10-K 1 anhui_10k10.htm FORM 10-K Unassociated Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
Commission file number: 000-53491
 
ANHUI TAIYANG POULTRY CO., INC.
(Exact name of registrant as specified in its charter)

Delaware
 
65-0918608
(State or Other Jurisdiction
of Incorporation)
 
(IRS Employer
Identification No.)

No. 88, Eastern Outer Ring Road, Ningguo City, Anhui Province, 242300, People’s Republic of China
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (+86) 0563-430-9999
 
Securities registered pursuant to Section 12(b) of the Act: None.
 
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
Yes o No þ
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer o
 Accelerated filer o
 Non-accelerated filer o
 Smaller reporting company x
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
 
The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2010, based on the closing sales price of the Common Stock as quoted on the OTC Bulletin Board was $250,807.50. For purposes of this computation, all officers, directors, and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.
 
As of April 14, 2011, there were 10,440,033 shares of registrant’s common stock outstanding.

 
 

 
 
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BUSINESS.
 
This Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.
 
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our Management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
 
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
 
This Annual Report on Form 10-K includes the accounts of Anhui Taiyang Poultry Co., Inc. (“Anhui”) and its wholly-owned subsidiaries, Dynamic Ally Limited, a British Virgin Islands company (“Dynamic Ally”), Ningguo Taiyang Incubation Plant Co., Ltd., a Chinese wholly foreign owned enterprise (“Ningguo”) and Anhui Taiyang Poultry Co., Ltd., (“Taiyang”) a Chinese limited liability company that has entered into a series of contractual obligations with Ningguo, collectively referred to as “we”, “us” or the “Company”.
 
Company History
 
Anhui Taiyang Poultry Co., Inc. was incorporated in the State of Delaware on April 7, 1999 as The Parkview Group, Inc. From inception through November 2010, we were in the business of providing management consulting services to corporate clients.
 
On November 10, 2010 (the “Closing Date” and the closing of the reverse merger transaction, the “Closing”), we executed and consummated a share exchange agreement by and among Dynamic Ally and the stockholders of 100% of Dynamic Ally’s common stock (the “Dynamic Ally Shareholders”), on the one hand, and certain holders of our issued and outstanding common stock (the “Representative Shareholders”) on the other hand (the “Share Exchange Agreement” and the transaction, the “Reverse Merger Transaction”).
 
In the Reverse Merger Transaction, Dynamic Ally’s shareholders exchanged their shares of Dynamic Ally for newly issued shares of our common stock. As a result, upon completion of the Reverse Merger Transaction, Dynamic Ally became our wholly-owned subsidiary.
 
 
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Dynamic Ally owns 100% of Ningguo, which is a wholly foreign owned enterprise (“WFOE”) under the laws of the People’s Republic of China (“China” or the “PRC”). Ningguo has entered into a series of contractual arrangements (as further described below under the heading “Organizational Structure”) with Taiyang, a limited liability company headquartered in, and organized under the laws of, the PRC.
 
As a result of the Reverse Merger Transaction, we acquired 100% of the capital stock of Dynamic Ally and consequently, control of the business and operations of Dynamic Ally, Ningguo, and Taiyang.
 
Effective January 20, 2011, we changed our name from “The Parkview Group, Inc.” to “Anhui Taiyang Poultry Co., Inc.”
 
Organizational Structure
 
Dynamic Ally is a holding company incorporated in British Virgin Islands. Since incorporation, Dynamic Ally has not conducted any substantive operations of its own except for holding 100% equity interests of Ningguo.
 
Ningguo is a limited liability company organized in the PRC on May 25, 2010. Ningguo was formed by Dynamic Ally. Other than the activities relating to its contractual arrangements with Taiyang as described below, Ningguo has no other business operations.
 
Taiyang is a limited liability company organized in the PRC in June 1996. Taiyang holds the government licenses and approvals necessary to operate the duck farming business in China. We do not own any equity interests in Taiyang, but control and receive the economic benefits of its business operations through contractual arrangements. Through Ningguo, we have contractual arrangements with Taiyang and its owners pursuant to which we provide consulting and other general business operation services. We will receive distributions from our consolidated affiliates only to the extent service fees are paid to Ningguo under these series of agreements and further distributed as dividends or other shareholder distributions by Ningguo through Dynamic Ally. Through these contractual arrangements, we also have the ability to substantially influence their daily operations and financial affairs, since we are able to appoint their senior executives and approve all matters requiring approval of the equity owners. As a result of these contractual arrangements, which enable us to control Taiyang and to receive, through Ningguo, all of its profits, we are considered the primary beneficiary of Taiyang. Accordingly, we consolidate its results, assets and liabilities in our financial statements.
 
Contractual Arrangements with Taiyang and its Stockholders
 
Our relationships with Taiyang and its owners are governed by a series of contractual arrangements, as we (including our subsidiaries) do not own any equity interests in Taiyang. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. Under Chinese laws, each of Ningguo and Taiyang is an independent legal entity and neither of them is exposed to liabilities incurred by the other party. Other than pursuant to the contractual arrangements between Ningguo and Taiyang, Taiyang does not transfer any other funds generated from its operations to Ningguo.
 
On May 26, 2010, Ningguo entered into the following contractual arrangements with Taiyang:
 
Consulting Services Agreement. Pursuant to the exclusive consulting services agreement between Ningguo and Taiyang, Ningguo has the exclusive right to provide to Taiyang general services related to the current and proposed operations of Taiyang’s business in the PRC (the “Services”). Ningguo also sends employees to Taiyang and Taiyang bears the costs and expenses for such employees. Under this agreement, Ningguo owns the intellectual property rights developed through the Services provided to Taiyang. Taiyang pays a quarterly consulting service fee in Renminbi (“RMB”) to Ningguo that is equal to all of Taiyang’s net income for such quarter. The consulting services agreement is in effect unless and until terminated by written notice of either party in the event that: (a) Taiyang causes a material breach of this agreement, provided that if the breach does not relate to a financial obligation of the breaching party, that party may attempt to remedy the breach following the receipt of the written notice; (b) the other party becomes bankrupt, insolvent, is the subject of proceedings or arrangements for liquidation or dissolution, ceases to carry on business, or becomes unable to pay its debts as they become due; (c) Ningguo terminates its operations; or (d) circumstances arise which would materially and adversely affect the performance or the objectives of the consulting services agreement. Additionally, Ningguo may terminate the consulting services agreement without cause.
 
 
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Operating Agreement. Pursuant to the operating agreement among Ningguo, Taiyang and the owners of Taiyang who collectively hold 100% of the issued and outstanding equity interests of Taiyang (collectively the “Taiyang Owners”), Ningguo provides guidance and instructions on Taiyang’s daily operations, financial management and employment issues. The Taiyang Owners must designate the candidates recommended by Ningguo as their representatives on Taiyang’s board of directors. Ningguo has the right to appoint senior executives of Taiyang. In addition, Ningguo agrees to guarantee the performance of Taiyang under any agreements or arrangements relating to Taiyang’s business arrangements with any third party. Taiyang, in return, agrees to pledge its accounts receivable and all of its assets to Ningguo. Moreover, Taiyang agrees that without the prior consent of Ningguo, Taiyang will not engage in any transactions that could materially affect the assets, liabilities, rights or operations of Taiyang, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of its assets or intellectual property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party. The term of this agreement shall last for the maximum period of time permitted by law from May 26, 2010, and may be terminated only upon Ningguo’s thirty (30) day prior written notice to Taiyang.
 
Equity Pledge Agreement Under the equity pledge agreement between the Taiyang Owners and Ningguo, the Taiyang Owners pledged all of their equity interests in Taiyang to Ningguo to guarantee Taiyang’s performance of its obligations under the consulting services agreement. If Taiyang or the Taiyang Owners breach their respective contractual obligations, Ningguo, as pledgee, will be entitled to certain rights, including, but not limited to, the right to sell the pledged equity interests, the right to vote and control the pledged assets. The Taiyang Owners also agreed, that upon occurrence of any event of default, Ningguo shall be granted an exclusive, irrevocable power of attorney to take actions in the place and instead of the Taiyang Owners to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Ningguo may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Taiyang Owners agreed not to dispose of the pledged equity interests or take any actions that would prejudice Ningguo’s interest. The equity pledge agreement will expire in two years after Taiyang’s obligations under the exclusive consulting services agreement have been fulfilled.
 
Option Agreement. Under the option agreement between the Taiyang Owners and Ningguo, the Taiyang Owners irrevocably granted Ningguo or its designated person an exclusive option to purchase, to the extent permitted under Chinese law, all or part of the equity interests in Taiyang for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable Chinese law. Ningguo or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement shall last for the maximum period of time permitted by law from May 26, 2010.
 
Voting Rights Proxy Agreement. Pursuant to the voting rights proxy agreement among Ningguo, the Taiyang Owners, and Taiyang, the Taiyang Owners agreed to entrust all the rights to exercise their voting power to designee(s) of Ningguo. Such designee(s) shall have the right to exercise the Taiyang Owners’ voting and other rights, including the attendance at and the voting of their shares at Taiyang’s shareholders meetings (or by written consent in lieu of meetings) in accordance with applicable laws and Taiyang’s Article of Association. This agreement may not be terminated without the unanimous consent of all parties, except that Ningguo may, by giving a thirty (30) day prior written notice to the Taiyang Owners, terminate the voting rights proxy agreement, with or without cause.
 
Current Corporate Structure
 
We conduct substantially all of our business operations through Taiyang. Chinese law currently has limits on foreign ownership of certain businesses which prohibit non-Chinese persons from having direct ownership interests. To comply with these foreign ownership restrictions, neither we nor our subsidiaries own any equity interests in Taiyang, but control and receive the economic benefits of its business operations through contractual arrangements.

 
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The following diagram illustrates our current corporate structure:
 
 
Operations
 
Our operations are carried out in the PRC by Taiyang. Founded in 1996, Taiyang raises, processes and markets ducks and ducks related food products.
 
 
·
Breeding Unit – breeds, hatches, and cultivates ducklings for resale and processing by food processing unit;
 
·
Feed Unit – produces duck feed for internal use and external sale; and
 
·
Food Processing Unit – processes ducklings into frozen raw food product for commercial resale.
 
Our units are fully integrated to maximize production efficiency and profits. By manufacturing our own feed to nourish our livestock, and by using our internal production stock to supply our food unit, we reduce both our cost and our reliance on the quality of product provided by outside vendors. We save by leveraging shared overhead, reduced marketing and distribution costs, and reduced transportation costs, to name a few savings derived from our structure.
 
Breeding Unit
 
Duck breeding is generally comprised of a system of grandparent, parent and production stock. Grandparent ducks are master breeding stock that we import from Cherry Valley Farms in the United Kingdom. Cherry Valley SM3 grandparent ducks are well-known worldwide for their breeding abilities. These grandparent ducks produce offspring parent ducks, which in turn produce offspring that will either mature into additional parent ducks to breed, or will not be capable of reproduction and will be used for production stock. Once the breeding ducks have exceeded their breeding period, they are then used in production stock.
 
We currently have production capacity to support approximately 8,400 grandparent ducks, which are capable of producing approximately 150,000 parent ducks annually. These parent ducks in turn could produce an estimated 30,000,000 ducklings per year.
 
 
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Our Cherry Valley Grandparent Duck Breeding Center is the only Cherry Valley grandparent breed duck cultivation and incubation center in Anhui Province. It was established in 1999, with an area of nearly 30,000 square meters and can produce 600,000 parent breed duck seedlings per year.
 
Our parent duck breeding center consists of six large-scale parent duck breeding plants.
 
The commercial duck incubation center is equipped with advanced intelligent temperature controlled incubation equipment. The central computer controlled equipment maintains sealed incubation and sterilization. We have has implemented epidemic prevention procedures according to international Duck Incubation Standards.
 
We contract with surrounding farmer households in the raising of ducks outside the province of Anhui to supplement our current capacity. Utilizing this method, we have instituted standardized housing, raising, feeding, disease control, immunization and waste removal for these outside locations. We plan to expand farmer households to eventually raise 50 million commercial ducks annually.
 
Feed Unit
 
The Feed Processing Plant is a highly advanced computerized facility that processes, packages and loads / unloads various types of feed. It has annual production capacity of 100,000 metric tons and has an attached production development and quality testing institution. It develops and manufactures and sells a variety of different feeds utilized at various times in the life cycle of an animal.
 
Food Processing Unit
 
The Duck Slaughter Processing Plant operates in accordance with European, Japanese and Korean standards. It has an annual slaughtering capacity of 15,000,000 ducks and distributes in excess of 100 different kinds of products.
 
Sales
 
Sales to external customers during the years ended December 31, 2010 and 2009 by unit were as follows:
 
 
 
2010
   
2009
 
             
Breeding Unit
  $ 12,596,488     $ 7,704,942  
Feed Unit
    13,886,122       50,592  
Food unit
    15,206,128       21,104,165  
                 
 
  $ 41,688,738     $ 28,859,699  

We also transact a substantial amount of intercompany feed product sales from the Feed Unit to the Breeding Unit, as well as sales of other products between units. Intercompany sales during the years ended December 31, 2010 and 2009 by unit were as follows:

 
 
Buying Unit
   
Year Ended December 31, 2010
   
Year Ended December 31, 2009
   
Breeding
   
Feed
   
Food
   
Breeding
   
Feed
   
Food
 
Selling Unit
 
Unit
   
Unit
   
Unit
   
Unit
   
Unit
   
Unit
 
                                     
Breeding Unit
  $     $     $ 218,016     $     $     $  
Feed Unit
    13,241,455                   12,387,362              
Food unit
          8,681             51,137              
                                                 
 
  $ 13,241,455     $ 8,681     $ 218,016     $ 12,438,499     $     $  

During 2009, the Feed Unit did not have any sales to external customers. During 2010, the Feed Unit made substantially all of its external sales to one customer.
 
 
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Customers
 
Our major seedling clients include provincial level duck breeding farms which are located in Shandong province (Dezhou, Bingzhou, Hezhe), Jiangsu province (Nanjing, Xuzhou, Suzhou, Lianyungong), Henan (Zhengzhou, Zhumadian), Anhui (Hefei, Wuhu, Tonglin, Anqing, Huibei, Chuzhou, Pengbu), Zhejiang province (Huzhou, Jiaqing, Lishui, Baoshan), Shanghai, Guangdong (Guangzhou, Nanhai), Guangxi province, Liaoning province, Hebei province and Jiangxi province.
 
Our major commercial duck clients include two individual distributors, as well as fair trade markets in big or middle cities, such as Nanjing, Jiujiang, Wuhu, Hangzhou and Shanghai.
 
Our feed products have been historically sold primarily to one distributor, who is an individual.
 
Major processed duck meat clients include meat food wholesale markets in big or middle cities, such as Hangzhou, Nanjing, Wuhan, Nanchang, Kunming, Guangzhou, Bengbu and Huainan.
 
Competition
 
Major competitors include Henan Huaying Company and Shangdong Weifang Legong Company.
 
Government Regulations
 
Compliance with Circular 106 and the 2006 M&A Regulations
 
On May 29, 2007, SAFE issued an official notice known as “Circular 106”, which requires the owners of any Chinese companies to obtain SAFE’s approval before establishing any offshore holding company structure in so-called “round-trip” investment transactions for foreign financing as well as subsequent acquisition matters in China. Likewise, the “Provisions on Acquisition of Domestic Enterprises by Foreign Investors”, issued jointly by Ministry of Commerce (“MOFCOM”), State-owned Assets Supervision and Administration Commission, State Taxation Bureau, State Administration for Industry and Commerce (“SAIC”), China Securities Regulatory Commission and SAFE in August 2006, impose approval requirements from MOFCOM for “round-trip” investment transactions, including acquisitions in which equity was used as consideration.
 
Dividend Distribution
 
The principal laws, rules and regulations governing dividends paid by our PRC operating subsidiary include the Company Law of the PRC (1993), as amended in 1999, 2004 and 2005 respectively, Wholly Foreign Owned Enterprise Law (1986), as amended in 2000, and Wholly Foreign Owned Enterprise Law Implementation Rules (1990), as amended in 2001. Under these laws and regulations, our operating subsidiary Ningguo may pay dividends only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, Ningguo is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its statutory surplus reserve fund until the accumulative amount of such reserve reaches 50% of its respective registered capital. These reserves are not distributable as cash dividends. The board of directors of a WFOE has the discretion to allocate a portion of its after-tax profits to its staff welfare and bonus funds. After the allocation of relevant welfare and funds, the equity owners can distribute the rest of the after-tax profits provided that all the losses of the previous fiscal year have been made up.
 
 
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Taxation
 
The applicable income tax laws, regulations, notices and decisions (collectively referred to as “Applicable PRC Enterprises Tax Law”) related to foreign investment enterprises and their investors mainly include the following:
 
 
·    Notice Relating to Taxes Applicable to Foreign Investment Enterprises / Foreign Enterprises and Foreign Nationals in Relation to Dividends and Gains obtained from Holding and Transferring of Shares promulgated by State Tax Bureau on July 21, 1993;
   
 
·    Amendments to the Income Tax Law Applicable to Individuals of the PRC promulgated by Standing Committee of the National People’s Congress (“NPC”) on October 31, 1993;
   
 
·    Notice on Relevant Policies Concerning Individual Income Tax issued by Ministry of Finance and the State Tax Bureau on May 13, 1994;
   
 
·    Notice on Reduction of Income Tax in Relation to Interests and Gains Derived by Foreign Enterprises from the PRC, promulgated by the State Council on November 18, 2000; and
   
 
·    Enterprise Income Tax Law of the PRC (“New EIT Law”) issued by NPC on March 16, 2007, which came into effect on January 1, 2008.
 
Enterprise Income Tax
 
We are subject to income, withholding, business and other taxes on income generated in the jurisdictions in which we do business.
 
Taiyang is exempt from corporate income tax due to the nature of its business. Beginning 2006, the PRC government instituted a tax exemption policy for certain aspects of the agricultural industry. Taiyang’s business qualifies as tax exempt. The exemption relates to unprocessed agricultural products and is granted by the relevant taxing authority on a year-by-year basis. There is no stated expiration to the exemption, and while Taiyang expects to continue to receive favorable tax treatment, changes in government policy or the nature of Taiyang’s operations could result in Taiyang being required to pay income taxes.
 
Ningguo is subject to corporate income tax in the PRC at a rate of 10% as a non-resident enterprise, as well as business tax at a rate of 5% on service income.
 
Under the laws of the BVI, Dynamic Ally is not subject to tax on its income or capital gains.
 
Anhui is subject to United States income tax at a rate of 35%.
 
Because all of the profits of Taiyang are owed to Ningguo pursuant to the Consulting Services Agreement between Taiyang and Ningguo, and all of the profits of Ningguo are in turn owed to Dynamic Ally pursuant to a similar agreement between Ningguo and Dynamic Ally, such income is subject to 5% business tax and 10% PRC non-resident income tax.
 
Value Added Tax
 
The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994 and were amended in 2008. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.
 
Value added tax payable in the PRC is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and service in the same financial year.
 
 
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Taiyang has been recognized as an ordinary value added tax payer by the Development Zone Branch of State Taxation Bureau in Ningguo City since May 1, 2006, with the following exceptions:
 
 
·
According to the written certificate issued by the Development Zone Branch of State Taxation Bureau in Ningguo City on April 29, 2010, the feed products of Taiyang are exempted from value added tax; and
     
 
·
In accordance with the Provisional Regulations on value added tax, duck seedlings and duck eggs produced by Taiyang are classified as farm produce which are exempted from value added tax.
 
Business Tax
 
According to the Provisional Regulations of the PRC Concerning Business Tax promulgated by the State Council on December 13, 1993 and came into effect on January 1, 1994, which was revised by the State Council on November 10, 2008 and enforced from January 1, 2009, business that provides services, assigns intangible assets or sells immovable property became liable to business tax at a rate ranging from 3 to 5% of the charges of the services provided, intangible assets assigned or immovable property sold, as the case may be. Consulting services of Ningguo are subject to business tax at a rate of 5%.
 
WFOE
 
WFOEs are governed by the Law of the PRC Concerning Enterprises with Sole Foreign Investments, which was promulgated on April 12, 1986 and amended on October 31, 2000, and its Implementation Regulations promulgated on December 12, 1990 and amended on April 12,2001 (together the “Foreign Enterprises Law”).
 
 
(a)
Procedures for establishment of a WFOE
     
   
The establishment of a WFOE will have to be approved by the MOFCOM (or its delegated authorities). If two or more foreign investors jointly apply for the establishment of a WFOE, a copy of the contract between the parties must also be submitted to the MOFCOM (or its delegated authorities) for its record. A WFOE must also obtain a business license from the SAIC before it can commence business.
     
 
(b)
Nature
     
   
A WFOE is a limited liability company under the Foreign Enterprises Law. It is a legal person which may independently assume civil obligations, enjoy civil rights and has the right to own, use and dispose of property. It is required to have a registered capital contributed by the foreign investor(s). The liability of the foreign investor(s) is limited to the amount of registered capital contributed. A foreign investor may make its contributions by installments and the registered capital must be contributed within the period as approved by the MOFCOM (or its delegated authorities) in accordance with relevant regulations.
     
 
(c)
Profit distribution
     
   
The Foreign Enterprise Law provides that after payment of taxes, a WFOE must make contributions to a reserve fund, an enterprise development fund and an employee bonus and welfare fund. The allocation ratio for the employee bonus and welfare fund may be determined by the enterprise. However, at least 10% of the after tax profits must be allocated to the reserve fund. If the cumulative total of allocated reserve funds reaches 50% of an enterprise’s registered capital, the enterprise will not be required to make any additional contribution. The reserve fund may be used by a WFOE to make up its losses and with the consent of the examination and approval authority, can also be used to expand its production operations and to increase its capital. The enterprise is prohibited from distributing dividends unless the losses (if any) of previous years have been made up. The development fund is used for expanding the capital base of the company by way of capitalization issues. The employee bonus and welfare fund can only be used for the collective benefit and facilities of the employees of the WFOE.
 
 
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Catalogue for the Guidance of Foreign Investment Industries
 
China issued the Catalogue for the Guidance of Foreign Investment Industries (“Guidance Catalogue”) in 1995, which was amended in 2002, 2004 and 2007 respectively. The current version of the Guidance Catalogue was promulgated by the MOFCOM and the National Development and Reform Commission (“NDRC”) on October 31, 2007 and became effective as of December 1, 2007, which retains the classification methodology and organizational structure used in the previous versions without significant changes. The Guidance Catalogue divides foreign investments into four categories:
 
 
    (i) Encouraged Category. There are various incentives and preferential treatments for “encouraged” projects, mainly tax exemptions and rebates. Most foreign investment projects in the “encouraged” sector are allowed to take the form of WFOE;
   
 
    (ii) Permitted Category. Sectors not listed therein belong to the “permitted” category and they are determined by the rule of exception. Therefore, unless the items are transferred among the “encouraged”, “restricted” and “prohibited” categories, any addition to or deletion from the “encourage”, “restricted” and “prohibited” categories would consequently affect the scope of the “permitted” category. Like those in the “encouraged” sector, foreign investment projects in the “permitted” sector are allowed to take the form of WFOE. However, they are generally not eligible for extra incentives and preferential treatments;
   
 
    (iii) Restricted Category. There are stricter approvals or filing requirements for “restricted” projects. Furthermore, foreign investment projects in the “restricted” sectors may be required to take the form of Joint Venture. The foreign investors may only hold a minority interest in the investment projects; and
   
 
    (iv) Prohibited Category. Foreign investments are not allowed in these sectors.
 
Foreign Exchange Controls
 
Major reforms have been introduced to the foreign exchange control system of the PRC since 1993.
 
On December 28, 1993, the People’s Bank of China (“PBOC”), with the authorization of the State Council issued the Notice on Further Reform of the Foreign Exchange Control System which came into effect on January 1, 1994. Other new regulations and implementation measures include the Regulations on the Foreign Exchange Settlement, Sale and Payments which were promulgated on June 20, 1996 and took effect on July 1, 1996 and which contain detailed provisions regulating the settlement, sale and payment of foreign exchange by enterprises, individuals, foreign organizations and visitors in the PRC and the regulations of the PRC on Foreign Exchange Control which were promulgated on January 1, 1996 and took effect on April 1, 1996 and which contain detailed provisions in relation to foreign exchange control.
 
The foreign exchange earnings of all PRC enterprises, other than those foreign investment enterprises (“FIE”), who are allowed to retain a part of their regular foreign exchange earnings or specifically exempted under the relevant regulations, are to be sold to designated banks. Foreign exchange earnings obtained from borrowings from foreign institutions or issues of shares or bonds denominated in foreign currency need not be sold to designated banks, but must be kept in foreign exchange bank accounts of designated banks unless specifically approved otherwise.
 
At present, control of the purchase of foreign exchange is relaxed. Enterprises within the PRC which require foreign exchange for their ordinary trading and non-trading activities, import activities and repayment of foreign debts may purchase foreign exchange from designated banks if the application is supported by the relevant documents. Furthermore, FIEs may distribute profit to their foreign investors with funds in their foreign exchange bank accounts kept with designated banks. Should such foreign exchange be insufficient, enterprises may purchase foreign exchange from designated banks upon the presentation of the resolutions of the directors on the profit distribution plan of the particular enterprise.
 
 
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Although the foreign exchange control over transactions under current accounts has decreased, enterprises shall obtain approval from SAFE before they accept foreign-currency loans, provide foreign currency guarantees, make investments in foreign countries or carry out any other capital account transactions involving the purchase of foreign currencies.
 
In foreign exchange transactions, designated banks may freely determine applicable exchange rates based on the rates publicized by PBOC and subject to certain governmental restrictions.
 
On October 21, 2005, SAFE issued the Notice of the State Administration of Foreign Exchange on Exchange Control Issues Relating to Financing and Reverse Investment by Persons Resident in the People’s Republic of China Through Offshore Special Purpose Vehicles (“SAFE Notice No. 75”), which became effective as of November 1, 2005. According to the SAFE Notice No. 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in an onshore enterprise located in the PRC. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore company.
 
Moreover, the SAFE Notice No. 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in the PRC in the past are required to complete the relevant registration procedures with the local SAFE branch by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in the SAFE Notice No. 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations. PRC residents who control our Company from time to time are required to register with the SAFE in connection with their investments in us.
 
Compliance with Environmental Laws
 
We are required to comply with several domestic environmental protection laws and regulations, including Environmental Protection Law of the People’s Republic of China, Law of the People’s Republic of China on Prevention and Control of Water Pollution, Law of the People’s Republic of China on the Prevention and Control of Atmospheric Pollution, Law of the People’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste, Law of the People’s Republic of China on Prevention and Control of Pollution From Environmental Noise, Law of the People’s Republic of China on Appraising of Environment Impact and Regulations on the Administration of Construction Project Environmental Protection.
 
In accordance with the Environmental Protection Law of the People’s Republic of China adopted by the Standing Committee of the National People’s Congress on December 26, 1989, the bureau of environmental protection of the State Council sets the national guidelines for the discharge of pollutants. The provincial and municipal governments of provinces, autonomous regions and municipalities may also set their own guidelines for the discharge of pollutants within their own provinces or districts in the event that the national guidelines are inadequate. The subdivision environmental protection laws on control of pollution of water, air, solid waste and noise set more detailed rules, standards and specifications with respect to their areas of regulation.
 
 
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Pursuant to the Environmental Protection Law and its subdivision laws, a company or enterprise which causes environmental pollution and discharges other polluting materials which endanger the public should implement environmental protection methods and procedures into their business operations. This may be achieved by setting up a system of accountability within the company’s business structure for environmental protection; adopting effective procedures to prevent environmental hazards such as waste gases, water and residues, dust powder, radioactive materials and noise arising from production, construction and other activities from polluting and endangering the environment. The environmental protection system and procedures should be implemented simultaneously with the commencement of and during the operation of construction, production and other activities undertaken by the company. Any company or enterprise which discharges environmental pollutants should report and register such discharge with relevant bureaus of environmental protection and pay any fines imposed for the discharge. A fee may also be imposed on the company for the cost of any work required to restore the environment to its original state. Companies which have caused severe pollution to the environment are required to restore the environment or remedy the effects of the pollution within a prescribed time limit.
 
In addition, the Law of the People’s Republic of China on Appraising of Environment Impact Issued by the National People’s Congress of China which came into effect on September 1, 2003 provides the methods and institutions for analyzing, predicting and appraising the impact of operation and construction projects that might incur after they are carried out. In case a construction project of any company or enterprise fails to pass the examination, the construction may not be started. Regulations on the Administration of Construction Project Environmental Protection Issued by the State Council of China which came into effect on November 29, 1998 provide that the building of construction projects having impacts on the environment within the territory of the People’s Republic of China shall compile or submit a report on environmental impact, a statement on environmental impact or a registration form on environmental impact in accordance with the extent of environmental impact of construction projects.
 
Employees
 
As of March 31, 2011, we had four full-time employees, which are all officers. As of March 31, 2011, Taiyang had 529 full-time employees, including 213 in the Breeding Unit, 43 in the Feed Unit, and­­­ 273 in the Food Unit. We and Taiyang consider relations with our employees to be good.
 
RISK FACTORS.
 
RISKS RELATED TO OUR BUSINESS
 
We may be unable to sustain our past growth or manage our future growth, which may have a material adverse effect on our future operating results.
 
We have generally experienced growth since our inception, and realized revenues of approximately $41.7 million and $28.9 million in the years ended December 31, 2010 and 2009, respectively. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, enhance our technological capabilities, satisfy customer requirements, execute our business plan or respond to competitive pressures. To effectively manage growth, we need to:
 
 
·
Hire, train, integrate and manage additional qualified technicians and breeding farm directors and sales and marketing personnel;
 
·
Implement additional, and improve existing, administrative, financial and operations systems, procedures and controls;
 
·
Continue to enhance manufacturing and customer resource management systems;
 
·
Continue to expand and upgrade our feed ingredient composition, poultry immunization system and breeding technology;
 
·
Manage multiple relationships with distributors, suppliers and certain other third parties; and
 
·
Manage our financial condition.
 
 
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Our success also depends largely on our ability to anticipate and respond to expected changes in future demand for our products, and our ducks’ performance and disease resistance ability. If the timing of our expansion does not match market demand, our business strategy may need to be revised. If we over-expand and demand for our products does not increase as we may have projected, our financial results will be materially and adversely affected. However, if we do not expand, and demand for our products increases sharply, our business could be seriously harmed because we may not be as cost-effective as our competitors due to our inability to take advantage of increased economies of scale. In addition, we may not be able to satisfy the needs of current customers or attract new customers, and we may lose credibility and our relationships with our customers may be negatively affected. Moreover, if we do not properly allocate our resources in line with future demand for our products, we may miss changing market opportunities and our business and financial results could be materially and adversely affected. We cannot assure you that we will be able to successfully manage our growth in the future.
 
Outbreaks of poultry disease, such as avian influenza, or the perception that outbreaks may occur, can significantly restrict our ability to conduct our operations.
 
Taiyang takes precautions to ensure that its flocks are healthy and that its production facilities operate in a sanitary and environmentally sound manner. While Taiyang has ability and experience in product quality improvement as well as poultry disease resistance, events beyond its control, such as the outbreak of avian influenza in 2006, may restrict its ability to conduct its operations and sales. An outbreak of disease could result in governmental restrictions on the import and export of products from Taiyang’s customers, or require it to destroy one or more of its flocks. This could result in the cancellation of orders by its customers and create adverse publicity that may have a material adverse effect on our business, reputation and prospects.
 
Worldwide fears about avian diseases, such as avian influenza, have depressed, and may continue to adversely impact, Taiyang’s sales. Avian influenza is a respiratory disease of birds. The milder forms occur occasionally around the world. Recently, there has been substantial publicity regarding a highly pathogenic strain of avian influenza, known as H5N1, which has affected Asia since 2002. It is widely believed that H5N1 is spread by migratory birds, such as ducks and geese. There have also been some cases where H5N1 is believed to have passed from birds to humans as humans came into contact with live birds that were infected with the disease. Although there are vaccines available for H5N1 and other forms of avian influenza, and the PRC government mandates, and Taiyang vaccinates its breeding stock against avian influenza, there is no guarantee that the disease can be completely prevented as the virus continues to mutate. Taiyang’s livestock have never been infected with avian influenza. Taiyang is required to maintain an immunization permit on an annual basis issued by the provincial Animal Husbandry Bureau.
 
Taiyang does not typically have long-term purchase contracts with its customers and its customers have in the past and could at any time in the future, reduce or cease purchasing products from them, harming our operating results and business.
 
Taiyang typically does not have long-term volume purchase contracts with their customers, and they are not obligated to purchase products from Taiyang. Accordingly, their customers could at any time reduce their purchases from Taiyang or cease purchasing their products altogether. In addition, any decline in demand for Taiyang’s products and any other negative development affecting its major customers or the poultry industry in general, would likely harm our results of operations. For example, if any of Taiyang’s customers experience serious financial difficulties, it may lead to a decline in sales of Taiyang’s products to such customer and our operating results could be harmed through, among other things, decreased sales volumes and write-offs of accounts receivable related to sales to such customer.
 
 
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Competition in the poultry industry with other poultry companies, especially companies with greater resources, may make us unable to compete successfully, which could adversely affect our business.
 
The Chinese poultry industry is highly competitive. In general, competitive factors in the Chinese duck industry include price, product quality, brand identification, breadth of product line and customer service. Taiyang’s success depends in part on its ability to manage costs and be efficient in the highly competitive poultry industry. Many of Taiyang’s competitors have greater financial and marketing resources. Because of this, we may not be able to successfully increase Taiyang’s market penetration or Taiyang’s overall share of the poultry market.
 
Increased competition may result in price reductions, increased sales incentive offerings, lower gross margins, sales expenses, marketing programs and expenditures to expand channels to market. Taiyang’s competitors may offer products with better market acceptance, better price or better quality. We may be adversely affected if Taiyang is unable to maintain current product cost reductions, or achieve future product cost reductions.
 
Taiyang competes against a number of other suppliers of ducks. Although it attempts to develop and support high-quality products that its customers demand, products developed by competing suppliers could render its products noncompetitive. If Taiyang fails to address these competitive challenges, there could be a material adverse effect upon our business, consolidated results of operations and financial condition.
 
Taiyang derives a significant portion of its revenues from a single distributor, the loss of which would significantly reduce Taiyang’s revenues and may impair its ability to operate profitably.
 
Taiyang has derived, and believes that it will continue to derive, a significant portion of its revenues from a single distributor, Yu Qigui. Revenue from Taiyang’s Feed Unit, which was $13.9 million in the year ended December 31, 2010, was almost exclusively a result of sales to this distributor. As a result, to the extent that such distributor continues to accounts for a large percentage of Taiyang’s revenue, the loss of this distributor could materially affect Taiyang’s ability to operate profitably. Since Yu Qigui accounted for approximately 33% of our revenue for the year ended December 30, 2010, the loss of this distributor would have a material adverse effect upon Taiyang’s business and may impair its ability to operate profitably.
 
Taiyang anticipates that this primary dependence on a single distributor will continue for the foreseeable future. There is a risk that the existing distributor will elect not to do business with us in the future or will experience financial difficulties. Furthermore, this distributor could experience financial difficulties, business reverses or the loss of orders or anticipated orders which reduces or eliminates the need for the products that it orders from Taiyang. If Taiyang does not develop relationships with new distributors, it may not be able to increase, or even maintain, its revenue, and its financial condition, results of operations, business and/or prospects may be materially adversely affected.
 
If demand for Taiyang’s products declines in the markets that it serves, its selling prices and overall sales will decrease. Even if the demand for its products increases, when such increase cannot outgrow the decrease in its selling price, our overall sales revenues may decrease.
 
Demand for Taiyang’s products is affected by a number of factors, including the general demand for the products in the end markets that it serves and the price attractiveness. A vast majority of its sales are derived directly or indirectly from end users who are duck raisers and large integrated duck companies whose duck seedling production is not sufficient for their own use. Any significant decrease in the demand for ducks may result in a decrease in Taiyang’s revenues and earnings. A variety of factors, including economic, health, regulatory, political and social instability, could contribute to a slowdown in the demand for ducks because demand for duck is highly correlated with general economic activities. As a result, even if the demand for Taiyang’s products increases, when the increase of demand cannot outgrow the decrease of selling price, our overall sales revenues may decrease.
 
 
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Industry cyclicality can affect our earnings, especially due to fluctuations in commodity prices of feed ingredients and breeding stock.
 
Currently, all Taiyang’s raw materials are domestically procured. Profitability in the poultry industry is materially affected by the supply of parent breeding stocks and the commodity prices of feed ingredients, including corn, soybean cake, and other nutrition ingredients from numerous sources, mainly from wholesalers who collect the feed ingredients directly from farmers. As a result, the poultry industry is subject to wide fluctuations and cycles. These prices are determined by supply and demand factors. Prices for raw materials have been volatile in recent years. For instance, our average unit price for corn, one of our principal raw materials, increased from approximately $0.18 (RMB 1.44) per kilogram in 2006 to approximately $0.30 (RMB 1.97) per kilogram in March 2011, showing an increase of 67%. Historically, Taiyang’s financial results have improved when duck prices are high and feed prices are low and feed ingredients are in adequate supply. However, it is very difficult to predict when feed price spiral cycles will occur.
 
Various factors can affect the supply of corn and soybean meal, which are the primary ingredients of the feed Taiyang uses for parent breeding stocks. In particular, weather patterns, the level of supply inventories and demand for feed ingredients, and the agricultural policies of the Chinese government affect the supply of feed ingredients. Weather patterns often change agricultural conditions in an unpredictable manner. A sudden and significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and Taiyang’s ability to obtain feed ingredients, grow ducks or deliver products. Increases in the prices of feed ingredients will result in increases in raw material costs and operating costs.
 
Increased water, energy and gas costs would increase Taiyang’s expenses and reduce its profitability.
 
Taiyang requires a substantial amount, and as it expands its business it will require additional amounts, of water, electricity and natural gas to produce and process its duck products. The prices of water, electricity and natural gas fluctuate significantly over time. One of the primary competitive factors in the Chinese duck market is price, and it may not be able to pass on increased costs of production to its customers. As a result, increases in the cost of water, electricity or natural gas could substantially harm our business and results of operations.
 
Taiyang’s products might contain undetected defects that are not discovered until after shipping.
 
Although Taiyang has strict quality control over its products and it produces high-quality ducks supported by its know-how in feed ingredient composition, immunization system and breeding techniques gained through many years of business and continuous research and development, its products may contain undetected problems. Problems could result in a loss or delay in market acceptance of its products and thus harm our reputation and revenues.
 
The loss of key personnel or the failure to attract or retain specialized technical and management personnel could impair our ability to grow our business.
 
We rely heavily on the services of our key employees, including Wu Qiyou, our founder, Chief Executive Officer, and chairman of our board of directors. In addition, our engineers and other key technical personnel are a significant asset and are the source of Taiyang’s technological and product innovations. Taiyang depends substantially on the leadership of a small number of farm directors and technicians who are devoted to research and development. Additionally, all of Taiyang’s packaged food products, accounting for approximately 36% and 73% of our revenue in 2009 and 2010, respectively, are sold through third party distributors. The loss of these distributors could have a material adverse effect on our business, results of operations and financial condition. We believe Taiyang’s future success will depend upon its ability to retain these key employees and sales distributors. We may not be successful in attracting and retaining sufficient numbers of technical personnel to support Taiyang’s anticipated growth. Despite the incentives we provide, our current employees may not continue to work for Taiyang, and if additional personnel are required for Taiyang’s operations, we may not be able to obtain the services of additional personnel necessary for Taiyang’s growth. In addition, we do not maintain “key person” life insurance for any of Taiyang’s senior management or other key employees. The loss of the key employees or the inability to attract or retain qualified personnel, including technicians, could delay the development and introduction of, and have an adverse effect on Taiyang’s ability to sell, its products, as well as its overall growth.
 
 
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In addition, if any other members of Taiyang’s senior management or any of its other key personnel join a competitor or form a competing company, we may not be able to replace them easily and we may lose customers, business partners, key professionals and staff members.
 
We have made inter-enterprise loans that may be in violation of PRC lending regulations.
 
As of December 31, 2010 and 2009, the Company had outstanding $4,268,057 and $2,816,943, respectively, of unsecured loans receivable from unrelated parties. These loans, and other loans made by the Company during the years ended December 31, 2009 and 2010 that were repaid prior to the end of the respective reporting period, constitute inter-enterprise lending that violate the PRC General Lending Rules. A fine in the amount of one to three times the income generated by the Company from such inter-enterprise loans may be imposed by the People’s Bank of China, at their discretion, if the Company were found to be in violation of the PRC General Lending Rules.
 
We do not have any registered patents or other registered intellectual property on our production processes and we may not be able to maintain the confidentiality of our processes.
 
While we have four design patents relating to package bags for our products, we have no patents or registered intellectual property covering our production processes and we rely on the confidentiality of our production processes in producing a competitive product. The confidentiality of our know-how may not be maintained and we may lose any meaningful competitive advantage which might arise through our proprietary processes. Due to the lack of such protection, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary production technology. Monitoring unauthorized use of our production process is difficult, particularly in China. This may have a material adverse effect on our competitive advantage.
 
We do not presently maintain product liability insurance, and our property and equipment insurance does not cover the full value of our property and equipment, which leaves us with exposure in the event of loss or damage to our properties or claims filed against us.
 
We currently do not carry any product liability or other similar insurance. Unlike the U.S. and other countries, product liability claims and lawsuits are extremely rare in the PRC. However, we cannot guarantee that we would not face liability in the event of any problems with our products, including disease or contamination. We cannot assure you that, especially as China’s domestic consumer economy and industrial economy continues to expand, product liability exposures and litigation will not become more commonplace in the PRC, or that we will not face product liability exposure or actual liability as we expand our sales into international markets, like the United States, where product liability claims are more prevalent.
 
Except for property and automobile insurance, we do not have other insurance such as business liability or disruption insurance coverage for our operations in the PRC.
 
 
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RISKS RELATED TO OUR CORPORATE STRUCTURE
 
We conduct our business through Taiyang by means of contractual arrangements. If the Chinese government determines that these contractual arrangements do not comply with applicable regulations, our business could be adversely affected. If the PRC regulatory bodies determine that the agreements that establish the structure for operating our business in China do not comply with PRC regulatory restrictions on foreign investment, we could be subject to severe penalties. In addition, changes in such Chinese laws and regulations may materially and adversely affect our business.
 
There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcement of the contractual arrangements between Ningguo and Taiyang. Although we have been advised by our PRC counsel, that based on their understanding of the current PRC laws, rules and regulations, the structure for operating our business in China (including our corporate structure and contractual arrangements with Taiyang and its owners) comply with all applicable PRC laws, rules and regulations, and do not violate, breach, contravene or otherwise conflict with any applicable PRC laws, rules or regulations, we cannot assure you that the PRC regulatory authorities will not determine that our corporate structure and contractual arrangements violate PRC laws, rules or regulations. If the PRC regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations, our contractual arrangements will become invalid or unenforceable. In addition, new PRC laws, rules and regulations may be introduced from time to time to impose additional requirements that may be applicable to our contractual arrangements. For example, the PRC Property Rights Law that became effective on October 1, 2007 may require us to register with the relevant government authority the security interests on the equity interests in Taiyang granted to us under the equity pledge agreements that are part of the contractual arrangements. If we are required to register such security interests, failure to complete such registration in a timely manner may result in such equity pledge agreements to be unenforceable against third party claims.
 
The Chinese government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new Chinese laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future Chinese laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.
 
If Ningguo or Taiyang are determined to be in violation of any existing or future PRC laws, rules or regulations or fail to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:
 
 
·
revoking the business and operating licenses of our PRC consolidated entities;
     
 
·
discontinuing or restricting the operations of our PRC consolidated entities;
     
 
·
imposing conditions or requirements with which we or our PRC consolidated entities may not be able to comply;
     
 
·
requiring us or our PRC consolidated entities to restructure the relevant ownership structure or operations;
     
 
·
restricting or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China; or
     
 
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imposing fines.
 
 
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The imposition of any of these penalties would severely disrupt our ability to conduct business and have a material adverse effect on our financial condition, results of operations and prospects.
 
Our contractual arrangements with Taiyang and its owners may not be as effective in providing control over these entities as direct ownership.
 
We have no equity ownership interest in Taiyang, and rely on contractual arrangements to control and operate Taiyang and its businesses. These contractual arrangements may not be as effective in providing control over the company as direct ownership. For example, Taiyang could fail to take actions required for our business despite its contractual obligation to do so. If Taiyang fails to perform under its agreements with us, we may have to rely on legal remedies under Chinese law, which may not be effective. In addition, we cannot assure you that the owners of Taiyang will act in our best interests.
 
Because we rely on the consulting services agreement with Taiyang for our revenue, the termination of this agreement will severely and detrimentally affect our continuing business viability under our current corporate structure.
 
We are a holding company and do not have any assets or conduct any business operations other than the contractual arrangements between Ningguo, our wholly owned subsidiary, and Taiyang. As a result, we currently rely entirely for our revenues on dividends payments from Ningguo after it receives payments from Taiyang pursuant to the consulting services agreement which forms a part of the contractual arrangements. The consulting services agreement may be terminated by written notice of Ningguo or Taiyang in the event that: (a) Taiyang causes a material breach of the agreement, provided that if the breach does not relate to a financial obligation of the breaching party, that party may attempt to remedy the breach following the receipt of the written notice; (b) one party becomes bankrupt, insolvent, is the subject of proceedings or arrangements for liquidation or dissolution, ceases to carry on business, or becomes unable to pay its debts as they become due; (c) Ningguo terminates its operations; or (d) circumstances arise which would materially and adversely affect the performance or the objectives of the agreement. Additionally, Ningguo may terminate the consulting services agreement without cause. Because neither we nor our direct and indirect subsidiaries own equity interests of Taiyang, the termination of the consulting services agreement would sever our ability to continue receiving payments from Taiyang under our current holding company structure. While we are currently not aware of any event or reason that may cause the consulting services agreement to terminate, we cannot assure you that such an event or reason will not occur in the future. In the event that the consulting services agreement is terminated, this may have a severe and detrimental effect on our continuing business viability under our current corporate structure, which in turn may affect the value of your investment.
 
We rely principally on dividends paid by our consolidated operating entity to fund any cash and financing requirements we may have, and any limitation on the ability of our consolidated PRC entities to pay dividends to us could have a material adverse effect on our ability to conduct our business.
 
We are a holding company, and rely principally on dividends paid by our consolidated PRC operating entity for cash requirements, including the funds necessary to service any debt we may incur. In particular, we rely on earnings generated by Taiyang, which are passed on to us through Ningguo. If any of our consolidated operating subsidiaries incurs debt in its own name in the future, the instruments governing the debt may restrict dividends or other distributions on its equity interest to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements Ningguo currently have in place with Taiyang, in a manner that would materially and adversely affect our ability to pay dividends and other distributions on our equity interest.
 
 
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Furthermore, applicable PRC laws, rules and regulations permit payment of dividends by our consolidated PRC entity only out of its retained earnings, if any, determined in accordance with PRC accounting standards. Under PRC laws, rules and regulations, our consolidated PRC entities are required to set aside at least 10.0% of their after-tax profit based on PRC accounting standards each year to their statutory surplus reserve fund until the accumulative amount of such reserves reach 50.0% of their respective registered capital. As a result, our consolidated PRC entity is restricted in its ability to transfer a portion of its net income to us whether in the form of dividends, loans or advances. As of December 31, 2010, we had retained earnings of approximately $21.3 million, of which approximately $2.0 million were appropriated as statutory reserves. Our retained earnings are not distributable as cash dividends. Any limitation on the ability of our consolidated operating subsidiaries to pay dividends to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
 
Our Chief Executive Officer has potential conflicts of interest with us, which may adversely affect our business and your ability for recourse.
 
Mr. Wu Qiyou, our Chief Executive Officer, is also the Chairman of Taiyang and executive director of Ningguo. Conflicts of interests between their respective duties to us and Taiyang may arise. As our director and executive officer, Mr. Wu Qiyou has a duty of loyalty and care to us under U.S. and BVI law when there are any potential conflicts of interests between our company and Taiyang. We cannot assure you, however, that when conflicts of interest arise, Mr. Wu will act completely in our interests or that conflicts of interests will be resolved in our favor. For example, Mr. Wu may determine that it is in Taiyang’s interests to sever the contractual arrangements with Ningguo, irrespective of the effect such action may have on us. In addition, Mr. Wu could violate his legal duties by diverting business opportunities from us to others, thereby affecting the amount of payment that Taiyang is obligated to remit to us under the consulting services agreement.
 
In the event that you believe that your rights have been infringed under the securities laws or otherwise as a result of any one of the circumstances described above, it may be difficult or impossible for you to bring an action against Taiyang or our officers or directors who are members of Taiyang’s management, all of whom reside within China. Even if you are successful in bringing an action, the laws of China may render you unable to enforce a judgment against the assets of Taiyang and its management, all of which are located in China.
 
RISKS RELATED TO DOING BUSINESS IN CHINA
 
Taiyang is subject to restrictions on making payments to us.
 
We are a holding company incorporated in Delaware and do not have any assets or conduct any business operations other than our indirect investments in Taiyang. As a result of the holding company structure, we rely entirely on payments from Taiyang under the contractual arrangements with Ningguo. The Chinese government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. See “Government control of currency conversion may affect the value of your investment.” Furthermore, if our affiliated entity in China incurs debt on their own in the future, the instruments governing the debt may restrict their ability to make payments. If we are unable to receive all of the revenues from our operations through these contractual arrangements, we may be unable to pay dividends on our common stock.
 
Labor laws in the PRC may adversely affect our results of operations.
 
On January 1, 2008, the PRC government promulgated the Labor Contract Law of the PRC, or the New Labor Contract Law. The New Labor Contract Law imposes greater liabilities on employers and significantly impacts the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations to be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the New Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost effective manner, thus materially and adversely affecting our financial condition and results of operations.
 
 
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Because our assets are located overseas, shareholders may not receive distributions that they would otherwise be entitled to if we were declared bankrupt or insolvent.
 
Because substantially all of our assets are located in the PRC, they may be outside of the jurisdiction of U.S. courts to administer if we are the subject of an insolvency or bankruptcy proceeding. As a result, if we declared bankruptcy or insolvency, our shareholders may not receive the distributions on liquidation that they would otherwise be entitled to if our assets were to be located within the U.S., under U.S. Bankruptcy law.
 
Adverse changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.
 
All of our business operations are currently conducted in the PRC, under the jurisdiction of the PRC government. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. Since early 2004, the PRC government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition.
 
Unprecedented rapid economic growth in China may increase our costs of doing business, and may negatively impact our profit margins and/or profitability.
 
Our business depends in part upon the availability of relatively low-cost labor and materials. Rising wages in China may increase our overall costs of production. In addition, rising raw material costs, due to strong demand and greater scarcity, may increase our overall costs of production. If we are not able to pass these costs on to our customers in the form of higher prices, our profit margins and/or profitability could decline.
 
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because our subsidiaries are incorporated in non-U.S. jurisdictions, we conduct substantially all of our operations in China, and most of our officers reside outside the United States.
 
Although we are incorporated in Delaware, all of our business operations are conducted in China by Taiyang. Most of our officers and directors reside in China and some or all of the assets of those persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
 
As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely within the United States.
 
 
-19-

 
 
Governmental control of currency conversion may affect the value of your investment.
 
The Chinese government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current structure, our income is primarily derived from payments from Taiyang. Shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries and our affiliated entity to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from China State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The Chinese government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our stockholders.
 
Fluctuation in the value of RMB may have a material adverse effect on your investment.
 
The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Our revenues and costs are mostly denominated in RMB, while a significant portion of our financial assets are denominated in U.S. dollars. We rely entirely on fees paid to us by our affiliated entity in China. Any significant fluctuation in the value of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our stock in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. An appreciation of RMB against the U.S. dollar would also result in foreign currency translation losses for financial reporting purposes when we translate our U.S. dollar denominated financial assets into RMB, as RMB is our reporting currency.
 
Dividends we receive from our subsidiary located in the PRC may be subject to PRC withholding tax.
 
The recently enacted PRC Enterprise Income Tax Law, or the EIT Law, and the implementation regulations for the EIT Law issued by the PRC State Council, became effective as of January 1, 2008. The EIT Law provides that a maximum income tax rate of 20% is applicable to dividends payable to non-PRC investors that are “non-resident enterprises,” to the extent such dividends are derived from sources within the PRC, and the State Council has reduced such rate to 10% through the implementation regulations. We are a Delaware holding company and substantially all of our income is derived from the operations of Taiyang located in the PRC, which is contractually obligated to pay its quarterly profits to our WFOE. Therefore, dividends paid to us by our WFOE in China may be subject to the 10% income tax if we are considered as a “non-resident enterprise” under the EIT Law. If we are required under the EIT Law and its implementation regulations to pay income tax for any dividends we receive from our WFOE, it may have a material and adverse effect on our net income and materially reduce the amount of dividends, if any, we may pay to our shareholders.
 
 
-20-

 
 
Governmental control of currency conversion may affect the value of your investment.
 
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our WFOE. Shortages in the availability of foreign currency may restrict the ability of our WFOE to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency-denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approval from the SAFE by complying with certain procedural requirements. However, approval from the SAFE or its local branch is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.
 
The land on which our facilities are located could be subject to appropriation by the PRC government.
 
There is no private ownership of land in China. All land ownership is held by the government of the PRC, its agencies and collectives. Land use rights can be transferred upon approval by the land administrative authorities of the PRC (State Land Administration Bureau) upon payment of the required land transfer fee. We have acquired the land use rights for our facilities through 2055, however, under PRC law, land use rights can be revoked and the tenants forced to vacate at any time when re-development of the land is in the public interest. There is no assurance that the land use rights for this location will not be revoked.
 
We may have difficulty establishing adequate management, legal and financial controls in the PRC.
 
The PRC historically has not adopted a Western style of management and financial reporting concepts and practices, as in modern banking, computer and other control systems. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as will be required under Section 404 of the Sarbanes Oxley Act of 2002.
 
RISKS RELATED TO OUR COMMON STOCK
 
There has been a limited trading market for our Common Stock and no market.
 
It is anticipated that there will be a limited trading market for the Common Stock on the Over-the-Counter Bulletin Board. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using Common Stock as consideration.
 
You may have difficulty trading and obtaining quotations for our Common Stock.
 
The Common Stock may not be actively traded, and the bid and asked prices for our Common Stock on the Over-the-Counter Bulletin Board may fluctuate widely. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities. This severely limits the liquidity of the Common Stock, and would likely reduce the market price of our Common Stock and hamper our ability to raise additional capital.
 
 
-21-

 
 
The market price of our Common Stock may, and is likely to continue to be, highly volatile and subject to wide fluctuations.
 
The market price of our Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:
 
 
·
dilution caused by our issuance of additional shares of Common Stock and other forms of equity securities, which we expect to make in the Offering and in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies;
     
 
·
quarterly variations in our revenues and operating expenses;
     
 
·
changes in the valuation of similarly situated companies, both in our industry and in other industries;
     
 
·
changes in analysts’ estimates affecting our company, our competitors and/or our industry;
     
 
·
changes in the accounting methods used in or otherwise affecting our industry;
     
 
·
additions and departures of key personnel;
     
 
·
announcements of technological innovations or new products available to the agricultural industry;
     
 
·
announcements by relevant governments pertaining to incentives for agricultural development programs;
     
 
·
fluctuations in interest rates and the availability of capital in the capital markets; and
     
 
·
significant sales of our Common Stock, including sales by the investors following registration of the shares of Common Stock issued in this Offering and/or future investors in future offerings we expect to make to raise additional capital.
 
These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our Common Stock and/or our results of operations and financial condition.
 
We do not expect to pay dividends in the foreseeable future.
 
We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their Common Stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in the Common Stock.
 
Our officers, directors and principal shareholders own a controlling interest in our voting stock and Investors will not have any voice in our management.
 
Our officers, directors and principal shareholders, in the aggregate, beneficially own or control the votes of approximately 52.65% of our outstanding Common Stock. As a result, these stockholders, acting together, will have the ability to control substantially all matters submitted to our stockholders for approval, including:

 
·
election of our board of directors;
 
·
removal of any of our directors;
 
·
amendment of our certificate of incorporation or bylaws; and
 
·
adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.

 
-22-

 
 
As a result of their ownership and positions, our directors, executive officers and principal shareholders collectively are able to influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, sales of significant amounts of shares held by our directors, executive officers or principal shareholders, or the prospect of these sales, could adversely affect the market price of our Common Stock. Management’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
 
Our common stock is not currently traded at high volume, and you may be unable to sell at or near ask prices or at all if you need to sell or liquidate a substantial number of shares at one time.
 
Our common stock is currently traded, but with very low, if any, volume, based on quotations on the “Over-the-Counter Bulletin Board”, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that trading levels will be sustained.
 
Shareholders should be aware that, according to Commission Release No. 34-29093, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the future volatility of our share price.
 
Legislative actions, higher insurance costs and potential new accounting pronouncements may impact our future financial position and results of operations.
 
There have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and there may potentially be new accounting pronouncements or additional regulatory rulings that will have an impact on our future financial position and results of operations. The Sarbanes-Oxley Act of 2002 and other rule changes as well as proposed legislative initiatives following the Enron bankruptcy are likely to increase general and administrative costs and expenses. In addition, insurers are likely to increase premiums as a result of high claims rates over the past several years, which we expect will increase our premiums for insurance policies. Further, there could be changes in certain accounting rules. These and other potential changes could materially increase the expenses we report under generally accepted accounting principles, and adversely affect our operating results.

 
-23-

 
 
Efforts to comply with recently enacted changes in securities laws and regulations will increase our costs and require additional management resources, and we still may fail to comply.
 
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on their internal controls over financial reporting in their annual reports on Form 10-K. In addition, in the event we are no longer a smaller reporting company, the independent registered public accounting firm auditing our financial statements would be required to attest to the effectiveness of our internal controls over financial reporting. Such attestation requirement by our independent registered public accounting firm would not be applicable to us until the report for the year ended December 31, 2011 at the earliest, if at all. If we are unable to conclude that we have effective internal controls over financial reporting or if our independent registered public accounting firm is required to, but is unable to provide us with a report as to the effectiveness of our internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our securities.
 
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
 
The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
 
 
·
that a broker or dealer approve a person’s account for transactions in penny stocks; and
 
·
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
 
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
 
 
·
obtain financial information and investment experience objectives of the person; and
 
·
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
 
 
·
sets forth the basis on which the broker or dealer made the suitability determination; and
 
·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 
-24-

 
 
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
 
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
 
UNRESOLVED STAFF COMMENTS.
 
None.
 
PROPERTIES.
 
Our principal executive offices and our facilities are located in Ningguo City, Anhui Province, China. The table below provides a general description of our facilities, all of which are located in or around Ningguo City:

Location
 
Principal Activities
 
Land Area (m2)
 
Land Use Rights
 
Lease
Expiration Date
No. 88 Eastern Outer Ring Road, Ningguo City
 
Principal executive office and food processing plant
 
113,112
 
Direct
 
n/a
Bali Village
 
Feed plant
 
28,800
 
Direct
 
n/a
Bali Village
 
Incubation center
 
77,013
 
Direct
 
n/a
Nanshan Village
 
Breeding center #1
 
1,467
 
Leased
 
April 2017
No. 72 Industrial Road, Ningguo City
 
Original Breeding Center
 
24,437
 
Direct
 
n/a
Bali Village
 
Breeding center #1
 
18,251
 
Direct
 
n/a
Bali Village
 
Breeding center #2
 
113,066
 
Leased
 
December 2011
Xia Village
 
Breeding center #3
 
18,386
 
Leased
 
May 2024
Jilin Village
 
Breeding center #4
 
35,153
 
Leased
 
June 2025
Xia Village
 
Breeding center #5
 
26,666
 
Leased
 
June 2037
Meilin Town Bridge Village
 
Breeding center #6
 
171,752
 
Leased
 
December 2028
Meilin Town Bridge Village
 
Breeding center #7
 
79,793
 
Leased
 
June 2029
Farm Village
 
Breeding center #8
 
166,665
 
Leased
 
September 2060
Bali Village
 
Grandparent Farm
 
10,384
 
Direct
 
n/a

We are not involved in investments in (i) real estate or interests in real estate, (ii) real estate mortgages, or (iii) securities of, or interests in, persons primarily engaged in real estate activities. All of our facilities and land rights are used for production purposes. We believe that all our properties and equipment have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.
 
LEGAL PROCEEDINGS.
 
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.
 
 
-25-

 
 
(REMOVED AND RESERVED).
 
 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
Market Information
 
Our common stock is quoted on the OTC Bulletin Board under the symbol “DUKS”. Prior to January 21, 2011, our common stock was quoted on the OTC Bulletin Board under the symbol “PKVG”. Prior to October 19, 2009, there was no public market for our common stock. Prior to January 2010, there were no trades in our common stock. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

Period
 
High
   
Low
 
Fiscal Year Ended December 31, 2010:
           
First Quarter
  $ 3.03     $ 1.20  
Second Quarter
  $ 12.00     $ 2.50  
Third Quarter
  $ 3.00     $ 0.77  
Fourth Quarter
  $ 3.00     $ 0.70  

As of April 14, 2011, the last sale price for shares of our common stock was $1.50 per share. On June 1, 2010, a one-for-three reverse stock split was effective for our common stock. All share prices herein reflect this reverse stock split.
 
Stockholders
 
As of April 14, 2011, we had approximately 120 shareholders of record of our common stock, including the shares held in street name by brokerage firms. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.
 
Dividends
 
We have not paid dividends on our common stock and do not anticipate paying such dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant. We will rely on dividends from our consolidated operating entity for our funds and PRC regulations may limit the amount of funds distributed to us from our consolidated operating entity, which will affect our ability to declare any dividends.
 
Securities authorized for issuance under equity compensation plans
 
None.
 
Penny Stock Regulations
 
Our shares of common stock are subject to the “penny stock” rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms, “penny stock” is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer’s net tangible assets or revenues. In the last case, the issuer’s net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years, or the issuer’s average revenues for each of the past three years must exceed $6,000,000.
 
 
-26-

 
 
Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.
 
Recent Sales of Unregistered Securities
 
None.
 
SELECTED FINANCIAL DATA.
 
Not required under Regulation S-K for “smaller reporting companies.”
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
 
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.

 
-27-

 
 
Overview
 
We are a private breeder and seller of ducks and duck parts in the PRC. Our wholly-owned subsidiary, Dynamic, was incorporated in the British Virgin Islands on March 2, 2010. Dynamic owns 100% of the issued and outstanding capital stock of Ningguo. On May 26, 2010, Ningguo entered into a series of contractual agreements with Taiyang, in which Ningguo effectively assumed management of the business activities of Taiyang and has the right to appoint all executives and senior management and the members of the board of directors of Taiyang. The contractual arrangements are comprised of a series of agreements, including a Consulting Services Agreement and Operating Agreement, through which Ningguo has the right to advise, consult and manage Taiyang and its business operations for a quarterly consulting fee equal to all of Taiyang’s quarterly net profit. We will receive distributions from our consolidated affiliates only to the extent service fees are paid to Ningguo under these series of agreements and further distributed as dividends or other shareholder distributions by Ningguo. To secure payment of the service fees, Taiyang’s shareholders have pledged their rights, titles and equity interest in Taiyang as security for Ningguo to collect the consulting fee from Taiyang through an Equity Pledge Agreement. In order to further reinforce Ningguo’s rights to control and manage Taiyang, Taiyang’s shareholders have granted Ningguo the exclusive right to exercise their voting rights pursuant to a Voting Rights Proxy Agreement, as well as the exclusive right and option to acquire all of their equity interests in Taiyang through an Option Agreement.
 
Taiyang was established in May 1996 under the laws of the PRC. Taiyang raises, processes and markets ducks and duck related food products through three business lines:
 
 
·
Breeding Unit – breeds, hatches, and cultivates ducklings for resale and processing by the Food Processing Unit;
 
·
Feed Unit – produces duck feed for internal use and external sale; and
 
·
Food Processing Unit – processes ducklings into frozen raw food product for commercial resale.
 
The contractual arrangements completed in May 2010 provide that Dynamic has a controlling interest in Taiyang as defined by FASB Accounting Standards Codification 810, “Consolidation”, Section 10-15, “Variable Interest Entities”, which requires Dynamic to consolidate the financial statements of Ningguo and Taiyang.
 
Accordingly, the financial statements reflect the consolidated financial results of Dynamic, Ningguo, and Taiyang.
 
For the Years ended December 31, 2010 and 2009
 
Revenues
 
Revenues for the years ended December 31, 2010 and 2009 were $41,688,738 and $28,859,699, respectively. Revenues by business unit were as follows:

 
 
2010
   
2009
 
             
Breeding Unit
  $ 12,596,488     $ 7,704,942  
Feed Unit
    13,886,122       50,592  
Food Unit
    15,206,128       21,104,165  
                 
 
  $ 41,688,738     $ 28,859,699  

Breeding Unit sales increased in 2010 compared with the same period of 2009, primarily as a result of higher demand and market prices for ducklings in China. Because we generate our own ducklings from our biological assets, the cost of producing new ducklings does not fluctuate with the market selling price for the ducklings. Accordingly, when the market price for ducklings increases, we maximize our profits by selling internally generated ducklings directly into the market, as opposed to using them as inputs for Food Unit products, since the market price of packaged Food Unit products does not fluctuate readily with the market price of the input ducklings.
 
 
-28-

 
 
The Feed Unit realized minimal sales in 2009 as products were primarily sold internally to the Breeding Unit. However, in 2010 we made significant sales of feed products to external customers through one distributor who is an individual. We will continue to attempt to market our feed products to external customers, primarily through feed distributors, and expect that we will continue to realize sales revenue from such products. However, because distribution of these products is currently concentrated in one distributor, loss of that distributor would materially adversely affect such sales.
 
The Food Unit began its operations in 2008, and had significant sales in 2009 as sales and marketing efforts combined with lower market prices for ducklings. Food Unit sales were down in 2010 as compared with 2009 as a result of higher market prices for ducklings, which resulted in more ducklings sold to market instead of used for Food Unit products.
 
Revenues shown above reflect only sales to external customers. We also made substantial internal sales during the years ended December 31, 2010 and 2009, as follows:

 
 
Buying Unit
   
Year Ended December 31, 2010
   
Year Ended December 31, 2009
   
Breeding
   
Feed
   
Food
   
Breeding
   
Feed
   
Food
 
Selling Unit
 
Unit
   
Unit
   
Unit
   
Unit
   
Unit
   
Unit
 
                                     
Breeding Unit
  $     $     $ 218,016     $     $     $  
Feed Unit
    13,241,455                   12,387,362              
Food unit
          8,681             51,137              
                                                 
 
  $ 13,241,455     $ 8,681     $ 218,016     $ 12,438,499     $     $  

During the years ended December 31, 2010 and 2009, all of our sales were to customers located in the PRC. Our most significant intercompany sales are sales of feed product from the Feed Unit to the Breeding Unit.
 
Cost of goods sold and gross margin
 
Cost of goods sold for the years ended December 31, 2010 and 2009 were $32,521,474 and $24,670,485, respectively. Cost of goods sold consists principally of the cost of grains and fees paid to subcontracted farmers to raise commercial ducklings. The cost of grains fluctuates due to market, political, and economic factors that are beyond our control. A dramatic increase in the price of grain could reduce profit margins and adversely affect our results of operations if we are unable to pass such increased costs on to customers. Gross margins on revenues for the years ended December 31, 2010 and 2009 were 22% and 15%, respectively. The increased gross margin was primarily the result of increased sales and resulting gross margins in the Feed Unit, which had negligible external sales in 2009.
 
Sales and marketing expenses
 
Sales and marketing expenses for the years ended December 31, 2010 and 2009 were $45,919 and $55,425, respectively. The slight decrease resulted from lower personnel and travel expenses in 2010.
 
 
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General and administrative expenses
 
General and administrative expenses for the years ended December 31, 2010 and 2009 were $5,249,205 and $1,347,787, respectively, and are comprised of expenses related to corporate administration, accounting, and other shared corporate costs. General and administrative expenses were higher during 2010 due to (i) stock based compensation expense of in the amount of $2,081,122 recognized during 2010 related to shares issued in exchange for professional services, (ii) direct professional service expenses related to the Reverse Merger Transaction of $894,087 in 2010 compared with similar charges of only $148,750 in 2009, (iii) business tax of $265,509 in 2010, (iv) amortization of discounts on convertible debt in the amount of $95,000 in 2010, (v) higher overhead costs in 2010 associated with corporate growth, and more staffing for the public transaction and post-transaction accounting and administrative requirements.
 
Loss on change in fair value of derivative financial instruments
 
The warrants issued in our financing transactions completed in November 2010 do not meet all of the established criteria for equity classification in FASB ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, and accordingly, are recorded as derivative liabilities at fair value. Changes in the fair value of the warrants are charged or credited to income each period. During the year ended December 31, 2010, these charges amounts to $287,868.
 
Other income
 
In 2008, Taiyang began construction on an organic fertilizer manufacturing plant that it intended to complete in the second half of 2010. The fertilizer plant was to be used to process duck waste products into a saleable organic fertilizer product. In May 2009, Taiyang entered into an asset transfer agreement with an unrelated third party, whereby the buyer agreed to buy, and Taiyang agreed to sell, the fertilizer plant and related equipment, ground works, land rights, and intellectual property associated with the manufacturing process. The sale price for the sold assets (as valued using the exchange rate on the sale date) was $3,886,431, of which $2,048,371 was paid in June 2010, $1,010,851 (as valued using the exchange rate on the payment date) was paid in December 2010, and $889,174 (as valued using the exchange rate at December 31, 2010) is due by May 31, 2011.
 
Taiyang recognized a gain on the sale of the fertilizer plant and related assets equal to the excess of the sale price over the carrying value of the sold assets, in the amount of $877,874.
 
Additionally, Taiyang previously wrote off an account receivable for the sale of a separate subsidiary with a sale price of $895,430 that was completed in 2005. During June 2010, Taiyang received payment for the prior account receivable. Accordingly, Taiyang recognized a gain from the collection of the account in this amount.
 
Subsidy income
 
From time to time, Taiyang receives subsidies from the PRC government. Subsidies used for current period expenditures are recognized as income in the period in which the benefit from the subsidy is realized by Taiyang. Certain of the subsidies are earmarked for particular capital improvement projects, and the completed projects must be approved by the government to ensure specifications were met. Subsidies that relate to depreciable property and equipment are recorded as an offset to the related capital accounts to which the subsidy relates.
 
Taiyang defers amounts received pursuant to capital subsidies until the projects are approved, at which time the deferred balances are recorded as an offset to the related capital accounts. As of December 31, 2010 and 2009, deferred subsidy funds received were $Nil and $717,954, respectively.
 
During the years ended December 31, 2010 and 2009, Taiyang recognized subsidy income of $954,986 and $339,981, respectively. During 2009, Taiyang recorded capital subsidies in the amount of $1,853,557, which were offset against the cost of the capital assets acquired with the funds.
 
 
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Interest expense
 
Interest expense (net) for the years ended December 31, 2010 and 2009 was as follows:
 
 
 
2010
   
2009
 
             
Interest income
  $ (241,676 )   $ (73,680 )
Interest expense
    1,473,697       536,573  
Bank fees
    137,175       77,598  
Discounts from fair value on initial recognition of long term non-interest bearing loans
    (42,061 )      
Amortization of debt discount
    13,786       9,291  
Imputed interest expense
    107,859       5,142  
 
               
 
  $ 1,448,780     $ 554,924  

Interest income is derived from interest earned on bank deposits, loans receivable, and cash and cash equivalents, and was lower in 2010 than 2009 due to lower average interest-bearing cash deposits in 2010 than in 2009. Interest expense relates to interest accrued on bank loans and credit facilities, and bank fees relating to cash accounts, and was higher in 2010 than in 2009 due to higher average bank loan balances in 2010 than in 2009. Taiyang also recognized a discount on the face value of certain zero-interest loans with a stated maturity date at their inception to adjust the carrying value to the fair value, and amortization expense to amortize the discount. Imputed interest expense represents interest expense on zero interest debt with no maturity date.
 
Income tax expense
 
Pursuant to the Consulting Services Agreement between Taiyang and Ningguo, Taiyang pays a consulting service fee to Ninnguo that is equal to all of Taiyang’s net income. In turn, Taiyang pays all of its profits to Dynamic Ally.
 
According to the applicable PRC Enterprises Tax Law, income such as rental, royalty and profits from the PRC derived by a foreign enterprise which has no establishment in the PRC or has establishment but the income has no relationship with such establishment is subject to a 10% withholding tax on such income. We recognized withholding tax expense amounting to $504,467 in the year ended December 31, 2010.
 
Net income
 
Net income for the years ended December 31, 2010 and 2009 was $4,314,611 and $2,489,323, respectively. The higher income in 2010 was the result of (i) increased profit from the Food Unit as margins improved, (ii) external sales from the Feed Unit in 2010, where no external sales were made in 2009, (iii) a gain on the sale of the fertilizer plant in 2010 in the amount of $877,874, and (iv) a gain from the collection of an account previously written off in the amount of $895,430. These improvements were offset by (i) stock based compensation expense of in the amount of $2,081,122 recognized during 2010, (ii) higher general and administrative expense relating to implementation of the Reverse Merger Transaction, and (iii) income and business tax expense in 2010 resulting from the contractual arrangements between Taiyang and Ningguo that were not in place in 2009, and (iv) higher interest expense associated with increased debt balances. We intend to continue to market our Feed and Breeding Unit products to external customers, as well as to continue to expand our processed food products. Additionally, the proceeds from the common stock sales completed in November 2010 and the first quarter of 2011 are to be applied primarily toward the construction of new cooked food processing line that we plan to put into production in late 2011.

 
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Liquidity and Capital Resources
 
Capital Resources
 
As of December 31, 2010 and 2009, we had unrestricted cash balances of $1,930,319 and $611,635, respectively, and working deficiency of $1,941,528 and $12,798,281, respectively. The substantial improvement in working capital deficiency from 2009 to 2010 was caused by (i) completion of the financing for gross cash proceeds of $5,107,472 during November 2010, (ii) a shift in bank loan balances from current to long term – while total bank loans payable increased from $13.7 million at December 31, 2009 to $18.9 million at December 31, 2010 as we used these proceeds to continue to grow our production capacity with investment in new duck breeding fields 6, 7 and 8, the current portion of bank loans payable decreased from $11.4 million to $7.9 million as we shifted a substantial portion of the loan due dates to 2013 and 2014, and (iii) continued profitable operations in 2010.
 
Prior to the Reverse Merger Transaction, we financed our operations through a combination of operating profit and short-term and long-term borrowings from banks. During the reporting periods, we arranged a number of bank loans to satisfy our financing needs. As of the date of this Annual Report on Form 10-K, we have not experienced any difficulty in raising funds through bank loans, and have not experienced any liquidity problems in settling our payables in the normal course of business and refinancing, extending, or repaying bank loans when they come due.
 
Significant Liquidity Events
 
In connection with the consummation of the Reverse Merger Transaction, on November 10, 2010, we consummated a private placement for the sale of units (the “Units”) consisting of (i) four (4) shares of common stock and (ii) a warrant to purchase one (1) share of common stock at an exercise price of $4.00. Each Unit was priced at $8.00. Gross cash proceeds were $4,450,072, and we issued 2,225,036 shares of common stock and 556,259 warrants. We also exchanged $549,984 in previously issued debentures that were converted into Units at a price of $6.00 per Unit, for a total of 366,656 shares of common stock and 91,664 warrants. On November 16, 2010, we sold additional Units for gross cash proceeds of $657,400 pursuant to the same offering, and issued 328,700 shares and 82,175 warrants. In connection with the financing, we also issued 226,298 placement agent warrants with an exercise price of $4.00.
 
In March 2011, we consummated the sale of an aggregate 575,000 shares of common stock to eight investors at a price of $2.00 per share for gross cash proceeds of $1,150,000. In connection therewith, we also issued to the investors warrants to purchase 143,750 shares of common stock at an exercise price of $4.00 per share and a contractual term of three years, as well as 46,000 placement agent warrants with an exercise price of $4.00 and a contractual term of five years.
 
The proceeds from these financing transactions are being used principally to construct a new cooked food processing line at our facilities in Ningguo City, PRC. Upon completion of the cooked food processing line, which is expected to be completed in late 2011, we intend to manufacture, market, and sell ready-to-eat cooked food products through new and existing distribution channels. We believe that the demand for these types of finished food products is very strong in China, and we expect demand to remain strong for the foreseeable future as the urban Chinese “middle class” continues to expand. Cooked food products are expected to yield higher profit margins than our current products. The expected cost of the new production line is approximately $4.5 million.
 
In addition to these financings, during 2010 we were able to restructure a substantial portion of our bank debt from current to long term. Bank loans outstanding as of December 31, 2010 and 2009 were:

 
 
2010
   
2009
 
             
Loans payable, current portion
  $ 7,864,727     $ 11,408,179  
Loans payable, long term portion
    11,016,050       2,249,997  
 
  $ 18,880,777     $ 13,658,176  

 
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Our long term debt comes due as follows:

2012
  $ 2,304,368  
2013
    5,324,633  
2014
    3,387,049  

Our working capital deficiency as of the end of 2009 was alleviated in 2010 by the equity financing, the debt restructuring, and continued profitable operations. As a privately held Chinese company prior to the Reverse Merger Transaction we had limited access to equity capital, and we funded our expansion through bank loans, a substantial portion of which were less than one year in term, but were renewed, repaid, or replaced with new loans on an annual basis. This approach resulted in a working capital deficiency on our balance sheet in past years. While we did not have any contracts or firm commitments to renew, extend or replace such debt, we have historically not experienced difficulty in doing so.
 
Cash Flow Statement
 
The following table sets forth a summary of our cash flows for the fiscal years ended December 31, 2010 and 2009:

 
 
2010
   
2009
 
Net cash generated from (used in) operating activities
  $ 683,815     $ (6,029,729 )
Net cash used in investing activities
    (8,778,048 )     (2,705,553 )
Net cash provided by financing activities
    9,458,496       8,645,938  
Effect of exchange rate difference on cash and cash equivalents
    (45,579 )     1,673  
Cash and cash equivalents, beginning of period
    611,635       699,306  
Cash and cash equivalents, end of period
    1,930,319       611,635  

Net cash generated from (used in) was $683,815 in 2010 and ($6,029,729) in 2009. The increased cash generation is due principally to increased net income from improved sales and profit margins. Additionally, our accounts payable and accrued expenses decreased as we paid down our trade payables from available cash. Offsetting these increases to cash was an increase to accounts receivable in 2010 from 2009 resulting from increased sales combined with additional credit extended to our customers.
 
Net cash used in investing activities increased to $8,778,048 in 2010 from $2,705,553 in 2009. We increased investment in our breeding infrastructure during 2010 in order to position our company to support rapid growth, and to internally supply ducks for both the existing raw food processing business and the cooked food business that is under construction in 2011. We invested heavily into duck farms 5, 6, 7 and 8 in order to support the capacity expansion.
 
Net cash provided by financing activities was $9,458,496 in 2010, as compared with $8,645,938 in 2009. Bank borrowings, net of repayments, were $4,668,138 in 2010 as compared with $4,260,550 in 2009. During 2010, we borrowed $555,000 in the form of a convertible note payable to fund costs associated with the Reverse Merger Transaction, of which $100,016 was repaid in cash and the balance was converted into shares of our common stock. During 2010, we received net proceeds of $4,635,374 from the sale of common stock, as compared with a capital investment of $4,385,388 into Taiyang 2009.
 
Contractual Obligations
 
The following table sets forth our long term debt and other long term commitments as of December 31, 2010:

Contractual Obligations
 
Total
   
< 1 year
   
1-3 years
   
3-4 Years
   
> 5 years
 
Debt
  $ 18,880,777     $ 7,864,727     $ 11,016,050     $     $  
Operating Leases (1)
                             
                                         
Total Contractual Obligations
  $ 18,880,777     $ 7,864,727     $ 11,016,050     $     $  

 
(1)
Taiyang leases certain of its facilities pursuant to non-cancellable lease agreements expiring at various times through 2037. The amount of rent on these facilities is not fixed, but is based on the government stipulated market price of grains multiplied by the grain yield per area. Because future rents on these facilities depend upon unknown future market and production factors, the amount of future commitment cannot be quantified.
 
We believe that our current working capital is sufficient to sustain operations for at least the next 12 months.
 
 
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Off-Balance Sheet Arrangements
 
None.
 
Financial Instruments and Other Instruments
 
Our financial instruments consist of cash and cash equivalents, trade accounts receivable, loans receivable, other receivables, prepaid and other current assets, amounts due from/to related parties, trade accounts payable and accrued liabilities, other accounts payable, and current loans payable. The fair values of these financial instruments approximate their carrying values due to the relatively short-term maturity of these instruments. Cash has been valued using the market value technique.
 
Critical Accounting Policies
 
See the disclosure regarding critical accounting policies in our financial statements attached hereto, beginning on page F-1.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not required under Regulation S-K for “smaller reporting companies.”
 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
The Annual Financial Statements for the years ended December 31, 2010 and 2009 are included herewith, beginning on page F-1.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
 
On November 10, 2010, we dismissed Thomas W. Klash (“Klash”), as our independent registered public accounting firm. The reports of Klash on our financial statements for each of the past two fiscal years contained no adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except as that the reports of Klash for the fiscal years ended December 31, 2009 and 2008 indicated conditions which raised substantial doubt about our ability to continue as a going concern. The decision to change independent accountants was approved by our Board of Directors on November 10, 2010.
 
During our two most recent fiscal years and through November 10, 2010, we have had no disagreements with Klash on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Klash, would have caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.
 
During our two most recent fiscal years and through November 10, 2010, there were no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.
 
 
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We provided Klash with a copy of this disclosure before its filing with the SEC. We requested that Klash provide us with a letter addressed to the SEC stating whether or not it agrees with the above statements, and we received a letter from Klash stating that it agrees with the above statements. A copy of such letter was filed as Exhibit 16.02 to our Current Report on Form 8-K as filed on November 15, 2010.
 
CONTROLS AND PROCEDURES.
 
(a) Evaluation of disclosure controls and procedures.
 
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as a result of the material weaknesses described below, as of December 31, 2010, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:

 
a)
As of December 31, 2010, we had not established a Code of Conduct for the legal and ethical guidelines all our employees and directors should follow;
     
 
b)
We did not have sufficient personnel in our accounting and financial reporting functions. As a result we were not able to achieve adequate separation of duties and were not able to provide for adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis;
     
 
c)
We did not have critical accounting policies and procedures in place to provide guidance to accounting personnel. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis; and
     
 
d)
We did not have formal anti fraud policies and procedures in place, nor do we conduct annual fraud risk assessments. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result.
 
 
e)
Our tone at the top was not sufficient to assure the directives of our Board of Directors were followed. Management did not obtain approval of the Board prior to entering into certain material contracts and agreements.
 
 
f)
We do not have adequate procedures in place to detect related party transactions which give rise to potential conflicts of interest.

On March 7, 2011, the Board of Directors approved a Code of Conduct, and is in the process of distributing and reviewing the Code with all employees, directors, and officers.
 
 
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We are committed to improving our accounting and financial reporting functions. As part of this commitment, we will create a segregation of duties consistent with control objectives and intend to institute formal accounting policies and procedures and fraud risk assessments. Management believes that hiring additional knowledgeable personnel will remedy the lack of sufficient personnel in our accounting and financial reporting functions to achieve adequate segregation of duties. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.
 
Furthermore, the implementation of accounting policies and procedures will provide proper guidance to our accounting personnel to ensure that transactions are properly accounted for in a timely manner. In addition, conducting an annual fraud risk assessment will help to prevent possible material misstatements of financial statements and provide an additional mechanism to detect irregularities with our financial accounting procedures. Although these remediation efforts are underway, the above material weaknesses will not be considered remediated until new controls over financial reporting are fully designed and operating effectively for an adequate period of time.
 
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
 
(b) Changes in internal control over financial reporting.
 
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
(c) Management’s report on internal control over financial reporting.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2010. The effectiveness of our internal control over financial reporting as of December 31, 2010 has not been audited by Schwartz Levitsky Feldman LLP, our independent registered public accounting firm. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, smaller reporting companies, like us, are exempt from the requirement that management’s report be subject to an audit by an independent registered public accounting firm.
 
OTHER INFORMATION
 
None.

 
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
 
Our Directors and Executive Officers
 
The names of our directors and executive officers and their ages, titles, and biographies as of December 31, 2010 are set forth below:

Name
 
Age
 
Position
Wu Qiyou
 
42
 
Chief Executive Officer and Chairman of the Board of Directors
David Dodge
 
36
 
Chief Financial Officer
Chen Beihuang
 
41
 
Vice General Manager and Director
Han Jialiang
 
45
 
Financial Controller and Director
He Zhiwei
 
45
 
Director
James J. Keil
 
83
 
Director

Directors are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified. Currently, there are five seats on our board of directors.
 
Officers are elected by the board of directors and serve until their successors are appointed by the board of directors. Biographical resumes of each officer and director are set forth below.
 
Wu Qiyou has been our Chief Executive Officer and Chairman of the Board since November 2010. Mr. Wu is the founder, Chief Executive Officer, and Chairman of the Board of Directors of Anhui. Mr. Wu founded Anhui in 1996 and has acted as the principal executive officer since that date. Prior to founding Anhui, Mr. Wu was the production manager of Xin Ling Electrical Machinery Factory of Ningguo County. Mr. Wu received a degree in enterprise management from Beijing Society Correspondence University in 1992. Mr. Wu was originally selected to serve as a director due to his deep familiarity with our business and his extensive entrepreneurial background.
 
David A. Dodge has been our Chief Financial Officer since November 2010. Mr. Dodge has been an independent financial consultant since 2007, acting as interim CFO and/or providing accounting, management, and financial reporting services for TTC Technology Corp (formerly SmarTire Systems, Inc.)(TCLIF.PK), Futuremedia PLC (FMDAY.OB), and multiple privately held Chinese companies in the process of going public and raising capital in North America. Previously, Mr. Dodge served as CFO of NeoMedia Technologies, Inc. (OTCBB: NEOM), a U.S. public company, from 2002 through 2007. From 1999 to 2002, Mr. Dodge held various finance-related positions with NeoMedia, including Director of Financial Reporting, Director of Financial Planning, and Controller. Prior to his public company experience, Mr. Dodge was an auditor with Ernst & Young LLP from 1997 to 1999. Mr. Dodge holds a B.A. in economics from Yale University and an M.S. in accounting from the University of Hartford, and is also a Certified Public Accountant (inactive).
 
Chen Beihuang has been our Vice General Manager and a Director since November 2010. Ms. Chen has served as Anhui’s Vice General Manager since May 1999. Ms. Chen earned a junior college degree from Hefei Industrial College in 1998. Prior to joining Anhui in 1999, Ms. Chen held various financial management and accounting positions at manufacturing companies in the PRC, including Ri Quan Photoelectric Company, Hong Xing Machinery Plant, Shan MenVehicle Transport Company, and Jiangnan Chemical Factory. Ms. Chen was selected to serve as a director due to her deep familiarity with our business and her substantial financial and accounting experience.
 
 
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Han Jialiang has been our Financial Controller and a Director since November 2010. Mr. Han has served as Anhui’s Finance Controller since January 2000. Mr. Han has served as Taiyang’s Finance Controller since January 2000. Mr. Han received a junior college degree from Anhui Finance and Trade College in July 2006. Prior to joining Anhui in 2000, Mr. Han was Controller at Ningguo Industrial Group Company from August 1988 to May 1998, and was an auditor with Ningguo Audit Firm from May 1998 to December 1999. Mr. Han was selected to serve as a director due to his deep familiarity with our business and his substantial financial and accounting experience.
 
He Zhiwei has been a Director since November 2010. Mr. He has served as the Director and Chief Financial Officer of Chisen Technologies, Inc. since November 2008. From 1999 to 2001, Mr. He served as Strategic Commodity Manager of Worldwide Operations at Dell, Inc. From February 2001 to November 2006, Mr. He was responsible for capacity and service management of Capital One’s Technology Operations and Data Center Operations. In 2005, Mr. He became the Finance Manager at Capital One Global Financial Services, where he analyzed, reported and managed the financials and the annual operating budget of $130 million. In his tenure at Capital One Financial Corporation, Mr. He maintained a rigorous cost management discipline. From November 2006 to December 2007, Mr. He led the efforts at Circuit City Stores Inc. and BDA Inc. to develop private label branding strategies, consumer electronics products and video gaming accessories, where he minimized the dependency on non value-added brands. From December 2007 to November 2008, Mr. He played a leadership role at Amazon.com Inc. in maximizing Amazon’s segment share and profitability by developing and implementing the Private Label and Direct Import infrastructure and programs that had reinforced Amazon’s position as the global leader in online shopping for all products. Mr. He also helped rapidly expand and grow Amazon’s international retail business in Europe, Japan and China. Mr. He’s experience in finance and many years of senior management experience in a variety of sectors allows him to contribute broad financial and strategic planning expertise and led to the Board’s conclusion that he should serve as a director of the Company.
 
James J. Keil. Mr. Keil has been a Director since November 2010. Mr. Keil is founder and President of Keil Partners, LLC, a marketing, consulting and government reseller firm started in November 2009 now located in Chicago, Illinois specializing in reselling hardware and software products and solutions to the various agencies of the U.S. federal government. Mr. Keil also been a Director of NeoMedia Technologies, Inc. (OTCBB:NEOM) since August 1996. Prior to having his own businesses, Mr. Keil worked for 38 years at IBM and Xerox Corporation in various marketing, sales and senior executive positions. From 1989 to 1995, Mr. Keil was on the board of directors of Elixir Technologies Corporation (a non-public corporation) and from 1990 to 1992 was the Chairman of its Board of Directors. From 1992 to 1996, Mr. Keil served on the board of directors of Document Sciences Corporation. Mr. Keil holds a B.S. degree from the University of Dayton and did Masters level studies at the Harvard Business School and the University of Chicago in 1961-1962. Mr. Keil was selected to serve as a director due to his extensive entrepreneurial background and his experience as a public corporation director.
 
Family Relationships
 
None.
 
Involvement in Certain Legal Proceedings

Our directors, executive officers and control persons if more than one person have not been involved in any of the following events during the past five years:

·
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
·
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
   
·
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
   
·
being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
 
 
-38-

 
 
Audit Committee
 
The Audit Committee is currently comprised of He Zhiwei (Chair) and James J. Keil, each of whom is “independent” as independence is currently defined in applicable SEC rules. The Board has determined that He Zhiwei qualifies as an “audit committee financial expert,” as defined in applicable SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002. The Board made a qualitative assessment of He Zhiwei’s level of knowledge and experience based on a number of factors, including his formal education and experience. The Audit Committee has not yet adopted a formal charter.
 
Compensation Committee
 
We do not presently have a compensation committee. Our board of directors currently acts as our compensation committee.
 
Nominating Committee
 
We do not presently have a nominating committee. Our board of directors currently acts as our nominating committee.
 
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
 
During the last fiscal year, none of our executive officers served on the board of directors or compensation committee of any other entity whose executive officers served on our board of directors.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of our company. Directors, officers and greater than 10% shareholders are required to furnish us with copies of all Section 16(a) forms they file.
 
To our knowledge, based solely on a review of the copies of such reports furnished to us, the officers, directors and beneficial owners of more than 10% of our common stock have filed their initial statements of ownership on Form 3 on a timely basis, and the officers, directors and beneficial owners of more than 10% of our common stock have also filed the required Forms 4 or 5 on a timely basis.
 
Code of Ethics
 
On March 7, 2011, the Board approved a Code of Business Conduct and Ethics (the “Code). This Code applies to all directors, officers and employees. A copy of the Code is incorporated by reference as an exhibit.
 
 
-39-

 
 
EXECUTIVE COMPENSATION.

The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer and the highest paid executive officer whose total annual salary and bonus exceeded $100,000 for fiscal years 2010 and 2009.

Name & Principal Position
 
Year
 
Salary
 
Bonus
 
Stock Awards
 
Option Awards
 
Non-Equity Incentive Plan Compensation
 
Change in Pension Value and Non-Qualified Deferred Compensation Earnings
 
All Other Compensation
  Total
       
($)
   
($)
 
($)
 
($)
 
($)
 
($)
 
($)
 
($)
 
Wu Qiyou (a)
 
2010
  13,749                 13,749  
 
 
2009
  13,111                 13,111  
Richard B. Frost (c)
 
2010
                   
 
 
2009
                   

 
(a)
Mr. Wu was appointed as CEO and Chairman of the Board of Directors on November 10, 1010.
 
(b)
Mr. Frost resigned as our Chief Executive Officer and President on November 10, 2010.
 
Employment Agreements with Executive Officers
 
On March 26, 2010, Taiyang entered into a consulting agreement with David Dodge, an individual, pursuant to which Mr. Dodge was engaged to act as Chief Financial Officer of Taiyang prior to completion of the Share Exchange, and in the same capacity as our Chief Financial Officer upon the closing of the Reverse Merger Transaction. Pursuant to the terms of the consulting agreement, Mr. Dodge received 144 shares of Dynamic common stock prior to the closing of the Share Exchange, which were exchanged for 141,894 shares or common stock at the closing of the Share Exchange. The contract also calls for Mr. Dodge to be compensated at a rate of $150 per hour for services performed, with a maximum of $10,000 per month. Mr. Dodge’s employment contract was transferred to us upon the closing of the Reverse Merger Transaction.
 
Outstanding Equity Awards at Fiscal Year-End
 
None.
 
Director Compensation
 
None.
 
Stock Option Plans
 
None.
 
 
-40-

 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 31, 2011:
 
 
·
by each person who is known by us to beneficially own more than 5% of our common stock;
 
·
by each of our officers and directors; and
 
·
by all of our officers and directors as a group.

 
 
Number of
Percentage
 
Title of
Shares
of Common
Name And Address Of Beneficial Owner (1)
Class
Owned (2)
Stock (3)
Wu Qiyou (2)
Common Stock
*
Chen Beihuang (2)
Common Stock
*
Han Jialiang
Common Stock
*
He Zhiwei
Common Stock
*
James J. Keil
Common Stock
*
David Dodge
Common Stock
141,894
1.36%
Officers and Directors as a Group (6 persons)
Common Stock
141,894
1.36%
       
Firm Success International, Ltd. (4)
Common Stock
4,886,990
46.81%

* - Denotes less than 1%
 
 
(1)
Unless otherwise noted, the mailing address of each beneficial owner is No. 88 Eastern Outer Ring Road, Ningguo City, Anhui Province, PRC 242300.
     
 
(2)
Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 31, 2011 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person
     
 
(3)
Percentage based upon 10,440,033 shares of common stock issued and outstanding as of March 31, 2011
     
 
(4)
Phong Sae-Ia is the owner of 100% of the capital stock of Firm Success International, Ltd. Phong Sae-Ia’s ownership in Firm Success International, Ltd. is subject to an option agreement, pursuant to which 100% of Phong Sae-Ia’s ownership in Firm Success International, Ltd. is expected to be transferred to the former shareholders of Taiyang (of which Wu Qiyou owned 96%, Chen Beihuang owned 2%, and an unrelated individual owned 2%) within three years from the date of the option agreement. If the option agreement is exercised in full, Wu Qiyou would control 4,691,510, or 44.94%, and Chen Beihuang would own 97,740, or 0.94%, of our shares of common stock at such time as this equity interest were fully earned pursuant to the terms of the option agreement.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
Other than as disclosed below, since January 1, 2008, there have been no transactions or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5% of our outstanding common or preferred stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.

 
-41-

 
 
All members of the Company’s Board, excluding Wu Qiyou, Chen Beihuang and Han Jialiang, are independent directors of the Company as defined by the SEC.
 
Related Party Transactions
 
As of December 31, 2010 and 2009, amounts due from related parties were comprised of the following:

 
 
2010
   
2009
 
             
Due from Wu Qiyou
  $     $ 735,861  
Due from Chen Beihuang
          585  
Due from Wu Qida
          29,252  
                 
 
  $     $ 765,698  

As of December 31, 2010 and 2009, amounts due to related parties were comprised of the following:

 
 
2010
   
2009
 
             
Due to Wu Qiyou
  $ 30,249     $  
Due to Taiyang Biological Corporation
          190,166  
                 
 
  $ 30,249     $ 190,166  

Wu Qiyou is Taiyang’s founder and principal executive officer and was holder of 96% of Taiyang’s registered share capital prior to the Reverse Merger Transaction in November 2010. Mr. Wu was appointed as Chief Executive Officer and Chairman of the Board of Directors after the Reverse Merger Transaction. Wu Qiyou owns 49% of Taiyang Biological Corporation.
 
Wu Qida was the holder of 2% of Taiyang’s registered share capital prior to the Reverse Merger Transaction in November 2010, and is also the brother of Wu Qiyou. Wu Qida owns 31% of Taiyang Biological Corporation.
 
Chen Beihuang was the holder of 2% of Taiyang’s registered share capital prior to the Reverse Merger Transaction in November 2010. Ms. Chen was also appointed as a member of our Board of Directors after the Reverse Merger Transaction.
 
Taiyang Biological Corporation is a company owned 49% by Wu Qiyou and 31% by Wu Qida.
 
We were involved in the following transactions with Wu Qiyou, Chen Beihuang and Wu Qida during the years ended December 31, 2010 and 2009:

 
 
 
   
Chen
   
 
   
 
 
 
 
Wu Qiyou
   
Beihuang
   
Wu Qida
   
Total
 
                         
Balance due (to) from as of December 31, 2008
  $ 613,802     $ 12,839     $     $ 626,641  
Loans to related party
    325,637       16,007       29,237       370,881  
Repayments from related party
    (205,169 )     (28,286 )           (233,455 )
Currency translation difference
    1,591       25       15       1,631  
 
                               
Balance due (to) from as of December 31, 2009
    735,861       585       29,252       765,698  
 
                               
Loans to related party
    1,734,976       140,365       708       1,876,049  
Repayments from related party
    (2,506,692 )     (140,955 )     (30,212 )     (2,677,859 )
Currency translation difference
    5,606       5       252       5,863  
 
                               
Balance due (to) from as of December 31, 2010
  $ (30,249 )   $     $     $ (30,249 )

 
-42-

 
 
As of December 31, 2010, we had collected all loans due from our officers and directors, and discontinued the practice of lending funds to our officers and directors.
 
We were involved in the following additional related party transactions during the years ended December 31, 2010 and 2009:
 
During the years ended December 31, 2010 and 2009, we made purchases from Taiyang Biological Corporation in the amount of $118,978 and $52,961, respectively. As of December 31, 2010, we had unused deposits against inventory purchases with Taiyang Biological Corporation in the amount of $90,385.
 
At closing of the Reverse Merger Transaction, we acquired 145,000 shares of our common stock from three of our previous stockholders and affiliates of for retirement. The aggregate purchase price for the shares was $300,000. The selling shares were: Richard B. Frost, our President and Chief Executive Officer prior to the Reverse Merger Transaction (48,333 shares); Bert L. Gusrae, our Secretary, Treasurer and Director prior to the Reverse Merger Transaction (48,334 shares), and Alicia M. LaSala, our Chief Executive Officer through May 2008 (48,333 shares).
 
We currently engage Thornhill Capital LLC to perform certain accounting, language translation, and other professional services. Our Chief Financial Officer, David Dodge, also performs contract work unrelated to our company on behalf of Thornhill Capital LLC.
 
In August 2010, we purchased 7.81% of the equity of a local credit cooperative. As of December 31, 2010, the face value of long term loans payable to the credit cooperative were $190,856 and $90,388, respectively, and the carrying value was $126,428 and $56,117 respectively.
 
Transactions during the period are reflected at the average exchange rates for the respective period, and balances as of December 31, 2010 and 2009 are reflected at closing exchange rates for the respective period. Accordingly, beginning balance plus period transactions may differ from ending balances due to exchange rate differences.
 
 
-43-

 
 
PRINCIPAL ACCOUNTING FEES AND SERVICES.
 
Our independent accountant is Schwartz Levitsky Feldman LLP. As reported in our Form 8-K filed on November 15, 2010, we appointed Schwartz Levitsky Feldman LLP as our independent accountant effective as of November 10, 2010. Our previous independent accountant was Thomas W. Klash. The aggregate fees billed by Schwartz Levitsky Feldman LLP and Thomas W. Klash for professional services rendered for the years ended December 31, 2010 and 2009 were as follows:

 
 
2010
 
2009
   
Schwartz
         
Schwartz
         
   
Levitsky
         
Levitsky
         
   
Feldman
 
Thomas
     
Feldman
 
Thomas
     
 
 
LLP
 
W. Klash
 
Total
 
LLP
 
W. Klash
 
Total
 
Audit fees
  $ 235,000   $ 4,000   $ 239,000   $ 30,000   $ 7,500   $ 37,500  
Audit-related fees
                         
Tax fees
                         
All other fees (a)
                    19,525     19,525  
                                       
Total fees
  $ 235,000   $ 4,000   $ 239,000   $ 30,000   $ 27,025   $ 57,025  

 
(a)
Includes $11,350 for services rendered in connection with the examination of our financial statements for periodic reports to the SEC, and $8,175 in connection with preparation of responses to comment letters we received from the SEC
 
During the fiscal years ended December 31, 2010 and 2009, there were no fees billed for products and services provided by the principal accountants other than those set forth above.
 
The Audit Committee has reviewed the above fees for non-audit services and believes such fees are compatible with the independent registered public accountants’ independence.
 
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Accountant
 
The policy of the Audit Committee, and the Board acting as a whole prior to the establishment of the Audit Committee, is to pre-approve all audit and non-audit services provided by the independent accountants. These services may include audit services, audit-related services, tax fees, and other services. The independent accountants and management are required to periodically report to the full Audit Committee, and the Board acting as a whole prior to the establishment of the Audit Committee, regarding the extent of services provided by the independent accountants in accordance with this pre-approval delegation, and the fees for the services performed to date.

 
-44-

 
 
 
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a)
Financial Statements.
 
Our financial statements as set forth in the Index to Financial Statements attached hereto commencing on page F-1 are hereby incorporated by reference.
 
(b)
Exhibits.
 
The following is a list of exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by footnote, exhibits that were previously filed are incorporated by reference:

Exhibit
 
 
 
 
Number
 
Reference
 
Exhibit Description
3.01
 
(a)
 
Certificate of Incorporation.
3.02
 
(b)
 
Articles of Amendment to the Certificate of Incorporation.
3.03
 
(a)
 
Bylaws.
3.04
 
(c)
 
Specimen of Common Stock certificate.
4.01
 
(d)
 
Form of Warrant.
4.02
 
(d)
 
Form of Subscription Agreement dated November 10, 2010.
4.03
 
(d)
 
Form of Registration Rights Agreement dated November 10, 2010, by and among the Company and the Purchasers.
10.01
 
(d)
 
Share Exchange Agreement, dated as of November 10, 2010 between the Company, the controlling stockholders of the Company, the stockholders of the Company, Dynamic Ally, Limited. and the stockholders of Dynamic Ally Limited.
10.02
 
(d)
 
Performance Milestone Shares Escrow Agreement, dated as of November 10, 2010, by and among The Parkview Group, Inc., Laidlaw & Co. (UK) Ltd. on behalf of the Investors identified in the Subscription Agreement, Gersten Savage LLP, as escrow agent, and Firm Success International, Ltd.
10.03
 
(d)
 
Guarantee dated November 10, 2010, by and between the Laidlaw & Company (UK) Ltd., as representative for the Purchasers and Firm Success International Ltd.
10.04
 
(d)
 
Consulting Services Agreement, dated as of May 26, 2010.
10.05
 
(d)
 
Operating Agreement, dated as of May 26, 2010.
10.06
 
(d)
 
Equity Pledge Agreement, dated as of May 26, 2010.
10.07
 
(d)
 
Option Agreement, dated as of May 26, 2010.
10.08
 
(d)
 
Voting Rights Proxy Agreement, dated as of May 26, 2010.
10.09
 
(d)
 
Consulting Agreement between Anhui Taiyang Poultry Co., Ltd. and David Dodge dated February 10, 2010
14.01
     
Code of Conduct
16.01
 
(d)
 
Letter from the Company to Thomas W. Klash, dated as of November 10.
16.02
 
(d)
 
Letter from Thomas W. Klash to the SEC, dated as of November 10.
21.1
 
(d)
 
List of Subsidiaries.
31.01
     
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02
     
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01
     
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
-45-

 

 
(a)
Incorporated by reference to our Registration Statement on Form 10-12G/A filed with the SEC on November 11, 2008
 
(b)
Incorporated by reference to our Form 8-K filed with the SEC on June 2, 2010.
 
(c)
Incorporated by reference to our Registration Statement on Form 10-12G/A filed with the SEC on January 14, 2009
 
(d)
Incorporated by reference to our Form 8-K filed with the SEC on November 15, 2010.

 
-46-

 
 
 
Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
ANHUI TAIYANG POULTRY CO., INC.
 
 
 
Date: April 15, 2011
By:
/s/ WU QIYOU
 
 
Wu Qiyou
 
 
Chief Executive Officer (Principal Executive Officer)
     
Date: April 15, 2011
By:
/s/ DAVID DODGE
 
 
David Dodge
 
 
Chief Financial Officer (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name
 
Position
 
Date
         
/s/ WU QIYOU
 
Chairman of the Board
 
April 15, 2011
Wu Qiyou
       
         
/s/ CHEN BEIHUANG
 
Director
 
April 15, 2011
Chen Beihuang
       
         
/s/ HAN JIALIANG
 
Director
 
April 15, 2011
Han Jialiang
       
         
/s/ JAMES J. KEIL
 
Director
 
April 15, 2011
James J. Keil
       
         
/s/ HE ZHIWEI
 
Director
 
April 15, 2011
He Zhiwei
       

 
 

 

ANHUI TAIYANG POULTRY CO., INC.
 
CONSOLIDATED FINANCIAL STATEMENTS
 
DECEMBER 31, 2010 AND 2009
 
TABLE OF CONTENTS

 
 
 

 
 
Schwartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS
LICENSED PUBLIC ACCOUNTANTS
TORONTO · MONTREAL
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Anhui Taiyang Poultry Co., Inc.
(Formerly The Parkview Group, Inc.)

We have audited the consolidated balance sheets of Anhui Taiyang Poultry Co., Inc. as of December 31, 2010 and 2009 and the related consolidated statements of operations and comprehensive income, cash flows and changes in stockholders’ equity for each of the years then ended.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance 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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financing reporting.  Accordingly, we express no such opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Anhui Taiyang Poultry Co., Inc. as of December 31, 2010 and 2009 and the results of its operations and its cash flows for each of the years then ended in conformity with generally accepted accounting principles in the United States of America.
 
/s/ Schwartz Levitsky Feldman LLP
 
   
Toronto, Ontario, Canada
Chartered Accountants
April 14, 2011
Licensed Public Accountants

 
F-1

 

Anhui Taiyang Poultry Co., Inc. (formerly The Parkview Group, Inc., see note 1(a))
(Expressed in United States Dollars)

   
As of December 31,
   
2010
   
2009
 
             
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 1,930,319     $ 611,635  
Trade accounts receivable, net (note 3)
    5,348,650       972,528  
Loans receivable (note 4)
    4,268,057       2,816,943  
Inventories, net (note 5)
    1,762,709       1,787,565  
Prepaid and other current assets (note 6)
    1,140,234       902,361  
Proceeds receivable from sale of fertilizer plant (note 17)
    889,174        
Due from related parties (note 7)
          765,698  
Total current assets
    15,339,143       7,856,730  
                 
Construction in progress (note 8)
    5,634,476       5,605,197  
Property, plant and equipment, net (note 8)
    20,495,162       12,964,713  
Land use rights (note 9)
    10,660,988       10,545,893  
Other long term assets (note 10)
    1,808,384       654,680  
Total assets
  $ 53,938,153     $ 37,627,213  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities
               
Trade accounts payable and accrued expenses (note 11)
  $ 2,858,112     $ 4,505,521  
Income tax payable (note 19)
    504,467        
Derivative financial instruments (note 12)
    1,480,261        
Other accounts payable (note 13)
    4,542,855       4,551,145  
Due to related parties (note 7)
    30,249       190,166  
Loans payable, current portion (note 14)
    7,864,727       11,408,179  
Total current liabilities
    17,280,671       20,655,011  
                 
Loans payable, long term portion (note 16)
    11,016,050       2,249,997  
Total liabilities
    28,296,721       22,905,008  
Commitments and contingencies (note 22)
               
Subsequent events (note 24)
               
                 
Stockholders’ equity
               
Common stock, par value $0.001, 75,000,000 shares authorized, 9,865,033 and 510,423 shares issued and outstanding as of December 31, 2010 and 2009 respectively (note 16)
    9,865       510  
Additional paid-in capital
    4,119,015       145,550  
Appropriated retained earnings (note 21)
    1,353,912       1,142,284  
Unappropriated retained earnings
    19,007,402       13,006,176  
Cumulative translation adjustment
    1,151,238       427,685  
Total equity
    25,641,432       14,722,205  
                 
Total liabilities and stockholders’ equity
  $ 53,938,153     $ 37,627,213  

The accompanying notes form an integral part of these consolidated financial statements.
 
 
F-2

 
 
Anhui Taiyang Poultry Co., Inc. (formerly The Parkview Group, Inc., see note 1(a))
(Expressed in United States Dollars)

   
Years ended December 31,
   
2010
   
2009
 
             
Revenues (notes 4 and 19(b))
  $ 41,688,738     $ 28,859,699  
Cost of goods sold
    32,521,474       24,670,485  
                 
Gross Profit
    9,167,264       4,189,214  
                 
Sales and marketing expenses
    45,919       55,425  
General and administrative expenses
    5,249,205       1,347,787  
                 
Operating profit
    3,872,140       2,786,002  
                 
Loss on change in fair value of derivative financial instruments (note 12)
    (287,868 )      
Other income (expense) (note 18)
    1,728,600       (81,736 )
Subsidy income (note 15)
    954,986       339,981  
Interest expense, net (note 17)
    (1,448,780 )     (554,924 )
                 
Income before income taxes
    4,819,078       2,489,323  
Income tax expense (note 20)
    504,467        
                 
Net income for the year
  $ 4,314,611     $ 2,489,323  
                 
Comprehensive income:
               
Net income
  $ 4,314,611     $ 2,489,323  
Foreign currency translation adjustment
    723,553       23,120  
                 
Comprehensive income
  $ 5,038,164     $ 2,512,443  
                 
Earnings per share:
               
Basic and diluted (note 16)
  $ 0.58     $ 0.35  
                 
Weighted average number of common shares outstanding:
               
Basic and diluted (note 16)
    7,480,698       7,068,823  

The accompanying notes form an integral part of these consolidated financial statements.
 
 
F-3

 

Anhui Taiyang Poultry Co., Inc. (formerly The Parkview Group, Inc., see note 1(a))
(Expressed in United States Dollars)

   
Years ended December 31,
   
2010
   
2009
 
Cash provided (used for):
           
Operating activities:
           
Net income for the year
  $ 4,314,611     $ 2,489,323  
Items not affecting cash:
               
Depreciation and amortization
    1,218,886       741,845  
Gain on sale of assets
    (877,874 )      
Interest expense allocated to debt
    174,585       14,433  
Stock based compensation expense
    2,081,122        
Loss on change in fair value of derivative
    287,868        
Changes in non-cash working capital:
               
Trade accounts receivable
    (4,236,038 )     (919,760 )
Inventories
    83,683       610,389  
Prepaid and other current assets
    (249,410 )     1,323,222  
Due from related parties
    772,306       (137,425 )
Trade accounts payable and accrued expenses
    (1,746,954 )     (10,137,045 )
Income tax payable
    504,467        
Due to related parties
    (161,500 )      
Deferred subsidy funds received
          (719,350 )
Net cash provided by (used in) operating activities
    2,165,752       (6,734,368 )
                 
Investing activities:
               
Cash proceeds from sale of fertilizer plant
    3,051,256        
Long term equity investment
    (1,475,209 )      
Deposits against equipment and land use rights
    (585,529 )      
Capitalized interest expense
    (288,486 )     (321,981 )
Purchase of property and equipment
    (9,480,080 )     (2,383,572 )
Net cash used in investing activities
    (8,778,048 )     (2,705,553 )
                 
Financing activities:
               
Advances under loans receivable
    (1,321,719 )     (2,815,419 )
(Repayments) advances under loans payable
    (160,218 )     3,520,058  
Borrowings under bank loans payable
    22,223,126       15,056,498  
Repayments under bank loans payable
    (17,554,988 )     (10,795,948 )
Borrowing under convertible loans payable
    555,000        
Repayments under convertible loans payable
    (100,016 )      
Repurchase treasury stock
    (300,000 )      
Capital investment, net of offering costs of $477,098 in 2010 and $Nil in 2009