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"The reverse split will not affect the common stock held by stockholders holding less than 100 shares as of the record date of the reverse split."
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10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER: 1-17953
---------------
CHINA SXAN BIOTECH, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA
95-4755369
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER IDENTIFICATION NO.)
c/o American Union Securities
100 Wall St. 15th Floor New York, NY 10005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER 'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-232-0120
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 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 shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|.
The number of shares of Common Stock of the Registrant, par value $.001 per Share, outstanding at September 30, 2007 was 1,895,513.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|.
CHINA SXAN BIOTECH, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
Page
Part I - Condensed Financial Information
1
Item 1 - Condensed Financial Statements
1
Consolidated Condensed Balance Sheet as of September 30, 2007 (unaudited)
1
Consolidated Condensed Statements of Operations and Comprehensive Income for the three months ended September 30, 2007 and September 30, 2006 (unaudited)
2
Consolidated Condensed Statements of Cash Flows for the three months ended September 30, 2007 and September 30, 2006 (unaudited)
3
Notes to the Consolidated Condensed Financial Statements (unaudited)
4
Item 2 - Management's Discussion and Analysis or Plan of Operation
7
Item 3 - Controls and Procedures
12
Part II - Other Information
13
Item 2 - Other Information
13
Item 6 - Exhibits
14
Signature Page
14
CHINA SXAN BIOTECH INC.
(Formerly Advance Technologies Inc.)
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2007
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 314,316
Accounts receivable, net of allowance of $8,322
1,661,100
Other receivables, net
773,496
Inventory
1,626,786
Advances to suppliers
1,904,683
Prepaid expenses
385
Total Current Assets
6,280,766
PROPERTY AND EQUIPMENT, NET
792,630
OTHER ASSETS
Intangible assets, net
4,210,335
Total Assets
$11,283,731
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 720,432
Income taxes payable
854,656
Due to stockholders
284,069
Total Current Liabilities
1,859,157
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
Series B convertible preferred stock, $0.001 par value,
100,000,000 shares authorized, 100,000 shares issued and
outstanding, respectively
100
Common stock, $0.001 par value, 100,000,000 shares authorized
1,895,513 shares issued and outstanding
1,895
Additional paid-in capital
4,501,044
Retained earnings
3,965,118
Statutory reserve
378,782
Accumulated other comprehensive income
550,624
Total Stockholders’ Equity
9,424,574
Total Liabilities and Stockholders’ Equity
$11,283,731
The accompanying notes are an integral part of these consolidated financial statements.
1
CHINA SXAN BIOTECH INC.
(Formerly Advance Technologies Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
September 30,
2007
2006
REVENUE
$ 1,366,058
$ 34,156
COST OF GOODS SOLD
400,239
90,315
GROSS PROFIT
965,819
(56,159)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
258,579
48,203
INCOME FROM OPERATIONS
707,240
(104,362)
OTHER INCOME
4,501
114
INCOME BEFORE PROVISION FOR INCOME TAX
711,741
(104,248)
PROVISION FOR INCOME TAX
106,761
-
NET INCOME (LOSS)
604,980
(104,248)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment
132,516
63,609
COMPREHENSIVE INCOME
$ 737,496
($ 40,639)
NET INCOME PER SHARE: BASIC AND DILUTED
$ .34
($ .13)
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED
1,785,903
775,056
The accompanying notes are an integral part of these consolidated financial statements.
2
CHINA SXAN BIOTECH INC.
(Formerly Advance Technolgies Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30,
2007
2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)
$ 604,980
($ 104,248)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation
56,660
51,384
Amortization
21,630
20,561
Bad debt expense
1,549
-
Changes in assets and liabilities:
Accounts receivable
(309,715)
-
Other receivables
(164,724)
349,722
Inventory
(273,126)
(1,266,375)
Prepaid expenses
151
177
Accounts payable and accrued expenses
260,936
971,623
Income tax payable
106,761
-
Total Adjustments
(299,878)
127,092
Net Cash Provided by Operating Activities
305,102
22,844
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
-
(16,860)
Net Cash Used by Investing Activities
-
(16,860)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash acquired in reverse merger transaction
2,087
-
Net Cash Provided by Financing Activities
2,087
-
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH
2,235
(732)
NET INCREASE IN CASH AND CASH EQUIVALENTS
309,424
5,252
CASH AND CASH EQUIVALENTS - BEGINNING
4,892
2,783
CASH AND CASH EQUIVALENTS - ENDING
$ 314,316
$ 8,035
The accompanying notes are an integral part of these consolidated financial statements.
3
CHINA SXAN BIOTECH INC.
(Formerly Advance Technologies Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2006
(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 22, 2006. 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 Xiaoxingxnling”), 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.
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, 2007, 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, 2007.
NOTE 3 – ACCOUNTING POLICIES
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-QSB and Item 310 of Regulation S-B 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.
NOTE 5 – OTHER RECEIVABLES
Other receivables represent advances made to third parties for non-operating purposes. They are unsecured and non-interest bearing. Management is of the opinion that the reported amounts will be fully collected and therefore, no allowance is deemed necessary.
4
CHINA SXAN BIOTECH INC.
(Formerly Advance Technologies Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2006
NOTE 6 – INVENTORY
Inventory at September 30, 2007 consisted of the following:
Food for frogs
$ 153,831
Food for pigs
65,727
Frogs in process
175,378
Pigs in progress
184,261
Frogs ready for sale
744,808
Packaging supplies
302,781
Total
$1,626,786
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, construction and rights to use land. Such advances are interest-free and unsecured.
Raw material
696,079
Construction
1,067,200
Rights to use land
141,404
Total
$1,904,683
NOTE 8 – PROPERTY AND EQUIPMENT, NET
Property and equipment at September 30, 2007 consisted of the following:
Buildings
$1,298,821
Equipment
47,275
Breeding livestock
1,193
Construction in progress
9,466
$1,356,755
Less: accumulated depreciation
564,125
Total
$ 792,630
Depreciation expense for the three months ended September 30, 2007 and 2006 was $56,660 and $51,384, respectively.
NOTE 9 – INTANGIBLE ASSETS, NET
Net intangible assets at September 30, 2007 were as follows:
Rights to use land
$4,303,951
Definite life
16,765
4,320,716
Less: accumulated amortization
110,381
Total
$4,210,335
5
CHINA SXAN BIOTECH INC.
(Formerly Advance Technologies Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2006
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, 2007 and 2006 amounted to $21,630 and $20,561, respectively.
Amortization expense for the Company’s intangible assets over the next five fiscal years is estimated to be:
2008
$ 86,520
2009
86,520
2010
86,520
2011
86,520
2012
86,520
2013 and thereafter
3,760,970
Total
$ 4,193,570
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, 2007 and 2006, respectively. Cash paid for income taxes was $-0- and $-0- during the three months ended September 30, 2007 and 2006, 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 $312,864.
6
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 is now in the process of filing 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
Our level of operations increased dramatically during our 2007 fiscal year, which ended on June 30, 2007. As we commence fiscal 2008, we are continuing that growth. In the three month period ended September 30, 2007 our revenue increased to $1,366,058 from the $34,156 in revenue recorded during the three months ended September 30, 2006. The primary reason for the increase in revenue was the maturity of our inventory. We commenced forest frog production in 2004. Forest frogs reach maturity after two years, after which they can be harvested. So the initial inventory of forest frogs that we accumulated in 2004 and 2005 became available for harvesting in the fall of 2006.
We realized a gross margin of 71% on our sales in the first quarter of fiscal year 2008. This substantially exceeded the gross margin percentage that we realized in the fiscal year that ended on June 30, 2007. We do not expect to continue to obtain 71% gross margin. Instead our gross
7
margins should fall below 60% in coming periods. The primary causes for the reduction will be:
·
increased prices for grain in China, which have increased our expense for feedstock; and
·
the increasing proportion of our sales attributable to manufactured products, which require more processing than sales of raw hasma.
Our gross margin will continue to dwindle in the next two years as we introduce even more manufactured products into our product offerings.
Our selling, general and administrative expenses increased from $48,203 in the three months ended September 30, 2006 to $258,279 in the three months ended September 30, 2007. The primary reasons for the increase were
·
increased administrative salaries, as we have developed a staff capable of managing our growing company;
·
increased selling expenses, related to the dramatic increase in our sales volume; and
·
expenses incurred as a result of the merger of Tieli XiaoXingAnling into a U.S. public company.
We expect that in the next two years our selling, general and administrative expense will remain at its current level or higher, as we will incur the expenses attributable to being a U.S. public company and as we continue to expand the focus of our business operations, necessitating a staff of skilled administrators.
Because we are involved in husbandry, the government of China has allowed us to defer payment of our income taxes until the end of this year. Therefore we have accrued the income tax expense on our Statement of Operations - $106,761 for the three months ended September 30, 2007 – but recorded the tax as payable on our balance sheet. We expect to satisfy that payable during the winter. During the next five years, we will be entitled to a tax abatement by reason of becoming a foreign-owned entity during the current fiscal year. As a foreign owned entity, Tieli XiaoXingAnling will be entitled to a two year income tax holiday, followed by a 50% income tax reduction for the next three years.
Our operations during the quarter ended September 30, 2007 produced net after tax income of $604,980. In comparison, we incurred a loss in the first quarter of fiscal 2007, due to the low level of sales at that time.
Our business operates entirely in Chinese Renminbi, but we will report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments, which are reported as a middle step between net income and comprehensive income. The net income is added to the retained earnings on our balance sheet; while the translation adjustment is added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the thee months ended September 30, 2007 the unrealized gain on foreign currency translations added $132,516 to our accumulated other comprehensive income.
Liquidity and Capital Resources
Since Tieli XiaoXingAnling was organized at the end of 2003, its operations have been
8
funded primarily be 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, 2007 the Company had $4,421,609 in working capital, with only $284,069 in debt.
During the three months ended September 30, 2007, the operations of Tieli XiaoXingAnling generated $305,102 in cash, despite reporting $604,980 in net income. This disparity, which was caused by increases in accounts receivable and inventory during the quarter, is characteristic of the Company’s operations. Its balance sheet at September 30, 2007 shows that the company is oriented towards near-term growth, as it includes only $314,316 in cash among its assets. The principal current assets on that date were:
·
$1,904,683 in advances to suppliers – payments made to insure that the feedstocks and other raw materials necessary for production during the 2008 growing season are available;
·
$1,626,786 in inventory – primarily forest frogs; and
·
$773,496 in other receivables – representing loans made to unrelated third parties to secure favourable business relationships.
Tieli XiaoXingAnling has adequate resources to fund its operations for the foreseeable future. However, its management has budgeted a capital expenditure over the next twelve months of 85 million RMB (approx. $11 million). Management’s plans include:
·
Development of the Company’s forest property in Heli to house an additional five million forest frogs, thus doubling the company’s production;
·
Acquisition of a liquor factory or medical wine factory with the necessary Good Manufacturing Practices (“GMP”) certification from the government, to enable Tieli XiaoXingAnling to rapidly expand its production of medicinal tonic; and
·
Acquisition of a pharmaceutical factory or healthcare products factory with a GMP certification, to enable Tieli XiaoXingAnling to rapidly initiate production of forest frog derivative products.
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.
9
Because we are expanding the scope of our operations, unexpected factors may hamper our efforts to implement our business plan.
Until recently, all of our business consisted of the sale of hasma – raw forest frog fatty tissues. We are currently expanding our business operations to include products enriched with hasma, as well as tonics and wines made from hasma. This expansion will involve us in much broader marketing operations. It will also entail much more complex production operations. Because these are areas in which we have limited experience, problems may occur with production or marketing that we have not anticipated, which would interfere with our business, and prevent us from achieving profitability.
The capital investments that we plan for the next two years may result in dilution of the equity of our present shareholders.
Our business plan contemplates that we will invest approximately 85 million RMB in our business during the next two years. We will raise the funds for that investment primarily by selling equity in our company. At present we have no commitment from any source for those funds. We cannot determine, therefore, the terms on which we will be able to raise the necessary funds. It is possible that we will be required to dilute the value of our current shareholders’ equity in order to obtain the funds. If, however, we are unable to raise the necessary funds, our growth will be limited, as will our ability to compete effectively.
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.
10
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
11
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. 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 September 30, 2007. 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
12
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 September 30, 2007 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 first 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
On July 10, 2007, in connection with the reverse merger of American SXAN Biotech, Inc. (the parent company of Tieli XiaoXingAnling) into a wholly owned subsidiary of the Company, the Company sold 1,120,457 shares of common stock to Huakang Zhou, who was an affiliate of American SXAN Biotech, for $325,000. The sale was exempt pursuant to Section 4(2) of the Act since the sale was not made in a public offering, the purchaser had access to detailed information about the Company derived from his investigation in connection with the merger, and the purchaser was acquiring the shares for his own account. There were no underwriters.
On July 10, 2007, in connection with the reverse merger of American SXAN Biotech, Inc. into a wholly owned subsidiary of the Company, the Company issued 100,000 shares of Series B Preferred Stock to the previous shareholders of American SXAN Biotech, Inc. The Series B Preferred Stock is convertible into 17,647,059 shares of common stock. The sale was exempt pursuant to Section 4(2) of the Act since the sale was not made in a public offering, the purchasers had access to detailed information about the Company derived from their investigation in connection with the merger, and the purchasers were acquiring the shares for their own accounts. There were no underwriters.
13
(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 1st quarter of fiscal 2008.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. 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.
CHINA SXAN BIOTECH, INC.
Date: November 19, 2007
By: /s/ Feng Zhen Xing
Feng Zhen Xing, Chief Executive Officer
and Chief Financial Officer
14
EXHIBIT 31: Rule 13a-14(a) Certification
I, Feng Zhen Xing, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of China SXAN Biotech, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business issuer’s internal controls over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the
small business issuer’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.
Date: November 19, 2007
/s/ Feng Zhen Xing
Feng Zhen Xing, Chief Executive Officer
and Chief Financial Officer
EXHIBIT 32: Rule 13a-14(b) Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of China SXAN Biotech, Inc. (the “Company”) certifies that:
1.
The Quarterly Report on Form 10-QSB of the Company for the period ended September 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
November 19, 2007
/s/ Feng Zhen Xing
Feng Zhen Xing, Chief Executive Officer
and Chief Financial Officer
ASVN picked up some
FRTW now called FRAUDCO
Chinese pos co
now .20 lol have a bid in at .02 should be there in a few days.
INPC trading
back to .30 nite dumping some everyday
started out with 100 share whacks this filed today
MRHD Form13d
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Merilus, Inc.
------------------------------
(Name Of Issuer)
Common Stock
------------------------------
(Title of Class of Securities)
58984R 10 8
--------------
(CUSIP Number)
Merilus, Inc. 44 West Broadway #1805, Salt Lake City, Utah 84101
----------------------------------------------------------------------
(Name, Address and telephone Number of Persons Authorized to Receive Notices
and Communications)
November 5, 2007
-------------------------------------------------------
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
Check the Following Box if a fee is being paid with the statement [ ].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP NO. 58984R 10 8
1. Name of Reporting Person: Ms. Michelle Turpin
S.S. or I.R.S. Identification No. of Above Person:
2. Check the Appropriate Box if a Member of a Group: NA
3. SEC Use Only
4. Source of Funds: PF
5. Check Box if Disclosure of Legal Proceedings is required pursuant to items
2(d) or 2(e): NA
6. Citizenship or Place of Organization: State of Utah, United States
7. Sole Voting Power: 600,000
8. Shared Voting Power: 936,780
9. Sole Dispositive Power: 600,000
10. Shared Dispositive Power: 936,780
11. Aggregate Amount Beneficially owned by Each Reporting Person:
12. Check Box if the Aggregate Amount in Box (11) Excludes Certain Shares:
NA
13. Percent of Class Represented by Amount in Row (11): At November 5, 2007,
the 936,780 shares would represent 61% of the issued and outstanding shares if
Ms. Turpin converts all of her notes into 600,000 shares of the Company's
common stock.
14. Type of Reporting Person: IN-Individual
<PAGE> 3
Item 1. Security and Issuer:
This statement relates to shares of Common Stock of Merilus, Inc.
(the "Issuer") whose address is 44 West Broadway #1805, Salt Lake City, Utah
84101.
Item 2. Identity and Background:
(a) Ms. Turpin is an individual.
(b) Ms. Turpin's office address is 4764 South 900 East, Suite 3, Salt
Lake City, Utah 84117;
) Ms. Turpin is not an officer or director of the Company but her
financial support is critical to the Company's ongoing ability to pay bills
and her voting control gives her control over decision requiring shareholder
approval;
(d) Ms. Turpin has not been convicted in a criminal proceeding within
the last five years;
(e) Ms. Turpin has not been a party to a civil proceeding of a
judicial or administrative body which resulted in a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws on findings any violation with
respect to such laws; and
(f) Ms. Turpin is an individual.
Item 3. Source and Amount of Funds or other Consideration:
All funds used in the purchase of the shares of common stock of the
Issuer were personal funds of Ms. Turpin. Ms. Turpin has provided a line of
credit of up to $30,000 which is convertible at $0.05 per share into shares of
the Company's common stock. The Company currently owes Ms. Turpin in excess
of $28,000.
Item 4. Purpose of Transaction:
The securities were purchased for investment purposes.
Item 5. Interest in Securities of the Issuer.
(a) All shares were acquired for investment purposes. Ms. Turpin may
acquire additional shares in the future depending on if the Company requires
additional financial support.
(b) Ms. Turpin has sole power to vote all 600,000 shares on conversion
and as a owner and manager of Micvic, LLC the ability to control and vote
through Micvic, LLC an additional 336,700 shares.
(c) During the past 60 days, Ms. Turpin has not sold any shares of the
Issuer.
<PAGE> 4
(d) Ms. Turpin has the sole right to receive and the power to direct
the receipt of dividends from, or the proceeds from the sale of the Issuer's
shares of common stock held by Ms. Turpin.
(e) Ms. Turpin is still a five percent shareholder.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Ms. Turpin is not currently a party to any contracts, arrangements,
understandings or relationships with respect to the securities of the Issuer
except the promissory note for up to $30,000.
Item 7. Materials to be filed as Exhibits.
None
Signature: After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: November 5, 2007
Michelle Turpin
_______________________
</TEXT>
</DOCUMENT>
PAPO up 23% almost 5m vol printing .0084
MRHD more 100 share bidwhacks today.
PAPO getting some volume
PAPO getting some volume
DMC ,will put on watchlist.may grab a starter Mon.
FFBU at .035
INPC below .40
Thanks for info
Listening to your replies you must work at burger king LOL.
Got some BPUR
on break at Burger King
Lame Bidwhacker up early today
TLHO all out .06 from .035 avg
FRZR printing .04
in FRZR at .025
ECOO out most at .07
picked up ECOO at .05
all out WSFG with nice profit after averaging down Thur
1.45 print nice.
WSFG at HOD
Nice buys today
BEST the MM sold alot at .04 now at .055 seeing if he's done
got more TLHO at .03
PAPO watching with oil at $90
Got some TLHO there also
WSFG added at 5.00
WSFG got some 6.02
OPGX picked up a bunch today
JDMC patience paying off.