The Board of Directors of the Company (the “Board”) believes that the stockholders of the Company will benefit from the Reverse Stock Split because it will attract potential investment from outside investors which will create a more liquid public market for its common stock. In order to facilitate such transaction, the Board has determined that the capitalization structure of the Company should be simplified.
On September 29, 2010, we entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among the Company, Paragon Capital LP, a Delaware limited partnership (the “Principal Shareholder”), Chine Victory Profit Limited, a British Virgin Islands company (“Chine Victory”), and the shareholders of Chine Victory (the “Chine Victory Shareholders”). The closing of the transaction (the “Closing”) took place on September 30, 2010 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, we acquired all of the outstanding shares of Chine Victory (the “Interests”) from the Chine Victory Shareholders in exchange for the issuance of 467,074.60209421 shares of Series M preferred stock, par value $0.001 (the “Series M Preferred Stock”) whereby each Series M Preferred Stock will be converted into 10,000 shares of our common stock (the “Conversion Shares”) automatically upon the effectiveness of the Reverse Stock Split (such transaction is sometimes to referred to herein as the “Share Exchange”). After giving effect to the above described automatic conversion, the Conversion Shares shall constitute approximately 86.39% of our issued and outstanding common shares immediately after the closing of the Share Exchange (without giving effect to the Financing as discussed below). As a result of the Share Exchange, Chine Victory became our wholly-owned subsidiary.
Simultaneous to the closing of the Share Exchange, we entered into a securities purchase agreement with certain accredited investors for the issuance and sale in a private placement of investment units (the “Units”), each consisting of one share of the Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) and Series A warrants to purchase up to 0.5 shares of our common stock (the “Warrants”), for aggregate gross proceeds of $5,344,975 (the “Financing”). In the aggregate, we issued to the Investors a total of 1,336,244 shares of Series A Preferred Stock and five-year Series A warrants to purchase up to 668,123 shares of common stock. We also paid to the placement agent and selected dealer placement agent a fee of $443,098 and issued to them five-year warrants (the “Agent Warrants”) to purchase a total of 133,624 shares of common stock at an exercise price of $4.80 per share. The Series A Preferred Stock, Warrants and Agent Warrants will not be subject to adjustment pursuant to the Reverse Stock Split.
As a condition to both the Share Exchange and Financing, our Majority Stockholders and directors agreed to approve the Reverse Stock Split and Name Change.
Accordingly, it was the Board’s opinion that the restructuring transactions described above, including the Share Exchange, Financing, Reverse Stock Split and Name Change would better position the Company to attract potential business candidates and provide the stockholders of the Company with the greatest potential return. The Board approved the above actions on September 30, 2010 and stockholders holding a voting majority of the outstanding voting capital stock of the Company approved the above actions on September 30, 2010.
ACTIONS TO BE TAKEN
This Information Statement contains a brief summary of the material aspects of the actions approved by the Board and the holders of the majority of the outstanding voting capital stock of the Company.
ACTION I REVERSE STOCK SPLIT DECREASE THE NUMBER OF ISSUED AND OUTSTANDING SHARES OF OUR COMMON STOCK
GENERAL
The Board approved a resolution to effectuate a 540.61745923707:1 reverse stock split. Under this reverse stock split each 540.61745923707 shares of our Common Stock will be automatically converted into 1 share of Common Stock. To avoid the issuance of fractional shares of Common Stock, the Company will issue an additional share to all holders of fractional shares. The effective date of the reverse stock split will be November 8, 2010.
PLEASE NOTE THAT THE REVERSE STOCK SPLIT WILL NOT CHANGE YOUR PROPORTIONATE EQUITY INTERESTS IN THE COMPANY, EXCEPT AS MAY RESULT FROM THE ISSUANCE OR CANCELLATION OF SHARES PURSUANT TO THE FRACTIONAL SHARES.
PLEASE NOTE THAT THE REVERSE STOCK SPLIT WILL HAVE THE EFFECT OF SUBSTANTIALLY INCREASING THE NUMBER OF SHARES THE COMPANY WILL BE ABLE TO ISSUE TO NEW OR EXISTING SHAREHOLDERS BECAUSE THE NUMBER OF AUTHORIZED SHARES WILL REMAIN THE SAME WHILE THE NUMBER OF SHARES ISSUED AND OUTSTANDING WILL BE REDUCED 540.61745923707-FOLD.
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