- -<PAGE>
As filed with the Securities and Exchange Commission on May 4, 1999
Registration No. ______
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- ------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
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AGROCAN CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1709 HARBOUR CENTRE
25 HARBOUR ROAD
WANCHAI, HONG KONG
(Address of Principal Executive Offices) (Zip Code)
011-852-2519-3933
(Issuer's Telephone Number)
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
Common Stock, Par Value $.0001
(Title of Class)
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
BUSINESS
GENERAL
AgroCan Corporation (the "Company") (HEREINAFTER, REFERENCE TO THE
"COMPANY" SHALL INCLUDE ITS SUBSIDIARIES UNLESS THE CONTEXT OTHERWISE REQUIRES)
is a Delaware corporation which owns all of the capital stock of AgroCan (China)
Inc., a British Virgin Islands corporation ("AgroCan China"). In turn, AgroCan
China owns three subsidiary companies ("Subsidiaries") one of which is a
Sino-Foreign Joint Venture ("Joint Venture") in the People's Republic of China
("China" or the "PRC").
AgroCan China was established in 1996 to take advantage of the growing
demand for fertilizers and other products and technologies that enhance the
agricultural output of China. As of February 1, 1999, AgroCan has established
an annual production capacity of 125,000 Metric Tons ("MT") for compound
fertilizers in two of the largest agricultural provinces of China, Guangxi and
Jiangxi, and plans to enter markets in other provinces. AgroCan is expanding its
distribution channels, product lines and services in order to provide
comprehensive solutions to niche markets of the agricultural sectors of China.
The following is the organization chart of the Company and a summary
description of the Subsidiaries and Joint Venture:
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AGROCAN CORPORATION
(Delaware)
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----------------------
AGROCAN (CHINA) INC.
(BVI)
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- --------------------- ------------------- -----------------
JIANGXI JIALI JIANGXI FENGLIN GUANGXI LINMAO
CHEMICAL INDUSTRY CHEMICAL INDUSTRY FERTILIZER LTD.
CO. LTD. CO. LTD.
- --------------------- ------------------- -----------------
2
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<TABLE>
<CAPTION>
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YEAR OF OWNERSHIP CAPACITY
NAME OF SUBSIDIARY ESTABLISHMENT PERCENTAGE LOCATION PER YEAR PRODUCT
(MT)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GUANXI LINMAO 1996 100% Nanning, 50,000 Compound fertilizers for
COMPOUND FERTILIZER LTD. Guangxi eucalyptus, citrus, fruit trees,
paddy rice, sugar cane and
flowers.
- ------------------------------------------------------------------------------------------------------------------------------------
JIANGXI FENGLIN CHEMICAL 1996 70% Nanchang, 25,000 Compound fertilizers
INDUSTRY CO. LTD. Jiangxi for aspen, citrus, fruit trees,
paddy rice, oil vegetable and
flowers.
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JIANGXI JIALI CHEMICAL 1997 100% Fuzhou, 50,000 Compound fertilizers
INDUSTRY CO. LTD. Jiangxi for citrus, fruit trees, paddy
rice, tobacco and flowers.
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</TABLE>
PRODUCTS
Through the Subsidiaries, the Company produces various compound
fertilizers. Compound fertilizers are the end product made from the combination
of the three primary nutrients; nitrogen (N), phosphate (P) and potassium (K)
together with other elements, such as iron, zinc, copper and manganese. These
elements are blended in different proportions and are made into pellets and
packed into bags of 50 kg each. Compound fertilizers are also commonly called
NPK fertilizers. The Company's compound fertilizers are designed and formulated
for the specific climate, soil and crop requirements of each individual market
of the Subsidiaries.
Compound fertilizers are becoming increasingly popular in China
because they can provide crops and plants with balanced nutrients and maintain
the Ph values of the soil. The following is a list of the main compound
fertilizers developed by the Company:
<TABLE>
<CAPTION>
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N-P-K RATIO APPLICATIONS
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<S> <C>
15-6-9 PADDY RICE
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8-18-10 WHEAT
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14-6-10 COTTON
----------------------------------------------
12-9-9 CORN
----------------------------------------------
5-10-10 TOBACCO
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12-8-10 SUGAR CANE
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16-16-16 GENERAL APPLICATION
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12-10-8 EUCALYPTUS PLANTATION
----------------------------------------------
12-12-8 ASPEN PLANTATION
----------------------------------------------
10-7-8 FRUIT TREE
----------------------------------------------
</TABLE>
The Company's compound fertilizers are sold under the brand name
"AgroCan Three Leaves." See "Marketing and Distribution."
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PRODUCTION
In order to maintain the consistency of quality and corporate image,
the fertilizer plants are designed and built with standard production
facilities. Management and employees in the Subsidiaries are trained to operate
the plants in the same manner. Standard operation procedures have been devised.
These procedures are based on the requirement of ISO 9000 standards. The
standard procedures include:
- - raw material storage practices;
- - material feeding steps and speed of the production line;
- - fertilizer blending control;
- - production capability analysis (Cpk);
- - packing and weighting of finished products; and
- - storage and procurement.
QUALITY CONTROL
The quality and level of nutrient output can be obtained by blending
different proportions of NPK input. Water and other necessary ingredients have a
significant impact on output cost and quality. All plants operated by the
Subsidiaries are equipped with computer systems to assist in cost and quality
control. Quality assurance (QA) and quality control (QC) are priorities for the
Company. Continuous improvement in product quality is vital to enhancing
competitiveness. The Company plans to establish and implement a comprehensive
quality-upgrading program that will lead to ISO 9000 certification. Training of
quality and quality control personnel is emphasized.
The laboratories of each plant are continually conducting research for
better formulae to meet plant/crop requirements and at the same time to optimize
material combination. The laboratories are also responsible for testing output
to ensure the appropriate level of quantity and quality.
SEASONS AND INVENTORY CONTROL
There are two planting seasons (spring and fall) in China. Prices of
fertilizers fluctuate between the two planting seasons. The prices of
fertilizer increase during planting seasons and decrease during other periods.
Companies generally obtain raw materials by signing purchase contracts at the
end of the off seasons when prices generally drop to the lowest level.
The Company's product mix allows sales of compound fertilizers with
crop rotations in different months. Sales are not significantly affected by the
seasonal changes.
PRODUCT DEVELOPMENT
The Company places considerable emphasis on the research and
development of new products and technology. The Company benefits from its
relationships with major national and local agricultural and soil research
institutes in China, as well as the Ministry of Agriculture, State Petroleum
and Chemical Bureau, and State Forestry Bureau. The Company retains a group of
leading engineers and scientists as consultants to support the research teams at
each subsidiary.
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MARKETING AND DISTRIBUTION
The State Internal Trade Bureau of the PRC maintains distribution
systems and channels from provincial to local levels. The Company's main
customers are the farming supplies bureaus and cooperatives under the State
Internal Trade Bureau. These entities act as wholesalers to individual farmers.
State-owned farms and plantations are also major accounts of the Company, and
are serviced by sales representatives of each Subsidiary. There direct sales
units of the Company are responsible for maintaining good working relationships
with the customers and in some instances having them as joint-venture partners.
The Company is also establishing its own provincial distribution channels in the
target market.
The Company conducts soil and vegetation surveys on a regular basis
and provides technical support to customers. Prior to the launching of any new
compound fertilizers, testing fields are established and data is collected for
further studies. The tests are conducted in collaboration with customers and
the test results are certified by customers. Management believes that such
close collaboration with customers enhance customers' satisfaction as well as
promote the loyalty of customers.
PRICING
Market prices of fertilizers and constituent ingredients generally
follow a seasonal fluctuation worldwide as well as in China. The Company has
adopted a purchasing policy to order raw materials during the low price seasons
so that product cost can be minimized. The Company has recently started to
source raw material like urea from the producers directly. Previously, the
Company purchased all of its raw material through intermediaries. This approach
is expected to reduce the Company's reliance on intermediates and thus reduce
raw material cost.
Selling prices of the Company's fertilizers are basically in line with
the market prices in the respective markets where the Subsidiaries' plants are
located. However, the Company is generally able to charge a slight premium (2
to 4%) over its competitors because of the stability and high quality of its
products.
THE MARKET
80% of the population (about 960 million people) of China live in
rural areas. The per capita irrigated land of China is 0.04 hectare, which is
only approximately 50% of that of the United States. Total arable land area was
reduced between 1961 and 1978 when China initiated the open-door economic
policy. Arable area has been further reduced since 1978. However, during this
period, grain output has increased two to three folds. The output per hectare
also increased in a similar way. The following comparative table shows the
trend:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
ARABLE LAND -/+ GRAIN OUTPUT -/+ OUTPUT PER -/+
(MILLION HECTARES) (MILLION MT) HECTARE (MT)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1961 103.4 109.6 1.06
- ------------------------------------------------------------------------------------------------------
1978 97.3 - 5.9% 272.9 +167% 2.74 +158%
- ------------------------------------------------------------------------------------------------------
1997 94.9 - 2.4% 443.5 + 62% 4.67 + 71%
- ------------------------------------------------------------------------------------------------------
Source: FAO & China Statistics Yearbook 1998
</TABLE>
With the reduction of usable land, there is a significant need to
increase the output of crops per hectare for China. China imports over 25% of
its fertilizers requirements and is the world's largest importer of fertilizers.
In 1997 total NPKs imported was 2,592,214 tons, up 21.8% from previous year's
2,128,280 tons. The Chinese government imposes an import quota system to
control the import of fertilizers of all kinds.
THE WORLDWIDE MARKET
Average annual worldwide consumption of fertilizers was about 130
million MT between 1991 and 1997. In that period, developing countries, in the
aggregate consumed annually an average of 59 million MT, accounting for
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45.7% of the total consumption. China was the most significant fertilizer
user in the world and consumed an average of 30 million MT between 1991 and
1997, accounting for 23.5% of worldwide consumption total. During 1997
China's consumption increased to a record high of 36.5 million MT,
representing 27% of total worldwide consumption in that year. India's
fertilizer consumption ranked second, with annual consumption of 14.3 million
MT in 1997, accounting for 10.1% of the world total. The statistics were
obtained from two Worldwide organizations: Food and Agriculture Organisation
(FAO) and Fertilizer Advisory, Development and Information Network for Asia
and the Pacific (FADINAP), under a UN Commission.
MARKET TREND OF CHINA
China is the world's largest producer of fertilizer with total output
in 1997 of 27.6 million MT, which accounted for 18.6% of world production.
Despite being the world's largest fertilizer producing country, China still had
a shortage of 8.9 million MT of fertilizer; 24% of the country's requirement.
China, therefore, has to rely on imports of the same amount to make up the
shortage.
Between 1980 and 1997, total consumption of fertilizer in China
increased from 16.7 to 35.9 million MT, representing an average of 6.7% per
annum. During the same period the annual average growth for NPK compound
fertilizers was 22.2%, 4.9%, 5.4% and 13.7%, respectively. It is estimated that
demand for fertilizers in the next decade will continue to grow at the same pace
as the last decade.
In order to improve efficient utilization of fertilizers, the PRC
Ministry of Agriculture opted for using more NPK compound fertilizers instead of
single nutrients, such as urea. It is expected that demand for NPK compound
fertilizers will gradually increase over the years. This demand can be
satisfied either by increasing imports or local production. In 1996, in order
to capitalize on the market growth in NPK compound fertilizers, the Company
established its first NPK compound fertilizer production plant in Guangxi and
further expanded into Jiangxi in 1997. As of February 1, 1999, the Company's
total annual production capacity is approximately 125,000 MT.
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THE COMPANY'S MARKETS
In 1997, the usage of fertilizer in selected provinces and cities was as
follows:
<TABLE>
<CAPTION>
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ARABLE LAND FERTILIZERS CONSUMED FERTILIZERS NPK
PROVINCE (MILLION HECTARE) (1,000 MT) CONSUMED CONSUMED
(KG PER HECTARE) (1,000 MT)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Guangxi 2.6 1,461 562 338
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Jiangxi 2.3 1,204 523 186
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Hebei & Tianjin 6.9 2,768 401 591
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Henan 6.8 3,553 523 583
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Hubei 3.4 2,622 781 394
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Hunan 3.2 1,754 540 254
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Guangdong 2.3 1,947 847 392
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Shandong 6.7 3,867 577 1,103
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Jiangsu 4.4 3,227 733 703
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Anhui 4.3 2,406 560 555
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Sichuan 6.2 2,709 437 378
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Beijing 0.4 197 493 58
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Shanghai 0.3 131 437 19
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- - - -
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SUB-TOTAL 49.8 27,846 559* 5,554
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NATIONAL TOTAL 94.9 39,807 419* 7,981
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* Fertilizer consumed divided by Arable Land
Source: China Statistics Yearbook 1998
</TABLE>
For China's 9th Five-Year Plan (1996-2001), these provinces and cities
were allocated more resources for development of the agricultural sectors by the
Central Government. The Company has established one plant in Guangxi and two
plants in Jiangxi. The Company plans to establish at least one plant in each of
the above listed province and city ("Target Markets"). The Target Markets are
prime agricultural developing provinces in China. Total cultivated land of
these provinces constitutes 38.3% of the PRC total and their fertilizer
consumptions exceed 55.6% of the national total. Fertilizer consumption per
hectare in these provinces is above the Chinese national average.
Fertilizer applications in these provinces and cities are mainly paddy
rice, wheat, corn, sugar cane, tobacco, cotton, vegetables, tree plantation and
fruit trees.
COMPETITION
LOCAL SUPPLIERS
There are many small fertilizer producers in China with annual output
of less than 10,000 MT that supply low quality fertilizers and compound
fertilizers. Because of their small size, these producers are generally less
cost effective, have low quality control and minimal product development
capabilities. Generally, the single or dual chemical nutrients supplied by these
producers are less effective at boosting the growth of plants as compared to the
Company's tailor-made compound fertilizers.
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INTERNATIONAL SUPPLIERS
The second group of competitors of the Company is international
producers and the traders who import fertilizers into China. The products that
are imported and traded range from single chemical elements like urea, phosphate
and potash to standard NPK compound fertilizers. The NPK ratios of imported
products are in the range of 15-15-15. Qualities of imported products are
generally higher and more stable than existing local made fertilizers. Due to
import duties, import license fees, and shipping and transportation expenses,
imported fertilizers are normally priced 10 - 25% higher than local products.
The total quantities imported are also limited by the import quota system
imposed by the Chinese government.
There are presently few joint venture fertilizer plants China. Most
of these plants are Sino-Foreign joint venture companies. They mainly produce
basic fertilizer ingredients such as urea. These fertilizer producers do not
constitute direct competition for the Company because their plants are insolated
and are unable to supply to the whole country as China's infrastructure is still
under development. Moreover, these plants do not have the capability to
manufacturer tailor-made compound fertilizers that suit individual markets.
These joint venture fertilizer plants can provide a stable supply of raw
materials to the Company's plants in different provinces.
COMPETITIVE EDGES
The Company specializes in producing compound fertilizers, which are
tailor-made to suit local conditions, such as plant, soil and climate. There
are few competitors in the Company's selected markets capable of producing
custom fertilizer. The Company considers that it has the following competitive
advantages:
- - the Subsidiaries are located within a 200 km radius of its market resulting
in savings in transportation costs, responsive customer services and market
intelligence;
- - emphasis on quality - local suppliers generally cannot match;
- - wide variety of products for different needs by the local farmers;
- - proactive product and market development; and
- - being local - breaking the import quota system, combining local and foreign
expertise, working closely with local farming supplies bureaus and
cooperatives.
EXPANSION PLANS
The Company's strategy in establishing operations in China is to first
seek out operating production facilities suitable for the Company's product
lines. Once a potential site is targeted, the Company will endeavor to
implement a consistent strategy. Typically, the strategy is to form a joint
venture with a local partner and provide initial capital. On-site management,
financial, accounting and sales personnel are also provided and management
personnel of the Company are expected to actively participate in the management
and operations of the joint venture. Facilities are updated as needed. The
Company then will provide technology to the joint venture with the goal of
developing fertilizers suitable for the local market. Management has determined
that the capital outlay for this type of operation is lower than starting a
green field operation.
The Company's short-term objective is to build annual production
capacities of up to 200,000 MT in selected provinces other than Guangxi and
Jiangxi. Thus, standardized compound fertilizers plants will be set up in these
growing markets. At the same time, quality control programs for ISO 9000
certification will be implemented in the Subsidiaries. Advertising and marketing
programs will be launched to enhance the "AgroCan Three Leaves" brand locally
and nationally.
In the long term, the Company's objective is to become an influential
party in the modernization of the agricultural industry of China. The Company
believes that China's agricultural industry requires high quality fertilizers,
pesticides, seedlings and other necessary inputs for the next century. In order
to raise the total land productivity with
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limited arable land, China must apply modern technology to the agricultural
industry. The Company is looking into opportunities to bring biotech and genetic
technologies, which are already available and used in developed countries, to
China.
EMPLOYEES
As of March 31, 1999, the Company had approximately 46 full-time
employees. There are 4 employees based in the Company's corporate office in
Hong Kong and 42 based in China. Of the 42 employees based in China, 18 are
dedicated to sales related activities and 24 employees are technical personnel
in the agricultural field.
PROPERTIES
HONG KONG. The Company occupies office space in Wanchai, Hong Kong
consisting of 810 square feet. The lease expires November 14, 1999.
NANNING, GUANGXI. The Company's subsidiary, Guangxi Linmao Compound
Fertilizer Ltd., owns a fertilizer manufacturing plant in Nanning, Guangxi,
consisting of 25,500 square feet. The land lease expires January 28, 2017.
NANCHANG, JIANGXI. The Company's joint venture, Jiangxi Fenglin
Chemical Industry Co. Ltd. leases a fertilizer manufacturing plant in Nanchang,
Jiangxi, consisting of 21,800 square feet. The lease expires October 17, 2001.
FUZHOU, JIANGXI. The Company's subsidiary, Jiangxi Jiali Chemical
Industry Co. Ltd. owns a fertilizer manufacturing plant in Fuzhou, Jiangxi,
consisting of 28,010 square feet The land lease expires June 30, 2057.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Registration Statement on Form 10-SB contains "forward-looking
statements" within the meaning of the Federal securities laws. These
forward-looking statements include, among others, statements concerning the
Company's expectations regarding sales trends, gross and net operating margin
trends, political and economic matters, the availability of equity capital to
fund the Company's capital requirements, and other statements of expectations,
beliefs, future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. The
forward-looking statements in this Registration Statement on Form 10-SB are
subject to risks and uncertainties that could cause actual results to differ
materially from those results expressed in or implied by the statements
contained herein.
OVERVIEW:
AgroCan Corporation (the "Company") was incorporated on December 8,
1997 in the State of Delaware. Effective December 31, 1997, the Company issued
1,598,646 shares of common stock, which represented all of the capital stock
outstanding at the completion of this transaction, to the shareholders of
AgroCan (China) Inc., a corporation incorporated in the British Virgin Islands,
in exchange for all of the capital stock of AgroCan (China) Inc. As of December
31, 1997, AgroCan (China) Inc. owned interests in three subsidiaries or joint
ventures as follows: Jiangxi Jiali Chemical Industry Company Limited (100%),
Jiangxi Fenglin Chemical Industry Company Limited (70%), and Guangxi Linmao
Fertilizer Company Limited (100%), all of which were located in the People's
Republic of China ("China" or the "PRC"). Prior to this transaction, the
Company had no significant operations. This transaction was accounted for as a
recapitalization of AgroCan (China) Inc., as the shareholders of AgroCan (China)
Inc. acquired all of the capital stock of the Company in a reverse acquisition.
Accordingly, the assets and liabilities of AgroCan (China) Inc. have been
recorded at historical cost, and the shares of common stock issued by the
Company have been reflected in the consolidated financial
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statements giving retroactive effect as if the Company had been the parent
company from inception. The historical consolidated financial statements
consist of the combined financial statements of AgroCan (China) Inc. and its
subsidiaries from the dates of their respective formation or acquisition for all
periods presented. All share and per share amounts presented herein have been
adjusted to reflect the two for one stock split effective February 6, 1998.
AgroCan (China) Inc. was established in 1996 to develop, produce and
sell fertilizers and other products and technologies to enhance the agricultural
output of China. The Company produces various compound fertilizers, which are
the end product made from the combination of three primary nutrients, nitrogen,
phosphate and potassium, mixed together with other elements such as iron, zinc,
copper and manganese. These ingredients are blended in different proportions
and packed into 50 kilogram bags. The Company designs its compound fertilizers
for the specific climate, soil and crop requirements of each individual
geographic market. As of February 1, 1999, the Company had established an
annual production capacity of 125,000 metric tons for compound fertilizers in
Guangxi and Jiangxi, two of the largest agricultural provinces in China, and the
Company intends to enter markets in other provinces in China.
Effective September 19, 1996, Guangxi Linmao Compound Fertilizer
Company Limited became a wholly-owned subsidiary of AgroCan (China) Inc, and
changed its name to Guangxi Linmao Fertilizer Company Limited ("Guangxi Linmao")
on December 25, 1997. Guangxi Linmao commenced operations on September 19,
1996, and became fully operational during the fiscal year ended September 30,
1997.
Effective October 8, 1996, AgroCan (China) Inc. entered into a joint
venture agreement with Nanchang Organic Fertilizer Factory, a state-owned
enterprise in the PRC, for the establishment of a Sino-Foreign Equity Joint
Venture, Jiangxi Fenglin Chemical Industry Company Limited ("Jiangxi Fenglin").
In exchange for capital contributions to Jiangxi Fenglin aggregating $252,493
through September 30, 1998, AgroCan (China) Inc. received a 70% equity interest
in the joint venture. Jiangxi Fenglin commenced operations on November 28,
1996, and became fully operational during the fiscal year ended September 30,
1998.
Effective November 3, 1996, AgroCan (China) Inc. entered into a joint
venture agreement with Fuzhou Grain and Oil Industry Corp., a state-owned
enterprise in the PRC, for the establishment of a Sino-Foreign Equity Joint
Venture, Jiangxi Jiali Compound Fertilizer Company Limited. The Company's had a
55% equity interest in the joint venture as of September 30, 1997. Effective
April 5, 1998, the Company acquired the remaining 45% interest in the joint
venture for $87,545 and changed its name to Jiangxi Jiali Chemical Industry
Company Limited ("Jiangxi Jiali"). Jiangxi Jiali commenced operations on May 1,
1998, and became fully operational during the fiscal year ended September 30,
1998.
The Company's customers are all located in the PRC, and sales to such
customers are generally on an open account basis. Approximately 76% of the
Company's sales were generated from one customer during the fiscal year ended
September 30, 1998. As of September 30, 1998, approximately 98% of accounts
receivable were generated by trade transactions with five customers, of which
one customer accounted for approximately 87% of the accounts receivable balance.
The Company has obtained agreed upon schedules of payments from two of the
Company's largest customers, which in total represent approximately 89% of the
accounts receivable balance at September 30, 1998. The payment schedules
stipulate that the customers will settle their balances in full within four to
six months subsequent to September 30, 1998.
The financial statements have been prepared in United States dollars.
Foreign currency transactions are translated into United States dollars at the
exchange rate at the transaction dates. Monetary assets and liabilities in
foreign currencies are translated into United States dollars at the rate of
exchange at the balance sheet date. Exchange gains or losses on foreign
currency transactions are included in the consolidated statements of income.
The financial statements of the subsidiaries are translated into United States
dollars at the rate of exchange at the balance sheet date. Currency translation
adjustments arising from the use of different exchange rates from period to
period are included as a separate component in shareholders' equity.
10
<PAGE>
Consolidated Results of Operations:
Three Months Ended December 31, 1998 and 1997:
Revenues. Revenues for the three months ended December 31, 1998 were
$2,435,208, as compared to revenues of $1,837,893 for the three months ended
December 31, 1997, an increase of $597,315 or 32.5%. The increase in revenues
in 1998 as compared to 1997 was a result of all three subsidiaries being fully
operational during 1998, as compared to only one subsidiary being fully
operational during 1997.
Gross Profit. Gross profit for the three months ended December 31,
1998 increased by $75,453 or 38.8%, to $269,688 or 11.1% of revenues, as
compared to gross profit of $194,235 or 10.6% of revenues for the three months
ended December 31, 1997. Gross profit increased in 1998 as compared to 1997
primarily as a result of an increase in revenues.
Administrative and General expenses. Administrative and general
expenses for the three months ended December 31, 1998 increased by $16,889 or
36.9%, to $62,698 or 2.6% of revenues, as compared to administrative and general
expenses of $45,809 or 2.5% of revenues for the three months ended December 31,
1997. Administrative and general expenses increased in 1998 as compared to 1997
primarily as a result of additional costs incurred to support increased
revenues.
Selling Expenses. Selling expenses for the three months ended
December 31, 1998 increased by $7,399 or 25.6%, to $36,319 or 1.5% of revenues,
as compared to selling expenses of $28,920 or 1.6% of revenues for the three
months ended December 31, 1997. Selling expenses increased in 1998 as compared
to 1997 primarily as a result of increased revenues.
Other Income (Expense). The Company recorded amortization of loan
fees of $18,564 for the three months ended December 31, 1998.
Income Taxes. The Company did not recognize any income taxes for the
three months ended December 31, 1998 and 1997. The Company is subject to income
taxes on an entity basis on income arising in or derived from the tax
jurisdiction in which each entity is domiciled. The Company's British Virgin
Islands subsidiary is not liable for income taxes. The Company's PRC
subsidiaries are subject to income taxes at an effective rate of 33%. Pursuant
to the approval of the relevant PRC tax authorities, the joint venture is fully
exempted from PRC income taxes for two years starting from the date profits are
first recognized, followed by a 50% exemption for the next three years.
Minority Interest. For the three months ended December 31, 1998 and
1997, the Company recorded a minority interest of $5,973 and $2,573,
respectively, to reflect the interest of the Company's 30% joint venture partner
in Jiangxi Fenglin.
Net Income. Net income was $146,134 for the three months ended
December 31, 1998, as compared to net income of $116,933 for the three months
ended December 31, 1997.
Fiscal Year Ended September 30, 1998 and the Period from September 19,
1996 to September 30, 1997:
Revenues. Revenues for the fiscal year ended September 30, 1998 were
$7,834,448, as compared to revenues of $2,492,318 for the period from September
19, 1996 to September 30, 1997, an increase of $5,342,130 or 214.3%. The
increase in revenues in 1998 as compared to 1997 was a result of all three
subsidiaries becoming fully operational during 1998, as compared to only one
subsidiary being fully operational during 1997.
Gross Profit. Gross profit for the fiscal year ended September 30,
1998 increased by $511,173 or 159.7%, to $831,252 or 10.6% of revenues, as
compared to gross profit of $320,079 or 12.8% of revenues for the period from
September 19, 1996 to September 30, 1997. Gross profit increased in 1998 as
compared to 1997 as a result of an
11
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increase in revenues, although the gross profit margin declined by 17.2%,
primarily as a result of increases in the cost of raw materials for which the
Company was unable to increase its selling prices to compensate in the
short-term. The Company considers a gross profit margin ranging from 10% to 14%
to be in the normal operating range.
Administrative and General expenses. Administrative and general
expenses for the fiscal year ended September 30, 1998 increased by $356,096 or
683.7%, to $408,176 or 5.2% of revenues, as compared to administrative and
general expenses of $52,080 or 2.1% of revenues for the period from September
19, 1996 to September 30, 1997. Administrative and general expenses increased
in 1998 as compared to 1997 as a result of additional costs, primarily personnel
related, incurred to support increased revenues, a consulting fee to a financial
advisor paid in 1998 in the form of 150,000 warrants exercisable at $1.50 per
share with a fair value of $48,000, and start-up costs incurred during 1998
related to the two manufacturing plants that commenced operations during 1998.
Selling Expenses. Selling expenses for the fiscal year ended
September 30, 1998 increased by $8,133 or 472.0%., to $9,856 or .1% of revenues,
as compared to selling expenses of $1,723 or .1% of revenues for the period from
September 19, 1996 to September 30, 1997. Selling expenses increased in 1998 as
compared to 1997 primarily as a result of increased revenues.
Other Income (Expense). The Company recorded amortization of loan
fees of $49,501 for the fiscal year ended September 30, 1998. On February 6,
1998, certain shareholders loaned the Company $300,000. The loan is repayable
at the earlier of two years from May 1, 1998 or sixty days after demand by all
and/or individual shareholders. In consideration for the loan, the Company
granted to these shareholders stock options to purchase 754,117 shares of common
stock of the Company at an exercise price of $1.50 per share, exercisable during
a two year period beginning February 6, 1998. The stock options were determined
to have a fair value of $241,317, which was recorded as an addition to deferred
costs, and which is being charged to operations during the period from February
1998 through April 2001.
The Company recorded subcontracting income of $90,750 for the fiscal
year ended September 30, 1998, relating to fertilizer processing services that
the Company provided to a customer. The Company did not record any
subcontracting income for the period from September 19, 1996 to September 30,
1997.
Income Taxes. The Company did not recognize any income taxes for the
fiscal year ended September 30, 1997 or the period from September 19, 1996 to
September 30, 1997. The Company is subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which each entity
is domiciled. The Company's British Virgin Islands subsidiary is not liable for
income taxes. The Company's PRC subsidiaries are subject to income taxes at an
effective rate of 33%. Pursuant to the approval of the relevant PRC tax
authorities, the joint venture is fully exempted from PRC income taxes for two
years starting from the date profits are first recognized, followed by a 50%
exemption for the next three years.
Minority Interest. For the fiscal year ended September 30, 1998 and
the period from September 19, 1996 to September 30, 1997, the Company recorded a
minority interest of $22,409 and $3,172, respectively, to reflect the interest
of the Company's 30% joint venture partner in Jiangxi Fenglin.
Net Income. Net income was $435,883 for the fiscal year ended
September 30, 1998, as compared to net income of $263,619 for the period from
September 19, 1996 to September 30, 1997.
Consolidated Financial Condition:
Liquidity and Capital Resources:
Operating. For the fiscal year ended September 30, 1998, the
Company's operations utilized cash resources of $68,008, as compared to
generating cash resources of $175,255 for the period from September 19, 1996 to
September 30, 1997. The Company had net working capital of $1,052,614 at
September 30, 1998, as compared to net working capital of $403,208 at September
30, 1997, reflecting a current ratio of 1.17:1 at September 30, 1998, as
compared to 1.43:1 at September 30, 1997. The Company's operations used cash
resources in 1998 as compared to
12
<PAGE>
providing cash resources in 1997 primarily to support substantially increased
revenues, which caused a commensurate increase in accounts receivable, but which
was only partially offset by an increase in accounts payable.
For the three months ended December 31, 1998, the Company's operations
generated cash resources of $183,461, as compared to utilizing cash resources of
$126,018 for the three months ended December 31, 1997. The Company had net
working capital of $1,003,669 at December 31, 1998, as compared to net working
apital of $1,052,614 at September 30, 1998, reflecting a current ratio of 1.18:1
at December 31, 1998, as compared to 1.17:1 at September 30, 1998. The Company's
operations provided cash resources in 1998 as compared to using cash resources
in 1997 primarily as a result of improved accounts receivable collections.
Accounts receivable decreased by $2,055,493 to $4,586,170 at December
31, 1998, from $6,641,663 at September 30, 1998, and increased by $6,013,712 to
$6,641,663 at September 30, 1998, from $627,941 at September 30, 1997. Accounts
receivable increased in 1998 as a result of increased sales, and decreased
during the three months ended December 31, 1998 as the rate of sales growth
decreased and collections improved. The Company recorded a provision for
doubtful accounts of $140,000 for the fiscal year ended September 30, 1998.
Inventories increased by $1,208,639, from $134,261 at September 30,
1998 to $1,342,950 at December 31, 1998, to support increased revenues.
Investing. During the fiscal year ended September 30, 1998, additions
to property, plant and equipment aggregated $137,587 and additions to
construction in progress aggregated $256,581. During the fiscal year ended
September 30, 1997, additions to property, plant and equipment aggregated
$281,379 and additions to construction in progress aggregated $113,462. The
Company also acquired the remaining 45% interest in Jiangxi Jiali during 1998
for $87,545.
During the three months ended December 31, 1998, additions to
property, plant and equipment aggregated $178,361 and additions to construction
in progress aggregated $58,872. During the three months ended December 31,
1997, additions to property, plant and equipment aggregated $53,425 and
additions to construction in progress aggregated $36,981.
As of December 31, 1998, the Company's had budgeted capital
expenditures of approximately $100,000 through September 30, 1999.
Financing. During the fiscal year ended September 30, 1998, the
Company commenced a private placement, consisting of units at $2.00 per unit,
with each unit consisting of one share of common Stock and one-tenth of a
two-year warrant to purchase shares of common stock at $.10 per share. In
connection with this private placement, the Company also issued 150,000 two-year
warrants at $.10 per share to its financial advisors. As of September 30, 1998,
250,000 units, consisting of 250,000 shares of common stock and 25,000 two-year
warrants expiring August 2000 had been issued for a gross consideration of
$500,000, which generated net proceeds of $450,716. Prior to the private
placement, the Company issued 47,876 shares of common stock for $31,000.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that its projected cash flows from
operations, combined with cash that the Company expects to generate from the
sale of its securities during the fiscal year ending September 30, 1999, will be
sufficient to support its planned operations.
Inflation and Currency Matters:
In recent years, the Chinese economy has experienced periods of
rapid growth as well as relatively high rates of inflation, which in turn has
resulted in the periodic adoption by the Chinese government of various
corrective measures designed to regulate growth and contain inflation. Since
1993, the Chinese government has implemented an economic program designed to
control inflation, which has resulted in the tightening of working capital
available to Chinese business enterprises. The recent Asian financial crisis
has resulted in a general reduction in domestic production
13
<PAGE>
and sales, and a general tightening of credit, throughout China. The success of
the Company depends in substantial part on the continued growth and development
of the Chinese economy.
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, and
fluctuations in the relative value of currencies. Changes in the relative value
of currencies occur periodically and may, in certain instances, materially
affect the Company's results of operations. In addition, the Renminbi is not
freely convertible into foreign currencies, and the ability to convert the
Renminbi is subject to the availability of foreign currencies. As a result of
the Asian financial crisis, China recently tightened foreign exchange controls.
Effective December 1, 1998, all foreign exchange transactions involving the
Renminbi must take place through authorized banks in China at the prevailing
exchange rates quoted by the People's Bank of China. The Company expects that a
portion its revenues will need to be converted into other currencies to meet
foreign exchange currency obligations, including the payment of any dividends
declared.
The continuing Asian financial crisis has had a negative impact on the
Company's operations by reducing the Chinese economy's growth and general level
of activity. Although the central government of China has recently indicated
that it does not intend to devalue its currency in the near future, devaluation
still remains a possibility. Should the central government of China decide to
devalue the Renminbi, the Company does not believe that such an action would
have a detrimental effect on the Company's operations, since the Company
conducts virtually all of its business in China, and the sale of its products is
settled in Renminbi. However, devaluation of the Renminbi against the United
States dollar would adversely effect the Company's financial performance when
measured in United States dollars.
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," ("SFAS No. 130"), which is
effective for financial statements issued for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income, its components and accumulated balances in a
full set of general purpose financial statements. SFAS No. 130 defines
comprehensive income to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is presented with the same
prominence as other financial statements. The Company's only current component
of comprehensive income is foreign currency translation adjustment. The Company
adopted SFAS No. 130 for its fiscal year beginning October 1, 1998. Adoption of
SFAS No. 130 did not have a material effect on the Company's financial statement
presentation and disclosures.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise" and which is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
SFAS No. 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. SFAS No. 131 also establishes standards for
disclosures by public companies regarding information about their major
customers, operating segments, products and services, and the geographic areas
in which they operate. SFAS No. 131 defines operating segments as components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. SFAS No. 131 requires
comparative information for earlier years to be restated. The Company operates
in only one segment, fertilizer manufacturing. The Company adopted SFAS No. 131
for its fiscal year beginning October, 1998. Adoption of SFAS No. 131 did not
have a material effect on the Company's financial statement presentation and
disclosures.
In February 1998, the Financial Accounting Standards Board issued
Statement No. 132, "Employers' Disclosures about Pensions and Other Post
Retirement Benefits" ("SFAS No. 132"), which is effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS No.
132 revises employers' disclosures about pension and other post retirement
benefit plans. SFAS No. 132 requires comparative information for earlier years
to be
14
<PAGE>
restated. The Company does not have any pension or other post retirement
benefit plans. The Company adopted SFAS No. 132 for its fiscal year beginning
October 1, 1998. Adoption of SFAS No. 132 did not have a material effect on the
Company's financial statement presentation and disclosures.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), which is effective for financial statements for
all fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS No.
133 standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. The Company will adopt SFAS No. 133
for its fiscal year beginning October 1, 1999. The Company currently does not
have any derivative instruments nor is it engaged in hedging activities, thus
the Company does not believe implementation of SFAS No. 133 will have a material
impact on its financial statement presentation and disclosures.
Year 2000 Issue:
The Year 2000 Issue results from the fact that certain computer
programs have been written using two digits rather than four digits to define
the applicable year. Computer programs that have sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruption of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Based on a recent internal assessment, the Company has determined that
its software programs are already Year 2000 compliant, or that the cost of any
needed modifications will not have a material effect on the Company's
consolidated financial position, results of operations or cash flows.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 19,
1999 with respect to (i) the beneficial ownership of the Common Stock of the
Company by each beneficial owner of more than 5% of the outstanding shares of
Common Stock of the Company, each director, each executive officer and all
executive officers and directors of the Company as a group, (ii) the number of
shares of Common Stock owned by each such person and group and (iii) the percent
of the Company's Common Stock so owned.
As used in this section, the term beneficial ownership with respect to
a security is defined by Rule 13d-3 under the Exchange Act as consisting of sole
or shared voting power (including the power to vote or direct the vote) and/or
sole or shared investment power (including the power to dispose of or direct the
disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws
where applicable. Each person has sole voting and investment power with respect
to the shares of Common Stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of Common Stock, except as
otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
<S> <C> <C>
Lawrence Hon(1) 705,002 32.48%
David Cheung(1) 705,002 32.48%
Danny Wu(1) 705,002 32.48%
Yuanhong Chen -- --
Haibo Li -- --
Changfa Li -- --
Chunbao Chen -- --
Donald Lau(2) 420,444 19.37%
Ngai Poon(3) 473,200 21.80%
All Directors and Executive 1,598646 73.65%
Officers as a group (9 persons)
Texon Investments Holding Ltd.(1) 705,002 32.48%
c/o AgroCan Corporation
25 Harbour Road
Wanchai, Hong Kong
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
<S> <C> <C>
Intermax Ltd.(3) 473,200 21.80%
811, Wing Shan Tower,
73 Des Voeux Road Central,
Hong Kong
Masterpiece Development Ltd.(2) 420,444 19.37%
c/o T. C. Lau & Co
501, China Insurance Group Bldg,
141, Des Voeux Rd.
Central, Hong Kong
Shenton Development 150,000 6.91%
Suite A-3
13/F, Block A
Elizabeth House
250 Gloucester Road
Causeway Bay, Hong Kong
</TABLE>
(1) Messrs. Hon, Wu and Cheung own all the outstanding shares of
Texon Investments Holdings Ltd.
(2) Mr. Lau owns a majority interest in Masterpiece Development Ltd.
(3) Ms. Poon owns all the outstanding shares of Intermax Ltd.
CHANGES IN CONTROL
The Company is unaware of any contract or other arrangement, the
operation of which may at a subsequent date result in a change in control of the
Company.
17
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all
directors and executive officers of the Company and the key management personnel
as of April 19, 1999. The Board of Directors of the Company is comprised of
only one class. All of the directors will serve until the next annual meeting
of stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
stockholders. Except as otherwise noted, there are no family relationships
among directors and executive officers. Also provided is a brief description of
the business experience of each director and executive officer and the key
management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lawrence Hon 50 Chairman of the Board, President and
Chief Executive Officer
David Cheung 44 Chief Financial Officer
Danny Wu 38 Secretary and Director
Yuanhong Chen 36 Vice President, Marketing and Sales
Haibo Li 47 Vice President, Operations
Changfa Li 50 Vice President, Business Development
Chunbao Chen 59 Chief Engineer
Donald Lau 50 Director
Ngai Poon 29 Director
</TABLE>
LAWRENCE HON. Mr. Hon has been Chairman of the Board, President
and Chief Executive Officer of the Company since December 1997. Mr. Hon has
over twenty years of senior managerial experience, in trading and
manufacturing environment, covering different functions. He started his
career as a professional accountant. He served as accounting manager, company
secretary and financial controller in the early stage of his career.
Throughout his career, Mr. Hon has worked mainly for multinational companies.
In 1984, Mr. Hon joined Modern Printing Equipment Ltd. as the Financial
Director. Modern Printing was a subsidiary of KNP BT, a Dutch based
multinational group. KNP BT is the World's eighth largest forestry group
specializing in paper, packaging and printing business. He was promoted to
KNP BT's Regional Financial Director in 1986 and Deputy Managing Director of
Asian Operations in 1990, responsible for Hong Kong, China, Taiwan and Korea.
In 1994 Mr. Hon, together with other entrepreneurs, formed a forestry
company, Sino-Forest Corporation. Sino-Forest's main business is supplying
wood fiber in the form of wood chips to the pulp and paper industry in Japan,
China and other Asian countries. Sino-Forest was first listed in the OTC in
Canada in 1994. Today, Sino-Forest is listed on the Toronto Stock Exchange
with a market capitalization of US$150 million. Mr. Hon is a professional
accountant with fellowship in the respective accountants' associations in
Hong Kong and U.K. He also holds a MBA degree and a professional
qualification in Information Technology.
DANNY WU. Mr. Wu has been Secretary and a director of the Company
since December 1997. Mr. Wu has over ten years of experience in international
trade, manufacturing management and direct investment in China. He started as a
loan officer in the Hang Lung Bank, Hong Kong. He joined the Hong Kong Trade
Development Council (HKTDC) in 1985 and was in charge of promoting HKTDC's
services to the local business community. Subsequently, he
18
<PAGE>
was assigned to promote Hong Kong's export trade and investments and assisted
a number of foreign companies to invest in Hong Kong and China during that
period. Mr. Wu was then promoted to project manager, responsible for
organizing and the overall management of a number of international
conventions and exhibitions. He joined Quanta Industries Inc., a Taiwanese
conglomerate, in 1989 as the general manager of Quanta's Hong Kong office
overseeing trading, direct investment activities and setting up joint venture
enterprises in China. The joint ventures were in catering, cable
manufacturing and metal processing. He was also involved in the general and
financial management of these ventures. Mr. Wu was a founding member of
Sino-Forest Corporation, a listed Canadian company, with investments in
forestry in China. He was responsible for market development of wood chips
and procurement in China and Asia. He is a graduate of University of Hong
Kong with a degree in management studies and economics.
DONALD LAU. Mr. Lau has been a director of the Company since
December 1997. Mr. Lau started his career in New York. He joined Bank of
America in 1974 and specialized in commercial lending for the agricultural
and forest products industries. He covered Colorado, Oregon, Utah, and
Washington. In 1978, he was promoted to vice president and was in charge of
correspondent bank lending in Asia. Based in Hong Kong, he covered the
business of Japan, Taiwan, Philippines, Malaysia, Thailand, Singapore and
Indonesia. He joined Sinomay Company, Inc., New York, in 1982. He was
involved in the building of the first modern bromine extraction plant in
China and a number of technology transfer projects. He also developed the
export business of logs from Oregon and Washington to China. In 1986, he
joined Sinomart International Inc., New York. Sinomart is an investment
company owned by the Guangdong Provincial government of China. He established
a number of joint venture projects in the U.S. and China. Mr. Lau joined
Wonton Food Inc. of New York in 1988 and expanded Wonton's sales and
distribution network. Wonton is the world's largest fortune cookies
manufacturer. He is presently the vice president of Wonton. Mr. Lau received
his science degree and MBA degree from Columbia University, New York, in 1971
and 1974 respectively.
NGAI POON. Miss Poon has been a director of the Company since
December 1997. Miss Poon joined Dupont Inc.'s New York office in 1991 as a
management accountant. In 1996, she moved to Hong Kong and joined Sino Forest
Corporation as an investment analyst. She was responsible for financial
modeling, due diligence and reviewing investment proposals. During her service
with Sino-Forest, she traveled extensively in China. Miss Poon is a graduate of
Columbia University, New York, majoring in accounting.
MANAGEMENT
DAVID CHEUNG. Mr. Cheung has been Chief Financial Officer of the
Company since December 1997. Mr. Cheung has over ten years of experience in
corporate finance covering both commercial and investment banking with emphasis
on merger and acquisitions, treasury and financial control. He has worked for
several major international financial institutions such as the Citibank in the
US, Hong Kong and Canada. He has an MBA in Finance from the University of
California, Berkeley, and also is a US Certified Public Accountant.
YUANHONG CHEN. Mr. Chen has been Vice President, Marketing and Sales,
of the Company since December 1997. Born in Guangxi, Mr. Chen has over fifteen
years experience in marketing and distribution of commodities and general goods
in Southern and Central China. Prior to joining the Company, he was the general
manager of Guangxi Jinhong Trading Co. Ltd. He is a graduate of Nanning
University in Guangxi. He oversees the marketing and sales operations of the
Company.
19
<PAGE>
HAIBO LI. Mr. Li has been Vice President, Operations, of the Company
since December 1997. Mr. Li started as a technician in the Fuzhou Chemical
Factory in the 1970's. He was assigned to the Forestry Bureau of Fuzhou,
Jiangxi, in 1982. In 1990, he returned to Fuzhou Chemical Factory and was
promoted to factory manager. He joined the Company in 1996 and was involved in
establishing the two Jvs in Jiangxi. Mr. Li is responsible for the operations
and control of the Company's plants. Mr. Li is a graduate of Nanchang Technical
College.
CHANGFA LI. Mr. Li has been Vice President, Business Development, of
the Company since December 1997. Mr. Changfa Li has been a manager of the
Company since its inception. He has more than twenty years experience in
management within the chemical industry. He has been involved in the
establishment of four medium and large scaled chemical fiber companies. Since
the early 1980s, he has served as factory manager of Shengma Group, a listed
company in China, manufacturing director of Shenzhen Shunchang Company, and
President of Zhongshan Kesheng Chemical Limited. In 1994, he was appointed as
researcher for the Economic Adjustment Department of the China National Textile
Council. He is now Vice President, Business Development of the Company and is
responsible for formulating strategies and development planning. He received
his chemical engineering degree from Wuhan University and a law degree from
Henan Law School in 1986.
CHUNBAO CHEN. Mr. Chen has been Chief Engineer of the Company since
December 1997. Mr. Chen is a qualified chemical engineer with over 30 years in
the fertilizer and chemical industries. He started as a chemical analyst in
Jiangxi Gandong Chemical Factory where he was responsible for quality control
and product development. During that period, he developed a number of new
products. He received numerous provincial awards for his outstanding
achievements. He was promoted to senior engineer in the 1980's and factory
manager in 1992. He joined the Company in 1997 and is responsible for overall
technical aspects and R & D of the Company. Mr. Chen is a graduate of Fuzhou
University with a major in chemistry.
20
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during fiscal
years ended September 30, 1997 and 1998 to the Company's Chief Executive
Officer. No officer of the Company received annual compensation in excess of
$100,000 per annum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary
------------------ ---- ------
<S> <C> <C>
Lawrence Hon, President and CEO 1997 nil
Lawrence Hon, President and CEO 1998 nil
</TABLE>
COMPENSATION AGREEMENTS
There are currently no long-term employment or consulting agreements
between the Company and the executive officers or directors of the Company.
BOARD OF DIRECTORS
During the year ended September 30, 1998, 2 meetings of the Board of
Directors were held; certain corporate actions were also conducted by unanimous
written consent of the Board of Directors. Directors receive no compensation
for serving on the Board of Directors, but are reimbursed for any out-of-pocket
expenses incurred in attending board meetings. The Board of Directors has
established an audit committee which consists of Lawrence Hon and Ngai Poon.
STOCK OPTION PLAN
The Company adopted the 1998 Stock Option Plan in order to compensate,
motivate and retain key employees, directors and consultants of the Company.
During the year ended September 30, 1998, no stock options were granted pursuant
to the 1998 Stock Option Plan.
21
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH RELATED PARTIES
During 1997, the Company paid various expenses totaling $140,673 on
behalf of affiliated companies. The advances were reduced to $89,454 at
December 31, 1998. The advances are non-interest bearing and payable on demand.
During 1997, the PRC shareholder of Jiangxi Fenglin made advances of
$17,005 to the joint venture company for the purchase of raw materials. The
advances are non-interest bearing, payable on demand and amounted to $3,723 at
September 30, 1998 (1997: $17,005).
The Company paid factory and production facilities rental of $12,705
during 1998 (1997: $10,883) to the PRC shareholder of Jiangxi Fenglin.
TRANSACTIONS WITH A DIRECTOR
A director has paid various expenses on behalf of a subsidiary. The
amount due to the director is non-interest bearing, repayable on demand and
amounted to $10,681 at September 30, 1998 (1997: $12,102).
TRANSACTIONS WITH SHAREHOLDERS
On February 6, 1998, certain shareholders made a loan of $300,000 to
the Company. The loan is repayable at the earlier of three years from May 1,
1998 or sixty days after demand by all and/or individual shareholders. In
consideration for the loan, the Company granted to these shareholders options to
purchase 754,117 shares of common stock of the Company at an exercise price of
$1.50 per share exercisable during a two-year period beginning February 6, 1998.
The options have been valued at $241,317 based upon the fair value of the common
stock underlying the options. Of this amount, $49,501 has been recognized as an
expense during the year ended September 30, 1998 and $191,816 has been deferred.
The deferred amount will be charged to expense through April 2001.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation to issue
an aggregate of 25,000,000 shares of Common Stock, par value $.0001 per share,
and 10,000,000 shares of preferred stock, par value $.0001 per share, which
preferred stock may be issued with such rights, designations and privileges
(including redemption and voting rights) as the Board of Directors may, from
time to time, determine.
The following summary descriptions are qualified in their entirety by
reference to the Company's Restated Certificate of Incorporation, a copy of
which has been filed as an exhibit to the Registration Statement.
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock,
par value $.0001 per share. As of April 19, 1999, 2,170,460 shares of Common
Stock were issued and outstanding and held of record by 26 stockholders. Each
stockholder is entitled to one vote per share of Common Stock owned by such
stockholder on all matters submitted to a vote of the stockholders.
22
<PAGE>
The Common Stock is not entitled to preemptive rights and is not
subject to redemption. Subject to the dividend rights of holders of any then
outstanding preferred stock, holders of Common Stock are entitled to receive
dividends at such times and in such amounts as the Board of Directors, from time
to time, may determine. Subject to the liquidation preference of any then
outstanding preferred stock, holders of Common Stock are entitled to receive, on
a pro rata basis, all remaining assets of the Company available for distribution
to the holders of Common Stock in the event of the liquidation, dissolution or
winding up of the Company.
All outstanding shares of Common Stock are validly issued, fully paid
and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to cause the Company to
issue, without any further vote or action by the stockholders, up to 10,000,000
shares of preferred stock, par value $.0001 per share, in one or more series, to
designate the number of shares constituting any series, and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
voting rights, rights and terms of redemption, redemption price or prices and
liquidation preferences of such series. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. The issuance of preferred
stock with voting and conversion rights may adversely effect the voting power of
the holders of Common Stock, including the loss of voting control. The Company
has no present plans to issue any shares of preferred stock.
23
<PAGE>
PART II
ITEM 1. MARKET PRICE FOR THE COMMON STOCK
As of April 19, 1999, the number of security holders of record of the
Company's Common Stock was 26. As of such date, 2,170,460 shares were
outstanding. There is no active public market for the Company's Common Stock.
Upon the effective date of this Registration Statement, the Company plans to
apply to have its Common Stock traded on the OTC Electronic Bulletin Board.
ITEM 2. LEGAL PROCEEDINGS
The Company is neither a plaintiff nor a defendant in any pending
legal matters.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following is information for all securities that the Company has
sold within the past three years without registering the securities under the
Securities Act:
1. On December 31, 1999, the Company issued an aggregate of
1,598,684 shares of Common Stock to the shareholders of AgroCan (China) Inc.
in exchange for all of the outstanding capital stock of AgroCan (China) Inc.
The shares were issued pursuant to Section 4(2) of the Securities Act.
2. During the period ended September 30, 1998, the Company issued
47,914 shares of Common Stock to a third party for consideration of $31,000.
The shares were issued pursuant to Section 4(2) of the Securities Act.
3. On August 25, 1998, the Company issued an aggregate of 250,000
units, each unit consisting of one share of Common Stock and 1/10th of a warrant
to purchase one share of Common Stock at $0.10 per share, to 43 investors for an
aggregate purchase price of $500,000. The shares were issued pursuant to Rule
504 of Regulation D.
4. On August 25, 1998, the Company issued 20,000 shares of Common
Stock, 2-year Warrants to purchase 150,000 shares of Common Stock at $0.10 per
share and 2-year Warrants to purchase 125,000 shares of Common Stock at $1.50
per share to a consultant for services rendered. The shares were issued
pursuant to Section 4(2) of the Securities Act.
5. On August 25, 1998, the Company issued 2-year Warrants to
purchase 25,000 shares of Common Stock at $0.10 per share to a consultant for
services rendered. The shares were issued pursuant to Section 4(2) of the
Securities Act.
6. On August 25, 1998, the Company issued 150,000 shares of Common
Stock to a consultant for services rendered. The shares were issued pursuant to
Section 4(2) of the Securities Act.
7. On April 6, 1999, the Company issued 100,000 shares of Common
Stock to a consultant for services rendered. The shares were issued pursuant to
Section 4(2) of the Securities Act.
24
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation includes provisions which
limit the liability of its directors. As permitted by applicable provisions of
the Delaware Law, directors will not be liable to the Company for monetary
damages arising from a breach of their fiduciary duty as directors in certain
circumstances. This limitation does not affect liability for any breach of a
director's duty to the Company or its stockholders (i) with respect to approval
by the director of any transaction from which he or she derives an improper
personal benefit, (ii) with respect to acts or omissions involving an absence of
good faith, that the director believes to be contrary to the best interests of
the Company or its stockholders, that involve intentional misconduct or a
knowing and culpable violation of law, that constitute an unexcused pattern or
inattention that amounts to an abdication of his or her duty to the Company or
its stockholders, or that show a reckless disregard for duty to the Company or
its stockholders in circumstances in which he or she was, or should have been
aware, in the ordinary course of performing his or her duties, of a risk of
serious injury to the Company or its stockholders, or (iii) based on
transactions between the Company and its directors or another corporation with
interrelated directors or based on improper distributions, loans or guarantees
under applicable sections of Delaware Law. This limitation of directors'
liability also does not affect the available of equitable remedies, such as
injunctive relief or rescission.
The Company has been advised that it is the position of the Commission
that insofar as the provision in the Company's Restated Certificate of
Incorporation may be invoked for liabilities arising under the Securities Act,
the provision is against public policy and is therefore unenforceable.
25
<PAGE>
AGROCAN CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND
PERIOD FROM SEPTEMBER 19, 1996
TO SEPTEMBER 30, 1997
AND
FOR THE THREE MONTHS ENDED
26
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND
PERIOD FROM SEPTEMBER 19, 1996 TO SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Independent auditors' report F-2
Consolidated statements of income F-3
Consolidated balance sheets F-4
Consolidated statements of shareholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7
</TABLE>
F-1
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AGROCAN CORPORATION
We have audited the consolidated balance sheets of AgroCan Corporation and
subsidiaries as of September 30, 1998 and 1997 and the consolidated statements
of income, shareholders' equity and cash flows for the year ended September 30,
1998 and the period from September 19, 1996 to September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of AgroCan
Corporation and its subsidiaries as of September 30, 1998 and 1997 and the
results of their operations and cash flows for the year ended September 30, 1998
and the period from September 19, 1996 to September 30, 1997 in conformity with
accounting principles generally accepted in the United States.
/s/ HORWATH HONG KONG CPA LIMITED
- ---------------------------------
HORWATH HONG KONG CPA LIMITED
Certified Public Accountants
Hong Kong
November 9, 1998
F-2
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND
PERIOD FROM SEPTEMBER 19, 1996 TO SEPTEMBER 30, 1997
AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 7,834,448 $ 2,492,318 $ 2,435,208 $1,837,893
COST OF SALES 7,003,196 2,172,239 2,165,520 1,643,658
----------- ----------- ----------- ----------
GROSS PROFIT 831,252 320,079 269,688 194,235
ADMINISTRATIVE AND GENERAL EXPENSES (408,176) (52,080) (62,698) (45,809)
SELLING EXPENSES (9,856) (1,723) (36,319) (28,920)
------------ ----------- ----------- ----------
INCOME FROM OPERATIONS 413,220 266,276 170,671 119,506
OTHER INCOME (EXPENSE)
Subcontracting income 90,750 - - -
Interest income 3,823 515 - -
Amortization of loan fees (49,501) - (18,564) -
------------ ----------- ----------- ----------
INCOME BEFORE MINORITY INTEREST 458,292 266,791 152,107 119,506
MINORITY INTEREST (22,409) (3,172) (5,973) (2,573)
------------ ----------- ----------- ----------
NET INCOME $ 435,883 $ 263,619 $ 146,134 $ 116,933
------------ ----------- ----------- ----------
------------ ----------- ----------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,602,822 1,598,684 1,898,760 1,598,684
Diluted 1,813,650 1,598,684 2,223,110 1,598,684
BASIC EARNINGS PER SHARE $ 0.27 $ 0.16 $ 0.08 $ 0.07
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
DILUTED EARNINGS PER SHARE $ 0.24 $ 0.16 $ 0.07 $ 0.07
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
September 30, December 31,
NOTE 1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 264,887 $ 287,592 $ 211,335 $ 71,168
Accounts receivable, less allowance for doubtful
accounts (1998: $140,000; 1997: $NIL) 4 6,641,663 627,951 4,586,170 1,092,523
Other receivables and prepayments 63,028 78,981
Inventories 134,261 100,291 1,342,900 469,323
Deposits 150,426 100,515 505,712 148,933
Amounts due from related parties 8 89,454 140,673 - -
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 7,343,719 1,336,003 6,646,117 1,781,947
PROPERTY, PLANT AND EQUIPMENT - NET 5 357,671 263,147 521,032 323,194
CONSTRUCTION IN PROGRESS 6 370,043 113,462 428,915 150,443
DEFERRED COSTS 238,690 36,221 217,729 98,304
---------- ---------- ---------- ----------
TOTAL ASSETS $8,310,123 $1,748,833 $7,813,793 $2,353,888
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $5,814,833 $ 727,793 $4,717,587 $ 868,887
Other payables and accruals 121,453 27,880 570,042 401,443
Deposits received 40,341 148,015 40,341 148,015
Amounts due to related parties 8 314,478 29,107 314,478 -
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 6,291,105 932,795 5,642,448 1,418,345
MINORITY INTEREST 107,089 112,482 113,062 115,055
SHAREHOLDERS' EQUITY
Preferred stock, par value $ 0.0001 per share,
Authorized 10,000,000 shares; none issued - - - -
Common stock, par value $0.0001 per share,
authorized 25,000,000 shares; issued and
outstanding 1,898,760 shares at December 31, 1998;
1,896,560 shares at September 30, 1998;
1,598,684 at September 30, 1997 and
December 31, 1997 190 160 190 160
Capital in excess of par value 921,463 439,777 921,683 439,777
Stock options and warrants 289,317 - 289,317 -
Retained earnings
Unappropriated 676,563 261,962 822,697 380,551
Appropriated 22,939 1,657 22,939
Cumulative foreign currency translation adjustments 1,457 - 1,457 -
---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,911,929 703,556 2,058,283 820,488
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,310,123 $1,748,833 $7,813,793 $2,353,888
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND
PERIOD FROM SEPTEMBER 19, 1996 TO SEPTEMBER 30, 1997
AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
STOCK FOREIGN
COMMON STOCK CAPITAL IN OPTIONS UNAPPROPRIATED APPROPRIATED CURRENCY TOTAL
------------------ EXCESS OF AND RETAINED RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT PAR VALUE WARRANTS EARNINGS EARNINGS ADJUSTMENTS EQUITY
------ ------ --------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 19, 1996 -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Common shares issued
(Note 1(c) and (d)) 1,598,684 160 430,777 -- -- -- -- 439,937
Net income -- -- -- -- 263,619 -- -- 263,619
Staff welfare fund -- -- -- -- (1,657) 1,657 -- --
---------- ---- -------- -------- -------- ------- ------ ----------
Balance,
September 30, 1997 1,598,684 160 439,777 -- 261,962 1,657 -- 703,556
Common shares issued
(net of offering
costs) 297,876 30 481,686 -- -- -- -- 481,716
Stock options and
warrants -- -- -- 289,317 -- -- -- 289,317
Net income -- -- -- -- 435,883 -- -- 435,883
Cumulative foreign
currency Translation
adjustments -- -- -- -- -- -- 1,457 1,457
Staff welfare fund -- -- -- -- (21,282) 21,282 -- --
---------- ---- -------- -------- -------- ------- ------ ----------
Balance,
September 30, 1998 1,896,560 190 921,463 289,317 676,563 22,939 1,457 1,911,929
Common shares issued 2,200 -- 220 -- -- -- -- 220
Net income -- -- -- -- 146,134 -- -- 146,134
---------- ---- -------- -------- -------- ------- ------ ----------
Balance,
December 31, 1998 1,898,760 $190 $921,683 $289,317 $882,697 $22,939 $1,457 $2,058,283
---------- ---- -------- -------- -------- ------- ------ ----------
---------- ---- -------- -------- -------- ------- ------ ----------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND
PERIOD FROM SEPTEMBER 19, 1996 TO SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 435,883 $ 263,619 $ 146,134 $ 116,933
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for doubtful accounts 140,000 - - -
Amortization of deferred costs 60,798 5,848 20,961 2,103
Depreciation 34,844 18,232 15,000 6,622
Warrants issued for financial consulting 48,000 - - -
Loss (gain) on disposal of fixed assets 2,169 - - (13,243)
Minority interest in net income 22,409 3,172 5,973 2,573
(Increase) decrease in accounts receivable (6,153,712) (627,951) 2,015,152 (676,775)
(Increase) decrease in other receivables,
deposits and prepayments (33,958) (179,496) (292,285) 30,563
Increase in inventories (33,970) (100,291) (1,208,639) (369,032)
(Decrease) increase in amounts due from related parties 51,219 (140,673) 89,454 140,673
(Decrease) increase in accounts payable 5,087,040 727,793 (1,097,246) 141,094
Increase in other payables and accruals 93,573 27,880 488,957 521,578
Decrease (increase) in deposits received (107,674) 148,015 - -
(Decrease) increase in amounts due to related parties 285,371 29,107 - (29,107)
----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (68,008) 175,255 183,461 (126,018)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Deferred costs (21,950) (42,069) - -
Sales proceeds on disposal of fixed assets 6,050 - - -
Additions to property, plant and equipment (137,587) (281,379) (178,361) (53,425)
Additions to construction in progress (256,581) (113,462) (58,872) (36,981)
Acquisition of minority interest (87,545) - - -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (497,613) (436,910) (237,233) (90,406)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Minority interest capital contributions 59,027 109,575 - -
Proceeds from issuance of shares 481,716 439,672 220 -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 540,743 549,247 220 -
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (24,878) 287,592 (53,552) (216,424)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 287,592 - 264,887 287,592
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,173 - - -
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 264,887 $ 287,592 $ 211,335 $ 71,168
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock options issued to shareholders for loan fees (Note 8) $ 241,317
-----------
-----------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
(a) AgroCan Corporation ("The Company") was incorporated on December 8,
1997 in the State of Delaware, and currently has a wholly owned
subsidiary AgroCan (China) Inc., which has two wholly owned
subsidiaries, Guangxi Linmao Fertilizer Company Limited and Jiangxi
Jiali Chemical Industry Company Limited.
(b) The Company was incorporated with authorised share capital of
25,000,000 shares of common stock with a par value of $0.0001 per
share and 10,000,000 shares of preferred stock with a par value of
$0.0001 per share. The shares of preferred stock may be issued in
series having such designations, powers, preferences, rights and
limitations, and on such terms and conditions as the board of
directors may from time to time determine including the rights, if
any, of the holders thereof with respect to voting, dividends,
redemption, liquidation and conversion. As of December 31, 1998, no
shares of preferred stock had been issued.
(c) On November 3, 1996, AgroCan (China) Inc. entered into a joint venture
agreement with FuZhou Grain And Oil Industry Corp., a state majority
owned enterprise in the People's Republic of China ("PRC"), for the
establishment of a Sino-Foreign Equity Joint Venture, Jiangxi Jiali
Compound Fertilizer Company Limited, in the PRC. The Company's share
in the equity interest in this company as of September 30, 1997 was
55%. On April 5, 1998, the Company acquired the remaining 45%
interest. On the same date, the subsidiary changed its name to
Jiangxi Jiali Chemical Industry Company Limited ("Jiangxi Jiali").
Jiangxi Jiali is engaged in the manufacture and trading of compound
fertilizers with production commencing on May 1, 1998.
(d) On October 8, 1996, AgroCan (China) Inc. entered into a joint venture
agreement with another state majority owned enterprise in the PRC,
Nanchang Organic Fertilizer Factory ("Nanchang") for the establishment
of a Sino-Foreign Equity Joint Venture, Jiangxi Fenglin Chemical
Industry Company Limited ("Jiangxi Fenglin") in the PRC. AgroCan
(China) Inc.'s share in the equity interest of Jiangxi Fenglin is 70%.
The joint venture has a term of 30 years from November 28, 1996, the
date of incorporation.
Under the terms of the joint venture agreement, Nanchang and AgroCan
(China) Inc. are required to contribute capital of $101,572
(Rmb840,000) and $237,001 (Rmb1,960,000) respectively in the form of
cash and business assets relating to the manufacture and retailing of
compound fertilisers to the joint venture. As of September 30, 1998,
capital contributions totalling $81,509 (1997: $21,765) and $252,493
(1997: $120,196) have been made by Nanchang and AgroCan (China) Inc.
respectively.
F-7
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(e) Guangxi Linmao Compound Fertilizer Company Limited was formed
September 19, 1996, and became a wholly owned subsidiary of AgroCan
(China) Inc. It changed its name to Guangxi Linmao Fertilizer Company
Limited ("Guangxi") on December 25, 1997. Guangxi is engaged in the
manufacture and trading of compound fertilizers.
(f) On December 31, 1997, the Company issued 1,598,684 shares of common
stock at $0.0001 par value to the shareholders of AgroCan (China) Inc.
in exchange for their interest in AgroCan (China) Inc. and its three
subsidiaries in the PRC. Prior to the exchange, the Company had no
substantial operations and, under generally accepted accounting
principles; the transaction was accounted for as a recapitalization,
as the shareholders of AgroCan (China) Inc. acquired all of the stock
of the Company. Accordingly, there was no revaluation of assets or
liabilities for financial statement accounting purposes. The
transaction resulted in the following subsidiaries:
<TABLE>
<CAPTION>
Country of Percentage
incorporation Of equity interest
Name of company and operation held
--------------- ------------- ----
<S> <C> <C> <C>
AgroCan (China) Inc. the British Virgin 100 Investment holding
Islands
Guangxi Linmao The People's 100 Manufacturer and
Fertilizer Company Republic of China trading of compound
Limited fertilizers
Jiangxi Jiali The People's 100 Manufacturer and
Chemical Industry Republic of China trading of compound
Company Limited fertilizers
Jiangxi Fenglin The People's 70 Manufacturer and
Chemical Industry Republic of China trading of compound
Company Limited fertilizers
</TABLE>
(g) For financial reporting purposes, the consolidated financial
statements reflect the above-mentioned reorganization similar to a
pooling of interests, with assets and liabilities recorded at
historical cost. Because the transaction has been accounted for as a
reverse acquisition, the shares issued by the Company have been
reflected in the financial statements giving retroactive effect as if
the Company had been the parent company from inception. The
consolidated financial statements incorporate the results of
operations and assets and liabilities of the Company and its
subsidiaries. All intercompany balances and transactions have been
eliminated upon consolidation.
F-8
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(h) Pursuant to a board of directors' resolution of February 6, 1998, the
Company approved a two for one stock split, whereby the outstanding
shares of the common stock issued and outstanding were converted to
1,598,684 shares of common stock. All references to shares of common
stock in the financial statements have been restated to reflect the
two for one stock split.
(i) During the period ended September 30, 1998, the Company issued 47,914
shares of common stock to a third party for consideration of $31,000.
(j) During the period ended September 30, 1998, the Company authorized a
$750,000 private placement, consisting of 375,000 units at $2 per
unit, with each unit containing one share of common stock and 1/10th
of a two year warrant to purchase shares of common stock at $0.10 per
share. In connection with the private placement, the Company also
issued 150,000 two-year warrants to purchase common stock at $0.10 per
share to its financial advisors.
As of September 30, 1998, 250,000 units consisting of 250,000 shares
of common stock and 25,000 two-year warrants expiring in August, 2000
have been issued pursuant to the above private placement for
consideration of $450,716, net of offering costs. Each warrant
entitles the holder upon exercise to receive from the Company one
share of common stock for a purchase price of $0.10 per share.
(k) Pursuant to a board of directors' resolution of August 25, 1998, the
Company issued a two-year warrant to purchase 150,000 shares of the
Company's common stock at $1.50 per share to its financial advisor.
The Company recognized $48,000 of general and administrative expense
related to this transaction based upon fair value of the warrant
issued.
(l) The financial statements have been prepared in United States dollars
and in accordance with generally accepted accounting principles in the
United States.
(m) The consolidated balance sheets as of December 31, 1998 and 1997, the
consolidated statements of income and cash flows for the three months
ended December 31, 1998 and 1997, and the consolidated statements of
shareholders' equity for the three months ended December 31, 1998 have
been prepared by the Company without audit. In the opinion of
management, all adjustments (which include normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all such periods have been
made.
F-9
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES
(a) The consolidated financial statements include the accounts of the
Company and it's wholly and majority owned subsidiaries. Material
intercompany accounts have been eliminated on consolidation.
(b) Cash and cash equivalents
For financial reporting purposes, the Company considers all highly
liquid investments purchased with original maturities of three months
or less to be cash equivalents.
(c) Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful
lives, using the straight line method, at the following annual rates:
<TABLE>
<CAPTION>
<S> <C>
Land use rights 5%
Buildings 4.5%
Furniture and equipment 18% - 33 1/3%
Machinery 9% - 20%
Motor vehicles 18%
</TABLE>
Repairs and maintenance costs are expensed as incurred.
(d) Inventories
Inventories are valued at the lower of cost or net realizable value.
Cost includes the cost of raw materials computed using the first-in,
first-out method and, in the case of work in progress and finished
goods, direct labour and an appropriate proportion of production
overhead. Net realizable value is determined by reference to the
sales proceeds of items sold in the ordinary course of business after
the balance sheet date or management estimates based on prevailing
market conditions.
Inventory is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Raw materials $103,669 $100,291 $ 866,777 $ 395,420
Finished goods 30,592 - 476,123 73,903
------ -------- ------- ------
$134,261 $100,291 $ 1,342,900 $ 469,323
-------- -------- ----------- ---------
-------- -------- ----------- ---------
</TABLE>
F-10
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(e) Translation of foreign currencies
Foreign currency transactions are translated into United States
dollars at the exchange rate at the transaction dates. Monetary
assets and liabilities in foreign currencies are translated into
United States dollars at the rate of exchange at the balance sheet
date and non-monetary assets and liabilities are translated at
historical rates. Exchange gains or losses on foreign currency
transactions are included in the consolidated statement of income.
Financial statements of the subsidiaries are translated into United
States dollars at the rate at each balance sheet date. Currency
translation adjustments arising from the use of different exchange
rates from period to period are included as a separate component in
shareholders' equity.
(f) Operating leases
Leases where substantially all the risks and rewards of ownership of
assets remain with the lessors are accounted for as operating leases.
Rentals under operating leases are charged to expense over the lease
term.
(g) Construction in progress
Construction in progress represents the accumulated costs of factories
under construction, which comprise all expenditures for land use
rights and other direct costs attributable to construction, including
the cost of financing. Construction in progress also includes the
cost of machinery under development and construction for production.
No charge for depreciation is made until assets are placed in service.
(h) Deferred costs
Expenses incurred in organization of the Company are deferred and
amortized by equal installments over five years.
(i) Revenue recognition
Revenue from sale of goods is recognized on the delivery of goods to
customers.
F-11
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(j) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the consolidated
statement of operations in the period that includes the enactment
date.
(k) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Management makes these
estimates using the best information available at the time the
estimates are made; however actual results could differ materially
from these estimates.
(l) Offering costs
Costs incurred by the Company for its private placements offering of
shares of common stock were charged to capital in excess of par value
at the completion of the offerings.
(m) Staff welfare reserve
PRC rules and regulations governing joint ventures and enterprises
require allocation of a portion of annual net income, if any, to a
welfare reserve fund. The amounts to be reserved are stipulated by
PRC laws and regulations. The reserve cannot be used for purposes
other than those for which it is created and is not distributable as
cash dividends.
F-12
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(n) Stock-based compensation
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, defines a fair-value-based method of
accounting for stock-based employee compensation and transactions in
which an entity issues its equity instruments to acquire goods or
service from non-employees, and encourages but does not require
companies to record compensation cost for stock-based employee
compensation at fair value. The Company has chosen to account for
stock-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES and related interpretations.
(o) Earnings per share
The Company adopted Statement of Financial Accounting Standards No.
128 ("SFAS No. 128") during 1997. This statement requires dual
presentation of basic and diluted earnings per share ("EPS") with a
reconciliation of the numerator and denominator of the EPS
computations. Basic per share amounts are based on the weighted
average shares of common stock outstanding. Diluted earnings per
share assume the conversion, exercise or issuance of all potential
common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings
per share. Accordingly, this presentation has been adopted for all
periods presented. The basic and diluted weighted average common
shares outstanding are as follows:
<TABLE>
<CAPTION>
Three months ended
Period from December 31,
Year ended September 19, 1996 ------------------
September 30, 1998 to September 30, 1997 1998 1997
------------------ --------------------- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average outstanding
common shares
used for basic EPS 1,602,822 1,598,684 1,898,760 1,598,684
Plus incremental common shares
from assumed issuance
of stock options and warrants 210,828 - 322,150 -
------- --------- --------- ---------
Weighted average outstanding
common shares used
for diluted EPS 1,813,650 1,598,684 2,220,910 1,598,684
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-13
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(p) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," ("SFAS No. 130"),
which is effective for financial statements issued for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards
for the reporting and display of comprehensive income, its components
and accumulated balances in a full set of general purpose financial
statements. SFAS No. 130 defines comprehensive income to include all
changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that is presented with the same
prominence as other financial statements. The Company's only current
component of comprehensive income is foreign currency translation
adjustment. Adoption of SFAS No. 130 is not expected to have a
material effect on the Company's financial statement presentation and
disclosures.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" and which
is effective for financial statements issued for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes standards
for the way that public companies report information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. SFAS No. 131 also establishes
standards for disclosures by public companies regarding information
about their major customers, operating segments, products and
services, and the geographic areas in which they operate. SFAS No.
131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. SFAS No. 131
requires comparative information for earlier years to be restated.
The Company's results of operations and financial position will not be
affected by implementation of SFAS No. 131 as it operates in only one
segment, fertilizer manufacturing. The Company is evaluating the
effect that adoption of SFAS No. 131 will have on its financial
statement disclosures.
In February 1998, the Financial Accounting Standards Board issued
Statement No. 132, "Employers' Disclosures about Pensions and Other
Post Retirement Benefits" ("SFAS No. 132"), which is effective for
financial statements issued for fiscal years beginning after December
15, 1997. SFAS No. 132 revises employers' disclosures about pension
and other post retirement benefit plans. SFAS No. 132 requires
comparative information for earlier years to be restated. The
Company's results of operations and financial position will not be
affected by implementation of SFAS No. 132.
F-14
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(p) Recent Accounting Pronouncements (continued)
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), which is effective for financial
statements for all fiscal quarters of all fiscal years beginning after
June 15, 1999. SFAS No. 133 standardizes the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize
those items as assets or liabilities in the statement of financial
position and measure them at fair value. SFAS No. 133 also addresses
the accounting for hedging activities. The Company currently does not
have any derivative instruments nor is it engaged in hedging
activities, thus the Company does not believe implementation of SFAS
No. 133 will have a material impact on its financial statement
presentation or disclosures.
3. TAXATION
The Company is subject to income taxes on an entity basis on income arising
in or derived from the tax jurisdiction in which each entity is domiciled.
The Company's British Virgin Islands subsidiary is not liable for income
taxes. The Company's PRC subsidiaries include two wholly owned
subsidiaries and a 70% held Sino-Foreign Equity Joint Venture. The PRC
subsidiaries are subject to income taxes at an effective rate of 33% (30%
Chinese national income tax plus 3% Chinese state income tax). Pursuant to
the approval of the relevant PRC tax authorities, the subsidiaries are
fully exempted from PRC income taxes for two years starting from the date
profits are first made, followed by a 50% exemption for the next three
years. Losses incurred by joint ventures may be carried forward for five
years. Deferred tax assets and liabilities are not considered material at
September 30, 1998 and 1997. The reconciliation between the effective tax
rate and the statutory United States federal income tax rate is as follows:
<TABLE>
<CAPTION>
Period from Three months ended
Year ended September 19, 1996 December 31,
September 30,1998 to September 30, 1997 ------------
----------------- --------------------- 1998 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statutory U.S. federal tax rate 34% 34% 34% 34%
Difference in foreign statutory rates (1) (1) (1) (1)
Income tax exemption (33) (33) (33) (33)
--- --- --- ---
Effective tax rate -% -% -% -%
--- --- --- ---
--- --- --- ---
</TABLE>
F-15
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. TAXATION (CONTINUED)
The pro forma effect of the tax holiday on net income and earnings per
share is as follows:
<TABLE>
<CAPTION>
Three months ended
December 31,
------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $292,042 $ 176,625 $ 97,910 $ 78,345
Basic earnings per share $ .18 $ .11 $ .05 $ .05
Diluted earnings per share $ .16 $ .11 $ .04 $ .05
</TABLE>
4. SIGNIFICANT CONCENTRATIONS
The Company grants credit, generally on open account to its customers. The
Company's customers are all located in the PRC. Approximately 76% of the
Company's sales were generated from one customer during the year ended
September 30, 1998.
At September 30, 1998, approximately 98% of accounts receivable were from
trade transactions with five customers, of which one customer accounted for
approximately 87% of the accounts receivable balance. The Company has
obtained agreed upon schedules of payments from two of the Company's
largest customers, which in total represent approximately 89% of the
September 30, 1998 accounts receivable balance. The payment schedules
stipulate that the customers will settle their balances in full within four
to six months from September 30, 1998. Both customers have made payments
on or before the due dates required by the schedules through November 9,
1998. A general provision of $140,000 was provided in 1998, which
represents approximately 2% of the accounts receivable balance as of
September 30, 1998.
F-16
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cost:
Land use rights $ 51,996 $ 50,786 $ 128,914 $ 50,786
Buildings 125,417 90,213 200,159 120,224
Plant and machinery 174,276 82,305 199,378 105,719
Furniture and equipment 27,707 24,516 29,306 24,516
Motor vehicles 30,202 33,559 30,202 33,559
---------- ---------- ---------- ----------
Total cost 409,598 281,379 587,959 334,804
---------- ---------- ---------- ----------
Accumulated depreciation:
Land use rights 4,295 1,693 5,906 841
Buildings 8,691 3,045 10,942 1,972
Plant and machinery 21,775 5,555 30,089 5,004
Furniture and equipment 8,212 3,409 9,677 1,853
Motor vehicles 8,954 4,530 10,313 1,940
---------- ---------- ---------- ----------
51,927 18,232 66,927 11,610
---------- ---------- ---------- ----------
Net $ 357,671 $ 263,147 $ 521,032 $ 323,194
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
6. CONSTRUCTION IN PROGRESS
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cost:
Land use rights $ 76,918 $ 38,089 $ - $ 38,089
Factories under construction 293,125 66,168 428,915 90,440
Machinery under construction - 9,205 - 21,914
---------- ---------- ---------- ----------
$ 370,043 $ 113,462 $ 428,915 $ 150,443
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
7. RESEARCH AND DEVELOPMENT
Research and development cost for the year ended September 30, 1998 and the
period ended September 30, 1997 was $21,250 and $10,467 respectively.
Research and development cost for the three months ended December 31, 1998
and December 31, 1997 was $7,283 and $2,507 respectively.
F-17
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS
(a) Transactions with related parties
(i) During 1997, the Company paid various expenses totaling $140,673
on behalf of affiliated companies. The advances were reduced to
$89,454 at December 31, 1998. The advances are non-interest
bearing and payable on demand
(ii) During 1997, the PRC shareholder of Jiangxi Fenglin made
advances of $17,005 to the joint venture company for the
purchase of raw materials. The advances are non-interest
bearing, payable on demand and amounted to $3,723 at September
30, 1998 (1997: $17,005).
(iii) The Company paid factory and production facilities rental of
$12,705 during 1998 (1997: $10,883) to the PRC shareholder of
Jiangxi Fenglin.
(b) Transactions with a director
A director has paid various expenses on behalf of a subsidiary. The
amount due to the director is non-interest bearing, repayable on
demand and amounted to $10,681 at September 30, 1998 (1997: $12,102).
(c) Transactions with shareholders
On February 6, 1998, certain shareholders made a loan of $300,000 to
the Company. The loan is repayable at the earlier of three years from
May 1, 1998 or sixty days after demand by all and/or individual
shareholders. In consideration for the loan, the Company granted to
these shareholders options to purchase 754,117 shares of common stock
of the Company at an exercise price of $1.50 per share exercisable
during a two-year period beginning February 6, 1998. The options have
been valued at $241,317 based upon the fair value of the common stock
underlying the options. Of this amount, $49,501 has been recognized
as an expense during the year ended September 30, 1998 and $191,816
has been deferred. The deferred amount will be charged to expense
through April 2001.
F-18
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LEASE COMMITMENTS
The Company leases land, buildings and other equipment under various
contracts. Rental expense for the year ended September 30, 1998 and the
period ended September 30, 1997 was $12,705 and $10,883, respectively.
Rental expense for the three months ended December 31, 1998 and December
31, 1997 was $5,445 and $3,176, respectively. The future total minimum
rental payments required under operating leases that have remaining
non-cancellable lease terms in excess of one year at September 30, 1998 are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year ending September 30, 1999 $ 21,780
2000 21,780
2001 21,780
-----------
$ 65,340
-----------
-----------
</TABLE>
10. WARRANTS AND OPTIONS
The Company adopted a stock option plan (the "Plan") as of February 6,
1998. The Plan allows the Board of Directors, or a committee thereof at
the Board's discretion, to grant stock options to officers, directors, key
employees, and consultants of the Company and its affiliates. An aggregate
of 250,000 shares of common stock has been reserved for issuance upon
exercise of the options granted under the Plan. Pursuant to the Plan, the
exercise price shall in no event be less than the fair market value of the
shares of common stock at the date of grant. As of September 30, 1998, no
stock options have been granted under the Plan.
A summary of the status of the Company's stock options and warrants for the
year ended September 30, 1998 is as follows:
<TABLE>
<CAPTION>
Options Warrants
--------------------- ---------------------------------------------------
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year - - - - - -
Granted 754,117 $ 1.50 150,000 $ 1.50 175,000 $ 0.10
Exercised - - - - - -
Forfeited - - - - - -
------- -------- ------- ------- ------- -------
Outstanding at end
of year 754,117 $ 1.50 150,000 $ 1.50 175,000 $ 0.10
------- -------- ------- ------- ------- -------
------- -------- ------- ------- ------- -------
</TABLE>
There were no issued or outstanding stock options or warrants as of
September 30, 1997.
F-19
<PAGE>
- --------------------------------------------------------------------------------
AGROCAN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RISK CONSIDERATIONS
As a majority of the Company's operations are conducted in the PRC, the
Company is subject to special considerations and significant risks not
typically associated with investments in equity securities of North
American and Western European companies. The Company's operations may be
adversely affected by significant political, economic and social
uncertainties in the PRC.
Although the PRC government has been pursuing economic reform policies for
the past several years, no assurance can be given that the PRC government
will continue to pursue such policies or that such policies may not be
significantly altered, especially in the event of a change in leadership,
social, or political disruption or unforeseen circumstances affecting the
PRC's political, economic and social life. There is also no guarantee that
the PRC government's pursuit of economic reforms will be consistent or
effective.
The Company expects that substantially all of its revenues will be
denominated in RMB. A portion of such revenues will need to be converted
into other currencies to meet foreign currency obligations such as payment
of any dividends declared. Both the conversion of RMB into foreign
currencies and their remittance of foreign currencies abroad require the
PRC government's approval.
F-20
<PAGE>
PART III
<TABLE>
<CAPTION>
Exhibit Number Title
<S> <C>
3.1 Certificate of Incorporation as filed with the Delaware
Secretary of State with amendment.
3.2 Bylaws
10.1 Agreement with Nanchang Organic Fertilizer Factory for the
establishment of Jiangxi Fenglin Chemical Industry Company
Limited
10.2 Lease Agreement for Hong Kong office
10.3 Land Lease Agreement for Guangxi Linmao
10.4 Lease Agreement for Jiangxi Fenglin
10.5 Land Lease Agreement for Jiangxi Jiali
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule for the year ended September 30,
1998 and the three months ended December 31, 1998
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
AGROCAN CORPORATION
Dated: May 4, 1999 By: /s/ Lawrence Hon
----------------
Lawrence Hon
President/Chief Executive Officer
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
AGROCAN CORPORATION
(A DELAWARE CORPORATION)
First: The name of the corporation is AgroCan Corporation.
SECOND: The address of the registered office of the corporation in the
State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of
the registered agent of the corporation at such address is Corporation Service
Company.
Third: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation is
authorized to issue is 25,000,000 shares of common stock with a par value of
$.0001 per share and 10,000,000 shares of Preferred Stock with a par value of
$.0001 per share. The shares of Preferred Stock authorized hereby may, when
authorized for issuance by the Board of Directors of the Corporation, be issued
in series having such designations, powers, preferences, rights and limitations,
and on such terms and conditions as the Board of Directors may from time to time
determine including the rights, if any, of the holders thereof with respect to
voting, dividends, redemption, liquidation and conversion.
Fifth: The business and affairs of the corporation shall be managed
by the board of directors, and the directors need not be elected by ballot
unless required by the by-laws of the corporation.
Sixth: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the board of directors is expressly
authorized to adopt, amend or repeal the by-laws.
49
<PAGE>
SEVENTH: The corporation reserves the right to amend and repeal any
provision contained in this certificate of incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein conferred
are granted subject to this reservation.
EIGHTH: The incorporator is Leslie Vanderveer-Keneipp, whose mailing
address is Loeb & Loeb LLP, 1000 Wilshire Boulevard, Suite 1800, Los Angeles,
California 90017-2475.
Ninth: A Director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived any improper personal benefit. If the Delaware General Corporation
Law is amended after the filing of this Certificate of Incorporation to the
effect that the personal liability of the directors is further eliminated or
limited, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted then by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at
the time of such repeal or modification.
I, the undersigned, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this certificate of incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand and seal this _____ day of
December 1997.
Leslie Vanderveer-Keneipp, Incorporator
50
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AGROCAN CORPORATION
The undersigned certifies that:
1. He is the Secretary of AgroCan Corporation, a Delaware corporation
(the "Corporation").
2. The FOURTH ARTICLE of the Certificate of Incorporation of the
Corporation is amended to by adding the following:
"Effective as of 5:00 p.m. Eastern time on May 15, 1998, each
outstanding one (1) share of common stock shall be automatically
subdivided, changed and converted into two (2) shares of common
stock."
3. The foregoing amendment to the Certificate of Incorporation of the
Corporation was duly adopted by the Board of Directors of the Corporation in
accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware, and approved by the holders of a majority of the
shares of the Corporation's common stock, in accordance with the provisions
of Section 228 of the General Corporation Law of the State of Delaware.
The undersigned further declares under penalty of perjury under the laws
of the State of Delaware, that the matters set forth in this Certificate are
true and correct of his own knowledge.
Dated: May ___, 1998
------------------------------------
Danny W.L. Wu,
Secretary
51
<PAGE>
Exhibit 3.2
BY-LAWS
OF
AGROCAN CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I - STOCKHOLDERS
Section 1. ANNUAL MEETING.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months of the last annual meeting of stockholders
or, if no such meeting has been held, the date of incorporation.
Section 2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of Directors
or the chief executive officer and shall be held at such place, on such date,
and at such time as they or he or she shall fix.
Section 3. NOTICE OF MEETINGS.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. QUORUM.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such
52
<PAGE>
class or classes present in person or represented by proxy shall constitute a
quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
Section 5. ORGANIZATION.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the chief executive officer of the Corporation or,
in his or her absence, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation,
the secretary of the meeting shall be such person as the chairman appoints.
Section 6. CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
Section 7. PROXIES AND VOTING.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of
the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefore by a stockholder entitled to vote or by his or her
proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. The Corporation may, and to the extent required
by law, shall, in advance of any meeting of stockholders, appoint one (1) or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one (1) or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the person presiding at the meeting may,
and to the extent required by law, shall, appoint one (1) or more inspectors
to act at the meeting. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector
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with strict impartiality and according to the best of his ability. Every
vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by
a majority of the votes cast affirmatively or negatively.
Section 8. STOCK LIST.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
Section 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and shall be delivered
to the Corporation by delivery to its registered office in Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be made
by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty (60)
days of the date the earliest dated consent is delivered to the Corporation,
a written consent or consents signed by a sufficient number of holders to
take action are delivered to the Corporation in the manner prescribed in the
first paragraph of this Section.
ARTICLE II - BOARD OF DIRECTORS
Section 1. NUMBER AND TERM OF OFFICE.
The number of directors who shall constitute the whole Board shall be
such number as the Board of Directors shall from time to time have
designated, except that in the absence of any
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such designation, such number shall be four (4). Each director shall be
elected for a term of one (1) year and until his or her successor is elected
and qualified, except as otherwise provided herein or required by law.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in office
shall have the power to elect such new directors for the balance of a term
and until their successors are elected and qualified. Any decrease in the
authorized number of directors shall not become effective until the
expiration of the term of the directors then in office unless, at the time of
such decrease, there shall be vacancies on the board which are being
eliminated by the decrease.
Section 2. VACANCIES.
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected
and qualified.
Section 3. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have
been established by the Board of Directors and publicized among all
directors. A notice of each regular meeting shall not be required.
Section 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole
number) or by the chief executive officer and shall be held at such place, on
such date, and at such time as they or he or she shall fix. Notice of the
place, date, and time of each such special meeting shall be given each
director by whom it is not waived by mailing written notice not less than
five (5) days before the meeting or by telegraphing or telexing or by
facsimile transmission of the same not less than twenty-four (24) hours
before the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
Section 5. QUORUM.
At any meeting of the Board of Directors, a majority of the total number
of the whole Board shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof.
Section 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
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Section 7. CONDUCT OF BUSINESS.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and
all matters shall be determined by the vote of a majority of the directors
present, except as otherwise provided herein or required by law. Action may
be taken by the Board of Directors without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors.
Section 8. POWERS.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and affairs.
Section 9. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
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ARTICLE III - COMMITTEES
Section 1. COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors may designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the Corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a
committee, the member or members present at any meeting and not disqualified
from voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified number. Any such
committee, to the extent provided in the resolution of the Board of
Directors, or in the By-laws of the Corporation, shall have and may exercise
all the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal of
the Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by law to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any By-law of the
Corporation.
Section 2. CONDUCT OF BUSINESS.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be
made for notice to members of all meetings; one-third (1/3) of the members
shall constitute a quorum unless the committee shall consist of one (1) or
two (2) members, in which event one (1) member shall constitute a quorum; and
all matters shall be determined by a majority vote of the members present.
Action may be taken by any committee without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. GENERALLY.
The officers of the Corporation shall consist of a President, a
Secretary, a Chief Financial Officer and such other officers as may from time
to time be appointed by the Board of Directors. The Corporation may also
have, at the discretion of the board, a Chairman of the Board, one (1) or
more Vice Presidents, one (1) or more Assistant Secretaries, a Treasurer and
one (1) or more Assistant Treasurers. Any number of offices may be held by
the same person. Officers shall be elected by the Board of Directors, which
shall consider that subject at its first meeting after every annual meeting
of stockholders. Each officer shall hold office until his or her successor
is elected and qualified or until his or her earlier resignation or removal.
Section 2. CHAIRMAN OF THE BOARD.
The Chairman of the Board, if any, shall, if present, preside at
meetings of the Board of Directors and exercise and perform such other powers
and duties as may from time to time be
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assigned to him or her by the Board of Directors. If there is no President,
the Chairman of the Board shall in addition be the chief executive officer of
the Corporation and shall have the powers and duties prescribed in Section 3
of this Article.
Section 3. PRESIDENT.
The President shall be the chief executive officer of the Corporation.
Subject to the provisions of these By-laws and to the direction of the Board
of Directors, he or she shall have the responsibility for the general
management and control of the business and affairs of the Corporation and
shall perform all duties and have all powers which are commonly incident to
the office of chief executive or which are delegated to him or her by the
Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the
other officers, employees and agents of the Corporation.
Section 4. VICE PRESIDENT.
Each Vice President, if any, shall have such powers and duties as may be
delegated to him or her by the Board of Directors. One (1) Vice President
shall be designated by the Board to perform the duties and exercise the
powers of the President in the event of the President's absence or disability.
Section 5. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer of the Corporation shall have the
responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized by the Board, taking proper vouchers or receipts for such
disbursements, and shall render to the Chairman, the President and the Board
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Chief Financial Officer shall also perform
such other duties as the Board of Directors may from time to time prescribe.
Section 6. SECRETARY.
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He
or she shall have charge of the corporate books and shall perform such other
duties as the Board of Directors may from time to time prescribe.
Section 7. DELEGATION OF AUTHORITY.
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officers or agents, notwithstanding any
provision hereof.
Section 8. REMOVAL.
Any officer of the Corporation may be removed at any time, with or
without cause, by the Board of Directors.
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Section 9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power
to vote and otherwise act on behalf of the Corporation, in person or by
proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which the Corporation may hold
securities and otherwise to exercise any and all rights and powers which the
Corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE V - STOCK
Section 1. CERTIFICATES OF STOCK.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all
of the signatures on the certificate may be by facsimile.
Section 2. TRANSFERS OF STOCK.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where
a certificate is issued in accordance with Section 4 of ARTICLE V of these
By-laws, an outstanding certificate for the number of shares involved shall
be surrendered for cancellation before a new certificate is issued therefor.
Section 3. RECORD DATE.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date shall not
be more than sixty (60) nor less than ten (10) days before the date of any
meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of
change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
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In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors,
and which record date shall be not more than ten (10) days after the date
upon which the resolution fixing the record date is adopted. If no record
date has been fixed by the Board of Directors and no prior action by the
Board of Directors is required by the Delaware General Corporation Law, the
record date shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the
Corporation in the manner prescribed by ARTICLE I, Section 9 hereof. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by the Delaware General Corporation Law with
respect to the proposed action by written consent of the stockholders, the
record date for determining stockholders entitled to consent to corporate
action in writing shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. REGULATIONS.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors
may establish.
ARTICLE VI - NOTICES
Section 1. NOTICES.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given
by hand delivery to the recipient thereof, by depositing such notice in the
mails, postage paid, or by sending such notice by prepaid telegram or
mailgram. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same
appears on the books of the Corporation. The time when such notice is
received, if hand delivered, or dispatched, if delivered through the mails or
by telegram or mailgram, shall be the time of the giving of the notice.
Section 2. WAIVERS.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee or
agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
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ARTICLE VII - MISCELLANEOUS
Section 1. FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer
or officers of the Corporation may be used whenever and as authorized by the
Board of Directors or a committee thereof.
Section 2. CORPORATE SEAL.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If
and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of
his or her duties, be fully protected in relying in good faith upon the books
of account or other records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or committees of the Board of Directors so designated,
or by any other person as to matters which such director or committee member
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of
the Corporation.
Section 4. FISCAL YEAR.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. TIME PERIODS.
In applying any provision of these By-laws which requires that an act be
done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. RIGHT TO INDEMNIFICATION.
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or
an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a
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director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section 3 of this ARTICLE VIII with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
Section 2. RIGHT TO ADVANCEMENT OF EXPENSES.
The right to indemnification conferred in Section 1 of this ARTICLE VIII
shall include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section 2 or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections 1 and 2 of this ARTICLE VIII shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
Section 3. RIGHT OF INDEMNITEE TO BRING SUIT.
If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in full
by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty (20) days,
the indemnitee may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim. If successful in whole or in part
in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board
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of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) that
the indemnitee has not met such applicable standard of conduct, shall create
a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enfoce a
right to indemnification or to an advancement of expenses hereunder, or
brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
ARTICLE VIII or otherwise shall be on the Corporation.
Section 4. NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification and to the advancement of expenses
conferred in this ARTICLE VIII shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, By-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 5. INSURANCE.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
Section 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE IX - AMENDMENTS
These By-laws may be amended or repealed by the Board of Directors at any
meeting or by the stockholders at any meeting.
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CERTIFICATE OF SECRETARY
OF
AGROCAN CORPORATION
(A DELAWARE CORPORATION)
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of AgroCan
Corporation, a Delaware corporation; and
(2) That the foregoing By-laws, comprising 15 pages, constitute the
By-laws of the Corporation as duly adopted by the Board of Directors of the
Corporation on December __, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name this _____ day of
December, 1997.
Danny W.L. Wu
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Exhibit 10.1
JIANGXI FENGLIN CHEMICAL INDUSTRY CO.LTD.
JOINT-VENTURE CONTRACT (The " Contract" )
CHAPTER I : GENERAL PRINCIPLES
Nanchang Organic Fertilizer Factory, Jiangxi Province and AgroCan (China) Inc.
have agreed to invest jointly to establish Jiangxi Fenglin Chemical Industry
Company Limited, a joint venture company on the site of Nanchang, Xialuo
Shazilin, Nanchang City, Jiangxi Province (PRC) in accordance with the " LAW OF
THE PEOPLE'S REPUBLIC OF CHINA ON JOINT VENTURES USING CHINESE AND FOREIGN
INVESTMENT " and other related rules of China based on the principles of
equality and mutual benefit through friendly consultation, and hereby execute
this Contract.
CHAPTER II : PARTIES TO THE JOINT VENTURE COMPANY
Article 1: Parties to the Joint Venture Company are:
Nanchang Organic Fertilizer Factory, Jiangxi Province ("Party A"), registered in
Nanchang City, Jiangxi Province (PRC) with Xialuo Shazilin, Nanchang City,
Jiangxi Province as legal address, Wang Yila, Chinese, Factory Manager, as legal
representative 0791 -3853346, as telephone number and 330013 ,as postal code,
and AgroCan (China) Inc. ("Party B"), registered in Hong Kong, China, with
Observatory Road, Kowloon as legal address, Danny Wu, Chinese, manager, as legal
representative, 00852-27230983, as telephone number and 00852-2337741 3, as fax
number.
CHAPTER III : THE ESTABLISHMENT OF THE JOINT VENTURE COMPANY
Article 2: Party A and Party B agreed to establish at Nanchang, Jiangxi Province
a joint venture company, Jiangxi Fenglin Chemical Industry Company Limited (the
" Joint Venture Company ") in accordance with the " LAW OF THE PEOPLE'S REPUBLIC
OF CHINA ON JOINT VENTURES USING CHINESE AND FOREIGN INVESTMENT " and other
related rules of China.
Article 3: The name of the Joint Venture Company is: Jiangxi Fenglin Chemical
Industry Company Limited as its English name.
The legal address of the Joint Venture Company is Xialuo Shazilin, Nanchang
City, Jiangxi Province, and China.
Article 4: All activities of the Joint Venture Company shall abide by the laws,
rules and the related regulations of the People's Republic of China.
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Article 5: The organisation form of the Joint Venture Company is a limited
liability company. Each party to the Joint Venture Company is liable to the
Joint Venture Company within the limit of the capital subscribed by it. The
profits, risks and losses of the Joint Venture Company shall be shared by the
parties in proportion to their contributions of the registered capital.
CHAPTER IV : THE PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
Article 6: The purpose of Party A and Party B of the Joint Venture Company is to
fully use Party A's good geographical conditions and his existing mixed compound
fertilizer production equipment and Party B's sufficient capital investment with
a good business management expertise, to supply fertilizer to develop forests
for the forestry base of Party B and to set up the basis for the future
development of chemical industry production of using forestry products and to
apply international advanced technology with excellent method of business
management for quality improvement, cost reduction, development of new products,
improvement of the competitiveness of products in international market and thus
to upgrade economical effectiveness and make both parties obtain satisfactory
economical benefit.
Article 7: The productive and business scope of the Joint Venture Company is to
work for the production, research, development and sales of chemical fertilizer,
organic silicon and other chemical products as well as after sale service.
Article 8: The production scale of the Joint Venture Company is as follows:
10,000 metric tons per annum for the preliminary stage and production to be
expanded gradually afterwards in accordance with the market needs.
CHAPTER V : TOTAL AMOUNT OF INVESTMENT AND THE REGISTERED CAPITAL
Article 9: The total amount of investment of the Joint Venture Company is RMB 4
million.
Article 10: The total amount contributed by Party A and Party B is RMB 2.8
million which is the registered capital of the Joint Venture Company; 0.84
million of which shall be contributed by Party A that holds 30% of shares and
1.96 million of which shall be contributed by Party B that holds 70% of shares.
Article 11: Party A and Party B shall contribute as follows: -
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PARTY A: existing stores of materials and products (to be calculated in
accordance with inventory made by both parties and the present market prices),
receivable first year rental to be paid by the Joint Venture Company and a
certain amount of cash (RMB);
(Referring to the Leasing Contract signed by the Joint Venture Company and Party
A .) and
PARTY B: foreign currency (to be calculated in accordance with the foreign
exchange rates announced by the Chinese government on the date of capital
examination).
Article 12: The total amount of the registered capital of the Joint Venture
Company shall be contributed by Party A as well as Party B in accordance with
the proportion in their contributions within 3 months upon the collection of the
business license.
Article 13: Either Party A or Party B shall have the other party's consent and
the examination and approval authority's consent before assigning all or part of
his shares to the third party When one party to the Joint Venture Company
assigns all or part of his investment, the other party shall have preemptive
right.
CHAPTER VI : RESPONSIBILITY OF EACH PARTY OF THE JOINT VENTURE COMPANY
Article 14: Party A and Party B shall be respectively responsible for the
following matters:
Responsibilities of Party A:-
1 Handling of application for approval, registration, business license and
other matters;
2. Providing contribution in accordance with Article 11;
3. Assisting the Joint Venture Company to contact and solve the problems of
water and power supply, traffic and other basic facilities;
4. Assisting the Joint Venture Company with the recruitment of Party A's and
local business management and technical personnel, workers and other
personnel if needed;
5. Assisting expatriate personnel in obtaining necessary visa for immigration,
work permit and travelling procedures as well; and
6. Other matters trusted by the Joint Venture Company.
Responsibilities of Party B:-
1. Providing cash in accordance with Article 11;
2. Assisting in the overseas purchase of raw materials, machinery equipment
and other related matters trusted by the Joint Venture Company;
3. Training technical personnel and workers of the Joint Venture Company; and
4. Handling other matters entrusted by the Joint Venture Company.
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CHAPTER VII : PRODUCT SALES
Article 15: The products of the Joint Venture Company shall be sold on the
Chinese domestic market or international market. Products will be sold with
different brands in accordance with different needs of the fertilizer needed by
the development of forests and the domestic and international market. Party A
and Party B shall be respectively responsible for selling about 50% of the
products for each.
Article 16: Product price of the Joint Venture Company shall be calculated, in
general, as the cost of raw materials in addition to 12% gross profit (for
especially complex, mixed fertilizer, excluding organic silicon products), shall
be normally not lower than the price of the same product in domestic and
international markets.
Article 17: The Joint Venture Company may set up subsidiaries providing sales
and business service in Chinese territories and abroad in accordance with the
needs for developing business with approval of the examination and approval
authority.
Article 18: Trademark registered by AgroCan (China) Inc shall be used for
products of the Joint Venture Company.
CHAPTER VIII THE BOARD OF DIRECTORS
Article 19: The date of registration of the Joint Venture Company shall be the
date of the establishment of the Board of Directors,
Article 20: The Board of Directors is composed of 6 directors, of which, the
chairman of the Board of Directors shall be appointed by Party B; 2
vice-chairmen shall be appointed respectively by Party A and Party B; 3
directors shall be appointed by Party A for one and Party B for two. The term of
office for the directors, chairman and vice-chairmen is 4 years; their term of
office may be renewed if continuously appointed by the relevant party.
Article 21: The highest authority of the Joint Venture Company shall be the
Board of Directors. Its power is to discuss and decide all major issues of the
Joint Venture Company in accordance with the Articles of Association of the
Joint Venture Company, the principles of equality and mutual benefits. Unanimous
approval shall be required before any decisions are made concerning the
following major issues:-
1. Amendment of Articles of Association of the Joint Venture Company;
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2. Termination of the Joint Venture Company;
3. Increase or assignment of the registered capital of the Joint Venture
Company; and
4. Mergers of the Joint Venture Company with other economic entities.
Other issues shall be decided by a majority approval or simple majority
approval.
Article 22: Chairman is the legal representative of the Joint Venture Company.
Should the chairman be unable to exercise his responsibilities for some reason,
he shall authorize the vice-chairman or any other director to represent the
Joint Venture Company temporarily.
Article 23: The Board of Directors shall meet at least once annually. The
meeting shall be called and presided over by the chairman of the Board of
Directors. The chairman may convene an interim meeting based on a proposal made
by more than one third of the total number of directors. Minutes of the meeting
shall be placed on file.
CHAPTER IX : BUSINESS MANAGEMENT OFFICE
Article 24: The Joint Venture Company shall establish a Business Management
Office, which shall be responsible for its daily management. The Business
Management Office shall have a General Manager, 1 or 2 Deputy General Managers
recommended by Party A or Party B and appointed by the Board of Directors. Their
term of office is 4 years.
Article 25: The responsibility of the General Manager is to carry out the
decisions of the Board of Directors and to organise and conduct the daily
management of the Joint Venture Company. The Deputy General Managers shall
assist the General Manager in his work. Several department managers may be
appointed by the Business Management Office. They shall be responsible for the
works in various departments respectively, handle the matters handed over by the
General Manager and Deputy General Managers and shall be responsible to them.
Article 26: The General Manager and Deputy General Managers who engage in
malpractice for selfish ends or significantly neglect their duties may be
dismissed any time per the decision of the Board of Directors.
CHAPTER X : PURCHASE OF RAW MATERIALS AND EQUIPMENT
Article 27: First priority shall be given to purchasing those that include but
are not limited to raw materials, fuel, equipment with parts, means of
transportation and articles for office use
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originating in China needed by the Joint Venture Company where conditions (such
as terms, quality and specifications) are the same.
Article 28: The Joint Venture Company shall invite Party A to assign personnel
to participate in the purchase of equipment in international market, as arranged
by Party B. The price of the imported equipment shall be acknowledged and signed
by Party A in accordance with the stated international market price or price of
the same product imported by other firms within the same industry.
CHAPTER XI : LABOUR MANAGEMENT
Article 29: The labour management of the Joint Venture Company shall abide by
the" LABOUR MANAGEMENT RULES OF THE PEOPLE'S REPUBLIC OF CHINA ON JOINT VENTURES
USING CHINESE AND FOREIGN INVESTMENT " and its implementation rules as well as
other labour related regulations. The recruitment, dismissal, wages, labour
protection, social insurance, welfare, rewards, penalty and other matters
concerning the staff and workers of the Joint Venture Company shall be evaluated
by the Board of Directors for the preparation of the Joint Venture Company's
labour contracts with its trade union organisation. All labour contracts shall
be filed with the local labour department when executed.
Article 30: The appointment of the executive management personnel as recommended
by both parties of the joint venture, the remuneration, labour protection and
fringe benefits, social welfare, travelling allowance standards, etc. of the
staff and workers of the Joint Venture Company shall be decided by the Board of
Directors.
Article 31: The Joint Venture Company shall first recruit Party A's staff and
workers where conditions are the same.
CHAPTER XII : TAXES, FINANCE AND AUDIT
Article 32: The Joint Venture Company shall pay taxes in accordance with the
stipulations of Chinese laws and other relevant regulations.
Article 33: Staff and workers of the Joint Venture Company shall pay individual
income tax in accordance with the " INDIVIDUAL INCOME TAX LAW OF THE PEOPLE'S
REPUBLIC OF CHINA".
Article 34: The Joint Venture Company shall abide by the " INCOME TAX LAW OF THE
PEOPLE'S REPUBLIC OF CHINA ON FOREIGN INVESTMENT ENTERPRISES AND FOREIGN
ENTERPRISES " and its
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implementation rules to define the period of depreciation and depreciation rate
per annum of its fixed assets. During the leasing period, rental may be
calculated as depreciation.
Article 35: The Joint Venture Company shall withdraw reserve fund, enterprise
development fund and fund for bonus and fringe benefit of the staff and workers
in accordance with the "LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON JOINT VENTURES
USING CHINESE AND FOREIGN INVESTMENT " and its implementation rules. The ratio
of such draws shall be discussed and decided by the Board of Directors in
accordance with the related stipulations and the business management conditions
of the Joint Venture Company.
Article 36: The fiscal year of the Joint Venture Company shall be from
January 1 to December 31. All supporting documents, vouchers, statements and
books shall be written in Chinese. Financial checking and examination of the
Joint Venture Company shall be conducted by an auditor registered in China
and reports shall be submitted to the Board of Directors and the General
Manager. Should either of the two parties require an auditor based on
international to examine annual financial affairs, the other party shall
agree Any expenses for this shall be borne by the party that requires to
appoint such auditor.
Article 37: By the end of the first quarter of each fiscal year, the General
Manager shall prepare previous year's balance sheet, profit and loss statement
and proposal regarding the disposal of profits and submit them to the Board of
Directors meeting for examination and approval.
CHAPTER XIII : FOREIGN CURRENCY MANAGEMENT
Article 38: All matters of the Joint Venture Company concerning foreign currency
shall be handled in accordance with the " PROVISIONAL REGULATIONS FOR FOREIGN
EXCHANGE CONTROL OF THE PEOPLE'S REPUBLIC OF CHINA " and other relevant
regulations.
Article 39: With the business license issued by the State Administration for
Industry and Commerce of the People's Republic of China, the Joint Venture
Company shall open foreign currency and RMB accounts at Bank of China or any
other bank that is approved by the Foreign Exchange Management Administration to
manage foreign exchange business. All income and payment accounts shall be
supervised by such bank.
Article 40: Foreign currency inflow and outflow of the Joint Venture Company
shall be kept balanced with a surplus.
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CHAPTER XIV : PROFIT ALLOCATION
Article 41: The Joint Venture Company shall withdraw the reserve fund,
enterprise development fund and fund for bonus and fringe benefit of the staff
and workers from the after tax profit. The ratio of such draws shall be decided
by the Board of Directors.
Article 42: The profit of the Joint Venture Company after tax in accordance with
the law and after deduction of three funds shall be allocated to Party A and
Party B in accordance with their proportion in their contributions of the
registered capital.
Article 43: The Joint Venture Company shall distribute profit once a year.
Within 3 months after the fiscal year, the programme of profit allocation and
amounts of profit to be allocated shall be completed and both parties notified.
Article 44: The Joint Venture Company shall distribute profits only after any
losses in previous fiscal year have been made up.
CHAPTER XV : DURATION OF THE JOINT VENTURE
Article 45 : The duration of the Joint Venture Company is 30 years. The
establishment of the Joint Venture Company shall start from the date on which
the business license of the Joint Venture Company is issued. After unanimously
agreed upon by the Board of Directors, within 6 months prior to the time of
expiration of the duration of the Joint Venture Company, application for the
extension of the duration of the Joint Venture Company shall be submitted by
either party to the original examination and approval authority.
CHAPTER XVI : THE DISPOSAL OF ASSETS AFTER THE EXPIRATION OF THE DURATION
Article 46: Upon the expiration of the duration, or termination of the joint
venture, liquidation shall be carried out in accordance with the related law.
The liquidation assets shall be distributed to Party A and Party B in accordance
with each party's proportion of their contributions.
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CHAPTER XVII: INSURANCE
Article 47: Insurance policies of the Joint Venture Company on various kinds of
risks shall be underwritten with the People's Insurance Corporation of China
(the "PICC"). Types, value and duration of insurance shall be discussed and
decided by the Board of Directors of the Joint Venture Company in accordance
with the stipulations of the PICC
CHAPTER XVIII : THE AMENDMENT, ALTERNATION AND DISCHARGE OF THE CONTRACT
Article 48: The amendment of the Contract or other appendices shall come into
force only after the written agreement signed by Party A and Party B and
approved by the original examination and approval authority.
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Article 49: In case of inability to fulfil the Contract or to continue operation
of the Joint Venture Company due to heavy losses as a result of force majeure,
the duration of the Joint Venture Company and the Contract shall be early
terminated before the time of expiration after unanimously agreed upon by the
Board of Directors and approval by the original examination and approval
authority.
Article 50: Should the Joint Venture Company be unable to continue its operation
or achieve the business purpose stipulated in the Contract due to the fact that
one of the contracting parties fails to fulfil the obligations prescribed by the
Contract and Articles of Association, or seriously violate the stipulations of
the Contract and Articles of Association, that party shall be deemed as having
unilaterally terminated the Contract. The other party shall have the right to
terminate the Contract in accordance with the provisions of the Contract after
approval by the original examination and approval authority as well as to claim
damages. In case Party A and Party B of the Joint Venture Company agree to
continue the operation, the party who fails to fulfil the obligations shall be
liable to the economic losses thus caused to the Joint Venture Company.
CHAPTER XIX : LIABILITIES FOR BREACH OF CONTRACT
Article 51: Should either Party A or Party B fail to pay on schedule the
contribution in accordance with Article 5 of the Contract the breaching party
shall pay to the other party 1 % of the total amount of the contribution of the
breaching party per month of the outstanding contribution starting from the
first month after exceeding the time limit. Should the outstanding contribution
exceed 3 months, in addition to a 5% of the total contribution amount of the
breaching party to be paid to the other party, the other party shall have the
right in accordance with Article 50 of the Contract to terminate the Contract
and to claim damages from the breaching party.
Article 52: Should all or part of the Contract and its appendices be unable to
be fulfilled owing to the fault of one party, the breaching party shall bear the
responsibilities thus caused. Should it be the fault of both parties, they shall
bear their respective responsibilities in accordance with actual situations.
CHAPTER XX : FORCE MAJEURE
Article 53: Should either of the parties to the Contract be prevented from
executing the Contract by force majeure, such as earthquake, typhoon, flood,
fire and war and other unforeseen events, and their happening and consequences
are unpreventable and unavoidable, the prevented party shall notify the other
party within 15 days through telegram and provide the detailed information
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of the events and a valid document for evidence issued by the relevant notary
public organisation for explaining the reason of its inability to execute or
delay the execution of all or part of the Contract. Both parties shall through
consultations, decide whether to terminate the Contract or to exempt the part of
obligations for implementation of the Contract or whether to delay the execution
of the Contract in accordance with the effects on the performance of the
Contract.
CHAPTER XXI APPLICABLE LAW
Article 54: The formation of the Contract, its validity, interpretation,
execution and settlement of the disputes shall be governed by the related laws
of the People's Republic of China.
CHAPTER XXII : SETTLEMENT OF DISPUTES
Article 55: Any disputes arising from the execution of, or in connection with
the Contract shall be settled through friendly consultations between both
parties. In case no settlement can be reached, the disputes shall be submitted
to the Foreign Economic and Trade Arbitration Commission of China Council for
the Promotion of International Trade for arbitration in accordance with its
rules of procedures. The arbitrated award is final and binding upon both
parties.
Article 56: During the arbitration, the Contract shall be executed continually
by both parties except for matters in dispute.
CHAPTER XXIII : LANGUAGE, EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS
Article 57: The Contract shall be written in Chinese version. The appendices,
such as, Articles of Association, leasing contract drawn up in accordance with
the principles of the Contract are integral part of the Contract
Article 58: The Contract and its appendices shall come into force beginning from
the date of approval of the foreign economic and trade authority of the Suburb
People's Government of Nanchang City, Jiangxi Province, the People's Republic of
China.
Article 59: Should notices in connection with any party's rights and obligations
be sent by either Party A or Party B by telegram or telex, written letter
notices shall be also required afterward. The legal address of Party A and
Party B listed in the Contract shall be the posting address.
Article 60: The Contract is signed in Nanchang City, Jiangxi Province China by
the authorized
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representatives of both parties on 18 October, 1996.
Party A : Jiangxi Province Nanchang Organic Fertilizer Factory, Representative
(Company chop) Signed
------
Party B : AgroCan (China) Inc:- Representative
(Company chop) Signed
------
(END)
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Exhibit 10.2
AN AGREEMENT made the 18th day of December, One thousand nine hundred and
ninety- six BETWEEN XIPHO DEVELOPMENT COMPANY LIMITED whose registered office is
situate at Sun Hung Kai Centre, 45th floor, Harbour Road, Hong Kong (hereinafter
called "the Landlord") of the one part and
AGROCAN (CHINA) INC. WHOSE REGISTERED OFFICE IS situate at INTERNATIONAL
TRUST BUILDING, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS
(hereinafter called "the Tenant") of the other part.
WHEREBY IT IS HEREBY AGREED as follows:
1. The Landlord lets and the Tenant takes All That UNIT NO(S) 1709 on the
17TH FLOOR of the building known as "HARBOUR CENTRE" (hereinafter referred to as
"the said building") Hong Kong erected on All That piece or parcel of ground
registered in the Land Registry as INLAND LOT NO.8392 (which said UNIT(S) more
particularly described and delineated on the Plan hereto attached and thereon
coloured Pink and is hereinafter referred to as "the said premises") Together
with the use of the common parts and common facilities of the said Building in
common with the others having the same right under the Deed of Mutual Covenant
and Management Agreement and the Sub-Deed of Mutual Covenant governing the said
building for the term of THREE year(s) commencing on the 15TH day of NOVEMBER
1996 and expiring on the 14TH day of NOVEMBER 1999 both days inclusive
determinable as hereinafter mentioned.
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2. The rent for the said premises for the said term shall be such sums
specified in the First Schedule hereto which said sums shall be payable
exclusive of rates and exclusive of air-conditioning management and normal
cleaning charges (hereinafter called "Service Charges") in Hong Kong Currency
per calendar month in advance on the first day of each and every calendar month,
the first of such payments shall be apportioned according to the number of days
then unexpired in the month in respect of which such payment is made.
3. The Tenant shall on the signing of this Agreement pay to the Landlord
the sum of HK$97,683.00 by way of deposit for the due performance and observance
of the agreements on the part of the Tenant herein contained. At the expiration
or sooner determination of this Agreement if the Tenant shall have paid all rent
and other sums due hereunder and if there shall be no breach of any of the
agreements on the Tenant's part to be observed and performed the Landlord will
repay to the Tenant the sum of HK$97,683.00 paid by the Tenant to the Landlord
as a deposit on the signing of this Agreement after delivery of vacant
possession of the said premises to the Landlord but without any interest thereon
but if there shall be any rent or other sums due hereunder in arrears the
Landlord may apply such deposit towards payment of such arrears and if there
shall be any breach of the said agreements or any of them the Landlord shall pay
or apply the aid deposit or such part thereof towards remedying such breach (in
so far as this may be possible) and shall only pay the balance (if any) of the
deposit to the Tenant.
4. THE TENANT AGREES WITH THE LANDLORD as follows:
(a) To pay the rent herein reserved in manner aforesaid and other
charges due hereunder in manner hereinafter mentioned and not to exercise any
right or claim to withhold rent or other payments or any right or claim to legal
or equitable set-off.
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(b) To pay and discharge punctually during the said term all rates
quarterly in advance within the months of January April July and October
provided that the first payment thereof shall be paid on the commencement of the
tenancy and in the event of the premises not having been assessed to rates by
the Government to pay such sum (at 13.5% or at any other rates by which the
Rating & Valuation Department may subsequently calculate the annual rates by
reference to the rateable value of premises, of the quarterly rent hereby
reserved) as shall be required by the Landlord as a deposit by way of security
for the due payment of rates subject to adjustment on actual rating assessment
being received from the Government and also to pay and discharge all taxes
assessments duties charges impositions and outgoings whatsoever now or hereafter
to be imposed or charged on the said premises or upon the owner or occupier in
respect thereof by the Government of Hong Kong or other lawful authority
management charges Crown Rent and Property Tax alone excepted.
(c) To pay and discharge punctually during the said term all charges
for electricity telephone rental and other outgoings now or at any time
hereafter consumed by the Tenant and chargeable in respect of the said premises
and to make all necessary deposits for the supply of electricity and other
services to the said premises when required.
(d) To pay or reimburse to the Landlord for water charges where water
shall be required otherwise than for normal toilet flushing/washing purposes and
the Landlord may cause to be installed at the expense of the Tenant a separate
water meter to measure the consumption thereof by the Tenant. Upon default in
payment the Landlord may pay the charges according to the meter which the Tenant
shall be responsible to keep in reliable working order and the Tenant shall
refund the same on demand and repeated defaults committed by the Tenant shall be
a breach justifying the Landlord's right of re-entry.
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(e) To pay to the Landlord punctually throughout the said term such
Service Charges as may from time to time be payable by the Landlord in respect
of the said premises pursuant to or by virtue of the Deed of Mutual Covenant
and/or Sub-Deed of Mutual Covenant governing the said building which Service
Charges shall be paid by the Tenant to the Landlord in advance on the first day
of each and every calendar month without deduction whatsoever.
(f) To keep all the interior of the said premises including the
flooring and interior plaster or other finishing materials or rendering to walls
floors and ceilings and the Landlord's fixtures therein including all doors
windows electrical installations in good clean tenantable substantial and proper
repair and condition and properly preserved and painted as may be appropriate
when from time to time required and to so maintain the same at the expense of
the Tenant and deliver up the same to the Landlord at the expiration or sooner
determination of the term in the like condition fair wear and tear excepted.
The Tenant particularly agrees :
(i) to reimburse to the Landlord the cost of replacing all
broken and damaged windows whether the same be broken or damaged by the
negligence of the Tenant or owing to circumstances beyond the control of the
Tenant;
(ii) to repair or replace if so required by the appropriate
Supply Company Statutory Undertaker or Authority as the case may be under the
terms of any Electricity Supply Ordinance for the time being in force or any
Orders in Council or Regulations made thereunder, all the electrical wiring
installations and fittings within the said premises and the wiring from the
Tenant's meter or meters to and within the same to the satisfaction of the
Landlord;
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(iii) to wholly responsible for any damage or injury caused to
any other person or property directly or indirectly through the detective or
damaged condition of any part of the interior of the said premises make good the
same by payment or otherwise and to indemnify the Landlord against all
reasonable claims demands actions and legal proceedings whatsoever made upon the
Landlord by any person in respect thereof.
(g) To be responsible for all Tenant's electrical wiring to the light
fittings and to the other electrical outlets installations in the said premises
and the connection thereto to the Electricity Authority meters and to make his
own arrangements with the Hong Kong Telephone Company Limited with regard to the
installation of the telephone in the said premises, but the installation of
lines therefor outside the said premises must be in accordance with the
Landlord's directions.
(h) To take all reasonable precautions to protect the interior of the
said premises from damage threatened by any approaching storm or typhoons.
(i) To keep at the expense of the Tenant the lavatories and water
apparatus when used exclusively by the Tenant and assistants clerks or workmen
of the Tenant in a good clean and tenantable state and in proper repair and
condition at all times during the said term to the satisfaction of the Landlord
in accordance with the Regulations of the Public Health or other Government
Authority concerned and to reimburse to the Landlord for the reasonable cost of
cleaning or clearing any of the drains choked or stopped owing to careless
abnormal or improper use by the Tenant.
(j) To ensure that the said premises do not become infested with
insects or vermin. In the event of the premises becoming so infested the Tenant
shall pay the cost of
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extermination as arranged or approved by the Landlord and the selected
exterminators shall be given full access to the said premises for such purpose.
(k) To observe faithfully and comply strictly with the Rules and
Regulations as the Manager of the said building ("the Manager") may from time to
time adopt. Notice of any additional Rules or Regulations shall be given in
such manner as the Manager may elect. The Rules and Regulations set out in the
Second Schedule hereto and such additional Rules or Regulations shall constitute
the initial Rules and Regulations binding upon the Tenant and shall have the
same force and effect as if set out in the body of this Agreement. The main
purpose of the Rules and Regulations is to maintain the building of which the
said premises form part as a first-class office building with shopping mall.
(l) (i) To permit the Landlord and its agents with or without
workmen or others and with or without appliances at all reasonable times by
prior appointment to enter upon the said premises (and in the event of any
emergency the Landlord or his agents may enter without notice and forcibly if
need be) to view the condition thereof and to take inventories of the fixtures
therein; and to make good all defects and want of repair there found to be the
liability of the Tenant to the satisfaction of the Landlord within the space of
one calendar month or such reasonable period as the case may demand from the
time of receipt of notice written or verbal from the Landlord to amend or make
good the same.
(ii) if any defects or wants of repair shall be found and if the
Landlord shall either give or leave a notice in writing at the said premises or
give verbal notice to the Tenant requiring him to amend the same and if the
Tenant shall not within one month after the service of such notice proceed
diligently with the execution of such repairs then to permit the
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Landlord to enter upon the said premises and execute such repairs and the costs
thereof (the amount thereof in case of difference to be determined by the
Landlord's agent) shall be a debt due from the Tenant to the Landlord and be
forthwith recoverable by action.
(m) To permit the Landlord to use and maintain pipes and conduits in
and through the said premises. The Landlord or his agents shall have the right
to enter the said premises at all times to examine the same.
(n) If any excavation or other building works shall be made or
authorized in the vicinity of the said building, the Tenant shall permit the
Landlord his servants or agents to enter the said premises to do such work as
may be deemed necessary to preserve the exterior walls of the said building from
injury or damage without any claims for damages or indemnity against the
Landlord.
(o) Not to keep or store or allow to be kept or stored upon the said
premises or any part thereof any arms, ammunition, saltpetre, gun-powder,
kerosene or any other explosive combustible or unlawful or dangerous goods or
substance.
(p) Not to use the said premises for the storage of goods or
merchandise other than in small quantities consistent with the nature of the
Tenant' s business as by way of samples and exhibits.
(q) Tenant shall not place any load upon any floor of the said
premises in excess of the loading capacity for which the floor is designed. The
Landlord reserves the right to prescribe the weight and position of all safes
and any heavy articles which must be placed so as to distribute the weight.
Business machines and mechanical equipment authorized by the
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Landlord shall be placed and maintained by the Tenant at the Tenant' a expense
in settings sufficient in the Landlord's judgment to absorb and prevent
vibration noise and annoyance to occupiers of other portions of the said
building.
(r) Not to do or permit or suffer anything in or upon the said
premises or any part thereof which may at any time be or become a nuisance or
annoyance or cause damage or disturbance to the Landlord or the tenants or
occupiers of the said building and the neighbouring premises or in anywise
against the laws or regulations of Hong Kong.
(s) Not to use the said premises or any part thereof for any illegal
or immoral purpose.
(t) Not to use the said premises for any purpose other than am office
premises and to conduct therein only such business undertakings which are duly
authorized licensed approved by the competent government authorities and to
comply in all respects with the conditions terms and regulations relating to
such business or imposed on the granting of the license in respect thereof.
(u) Not to permit or suffer any sale by auction to be held upon the
said premises.
(v) Not to make or permit to be made any alterations in or additions
to the said premises or to the electrical installation or other Landlord's
fixtures or to install any plant apparatus or machinery therein without having
first obtained the written license and consent of the Landlord therefor or cut
maim or injure or suffer to be cut maimed or injured any doors windows walls
structural members or other fabric thereof. In particular, any structural
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alterations additions so approved shall be carried out only by such person or
contractor as shall be approved by the Landlord.
(w) Not, without the Landlord's previous written consent, to change
or in any way to alter the standard entrance doors provided by the Landlord for
access to the said premises.
(x) Not to move any safe heavy machinery equipment freight bulky
matter or fixtures in and out of the said building without first obtaining the
Landlord's written consent. The Tenant shall keep the Landlord indemnified
against all damages sustained by any person or property and for any damages or
monies paid out by the Landlord in settlement of any claim or judgments as well
as legal costs incurred in connection therewith and all costs incurred in
repairing any damage to the said building or its appurtenances resulting from
movement of any heavy machinery equipment freight bulky matter or fixtures.
(y) Not, without the prior written consent of the Landlord, to
install or use in the said premises any air-conditioning plant, machinery or
equipment other than that installed in the building by the Landlord.
(z) Not to install additional looks bolts or other fittings to the
entrance doors of the said premises or in any way to cut or alter the same
without first having obtained the written license or consent from the Landlord.
(aa) (i) To be answerable and responsible for the consequence of any
breach of local Ordinances, Orders in Council or Regulations by any inmate or
occupier of the said premises and not to do or suffer to be done or permit
within the said premises anything which
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would constitute a breach of the provisions of the Conditions of Sale or Crown
Lease under which the Landlord holds the said premises and to indemnify the
Landlord against any breach of the terms of this clause.
(ii) To observe, obey, and comply with, and to keep the Landlord
indemnified against any breach by the Tenant of the restrictive terms,
conditions and covenants of the Deed of Mutual Covenants and Sub-Deed of Mutual
Covenants in respect of the said building.
(bb) Not to assign underlet or otherwise part with the possession of
the said premises or any part thereof either by way of subletting lending
sharing or other means whereby any person or persons not named as a party to
this Agreement obtains the use or possession of the said premises or any part
thereof irrespective of whether any rental or other consideration in given for
such use or possession and in the event of any such transfer subletting sharing
assignment or parting with the possession of the said premises (whether for
monetary consideration or not) this Agreement shall at the option of the
Landlord absolutely determine and the Tenant shall forthwith surrender the said
premises to the Landlord Provided that the happening of any of the following
shall be considered a breach of this clause:
(i) in the case of a Tenant which is a partnership the taking
in of one or more new partners whether on the death or retirement of an existing
partner or otherwise.
(ii) in the case of a Tenant who is an individual (including a
sole surviving partner of a partnership tenant) the death, insanity or other
disability of that individual to the intent that no right to use, possess,
occupy or enjoy the said premises or any part thereof
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shall vest in the executors, administrators, personal representatives, next of
kin, trustee or committee of any such individual.
(iii) in the case of a Tenant which is a corporation, any
take-over, reconstruction, amalgamation, merger, voluntary liquidation or change
in the person or persons who own a majority of its voting shares, except where
the Tenant is a public company whose shares are quoted on any established stock
exchange or over-the-counter market whether in Hong Kong or elsewhere.
(iv) the giving by the Tenant of a Power of Attorney or similar
authority whereby the donee of the Power obtains the right to use, possess,
occupy or enjoy the said premises or any part thereof or does in fact use,
possess, occupy or enjoy the same.
(v) the change of the Tenant's business name without the
previous written consent of the Landlord which consent the Landlord may give or
withhold at its discretion.
(cc) Not, without the Landlord's prior permission in writing, to
permit any person to remain in the said premises overnight. Such permission
shall only be given to enable the Tenant to post watchmen to look after the
contents of the said premises which shall not be used an sleeping quarters or as
domestic premises within the meaning of any Ordinance for the time being in
force.
(dd) Not to place or leave in the entrance or any of the staircases
passages or landings of the said building used in common with other occupants of
the said building any boxes goods furniture or rubbish or otherwise encumber the
same.
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(ee) Not to exhibit or display within or on the exterior of the said
premises any writing sign or other device whether illuminated or not which may
be visible from outside the said premises except the display of name-plate or
signboard of the Tenant at the entrance to the said premises, the size and
position of such name-plate or signboard shall be subject to the approval of the
Landlord. The Landlord or his authorized agents shall have absolute discretion
in granting or refusing such approval and any approval to be granted shall be
subject to such conditions as the Landlord or his authorized agents may think
fit. The Landlord or his authorized agents shall have the right to remove at
the cost and expense of the Tenant any signboard, sign, decoration or device
which shall be affixed or put up or displayed without the prior approval of the
Landlord or his agents.
(ff) Not to do or permit to be done any act or thing whereby the
policy or policies of insurance on the said premises against damage by fire or
against claims by Third Parties for the time being subsisting may become void or
voidable or whereby the rate of premium or premiums thereon may be increased and
to repay to the Landlord on demand all sums paid by the Landlord by way of
increased premium or premiums thereon and all reasonable expenses incurred by
the Landlord in and about any renewal of such policy or policies rendered
necessary by a breach of this clause.
(gg) At the expiration or sooner determination of this Agreement to
deliver up to the Landlord the said premises in its original state and in such
good repair and condition as aforesaid fair wear and tear and damage due to any
of the matters specified in Clause 6(c) hereof excepted together with any
additional erections alterations or improvements which the Tenant may with the
consent of the Landlord as aforesaid have made upon or in the said premises and
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which the Landlord in his absolute discretion may be willing to retain without
payment of any compensation for such additional erections alterations or
improvements.
(hh) During the period of three months immediately before the
expiration of the said term of tenancy the Tenant shall permit all persons
having written authorization from the Landlord or the Landlord's agents to enter
and view the said premises and every part thereof at all reasonable times.
5. THE LANDLORD AGREES WITH THE TENANT as follows:
(a) To permit the Tenant (duly paying the rent and rates and
observing and performing the terms and conditions herein contained) to have
quiet possession and enjoyment of the said premises during the said term without
any interruption by the Landlord or anyone lawfully claiming under or through or
in trust for the Landlord save as specifically provided herein.
(b) To pay the Crown Rent and Property Tax on the said Premises.
6. IT IS HEREBY EXPRESSLY PROVIDED as follows:
(a) (i) If the rent reserved or any part thereof be in arrears for
fifteen days (whether formally demanded or not) or in the case of the breach or
non-performance of any of the stipulations and covenants or agreements herein
contained on the part of the Tenant to be kept done or performed if the Tenant
(being an individual) shall become bankrupt or (being a corporation) shall go
into liquidation or shall have any order made or resolution passed for its
winding up other than a resolution for voluntary winding up for the purpose of
amalgamation or re-construction or (being a firm or partnership) shall have its
Business Registration cancelled or
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shall enter into any composition or arrangement with his creditors or shall
suffer execution to be levied upon any of his goods or effects it shall be
lawful for the Landlord at any time thereafter to re-enter upon the said
premises or any part thereof in the name of the whole and to forfeit the said
deposit paid hereunder and thereupon this Agreement shall absolutely determine
but without prejudice to any rights which may have accrued to the Landlord by
reason of any antecedent breach of any of the obligations on the part of the
Tenant hereinbefore contained AND a written notice served by the Landlord on the
Tenant or left at the said premises to the effect that the Landlord thereby
exercises the power of re-entry shall be a full and sufficient exercise of such
power.
(ii) Notwithstanding anything hereinbefore contained in the
event of default in payment of rent and other charges hereinabove mentioned f or
a period of fifteen days from the date on which the same falls due for payment,
the Tenant shall further pay to the Landlord on demand interest on the amount in
arrears at the rate of 1.5% per month calculated from the date on which the same
became due for payment (as stipulated in Clause 2 hereof) until the date of
payment as liquidated damages and not as penalty provided that the demand and/or
receipt by the Landlord of interest pursuant to this provision shall be without
prejudice to and shall not affect the right of the Landlord to exercise any
other right or remedy hereof (including the right of re-entry) exercisable under
the terms of this Agreement.
(b) For the avoidance of doubt, it is hereby declared that the
Landlord shall neither be liable to pay compensation to the Tenant in respect of
any period during which the proper operation of the air-conditioning plant or
any other facilities of the said building shall be interrupted as a result of
mechanical failure or need for repair or overhaul nor shall the Landlord be
liable thereby to grant an abatement of rent in respect thereof.
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(c) (i) if the said premises or any part thereof are rendered
uninhabitable by fire water storm wind typhoon defective construction white ants
earthquake subsidence of the ground or any calamity beyond the control of the
Landlord and not attributable to any failure by the Tenant to observe and carry
out the terms of this Agreement the rent or a part thereof proportioned to the
extent to which the said premises shall have been so rendered uninhabitable
shall abate and cease to be payable until the same shall have been again
rendered fit for occupation Provided Always that the Landlord shall not be
required to reinstate the said premises if by reason of the condition of the
same or any local Regulations or other circumstances beyond the control of the
Landlord it is not practicable or reasonable to do so.
(ii) if at any time during the continuance of this tenancy the
competent authorities shall condemn the said building as a dangerous structure
and it shall be pulled down or shall make a demolition order which shall become
operative in respect of the said premises or any part thereof or a closure order
in respect of a part of the said premises under their powers the tenancy hereby
created shall cease as from the commencement of the pulling down of the said
premises or from the time when such demolition or closure order shall become
operative.
(d) The Landlord shall not be bound by any representations or
promises with respect to the said building and its appurtenances or in respect
of the said premises except as herein expressly set forth with the object and
intention that the whole of the agreement between the Landlord and the Tenant
shall be set forth herein and in no way modified by any discussions or
correspondence which may have preceded the signing of this Agreement.
(e) No condoning excusing or overlooking by the Landlord of any
default breach or non-observance or non- performance by the Tenant at any time
or times of any of the
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Tenant's obligations herein contained shall operate as a waiver of the
Landlord's rights hereunder in respect of any continuing or subsequent default
breach or non-observance or non-performance or so as to defeat or affect in any
way the rights of the Landlord herein in respect of any such continuing or
subsequent default or breach and no waiver by the Landlord shall be inferred
from or implied by anything done or admitted by the Landlord unless expressed in
writing and signed by the Landlord.
(f) This Agreement and the obligation of the Tenant to pay rent and
other sums due hereunder and perform the Tenant's obligations hereunder shall in
no way be affected impaired or excused because the Landlord is unable due to
circumstances beyond his control to fulfil any of his obligations under this
Agreement or to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make or is delayed in making any repair
additions alterations or decoration or is unable to supply or is delayed in
supplying any equipment or fixtures if the Landlord is prevented or delayed from
so doing by reason of strike labour troubles shortage of materials or any
outside cause whatsoever or by reason of any order or regulation of any
department of the Hong Kong Government.
(g) For the purposes of these presents any act default or omission of
the agent servants visitors staff and customers of the Tenant shall be deemed to
be the act default or omission of the Tenant.
(h) The expression "the Tenant" shall (where the context permits)
mean and include the party or parties specifically named herein and shall not
include the executors and administrators of any such party or where such party
is a corporation any liquidator thereof or where such party is a partnership any
new partner after the commencement of the term.
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(i) The Tenant hereby expressly declares that at the expiration or
sooner determination of this Agreement the Tenant will not invoke or seek to
avail himself of any protection which may or shall hereafter be afforded by any
ordinance or regulation of the Colony of Hong Kong protecting tenants or lessees
from eviction but will promptly and punctually quit and deliver up possession of
the said premises at the expiration of this Agreement or sooner determination as
aforesaid.
(j) Acceptance of rent by the Landlord shall not be deemed to operate
as a waiver by the Landlord of any right to proceed against the Tenant in
respect of any breach non-observance or non-performance by the Tenant of any of
the agreements stipulations and conditions herein contained and on the Tenant's
part to be observed and performed.
(k) The Landlord shall not be under any liability to the Tenant or to
any other person whosoever in respect of any lose or damage to person or
property sustained by the Tenant or any such other person caused by or through
or in any way owing to the overflow of water or the escape of fumes smoke fire
or any other substance or thing from anywhere within the said building. The
Tenant shall fully and effectually indemnify the Landlord from and against all
claims and demands made against the Landlord by any person in respect of any
loss damage or injury caused by or through or in any way owing to the overflow
of water or the escape of fumes smoke fire or any other substance or thing from
the said premises or owing to the negligence or default of the Tenant his
servants agents or licensees or owing to the defective or damaged condition of
the interior of the said premises or any fixtures or fittings the repair for
which the Tenant is responsible hereunder and against all costs and expenses
incurred by the Landlord in respect of any such claim or demand.
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(l) The Landlord shall also have the right at any time without the
same constituting an actual or constructive - eviction of the Tenant and without
incurring any liability to the Tenant therefor to change the name number or
designation by which the said building is known.
(m) For the purposes of Landlord and Tenant (Consolidation)
Ordinance, Chapter 7, Part III and of these presents, the rent payable in
respect of the said premises shall be and be deemed to be in arrear if not paid
in advance at the times and in manner hereinbefore provided for payment thereof.
All costs of and incidental to the demand for rent distraint or any legal action
for the recovery of rent or any other sums due hereunder shall be recoverable
from the Tenant as a debt.
(n) Any notice under this Agreement shall be in writing and any bills
statements or notice to the Tenant shall be sufficiently served if left
addressed to him at the said premises or any part thereof or sent to him by
registered post or left at his last known address in Hong Kong and any notice to
the Landlord shall be sufficiently served if delivered to its registered address
or sent to its registered address by registered post or delivered to its last
known business address in Hong Kong.
(o) The Tenant shall, in addition to paying the legal costs of his
own solicitors (if any), also pay to the Landlord upon the signing hereof a sum
equal to half of the Landlord's Solicitors' costs plus half share of stamp duty
and any disbursements on this Agreement. In this matter Messrs. Winston Chu &
Co., Solicitors are acting only for the Landlord although Messrs. Winston Chu &
Co., Solicitors may witness the execution of this Agreement by the Tenant and
collect from the Tenant the aforesaid sum an behalf of the Landlord.
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7. The Tenant shall before carrying out any fitting out works at its own
cost prepare and submit to the Landlord suitable drawings and specifications of
the works to be carried out by the Tenant together with schematic sketches
showing intent as to the Tenant's design and layout proposal (hereinafter
collectively called "the Tenant's Plans") to enable the said premises to be
fitted out and completed for the purposes specified in this Agreement. The
Tenant's Plans shall, without limitation:
(i) Include detailed drawings, plans and specifications for all
partitioning and floor coverings.
(ii) Include detailed drawings, plans and specifications of all
electrical installations which shall be connected to the electrical systems
installed by the Landlord.
(iii) Include details of any proposed amendments, additions or
alterations to any electrical mechanical or other building services.
(iv) Comply with all relevant Ordinances, regulations and
by-laws from time to time issued by the Government of Hong Kong.
8. In order to enable the building services of the Building to be
effectively coordinated and controlled the Tenant agrees that all electrical
wiring and other electrical work and approved alterations to the building
services in or for the Premises shall be carried out at the Tenant's expense
only by the Landlord's contractor.
9. (a) The Landlord will consider the Tenant's Plans and may in its
absolute discretion accept or reject the Plans or any part of them as it thinks
fit.
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(b) The Tenant shall pay to the Landlord on demand all mechanical,
engineering and structural engineering consultant's fees and architect's vetting
fees incurred by the Landlord in connection with the consideration and approval
of the Tenant's Plans or any modifications or amendments thereof.
10. The Tenant shall pay all expenses (including surveyors fees and
Solicitor's costs on a solicitor and own client basis) incurred by the Landlord
incidental to the preparation and service of a notice under Section 58 of the
Conveyancing and Property Ordinance 1984 notwithstanding forfeiture is avoided
otherwise than by relief granted by the Court.
11. The Landlord and the Tenant do hereby jointly and severally declare
and confirm that the rent herein reserved is the best rent which can be
reasonably obtained for the grant of this tenancy without a premium.
12. The captions (if any) are inserted only for convenience and for
reference and in no way define the limit or describe the scope of this Agreement
nor the intent of any provision hereof.
It is hereby declared that (if the context permits or requires) the
singular number shall include the plural and the masculine gender shall include
the feminine and the neuter and vice versa.
AS WITNESS the hands of the parties hereto the day and year first above
written.
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THE FIRST SCHEDULE ABOVE REFERRED TO
PARTICULARS OF RENT
1. The rent for the said premises for the period from 15TH NOVEMBER 1996
to 14TH NOVEMBER 1999 shall be HK$28,440.00 per month.
2. TWO MONTHS RENT FREE PERIOD IS ALLOWED AT THE COMMENCEMENT OF THE
TENANCY FOR FITTING OUT PURPOSES. AN OTHER ONE MONTH RENT FREE PERIOD IS
ALLOWED FROM 15TH NOVEMBER 1998 TO 14TH DECEMBER 1998 IF THE TENANT COMPLIES
WITH ALL THE TERMS OF THE TENANCY PARTICULARLY INCLUDING PUNCTUAL PAYMENT OF THE
RENT SERVICE CHARGES AND RATES ARE STILL PAYABLE DURING THIS PERIOD.
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THE SECOND SCHEDULE ABOVE REFERRED TO
RULES AND REGULATION
1. All blinds and/or curtains used within the said premises shall conform
externally to a standard colour and design and such blinds and/or curtains shall
be approved by the Manager so as to preserve a uniform external appearance.
2. Plumbing fixtures shall he used only for the purposes for which they
were constructed. No sweepings rubbish rags or other alien substances shall be
deposited therein. All costs for making good damage resulting from any misuse
of the plumbing fixtures shall be borne by the Tenant.
3. No Tenant shall drill into or in any way deface any part of the said
premises or the said building. No drilling shall be permitted save with prior
written approval of the Manager and as the Manager may direct.
4. Save with prior written consent of the Manager, which consent will not
normally be granted, no flagpoles or aerials shall be erected, and no flags
shall be flown from windows or elsewhere in or upon the said building.
5. Each Tenant must upon the termination of his tenancy restore to the
Landlord all keys of offices and toilet rooms used by the Tenant.
6. All removals or the carrying in or out of furniture or bulky matter of
any description must take place after office hours and during the hours which
the Manager or his agent may determine from time to time. The Manager reserves
the right to exclude goods from
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the said building which violate any of these Rules and Regulations or the
Agreement of which these Rules and Regulations are a part.
7. No Tenant nor any of the Tenant's servants employees agents visitors
or licensees shall bring into any passenger lift in the said building any goods
effects chattels luggage bulky parcels food trays tiffin carriers or other
space-occupying items and the Tenant shall ensure that such items are restricted
to the designated lift.
8. No Tenant shall do or permit to be done in the said premises or any
part thereof any act which shall or might subject the Landlord to any liability
or responsibility for injury to any person or to property.
9. Windows shall remain closed locked save in emergency such as fire or
breakdown of the air-conditioning system and the reasonable extent necessary to
enable the Tenant to clean the same.
10. Canvassing and paddling in the said building is prohibited and each
Tenant shall co-operate to prevent the same.
11. Save with the prior written consent of the Manager, which consent will
not normally be granted, no cooking nor preparation of food (other than drinks)
shall be permitted by any Tenant in the said premises. No Tenant shall permit
any unusual or objectionable odours to be produced upon or permeated from the
said premises.
12. No Tenant shall cause or permit any noise which is or may be a
nuisance or annoyance to the occupants; of other portions of the said building.
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13. The Tenant shall not install in the said premises any partitioning
other than that supplied or approved by the Manager.
14. No animals or pets are to be kept in the said premises.
15. No Tenant shall allow its fitting out contractors to carry out any
drilling or other works which may create excessive noise from the said premises
during normal office hours such noisy work should only be carried out after
office hours with the permission of the management agent.
16. No Tenant shall permit any unusual or objectionable odours or smell
which may cause irritation to people in the said Building to be produced upon or
permeated from the said premises as a result decoration work within the said
premises.
SIGNED by )
)
for and on behalf of the )
)
Landlord whose signature(s) )
)
is/are verified by:- )
Solicitor, Hong Kong.
(Solicitor for the Landlord)
SIGNED by )
)
)
for and on behalf of the )
)
Tenant in the presence of: )
Clerk to Messrs. Winston Chu & Co.
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Solicitor; Hong Kong.
(Solicitor for the Landlord)
RECEIVED the day and year first )
Above written of and from the Tenant the )
Sum of DOLLARS NINETY SEVEN THOUSAND )
SIX HUNDRED AND EIGHTY THREE ONLY )
Hong Kong Currency being the deposit )
Money above mentioned to be paid by the )HK$97,683.00
Tenant to the Landlord.
WITNESS to the signature:
Solicitor, Hong Kong.
(Solicitor for the Landlord)
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Exhibit 10.3
LAND LEASE CONTRACT ("THE CONTRACT")
Guangxi Forestry Science Institute ("Party A") and BVI AgroCan (China) Inc.
("Party B"), after discussion and negotiation have reached agreement as
follow:
1. Party A agrees to lease 21 Mu of land ("The Land") adjacent to the
repairing workshop of Gaofeng Plantation to Party B for its use.
2. Party A guarantees to supply Party B with water for production and
leaving purposes; Party B will settle water charges to Party A according
to standard fee paid by third parties, otherwise party A reserves the
right to stop water supply. In case of malfunction of water supply
equipment other that pipes that affect water supply for production and
leaving purposes, Party A guarantees to repair immediately.
3. Party B is required to pay a water supply equipment charges of RMB10,000
to party A, the sum is to be paid together with the first installment
for the lease of The Land to Party A.
4. This Contract is for a period of twenty (20) years, starting January 28,
1997 and terminates on January 28, 2017.
5. Land lease fees is RMB1,000 per Mu per year. Party B agrees to pay the
total fees for the whole period of RMB Four Hundred and Twenty Thousand
(RMB420,000) by two installments to Party A: first installment being RMB
Two Hundred and Ten Thousand to be paid within ten days from the
effective day of this Contract, balance RMB Two Hundred and Ten Thousand
to be fully paid within twelve months. If in arrears, Party B needs to
pay an overdue charges of 0.1% on outstanding amount to Party A, if in
arrears for one month it will be regarded as breach of contract.
6. During the lease period, Party A guarantees not to use The Land leased
to Party B. Otherwise, party A needs to compensate direct financial
losses to Party B.
7. If Party B wishes to continue the lease after the lease period, Party B
needs to inform Party A six months before the expiry date of this
Contract and negotiate a new lease contract; otherwise, Party B is
required to return The Land leased to party A two months after the
expiry date.
8. Responsibilities on breach of contract: If Party A is in breach, it is
required to compensate direct financial loss as a result of the breach
and twice the leasing fee during the period of the breach. If Party B is
in breach, party A has the right to recover The Land, and party B is to
pay twice of the leasing fee for the balance period of this Contract to
party A.
9. During the leasing period, Party B is not allowed to carry out mining
and unlawful activities on The Land leased; employees working on The
Land are required to follow Party A's arrangement on social and
community well-being.
10. Party A is required to provide document as evidence on lawful use of The
Land; if there is any dispute related to The Land, Party A is
responsible to resolve.
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11. Both Parties agree to discuss any matter not covered by this Contract
and sign any other legal document as compliment to this Contract.
12. This Contract became effective from the date of signatures and stamp.
13. This Contract is printed with four true copies, each Party holds two
copies.
Party A: Guangxi Forestry Science Institute Party B: BVI AgroCan (China) Inc.
Legal Representative: Legal Representative:
SIGNED AND STAMPED SIGNED AND STAMPED
January 25, 1997
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Exhibit 10.4
LEASE CONTRACT ("THE CONTRACT")
Lessor: Jiangxi Province Nanchang Organic Fertilizer Factory ("Party A")
Lessee: Jiangxi Fenglin Chemical Industry Company Ltd ("Party B")
Parties A and B based on sincere co-operation in order to operate a
successful joint-venture corporation-- Jiangxi Fenglin Chemical Industry
Company Ltd, enter this lease Contract in related to the lease of Party A's
industrial land, plants, equipment with the following terms:
ARTICLE ONE LEASED AREA AND CONTENTS
Party A owns industrial production land area ("Leased Area") within the
walls, plants and equipment, these include organic compound fertilizer
production line of annual capacity of 25,000 tons together with material and
finished products warehouses, repair workshop and tools, laboratory and
tools; Methyl Vinyl Silicon Rubber production line of annual capacity of 100
tons, Hydroxyl Methyl Silicon oil production line of annual capacity of 25
tons and production line for Methyl Vinyl Cyclohexane of annual capacity of 3
tons together with material and finished products warehouses, boiler and
boiler room, laboratory and equipment; and water supply & drainage, power
supply transformer, offices and related equipment.
ARTICLE TWO LEASED PERIOD, RENT AND TERMS OF PAYMENT
Leased for a period of five (5) years, effective from the date of this
Contract. Annual rent is RMB One Hundred Eighty Thousand (RMB180,000),
payable by two installments per year, each in half year's time of 50% each,
payable by Party B to Party A at the first month of each of the half year
period of the leasing years. If payment is in arrears, 1% interest per month
will be added for the first three months; after 3 months but less then half
year penalty will be added, based on 5% on the overdue rent amount; over half
year, Party A has the right to terminate The Contract and demand for
compensation.
ARTICLE THREE LEASED ITEMS AND USAGE
Within one month from the effective dates of this Contract and the
Joint-venture contract of Jiangxi Fenglin Chemical Industrial Company Ltd,
both Parties shall appoint representatives to carry out inventory counts and
prepare record book ("The Record"), and sign up memorandum in related to the
status of fixed assets; Fenglin Chemical Industry Company Ltd will purchase
and take over the existing material, finished products and parts based on
prevailing market price after inventory check; on completion of the above
procedure and on completion of capital and cash injection to the
joint-venture company, hand-over procedure should be carried out. Party A
also owns some other idle production facilities within the Leased Area. Party
A is allowed to dispose these facilities gradually within six months and it
may be extended to one year if it would not affect the operations of the
Lessee.
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ARTICLE FOUR MAINTENANCE, RENOVATION AND RE-SELL OF LEASED ITEMS
Party B should make proper use of the facilities so leased in accordance with
their designed capacities and methodology, maintain these facilities, carry
out normal repairs, not to overload, nor work against the methodology. If the
leased items were damaged as a result of this it will be the responsibility
of Party B to compensate.
On or before the expiration of this Contract, the Lessee, due to the
requirement of production and expansion, may carry out renovation or
dismantling of the plants and facilities. This requires the consent of Party
A and valuation by expert is needed to determine the residue values. Fenglin
Chemical Industry Company Ltd is required to purchase the items before
renovation or dismantle.
ARTICLE FIVE RETURN & INSPECTION OF LEASED ITEMS AFTER CONTRACT EXPIRED
Lessee is required to return the leased items to Lessor in accordance with
The Record prepared as per Article Three above for completeness. Hand-over
procedure should carried out by representatives from both Parties.
ARTICLE SIX TERMINATION AND EXTENSION OF LEASE & RESPONSIBITY ON BREACH
OF CONTRACT
Except caused by force majeure, any cause of for termination of this Contract
should be responsible by the Party who so causes and the Party should be
responsible for the compensation for the loss due to the termination of The
Contract.
On expiration of this Contract, any Party may request to extend and being
accepted by the other Party, both Parties should make joint consultation and
enter into contract accordingly.
ARTICLE SEVEN SETTLEMENT OF DISPUTES
From the effective date of this Contract, both Parties shall act accordingly.
Due to the breach of one Party, the other Party has the right to demand for
compensation for the loss due to the breach.
Any disputes arising from the execution of the Contract shall be settled
through friendly consultations between both Parties. In case no settlement
can be reached, the disputes shall be submitted to the Foreign Economic and
Trade Arbitration Commission of China Council for the Promotion of
International Trade for arbitration in accordance with its rules of
procedures. The arbitrated award is final and binding upon both Parties.
105
<PAGE>
ARTICLE EIGHT THE EFFECTIVENESS OF THE CONTRACT
The Contract shall be written in Chinese version with four printed true
copies, each Party holds two copies and became effective after both Parties
have signed.
Party A: Jiangxi Province Nanchang Organic Fertilizer Factory
Representative: Factory Manager
SIGNED
Party B: Jiangxi Fenglin Chemical Industry Company Ltd.
Representative: Director
SIGNED
October 18, 1996
106
<PAGE>
Exhibit 10.5
LAND USE RIGHT CONTRACT ("THE CONTRACT")
ARTICLE ONE Parties of this Contract
Transferor: People's Government of Fubei Town, Linchuen City, Jiangxi
("Party A")
Address: 33, Fubei West Road, Linchuen City; Post
code:344001;
Legal representative: Zhou DangFa; Post: Town Megistry
Transferee: Jiangxi Jiali Chemical Industry Company Ltd ("Party B")
Address: 17, Qingyunfeng Road, Fuzhou City; Post
code:344000;
Legal representative: Danny Wu; Post: Chairman
In accordance with "Temporary Regulation for Transfer and Sale of Use Right
of State-owned Land for Cities and Towns of The People's Republic of China",
"Execution Rules for Transfer and Sale of Use Right of State-owned Land of
Jiangxi Province" and other related laws, both parties enter into this
Contract based on equal rights, willingness and consideration.
ARTICLE TWO
Based on the Land Use Right ("The Right") defined by this Contract and
obtained by Party B, the party has the right to transfer, lease, mortgage and
use for other economic activities based on related laws.
The rights of Party B are protected by law in relation to the use,
development and operations on the Land under The Right of this Contract.
ARTICLE THREE
Total land area ("The Land") is 20.6 Mu (based on investigation and actual
measurement), with land area marked on the attached drawing.
ARTICLE FOUR
The Right under this Contract is for a period of Sixty (60) years, starts
July 1, 1997 and expires on June 30, 2057.
ARTICLE FIVE
Consideration for The Right of The Land is RMB Twenty Three Thousand Eight
Hundred (RMB23,800) per Mu (all costs paid by Party B before obtaining Land
Use Certificate).
ARTICLE SIX
Terms of payment: Party B has to pay Party A a Land Use Right deposit of RMB
Seventy Five Thousand (RMB75,000) Seven (7) days after both parties have
signed of this Contract; before Party B starts to move equipment onto The
Land (before July 7), a further payment of RMB Two Hundred Forty Thousand
(RMB240,000); the balance RMB One Hundred Seventy Five Thousand Two Hundred
Eighty (RMB175,280) should be paid by Party B Fifteen (15) days after
obtaining the Land Use Certificate.
107
<PAGE>
ARTICLE SEVEN
In order to protect Party B with smooth construction, Party A allows Party B
to carry out construction on The Land while Party B is carrying out
formality. In case there is any dispute with the local villagers, Party A is
responsible to resolve.
ARTICLE EIGHT
Party A is responsible for all the processes and costs in obtaining the Land
Use Certificate and ensures that Land Use Right for the Land is completed in
favour of Party B.
ARTICLE NINE
Party B has to make payments to Party A in accordance with the terms of
payment agreed without delay from the effective date of this Contract. Party
A must obtain the Land Use Certificate Thirty (30) days after the second
payment from Party B. Party B will make the balance payment only after
obtaining the Land Use Certificate.
ARTICLE TEN
The Transferor has to produce legal bill of exchange (confirmed by the Land
Office) on receiving payments.
ARTICLE ELEVEN
This Contract is printed with four true copies, each party holds two copies,
and all copies bear the same legal status.
ARTICLE TWELVE
This Contract supercedes and replace, if any, previous agreement of the same
nature.
Party: People's Government of Fubei Town, Linchuen City, Jiangxi
Representative:
SIGNED
Party : Jiangxi Jiali Chemical Industry Company Ltd.
Representative:
SIGNED
July 3, 1997
108
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Name(1) Incorporation/Organization
- ----- --------------------------
<S> <C>
AgroCan (China) Inc. Brittish Virgin Islands
Jiangxi Jiali Chemical Industry Co. Ltd. China
Jiangxi Fengli Chemical Industry Co. Ltd. China
Guangxi Linmao Fertilizer Ltd. China
</TABLE>
- --------
(1) The subsidiary is doing business under the same name unless otherwise
indicated.
109
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1999
<PERIOD-START> OCT-01-1997 OCT-01-1998
<PERIOD-END> SEP-30-1998 DEC-31-1998
<CASH> 264,887 211,335
<SECURITIES> 0 0
<RECEIVABLES> 6,781,663 4,726,170
<ALLOWANCES> 140,000 140,000
<INVENTORY> 134,261 1,342,900
<CURRENT-ASSETS> 7,343,719 6,646,117
<PP&E> 409,598 587,959
<DEPRECIATION> 51,927 66,927
<TOTAL-ASSETS> 8,310,123 7,813,793
<CURRENT-LIABILITIES> 6,291,105 5,642,448
<BONDS> 0 0
0 0
0 0
<COMMON> 190 190
<OTHER-SE> 1,911,739 2,058,093
<TOTAL-LIABILITY-AND-EQUITY> 8,310,123 7,813,793
<SALES> 7,834,448 2,435,208
<TOTAL-REVENUES> 7,834,448 2,435,208
<CGS> 7,003,196 2,165,520
<TOTAL-COSTS> 7,003,196 2,165,520
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 140,000 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 458,292 152,107
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 435,883 146,134
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 435,883 146,134
<EPS-PRIMARY> .27 .08
<EPS-DILUTED> .24 .07
</TABLE>
