment beginning in the first quarter of 2012. Management does not believe that the adoption of this ASU will have a material impact on the Company’s financial position, results of operations, or cash flows.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

Results of Operations for the Three and Nine Months ended September  30, 2011 Compared to the Three and Nine Months ended September 30, 2010

The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the periods indicated, in dollars. The discussion following the table is based on these results.
 
  
 
Three Months Ended
   
Nine Months Ended
 
  
 
September 30,
   
September 30,
 
  
 
2011
   
% of
Revenue
   
2010
   
% of
Revenue
   
2011
   
% of
Revenue
   
2010
   
% of
Revenue
 
Net revenues
 
$
27,789
     
100.0
%
 
$
3,855
     
100.0
%
 
$
46,804
     
100.00
%
 
$
44,219
     
100.0
%
Cost of revenues
   
25,980
     
93.5
%
   
3,779
     
98.0
%
   
42,431
     
90.7
%
   
39,432
     
89.2
%
Gross profit
   
1,810
     
6.5
%
   
76
     
2.0
%
   
4,373
     
9.3
%
   
4,787
     
10.8
%
Operating expenses
   
469
     
1.7
%
   
81
     
2.1
%
   
1,176
     
2.5
%
   
2,778
     
6.3
%
Income from operations
   
1,340
     
4.8
%
   
(5)
     
(0.1
)%
   
3,197
     
6.8
%
   
2,009
     
4.5
%
Other income (expenses), net
   
(249)
     
(0.9
)%
   
(34)
     
(0.9
)%
   
(674)
     
(1.4)
%
   
(97)
     
(0.2)
%
Income before provision for income taxes
   
1,091
     
3.9
%
   
(39)
     
(1.0
)%
   
2,523
     
5.4
%
   
1,912
     
4.3
%
Provision for income taxes
   
12
     
-
%
   
-
     
-
%
   
12
     
-
%
   
-
     
-
%
Net income
   
1,080
     
3.9
%
   
(39
   
(1.0
)%
   
2,512
     
5.4
%
   
1,912
     
4.3
%
Other comprehensive income:
Foreign currency translation adjustments
   
405
     
1.5
%
   
397
     
10.3
%
   
1,184
     
2.5
%
   
445
     
1.0
%
Comprehensive income
 
 $
1,484
     
5.3
%
 
 $
358
     
9.3
%
 
 $
3,696
     
7.9
%
 
$
2,358
     
5.3
%
 
 
29

 
 
Revenues. For the three months ended September 30, 2011, we had net revenues of $27,789,275, as compared to net revenues of $3,854,803 for the three months ended September 30, 2010, an increase of $23,934,472 or 620.9%. For the nine months ended September 30, 2011, we had net revenues of $46,804,017, as compared to net revenues of $44,218,895 for the nine months ended September 30, 2010, an increase of $2,585,122 or 5.8%. For the three months and nine months ended September 30, 2011 and 2010, the Company generated 100% of its revenue from its corn product line.

For the three months ended September 30, 2011, we sold approximately 89,514 metric tons of corn compared to 16,060 metric tons in the three months ended September 30, 2010, an increase of approximately 73,454 metric tons or 457.4%. For the nine months ended September 30, 2011, we sold approximately 150,365 metric tons of corn compared to 178,489 metric tons for the nine months ended September 30, 2010, a decrease of approximately 28,124 metric tons or 15.8%. For the three months and nine months ended September 30, 2011, the average sales price of corn was approximately $310.4 and $311.3 per metric ton, respectively, as compared to the average sale price of approximately $240.0 and $247.7 per metric ton for the three months and nine months ended September 30, 2010, respectively.
 
The increase in revenue for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010 was attributable to the increase in sales volume and sales price.  In fiscal 2011, a greater proportion of our customers required us to deliver products in the third quarter of 2011 as compared to the same period in prior year.  In 2010, the majority of product deliveries to a major customer were made in the second quarter of 2010.
 
The increase in revenue for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010 was attributable to the 25.6% increase in the sales price and partially offset by the 15.8% decrease in sales volume. Our major sales contracts were signed later in 2011 as compared to 2010; the corn delivery dates for those contracts in 2011 are more concentrated in the third and fourth quarter of 2011 and, as a result, our sales to the customers in 2011 are spread out more evenly over the third and fourth quarter in 2011. As such, there was a decrease in sales volume for the nine months ended September 30, 2011 as compared to the same period in the prior year.

For the three and nine months periods ended September 30, 2011, our sales were concentrated on three customers, Guangxi National Nanning Granary Reserves/Grain Storage Center, Liuzhou Grain Storage Center and Huanglong Food Industry Co., Ltd. For the three and nine months periods ended September 30, 2010, we primarily sold to Guangxi National Granary Reserves and Naning Grain Storage Center, Liuzhou Grain Storage Center. Due to inflation in China, general agriculture products prices such as corn prices have continued rising in 2011 and we expect the trend will continue. Likewise, since corn is the major animal feed in China, we expect the demand for our corn product will continue to rise as meat consumption in China continues to increase.
 
In 2009, in accordance with a Seed Purchase Agreement between us and Jilin Defeng Seed Co, Ltd. (“Defeng”) dated on April 5, 2009, we were entrusted by Defeng to plant main crop parental seeds. Under such arrangement, Defeng sells parental seeds to us at an agreed price; we arrange the planting of these seeds in accordance with plans formulated by Defeng and we sell all seeds produced to Defeng at an agreed price. Under PRC law, production of main crop parental seeds requires the Seed Production License, which may be obtained by the entity that entrusts the seeds production or the entity that is entrusted to conduct the production. Defeng has one Seed Production License. We enter into crop seed production contracts with contractors that in turn contract  farmers and utilize  farmers’ leased land. According to these contracts, the contractors will manage farmers using the leased land to plant seeds and they provide all seeds planted and cultivated to us. We provide the local farmers with the parental seeds. For the three and nine months period ended September 30, 2011 and 2010, we did not generate any revenue from the corn seed business line.

Cost of sales. Cost of sales increased by $22,200,745, or 587.5%, from $3,779,021 for the three months ended September 30, 2010 to $25,979,766 for the three months ended September 30, 2011. Cost of sales increased by $2,999,429 or 7.6%, from $39,431,508 for the nine months ended September 30, 2010 to $42,430,937 for the nine months ended September 30, 2011. For the three months ended September 30, 2011 as compared to the same period in the prior year, the increase was attributable to the increase in our sales volume and the corn unit purchase price. For the nine months ended September 30, 2011 as compared to the same period in the prior year, the increase was attributable to the increase in the corn unit purchase price. Due to inflation and increasing demand in animal feed in China, we expect the cost of corn price will continue to increase. Likewise, since corn is the major animal feed in China, we expect the demand for our corn product will continue to rise  as  meat consumption in China continues to increase.  
 
 
30

 
 
Gross profit and gross margin. Our gross profit was $1,809,509 for the three months ended September 30, 2011 as compared to $75,782 for the three months ended September 30, 2010, representing gross margins of 6.5% and 2.0%, respectively. Our gross profit was $4,373,080 for the nine months ended September 30, 2011 as compared to $4,787,387 for the nine months ended September 30, 2010, representing gross margins of 9.3% and 10.8%, respectively. The increase in our gross margin percentage for the three months ended September 30, 2011 was mainly attributable a higher gross margin recognized from the sale of corn in 2011 as a result of the increase in the corn unit selling price in 2011. Gross margin percentage was higher for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2011 because in 2010 we increased our selling price to cover shipping and freight expenses we paid on behalf of our customers.  In 2011, our customers paid such expenses directly to the shipper and we lowered our selling price accordingly.  In the future, responsibility for  shipping and freight fees will  depend upon the contract terms negotiated with our customers.   
 
Selling expenses. Selling expenses were $174,849 for the three months ended September 30, 2011 and $18,379 for the comparable period in 2010, an increase of $156,470 or 851.4%. Selling expenses were $342,652 for the nine months ended September 30, 2011 and $2,458,258 for the comparable period in 2010, a decrease of $2,115,606 or 86.1%. Selling expenses consisted of the following (in thousands):
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Shipping and handling
 
$
96
   
$
6
   
$
206
   
$
2,293
 
Diesel, travel and transportation
   
59
     
9
     
102
     
54
 
Other
   
20
     
3
     
35
     
111
 
   
$
175
   
$
18
   
$
343
   
$
2,458
 

For the three months ended September 30, 2011, shipping and handling increased by $90,000 or 1500.0% as compared to the same period in 2010. The increase in shipping and handling expenses was attributable to the increase in sales volume during the three months ended September 30, 2011 as compared to the same period in the prior year. For the nine months ended September 30, 2011, shipping and freight decreased by $2,087,000 or 91.0% as compared to the same period in 2010. In 2011, majority of our customers paid the shipping and freight charges directly to the shipper.  During the first six months of 2010, we incurred these shipping and freight expenses and increased out selling price to cover these costs for our largest customer. Whether the shipping and freight fees will be paid by us might vary depends on the contract terms we have with our customers in the future.

For the three months ended September 30, 2011, diesel fuel, travel and transportation expenses increased by $50,000 or 555.6% as compared to the same period in 2010. The Company had more fuel, travel, and transportation expenses in the third quarter of 2011 as more sales activities incurred as compared to the third quarter of 2010. For the nine months ended September 30, 2011, diesel, travel and transportation expenses increased by $48,000 or 88.9% as compared to the same period in 2010. The increase in 2011 was primarily due to more diesel fuel, travel, transportation incurred in the third quarter of 2011.

For the three months ended September 30, 2011, other expenses increased by $17,000 or 566.7% as compared to the same period in prior year. The increase was primarily due to an increase in insurance expenses as the Company elected to increase its insurance coverage on its storage facility in 2011. For the nine months ended September 30, 2011, other selling expenses were decreased by $76,000 or 68.5%. The decrease was primarily attributable to the decrease in storage expenses in 2011 as the Company utilized its own storage facility more and reduced the storage rental needs in 2011. Other selling expenses include insurance expense, maintenance fee and other miscellaneous expenses and may vary year by year depending on specific situations.
 
General and administrative expenses. General and administrative expenses amounted to $294,618 for the three months ended September 30, 2011, as compared to $62,399 for the comparable 2010 period, an increase of $232,219 or 372.2%. General and administrative expenses amounted to $833,674 for the nine months ended September 30, 2011, as compared to $319,913 for the comparable 2010 period, an increase of $513,761 or 160.6%. General and administrative expenses consisted of the following (in thousands):
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Compensation and related benefits
 
$
106
   
$
3
   
$
288
   
$
115
 
Professional fees
   
120
     
-
     
287
     
2
 
Depreciation and amortization
   
44
     
23
     
85
     
74
 
Travel and entertainment
   
8
     
5
     
24
     
23
 
Other
   
17
     
31
     
150
     
106
 
   
$
295
   
$
62
   
$
834
   
$
320
 
 
 
31

 
 
For the three months ended September 30, 2011, compensation and related benefits increased by $103,000 or 3433.3% as compared to the comparable 2010 period. For the nine months ended September 30, 2011, compensation and related benefits increased by $173,000 or 150.4% as compared to the comparable 2010 period. The increase was primarily because we signed employment contracts with our Chief Executive Officer and Chief Operating Officer and started accounting fixed salaries for to our executive management in 2011. We also engage four Directors of the Board in the third quarter of 2011 and, accordingly, we incurred directors fees in the third quarter of 2011.
 
For the three months ended September 30, 2011, professional fees increased by $120,000 or 100% as compared to the comparable 2010 period. For the nine months ended September 30, 2011, professional fees increased by $285,000 or 14250% as compared to the comparable 2010 period. In February 2011, we acquired Shiny Gold through the Share Exchange and incurred additional audit and legal fees for the transaction. As a public reporting company, we will incur audit, legal and other consulting fees on a regular basis.

For the three months ended September 30, 2011, depreciation and amortization expenses increased by $21,000 or 91.3% as compared to the comparable 2010 period. For the nine months ended September 30, 2011, depreciation and amortization expenses increased by $11,000 or 14.9% as compared to the comparable 2010 period. The increase was primarily attributable to more property and equipments be depreciated and land used right being amortized in 2011.

Travel and entertainment expenses were materially consistent for the three and nine months periods ended September 30, 2011 and 2010.

For the three months ended September 30, 2011, other general and administrative expenses decreased by $14,000 or 45.2% as compared to the comparable 2010 period. The decrease in the third quarter of 2011 as compared to the third quarter of 2010 was primarily due to decrease in miscellaneous expenses in 2011. For the nine months ended September 30, 2011, other expenses increased by $44,000 or 41.5% as compared to the comparable 2010 period. The increase was primarily due to increase in repair fees and other office expenses paid in 2011.

Income (loss) from operations. For the three months ended September 30, 2011, income from operations was $1,340,042 as compared to loss from operations of $4,996 for the comparable period in 2010, an increase of $1,345,038. For the nine months ended September 30, 2011, income from operations was $3,196,755 as compared to $2,009,216 for comparable period in 2010, an increase of $1,187,539 or 59.1%. The increase was attributable to increase in revenue.

Other expenses. For the three months ended September 30, 2011, other expenses amounted to $249,225 as compared to other expenses of $34,331 for the three months ended September 30, 2010, an increase of $214,894 or 625.9%.   For the nine months ended September 30, 2011, other expenses amounted to $673,666 as compared to other expenses of $97,110 for the nine months ended September 30, 2010, an increase of $576,556 or 593.7%.  The increase in other expenses was primarily related to an increase in loan interest expense of $202,773 or 554.6% and $581,024 or 574.7% for the three and nine months ended September 30, 2011, respectively, as compared to the same period in 2010.  In 2011 and 2010, pursuant to loan agreements, the Company borrowed approximately $15,620,000 and $1,512,000, respectively, for the purchase of corn inventory from local growers.  
 
Income tax expense. The PRC local government has provided various incentives to companies in order to encourage economic development. Such incentives include reduced tax rates and other measures. Hengchang is qualified as an agricultural preliminary processor pursuant to the PRC tax code and exempt from the income tax.  The estimated tax savings due to the tax exemption for the three months periods ended September 30, 2011 and 2010 amounted to $293,763 and $0, respectively. The estimated tax savings due to the tax exemption for the nine months periods ended September 30, 2011 and 2010 amounted to $702,200 and $478,027, respectively.
 
Net income (expense). As a result of the factors described above, our net income for the three months periods ended September 30, 2011 and 2010 was $1,079,597 and $(39,327), respectively, an increase of $1,118,924. Our net income for the nine months periods ended September 30, 2011 and 2010 was $2,511,868 and $1,912,106, respectively, an increase of $599,762 or 31.4%.

Foreign currency translation gain. Our functional currency is the Chinese Yuan or Renminbi (“RMB”). Our financial statements are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $404,436 and $397,430 for the three months ended September 30, 2011 and 2010, respectively. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $1,184,012 and $445,486 for the nine months ended September 30, 2011 and 2010, respectively. This non-cash gain had the effect of increasing our reported comprehensive income.
 
 
32

 
 
Comprehensive income. For the three months ended September 30, 2011 and 2010, comprehensive income amounted to $1,484,033 and $358,103, respectively were derived from the sum of our net income of $1,079,597 plus foreign currency translation gains of $404,436 in 2011 and net loss of $39,327 plus foreign currency translation gains of $397,430 in 2010, respectively. For the nine months ended September 30, 2011 and 2010, comprehensive income amounted to $3,695,879 and $2,357,592, respectively were derived from the sum of our net income of $2,511,868 plus foreign currency translation gains of $1,184,011 in 2011 and net income of $1,912,106 plus foreign currency translation gains of $445,486 in 2010, respectively.
 
Results of Operations for the Year ended December 31, 2010 Compared to the Year ended December 31, 2009

The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the periods indicated, in dollars. The discussion following the table is based on these results.

  
 
Years Ended December 31,
 
   
2010
   
2009
 
   
Dollars
   
Percent
   
Dollars
   
Percent
 
Net revenues
 
$
59,321
     
100.0
%
 
$
53,275
     
100.0
%
Cost of revenues
   
43,346
     
73.1
%
   
40,574
     
76.2
%
Gross profit
   
15,975
     
26.9
%
   
12,701
     
23.8
%
Operating expenses
   
3,486
     
5.9
%
   
1,340
     
2.5
%
Income from operations
   
12,489
     
21.1
%
   
11,361
     
21.3
%
Other expenses
   
149
     
0.3
%
   
231
     
0.4
%
                                 
Income before provision for income taxes
   
12,340
     
20.8
%
   
11,130
     
20.9
%
Provision for income taxes
   
-
     
-
%
   
-
     
-
%
Net income
 
 $
12,340
     
20.8
%
 
 $
11,130
     
20.9
%
Other comprehensive income:
                               
Foreign currency translation adjustment
   
987
     
1.7
%
   
18
     
-
%
                                 
Comprehensive income
 
$
13,327
     
22.5
%
 
$
11,148
     
20.9
%

Revenues. For the year ended December 31, 2010, we had net revenues of $59,321,000, as compared to net revenues of $53,275,000 for the year ended December 31, 2009, an increase of 11.3%. Revenue and changes for each product line is summarized as follows (dollars in thousands):
 
   
Year Ended December 31,
 
   
2010
   
2009
   
Increase (decrease)
   
Percentage Change
 
Corn
 
$
46,044
   
$
31,370
   
$
14,674
     
46.8
%
Soybean
   
-
     
13,628
     
(13,628)
     
(100.0
)%
Corn seeds
   
13,277
     
8,277
     
5,000
     
60.4
%
                                 
Total revenues
 
$
59,321
   
$
53,275
   
$
6,046
     
11.3
%
 
The increase in revenues from the sale of corn was primarily attributable to a substantial increase in sales volume and sales price from 2009 to 2010. For the year ended December 31, 2010, we sold approximately 184,692 metric tons of corn compared to 144,648 metric tons for the year ended December 31, 2009, an increase of approximately 40,044 metric tons or 27.7%. Additionally, the increase was attributable to a 17.0% increase in our selling price. For the year ended December 31, 2010, the average sales price was approximately $249.3 per metric ton, as compared to the average sale price of approximately $213.1 per metric ton for the year ended December 31, 2009. The two Guangxi National Granary Reserves, Naning Grain Storage Center and Liuzhou Grain Storage Center made large orders in the first half of 2010. According to Document [2009] No. 2969, issued by four China State Agencies, National Development and Reform Commission, Ministry of Finance People Republic of China, State Administration of Grain and Agricultural Development Bank of China in November 2009, the two Guangxi National Granary Reserves were permitted to purchase as much corn as they can at a price of $224 (rmb1500) per metric ton from December 1, 2009 to April 30, 2010. In addition, the National Granary Reserves enjoyed government subsidies of approximately $10 (70 RMB) per metric ton as long as the corn was delivered to the Granaries before June 30, 2010. Based on the large orders from the two National Granary Reserves, we were able to raise our sales of corn. Due to inflation in China, agriculture products prices such as corn prices have risen in 2010.
 
For the year ended December 31, 2010, we ceased our soybean business. As the Company received large quantity orders for corn from the two Guangxi Granary Reserves, we had limited resource for the sale of soybeans. In addition, the main production area for soybeans in China is located in Heilongjiang Province. Soybean resources are controlled by local business persons in Heilongjiang Province. The sale of soybeans is dependent upon the season and is limited by our requirement for labor resources, storage facilities and working capital related to the sale of corn and may vary depending on our capacity. Accordingly, it generally takes us more effort to purchase soybean than corn.
 
 
33

 
 
In 2009, in accordance with a Seed Purchase Agreement between us and Jilin Defeng Seed Co, Ltd. (“Defeng”) dated on April 5, 2009, we were entrusted by Defeng to plant main crop parental seeds. Under such arrangement, Defeng sells parental seeds to us at an agreed price; we arrange the planting of these seeds in accordance with plans formulated by Defeng and we sell all seeds produced to Defeng at an agreed price. Under PRC law, production of main crop parental seeds requires the Seed Production License, which may be obtained by the entity that entrusts the seeds production or the entity that is entrusted to conduct the production. Defeng has one Seed Production License. We enter into crop seed production contracts with local contractors that in turn contract local farmers and utilize local farmers’ leased land. According to these contracts, the local contractors will manage local farmers using the leased land to plant seeds and they provide all seeds planted and cultivated to us. We pay the local contractors a contract fees and provide the local farmers with fertilizer and the parental seeds. In 2010 and 2009, we planted seeds on approximately 2,500 and 1,535 hectare of farmland, respectively.  On average, each hectare of farmland can yield approximately 4.1 metric tons of seeds. Accordingly, in 2010 and 2009, we cultivated approximately 10,000 and 6,294 metric tons of corn seed, respectively, and we sold all corn seed to Defeng at a price of 9,000 RMB or approximately $1,315 per metric ton.

Cost of sales. Cost of sales increased by $ 2,772,000, or 6.8%, from $40,574,000 for the year ended December 31, 2009 to $43,346,000 for the year ended December 31, 2010 and was attributable to the increase in our net revenue. We had an increase in the corn unit purchase price in 2010 as compared to 2009. Due to inflation and increasing demand in animal feed in China, we expect the cost of corn price will continue to increase.
 
Gross profit and gross margin. Our gross profit was $ 15,975,000 for year ended December 31, 2010 as compared to $12,701,000 for the year ended December 31, 2009, representing gross margins of 26.9% and 23.8%, respectively. The increase in our gross margin percentage was mainly attributable to the increase in our corn seed business as a percentage of our total revenue; our corn seed business enjoyed a high profit margin. Additionally, we also had a higher gross margin recognized from the sale of corn.  Gross margin percentages by product line are as follows:
 
   
For the Year ended December 31,
 
   
2010
   
2009
 
Corn
   
10.5
%
   
4.1
%
Soybean
   
-
%
   
33.4
%
Corn Seeds
   
83.9
%
   
84.7
 %
   
               
Overall gross profit %  
   
26.9
%
   
23.8
%
 
The gross profit margin percentage attributable to corn increased to 10.5% for the year ended December 31, 2010 from 4.1% for the year ended December 31, 2009. During the year ended December 31, 2010, we paid the railway freights and added the freight into the sales invoices issued to the two National Granary Reserves. In comparison, during the year ended December 31, 2009, we simply submitted the freight invoice for compensations from the two Guangxi National Granary Reserves directly and had not included the freight into the total sales price. Excluding the effect from additional freight charges in the selling price, the gross profit margin from the sale of corn in 2010 was approximately 6.9%.

The gross margin percentage on the sale of corn seed was 83.9% in 2010 as compared to 84.7% in 2009, a 0.8% decrease. In connection with the planting and cultivation of corn seed, our costs primarily were for contracted payments to the contractors that represent farmers for the use of farmers’ leased land and for their services of approximately $1,512,000 in 2010 and $914,000 in 2009, respectively and for fertilizer & seeds of $629,000 in 2010 and $352,000 in 2009, respectively, for an aggregate cost of approximately $2,141,000 in 2010 and $1,266,000 in 2009, respectively. On average, the cost of corn seeds per metric ton was $209 in 2010 and $201 in 2009, respectively per metric ton and our selling price per metric ton was approximately $1,328  in 2010 and $1,315 in 2009, respectively.

Selling expenses. Selling expenses were $2,940,000 for the year ended December 31, 2010 and $916,000 for the comparable year in 2009, an increase of $2,024,000 or 221.0%.  Selling expenses consisted of the following (in thousands):
  
   
Year Ended December 31, 2010
   
Year Ended December 31, 2009
 
Shipping and freight
 
$
2,351
   
$
427
 
Storage, packaging, and handling
   
185
     
336
 
Depreciation
   
334
     
21
 
Diesel
   
37
     
37
 
Other
   
33
     
95
 
   
$
2,940
   
$
916
 
 
 
34

 
 
In 2010, shipping and freight increased by $1,924,000 or 450.6% as compared to 2009. In 2009, certain of our customers paid the shipping and freight charges directly to the shipper.  In 2010, we incurred these shipping and freight expenses and increased out selling price to cover these costs. We expect to pay the shipping and freight charges in the future.
 
In 2010, storage, packaging and handling fee decreased by $151,000 or 44.9%. Storage, packaging and handling fee mainly includes warehouse management fees and the corn packaging and handling fees. This decrease was attributable to certain customers paid their own packaging and handling costs.

In 2010, depreciation increased by $313,000 or 1490% as compared to 2009 as more fixed assets were being depreciated in 2010.
 
Diesel expense remained materially consistent in 2010 and 2009. We own twenty-one trucks, which were mainly used to ship corn from the storage facilities to the railway station. Starting in 2009, certain customers picked up their own products or paid for the shipment of the corn and accordingly, diesel expense remained insignificant.

In 2010, other selling expenses decreased by $62,000 or 65.3% as compared to 2009. Other selling expenses include insurance expense, maintenance fee and other miscellaneous expenses and may vary year by year depending on specific situations.

General and administrative expenses. General and administrative expenses amounted to $546,000 for the year ended December 31, 2010, as compared to $424,000 for the year ended December 31, 2009, an increase of $122,000 or 28.8%. General and administrative expenses consisted of the following (in thousands):

   
Year Ended December 31, 2010
   
Year Ended December 31, 2009
 
Compensation and related benefits
 
$
169
   
$
132
 
Depreciation
   
99
     
64
 
Amortization of land use rights
   
76
     
21
 
Other taxes
   
28
     
46
 
Other
   
174
     
161
 
   
$
546
   
$
424
 

In 2010, compensation and related benefits increased by $37,000 or 28.0% as compared to 2009 and was attributable to an increase in our business activities.

In 2010, depreciation increased by $35,000 or 54.7% as compared to 2009 and was attributable to an increase in depreciable assets.
 
In 2010, amortization of land use rights increased by $55,000 or 261.9% as compared to 2009 and was attributable to an increase in land use rights. In 2009, we acquired land use rights for approximately $2,165,000 for 123,000 square meters located in Gongzhuling, Jilin, China. We are currently developing this land and constructing a grain storage and logistics center.

In 2010, other taxes decreased by $18,000 or 39.1% as was attributable to decrease in other miscellaneous taxes.

In 2010, other general and administrative expenses increased by $13,000 or 8.1%, and were primarily attributable to an increase in start-up costs related to Hengjiu which began limited operations in 2009.

Income from operations. For the year ended December 31, 2010, income from operations was $12,489,000 as compared to $11,361,000 for the year ended December 31, 2009, an increase of $1,128,000 or 9.9%.

Other expenses. For the year ended December 31, 2010, other expenses amounted to $149,000 as compared to other expenses of $231,000 for the year ended December 31, 2009, a decrease of $82,000 or 35.5%.  The decrease in other expenses was primarily related to a decrease in short term loan interest expense of $79,000 or 32.5%.  During the years ended December 31, 2010 and 2009, pursuant to short-term loan agreements, the Company borrowed approximately $4,426,000 and $9,392,000, respectively, for the purchase of corn inventory from local growers.  Amounts borrowed under these short-term loan agreements accrued interest at a rate of 7.29% and 5.31% per annum, respectively, and were repaid during the respective fiscal years.

Income tax expense. The PRC local government has provided various incentives to companies in order to encourage economic development. Such incentives include reduced tax rates and other measures. We have been granted an income tax exemption which expires on December 31, 2012 and accordingly, we were exempted from all of our income tax in the 2010 and 2009 period.  The estimated tax savings due to the tax exemption for the years ending December 31, 2010 and 2009 amounted to approximately $3,085,000 and $2,800,000, respectively.
 
 
35

 
 
Net income. As a result of the factors described above, our net income for the year ended December 31, 2010 and 2009 was $12,340,000 and $11,130,000, respectively.

Foreign currency translation gain. Our functional currency is the Chinese Yuan or Renminbi (“RMB”). Our financial statements are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $987,000 and $18,000 for the years ended December 31, 2010 and 2009, respectively. This non-cash gain had the effect of increasing our reported comprehensive income.

Comprehensive income. For the year ended December 31, 2010 and 2009, comprehensive income of $13,327,000 and 11,148,000, respectively were derived from the sum of our net income of $12,340,000 plus foreign currency translation gains of $987,000 in 2010 and net income of $11,130,000 plus foreign currency translation gains of $18,000 in 2009, respectively.

Liquidity and Capital Resources

At September 30, 2011, our balance of cash was $14,624,060 comparing to $12,867,137 as of December 31, 2010. These funds were located in financial institutions located in China.
 
Our primary uses of cash have been for the purchase of corn from local farmers, purchases of property and equipments, construction of our corn storage facility and the acquisition of the related land use rights. Additionally, we use cash for employee compensation, and for working capital. Substantially all funds received have been expended in the furtherance of growing the business.  The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

An increase in working capital requirements to finance higher level of inventories,
 
Addition of management, administrative and sales personnel as the business grows,
 
Increases in advertising, public relations and sales promotions for existing and new brands as the company expands within existing markets or enters new markets,
 
Development of new products in the seed industry to complement our current products,
 
The cost of being a public company and the continued increase in costs due to governmental compliance activities, and
 
Capital expenditures for additional farming machine and equipment purchases and land use right acquisition.
 
Changes in our working capital position are summarized as follows (dollars in thousands):

   
September 30,
2011
(Unaudited)
   
December 31,
2010
   
Increased (Decrease)
Working Capital
 
Current assets
 
$
64,309
   
$
35,459
   
$
28,850
 
Current liability
   
50,297
     
18,304
     
31,993
 
Working Capital
 
$
14,012
   
$
17,155
   
$
(3,143
)

Our working capital decreased approximately $3,143,000 primarily attributable to:

an increase in facility and land use right payable of approximately $16,034,000 for the purposes of acquiring facility and land use right;
 
an increase in loans payable- current portion of approximately $15,621,000 for the purposes of purchasing corn inventory from local growers;

an increase in taxes payable of approximately $676,000; and
   
an increase in advances from customers of approximately $4,301,000. Advances from customers consist of prepayments from customers for merchandise that had not yet been shipped. We recognize the advances as revenue as customers take delivery of the goods, in accordance with our revenue recognition policy. related to the sale of our products.

 
36

 
 
This decrease in working capital was offset by:
 
a net increase in cash and restricted cash of approximately $1,757,000;
   
a net increase in advance payments to suppliers of approximately $13,668,000;
   
a net increase in inventories of approximately $8,432,000;
   
a net increase in accounts receivable of approximately $4,489,000;
   
a net increase in prepaid expenses and other assets  of approximately $622,000l; and
   
decrease in accounts payable of $4,679, 000.

We require capital to purchase corn inventory and fund our working capital needs. For the nine months ended September 30, 2011 and 2010, pursuant to loan agreements, we borrowed approximately $15,621,000 and $1,512,000, respectively, for the purchase of corn inventory from local growers.  Amounts borrowed under these short-term loan agreements accrued interest at rates ranged from 8.20% to 9.8% per annum in 2011 and 7.3% to 10.5% in 2010, respectively, and were repaid during the respective fiscal years. 

We signed an asset transfer agreement to purchase Jiling National Agriculture Technology Demonstration Park (“Demonstration Park”) for RMB 87 million (approximately $13.6 million) in March 2011 and the assets were fully transferred in August 2011. Included in the purchase price, approximately 22.2 million RMB (approximately $3.5 million) was related to the property and equipment and RMB 64.8 million was related to the land use rights (approximately $10.1 million). We were obligated to pay the purchase price in October 2011. As of December 31, 2011, we made the payment in full.
 
At September 30, 2011 and December 31, 2010, loans payable consisted of the followings (dollars in thousands):

   
September 30,
2011
(Unaudited)
   
December 31,
2010
 
Loan payable to Jilin Gongzhuling Rural Cooperative Bank, due on October 27, 2012 with annual interest at the banks base interest rate plus 80% (10.53 % at December 31, 2010 ) secured by assets of the Company.
 
$
-
   
$
1,512,447
 
                 
Loan payable to Jilin Gongzhuling Rural Cooperative Bank Nanweizi Branch, due on July, 2012 with annual interest at the banks base interest rate plus 50% (9.84%  at September 30, 2011) secured by assets of the Company.
   
3,124,122
     
-
 
                 
Loan payable to China Construction Bank, due in April 2012 with annual interest at the banks base interest rate plus 30% (8.53%  at September 30, 2011 ) secured by assets of the Company.
   
12,496,485
     
-
 
               
   
$
15,620,607
   
$
1,512,447
 
 
On January 31, 2011, we entered into an agreement with the shareholders of Jilin Defeng Seed Co, Ltd. (“Defeng”), a Chinese limited liability company formed under laws of the PRC on September 29, 2003.  Pursuant to the Agreement, within 12 months after the execution of this Agreement, we shall have the option to purchase a 70% equity interest in Defeng through the issuance of additional shares of stock of Defeng, and the shareholders of Defeng will retain a 30% equity interest in Defeng. Within 12 months after the execution of this Agreement, if we exercise our option to purchase the 70% equity interest in Defeng, we shall contribute certain land use right and real property rights related to the land located at the east of 7th Road of the Linxi Development Zone, the total value of which are approximately RMB 40,000,000 (approximately $5,900,000), and RMB 30,000,000 (approximately $4,400,000) in cash as our investment into Defeng. The shareholders of Defeng shall use Defeng’s existing fixed assets and intangible assets (including but not limited to Seed Property Rights, Operating Rights and Sales Network), the total value of which are approximately RMB30,000,000 (approximately $4,400,000) as its investment into Defeng. The registered capital of Defeng is currently RMB 30,000,000 and the shareholders of Defeng hold 100% equity interest in Defeng. After the Company’s investment into Defeng, the total registered capital of Defeng will be increased up to RMB 100,000,000, (approximately $14,700,000) of which we and the shareholders of Defeng shall maintain 70% and 30% respectively.  Defeng is engaged in the production of crossbred corn and the wholesale and sale of crop seeds.
 
 
37

 
 
We believe that our current levels of cash, cash flows from operations, and bank/related party borrowings, will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, we may need additional cash resources in the future if we experience changed business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, the acquisition of Defeng and other acquisitions, strategic cooperation or other similar actions. If we ever determine that our cash requirements exceed our amounts of cash and cash equivalents on hand, we may seek to issue debt or equity securities or obtain a credit facility. Any future issuance of equity securities could cause dilution for our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause us to be subject to restrictive operating and financial covenants. It is possible that, when we need additional cash resources, financing will only be available to us in amounts or on terms that would not be acceptable to us, if at all.
 
Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
  
The following summarizes the key components of the Company’s cash flows for the nine months ended September 30, 2011 and 2010 ( dollars in thousands):
 
   
September 30,
   
September 30,
 
   
2011
   
2010
 
     
(Unaudited)
         
Net cash used in operating activities
 
$
(17,919
)
 
$
(6,938
)
Cash flows provided by  investing activities
 
$
2,451
   
$
11,384
 
Cash flows provided by  financing activities
 
$
16,781
   
$
2,537
 
Effect of exchange rate on cash
 
$
444
   
$
223
 
Net increase in cash and cash equivalents
 
$
1,757
   
$
7,206
 
 
Net cash flow used in operating activities was $17,919,208 for the nine months ended September 30, 2011 as compared to net cash flow used by operating activities of $6,938,044 for the nine months ended September 30, 2010.

Net cash flow used by operating activities for the nine months ended September 30, 2011 was mainly due to
 
canges in operating assets and liabilities consisting primarily of an increase in accounts receivable of $4,230,796, an increase in inventories of $5,012,278, and increase in prepaid and other current assets of $611,065, an increase in advance payments to suppliers of $13,449,200, and a decrease in accounts payable of $2,696,667;
ofset by net income of $2,511,868, adjusted for the add back of non-cash items such as $390,478 of depreciation and the amortization of land use rights of $61,181, an decrease in prepaid taxes of $447,639, an increase in VAT and service taxes payable of $665,085, and a decrease in advances from customers of $3,975,068.

Net cash flow used in operating activities for the nine months ended September 30, 2010 was primarily attributable to
 
canges in operating assets and liabilities consisting primarily of a decrease in advances from customers of $25,990,252 and an increase in prepaid and other current assets of $418,427 offset by a decrease in accounts receivable of $7,497,100, a decrease in prepaid taxes of $815,220, a decrease in inventories of $8,061,248, an increase in accounts payable of $316,972, and an increase in VAT and service taxes payable of $503,640;