U. S.
Securities and Exchange Commission
Washington,
D. C. 20549
FORM
10-Q
[X]
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended
September 30, 2008
[
]
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from _____ to _____
Commission
File No. 0-27175
CHINA SXAN BIOTECH,
INC.
(Name of
Small Business Issuer in its Charter)
Nevada
|
95-4755369
|
(State of Other
Jurisdiction of incorporation or organization)
|
(I.R.S. Employer
I.D. No.)
|
c/o American Union
Securities, Inc. 100 Wall Street, 15th Floor, New York, NY
10005
(Address
of Principal Executive Offices)
Issuer's
Telephone Number: 212-232-0120
Indicate by
check mark whether the Registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of
1934 during the preceding 12
months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
X No
__
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
|
Smaller
reporting company ý
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
__ No X
APPLICABLE
ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the Registrant's classes of common stock, as of the latest
practicable date:
November
19, 2008: Common Stock: 19,542,572 shares
Transitional
Small Business Disclosure Format (check one): Yes No X
|
|
September 30, 2008
|
|
|
June 30, 2008
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
2,412 |
|
|
$ |
23,203 |
|
Accounts
receivable
|
|
|
5,317 |
|
|
|
- |
|
Other receivables
|
|
|
1,302,539 |
|
|
|
1,163854 |
|
Inventory
|
|
|
6,699,683 |
|
|
|
2,076,016 |
|
Advances to
suppliers
|
|
|
59,012 |
|
|
|
5,884,877 |
|
Prepaid expenses
|
|
|
385 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
Total Current
Assets
|
|
|
8,069,357 |
|
|
|
9,148,335 |
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
1,813,027 |
|
|
|
695,163 |
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Intangible assets,
net
|
|
|
4,504,018 |
|
|
|
4,515,047 |
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
14,386,402 |
|
|
$ |
14,358,545 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses
|
|
$ |
153,645 |
|
|
$ |
249,212 |
|
Income taxes
payable
|
|
|
691,555 |
|
|
|
1,216,130 |
|
Taxes payable
|
|
|
126,708 |
|
|
|
126,362 |
|
Other payable
|
|
|
75,014 |
|
|
|
68,435 |
|
Due to
stockholders
|
|
|
79,350 |
|
|
|
79,350 |
|
Total Current
Liabilities
|
|
|
1,126,273 |
|
|
|
1,739,489 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Series A convertible preferred
stock, $0.001 par value,
|
|
|
|
|
|
|
|
|
100,000,000 shares authorized,
27,011,477 shares issued and
|
|
|
|
|
|
|
|
|
outstanding,
respectively
|
|
|
27,011 |
|
|
|
27,011 |
|
Common stock, $0.001 par value,
100,000,000 shares authorized
|
|
|
|
|
|
|
|
|
19,542,572 shares issued and
outstanding
|
|
|
19,543 |
|
|
|
19,543 |
|
Additional paid-in
capital
|
|
|
4,466,731 |
|
|
|
4,466,731 |
|
Retained earnings
|
|
|
6,167,614 |
|
|
|
6,169,574 |
|
Statutory reserve
|
|
|
378,782 |
|
|
|
378,782 |
|
Accumulated other comprehensive
income
|
|
|
2,200,448 |
|
|
|
1,557,415 |
|
Total Stockholders’
Equity
|
|
|
13,260,129 |
|
|
|
12,619,056 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders’ Equity
|
|
$ |
14,386,402 |
|
|
$ |
14,358,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CHINA
SXAN BIOTECH INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
|
|
For
the Three Months Ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$ |
19,994 |
|
|
$ |
1,366,058 |
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
18,305 |
|
|
|
400,239 |
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,689 |
|
|
|
965,819 |
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
9,187 |
|
|
|
258,579 |
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
(7,498 |
) |
|
|
707,240 |
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Other income (expense),
net
|
|
|
5,538 |
|
|
|
4,501 |
|
|
|
|
|
|
|
|
|
|
Total Other Income
(Expense)
|
|
|
5,538 |
|
|
|
4,501 |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE
PROVISION FOR
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
(1,960 |
) |
|
|
711,741 |
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
- |
|
|
|
106,761 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
(1,960 |
) |
|
|
604,980 |
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
643,033 |
|
|
|
132,516 |
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME
|
|
$ |
641,073 |
|
|
$ |
737,496 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.00 |
) |
|
$ |
0.03 |
|
Diluted
|
|
$ |
(0.00 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OF
|
|
|
|
|
|
|
|
|
COMMON
STOCK
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,072,209 |
|
|
|
2,0072,209 |
|
Diluted
|
|
|
20,072,209 |
|
|
|
20,072,209 |
|
The accompanying notes are an
integral part of these consolidated financial statements.
CHINA
SXAN BIOTECH INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
September,
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
Income
|
|
$ |
(1,960 |
) |
|
$ |
604,980 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
62,194 |
|
|
|
56,660 |
|
Amortization
|
|
|
23,422 |
|
|
|
21,630 |
|
Bad debt expense
|
|
|
- |
|
|
|
1,549 |
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
223 |
|
|
|
(309,715 |
) |
Other
receivables
|
|
|
(135,596 |
) |
|
|
(164,724 |
) |
Inventory
|
|
|
(4,620,816 |
) |
|
|
(273,126 |
) |
Advance
to suppliers
|
|
|
4,674,473 |
|
|
|
- |
|
Prepaid
expenses
|
|
|
- |
|
|
|
151 |
|
Accounts
payable and accrued expenses
|
|
|
(90,409 |
) |
|
|
260,936 |
|
Income
tax payable
|
|
|
(1,126 |
) |
|
|
106,761 |
|
Other
payables
|
|
|
861 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total Adjustments
|
|
|
(86,774 |
) |
|
|
(299,878 |
) |
|
|
|
|
|
|
|
|
|
Net Cash Used by Operating
Activities
|
|
|
(88,734 |
) |
|
|
305,102 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Acquisition of property and
equipment
|
|
|
(7,720 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net Cash Used by Investing
Activities
|
|
|
(7,720 |
) |
|
|
(84,364 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from capital
contribution
|
|
|
- |
|
|
|
- |
|
Proceeds from shareholders’
loans
|
|
|
- |
|
|
|
- |
|
Cash acquired in reverse merger
transaction
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing
Activities
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(96,454 |
) |
|
|
305,102 |
|
|
|
|
|
|
|
|
|
|
EFFECT
OF FOREIGN CURRENCY TRANSLATION ON CASH
|
|
|
75,672 |
|
|
|
2,235 |
|
|
|
|
|
|
|
|
- |
|
CASH
AND CASH EQUIVALENTS - BEGINNING
|
|
|
23,203 |
|
|
|
4,892 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - ENDING
|
|
$ |
2,421 |
|
|
$ |
312,229 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CHINA
SXAN BIOTECH INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008 AND 2007
(UNAUDITED)
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
China
SXAN Biotech, Inc. (the “Company”, formerly Advance Technologies, Inc.), a
Nevada corporation, was incorporated on June 16, 1969. On July 10, 2007, the
Company acquired the outstanding capital stock of American SXAN Biotech, Inc., a
Delaware corporation (“American SXAN”). American SXAN is a holding company that
on
Oct 31, 2006
acquired 100% of the
stock of Tieli
Xiaoxinganling Forest Breeding Co., Ltd.
(“Tieli Xiaoxinganling”), a corporation organized under the laws of The People’s
Republic of China. Tieli Xiaoxinganling is engaged in the business of
manufacturing and marketing wines and tonics derived from domesticated forest
frogs.
"The
Company" was organized under the laws of the State of Delaware under the name
PWB Industries, Inc.; the articles of incorporation were issued June 16, 1969.
The name was changed to Sun Energy, Inc., which merged with Sto Med, Inc. on
February 22, 1996 and changed its name to Sto Med, Inc. and domicile to the
State of Nevada. Sto Med Inc. changed its name to Advance Technologies, Inc. on
August 23, 1997. On September 27, 1999 the Company acquired Seacrest Industries
of Nevada, also known as Infrared Systems International. On September 4, 2007
the name of the Company was changed to China SXAN Biotech, Inc.
NOTE
2 – INTERIM FINANCIAL STATEMENTS
These
interim financial statements should be read in conjunction with the audited
financial statements for the year ended June 30, 2008, as not all disclosures
required by generally accepted accounting principles for annual financial
statements are presented. The interim financial statements follow the same
accounting policies and methods of computations as the audited financial
statements for the year ended June 30, 2008.
NOTE
3 – BASIS OF PRESENTATION
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) applicable to interim
financial information and with the requirements of Form 10-Q and Regulation S-X
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
Interim results are not necessarily indicative of results for a full year. In
the opinion of management, all adjustments considered necessary for a fair
presentation of the financial position and the results of operations and cash
flows for the interim periods have been included.
NOTE
4 – ACCOUNTS RECEIVABLE
The
Company’s sales terms allow for payments to be made for up to one
year. Management reviews customer credit worthiness, current
economic trends and changes in customer payment patterns to evaluate the need
for reserves.
CHINA
SXAN BIOTECH INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER
30, 2008 AND 2007
(UNAUDITED)
NOTE
5 – OTHER RECEIVABLES
Other
receivables represent advances made to third parties for non-operating
purposes. They are unsecured and non-interest bearing.
NOTE
6 – INVENTORY
Inventory
at September 30 and June 30, 2008 consisted of the following:
|
|
September
30, 2008
|
|
|
June
30,2008
|
|
Food
for frogs
|
|
$ |
28,414 |
|
|
$ |
28,049 |
|
Food
for pigs
|
|
|
31,798 |
|
|
|
29,541 |
|
Frogs
in process
|
|
|
341,880 |
|
|
|
305,259 |
|
Pigs
in progress
|
|
|
305,030 |
|
|
|
278,499 |
|
Packaging
supplies
|
|
|
8,905 |
|
|
|
- |
|
Finished
goods
|
|
|
5,983,656 |
|
|
|
1,434,668 |
|
Total
|
|
$ |
6,699,683 |
|
|
$ |
2,076,016 |
|
NOTE
7 – ADVANCES TO SUPPLIERS
As a
common business practice in China, the Company is required to make advance
payments to certain suppliers for the purchase of raw material and payments
towards construction in progress. Such advances are interest-free and
unsecured.
NOTE
8 – PROPERTY AND EQUIPMENT, NET
Property
and equipment at September 30, 2008 and June 30, 2008 consisted of the
following:
|
|
September
30, 2008
|
|
|
June
30, 2008
|
|
Buildings
|
|
$ |
1,237,500 |
|
|
$ |
1,234,117 |
|
Equipment
|
|
|
175,665 |
|
|
|
254,444 |
|
Breeding
livestock
|
|
|
78,494 |
|
|
|
1,223 |
|
Construction
in progress
|
|
|
1,190,054 |
|
|
|
9,705 |
|
Subtotal |
|
|
2,681,713 |
|
|
$ |
1,499,489 |
|
Less:
accumulated depreciation
|
|
|
868,686 |
|
|
|
804,326 |
|
Total
|
|
$ |
1,813,027 |
|
|
$ |
695,163 |
|
Depreciation
expense for the 3 months ended September 30 and June 30, 2008 was $62,194 and
$246,343, respectively.
NOTE
9 – INTANGIBLE ASSETS, NET
Net
intangible assets at September 30 and June 30, 2008 consisted of the
following:
|
|
September
30, 2008
|
|
|
June
30, 2008
|
|
Rights
to use land
|
|
$ |
4,720,150 |
|
|
$ |
4,707,245 |
|
Less:
accumulated amortization
|
|
|
216,132 |
|
|
|
192,198 |
|
Total
|
|
$ |
4,504,018 |
|
|
$ |
4,515,047 |
|
CHINA
SXAN BIOTECH INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER
30, 2008 AND 2007
(UNAUDITED)
NOTE
9 – INTANGIBLE ASSETS, NET (continued)
The Company's office and production sites are located in Tieli City and Jiamusi
City, Heilongjiang Province, PRC. The Company leases land per a real
estate contract with the government of the People's Republic of China for a
period from 2003 through 2057. Per the People's Republic of China's governmental
regulations, the Government owns all land.
The Company has recognized the amounts paid by a shareholder for the acquisition
of rights to use land as an intangible asset (“Rights to use land”) and a
non-cash capital contribution. The Company is amortizing the asset over a period
of fifty (50) years.
Amortization
expense for the Company’s intangible assets for the three months ended September
30, 2008 and 2007 amounted to $23,422 and $21,630, respectively.
Amortization
expense for the Company’s intangible assets over the next five fiscal years is
estimated to be:
2009
|
|
$ |
88,596 |
|
2010
|
|
|
88,596 |
|
2011
|
|
|
88,596 |
|
2012
|
|
|
88,596 |
|
2013
|
|
|
88,596 |
|
2014
and thereafter
|
|
|
3,977,303 |
|
|
|
|
|
|
Total
|
|
$ |
4,420,283 |
|
NOTE
10 – DUE TO STOCKHOLDERS
Loans
from stockholders are short-term in nature, unsecured and non-interest
bearing.
NOTE
11 – SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid
for interest was $-0- and $ -0-, during the three months ended September 30,
2008 and 2007, respectively. Cash paid for income taxes was $-0- and $ 106,761-,
during the three months ended September 30, 2008 and 2007,
respectively.
NOTE
12 – RISK FACTORS
The
Company's operations are carried out in the PRC. Accordingly, the
Company's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the PRC as well
as by the general state of the PRC’s economy. The Company's business
may be influenced by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.
NOTE
13 - CONCENTRATIONS OF CREDIT RISK
Financial
instruments which potentially subject the Company to credit risk consist
principally of cash on deposit with a financial institution of $
2,421.
ITEM
2. MANAGEMENT’S DISCUSSION AND
ANALYSIS
Outline
of Our Business
China SXAN Biotech, Inc. is a holding company. Until July 2007 it was
engaged exclusively in the business of developing infrared vision systems for
commercial applications. In July 2007 the Company acquired the
capital stock of Tieli XiaoXingAnling Forest Frog Breeding Co., Ltd. (“Tieli
XiaoXingAnling”), a corporation organized under the laws of The People’s
Republic of China. In connection with that acquisition, the Company
transferred all of the assets relating to the infrared vision systems business
to a subsidiary named Infrared Systems International. Infrared
Systems International has filed a registration statement that, when declared
effective by the Securities and Exchange Commission, will permit the Company to
distribute the capital stock of Infrared Systems International to its
shareholders. Thereafter the Company will be exclusively engaged in
the business carried on by Tieli XiaoXingAnling.
Tieli
XiaoXingAnling was organized in 2003 in the City of Tieli, which is in the
Heilongjiang Province in northeast China. Tieli XiaoXingAnling is
engaged in the business of breeding forest frogs, which are also known as snow
frogs or winter frogs, since they are traditionally harvested just prior to
their winter hibernation in order to maximize the frog’s fat
content. Tieli XiaoXingAnling has obtained patents from the
government of China to produce therapeutic wines and tonics from its forest
frogs. Tieli XiaoXingAnling has been marketing its forest frog
products since 2004 under the brand “Xiao Xing’an Mountain.”
The desirable portion of the Chinese forest frog, known as “hasma,” is a
combination of the frog’s ovaries and surrounding fatty
tissues. Throughout Chinese history, hasma has been used to treat
respiratory problems such as coughing, hemoptysis (expectoration of blood), and
night sweats attributable to tuberculosis. Many Chinese residents
also believe that forest frog hasma improves immune function, aids in the
treatment of neurasthenia, and slows aging.
Today, however, the forest frog is classified as an endangered species in
China. Commercial harvesting of forest frogs in the wild is
prohibited by national regulations. To meet the continuing demand for
hasma, therefore, a domestic forest frog breeding industry has
developed. The mission of Tieli XiaoXingAnling is to become the
leader in this industry.
Results
of Operations
For the fiscal year ended June 30, 2008, we experienced record growth in terms
of sales as we recorded $12.58 million in revenue, a 127% increase compared to
fiscal year 2007. However our gross and net margins drastically deteriorated to
37.7% and 22.2% for fiscal year 2008 as compared to 59.6% and 43.4% for fiscal
year 2007. This is primarily due to the increase of grain prices within China
which has in turn increased our expenses for feedstock. In light of increasing
production costs, raw material costs, and costs associated with being a public
company, management has concluded that the current business is not sustainable.
As a result, management resolved to temporarily halt operations and formed an
exploratory committee to evaluate the possibility of utilizing the
current production lines and inventories toward the manufacture and distribution
of other frog related products.
As production and marketing has been halted, sales for the three months ended
September 30, 2008 only totaled $19,994 compared to $1,366,058, a decrease of
98.5% compared to the same period in 2007. Accordingly our gross profit was
reduced significantly to $1,689 as compared to $965,819 during the same period
in 2007, a decrease of 99.8%. We incurred a net loss of $1,960 during this first
quarter of fiscal year 2009 as compared to a net profit of $604,980 during the
first quarter of fiscal year 2008.
Liquidity and Capital
Resources
Since
Tieli XiaoXingAnling was organized at the end of 2003, its operations have been
funded primarily by capital contributions from its shareholders (who became, in
July 2007, the controlling shareholders of China SXAN Biotech). In
addition, the shareholders have made short-term, non-interest bearing loans to
Tieli XiaoXingAnling when it needed working capital. The result is
that at September 30, 2008 the Company had $6,943,084 in working
capital.
During the three months ended September, 2008, the operations of Tieli
XiaoXingAnling used$88,734 in cash. This was primarily due to the
large increase in inventory during the period. Our principal asset as of
September 30, 2008 is our inventory which represent $6,699,683 of our $8,069,357
in total assets.
As we have temporarily halted our operations, we are currently exploring the
following possibilities toward the development of the
company:
·
|
Acquisition
of a liquor factory or medical wine factory with the necessary Good
Manufacturing Practices (“GMP”) certification from the
government.
|
·
|
Acquisition
of a pharmaceutical factory or healthcare products factory with a GMP
certification.
|
Management
intends to pursue a variety of sources for the funds required for those capital
investments, offering both debt and equity. At the present time,
however, no commitment for funds has been received from any
source.
Off-Balance
Sheet Arrangements
Neither
China SXAN Biotech nor Tieli XiaoXingAnling has any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on their financial condition or results of operations.
Risk Factors That May Affect Future
Results
You should carefully consider the risks
described below before buying our common stock. If any of the risks
described below actually occurs, that event could cause the trading price of our
common stock to decline, and you could lose all or part of your
investment.
Competition
could prevent us from achieving a significant market
position.
There are currently over 5,000 brands
of medicinal tonics being sold in China. The struggle to gain brand
recognition is complicated by the lack of government regulation of health
claims. In order to achieve substantial market presence, we will have
to distinguish our brand from all of the others. In addition, if we
are successful in establishing a strong market for our products, other large,
well-capitalized nutraceutical companies could be attracted by our success we
achieve, and develop similar products. If a well-capitalized company
directed its financial strength toward competition with us, it could achieve
economies of scale that might permit it to market its products at lower prices
than ours. If this occurred before we had established a significant
market awareness of our brand, we might be unable to compete effectively, and
would be unable to achieve profitability.
A recession in China could
significantly hinder our growth.
The growing demand for our products has
been swelled, in large part, by the recent dramatic improvement in the standard
of living in China. The continued growth of our market will depend on
continuation of recent improvements in the Chinese economy and the amount of
disposable income available to the Chinese population. If the Chinese
economy were to contract and money became tight, individuals will be less able
to pay premium prices for the benefits of forest frog hasma. Many
financial commentators expect a recession to occur in China in the near
future. The occurrence of a recession could significantly hinder our
efforts to implement our business plan.
We are subject to the risk of disease
and natural disasters.
Our business involves the production of
livestock. We have not developed alternative sources for raw
materials. If our forest frogs or, to a lesser extent, our pigs,
become diseased, we could suffer a significant loss of value. In
addition, if our farms are damaged by drought, flood, storm, or the other woes
of farming, we will not be able to meet the demand for our products, and are
likely to suffer operating losses. Such events could have both an
immediate negative effect on our financial results, as well as a long-term
negative effect on our ability to grow our business.
Our business and growth will suffer if
we are unable to hire and retain key personnel that are in high
demand.
Our future success depends on our
ability to attract and retain highly skilled scientists, geneticists,
agricultural manufacturing specialists, and marketing personnel. In
general, qualified individuals are in high demand in China, and there are
insufficient experienced personnel to fill the demand. In a
specialized scientific field, such as ours, the demand for qualified individuals
is even greater. If we are unable to successfully attract or retain
the personnel we need to succeed, we will be unable to implement our business
plan.
We may have difficulty establishing
adequate management and financial controls in China.
The People’s Republic of China has only
recently begun to adopt the management and financial reporting concepts and
practices that investors in the United States are familiar with. We
may have difficulty in hiring and retaining employees in China who have the
experience necessary to implement the kind of management and financial controls
that are expected of a United States public company. If we cannot
establish such controls, we may experience difficulty in collecting financial
data and preparing financial statements, books of account and corporate records
and instituting business practices that meet U.S. standards.
Government regulation may hinder our
ability to function efficiently.
The national, provincial and local
governments in the People’s Republic of China are highly
bureaucratized. The day-to-day operations of our business require
frequent interaction with representatives of the Chinese government
institutions. The effort to obtain the registrations, licenses and
permits necessary to carry out our business activities can be
daunting. Significant delays can result from the need to obtain
governmental approval of our activities. These delays can have an
adverse effect on the profitability of our operations. In addition,
compliance with regulatory requirements applicable to livestock farming and
production may increase the cost of our operations, which would adversely affect
our profitability.
Capital outflow policies in China may
hamper our ability to pay dividends to shareholders in the United
States.
The People’s Republic of China has
adopted currency and capital transfer regulations. These regulations require
that we comply with complex regulations for the movement of capital. Although
Chinese governmental policies were introduced in 1996 to allow the
convertibility of RMB into foreign currency for current account items,
conversion of RMB into foreign exchange for capital items, such as foreign
direct investment, loans or securities, requires the approval of the State
Administration of Foreign Exchange. We may be unable to obtain all of the
required conversion approvals for our operations, and Chinese regulatory
authorities may impose greater restrictions on the convertibility of the RMB in
the future. Because most of our future revenues will be in RMB, any inability to
obtain the requisite approvals or any future restrictions on currency exchanges
will limit our ability to pay dividends to our shareholders.
Currency fluctuations may adversely
affect our operating results.
Tieli XiaoXingAnling generates revenues
and incurs expenses and liabilities in Renminbi, the currency of the People’s
Republic of China. However, as a subsidiary of China SXAN Biotech, it
will report its financial results in the United States in U.S.
Dollars. As a result, our financial results will be subject to the
effects of exchange rate fluctuations between these currencies. From
time to time, the government of China may take action to stimulate the Chinese
economy that will have the effect of reducing the value of
Renminbi. In addition, international currency markets may cause
significant adjustments to occur in the value of the Renminbi. Any
such events that result in a devaluation of the Renminbi versus the U.S. Dollar
will have an adverse effect on our reported results. We have not
entered into agreements or purchased instruments to hedge our exchange rate
risks.
We have limited business insurance
coverage.
The insurance industry in China is
still at an early stage of development. Insurance companies in China offer
limited business insurance products, and do not, to our knowledge, offer
business liability insurance. As a result, we do not have any business liability
insurance coverage for our operations. Moreover, while business disruption
insurance is available, we have determined that the risks of disruption and cost
of the insurance are such that we do not require it at this time. Any business
disruption, litigation or natural disaster might result in substantial costs and
diversion of resources.
China SXAN Biotech is not likely to
hold annual shareholder meetings in the next few years.
Management does not expect to hold
annual meetings of shareholders in the next few years, due to the expense
involved. The current members of the Board of Directors were
appointed to that position by the previous directors. If other
directors are added to the Board in the future, it is likely that the current
directors will appoint them. As a result, the shareholders of China
SXAN Biotech will have no effective means of exercising control over the
operations of China SXAN Biotech.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
and Procedures.
Our Chief
Executive Officer and Chief Financial Officer carried out an evaluation of the
effectiveness of our disclosure controls and procedures as of March 31,
2008. Pursuant to Rule13a-15(e) promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, “disclosure
controls and procedures” means controls and other procedures that are designed
to insure that information required to be disclosed by China SXAN Biotech in the
reports that it files with the Securities and Exchange Commission is recorded,
processed, summarized and reported within the time limits specified in the
Commission’s rules. “Disclosure controls and procedures” include,
without limitation, controls and procedures designed to insure that information
China SXAN Biotech is required to disclose in the reports it files with the
Commission is accumulated and communicated to our Chief Executive Officer and
Chief Financial Officer as appropriate to allow timely decisions regarding
required disclosure. Based on his evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that China SXAN Biotech’s system
of disclosure controls and procedures was effective as of March 31, 2008 for the
purposes described in this paragraph.
Changes in Internal
Controls.
There was
no change in internal controls over financial reporting (as defined in Rule
13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in
connection with the evaluation described in the preceding paragraph that
occurred during China SXAN Biotech’s third fiscal quarter that has materially
affected or is reasonably likely to materially affect China SXAN Biotech’s
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
None
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds.
(c)
Unregistered sales of equity securities
None.
(e)
Purchases of equity securities
The
Company did not repurchase any of its equity securities that were registered
under Section 12 of the Securities Exchange Act during the quarter ened
September 30, 2008.
Item
3. Defaults Upon Senior
Securities
None
Item
4. Submission of Matters to a Vote of
Security Holders
None
Item
5A. Other Information
None
Item
6. Exhibits
31
|
Rule
13a-14(a) Certification
|
32
|
Rule
13a-14(b) Certification
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange
Act of 1934, the Registrant has
duly caused this Report to
be signed on its behalf by the undersigned
thereunto duly authorized.
Date:
November 19, 2008
|
By:
/s/ Feng Zhen
Xing
|
|
|
Feng
Zhen Xing, Chief Executive Officer and Chief Financial
Officer
|