UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 20-F





(Mark One)


 ̈

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934





OR


þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2012


OR


 ̈

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from                                                                 to


OR


 ̈

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


Date of event requiring this shell company report


Commission file number:000-54676





DRAGON BRIGHT MINTAI BOTANICAL


TECHNOLOGY (CAYMAN) LIMITED


(Exact Name of Registrant as Specified in Its Charter)





N/A


(Translation of Registrant’s Name Into English)





Cayman Islands


(Jurisdiction of Incorporation or Organization)





11/F, Shum Tower,


No.268 Des Voeux Road Central,


Hong Kong.


(Address of Principal Executive Offices)





Anita Lai Lai Ho, Chief Executive Officer


11/F, Shum Tower,


No.268 Des Voeux Road Central


HongKong








Tel: +852-3996-7222


Fax: +852-3020-6206


E-mail: anita.ho@dbmintai.com


(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)





Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of Each Class

Name of Each Exchange on Which RegisteredNone

None





1





Securities registered or to be registered pursuant to Section 12(g) of the Act:





Ordinary shares, par value US$0.0001 per share


(Title of Class)





Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:





Ordinary shares, par value US$0.0001 per share


(Title of Class)





Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.


531,000,000 ordinary shares, par value $0.0001 per share, as of December 31, 2012.





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Yes  ̈   No   þ





If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes   ̈ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ̈ No  ̈





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer  ̈

Accelerated filer  ̈

Non-accelerated filer  ̈





Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


U.S. GAAP  ̈   International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other  ̈





* If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.


Item 17  ̈ Item 18  ̈





If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈ No þ





(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)





Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes   ̈ No  ̈








2





TABLE OF CONTENTS





Introduction
4Forward-Looking Statements
5Part I
6Item 1. Identity of Directors, Senior Management and Advisers
6Item 2. Offer Statistics
6Item 3. Key Information
6Item 4. Information on the Company
16Item 4A. Unresolved Staff Comments
30Item 5. Operating and Financial Review and Prospects
30Item 6. Directors, Senior Management and Employees
39Item 7. Major Shareholders and Related Party Transactions
43Item 8. Financial Information
45Item 9. The Offer and Listing
45Item 10. Additional Information
46Item 11. Quantitative and Qualitative Disclosures about Market Risk
51Item 12. Description of Securities Other than Equity Securities
53Part II
54Item 13. Defaults, Dividend Arrearages and Delinquencies
54Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds
54Item 15. Controls and Procedures
54Item 16A. Audit Committee Financial Expert
55Item 16B. Code of Ethics
55Item 16C. Principal Accountant Fees and Services
55Item 16D. Exemptions from the Listing Standards for Audit Committees
56Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
56Item 16F. Change in Registrant’s Certifying Accountant
56Item 16G. Corporate Governance
56Item 16H. Mine Safety Disclosure
56Part III
57Item 17. Financial Statements
57Item 18. Financial Statements
57Item 19. Exhibits
57





EX-4.3EX-4.16EX-4.17EX-4.18EX-11.1EX-12.1EX-12.2EX-13.1EX-15.1EX-15.2





3
 Table of Contents




Introduction




Unless the context otherwise requires, in this annual report on Form 20-F:





●
“We,” “us,” “our company,” “our” and “Dragon Bright Cayman” refer to Dragon Bright Mintai Botanical Technology (Cayman) Limited, a Cayman Islands company, its predecessor entities and subsidiaries;●
“Dragon Bright HK” refers to Dragon Bright Mintai Botanical Technology Company Limited, a Hong Kong company;●
“HK Dragon Holdings” refers to Hong Kong Dragon Holdings Limited, a Hong Kong company;●
“Fujian Qianlon Agricultural Technology Co., Ltd.”, or “Fujian Qianlon”, is a foreign enterprise wholly owned by HK Dragon Holdings;●
“China” and the “PRC” are to the People’s Republic of China, excluding for the purposes of this annual report Hong Kong, Macau and Taiwan;●
“HK$” and “Hong Kong dollars” are to the legal currency of the Hong Kong Special Administrative Region of China;●
“Hong Kong” is to the Hong Kong Special Administrative Region of China;●
“IFRS” are to “International Financial Reporting Standards”;●
“RMB” and “Renminbi” are to the legal currency of China;●
“shares” are to our shares, par value $0.0001 per share;●
“$” and “U.S. dollars” are to the legal currency of the United States of America; and●
Our financial information presented in this Form F-20 has been prepared in accordance with IFRS.





Solely for your convenience, this annual report contains translations of certain Renminbi amounts into U.S. dollar amounts at specified rates. Unless otherwise indicated in the section entitled “Item 3. Key Information – A. Selected Financial Data – Exchange Rate Information” conversions of Renminbi into U.S. dollars in this annual report are based on the exchange rate set forth in the H.10 weekly statistical release of the Federal Reserve Bank of New York, or the exchange rate, on December 31, 2012.  We make no representation that the Renminbi or U.S. dollar amounts and/or HK dollar to Renminbi amounts referred to in this annual report could have been or could be converted into U.S. dollars, Renminbi or HK dollars, as the case may be, at any particular rate or at all. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. See “Item 3. Key Information – D. Risk Factors – Risks Related to Doing Business in China – Governmental control of currency conversion may limit our ability to utilize our revenue effectively and affect the value of your investment” and“– Fluctuations in the value of the Renminbi may have a material and adverse effect on your investment” for discussions of the effects of currency control and fluctuating exchange rates on the value of our shares.





This annual report on Form 20-F includes our consolidated financial statements for the years ended December 31, 2012, 2011 and 2010.





4
 Table of Contents




Forward-Looking Statements




This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections about future events. These statements include but are not limited to:




·
statements regarding our completion of the development of our potential product and its use in a pilot project;·
statements regarding the competitive advantages of our potential product;·
expectation as to the market opportunities for our potential product, as well as our ability to take advantage of those opportunities;·
statements as to our ability to protect our intellectual property and avoid infringing upon others’ intellectual property;·
statements regarding our estimates of future performance, expenses, costs and revenues; and·
statements as to our ability to meet anticipated cash needs based on our current business plan.





These statements may be found throughout this annual report, specifically in the sections entitled “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company – A. History and Development of the Company,” and “– B. Business Overview,” “Item 5. Operating and Financial Review and Prospects” and “Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds – E. Use of Proceeds.”  Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed in “Item 3. Key Information – D. Risk Factors” and elsewhere in this annual report.





Statements that use the terms “believe,” “expect,” “plan,” “intend,” “estimate,” “anticipate” and similar expressions are intended to identify forward-looking statements. All forward-looking statements in this annual report reflect our current views about future events and are based on assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from future results expressed or implied by the forward-looking statements. Many of these factors are beyond our ability to control or predict and include all the risks discussed in “Item 3. Key Information – D. Risk Factors” and elsewhere in this annual report. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.













5
 Table of Contents




Part I




Item 1. Identity of Directors, Senior Management and Advisers





Not applicable.





Item 2. Offer Statistics





Not applicable.





Item 3. Key Information





A. Selected Financial Data





The following selected consolidated financial data as of and for the years ended December 31, 2012, 2011 and 2010, respectively, have been derived from our audited consolidated financial statements included in this annual report beginning on page F-1. The selected consolidated financial data as of and for the year ended December 31, 2009 and 2008 has been derived from our audited consolidated financial statements not included in this annual report. You should read the following selected financial data in conjunction with the section “Item 5. Operating and Financial Review and Prospects” and our audited financial statements and related notes included elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS, as adopted by the International Accounting Standards Board.








Year ended December 31,US$

2012


2011


2010


2009


2008Revenue


14,982



47



-



-



-Cost of sales


(4,040
)


(138
)


-



-



-Gross profit


10,942



(91
)


-



-



-Other income


611,807



1,284



11



-



-Administrative

expenses


(1,530,633
)


(1,876,818
)


(166,863
)


(4,321
)


(4,045
)Loss before income tax

expense


(907,884
)


(1,875,625
)


(166,852
)


(4,321
)


(4,045
)Income tax

expense


-



-



-



-



-Loss for theyear


(907,884
)


(1,875,625
)


(166,852
)


(4,321
)


(4,045
)Other comprehensive income/(loss)Exchange differences on translating foreign

operations recognized directly in equity


15,361



88,413



6,918



-



(19
)Total comprehensive loss for the year


(892,523
)


(1,787,212
)


(159,934
)


(4,321
)


(4,064
)Loss attributable to:Owners of the Company


(780,952
)


(1,459,589
)


(144,644
)


(4,321
)


(4,064
)Non-controlling interest


(126,932
)


(416,036
)


(22,208
)


-(907,884
)


(1,875,625
)


(166,852
)


(4,321
)


(4,064
)Total comprehensive loss attributable to:Owners of the Company


(774,451
)


(1,418,397
)


(143,115
)


(4,321
)


(4,064
)Non-controlling interest


(118,072
)


(368,815
)


(16,819
)


-(892,523
)


(1,787,212
)


(159,934
)


(4,321
)


(4,064
)Loss per share – Basic and Diluted

$

*

$

*

$

*

$
(0.04
)

$
(0.04
)


*Less than (0.01) per share




6
 Table of Contents




U.S $

As of December 31,2012

2011


2010


2009


2008Financial PositionCurrent assets

495,984


455,728



1,798,414



13



13Non-current assets

2,158,467


1,662,337



389,490



-



-Current liabilities

796,615


200,855



538,864



8,385



4,064Non-current liabilities

833,149


-



-



-



-Total equity (deficit)

1,024,687


1,917,210



1,649,040



(8,372
)


(4,051
)Weighted average number of shares

outstanding

531,000,000


524,002,329



116,962,192



100,000



100,000





Exchange Rate Information





Our reporting and financial statements are expressed in the U.S. dollar, which is our reporting currency. However, substantially all of our expected revenues and expenses are denominated in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. For all dates and periods through December 31, 2009, conversions of Renminbi into U.S. dollars are based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. For January 1, 2010 and all later dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise indicated, conversions of Renminbi amounts into U.S. dollars in this annual report are based on the exchange rate on December 31, 2012. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On June 7, 2013, the daily exchange rate reported by the Federal Reserve Board was RMB 6.133 to $1.00.





The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other information to be provided to you.





Noon Buying RatePeriod

Period end


Average(1)


High


Low(RMB per US$1.00)2008


6.8225



6.9193



7.2946



6.78002009


6.8259



6.8295



6.8470



6.81762010


6.6000



6.7603



6.8330



6.60002011


6.2939



6.4475



6.6364



6.29392012


6.2301



6.2990



6.3879



6.2221December


6.2305



6.2344



6.2502



6.22512013January


6.2186



6.2215



6.2303



6.2134February


6.2213



6.2323



6.2438



6.2213March


6.2108



6.2154



6.2246



6.2105April


6.1647



6.1861



6.2078



6.1647May


6.1340



6.1416



6.1665



6.1213June (until June 7, 2013)


6.1333



6.1313



6.1359



6.1276





Source: Federal Reserve Bank of New York and Federal Reserve Board




7
 Table of Contents




(1)
Exchange rates between the Renminbi and the U.S. dollar for all periods through December 31, 2012 represent the noon buying rates for U.S. dollars in New York City for cable transfers in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. Exchange rates between the Renminbi and the U.S. dollar from and after January 1, 2013 represent the daily rates as set forth in the H.10 statistical release of the Federal Reserve Board. Annual averages are calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are calculated by using the average of the daily rates during the relevant month.





B.            Capitalization and Indebtedness





Not applicable.





C.            Reasons for the Offer and Use of Proceeds





Not applicable.





D.            Risk Factors





Risks Related to Our Business





The markets in which we operate are highly competitive and we may not be able to maintain or expand our market share.





We plan to operate in the highly competitive forest seedling industry and we believe we will compete intensely with a large number of participants including individual farmers and small private forest companies. We do not expect to compete with any state-owned agriculture companies. We expect competition to persist and intensify in the future, and we may face intense competition from other companies that provide seedlings and paper pulp products in China. We expect our competition to be primarily affected by our ability to apply, commercialize and customize our TFPPT (as explained in the section “Business Overview”), the length of our cultivation cycle, product quality, distribution capability and pricing. In addition, product innovation and technical advancement may render our existing and potential applications and products and our own research and development efforts obsolete or non-competitive. We cannot assure you that additional competitors will not enter our existing markets, or that we will be able to compete successfully against existing or new competition, or be able to maintain or expand our market share, which may adversely affect our financial condition, results of operations or growth prospects.





Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.





We commenced our forestry technology and marketing research operations in 2007 and identified TFPPT for commercialization in early 2009. Through our corporate restructuring as described in more detail in the section entitled “Item 4. Information on the Company – C. Organizational Structure”, we are currently in the early stage of developing our business model. We have a limited operating history under our current business model upon which you can evaluate the viability and sustainability of our business, and we had generated $14,982 revenue as of December 31, 2012. We do not have a revolving loan agreement with any financial institution, nor can we provide any assurance that we will be able to enter into any such agreement in the future or be able to raise funds through a future issuance of debt or equity. Furthermore, we are relatively inexperienced in the management of a business in the forest seedling industry. If we were unsuccessful in addressing any of these risks and uncertainties, our business, financial condition, results of operations and future growth could be adversely affected.





Our business is sensitive to fluctuations in market prices and demand for our products.





Demand for forest seedling products is highly cyclical in nature. Price and demand for forest seedlings have been, and in the future are expected to be, subject to cyclical fluctuations. The pricing in the forest seedling market is influenced by the prices of the ultimate products produced from forest seedlings in China.





Demand for our products is affected by changes in consumer trends and tastes. Furthermore, the markets for forest seedling products are sensitive to changes in industry capacity and output levels, general forest seedling industry conditions and cyclical changes in the global and Chinese economies, any of which can have a significant impact on the sales price of seedling products. These activities are, in turn, subject to fluctuations due to, among other factors:




●
changes in domestic and international economic conditions;●
changes in market prices of commodities;●
governmental regulations and policies;●
interest rates;●
population growth and changing demographics; and●
seasonal weather cycles and other factors affecting tree growth.





8
 Table of Contents





Any adverse change in demand or price of our seedling products may materially and adversely affect our business, financial condition and results of operations.





Failure to protect our intellectual property rights in China may materially and adversely affect our business, financial condition and results of operations.





Our business is substantially dependent on our ability to apply and commercialize TFPPT, with respect to which we were granted by Mr. Cho-Po Chang, or Mr. Chang, the inventor of TFPPT, a worldwide exclusive license regarding all of its intellectual property rights.  TFPPT is an emerging technology for agricultural and botanical cultivation, and can be used to optimize the growth conditions critical for cultivation and propagation of high-quality seeds, seedlings, plantlets, plants and transplants to achieve fast, pathogen-free and uniform growth. The application for a utility model for “Aeroponics Cultivation System and Method” was granted by the State Intellectual Property Office of the PRC on August 17, 2011. Mr. Chang has not applied for intellectual property rights with respect to TFPPT in any other jurisdictions. We withdrew the application for an invention patent for “Aeroponics Cultivation System” from the State Intellectual Property Office of the PRC because we obtained the utility model for “Aeroponics Cultivation System and Method” with patent number ZL201120014974.7 that we believe it would be sufficient to protect our intellectual property.





We regard our patentable technology, trade secrets, and other intellectual property as important to our business. Unauthorized use of such intellectual property, whether owned by us or licensed to us, may materially and adversely affect our business, financial condition, results of operations, reputation and competitive advantages.  In addition, TFPPT is not subject to any intellectual property rights protection in jurisdictions other than China, and the validity, enforceability and scope of protection of intellectual property in China are uncertain and still evolving, and could involve substantial risks. The laws and enforcement procedures in China are not yet well developed, and do not protect intellectual property rights to the same extent as laws and enforcement procedures in the United States and other jurisdictions. Furthermore, litigation may be necessary in the future to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources and have a material adverse effect on our business, financial condition and results of operations.  If we are unable to adequately protect the intellectual property rights that we own or use, we may lose these rights and our business, growth prospects and profitability may suffer.





We may be subject to intellectual property rights claims or other claims in the future which could result in substantial costs and diversion of our financial and management resources away from our business.





We are subject to the risk that the products, technology and processes that we plan to apply to our production may infringe upon patents, copyrights, trademarks or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims relating to the intellectual property of others. If any such claim arises in the future, litigation or other dispute resolution proceedings may be necessary to retain our ability to offer our current and future products, which could result in substantial costs and diversion of our management resources and attention even if we prevail in contesting such claims. If we were found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property rights, incur additional costs to license or develop alternative products or be forced to pay fines and damages, which could materially and adversely affect our business and results of operations.





Failure to obtain or maintain the required approval, permits, licenses and certificates necessary to carry out our business in China may materially and adversely affect our business, financial condition and results of operations.





To carry out our business in China, we must obtain and maintain various government approvals, permits, business licenses, and certificates including, but not limited to, certificates of forestry ownership.   In the event that we are not able to obtain or maintain all of the required government approvals, permits, business licenses or certificates, our business operations may be subject to suspension, and our financial condition and results of operations may be materially and adversely affected.





The occurrence of extreme weather conditions, natural disasters, forest disturbances, terrorist attacks and other emergencies or events that are beyond our control may disrupt our seedling acclimatization and tree plantation activities and may have a material adverse effect on our business, financial condition and results of operations.





Our seedling acclimatization and tree plantation may be vulnerable to the occurrence of any extreme weather conditions, natural disasters, forest disturbances, terrorist attacks and other emergencies or events that are beyond our control and may have a material adverse effect on the economy and infrastructure in China and on the livelihood of the Chinese population.  In addition, the forest industry, especially seedling acclimatization and tree plantation, is subject to a variety of disturbances, including fire, drought, landslides, species invasions, insect and disease outbreaks, as well as climatic events including hurricanes, windstorms and ice storms.  Our seedling acclimatization and tree plantation sites are located in the coastal areas of southern China and are particularly susceptible to the typhoon season between July and September. Unfavorable conditions can reduce both size and quality of our seedling and tree production.  Our business, financial condition and results of operations may be materially and adversely affected should such events occur.





9
 Table of Contents





We depend significantly on our management team and key personnel.





We are highly dependent on our senior management to manage our business and operations, and each of our executive officers is responsible for an important aspect of our operations.  In addition, we rely on management and senior personnel to ensure that our sourcing, production, sales, distribution and other business functions are effective. We also depend on certain key personnel with respect to development of our technology and products.  On November 1, 2012, Mr. Dominick Mark resigned from the position of interim chief financial officer, effective immediately. The Board of Directors appointed Mr. SY Wing Kui interim chief financial officer. If there were further changes in management, such changes could be disruptive and could negatively affect our operations, our culture and our strategic direction.





We do not maintain key person insurance for any of our key personnel.  If one or more of our senior executives or other key employees are unable or unwilling to continue in their present positions, we may not be able to replace them on a timely basis or at all, which may severely disrupt our business and affect our results of operations and future prospects. Moreover, we may not be able to attract or retain skilled and experienced employees in connection with our business operation. The competition for skilled and experienced workers in China may also increase our labor costs, which would in turn increase our operational costs and affect our profitability. This could have a material adverse effect on our business, financial condition and results of operations.




Most of our directors, senior management and other key personnel have entered into employment agreements with us that contain non-competition provisions, non-solicitation and non-disclosure covenants.  However, if any dispute arises between our directors, senior management and other key personnel and us, such non-competition, non-solicitation and confidentiality provisions may not be enforceable.





We have limited insurance coverage in China.





The insurance industry in China is still at an early stage of development, and insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do in more developed economies.  We maintain insurance for workplace injuries, premises and certain vehicles in China.  However, we do not have insurance coverage on our other assets (including biological assets), inventories, business, interruption of business or key employees. Consequently, any occurrence of loss or damage to property, litigation or business disruption may result in our incurring substantial costs and the diversion of resources, which could have a material adverse effect on our operating results. The occurrence of certain incidents including fire, severe weather, earthquake, war, floods, power outages, windstorms and the consequences resulting from them are not covered at all by insurance policies. If we incur substantial liabilities that were not covered by insurance, or if our business operations were interrupted for more than a short period of time, we could incur costs and losses that could materially and adversely affect our results of operations.





We depend heavily on skilled research and development personnel, and any loss of such personnel, or any failure to continue to attract such personnel in the future, could harm our business.





The nature of our business requires the employment of personnel with significant scientific and operational experience in the industry. Accordingly, we must attract, recruit and retain a sizeable workforce of technically and scientifically competent employees. We currently have a research and development team comprising of 3 employees.  Our ability to effectively implement our business strategy will depend upon, among other factors, the successful recruitment and retention of additional management and other key personnel that have the necessary scientific, technical and operational skills and experience with the forest and agricultural industry. These individuals may be difficult to find in China and we may not be able to retain such skilled employees. If we are unable to hire individuals with the requisite experience, we may not be able to produce sufficient products to optimize our profits, our research and development initiatives may be delayed and we may encounter disruptions in production and research which may materially and adversely affect our business, financial condition and results of operations.





The enforcement of labor contract law and an increase in labor costs in the PRC may adversely affect our business and our profitability.





China adopted a new labor contract law and its implementation rules effective on January 1, 2008 and September 18, 2008, respectively. The labor contract law and its implementation rules impose more stringent requirements on employers with regard to, among other things, minimum wages, severance payments upon permitted termination of employment by an employer and non-fixed term employment contracts, time limits for probation period as well as the duration and the times that an employee can be placed on a fixed-term employment contract. Due to the limited period of effectiveness of the labor contract law and its implementation rules and the lack of clarity with respect to their implementation and potential penalties and fines, it is uncertain how they will impact our current employment policies and practices. Compliance with the labor contract law and its implementation rules may increase our operating expenses, in particular our personnel expenses.  As a result of the new labor protection measures, our labor costs and those of our suppliers are expected to increase, which may adversely affect our business and our results of operations. It is also possible that the PRC government may enact additional labor-related legislations in the future, which may further increase our labor costs and affect our business, financial condition and results of operations.





10
 Table of Contents





Our failure to comply with increasingly stringent environmental regulations and related litigation may result in significant penalties, damages and adverse publicity for our business.





The PRC has laws concerning environmental protection, under which entities subject to such laws are required to adopt effective measures to prevent and control pollution and damages that may harm the environment, including waste water, waste residues, dust and other byproducts generated in the course of production, construction and other activities.





We are subject to periodic inspections and assessments by PRC environmental officials, none of which have occurred through December 31, 2012, or subsequent to the year end. Should we fail such an assessment and/or violate environmental PRC laws, we may be subject to penalties, suspension of operations and/or environmental remediation.





Based on our knowledge, we believe that we are in compliance with all environmental laws and regulations.





We have incurred increased costs as a result of being a public company.





We are subject to the periodic disclosure requirements of the Securities and Exchange Commission, or the SEC.   We have incurred and will incur significant legal, accounting and other expenses that a private company does not incur, which are estimated to be approximately $300,000 annually. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and stock exchanges have required changes in corporate governance practices of public companies. We expect that compliance with these rules and regulations will increase our legal and financial compliance costs, which are estimated to be approximately $200,000 for each year. We also expect that these rules and regulations will make some activities more time-consuming and costly. We also expect these rules and regulations will make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance. As a result, our general and administrative expenses will likely increase and it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs that we may incur with respect to these rules or the timing of such costs.





If we fail to develop and maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud; as a result, current and potential shareholders may lose confidence in our financial reports, which may harm our business and the trading price of our shares.





Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. In addition, we will be subject to the reporting obligations under the U.S. securities laws.   Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include a management report that assesses the effectiveness of our internal controls over financial reporting and may require our independent registered public accounting firm to attest to our evaluation in our annual report on Form 20-F in the future.  As a company in the early stage of our development, we are in the process of establishing our internal control over financial reporting system to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes. We cannot be certain that the measures we have undertaken to comply with Section 404 will ensure that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controls that we need will become more complex, and significantly more resources will be required to ensure our internal controls remain effective.  Failure to implement required controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.   In addition, non-compliance with Section 404 could subject us to a variety of administrative sanctions, including the suspension of trading, ineligibility for listing on one of the national securities exchanges and the inability of registered broker-dealers to make a market in our shares, which could result in a decline in our share price.





The resources we devote to research and development may not result in commercially viable or competitive products.





Our success depends in part on our ability to successfully apply and commercialize TFPPT to our cultivation of bamboo-willow and other plants we later identify. Research and development in bamboo-willow plantation operation may be expensive and prolonged.  Our products may not ultimately be commercially viable, or may not pass government testing in the relevant provinces of China.  If the resources we devote to research and development do not result in products that survive the development stage, do not result in products that we can sell to our customers, or do not pass government testing, our business, financial condition and results of operations may be materially and adversely affected.





Our research and development have been subject to constraints on our financial resources.





As we are a start-up company in the early stage of our development, our research and development have been subject to constraints on our financial resources.  If such constraints adversely affect our successful application and commercialization of TFPPT, our business, financial condition and results of operations may be materially and adversely affected.





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The global economic downturn may have a material and adverse effect on our business, financial condition, results of operations and liquidity.





The global capital and credit markets have experienced increased volatility and disruption over the past two to three years, making it more difficult for companies to access financing markets. We depend in part on stable, liquid and well-functioning capital and credit markets to fund our growth. Although we believe that our operating cash flows, access to capital and credit markets and existing borrowings will permit us to meet our financing needs for the foreseeable future, we cannot assure you that continued or increased volatility and disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. In addition, our major customers may have financial challenges unrelated to us that could result in a decrease in their business with us, delays in payment to us or defaults of payments. Similarly, parties to contracts may be forced to breach their obligations under those contracts with us. These consequences of the global economic downturn may have a material and adverse effect on our business, financial condition, results of operations and liquidity.





Risks Related to Doing Business in China





Adverse changes in China’s economic, political and social policies could materially and adversely affect our business, financial condition and results of operations.





Our business and operations are primarily conducted in China. Accordingly, our financial condition and results of operations have been, and are expected to continue to be, affected by the economic, political and social developments in China. A slowdown of economic growth in China could reduce the market demand of our products, which in turn could materially and adversely affect our business, financial condition and results of operations.





The PRC economy differs from the economies of most developed countries in many respects, including: a higher level of government involvement; the on-going development of a market-oriented economy; a rapid growth rate; a higher level of control over foreign exchange; and a less efficient allocation of resources.





The PRC economy has been transitioning from a centrally-planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s to encourage economic growth and guide the allocation of resources and emphasize the utilization of market forces for economic reform, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. Some of the 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 changes in tax regulations applicable to us, and the PRC government continues to implement interest rate increases to control the pace of the economic growth.  These measures may cause deceased economic activity in China, which in turn could adversely affect our business, financial condition and results of operations. In addition, any changes in China’s economic, political and social conditions, as well as government policies, may materially and adversely affect our business, financial condition and results of operations.





Uncertainties inherent in the PRC legal system could limit the legal protections available to you and us.





The PRC legal system is a civil law system based on written statues.  Unlike common law systems, it is a system in which decided legal cases have limited precedential value.  In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.  The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign investment in China.  Some regulatory requirements issued by certain PRC government authorities may not be consistently applies by other government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical or, in some circumstances, impossible.  For example, we may have to resort to administrative and court proceedings to enforce the legal protections that we enjoy either by law or contract.  However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems.  These uncertainties may impede our ability to enforce our contracts.  These uncertainties, together with any development or interpretation of PRC law that is adverse to us, could materially and adversely affect our business, financial condition, results of operations and prospects.





It may be difficult to effect service of process upon us or our directors or senior management who live outside of the United States.





Our main operating subsidiary is incorporated in the PRC and our operations are conducted and our assets are located outside of the United States. In addition, all of our directors and our senior management personnel reside outside of the United States. You may experience difficulties in effecting service of process upon us, our directors or our senior management as it may not be possible to effect such service of process outside the United States upon them. In addition, China does not have treaties with the United States and many other countries providing for reciprocal recognition and enforcement of court judgments. Therefore, recognition and enforcement in the PRC of judgments of a court in the United States or certain other jurisdictions may be difficult or impossible.





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Future changes in laws, regulations or enforcement policies in China could adversely affect our business.





We are subject to PRC laws and regulations relating to land use rights, forest industry, and environmental protection, among others.  Laws, regulations or enforcement policies in China, including those relating to the forest industry, are evolving and subject to frequent changes. Further, regulatory agencies in China may periodically, and sometimes abruptly, change their enforcement practices. Therefore, prior enforcement activity, or lack of enforcement activity, is not necessarily predictive of future actions. Any enforcement actions against us could have a material and adverse effect on us and the market price of our shares. In addition, any litigation or governmental investigation or enforcement proceedings in China may be protracted and may result in substantial cost and diversion of resources and management attention, result in negative publicity and damage to our reputation.  The price of our shares may decline accordingly.





We will rely principally on dividends and other distributions on equity paid by our current and future subsidiaries in China to fund our cash and financing requirements, and any limitation on the ability of our current and future subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.





We are an offshore holding company, and we will rely principally on dividends from our subsidiaries in China for our cash requirements, including for the service of any debt we may incur. Current PRC regulations permit our current and future subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our current and future subsidiaries in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its statutory reserve funds until the aggregate amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, if our current and future subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. In addition, any income that we source from China is subject to PRC withholding tax under the new Enterprise Income Tax Law of the PRC, or the EIT Law. Under the EIT Law and its implementation regulations, both of which became effective on January 1, 2008, we will be subject to a withholding tax rate of 10% for any dividends paid to us by our current and future subsidiaries in China if we are deemed a non-PRC tax resident. Any limitation on the ability of our current and future subsidiaries to distribute dividends or other payments 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.





If we were deemed as a “resident enterprise” by PRC tax authorities, we could be subject to tax on our global income at the rate of 25% under the new Enterprise Income Tax Law (“New EIT Law”) in the PRC and our non-PRC shareholders could be subject to certain PRC taxes.





Under the New EIT Law and the implementing rules, both of which became effective January 1, 2008, an enterprise established outside of the PRC with “de facto management bodies” within the PRC may be considered a PRC “resident enterprise” and will be subject to the enterprise income tax at the rate of 25% on its global income as well as PRC enterprise income tax reporting obligations. The implementing rules of the New EIT Law define “de facto management” as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. If we were to be considered a “resident enterprise” by the PRC tax authorities, our global income would be taxable under the New EIT Law at the rate of 25% and, to the extent we were to generate a substantial amount of income outside of PRC in the future, we would be subject to additional taxes. In addition, according to the Notice of the State Administration of Taxation on Issues concerning the Recognition of Chinese-Controlled Enterprises Registered Offshore as Resident Enterprises on the Basis of their De Facto Management Bodies, certain enterprises incorporated in an offshore jurisdiction and controlled by Chinese enterprises or Chinese group enterprises will be classified as “non-domestically incorporated resident enterprises” if  (i) its senior management personnel in charge of daily operations reside or perform their duties mainly in China;; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings are kept in China; and (iv) half or more of its directors with voting rights or senior management often reside in China. However, any such recognition, when made by PRC tax authorities, will be determined based on the facts and circumstances of individual cases. As a result, we cannot determine the likelihood or consequences of our being designated a “resident enterprise” as of the date hereof.





If the PRC tax authorities determine that we are a “resident enterprise,” we may be subject to enterprise income tax at a rate of 25% on our worldwide income. In addition, the dividends paid by us to our non-PRC shareholders as well as capital gains recognized by them with respect to the sale of our shares may be subject to a PRC withholding tax. This may have a material adverse effect on our net income and results of operations, and may require us to withhold tax on our non-PRC shareholders.





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PRC regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of any public offering to make loans or additional capital contributions to our PRC operating subsidiaries.





We may make capital contribution or loans to our current and future PRC subsidiaries, which are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested enterprises in China, depending on the total amount of investment and the industries of the investment, capital contributions to our PRC operating subsidiaries shall at least be subject to the approval of the PRC Ministry of Commerce, or MOFCOM, or its local counterparts. Meanwhile, any loans that we make to our current and future PRC subsidiaries cannot exceed the difference between the total amount of investment and the registered capital of these subsidiaries and must be registered with the State Administration of Foreign Exchange, or SAFE, or its local branches, before the loan proceeds may be remitted into China.  We cannot assure that we will be able to obtain these government approvals and complete the registrations on a timely basis with respect to future capital contributions and loans by us to our current and future PRC subsidiaries. If we fail to receive such approvals or conduct such registrations, our ability to use the proceeds from any public offering and to capitalize our PRC operations may be adversely affected, which could adversely affect our liquidity and our ability to fund and expand our business.





We expect to derive a substantial portion of our sales from the PRC.





We have not generated any significant revenues as of the date of this annual report.  For the year ended December 31, 2012, we generate revenues of only US$14,982. We anticipate that sales of our products in the PRC will represent a substantial proportion of our total sales in the near future. Any significant decline in the condition of the PRC economy could adversely affect consumer demand for our products, among other things, which in turn could have a material adverse effect on our business and financial condition.





Inflation in China could negatively affect our profitability and growth.





While the PRC economy has experienced rapid growth, it has been uneven among various sectors of the economy and in different geographic areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products do not rise at a rate that is sufficient to fully absorb inflation-driven increases in our costs of supplies, our profitability can be adversely affected. These fluctuations and economic factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and control inflation. In order to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending.  The implementation of these and other similar policies can impede economic growth and thereby harm the market for our products.





Fluctuations in the value of the Renminbi may have a material adverse effect on your investment.





The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The conversion of Renminbi into foreign currencies, including the U.S. dollar, has historically been set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy caused the Renminbi to appreciate more than 20% against the U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July 2008, however, the Renminbi has traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high but never exceeding it. As a consequence, the Renminbi has fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government indicated that it would again make the foreign exchange rate of the Renminbi more flexible, which increases the possibility of sharp fluctuations in the Renminbi’s value in the future as well as the unpredictability associated with the Renminbi’s exchange rate. It is difficult to predict how long the current situation may last and when and how it may change again.





There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against foreign currencies. Our revenues and costs are mostly denominated in Renminbi, and a significant portion of our financial assets are also denominated in Renminbi. As we rely entirely on dividends paid to us by our subsidiaries, any significant revaluation of the Renminbi may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on, our shares in foreign currency terms. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making dividend payments on our shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amount available to us. Any fluctuations in the exchange rate between the Renminbi and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.





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Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.





The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We expect to receive most of our revenues in Renminbi. Under our current corporate structure, our holding company may rely on dividend payments from our current and future PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions to foreign shareholders, and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the SAFE, or its local branches, by complying with certain requirements to the satisfaction of PRC banks handling the currency conversion and remittance matters. Therefore, our current and future PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE or its local branches by complying with these requirements. However, approval from or registration with appropriate government authorities is required where Renminbi 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. This could affect the ability of our current and future PRC subsidiaries to obtain foreign currency in order to repay loans from us. 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 currencies from our PRC subsidiaries to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our shares.





Risks Related to Our Shares





We do not intend to issue dividends to our shareholders.  Our shares may never reach or maintain a price higher than the price investors pay for the shares and investors may never receive a return on their investment in our company.





Although our shareholders are entitled to dividends when, as and if they are declared by our board of directors, we do not intend to issue dividends to our shareholders in the foreseeable future.  If we do not issue dividends, the only way for investors to realize a return on their investment in our company would be through the sale of the shares at a price higher than the price they paid for our shares.  Our shares may never reach or maintain such a share price and investors may never receive a positive return on their investment in our company.





Our shares are not considered to be readily tradable and investors may be unable to liquidate their investment.





Our shares are considered to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges, which do not presently include the OTC Bulletin Board (the only exchanges on which our shares are currently quoted). As a result of the foregoing, investors may be unable to liquidate their investment for any reason.








Your percentage ownership in us may be diluted by future issuances of our shares, which could reduce your influence over matters on which shareholders vote.





Subject only to any applicable shareholder approval requirements, our board of directors has the authority to issue all or any part of our authorized but unissued shares. Issuances of our shares would reduce your influence over matters on which our shareholders vote.





Since our ordinary shares have been successfully quoted on the OTC Bulletin Board, holders of our ordinary shares may be subject to the Penny Stock Rules of the SEC and the trading market in our shares would be very limited, which will make transactions in our stock cumbersome and may reduce the value of an investment in our shares. These rules may affect your ability to resell your shares.





The SEC has adopted regulations that generally define a “penny stock” to be any equity security other than a security excluded from such definition by Rule 3a51-1 under the Securities Exchange Act of 1934, as amended. For our purposes, penny stock is any equity security that has a market price of less than US$5.00 per share, subject to certain exceptions.





Our shares were successfully quoted on OTC Bulletin Board on October 10, 2012. Our shares may be regarded as penny stock to the extent that the market price for our shares is less than US$5.00 per share. The penny stock rules require a broker-dealer that wishes to engage in transactions in our shares to deliver a standardized risk disclosure document prepared by the SEC, provide the customer with additional information including current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, provide monthly account statements showing the market value of each penny stock held in the customer’s account, make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. To the extent these requirements are applicable they will reduce the level of trading activity in the secondary market for our shares and may severely and adversely affect the ability of broker-dealers to sell our shares.





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We may be classified as a passive foreign investment company, or PFIC, which could result in adverse United States federal income tax consequences to U.S. holders of our shares.





Depending upon the value of our shares and the nature and composition of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes.  Based in part on our estimates of the value of our assets as determined based on the price of our shares in this offering, we do not expect to be a PFIC for our current taxable year ending on December 31, 2012.  However, there can be no assurance that we will not be a PFIC for the taxable year 2012 or any future taxable year as PFIC status is tested each taxable year and depends on the composition of our assets and income in such taxable year.





We will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on an average of the quarterly values of the assets during the taxable year) is attributable to assets that produce or are held for the production of passive income.  In determining the average percentage value of our gross assets, the aggregate value of our assets will generally be deemed to be equal to our market capitalization (determined by the sum of the aggregate value of our outstanding equity) plus our liabilities.  Therefore, a drop in the market price of our shares would cause a reduction in the value of our non-passive assets for purposes of the asset test.  Accordingly, we would likely become a PFIC if our market capitalization were to decrease significantly while we hold substantial cash and cash equivalents.  If we are classified as a PFIC in any taxable year in which U.S. Holders (as defined in “Item 10. Additional Information – E. Taxation – United States Federal Income Taxation”) hold our shares, certain adverse United States federal income tax consequences could apply to such U.S. Holders. See “Item 10. Additional Information – E. Taxation – United States Federal Income Taxation—Passive Foreign Investment Company.”





Any recurrence of severe acute respiratory syndrome, or SARS, pandemic avian influenza or an increase in the severity of H1N1 influenza or any other widespread public health problem could materially adversely affect our business and results of operations.





Our business could be adversely affected by the effects of SARS, pandemic avian flu, H1N1 influenza or other epidemics or outbreaks. China reported a number of cases of SARS in 2004. Since 2005, there have been reports of occurrences of the avian flu in various parts of China, including a few confirmed human cases. Since 2009, China and other countries and regions have reported several occurrences of H1N1 influenza. Any prolonged recurrence of SARS, the avian flu, H1N1 influenza or any other adverse public health developments in China may have a material adverse effect on our business operations, because such incidents could result in quarantines or closures of our offices, facilities and plantations, travel and transportation restrictions, import and export restrictions and a general slowdown in the PRC economy. In addition, the World Health Organization and the PRC government may recommend or impose other measures that could cause significant interruption to our business operations. Any of the foregoing events or other unforeseen consequences of public health problems could materially adversely affect our business, financial condition and results of operations.





If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter, which could materially adversely impact our business operations, our reputation, and listing and trading in our shares.





Recently, U.S. public companies that have substantially all of their operations in China, particularly companies which have completed so-called reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S.-listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this scrutiny, criticism and negative publicity will have on our company, our business and listing and trading of our common stock.  If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our company. Such allegations may materially adversely impact our business operations, our reputation, and the listing and trading of our common stock.





Item 4. Information on the Company





A. History and Development of the Company





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We are a holding company established on February 17, 2011 as an exempted company incorporated with limited liability under the laws of the Cayman Islands. We expect to conduct substantially all of our business through Fujian Qianlon, a company organized under the laws of the PRC and a direct subsidiary of HK Dragon Holdings.





Our wholly-owned subsidiary Dragon Bright HK was incorporated in July 2007 as a limited liability company under the laws of Hong Kong.





On March 11, 2011, we entered into a share swap agreement with Dragon Bright HK and all of its shareholders. Pursuant to the share swap agreement, the shareholders of Dragon Bright HK exchanged an aggregate of 521,450,000 shares of Dragon Bright HK, representing all of the issued and outstanding shares of Dragon Bright HK, for an aggregate of 521,450,000 of our newly issued shares, representing all of our issued and outstanding shares, at an exchange rate of 1-for-1. As a result of the share swap, Dragon Bright HK became our wholly-owned subsidiary and the former shareholders of Dragon Bright HK, including several of our directors and officers and their family members, became our shareholders. In May 2011, we issued an aggregate of 4,500,000 shares at $0.06 per share for aggregate proceeds of $270,000. In August 2011, we issued an aggregate of 5,050,000 shares at $0.10 per share for aggregate proceeds of $505,000.





HK Dragon Holdings is a limited liability company incorporated under the laws of Hong Kong on August 19, 2010. HK Dragon Holdings is a 57%-owned subsidiary of Dragon Bright HK and its other shareholders include Ms. Ho, our chairwoman and chief executive officer, Stanley Ang, our director and chief administrative officer, Million Max Limited, whose sole shareholder, Antonio Chau, is the brother-in-law of Ms. Ho, and Wealth Vantage International Limited, an unaffiliated investor. On December 9, 2010, Fujian Qianlon was established by HK Dragon Holdings with a registered capital of $2,573,437. We have paid such amount in full during the year ended December 31, 2011. The business of Fujian Qianlon is research and development of agricultural technologies, propagation of bamboo-willow tree seedlings and plantation of bamboo-willow trees.





Our principal executive offices are located at 11/F, Shum Tower, No.268 Des Voeux Road  Central, Hong Kong. The telephone number is +852 3996 7222. Our registered office is in the Cayman Islands located at the offices of Maples Corporate Services Limited at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other place within the Cayman Islands as our Directors may decide. Our agent for service of process in the United States is C T Corporation System, 111 Eighth Avenue, New York, New York 10011.  Investors should contact us with any inquiries through the address and telephone number of our principal executive offices.





B. Business Overview





Overview





We are in the initial stages of developing a business in the forest seedling industry. Our main business is the mass propagation and sale of bamboo-willow seedlings and our secondary business is the sale of bamboo-willows as wood pulp generated from our trial bamboo-willow tree plantation business.  We have a limited operating history and limited revenue from sales of super mother bamboo-willow seedlings through December 2012. We recorded revenue amounting to $14,982 for the year ended December 31, 2012. In October 2012, we signed a regional business partner agreement with Fujian Province Anxi County Jin Long Yuen Tea Industry Company Limited for the purchase of seedlings and related services in Anxi County, Fujian Province. In November, 2012, we signed a non-binding letter of intent with a regional business partners which is located in Nan’an County, Fujian Province for the purchase of seedlings and related services. In addition, to further develop the application of our probiotic-based organic fertilizer, we signed an agricultural consultancy agreement in June, 2012 with Fujian Province Shan Ge Agricultural Comprehensive Development Company Limited to obtain feasibility study on Chinese Yam application and signed a non-binding letter of intent in November 2012 with a company to develop land treatment project in Caofeidian, Hebei Province by using our fertilizer.





Bamboo-willow is a type of Salicaceae plant and is a hybrid of Chimonobambusa Marmorea, Chosenia Arbutifria and Salix Linearistipularis. Its natural characteristics include fast growth, high cultivation density and strong resistance to diseases.  It is also highly adaptable to a wide range of climatic and soil conditions. Bamboo-willow is expected to have an economic life of 13 years. Based on studies of the wood density, natural lightness, chemical constitution and fiber quality of bamboo-willow conducted by China National Pulp & Paper Research Institute, Beijing in 2009, it also can be used as a fast growing pulp material for papermaking.





We are also developing a business model focusing on the application and commercialization of TFPPT.  TFPPT is an emerging technology for rapid, uniform and mass propagation and growth of high-quality seedlings and plantlets.  We believe the successful application of TFPPT can provide us with significant competitive advantages in our business of mass propagation of bamboo-willow seedlings.





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Since November 2010, we have been planning for the development of our business.  We had planted 35,698 bamboo-willow super mother saplings for our seedling propagation operation by the end of December 2012. Propagation of bamboo-willow is done by stem cutting and transplanting the stems to soil. On average, we cut 18 seedlings every 20 days from each super mother sapling tree. Super mother sapling trees are 1.5 meter bamboo-willow trees.  They are the sources for our seedling propagation through a cutting method. Therefore, we expect 3,200,000 seedlings each year can be cut from our existing super mother saplings.  We have been building our initial base site in Xiamen since September 2010 and finished the infrastructure construction at the end of August 2011. We started our bamboo-willow seedlings propagation in November 2010 and started our bamboo-willow tree plantation in April 2011. We have a limited operating history and $14,982 revenue from sales of bamboo-willow seedlings through December 2012. We also expect a secondary source of revenue to come from the sale of young bamboo-willow (two to three years old) for wood pulp in papermaking beginning in the fourth quarter of 2014.  As of the date of this annual report, we just generated $14,982 revenue.  The loss attributable to our equity shareholders for the year ended December 31, 2012 was $0.7 million and our accumulated losses as of December 31, 2012 were $2.3 million.  We anticipate that our initial markets will be in the PRC.





Our Technology





Our business is based on the successful application and commercialization of TFPPT.  The application for a utility model for “Aeroponics Cultivation System and Method” was granted by the State Intellectual Property Office of the PRC on August 17, 2011 and this patent for the utility model shall be valid until January 10, 2021. Mr. Chang has not applied for intellectual property rights with respect to TFPPT in any other jurisdictions. We withdrew the application for an invention patent for “Aeroponics Cultivation System” from the State Intellectual Property Office of the PRC because we obtained the utility model for “Aeroponics Cultivation System and Method” with a patent number ZL201120014974.7 that we believe it would be sufficient to protect our intellectual property.





TFPPT is an emerging technology that can be used to optimize the growth conditions critical for cultivation and propagation of seedlings, plantlets, plants and transplants to achieve fast, pathogen-free and uniform growth. TFPPT regulates and controls plant growing conditions such as the level of nutrition, temperature, humidity and light intensity to accelerate the growth of plants. We believe that it permits better water, nutrient and oxygen absorption in plants by maintaining the optimum size of the droplets within the system to achieve faster growth as well as higher yields as compared to many traditional methods of plant production. TFPPT provides the seedlings with an enclosed and disease-free environment because it keeps seedlings physically separated from one another and each spray pulse is sterile.





TFPPT includes three key components: (i) probiotics-based organic fertilizer; (ii) aeroponics cultivation system; and (iii) stereoscopic trellising cultivation method.





Probiotics-based Organic Fertilizer





Organic fertilizers, such as manure, slurry, peat, seaweed and straw, are naturally occurring. Processed organic fertilizers include compost, blood meal, bone meal, humic acid, amino acids, and seaweed extracts. TFPPT’s organic fertilizer includes probiotics, which help control diseases effectively in the soil by decomposing calcium phosphate and potassium, and toxic substances and heavy metals in the soil. In addition, probiotics provide essential elements for development and strengthening of plants’ rooting systems.





Our probiotics-based organic fertilizer is based on animal manure, milk and some marine organisms such as media, which is subject to a fermentation process. Even though the ingredients used in our probiotics-based organic fertilizer are commonly available, the formula and process of making our probiotics-based organic fertilizer are proprietary.  It is a unique blend of different probiotics which contains no harmful chemicals. The way the ingredients interact with each other produces a synergistic effect that promotes vegetative reproduction. Our probiotics-based organic fertilizer is capable of modifying and activating soil and effectively degrading soil pollution. Moreover, it promotes better growth and higher resistance to pests and diseases by enhancing development and strengthening the rooting systems of plants. The use of probiotics-based organic fertilizer enhances plant cultivation and improves soil composition and fertility and use of chemical fertilizers and pesticides can be reduced significantly.





Successful production of plants involves optimizing soil fertility, which is dependent on a series of complex interactions of the numerous components of the soil in various physical, chemical and biological processes and phenomena. Deriving agronomic benefits from the application of compost-based fertilizers to croplands requires a compost product that interacts beneficially with all such physical, chemical and biological processes and phenomena that occur in the soil. Factors influencing soil fertility include soil pH, the form of resident nutrients, temperature, moisture content, atmosphere and microbial populations that are present in the soil. Plants need nitrogen, phosphorus and potassium, as well as micronutrients and symbiotic relationships with fungi and other organisms to flourish. However, getting enough nitrogen at the right time is a significant challenge for organic farming. Incorporation of compost, such as our probiotics-based organic fertilizer, into the soil can improve all these factors. The probiotics-based organic fertilizer helps to provide nitrogen through legumes which draw nitrogen from the atmosphere through symbiosis with the bacteria Rhizobia. Through the use of probiotics-based organic fertilizer and legumes, organic farming can become more effective and generate healthier yields.





We believe our probiotics-based organic fertilizer provides the following advantages in our plant cultivation:




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
Soil fertilizationBeneficial bacteria and derivatives in the probiotics-based organic fertilizer accelerate the transformation of nutrients that nourish the soil and provide the plant with assimilable substances.  The usage of probiotics-based organic fertilizer results in multiplication of the number of microorganisms in the soil that improves soil fertility.






Anti-salinizationThe halotolerant and halophilic strains contained in the bacteria in the probiotics-based organic fertilizer can deactivate bases in the soil, remove base-related obstacles and alleviate salinity by regulating soil pH levels.






Anti-pathogenThere are a large number of resting spores of beneficial organisms in the probiotics-based organic fertilizer. When our fertilizer is applied to a plant after being diluted with water, reproduction of the beneficial organisms makes it difficult for pathogens to breed and adhere to the plant, or to transmit diseases to the plant. The algae extracts contained in the probiotics-based organic fertilizer inhibit diseases caused by some bacteria like fusaria.






Nitrogen fixationThe probiotics-based organic fertilizer contains diazotrophs that make it possible for nitrogen gas in the atmosphere to be converted into substances that plants can assimilate. The assimilated nitrogen can then be used by plants to synthesize fatty acids.






Phosphoric acid and release of potassiumOne of the roles of effective organism (EM) fertilizers is to release phosphoric acid, thereby converting phosphates confined in the soil into water-soluble phosphates. The probiotics-based organic fertilizer is also capable of effectively releasing some elements which tend to form water-insoluble salts, such as potassium, calcium, iron and magnesium.






High efficacyUse of the probiotics-based organic fertilizer helps to speed up the growth of plants by promoting root development and photosynthesis.





Aeroponics Cultivation System





Our aeroponics cultivation system is the process of growing plants in air or in a misty environment without the use of soil or an aggregate medium (known as geoponics). Unlike hydroponics, which uses water as the growing medium, and uses essential minerals to sustain plant growth, aeroponics does not need a growing medium. The basic method of aeroponics cultivation is to grow plants suspended in a closed or semi-closed environment by spraying the plants’ dangling roots, lower stems and leaves with an atomized, nutrient-rich water solution. The nutrient/mist is delivered via a spray that pulses an atomized nutrient-rich solution at specific intervals for a specific duration to the plant. Plants are supported in individual plant support structures, allowing them to grow and supported by very little sand in the case of nursery for bamboo-willows or without soil or aggregate media in general. Monomial contact between a plant and the support structure allows for the entire plant to be in the air. Physical contact is minimized so that it does not hinder natural growth and root expansion, or access to pure water, air exchange and disease-free conditions.





The Aeroponics cultivation system requires a set of equipment including sprayers, misters, foggers, and other devices to create an atomized nutrient-rich solution that permits plant roots to better absorb nutrients and oxygen. TFPPT uses a custom hydraulic cylinder to regulate the system, which is fully automated, and operates with high accuracy and reliability. It can effectively convert solution into droplets, each with an ideal size for better absorption of nutrients and oxygen by the plants.





High-pressure aeroponics techniques, where the mist is generated by high-pressure pumps, are typically used in cultivation of high value crops and plant specimens that can offset the higher setup costs associated with this method of horticulture. High-pressure aeroponics systems include technologies for air and water purification, nutrient sterilization, low-mass polymers and pressurized nutrient delivery. The biological system matrix includes enhancements for extended plant life and crop maturation. Biological subsystems and hardware components include effluent control systems, disease prevention, pathogen resistance features, precision timing equipment, nutrient solution pressurization system, heating and cooling sensors, thermal controls for solutions, fail-safe sensors and protection, features for low maintenance and for reducing labor deployment, and ergonomic and long-term reliability features. Advanced commercial systems include data gathering, monitoring and analytical feedback to various subsystems.





The chart below provides an illustration of our aeroponics cultivation system:





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The aeroponics cultivation system sprays our atomized, nutrient-rich probiotics-based organic fertilizer and water onto lower stems, leaves or dangling roots of seedlings (either intermittently or continuously, regulated by a hydraulic cylinder), where water droplet size is crucial for sustaining aeroponic growth. If the droplet size is too large, less oxygen can be delivered to the stem, leaf or root system; if it is too small, such as droplets produced by ultrasonic mister, this leads to excessive stem, leaf or root hair growth at the expense of lateral root system growth. The optimum size of the droplets is maintained within the system for maximum efficiency. The optimal size results in an appropriate nutrient content uptake by plants, which boosts their growth. When compared to other aeroponics systems, we believe that our TFPPT approach delivers more oxygen to plant stems, leaves or roots through increased aeration of nutrient solutions, which will stimulate growth. We believe that these conditions allow better plant nutrition assimilation in a more balanced way, resulting in faster growth of cultivated plants. We believe that our aeroponics cultivation system provides the following advantages in our seedling cultivation:






Less Water and Nutrient ConsumptionThe aeroponics cultivation system works in a closed loop environment that permits the atomized nutrient-rich solution to recirculate in a closed system. The closed-loop system minimizes evaporative loss of water, ensuring that all nutrient droplets will be completely absorbed by plants. Water consumption of an aeroponic system is less than that required for a normal greenhouse. In addition, the closed-loop feature of the aeroponics cultivation system allows all the atomized solution to be absorbed by the plants.






Yields Independent of Seasonal AdversitiesThe aeroponics cultivation system is sheltered within a machine room. It produces an atomized nutrient-rich solution and is transferred from the system to greenhouses through underground pipes. Since the whole structure is in a closed, hermetically sealed environment, yields are not affected by weather or other seasonal adversities. Further, as TFPPT optimizes the growing conditions for the plants within the greenhouse, it ensures high cultivation yields. This feature of TFPPT allows a year-round production cycle and ensures constant market supply of plants with greater price stability.






Higher Organic Qualities of ProductsThe aeroponics cultivation system is a closed-loop cultivation system where every component in the closed-loop system is sterilized, including plants. This helps to prevent pathogen, and eliminates the need for pesticides. The 3-dimensional A-frame is designed to reduce plant-to-plant contact by hang plants up in the air. This allows the plants to grow without media, such as soil, resulting in less disease transmission. Any infected plant can be removed individually and immediately. The pesticide-free Aeroponics cultivation results in higher organic qualities of products.






Automated Process Produces Consistent Results and Reduces CostsThe aeroponics cultivation system uses a custom hydraulic cylinder to regulate the system. This fully automated, closed-loop system can produce consistent results based on pre-determined conditions with minimal attention and maintenance. The system effectively converts solution into droplets with a pre-determined optimal size. The automated process reduces operational and maintenance costs.





Stereoscopic Trellis Cultivation Method





Our stereoscopic trellis cultivation method uses a 3-dimensional system that increases the output per square foot of land per year.  It combines many mist propagation benches with an A-frame designed bench which triples the capacity for commercial propagation and germination without sacrificing additional floor space. This method is not used in our mass propagation of bamboo-willow seedlings.





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Roots are suspended in the closed trellis where they are sprayed with an atomized nutrient-rich solution at regular intervals. The humidity in this trellis remains close to 100 percent which allows the roots to hang in the chamber without drying out. Most often, the plants are placed in net pots that contain a small amount of growing medium.





The stereoscopic trellis does not allow plant-to-plant contact. Because this system does not use any growing medium (besides the small amount in the net pot used for stabilization), this soilless growing eliminates transmission of disease through a growth media. Any infected plant can be removed to prevent spread of the pest. This disease-inhibiting environment promotes plant growth in higher densities compared to traditional forms of cultivation such as the hydroponics, soil and nutrient film technique (a hydroponic technique whereby a shallow stream of water containing the entire dissolved nutrient required for plant growth is recirculated past the bare roots of plants in a watertight gully).





Intellectual Property





Our business is substantially dependent on our ability to apply and commercialize TFPPT, which is an emerging technology for agricultural and botanical cultivation, and can be used to optimize the growth conditions critical for cultivation and propagation of high-quality seeds, seedlings, plantlets, plants and transplants to achieve fast, pathogen-free and uniform growth. The application for a utility model for “Aeroponics Cultivation System and Method” was granted by the State Intellectual Property Office of the PRC on August 17, 2011 and this patent for the utility modelshall be valid until January 10, 2021. Mr. Chang has not applied for intellectual property rights with respect to TFPPT in any other jurisdictions. We withdrew the application for an invention patent for “Aeroponics Cultivation System” from the State Intellectual Property Office of the PRC because we obtained the utility model for “Aeroponics Cultivation System and Method” with patent number ZL201120014974.7 that we believe it would be sufficient to protect our intellectual property.





In July 2010, Ms. Tsai, the mother-in-law of Ms. Ho, entered into the Taiwan Fast Plant Propagation Technology Exclusive License Agreement, or TFPPT License Agreement, with Mr. Chang. Pursuant to the TFPPT License Agreement, Mr. Chang granted a worldwide exclusive license to Ms. Tsai with respect to all intellectual property rights in and to TFPPT for a period of 30 years commencing July 1, 2010.  Such intellectual property rights include worldwide copyright, design rights, know-how, confidential information, trade secret and any other similar rights related to TFPPT and its components, including applications of any of the foregoing. Mr. Chang further granted Ms. Tsai the exclusive right, for 30 years commencing on July 1, 2010, to use TFPPT and all related proprietary rights including all related applications of the technology and its enhancements created in the past, present and in the future, owned and continually developed and enhanced by Mr. Chang and his affiliates.  Pursuant to the TFPPT License Agreement, Ms. Tsai agreed to pay to Mr. Chang a non-refundable license fee of approximately $128 and a royalty fee, payable quarterly, equal to 6% of the income received by Ms. Tsai and her sub-licensees from the use and application of the patentable technology related to TFPPT.  On July 20, 2010, pursuant to an assignment agreement with Ms. Tsai, we obtained all Ms. Tsai’s rights, title and interests in and to the patentable technology related to TFPPT granted to her by Mr. Chang under TFPPT License Agreement. Dragon Bright HK agreed to directly pay Mr. Chang, commencing December 31, 2010 and at the end of every quarter thereafter, as a royalty fee, an amount equal to 6% of the income received by Dragon Bright HK, its subsidiaries and its sub-licensees from the use and application of TFPPT for the period December 31, 2010 to June 30, 2040.





Pursuant to a technology assignment agreement dated as of January 7, 2011, by and between Mr. Chang and Ms. Tsai, Mr. Chang assigned and transferred to Ms. Tsai all his rights, title and interest in and to the technological process related to the formulation of the probiotics-based organic fertilizer. On January 10, 2011, Ms. Tsai further assigned and transferred all of the foregoing rights, title and interest to us pursuant to an assignment agreement.





Our Products and Business Segments





We are in the initial stages of developing our business using TFPPT and plan to operate in the forest seedling industry and, secondarily, the paper pulp industry. We have identified bamboo-willow as the primary plant that we will grow for our business because we believe young bamboo-willows can be used to produce wood pulp in papermaking.





We expect to have two businesses as follows:






mass propagation of bamboo-willow seedlings and plantlets for sale to seedling growers and forest tree planters and secondarily for our tree plantation projects; and






bamboo-willow tree plantation to produce young bamboo-willow trees for sale as wood pulp for paper making.





We plan to commence our business in stages.  We expect that our mass propagation of bamboo-willow seedlings and plantlets will be our primary business at least for the first three years of our operation.  During these three years, we plan to secure various sites for our production, complete the building of infrastructure at these sites and cultivate bamboo-willow seedlings from super mother bamboo-willow saplings to commence and expand our mass propagation operation. In the second quarter of 2011, we commenced a small scale bamboo-willow tree plantation operation of 1,060 mu. We rented two bamboo-willow seedling cultivation infrastructure in 2012.Future construction of greenhouses in these infrastructures will be solely for bamboo-willow seedling propagation.





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As of the date of this annual report, we generated $14,982 revenue from  sales of super mother bamboo-willow seedlings through December 2012. In November 2012, we signed a non-binding letter of intent with a regional business partners which is located in Nan’an County, Fujian Province for the purchase of seedlings and related services.We estimate the regional businesses mentioned above will sign regional business partner agreement around September 2013. Upon signing the agreements with the Company, the regional businesses will pay RMB 2 million as deposit to begin to purchasing bamboo-willow seedlings and consultancy services of our bamboo-willow plantations starting in January 2014. We expect the sale of young bamboo-willows (three years old) for wood pulp in papermaking to begin by approximately 2014.  However, there is no guarantee that we will generate any revenue.





Since November 2010, we have started propagation of bamboo-willow seedlings. We had planted 35,698 super mother bamboo-willow saplings by the end of 2012. From our super mother bamboo-willow saplings, we propagated 282,741 seedlings at the end of 2012.





Besides our core business, namely the forest seedling business and the paper pulp business, we plan to further develop our probiotic-based organic fertilizer in various applications. We expect to have the business by indentifying the planting industry key players in Fujian Province to provide tailor-made fertilizer.





Mass propagation of bamboo-willow seedlings and plantlets





We purchase bamboo-willow saplings from the market as super mother bamboo-willows to cut seedlings for propagation in our business.  Propagation of bamboo-willow is done by stem cutting and transplanting to soil. It takes approximately 100 days in three stages in the propagation process as described below.





Super mother sapling supply zone – 20 days





We purchase 1.2 meter-height bamboo-willow saplings to be used as super mother bamboo-willows and plant them in a designated zone known as a “super mother bamboo-willow seedling supply zone.”  Bamboo-willow used as super mother for seedlings propagation can be planted at a density of up to 10,000 pieces per mu (or 0.067 acre). On average, we can cut 18 seedlings every 20 days from each super mother sapling. When seedlings have grown and are ready to be transplanted, they are collected from the super mother bamboo-willow sapling supply zone and transplanted to a designated zone known as a “nursery zone.”





Nursery  Zone – 20 days





In the nursery zone, bamboo-willow seedlings are cultivated in an enclosed greenhouse environment applying our probiotics-based organic fertilizer and aeroponics cultivation system for 20 days. We provide bamboo-willow stem cuttings that can quickly take root once planted in the sand and also reduce the cost of transportation. The stems are the specialized cuttings derived from mother saplings and are easy to propagate – a cutting taken out from the plant and simply pushed into the aeroponic system will take root.





The bamboo-willow stems are planted in distilled sand floor inside a completely enclosed greenhouse, rather than using the stereoscopic trellis cultivation method. An atomized, nutrient-rich solution that is made from the probiotics-based organic fertilizer is sprayed on the plants. Growing them inside an enclosed greenhouse will ensure the nutrient absorption efficiency of the stems. Under such conditions, the seedlings are completely exposed to nutrients, water and carbon dioxide, the key components for the plants to grow. The stems will quickly take root once they are planted on the sand. Since the growing materials are atomized and completely diffused inside a closed environment, they can be easily absorbed by the stems, leaves or roots, further enhancing the growth of the plant.  Distilled sands are used, instead of soil, because of the silica structure; toxins can be easily distilled by our microbe solution. This ensures that the growing environment for the seedlings is disease-free, which results in a higher survival rate for the seedlings. Different devices are installed inside the greenhouse to maintain the internal temperature and humidity giving the optimized conditions for growing.





Acclimatization Zone – 60 days





Post-nursery, seedlings are transferred to the acclimatization zone, which is an open area. In this area, the seedlings are planted into the soil directly. Seedlings require extra strength to adapt to the external environment before actual plantation. As the acclimatization zone is in an open area, we cannot apply the Aeroponics cultivation system. However, we continue to apply our probiotics-based organic fertilizer. At this stage, the roots mature to help absorption of nutrients and water from the soil. Acclimatization of seedlings aims to provide seedlings adjustment to changes in environment. This process is called hardening, which involves changes such as lowering the water content and increasing the sugar content of the plant. The whole acclimatization process takes about 60 days and, at the end, the seedlings are usually around 60 cm long. The bamboo-willow seedlings are expected to have adjusted to the external environment by that time and will be ready to be transported to the designated plantation sites or for sale.





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Bamboo-willow tree plantation





After acclimatization, seedlings will be either transplanted into the soil or sold to seedling growers and forest tree planters.





One of the key components to the successful application of TFPPT in bamboo-willow tree plantations is forest management. Our forest management plan will be based on the following specific guidelines for the establishment and sustainable management of forest tree plantations.





Choice of Plantation Sites





We will first select sites based on the relevant environmental impact assessment, the economic features of the site, logistics and the local environment.





Site Protection





Sufficiently broad and completely protected buffer strips along stream banks and adjacent riparian areas will be kept under special management to reduce environmental problems.





Site Preparation





We will closely monitor site preparation to avoid serious environmental damage through soil compaction, erosion and loss of top soil nutrients. Proper site preparation enhances the early growth and development of tree species through improvement of the soil’s physical conditions and reduction in competition from other vegetation during the establishment phase.





Fertilization





When necessary, especially in the case of degraded land, we plan to apply nutrient supplements such as our probiotics-based organic fertilizer to improve soil fertility to enhance the survival and growth rates of trees.





Tending and Weed Control





We plan to develop effective tending and weed control based on the dynamic competition between tree species and other vegetation, not only during the establishment phase but also later in the rotation to facilitate access for fire control, harvesting and other management activities.





Thinning and Pruning





Thinning and pruning of tree plantations significantly affect the end use and profitability of products. Timely pruning and thinning are important in reducing costs and achieving maximum yield.





Pest Control and Disease Management





Pest and disease outbreaks can occur at any stage of plantation development. We plan to design preventive, control and contingency strategies and develop practices to minimize outbreaks and to effectively handle the aftermath of outbreaks.





Fire Control





Fire can be a serious threat to productivity, ecological stability, quality of planted forests, and their growing stock. We plan to design preventive control and contingency strategies and plans for fire management to minimize and control instances of fire.





Monitoring





Suitable systems for growth and yield prediction by means of simulation will be applied, allowing forest managers to respond to changing community and market demands in a manner consistent with the overall objective of sustainable production.





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Research and Development





We believe that our core competitive advantage lies in our rights to utilize TFPPT and its successful application and commercialization in our mass propagation of bamboo-willow seedlings and, secondarily, to grow bamboo-willows for the paper pulp industry.  We expect that successful application of TFPPT in our business of mass propagation of bamboo-willow seedlings will reduce their cultivating cycle, which may enhance the production yield of bamboo-willow seedlings in a given period of time.  Therefore, strong research and development capabilities are critical to the success of our business. We expensed $2,148 on research and development in 2012 and plan to incur approximately $5,000 annually for our research and development projects in the next few years.








Our research and development efforts will initially focus on providing technical support for the sustainable growth of our bamboo-willow seedlings operation and further improving our technologies.  Specifically, we plan to further refine the specifications and cultivating formula in the application of TFPPT.  We also plan to improve our probiotics-based organic fertilizer with the aims of enhancing the quality of bamboo-willow timber, increasing the harvest yields and reducing our cultivation costs.  In addition, we will also emphasize continued efforts in searching for and cultivating various other plants with higher economic value suitable for our business model.





In addition to building strong internal research and development capabilities, we also plan to work with outside research entities when appropriate. We plan to license the technologies and advanced methods resulting from our research and development efforts to generate additional revenues. Currently, we have reserved three greenhouses for research and development activities.





The following chart shows the expected activities of our research and development greenhouses:










Raw Materials





The primary raw materials for our bamboo-willow seedling operation are bamboo-willow super mother saplings, and the various ingredients used in making our probiotics-based organic fertilizer. Each bamboo-willow super mother sapling has a life expectancy of six years.  We expect to replace our current super mother saplings in April 2016. Bamboo-willow saplings are readily available in China and we do not anticipate a shortage of bamboo-willow saplings in the foreseeable future.





Our probiotics-based organic fertilizer uses commonly available ingredients, except that there may be a limited number of suppliers of certain key components of the fertilizer, such as microorganisms.  Our current provider of microorganisms is Yue Nong Seedling & Flowers Company Limited, for which Mr. Chang, one of our shareholders and the inventor of TFPPT, serves as our sole agent for sale of our products in China. We expect most of the raw materials for our seedling propagation operation to be easily available in the market and we do not expect to rely on any one supplier to supply our raw materials.





Our Customers





We seek to build a long-term relationship with a range of customers, specifically targeting domestic seedling growers and planters, wood pulp dealers and papermaking factories.  With the surging demand for wood pulp for papermaking in China, we believe that our products will have a significant market.





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For our bamboo-willow seedlings mass propagation business, we expect to sell most of our bamboo-willow seedlings to seedling growers and forest tree planters.  We intend to use the rest of the seedlings for our own small-scale tree plantation.





For our small-scale bamboo-willow tree plantation business, we expect to focus on the wood pulp supply market and have been developing relationships with various wood pulp dealers in China.





Properties





Both of our bamboo-willow seedling cultivation and tree plantation sites are located at Tianzhu Mountain in Xiamen, which is about 30 minutes drive from the Xiamen Airport. The location of the site will allow us to deliver our products to anywhere in China within 40 hours. Xiamen is located in a subtropical zone with abundant rainfall, bright sunshine and a high level of groundwater. These climatic conditions are appropriate for the growth of bamboo-willow.





In May 2010, we entered into a co-operation agreement with Xiamen Tianzhu Industrial Development Company Limited, or Xiamen Tianzhu. Pursuant to the co-operation agreement, Xiamen Tianzhu is responsible for providing land for our use, and negotiating with local agencies regarding approval of business license. In addition, Xiamen Tianzhu is also responsible for building friendly relationship with local farmers and assisting us with relevant government procedures.  We are responsible for financing, infrastructure and the business operation.





Pursuant to the co-operation agreement, we are entitled to use a maximum of 100 mu (66,667 square meters) of agricultural land in Xiamen Tianzhu Mountain for our bamboo-willow seedling cultivation. We pay a fixed amount of RMB 1,000 per mu (667 square meters) per year based on the actual areas used every year for 20 years. We plan to divide this land into various functional zones such as parent saplings, offspring plantlet nursery, acclimatization of plantlets and engine room to support the aeroponic cultivation system. As of December 31, 2012, 3 greenhouses (one mu or 667 square meters per greenhouse) and 2 machine rooms had been built on this site. We have commenced operation in the bamboo-willow nursery zone and have started the research and development greenhouses planting other seedlings for potential test purposes in plantation racks.  We have invested approximately RMB 5.6 millionto establish the infrastructure at this site as of December 31, 2012.





We entered into a land-leasing framework agreement in December 2010 with each of Xi Dong Village and Xi Xi Village of Hu Yang Town, Yong Chun County, Quanzhou City respectively, to lease up to 1,149.51 mu (approximately 766,340 square meters) of farm land in Yongchun County, Quanzhou City, for our bamboo-willow tree plantation at the Tianzhu Mountain site at a price range between approximately $8 and approximately $32 per mu (667 square meters) per year for 30 years.  Pursuant to the two land-leasing framework agreements, we entered into eight land lease agreements with Xi Dong Village and Xi Xi Village in February 2011 to lease 961.9 mu of land in Yong Chun, Quanzhou, Fujian Province for propagation of additional bamboo-willow seedlings.  All of the eight land lease agreements have a term of 30 years at a price range between approximately $8 and approximately $55 per mu per year. As of December 31, 2012, we had spent approximately RMB 88,793 (approximately US$ 14,077) in the land lease in Yong Chun.





Before March 1, 2013, our principal executive office was located at Flat A, Level 15, Yardley Commercial Building, 1-6 Connaught Road West, Hong Kong. We paid rent of approximately $5,570 per month, and the lease term is one year from March 1, 2012 to February 28, 2013. Starting from March 1, 2013, we worked at 15/F, Lee Fung Centre, 31 Wong Chuk Hang Road, Hong Kong, on a temporary basis, which was provided by Anita Lai Lai Ho based on our oral agreement with her. Director of the company, at nil consideration.  Starting from May 2013, we have been working at 11/F, Shum Tower, No. 268 Des Voeux Road Central, Hong Kong.  We pay rent of approximately $4,600 per month, and the lease term is two years from May 20, 2013 to May 19, 2015.  Our office in Hong Kong was established as part of our efforts to foster and improve relationships with international investors on a continuous basis. As of December 31, 2012, we had incurred approximately $4,206 on office fixed assets.In addition, since December 2010, we had also leased office facilities in Xiamen, China under a two-year operating lease, which was expired in December 2012, with monthly rental payments of approximately $713. We have renewed this operating lease to December 13, 2015.





Environmental Matters





Our business operations are subject to a broad range of evolving environmental laws and regulations in China. We place strong emphasis on environmental protection in conducting our business. Compliance with these laws and related regulations is an ongoing process that is not expected to have a material effect on our capital expenditures, future earnings or competitive position. However, environmental concerns are inherent in most major agricultural operations, and there can be no assurance that future developments, such as increasingly strict environmental laws and enforcement policies thereunder, will not result in increased compliance costs. See “Item 3. Key Information – D. Risk Factors — Risks Related to Our Business — Our failure to comply with increasingly stringent environmental regulations and related litigation may result in significant penalties, damages and adverse publicity for our business.”





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Sales, Marketing and Distribution





As both of our bamboo-willow seedlings and bamboo-willow wood pulp will be sold as commodities, we do not expect to engage in significant marketing and branding efforts. We plan to develop sales channels through certain B2B online platforms.





We plan to sell our products to forest tree plantation companies, seedlings growers, manufacturers of paper pulp producers and dealer agents.





Competition





We believe the forest seedlings industry in China is highly fragmented and competitive with a large number of participants, including individual farmers and small private forest companies. We do not expect to compete with any state-owned agriculture companies as no state-owned agriculture companies are engaged in our business.  We may face intense competition from other companies that provide seedlings, wood pulp products, substitute wood pulp products and other alternative materials used in the paper making industry in China.  Many of these firms are well-established and possess technical and financial resources far greater than we do.





We expect our competition to be primarily affected by our ability to apply, commercialize and customize our TFPPT, the length of our cultivation cycle, product quality, distribution capability and pricing. Our product can be considered a commodity; therefore, we expect our competition to be less affected by brand recognition and perception. The level of competition may affect our ability to control our prices, and subsequently our profit margins and results of operations.





We need to establish and further expand our production scale and enhance our product offerings in order to compete with our competitors successfully.





Insurance





We maintain insurance for workplace injuries in Hong Kong and we maintain insurance for workplace injuries, premises and certain vehicles in China. We do not have insurance coverage on our other assets (including biological assets), inventories, business, interruption of business or key employees.  See “Item 3. Key Information – D. Risk Factors — Risks Related to Our Business — We have limited insurance coverage in China.”





Employees





As of December 31, 2012, we had a total of 35 employees, including 4 plantation workers and research and development employees as well as 31 management and administrative employees. We also had 52 temporary plantation workers as of the end of 2012. For the year ended December 31, 2012, our staff costs were $536,940.We review our remuneration policies and packages on a regular basis and will make necessary adjustment commensurate with the pay level in the industry. In addition to basic salaries, employees may be offered discretionary bonuses and cash awards based on individual performance.





We provide systematic training to our employees. We invite industry experts and farm managers to give regular training to our technical personnel as well as orientation programs to our newly hired technical personnel. We provide our managerial personnel with extensive training on business management and industry technology by experts and scholars associated with research institutes.





We do not have collective bargaining agreements with our employees. We do not have labor unions. We consider our relations with our employees to be amicable.





Legal Proceedings





As of April 30, 2013, we were involved in one claim in connection with salary payment with one of our former employees in December, 2012. The claim was raised in Labor Tribunal of Hong Kong.  In connection with this matter, we paid HK$78,200.0 (approximately US$9,775.0) to the injured party. Trial-related costs were approximately HK$120.0 (approximately US$15.0).





Regulations





Guidance of Foreign Investment Industries





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Investment in the PRC conducted by foreign investors and foreign-owned enterprises is governed by the Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, the latest edition of which was effective on January 30, 2012. The Catalogue divides industries into three basic categories: encouraged, restricted and prohibited. Industries not listed in the Catalogue are generally open to foreign investment unless specifically prohibited under other PRC regulations. Foreign-invested enterprises in encouraged industries are often permitted to establish wholly foreign-owned enterprises, while foreign-invested enterprises in the restricted category may only be permitted to set up equity or contractual joint ventures, in some cases with the Chinese partner required to be the majority shareholder. Restricted category projects may also be subject to the approval of higher-level governmental agencies. Foreign investment is not allowed for the industries in the prohibited category. Our business falls within the production of forestry seedlings industry, which is categorized as an encouraged foreign investment industry.





PRC Seed Law





According to the Seed Law of the PRC, any companies engaging in the production and operation of forestry seedlings must acquire a “tree seed production permit” and a “tree seed operation permit” respectively before conducting the relevant business in the industry. Unless otherwise required, the permits are normally issued by forestry administrative departments at the county level of the people's government of provinces, autonomous regions and municipalities. Fujian Qianlon’s application for a “tree seed production permit” and a “tree seed operation permit” were approved on October 18, 2011 and on October 18, 2011 respectively.





Land Use Rights





Collectively Owned Agricultural Land in Rural Areas





According to the PRC Law on Land Administration, all lands in the PRC are either state-owned or collectively owned. Generally, lands in the urban areas of cities are state-owned, whereas lands in the rural and suburban areas are, unless otherwise specified by law, collectively owned. When required, the state has the right to expropriate the collectively owned lands in accordance with law if such expropriation is beneficial to the public. For individuals, businesses and other organizations which are granted with the land use rights of the state-owned or collectively owned lands, they are permitted to hold, lease and develop these lands subject to the applicable PRC laws and regulations and specific governmental approvals.





Title Certificate of Collectively Owned Land





According to the PRC Law on Land Administration and its implementation rules, lands located in a village are owned as a whole by the farmers of the village collectively, except for those stipulated by laws as being owned by the State. The rural collective organization of such village shall operate and manage the relevant land.  The government at the county level or above must register and maintain a record of the collectively owned lands, and issue “collectively-owned land ownership certificates” for farmland or “forest title certificates” for forestlands to evidence and certify the ownership of the lands concerned. Lands collectively owned by farmers shall be operated under a contract by members of the respective collective economic organization for various uses such as crop cultivation, forestry, animal husbandry or fishery.





Rural Land Contracted Operation Rights





Under the PRC Law of the Operation of Rural Lands by Contract, or Land Contract Law, rural lands which are owned by the State and collective farmers include arable land, forestland and grasslands and other lands for agriculture use. China applies the contractual management system in respect of the operation of the lands in rural areas. These contracts for the operation of the lands take the form of household contracts within the respective rural collective economic organization. Lands that are not suitable for household contracts such as barren mountains, gullies, hills and beaches may be contracted in forms such as bid invitation, auction and public consultation. Anyone entering into a household contract must be a farmer household of the relevant collective economic organization. The term of the contracts is 30 years for arable land, 30 to 50 years for grassland, and 30 to 70 years for forestland.





A local villagers’ committee or rural collective economic organization is designated to operate and manage the rural land collectively owned by all the farmers within that village or rural collective economic organization. The local villagers’ committee or rural collective organization must enter into written contract with the farmer households granting the farmer households the right to operate the rural land. The contract becomes effective on the signing date and the farmer household is entitled, on the same date, to obtain the land contracted operation rights. Local governments at or above the county level issue to the farmer households the “land contracted operation right certificates” for farmland or the “forest title certificates” for forestland to evidence the rural land contracted operation right. The rural land contracted operation right obtained through the household contract may be transferred through subcontracts, leases, exchanges or other means as prescribed under PRC law, provided that certain approvals and procedures have been complied with. However, if the farmer households transfer or assign the rural land contracted operation right before obtaining the land contracted operation right certificates, other farmers of the village or rural collective economic organization have the right to claim the transfer or assignment invalid.





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The farmer households who have obtained the rural land contracted operation have the right to decide whether to transfer or assign the rural land contracted operation right and the means of transfer or assignment. Under equal terms and conditions, members of the same village or rural collective economic organization should enjoy pre-emptive rights. According to the Interpretations of the Supreme People’s Court on Issues Concerning Application of Laws for Trial of Rural Land Contracting Dispute Cases, the above mentioned pre-emptive rights must be claimed within a reasonable period after the issuance of the written announcement of transfer or assignment, or in case of no written announcement, within two months after the land has been used by other persons or entities outside the local village or collective economic organization. The pre-emptive rights will not be supported by the court if not claimed within the stipulated time period. Where the rural land contracted operation right is transferred or assigned by way of subcontracts, leases, exchanges, assignments, or other means, the parties must enter into a written contract and such transfer, subject to its type, is required to be prior approved by or filed with the local villagers’ committee, or registered with competent government up request.





Fujian Qianlon entered into farmland sub-contracting agreements with relevant local villagers’ committees for the lands leased in Yongchun, Quanzhou, and will enter into similar agreements with the relevant local villagers’ committees for our future leased lands.  Fujian Qianlon completed the government registration and filing process in July 2011.





Employment





According to the Employment Contract Law of the PRC effective as of January 1, 2008, employment contracts must be entered into if employment relationships are to be established between an employer and its employees. The employer cannot require the employees to work in excess of the time limit as permitted under the relevant employment laws and regulations and must pay to the employees wages which are no lower than local standards on minimum wages. The entity must establish and perfect its system for labor safety and sanitation, strictly abide by rules and standards on labor safety and sanitation, and educate employees in labor safety and sanitation in the PRC.





We have entered into written employment contracts with all of our employees.  We have complied with the PRC employment-related laws and regulations in all material respects.





Social Insurance Regulations





According to the Social Insurance Law effective as of July 1, 2011, employers in the PRC must conduct the registration of various social insurances for their employees with the competent authorities, including basic pension insurance, basic medical insurance, occupational injury insurance, unemployment insurance and maternity insurance.  The employers in the PRC and their employees shall jointly make contributions to the basic pension insurance, basic medical insurance and unemployment insurance, while the employees’ occupational injury insurance and maternity insurance shall be solely contributed by the employers in the PRC.





We have registered with the local social insurance agency in Fujian province and made required contributions to the basic pension insurance, medical insurance and unemployment insurance for our employees.  We have also purchased occupational injury insurance and maternity insurance policies for our employees.  We have complied with the PRC social insurance-related regulations in all material respects.





Regulations on Foreign Exchange Control and Administration





Foreign exchange regulation in China is primarily governed by the following regulations:





•

Foreign Exchange Administration Rules, or the Exchange Rules, promulgated by the State Council on January 29, 1996, which were amended on January 14, 1997 and August 5, 2008; and





•

Administration Rules of the Settlement, Sale and Payment of Foreign Exchange, or the Administration Rules, promulgated by the People’s Bank of China on June 20, 1996.





Under the Exchange Rules and the Administration Rules, Renminbi is convertible for current account items, such as the distribution of dividends and trade and service-related foreign exchange transactions. SAFE approval is normally not necessary for the payment of current account items unless otherwise explicitly provided by laws and regulations.  However, as for capital account items, such as direct investments, loans and securities and derivative investments, the conversion of foreign currency is still subject to the approval of, or registration with, SAFE or its local branches.





Under the Administration Rules and the Exchange Rules, enterprises may only buy, sell or remit foreign currencies at banks that are authorized to conduct foreign exchange business after the enterprise provides valid commercial documents and relevant supporting documents and, in the case of certain capital account transactions, after obtaining approval from SAFE or its competent local branches. Capital outbound investments by PRC enterprises are also subject to regulatory approvals, including approvals by the MOFCOM, SAFE and the National Development and Reform Commission, or their respective competent local counterparts or branches.





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Under PRC laws and regulations, we are permitted to provide funding to our PRC subsidiary only through capital contributions or loans which are both subject to PRC regulations and regulatory approvals. Capital contribution to Fujian Qianlon must be approved by MOFCOM or its local counterpart. Loans provided by us to Fujian Qianlon to finance its activities may not exceed statutory limits and must be registered with SAFE or its local branch. As of the date of this annual report, we have obtained the approval from MOFCOM’s local counterpart and completed the registration with local SAFE with respect to the capital contributions and loans to Fujian Qianlon, and we have complied with the PRC foreign exchange regulations in all respects.





We expect to derive substantially all of our revenues in Renminbi, which is not a freely convertible currency. Under our current structure, our income is expected to be primarily derived from dividend payments from our subsidiary in China. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign currencies, including the U.S. dollar, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a band against a basket of certain foreign currencies. In practice, the PRC government has adopted a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. dollar. See “Item 3. Key Information – D. Risk Factors —Risks Relating to Doing Business in China—Fluctuations in the value of the Renminbi may have a material adverse effect on your investment.”





C. Organizational Structure





The following chart summarizes our corporate structure as of December 31, 2012.













(1)
The remainder of the shares of Hong Kong Dragon Holdings Limited are held by Ms. Ho, our chairwoman and chief executive officer, Stanley Ang, our chief administrative officer and director, Million Max Limited, whose sole shareholder, Antonio Chau, is the brother-in-law of Ms. Ho, and Wealth Vantage International Limited, an unaffiliated investor.(2)
The rest of the shares of China Hainan Agriculture Holdings Ltd. are held by 11 unaffiliated investors.








D. Property, Plant and Equipment





Our principal executive offices are located in Hong Kong.





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The two bamboo-willow seedling cultivation sites are located at Tianzhu Mountain and Jimei in Xiamen and the tree plantation site is located at Yong chun county in Quanzhou City. See “Item 4. Information on the Company – B. Business Overview – Properties” in this annual report.





As of December 31, 2012, we operated 3 greenhouses and 2 machine rooms with an aggregate area of 35 mu in Tianzhu Mountain in Xiamen. The land is provided pursuant to co-operation agreements with Xiamen Tianzhu and Jimei and through leasing agreements with Xi Dong Village and Xi Xi Village.





Item 4A. Unresolved Staff Comments





None.





Item 5. Operating and Financial Review and Prospects





The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties





A. Operating Results





Overview





We are in the initial stages of developing a business in the forest seedling industry. Our main business is the mass propagation and sale of bamboo-willow seedlings and our secondary business is the sale of bamboo-willows as wood pulp generated from our trial bamboo-willow tree plantation business.  We have a limited operating history and generated revenue amounting to $14,982 from sales of super mother bamboo-willow seedlings through December 2012. In November, 2012, we signed a non-binding letter of intent with a regional business partners which is located in Nan’an County, Fujian Province for the purchase of seedlings and related services. In addition, to further develop the application of our probiotic-based organic fertilizer, we signed a non-binding letter of intent in November 2012 with a company to develop land treatment project in Caofeidian, Hebei Province by using our fertilizer.





Bamboo-willow is a type of Salicaceae plant and is a hybrid of Chimonobambusa Marmorea, Chosenia Arbutifria and Salix Linearistipularis. Its natural characteristics include fast growth, high cultivation density and strong resistance to diseases.  It is also highly adaptable to a wide range of climatic and soil conditions. Bamboo-willow is expected to have an economic life of 13 years. Based on studies of the wood density, natural lightness, chemical constitution and fiber quality of bamboo-willow conducted by China National Pulp & Paper Research Institute, Beijing in 2009, it also can be used as a fast growing pulp material for papermaking.





We are also developing a business model focusing on the application and commercialization of TFPPT.  TFPPT is an emerging technology for rapid, uniform and mass propagation and growth of high-quality seedlings and plantlets.  We believe the successful application of TFPPT can provide us with significant competitive advantages in our business of mass propagation of bamboo-willow seedlings.





Since November 2010, we have been planning for the development of our business.  We had planted 35,698 bamboo-willow super mother saplings for our seedling propagation operation by December 31, 2012. Propagation of bamboo-willow is done by stem cutting and transplanting the stems to soil. On average, we cut 18 seedlings every 20 days from each super mother sapling tree. Super mother sapling trees are 1.5 meter bamboo-willow trees.  They are the sources for our seedling propagation through a cutting method. Therefore, we expect 3,200,000 seedlings each year can be cut from our existing super mother saplings.  We have been building our initial base site in Xiamen since September 2010 and finished the infrastructure construction at the end of August 2011.We started our bamboo-willow seedlings propagation in November 2010 and started our bamboo-willow tree plantation in September 2011. We expect to generate our initial revenue from the sale of bamboo-willow seedlings beginning in the third quarter of 2013.  In November 2012, we signed a non-binding letter of intent with a regional business partners which is located in Nan’an County, Fujian Province for the purchase of seedlings and related services. In addition, to further develop the application of our probiotic-based organic fertilizer, we signed a non-binding letter of intent in November 2012 with a company to develop land treatment project in Caofeidian, Hebei Province by using our fertilizer. We also expect a secondary source of revenue to come from the sale of young bamboo-willow (two to three years old) for wood pulp in papermaking beginning in the fourth quarter of 2014.  As of the date of this annual report, we generated revenue amounting to $14,982. The loss attributable to our equity shareholders for the year ended December 31, 2012 was $0.7 million and our accumulated losses as of December 31, 2012 were $2.3 million. We anticipate that our initial markets will be in the PRC.





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Our business of mass propagation of bamboo-willow is substantially dependent on our ability to protect and commercialize TFPPT.  TFPPT has three components: (i) a probiotics-based organic fertilizer formulated and processed using certain proprietary technology; (ii) an aeroponics cultivation system using a process of growing plants suspended in a closed and semi-closed misty environment by spraying the plants’ dangling roots, lower stems and leaves with an atomized, nutrient-rich water solution without the use of soil or an aggregate medium; and (iii) a stereoscopic cultivation method using a 3-dimensional system that suspends roots of plants in a closed trellis where they are sprayed with an atomized nutrient-rich solution at regular intervals, which enhances output per square meter of land per year.  In our business of cultivating bamboo-willows, it is only necessary to apply two of the TFPPT components, the probiotics-based organic fertilizer and the aeroponics cultivation system, at and throughout the 20-day nursery stage. As bamboo-willows collected by stem cutting from the super mother sapling trees do not have roots and must be stabilized with a small amount of planting soil (or distilled sand) for the probiotics-based fertilizer mist to be sprayed on the stems and leaves in an aeroponics system, the stereoscopic cultivation method is not used in our aeroponics cultivation technology for bamboo-willow seedlings.





China is currently the world’s second largest wood-consuming country, with a utilization rate of approximately 400 million cubic meters per year, accounting for 25% of the world’s consumption. In addition, the Chinese forestry sector is in the midst of a significant transformation. According to the State Forest Administration, the increase in China’s domestic log production will not be able to match the increased demand.





We expect that such trend will continue; therefore we expect China’s future economic development to depend in part on developing a fast-growth plant species. Since our bamboo-willows seedlings have already been shown in scientific studies to be successful in producing paper pulp, we expect that a large number of companies, organizations and customers will purchase our bamboo-willow seedlings.





Critical Accounting Policies and Estimates





Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses for each period.  Below is a summary of our critical accounting policies, defined as those policies that we believe are crucial to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.





Fair value of biological assets





We account for biological assets at fair value.  Our management estimates that the initial costs incurred on the seedlings of biological assets through December 31, 2012 approximate their fair value. Besides, our management estimates that the market price of the same market less estimated costs to sell of planted trees of biological assets through December 31, 2012 approximate their fair value.





Our management evaluates fair value of our biological assets in consideration of the applicable accounting standards, which provide that a biological asset shall be measured on initial recognition and at the end of each reporting period at its fair value less the costs to sell. There is a presumption that fair value can be measured reliably for a biological asset.





If an active market exists for a biological asset or agricultural product in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset. If a company has access to different active markets, the entity uses the most relevant one. If an active market does not exist, a company uses one or more of the following, when available, in determining the fair value:






the most recent market transaction price, provided that there has not been a significant change in the economic circumstances between the date of that transaction and the end of the reporting period;
the market prices for similar assets with adjustment to reflect differences; and
sector benchmarks.





In some cases, the information sources listed above may suggest different conclusions as to the fair value of a biological asset or agricultural product. A company considers the reasons for those differences in order to arriving at the most reliable estimate of the fair value within a relatively narrow range of reasonable estimates. Alternatively, the fair value of biological assets is determined independently by professional valuers.





In some circumstances, market-determined prices or values may not be available for a biological asset in its present condition. In these circumstances, an entity uses the present value of expected net cash flows from the asset discounted at a current market-determined rate in determining the fair value. The objective of a calculation of the present value of expected net cash flows is to determine the fair value of a biological asset.





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Cost may sometimes approximate fair value, particularly when:






little biological transformation has taken place since the initial cost incurrence (for example, for fruit tree seedlings planted immediately prior to the end of a reporting period); or
the impact of the biological transformation on the price is not expected to be gain or loss arising on initial recognition, and subsequent changes in fair values less costs to sell biological assets are recognized in profit or loss in the period in which they arise.  Upon the sale of the agricultural produce as forestry products, the carrying amount is transferred to cost of forestry products sold in the statement of comprehensive income.





Our business is subject to the usual natural hazards from fire, wind and insects.  Forces of nature such as temperature and rainfall may also affect harvest efficiency.  Our management considers adequate preventive measures are in place to minimize exposure. However, to the extent that unanticipated factors may affect our production, they may result in remeasurement or harvest losses in future accounting periods.





Useful life of property, plant, equipment and intangible assets





Management estimates the expected useful life for our property, plant, equipment and intangible assets and determines the related depreciation policy.  The estimated useful life of the property, plant, equipment and intangible assets and the residual value reflects management’s estimates of the number of years that we intend to derive future economic benefits from the use of property, plant, equipment and intangible assets.  These estimates could change significantly as a result of technological innovations in response to industry cycles.  The depreciation and amortization expenses in future accounting periods may be adjusted if there are significant changes in those estimates.





Impairment of tangible and intangible assets





At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss or if an impairment loss previously recognized no longer exists or may have decreased.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment losses (if any).  Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.





Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.  A reversal of an impairment loss is recognized immediately in profit or loss.  Management determined that no impairment to tangible or intangible assets exists as of December 31, 2012.





Results of Operations





The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.





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Consolidated Statements of Comprehensive Loss




Year ended December 31,2012

2011

2010US$

US$

US$Revenue

14,982


47


-Cost of sales

(4,040)


(138)


-Gross profit

10,942


(91)


-Other income

611,807


1,284


11General and Administrative expenses

(1,530,633)


(1,876,818)


(166,863)Loss before income tax expense

(907,884)


(1,875,625)


(166,852)Income tax expense

-


-


-Loss for the year

(907,884)


(1,875,625)


(166,852)Other comprehensive income/(loss)Exchange differences on translating foreign

operations recognized directly in equity

15,361


88,413


6,918Total comprehensive loss for the year

(892,523)


(1,787,212)


(159,934)Loss attributable to:Owners of the Company

(780,952)


(1,459,589)


(144,644)Non-controlling interest

(126,932)


(416,036)


(22,208)(907,884)


(1,875,625)


(166,852)Total comprehensive loss attributable to:Owners of the Company

(774,451)


(1,418,397)


(143,115)Non-controlling interest

(118,072)


(368,815)


(16,819)(892,523)


(1,787,212)


(159,934)Loss per share – Basic and Diluted
$
*

$
*

$
*.* Less than (0.01) per share





Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011





RevenueOur revenue increased by $14,935 to $14,982 in 2012 from $47 in 2011, primarily due to the sales of 31,500 bamboo willow seedlings in May 2012.





Cost of SalesOur cost of sales increased by $3,902 to $4,040 in 2012 from $138 in 2011, which was in line with the increased sales of bamboo willow seedlings in 2012.





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Gross ProfitOur gross profit increased by $11,033 to $10,942 in 2012 from gross loss $91 in 2011, primarily due to the increased sales of bamboo willow seedlings in May 2012.





Other incomeOur other income increased by $610,523 to $611,807  in 2012 from $1,284 in 2011.The Chinese government granted subsidies of $27.1 thousand to Fujian Qianlong as we met the planting size criteria of the Yong Chun Town government Environmental Incentive Plan. In addition, we received other income of $123.1 thousand in connection with the consultancy services we provided to Fujian Province Shan Ge Agricultural Comprehensive Development Company Limited. Also, we received gain on fair value change of biological assets amounting to $443 thousand.





General and Administrative expenses Our operating expenses consist of general and administrative expenses. Our general and administrative expenses decreased by $346,185 to $1,530,633 in 2012 from $1,876,818 in 2011, primarily due to decreases in (i) professional services of $333,171, (ii) other expenses of $102,193, (iii) research and development expenses of $124,165 in connection with enhancing our research and development capacities.





Loss before income tax expense We recorded loss before income tax expense of $907,884 in 2012. Our loss before income tax expense in 2011 equalled to the sum of general and administrative expenses, gross profit and other income.





Income tax expensesNo provision for profits tax has been made, as there was no assessable taxable profit derived during the year of 2012 and 2011.




Loss for the year  Our loss for 2012 and 2011 equalled to loss before income tax expense.





Other comprehensive incomeOur other comprehensive income decreased by $73,052 to a gain of $15,361 in the year ended December 31, 2012 from $88,413 in 2011, as a result of exchange differences on translating consolidated financial statements recognized directly in equity.





Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010





RevenueOur revenue increased by $47 to $47 in 2011 from nil in 2010, primarily due to the launch of the trial sales of bamboo willow seedlings.





Cost of SalesOur cost of sales increased by $138 to $138 in 2011 from nil in 2010, which was in line with the increased sales as a result of the trial sales of bamboo willow seedlings in 2011.





Gross lossOur gross loss increased by $91 to $91 in 2011 from nil in 2010 , primarily due to the trial sales of bamboo willow seedlings in 2011.





Other incomeOur other income increased by $1,273 to $1,284 in 2011 from $11 in 2010, primarily due to increases in (i) interest income of $1,147 and (ii) exchange gains of $126 related to converting our bank deposits in Fujian Qianlon from Hong Kong dollars to Renminbi.





General and Administrative expenses Our operating expenses consist of general and administrative expenses. Our general and administrative expenses increased by $1,709,955 to $1,876,818 in the year ended December 31, 2011 from $166,863 for the year ended December 31, 2010, primarily due to increases in (i) professional services of $651,297, (ii) staff costs of $359,674, (iii) other expenses of $127,316, (iv) research and development expenses of $115,242 in association with our enhanced research and development activities, (v) meal and entertainment expenses of $107,396 and (vi) depreciation of property, plant and equipment of $99,444.





Loss before income tax expenseOur loss before income tax expense equalled the sum of general and administrative expenses, gross loss and other income.





Income tax expenses No provision for profits tax has been made, as there was no assessable taxable profit derived during the year of 2011 and 2010.




Loss for the yearOur loss for 2011 and 2010 equalled loss before income tax expense.





Other comprehensive incomeOur other comprehensive income increased by $81,495 to $88,413 in the year ended December 31, 2011 from $6,918 in 2010, as a result of exchange differences on translating consolidated financial statements recognized directly in equity.





B. Liquidity and capital resources





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Our consolidated financial statements as of and for the year ended December 31, 2012 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Report of our Independent Registered Public Accounting Firm on our consolidated financial statements as of and for the year ended December 31, 2012 includes a "going concern" explanatory paragraph which means that the auditors stated that conditions exist that raise substantial doubt about our ability to continue as a going concern.





As of December 31, 2012, we recorded a cash position of $1,998 and a bank overdraft of $29,050, of which $327 was denominated in Renminbi, $1,617 was denominated in HK dollars and US dollars and the $29,050 bank overdraft was denominated in HK dollars. Our cash decreased compared to that of December 31, 2011 primarily due to working capital requirement and for other general purposes.





Based on our financial position as of December 31, 2012, we believe our working capital is sufficient to meet our short-term cash requirements to create and expand our business capability, market development initiatives, research and development and product distribution infrastructure for the foreseeable future. We expect that the feasibility study of probiotic-based organic fertilizer applied in Chinese Yam will be completed by the end of August 2013. We believe we will gain a significant income if such application successfully proceeds. In addition, we estimate that Fujian Province Anxi County Jin Long Yuen Tea Industry Company Limited will start to purchase our seedlings and related services by the third quarter of 2013.





Should we require additional cash funding until such a time that we becomes profitable, our management believes that we can raise additional funds through the local financial institutions in Fujian Province. However, there can be no assurance of such additional fundraisings in amounts that may be required by us, if at all.





The following table sets out certain information with respect to our consolidated statements of cash flows information for the years ended December 31, 2012, 2011 and 2010, respectively:





Year ended December 31,2012

2011


2010$

$


$Net cash used in operating activities
(834,598)


(1,879,039)



(178,623)Net cash used in investing activities
(327,689)


(1,302,364)



(392,014)Net cash generated from financing activities
901,692


1,621,887



2,336,890Net (decrease) increase in cash
(260,595)


(1,559,516)



1,766,253Effect of foreign exchange rate changes
(264)


49,430



6,690Cash at beginning of the year
262,857


1,772,943



-Cash at end of the year
1,998


262,857



1,772,943





Net cash used in operating activities





Our net cash used in operating activities in 2012 was $834,598, primarily consisting of an increase in account receivables of $269,520 due to an increase in sales, and an increase in amount due from a director of $76,808,  This amount was unsecured, non-interest bearing, and due on demand.





Our net cash used in operating activities in 2011 was $1,879,039, primarily consisting of an increase in deposits and prepayments of $55,595 related to production-related operations in Fujian Qianlon, an increase in employee advances of $54,164 and an increase in supplies inventory of $54,107.





Our net cash used in operating activities in 2010 was $178,623, primarily consisting of an increase in employee advances of $14,011, an increase in supplies inventory of $8,032, and an increase of $3,428 in deposits and prepayments.





Net cash used in investing activities





In 2012, we paid $9,426 as capital expenditures to build the infrastructure in Xiamen, including the purchase of plant and equipment. We also used $318,263 for plantation of biological assets.





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In 2011, we paid $1,010,419 as capital expenditures to build the infrastructure in Xiamen, including the purchase of plant and equipment as well as investment in construction in progress. We also used $277,554 for plantation of biological assets and paid $14,391 for intangible assets.





In 2010, we paid $353,787 as capital expenditures to build the infrastructure in Xiamen, including the purchase of plant and equipment as well as investment in construction in progress. We also purchased biological assets for $32,021, invested $578 in China Hainan Agriculture Holdings Ltd., and paid $5,628 for the exclusive licensing rights to use TFPPT.





Net cash generated from financing activities





Our net cash flows generated from financing activities in 2012 were mainly attributable to an increase in amounts due to directors of $350,221 representing advances from directors to support our working capital needs. We also had long-term loan agreement with two parties, Stanley ANG (director of the company) in 2012 and Quanzhou Feng Ze De sheng Business Consulting Co., Ltd on March 15, 2012, which involved an amount of $627,578 and 158,541, respectively. The loan from Stanley Ang was partially settled by $250,495 during the year of 2012.


Our net cash flows generated from financing activities in 2011 were mainly attributable to the gross proceeds from the issuance of shares of $1,963,579, an increase in amounts due to directors of $102,182 representing advances from directors, partially offset by repayment of advances by related parties of $434,131 and by a director $9,743, respectively, related to the loan described below under “–Current Liabilities.”





Our net cash flows generated from financing activities in 2010 were mainly attributable to the gross proceeds from the issuance of shares of $1,906,930 and advances from related parties of $434,131.





Current Liabilities





Our current liabilities increased to $796,615 in 2012 from $200,855 in 2011, mainly due to the deferred revenue and increase amount due to director. Our current liabilities decreased to $200,855 in 2011 from $538,864 in 2010, mainly due to our repayment of the loan as discussed above.





Financial Instruments





We did not have any hedging contracts or financial derivatives outstanding for the year ended December 31, 2012.





Capital Expenditures





We had capital expenditures of $9,426 for the year ended December 31, 2012. Our capital expenditures were primarily used for the purchase of property, plant and equipment including machinery, motor vehicles, and a green house facility.  Our capital expenditures have been primarily funded by cash provided by our financing activities.





Recent Accounting Pronouncements





The following pronouncements issued by the IASB and interpretations published by IFRIC will become effective for annual periods beginning on or after January 1, 2013, with earlier adoption permitted.  IFRS 10, IFRS 11 and IFRS 12 permit early adoption if all of the standards are collectively adopted.





IFRS 10 – Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. A new definition of ‘control’ has been established. IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation—Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.





IFRS 11 – Joint Arrangements establishes the principles for joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. IFRS 11 requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method whereas for a joint operation the venture will be accounted for using the proportionate consolidation method.





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IFRS 12 – Disclosure of Interests in Other Entities is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities.





IFRS 13 – Fair Value Measurement defines fair value, requires disclosure about fair value measurements and provides a framework for measuring fair value when it is required or permitted within the IFRS standards.





IAS 19 – Employee Benefits amends the existing standard to eliminate options to defer the recognition of gains and losses in defined benefit plans, requires remeasurement of a defined benefit plan’s assets and liabilities to be presented in other comprehensive income and increases the disclosure.





The IASB also amended the following standard which is effective as per the date identified.





IAS 1 – Presentation of Financial Statements was amended and requires companies to group items presented within Other Comprehensive Income based on whether they may be subsequently reclassified to profit or loss.





IFRS 9 – Financial Instruments addresses the classification and measurement of financial assets. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value.  The new standard also requires a single impairment method to be used.  The IASB has extended the effective date to January 1, 2015.




C. Research and development, patents and licenses, etc





We believe that our core competitive advantage lies in our rights to utilize TFPPT and its successful application and commercialization in our mass propagation of bamboo-willow seedlings and, secondarily, to grow bamboo-willows for the paper pulp industry.  We expect that successful application of TFPPT in our business of mass propagation of bamboo-willow seedlings will reduce their cultivating cycle, which may enhance the production yield of bamboo-willow seedlings in a given period of time.  Therefore, strong research and development capabilities are critical to the success of our business and we plan to incur approximately $5,000 annually for our research and development projects in the next few years.





Our research and development efforts will initially focus on providing technical support for the sustainable growth of our bamboo-willow seedlings operation and further improving our technologies.  Specifically, we plan to further refine the specifications and cultivating formula in the application of TFPPT.  We also plan to improve our probiotics-based organic fertilizer with the aims of enhancing the quality of bamboo-willow timber, increasing the harvest yields and reducing our cultivation costs.  In addition, we will also emphasize continued efforts in searching for and cultivating various other plants with higher economic value suitable for our business model.





In addition to building strong internal research and development capabilities, we also plan to work with outside research entities when appropriate. We plan to license the technologies and advanced methods resulting from our research and development efforts to generate additional revenues. Currently, we have reserved three greenhouses for research and development activities.








The following chart shows the expected activities of our research and development greenhouses:





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Our research and development expenses were $2,148, $126,313 and $11,071 for the years ended December 31, 2012, 2011 and 2010, respectively.





D. Trend information





Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from December 31, 2011 to December 31, 2012 that are reasonably likely to have a material adverse effect on our net revenues (if any), income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.





E. Off-balance sheet arrangements





We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.





F. Contractual obligations





As of December 31, 2012, the terms and amounts of our significant contractual obligations were as follows:





Payments due by PeriodLess than

One to

More ThanOne Year

Five Years

Five Years

TotalOperating lease obligations

$
162,499


$
420,601


$
392,978


$
976,078








G. Safe harbour





This annual report contains forward-looking statements.  We have based these forward-looking statements on our current expectations and projections about future events.  These statements include but are not limited to:






statements regarding our completion of the development of our potential product and its use in a pilot project;



statements regarding the competitive advantages of our potential product;
expectation as to the market opportunities for our potential product, as well as our ability to take advantage of those opportunities;
statements as to our ability to protect our intellectual property and avoid infringing upon others’ intellectual property;
statements regarding our estimates of future performance, expenses, costs and revenues; and
statements as to our ability to meet anticipated cash needs based on our current business plan.





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These statements may be found throughout this annual report, specifically in the sections entitled “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company – A. History and Development of the Company,” and “– B. Business Overview,” “Item 5. Operating and Financial Review and Prospects” and “Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds – E. Use of Proceeds.”  Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed in “Item 3. Key Information – D. Risk Factors” and elsewhere in this annual report.





Statements that use the terms “believe,” “expect,” “plan,” “intend,” “estimate,” “anticipate” and similar expressions are intended to identify forward-looking statements.  All forward-looking statements in this annual report reflect our current views about future events and are based on assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from future results expressed or implied by the forward-looking statements.  Many of these factors are beyond our ability to control or predict and include all the risks discussed in “Item 3. Key Information – D. Risk Factors” and elsewhere in this annual report.  You should not put undue reliance on any forward-looking statements.  Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.





Item 6. Directors, Senior Management and Employees





A. Directors and senior management





The following table sets forth information concerning our directors and executive officers as of the date of this annual report. The business address of each of our directors and executive officers listed below is 11/F, Shum Tower, No.268 Des Voeux Road  Central, Hong Kong. Ms. Ho, our chairwoman and chief executive officer, is the mother of Mr. Stanley Ang, our chief administrative officer and director.  There are no other family relationships between any of our directors and executive officers.





Name and address

Age

PositionAnita Lai Lai Ho

51

Director, chairwoman and chief executive officerStanley Ang

28

Director and chief administrative officerJeffrey Chong Kee Hui

36

Director and general counselYau Man Hwang

35

DirectorCho-Po Chang

62

Chief operating officerSY Wing Kui

38

Interim chief financial officer





Ms. Anita Lai Lai HoMs. Ho has served as our Chief Executive Officer since October 2009 and director since August 2007.  Between September 2005 and July 2007, Ms Ho was the owner and operator of Asia Euro Enterprises Limited, a company engaged in ladies’ fashion, with production facilities in China for export to European countries. From June 1988 to August 2005, Ms. Ho was the Managing Director of Foldwide Development Limited, a men’s and women’s garments manufacturing and exporting company, where she was responsible for corporate strategic planning.  Ms. Ho graduated as a professional corporate secretary from LTC College in Norwich, England in 1984.





Mr. Stanley AngMr. Stanley Ang has served as our director since September 2010 and our chief administrative officer since January 2011.From March 2010 to December 2010, Mr. Ang served as the assistant general manager of Fujian Qianlon Medicine Co. Limited, a wholesaler and distributor of medicines, Chinese herbs and healthcare products in Fujian, China. Mr. Ang received a bachelor’s degree in business administration from Jinan University.





Mr. Jeffrey Chong Kee HuiMr. Hui has served as our director since September 2010 and as our general counsel since November 2010. From November 2004 to March 2010, Mr. Hui worked as the judiciary executive for the Hong Kong Special Administrative Region Judiciary responsible for daily courtroom operations and assisting judges in all respects in the discharge of their judicial duties.  Mr. Hui received a bachelor’s degree in law from the City University of Hong Kong.





Mr. Yau Man HwangMr. Hwang has been our director since November 2010.  Since May 2008, Mr. Hwang has been an investment advisor at Phillip Securities (Hong Kong), a member of Phillip Capital Group, which operates in ten financial hubs worldwide. He is responsible for providing advice and analysis on a variety of investments at Phillip Securities (Hong Kong). Mr. Hwang studied computer networking management at University of British Columbia in Canada between 1996 and 2000.





Mr. Cho-Po ChangMr. Chang is the owner and inventor of TFPPT and has been our chief operating officer since February 2011.  Having started his career as a mechanical engineer, Mr. Chang has over 30 years of experience in strategic and operations planning and implementation of aeroponics cultivation systems. Mr. Chang served as a former member of the Chinese People’s Political Consultative Conference, Qinzhou City, Guangxi Province and former executive director of Guangxi Province Fruit Association.  Mr. Chang is the sole distribution and marketing agent of Yue Nong Seedling and Flowers Company Limited in China.  He is the agricultural consultant of Guangxi Guoxiong Biological Agriculture Development Company Limited.





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Mr. SY Wing KuiMr. SY was appointed as our interim chief financial officer on November 1, 2012. He has over 13 years of experience in professional accounting, auditing and finance services. He also serves as finance director at Skyvision capital Limited, and is responsible for corporate finance, internal control, risk management, financial planning, budgeting & forecasting, organizational restructure and undertaking due diligence in mergers and acquisitions transactions. Also, Mr. SY worked in Boci-Prudential Asset Management Ltd is responsible for ETF operations including fund administration, fund price valuation and collateral stock management. Mr. SY is a certified public accountant member of Hong Kong Institute of Certified Public Accountants and a Member of Association of Chartered Certified Accountants.





Professional Service Agreement





On March 1, 2011, Ms. Ho entered into an employment agreement with us and she was appointed as our chief executive officer for a term expiring on December 31, 2011. On January 1, 2012, Ms. Ho entered into an employment agreement with our group, which includes our company, Dragon Bright HK, Hong Kong Dragon Holdings, Fujian Qianlon and its subsidiary and affiliated companies expiring on December 31, 2012. We further renewed Ms. Ho’s employment agreement to December 31, 2013 and increased her annual salary payment to $3,870.





We have no service contracts with our directors providing benefits upon termination of employment.





Appointment of Interim Chief Financial Officer





On November 1, 2012, Mr. Dominick Mark resigned as interim chief financial officer, effective immediately. The Board of Directors has approved his resignation and appointed Mr. SY Wing Kui to function as interim chief financial officer on November 1, 2012, effective immediately. Under the terms of his employment, Mr. SY was granted an annual salary amounting to HK$144,000 (equalled to approximately USD$18,577). For a detailed biography of Mr. SY, please see the discussion above.




There is no family relationship between Mr. SY with any of our other officers and directors, or person nominated or chosen by us to become a director or executive officer. There has not been any transaction or currently proposed transaction, in which the Company was or is to be a participant and the amount involved exceeds $83,333, in which Mr. SY had or will have a direct or indirect material interest since the beginning of the Company’s last fiscal year.





B. Compensation of Directors and Executive Officers





Our directors and executive officers receive compensation in the form of annual salaries and bonuses. While we do not have a specific bonus plan setting the calculation of our annual bonuses, each director and executive officer is entitled to receive an annual discretionary bonus based upon his or her performance in such amount as shall be determined by the board of directors.





In the fiscal year ended December 31, 2012, the total compensation we paid to our executive officers and directors was approximately $151,900. In the fiscal year ended December 31, 2012, we provided mandatory provident fund benefits for some of our executive officers and employees.







C. Board Practices





Board of Directors





Members of our board of directors are elected by our shareholders. Our board of directors consists of four directors. The current term of office of each director is expected to expire at our next annual general meeting confirmed. Our executive officers are appointed by, and serve at the discretion of, our board of directors.





Committees of the Board of Directors





All proceedings of the board of directors for the year ended December 31, 2012 were conducted by resolutions consented to in writing by the board of directors and filed with the minutes of the proceedings of the directors.





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We do not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.





A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to the board of directors in care of our chief executive officer, Ms. Ho, at 11/F, Shum Tower, No.268 Des Voeux Road  Central, Hong Kong.





Audit Committee and Remuneration Committee





We don’t have a separately designated audit committee. Our entire board of directors constituted the audit committee. Our members of board of directors are not subject to “independent” requirement, as defined in Rule 10A-3 under the Exchange Act, as our shares are not listed on a U.S. national securities exchange or NASDAQ. Currently, our shares are only quoted on OTC Bulletin Board, an interdealer quotations system.





The Company does not have a remuneration committee or an executive committee due to its small size and expenses necessary to maintain such.





Audit Committee Financial Expert





We have no audit committee financial expert. We believe that the cost related to retaining a financial expert at this time is prohibitive.  Further, because of our stage of development, we believe the services of a financial expert are not warranted.





Duties of Directors





Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.





As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and, therefore, he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously thought that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved away from this subjective standard and towards an objective, reasonable director standard with regard to the required skill and care and these authorities, objective approach is likely to be followed in the Cayman Islands.





Under our memorandum and articles of association, directors who are in any way, whether directly or indirectly, interested in a contract or proposed contract with our Company must declare the nature of their interest at a meeting of the board of directors. Following such declaration, a director may vote in respect of any contract or proposed contract notwithstanding his interest.





Removal of Directors





Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our memorandum and articles of association, directors can be removed, without or with cause, by the ordinary resolution.





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D. Employees





We had 35, 44 and 14 employees as of December 31, 2012, 2011 and 2010, respectively.Our employees can be classified into three groups: operational, technicians and research and development personnel, and administrative personnel. Operational employees include plantation workers, maintenance workers and cooks. Due to the seasonal nature of our plantation activities, most of the plantation workers are employed on a part-time basis. In order to streamline the operation, most of the plantation workers are local farmers. Technicians and research and development personnel are responsible for training the plantation workers and doing research and development in agricultural science. Administrative employees are responsible for strategic planning and backup support.





As of December 31, 2012, we had a total of 35 employees, including 4 plantation workers and research and development employees as well as 31 management and administrative employees. For the year ended December 31, 2012, our staff costs were $559,667. We review our remuneration policies and packages on a regular basis and will make necessary adjustment commensurate with the pay level in the industry. In addition to basic salaries, employees may be offered discretionary bonuses and cash awards based on individual performance.





We provide systematic training to our employees. We invite industry experts and farm managers to give regular training to our technical personnel as well as orientation programs to our newly hired technical personnel. We provide our managerial personnel with extensive training on business management and industry technology by experts and scholars associated with research institutes.





We do not have collective bargaining agreements with our employees. We do not have labor unions. We consider our relations with our employees to be amicable.





According to the Employment Contract Law of the PRC effective as of January 1, 2008, employment contracts must be entered into if employment relationships are to be established between an employer and its employees. The employer cannot require the employees to work in excess of the time limit as permitted under the relevant employment laws and regulations and must pay to the employees wages which are no lower than local standards on minimum wages. The entity must establish and perfect its system for labor safety and sanitation, strictly abide by rules and standards on labor safety and sanitation, and educate employees in labor safety and sanitation in the PRC.





We have entered into written employment contracts with all of our employees.  We have complied with the PRC employment-related laws and regulations in all material respects.





E. Share Ownership





The following table sets forth information, as of June 17, 2013, with respect to the beneficial ownership of our shares by:





•
each of our directors and executive officers; and





•
each other person known to us to own beneficially more than 5% of our shares.





Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the shares. Except as indicated below, and subject to applicable community property laws, we believe, based on the information furnished to us, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them. A shareholder is also deemed to be, as of any date, the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after that date through (1) the exercise of any option, warrant or right, (2) the conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement, or (4) the automatic termination of a trust, discretionary account or similar arrangement. The percentages of beneficial ownership in the table below are based on 531,000,000 shares outstanding as of June 17, 2013.





Unless otherwise indicated, the principal address of each of the shareholders below is 11/F, Shum Tower, No.268 Des Voeux Road  Central, Hong Kong.


.


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Shares

Beneficially

OwnedNumber

%Directors and Executive OfficersAnita Lai Lai Ho


(128,000,000)

(24.11)Stanley Ang


(100,000,000)

(18.83)Cho-Po Chang


(10,000,000)

(1.88)Yau Man Hwang


(25,000,000)

(4.71)All directors and executive officers as a group (four persons)


(263,000,000)

(49.53)Other ShareholdersMillion Max Limited


(130,000,000)

(24.48)Wealth Vantage International Limited(1)


(32,000,000)

(6.03)





As of June 17, 2013, 531,000,000 of our ordinary shares were issued and outstanding.





None of our shareholders has different voting rights from other shareholders as of the date of this annual report. We are currently not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.





Item 7. Major Shareholders and Related Party Transactions





A. Major Shareholders





Please see “Item 6. Directors, Senior Management and Employees – E. Share Ownership.”





B. Related Party Transactions





Transactions with Certain Directors, Shareholders and Affiliates





Ms. Tsai, the mother-in-law of Ms. Ho, our chairwoman and chief executive officer, made loans to us in the form of cash advances in the aggregate amount of $434,131 in the fiscal year ended December 31, 2010 for our working capital requirements. The amounts due to Ms. Tsai are unsecured, interest-free and repayable on demand.  As of May 31, 2011, we had fully repaid to Ms. Tsai all of the outstanding amounts of these loans. Ms. Tsai was employed as consultant of the Group and $19,025 was paid as a compensation of her service to the Group in 2012.





On March 1, 2011, Ms. Ho entered into an employment agreement with us and she was appointed as our chief executive officer for a term expiring on December 31, 2011. On January 1, 2012, Ms. Ho entered into an employment agreement with our group expiring on December 31, 2012, which includes our company, Dragon Bright HK, Hong Kong Dragon Holdings, Fujian Qianlon and its subsidiary and affiliated companies. We have renewed the employment agreement with Ms. Ho to December 31, 2013.





Share Exchange Transaction





On March 11, 2011, we entered into a share swap agreement with Dragon Bright HK and all of its shareholders. Pursuant to the share swap agreement, the shareholders of Dragon Bright HK exchanged 521,450,000 shares of Dragon Bright HK, representing all of the issued and outstanding shares of Dragon Bright HK, for 521,450,000 newly issued shares of Dragon Bright Cayman at an exchange ratio of 1-for-1. As a result of the share swap, Dragon Bright HK has become a wholly-owned subsidiary of Dragon Bright Cayman and the former shareholders of Dragon Bright HK became our shareholders. In May 2011, we issued an aggregate of 4,500,000 shares at $0.06 per share for aggregate proceeds of $270,000. In August 2011, we issued an aggregate of 5,050,000 shares at $0.10 per share for aggregate proceeds of $505,000. Set forth below are our shares received by our directors, executive officers and 10% shareholders and their family members in the share swap transaction:





Name
Position and

relationship
Dragon Bright

HK shares

exchanged
Dragon

Bright

Cayman

shares

received
Percentage of

shares (prior

to

this offering)Anita Lai Lai Ho
Chief executive officer and chairwoman
128,000,000
128,000,000
24.11%Stanley Ang
Son of Ms. Ho and director
100,000,000
100,000,000
18.83%Philip Chi Hung Ang
Husband of Ms. Ho
21,850,000
21,850,000
4.11%Yau Man Hwang
Director
25,000,000
25,000,000
4.71%Kennen Hwang
Father of Yau Man Hwang
20,000,000
20,000,000
3.77%Million Max Limited
Antonio Chau, the sole shareholder of Million Max Limited, is the brother-in-law of Ms. Ho
130,000,000
130,000,000
24.48%





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Private Equity Financing by Dragon Bright HK





In a series of private placement transactions between October 2010 and January 2011, Dragon Bright HK issued an aggregate of 117,950,000 shares at approximately $0.025 per share, for aggregate proceeds of approximately $3,088,764.





In February 2011, Dragon Bright HK issued an aggregate of 3,500,000 shares at approximately $0.05 per share, for aggregate proceeds of approximately $180,000.  Set forth below are the shares of Dragon Bright HK received by our directors, executive officers and 10% shareholders and their family members in the private placement transactions:





Name
Position and

Relationship
Dragon Bright

HK

Selling Shares

Issued
Dragon Bright

Cayman Shares

Received
Percentage of

Shares (Prior to

the Offering)Philip Chi Hung Ang
Husband of Ms. Ho
21,850,000
21,850,000
4.11%Yau Man Hwang
Director
25,000,000
25,000,000
4.71%Kennen Hwang
Father of  Yau Man Hwang
20,000,000
20,000,000
3.77%Keneth C. Goyena
Brother of Antonio Chau, the sole shareholder of Million Max Limited and the brother-in-law of Ms. Ho
7,500,000
7,500,000
1.41%





Technology License and Assignment Agreements





In July 2010, Ms. Tsai, the mother-in-law of Ms. Ho, our chief executive officer and chairwoman, entered into the TFPPT License Agreement with Mr. Chang. Pursuant to the TFPPT License Agreement, Mr. Chang granted a worldwide exclusive license to Ms. Tsai with respect to all intellectual property rights in and to TFPPT for a period of 30 years commencing July 1, 2010.  Such intellectual property rights include worldwide copyright, design rights, know-how, confidential information, trade secret and any other similar rights related to TFPPT and its components, including applications of any of the foregoing. Mr. Chang further granted Ms. Tsai the exclusive right, for 30 years commencing on July 1, 2010, to use TFPPT and all related proprietary rights including all related applications of the technology and its enhancement created in the past, present and in the future, owned and continually developed and enhanced by the licensor and its affiliates.  Pursuant to the TFPPT License Agreement, Ms. Tsai agrees to pay to Mr. Chang a non-refundable license fee of approximately $128 and a royalty fee, payable quarterly, equal to 6% of the income received by Ms. Tsai and her sub-licensees from the use and application of the patentable technology related to TFPPT.  On July 20, 2010, pursuant to an assignment agreement with Ms. Tsai, we obtained all Ms. Tsai’s rights, title and interests in and to the patentable technology related to TFPPT granted to her by Mr. Chang under TFPPT License Agreement.  Dragon Bright HK agreed to directly pay Mr. Chang, commencing December 31, 2010 and at the end of every quarter thereafter, as a royalty fee, an amount equal to 6% of the income received by Dragon Bright HK, its subsidiaries and its sub-licensees from the use and application of TFPPT for the period December 31, 2010 to June 30, 2040.





Pursuant to a technology assignment agreement dated as of January 7, 2011, by and between Mr. Chang and Ms. Tsai, Mr. Chang assigned and transferred to Ms. Tsai all his rights, title and interest in and to the technological process related to the formulation of the probiotics-based organic fertilizer. On January 10, 2011, Ms. Tsai further assigned and transferred all of the foregoing rights, title and interest to us pursuant to an assignment agreement.





Sub-Licensing Agreement with China Hainan Agriculture Holdings Ltd





Pursuant to a sub-licensing agreement entered into in October 2010,  Dragon Bright HK granted China Hainan Agriculture Holdings Ltd. a sub-license to all rights, titles and interests to all TFPPT patentable technology to market, promote, advertise, offer to sell, sell, lease or import products and services related to TFPPT in Hainan Province, China. In addition, Dragon Bright HK granted China Hainan Agriculture Holdings Ltd. a sub-license to make use of, sub-license and otherwise exploit commercially products, services, processes, methods and materials from the inventions, ideas and information included in or derived from TFPPT and to exploit applications of TFPPT commercially. In return, China Hainan Agriculture Holdings Ltd. agreed to pay royalty fees in the amount equal to 8% of all revenues received by China Hainan Agriculture Holdings Ltd. from the sale of goods or services using TFPPT or any portion of it. Such fees are calculated and paid within thirty days from the end of each calendar quarter during the term of the license. China Hainan Agriculture Holdings Ltd. is required to pay minimum fixed royalty fees of approximately $128,601 per annum starting at the end of the third year after execution of the sub-licensing agreement. The term of the sub-licensing agreement is 20 years.





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In December 2010, Dragon Bright HK acquired 14.876% of the equity interest in China Hainan Agriculture Holdings Ltd. for approximately $579 in cash.





C.           Interests of Experts and Counsel





Not applicable.





Item 8. Financial Information





A. Consolidated Statements and Other Financial Information





We have appended consolidated financial statements filed as part of this annual report.





Legal and Administrative Proceedings





From time to time, we may be subject to various claims and legal actions arising in the ordinary course of business. We are not aware of any proceedings being contemplated by any governmental authority.





As of April 30, 2013, we were involved in one claim in connection with salary payment with one of our former employees in December, 2012. The claim was raised in Labor Tribunal of Hong Kong.  In connection with this matter, we paid HK$78,200.0 (approximately US$9,775.0) to the injured party. Trial-related costs were approximately HK$120.0 (approximately US$15.0).





Dividend Policy





The holders of our shares are entitled to such dividends when, as and if declared by our Board of Directors (provided always that dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or our share premium account). Our Board of Directors does not intend to declare or pay any dividends to our shareholders in the foreseeable future.





In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.





We are an offshore holding company, and we will rely principally on dividends from our subsidiaries in China for our cash requirements, including for the service of any debt we may incur. Current PRC regulations permit our current and future subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our current and future subsidiaries in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the aggregate amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, if our current and future subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. In addition, any income that we source from China is subject to PRC withholding tax under the new Enterprise Income Tax Law of the PRC, or the EIT Law. Under the EIT Law and its implementation regulations, both of which became effective on January 1, 2008, we will be subject to a withholding tax rate of 10% for any dividends paid to us by our current and future subsidiaries in China if we are deemed a non-PRC tax resident.





In addition, the dividends we pay to our non-PRC enterprise shareholders and gains derived by such shareholders from the transfer of our shares may also be subject to PRC withholding tax at the rate up to 10%, if such income were regarded as China-sourced income.





B. Significant Changes





Except as disclosed elsewhere in this annual report, we have no experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.





Item 9. The Listing





A. Listing Details





Our shares were successfully quoted on the OTC Bulletin Board on October 10, 2012.





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The following table sets forth the highest and lowest closing market prices for our shares for the periods indicated:





Closing PriceHigh


LowUS$


US$Annual High and LowFiscal Year 2012 (from October 10, 2012)


N/A



N/AFiscal Year 2013  (until June 17, 2013)


0.13



0.10Quarterly Highs and LowsFourth Fiscal Quarter of 2012  (from October 10, 2012)


N/A



N/AFirst Fiscal Quarter of 2013


0.13



0.10Second Fiscal Quarter of 2013 (until June 17, 2013)


0.13



0.13Monthly Highs and LowsOctober 2012  (from October 10, 2012)


N/A



N/ANovember 2012


N/A



N/ADecember 2012


N/A



N/AJanuary 2013


0.13



0.10February 2013


0.13



0.13March 2013


0.13



0.13April 2013


0.13



0.13May 2013


0.13



0.13June 2013 (until June 17, 2013)


0.13



0.13





B. Plan of Distribution





Not applicable.





C. Markets





See “A. Listing Details”.





D. Selling Shareholders





Not applicable.





E. Dilution





Not applicable.





F. Expenses of the Issue





Not applicable.





Item 10. Additional Information





A. Share Capital





Not applicable.





B.  Memorandum and Articles of Association





There were no changes of material provisions of our memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our shares. A copy of our Memorandum and Articles of Association was filed as Exhibit 3.1 to our Registration Statement as Form F-1 (SEC File No. 333-176868).





C. Material Contracts





We have not  entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report.





D. Exchange Controls





See “Item 4. Information on the Company – B. Business Overview – Regulations – Regulations on Foreign Exchange Control and Administration,” and “Item 3. Key Information – D. Risk Factors — Risks Related to Doing Business in China —Governmental control of currency conversion may limit our ability to utilize our revenue effectively and affect the value of your investment.”





E. Taxation





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Cayman Islands Taxation





The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.





U.S. Federal Income Taxation





The following discussion describes the material U.S. federal income tax consequences to U.S. Holders (defined below) under present law of an investment in our shares.  This summary applies only to U.S. Holders that hold the shares as capital assets and that have the U.S. dollar as their functional currency.  This discussion is based on the tax laws of the United States as in effect on the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date.  All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.





This discussion does not apply to you if you are a member of a class of holders subject to special treatment under the U.S. federal income tax laws, including:




•
banks or other financial institutions;•
insurance companies;•
dealers in securities or currencies;•
U.S. expatriates;•
traders in securities that have elected the mark-to-market method of accounting for securities;•
tax-exempt entities;•
persons liable for alternative minimum tax;•
persons holding a share as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;•
persons that own (directly, indirectly, or constructively) 10% or more of our shares;•
persons who acquired our shares pursuant to the exercise of any employee stock option or otherwise as compensation; or•
partnerships or other pass-through entities for U.S. federal income tax purposes (or investors in such partnerships or pass-through entities).








PROSPECTIVE PURCHASERS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR SHARES.





The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply if you are a beneficial owner of our shares and you are, for U.S. federal income tax purposes,





•
a citizen or resident of the United States;•
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) that is created or organized in or under the laws of the United States, any State thereof or the District of Columbia;•
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or•
a trust if it (1) is subject to the primary supervision of a court in the United States over its administration and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.





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If a partnership, or an entity treated for U.S. federal income tax purposes as a partnership, holds our shares, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.  If you are a partnership or a partner in such partnership, you are encouraged to consult your tax advisors.





Taxation of Dividends and Other Distributions on Our Shares





Subject to the passive foreign investment company rules discussed below, the gross amount of distributions on our shares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.  Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you.  Such dividends will not be eligible for the dividends received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations.





Certain dividends received by non-corporate U.S. Holders in taxable years beginning before January 1, 2013 in respect of our shares will constitute “qualified dividend income” subject to tax at the lower rate applicable to long-term capital gains (generally at a maximum income tax rate of 15%), rather than the marginal tax rates generally applicable to ordinary income, provided that (1) our shares are readily tradable on an established securities market in the United States or, in the event we are deemed to be a PRC “resident enterprise” under the EIT law, we are eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the “U.S.-PRC Tax Treaty”), (2) we are not a passive foreign investment company (as discussed below) with respect to such U.S. Holders for either our taxable year in which the dividends were paid or the preceding taxable year, and (3) holding period requirements are met (61 days of ownership without risk of loss reduction during the 121-day period beginning 60 days before the ex-dividend date).  Our shares are considered to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges, which do not presently include the OTC Bulletin Board or OTCQX (the quotation systems on which our shares are quoted).  Accordingly, any dividends paid on our shares are not currently expected to qualify for the lower rate unless we are deemed to be a PRC “resident enterprise” under the EIT Law and are eligible for the benefits of the U.S.-PRC Tax Treaty.  You are encouraged to consult your own tax advisors regarding the availability of the lower rate for dividends paid with respect to our shares.





In the event that we are deemed to be a PRC “resident enterprise” under PRC tax law, you may be subject to PRC withholding taxes on dividends paid to you with respect to our shares.  If we are eligible for the benefits of the U.S.-PRC Tax Treaty, dividends paid to you with respect to our shares would be subject to a reduced rate of PRC withholding taxes under the U.S.-PRC Tax Treaty. In addition, dividends paid by us will constitute income from sources outside the United States for U.S. foreign credit limitation purposes and will generally constitute “passive category income.”  A U.S. Holder will be denied a foreign tax credit with respect to any PRC withholding taxes withheld from dividends received with respect to our shares to the extent that such U.S. Holder has not held our shares for at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make related payments with respect to substantially similar or related property.  Any days during which a U.S. Holder has substantially diminished its risk of loss on our shares are not counted toward meeting the 16-day holding period required by the statute. The rules governing the foreign tax credit are complex.  You are encouraged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.








To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will be treated first as a tax-free return of your adjusted tax basis in the shares, and to the extent the amount of the distribution exceeds your adjusted tax basis, the excess will be taxed as capital gain recognized on a sale or exchange.  We do not intend to calculate our earnings and profits under U.S. federal income tax principles.  Therefore, you should expect that the entire amount of a distribution will generally be treated (and reported) as a dividend.





Taxation of Disposition of Our Shares





Upon a sale or other taxable disposition of our shares, and subject to the passive foreign investment company rules discussed below, you generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized for the shares and your adjusted tax basis, determined in U.S. dollars, in the shares.  Deductibility of capital losses is subject to various limitations.  Capital gain of a non-corporate U.S. Holder, recognized in taxable years which begin before January 1, 2013, is generally taxed at a maximum rate of 15% if the U.S. Holder has held the shares for more than one year.  Additionally, any such gain or loss recognized will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes.  However, in the event that we are deemed to be a PRC “resident enterprise” under PRC tax law, we may be eligible for the benefits of the U.S.-PRC Tax Treaty.  Under that treaty, if any PRC tax was to be imposed on any gain from the disposition of our shares, the gain may be treated as PRC source income for purposes of calculating the foreign tax credit. If such gain is not treated as PRC source gain, however, a U.S. Holder will not be able to obtain a United States foreign tax credit for any PRC tax withheld or imposed unless such U.S. Holder has other foreign source income in the appropriate category for the applicable tax year.  You are encouraged to consult your tax advisors regarding the tax consequences if a foreign withholding tax is imposed on a disposition of the shares, including the availability of the foreign tax credit under your particular circumstances.





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Passive Foreign Investment Company





We do not expect to be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for our current taxable year ending December  31, 2012 or for any future taxable year.  Our expectation for our current taxable year is based in part on our estimates of the value of our assets as determined based on the price of our shares in this offering and the expected price of our shares following the offering.  Our actual PFIC status for any taxable year will not be determinable until the close of such taxable year, and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year or any future taxable year.





In general, we will be a PFIC for any taxable year in which:





•
at least 75% of our gross income is passive income, or•
at least 50% of the value (determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income.





For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person).  If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.





We must make a separate determination each year as to whether we are a PFIC.  As a result, our PFIC status may change.  In particular, because the total value of our assets for purposes of the asset test generally will be calculated using the market price of our shares, our PFIC status may be determined in large part based on the market price of our shares which may fluctuate considerably.  Accordingly, fluctuations in the market price of our shares may result in our being a PFIC for any year.  If we are a PFIC for any year during which you hold our shares, we generally will continue to be treated as a PFIC for all succeeding years during which you hold our shares, regardless of whether we continue to meet the income or asset test described above.  However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the shares.





If we are a PFIC for any taxable year during which you hold our shares, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition (including a pledge) of our shares, unless you make a “qualified electing fund” election (a “QEF election”) or a “mark-to-market” election as described below.  Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for our shares will be treated as excess distributions.  Under these special tax rules:





•
the excess distribution or gain will be allocated ratably over your holding period for our shares,•
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income, and•
the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.





The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of our shares cannot be treated as capital, even if you hold our shares as capital assets.  In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.





If we are a PFIC for any taxable year during which you hold our shares and any of our non-United States subsidiaries is also a PFIC, you would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be subject to the rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier PFIC even though you would not receive the proceeds of those distributions or dispositions.  You are encouraged to consult your tax advisor about the application of the PFIC rules to any of our subsidiaries.





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As an alternative to the foregoing rules, you may make a mark-to-market election to include in ordinary income each year an amount equal to the excess, if any, of the fair market value of our shares as of the close of your taxable year over your adjusted tax basis in such shares.  The mark-to-market election is available only for “marketable stock,” which is stock that is “regularly traded” on a national securities exchange that is registered with the Securities and Exchange Commission or on NASDAQ, or on a foreign exchange or market that the Internal Revenue Service determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value.  The OTC Bulletin Board and OTCQX are not considered to be national securities exchanges that would allow a U.S. Holder to make a mark-to-market election.  As our shares have been quoted only on the OTC Bulletin Board, our shares are not currently qualified as “marketable stock” for purposes of the mark-to-market election.  Consequently, you will not be eligible to make a mark-to-market election if we are or become a PFIC.





You may also avoid the rules described above with respect to the stock you own in a PFIC by making a timely QEF election to be taxed currently on your pro rata portion of such PFIC’s net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income).  However, this option would not be available to you because we do not intend to generate, or share with you, information that would be necessary for you to make a QEF election.





Under newly enacted legislation, unless otherwise provided by the U.S. Treasury, each U.S. Holder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require.  Prior to such legislation, a U.S. Holder of a PFIC was required to file U.S. Internal Revenue Service Form 8621 only for each taxable year in which such shareholder received distributions from the PFIC, recognized gain on a disposition of the PFIC stock, or made a “reportable election.”  If we are or become a PFIC, you are encouraged to consult your tax advisors regarding any reporting requirements that may apply to you.





The rules dealing with PFICs are very complex and are affected by various factors in addition to those described above.  Accordingly, you are encouraged to consult your own tax advisors concerning the U.S. federal income tax consequences of purchasing, holding, and disposing of our shares if we are or become classified as a PFIC.





Medicare Tax





For taxable years beginning after December 31, 2012, a U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances).  A U.S. Holder’s net investment income will generally include its gross dividend income and its net gains from the disposition of our shares, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities).  If you are a U.S. Holder that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in our shares.





Information Reporting and Backup Withholding





Pursuant to the Hiring Incentives to Restore Employment Act enacted on March 18, 2010, for taxable years beginning after the date of enactment, an individual U.S. Holder and certain entities may be required to submit to the Internal Revenue Service certain information with respect to his or her beneficial ownership of our shares, if such shares are not held on his or her behalf by a U.S. financial institution.  For example, the new law requires an individual U.S. Holder to file an attachment to his or her tax return reporting interests in specified foreign financial assets (including stock of a non-U.S. company) when the aggregate value of such interests exceed $50,000 during any taxable year. This new law also imposes penalties if an individual U.S. Holder is required to submit such information to the Internal Revenue Service and fails to do so.  You are encouraged to consult your tax advisor regarding the effect, if any, of new U.S. federal income tax legislation on your ownership and disposition of our shares.





In addition, dividend payments with respect to our shares and proceeds from the sale, exchange or redemption of our shares may be subject to information reporting to the Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%.  Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding.  U.S. Holders who are required to establish their exempt status generally must provide such certification on Internal Revenue Service Form W-9.  After December 31, 2012, the backup withholding rate will increase to 31% under the sunset provisions of currently applicable U.S. tax law.





Backup withholding is not an additional tax.  Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.  You are encouraged to consult your tax advisors regarding the application of the U.S. information reporting and backup withholding rules to your particular circumstances.





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F. Dividends and Paying Agents





Not applicable.





G. Statement by Experts





Not applicable.





H. Documents on Display





We have previously filed with the Commission our registration statement on Form F-1 (File Number 333-176868) and our annual report on Form 20-F (File Number 000-54676), as amended.





We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.govthat contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.





As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.





I. Subsidiary Information





For a listing of our subsidiaries, see “Item 4. Information on the Company – C. Organizational Structure.”





Item 11. Quantitative and Qualitative Disclosures about Market Risk





Inflation





While the PRC economy has experienced rapid growth, it has been uneven among various sectors of the economy and in different geographic areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products do not rise at a rate that is sufficient to fully absorb inflation-driven increases in our costs of supplies, our profitability can be adversely affected. Inflationary factors, such as increases in the cost of our products and overhead costs, could impair our future operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our future business operations and results of operations. These fluctuations and economic factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. In order to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending.  The implementation of these and other similar policies can impede economic growth and thereby harm the market for our products.





Interest Rate Risk





As we have no significant interest-bearing assets and liabilities, our income/(loss) and operating cash flows are substantially independent of changes in market interest rate.





Foreign Currency Risk





Our businesses are located in the PRC and our operating transactions are conducted in Renminbi. Most of our fixed assets and liabilities are denominated in Renminbi, except for transactions related to share issuances and our promissory note, which are denominated in Hong Kong dollars. Since the Renminbi is not freely convertible, there is a risk that the PRC government may take actions affecting exchange rates which may have a material adverse effect on our net assets, earnings and any dividends we declare if such dividends are to be exchanged or converted into foreign exchange. Moreover, we have not hedged our foreign exchange rate risk.





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We mainly operate in the PRC with most of the transactions denominated and settled in Renminbi, which is not freely convertible into other foreign currencies.  Conversion of Renminbi into foreign currencies is subject to rules and regulations of foreign exchange control promulgated by the PRC government.  Our current and future PRC subsidiaries are expected to transact business in their functional currency and therefore no currency risk is expected to arise in respect of these subsidiaries.  Our financial statements are presented in U.S. dollars and fluctuations of Renminbi against U.S. dollars will result in adjustment to financial amounts.  We currently do not utilize any forward contracts, currency borrowings or other means to hedge against our foreign currency exposure.





The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The conversion of Renminbi into foreign currencies, including the U.S. dollar, has historically been set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy caused the Renminbi to appreciate more than 20% against the U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July 2008, however, the Renminbi has traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high but never exceeding it. As a consequence, the Renminbi has fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government indicated that it would again make the foreign exchange rate of the Renminbi more flexible, which increases the possibility of sharp fluctuations in the Renminbi’s value in the future as well as the unpredictability associated with the Renminbi’s exchange rate. It is difficult to predict how long the current situation may last and when and how it may change again.





There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against foreign currencies. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making dividend payments on our shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amount available to us. Any fluctuations in the exchange rate between the Renminbi and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.





Credit Risk





The carrying amounts of cash and other receivables present us with credit risk.  The maximum exposure to credit risk is the carrying amounts of the respective financial assets at the end of the reporting period.





The credit risk of our cash arises from default of the counterparty. At December 31, 2012, our cash denominated in RMB, amounted to US$327. We had cash of US$145,641 in 2011 and US$1,297,749 in 2010. Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.  The remaining balance of our cash was $1,671 denominated in Hong Kong dollars and US dollars at December 31, 2012.





Liquidity Risk





Liquidity risk is the risk that we will encounter difficulty in raising funds to meet commitments associated with financial instruments. Our policy is to regularly monitor current and expected liquidity requirements to ensure that we maintain sufficient reserves of cash to meet our liquidity requirement in the short and long term. We have experienced net cash outflows from operating activities in 2012, 2011 and 2010. We have relied on shareholder loans, proceeds from issue of shares and bank loans to maintain sufficient working capital for our operations and capital expenditures. Despite raising US$1,963 thousand from proceeds from issue of shares in 2011, we may continue to experience liquidity pressures as we have been highly leveraged relative to our cash flow historically. As of December 31, 2012, we negative operating cash flows and incurred an accumulated losses of US$2,958 thousand. These conditions indicate the existence of an uncertainty which may cast doubt on our ability to continue as a going concern. For a further discussion of our ability to continue as a going concern, please see Note 2 to the consolidated financial statements.





52
 Table of Contents





The contractual maturities of financial liabilities as of December 31, 2012, 2011 and 2010, are shown below:





Carrying

amount


Total

Contractual

undiscounted

cash flow


More than one

year or on

demand

Within one

year or on

demandUS$


US$


US$

US$2012Accounts payable

15,004


15.004


-

15,004Amounts due to officer/directors

337,194


337,194




337,194Other payables (included in accrued expenses)

29.318


29.318


-

29,318Long term loan

542,243


542,243


542,243

-923,759


923,759


542,243

381,5162011Accounts payable

10,109


10,109


-

10,109Amounts due to officer/directors

103,275


103,275


-

103,275Other payables (included in accrued expenses)

39,711


39,711


-

39,711153,095


153,095


-

153,0952010Amount due to Ms. Tsai (related party)


434,131



434,131



-

434,131Amounts due to officer/directors


1,092



1,092



-

1,092Other payables (included in accrued expenses)


6,765



6,765



-

6,765441,988



441,988



-

441,988






Item 12. Description of Securities Other than Equity Securities





A. Debt Securities





Not applicable.





B. Warrants and Rights





Not applicable.





C. Other Securities





Not applicable.





D. American Depositary Shares





Not applicable.





53
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Part II




Item 13. Defaults, Dividend Arrearages and Delinquencies





Not applicable.








Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds





A. – D. Material Modifications to the Rights of Security Holders





Not applicable.





E. Use of Proceeds





The following “Use of Proceeds” information relates to up to 131,000,000 of our shares registered for resale and for the account of the selling shareholders.  As a result, all proceeds from the resale of the shares will be paid to the selling shareholders and we will not receive any proceeds from the resale of the shares by the selling shareholders.However, we will pay all costs associated with the registration statement. The registration statement on Form F-1 (File No. 333-176868), as amended, with respect to the resale of these shares was declared effective by the SEC on September 30, 2011. Our shares were successfully quoted on OTC Bulletin Board on November 1, 2012. As of the date of this annual report, the selling shareholders resold 3,300 shares at the share price of 0.13 and 3,000 at the share price of 0.1 through the quotation services provided by the OTC Bulletin Board and received proceeds amounting to approximately US$729.0.





From the effective date of the F-1 registration statement to December 31, 2012, the total expenses incurred for our company’s account was approximately $230,548, including printing and engraving expenses of $3,348, legal fees of approximately $24,101, audit and audit-related fees of approximately $190,247, transfer agent and registrar fees of approximately $12,582. None of the above expenses included direct or indirect payments to directors or officers of our company or their associates, persons owning 10% or more of our equity securities or affiliates.








Item 15. Controls and Procedures





Disclosure Controls and Procedures





Under the supervision and with the participation of our management, including our chief executive officer and our interim chief financial officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of the period covered by this annual report. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated can provide only reasonable, but not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was necessarily required to apply their judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based upon that evaluation, our management, including our chief executive officer and interim chief financial officer, concluded that our disclosure controls and procedures were not effective as of the end of the period covered in this report because of the material weakness in internal controls over financial reporting described below.




Management’s Report on Internal Control over Financial Reporting


A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. Our management identified the following material weaknesses in our internal control over financial reporting:




●
Lack of an independent audit committee or audit committee financial expert, and no independent directors — We have not identified an audit committee financial expert on our board of directors, and at the present time we have no independent directors. These factors are counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management.●
Limited staffing within our accounting operations — The relatively small number of personnel who are responsible for accounting functions prevents us from fully segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews which may result in a failure to detect errors in spreadsheets, calculations, or assumptions used to prepare the financial statements and related disclosures as filed with the Securities and Exchange Commission.





54
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These control deficiencies could result in material misstatements of significant accounts and disclosures, which could result in a material misstatement to our interim or annual consolidated financial statements that could not be prevented or detected. Accordingly, our management has determined that these control deficiencies represent material weaknesses.





Due to the material weaknesses described above, our management performed additional analyses and other post-closing procedures to ensure that our consolidated financial statements were prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS”). Accordingly, our management believes that the consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.




This annual report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm.





Changes in Internal Controls





There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the year ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.





Item 16A. AuditCommittee Financial Expert





We have no audit committee financial expert as defined in Item 16A of Form 20-F. We believe that the cost related to retaining a financial expert at this time is prohibitive. Further, because of our stage of development, we believe the services of a financial expert are not warranted.





Item 16B. Code of Ethics





On May 10, 2013, we adopted a code of ethics which applies to all of our directors, officers and employees. We have posted such code of ethics on our company website at http://www.dbmintai.com/presentation.html.A copy of such code of ethics has been filed as Exhibit 11.1 to this annual report. Stockholders may request a free copy in print form from:





Mr. Hung Ming Pun


11/F, Shum Tower,


No.268 Des Voeux Road Central


Hong Kong


Tel: +852 3996 7222


Fax: +852 3020 6206


E-mail:billy.pun@dbmintai.com




Item 16C. Principal Accountant Fees and Services





Starting on February 10, 2011, we engaged GHP Horwath, P.C. as our independent registered public accounting firm. Effective March 4, 2013, we dismissed GHP Horwath, P.C as our principal accountant.  On January 9, 2013, we appointed Albert Wong&Co. as our replacement independent registered public accounting firm for the fiscal year ended December 31, 2012.  Our audit committee and the Board of Directors recommended, authorized and approved the change in our independent registered public accounting firm.





The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by our principal accountant for the periods indicated.





55
 Table of Contents




Year Ended December 31,2012

2011

2010US$

US$

US$Audit fees(1)


60,000

270,000

-Audit-related fees(2)


-

-

-Tax fees(3)


-

350

-





(1)
“Audit fees” means the aggregate fees billed for professional services rendered in connection with the audit or review of our financial statements. A fee billed in 2012 for the annual audit of 2012 was $60,000. Fees billed in 2012 for the audit of the 2011 consolidated financial statements are $120,000. Fees billed in 2011 for the audits of the 2010, 2009, and 2008 consolidated financial statements were $150,000.(2)
“Audit-related fees” represents aggregate fees billed for professional services rendered incrementally and directly in connection with registration of our shares for resale by selling shareholders in 2011.(3)
“Tax fees” represents the aggregated fees billed for professional services rendered in connection with tax compliance, tax advice and tax planning.





The policy of our board of directors is to pre-approve all audit and non-audit services provided by GHP Horwath, P.C., including audit services, audit-related services, tax services and other services as described above.





Item 16D. Exemptions from the Listing Standards for Audit Committees





Not applicable.





Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers





Not applicable.





Item 16F. Change in Registrant’s Certifying Accountant





Effective March 4, 2013, we dismissed GHP Horwath, P.C as our independent registered public accounting firm.  On January 9, 2013, we appointed Albert Wong&Co. as our replacement independent registered public accounting firm for the fiscal year ended December 31, 2012.  Our audit committee and the Board of Directors recommended, authorized and approved the change in our independent registered public accounting firm.





During the fiscal year ended December 31, 2011 and through to March 3, 2013, there were no disagreements between us and GHP Horwath, P.C 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 GHP Horwath, P.C, would have caused GHP Horwath, P.C to make reference to the subject matter in its reports on the consolidated financial statements.





GHP Horwath, P.C's audit reports on our consolidated financial statements for the fiscal years ended December 31, 2011 and 2010 did not contain an adverse opinion or a denial of opinion and were not qualified as to uncertainty, audit scope or accounting principles, except for an explanatory paragraph relating to the Group’s ability to continue as a going concern.





Item 16G. Corporate Governance





Not applicable.





Item 16H. Mine Safety Disclosure





Not applicable.





56
 Table of Contents




Part III




Item 17. Financial Statements





We have elected to provide financial statements pursuant to Item 18.





Item 18. Financial Statements





The consolidated financial statements of Dragon Bright Mintai Botanical Technology (Cayman) Limited and its subsidiaries are included at the end of this annual report.





Item 19. Exhibits





Exhibit Number

Description of Document1.1

Memorandum of Association of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.1 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)1.2

Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)2.1

Amended Registrant’s Specimen Certificate for its Shares(incorporated by reference to Exhibit 2.1 of our Annual Report on Form 20-F (File No. 000-54676), as amended, originally filed with the Securities and Exchange Commission on April 27, 2012)2.2

Form Private Subscription Letter from investors to Dragon Bright Mintai Botanical Technology Company Limited (incorporated by reference to Exhibit 4.2 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)2.3

Share Swap Agreement among Dragon Bright Mintai Botanical Technology (Cayman) Limited, Dragon Bright Mintai Botanical Technology Company Limited and shareholders of Dragon Bright Mintai Botanical Technology Company Limited dated March 11, 2011 (incorporated by reference to Exhibit 4.3 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.1

English translation of Employment Agreement between the Registrant and Anita Lai Lai Ho dated January 1, 2012 (incorporated by reference to Exhibit 4.1 of our Annual Report on Form 20-F (File No. 000-54676), as amended, originally filed with the Securities and Exchange Commission on April 27, 2012)4.2

English translation of Tenancy Agreement between Edmund C.Y. Tam Limited and Dragon Bright Mintai Botanical Technology Company Limited dated November 23, 2010 (incorporated by reference to Exhibit 10.2 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)


4.3*

Tenancy Agreement between Tofuko Limited and Dragon Bright Mintai Botanical Technology Company Limited dated May 6, 20134.4

English translation of Taiwan Fast Plant Propagation Technology Exclusive License Agreement between Tsai Hsui Ping and Cho-Po Chang dated July 1, 2010 (incorporated by reference to Exhibit 10.3 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)


4.5

English translation of Assignment between Tsai Hsui Ping and Team Profit Asia Limited (former name of Dragon Bright Mintai Botanical Technology Company Limited) dated July 20, 2010 (incorporated by reference to Exhibit 10.4 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.6

English translation of Addendum I to Assignment between Tsai Hsui Ping and Team Profit Asia Limited dated July 21, 2010 (incorporated by reference to Exhibit 10.5 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)  57
 Table of Contents
  4.7

English translation of Technology Assignment Agreement between Tsai Hsui Ping and Cho-Po Chang dated January 7, 2011 (incorporated by reference to Exhibit 10.6 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.8

English Translation of Assignment among Tsai Hsui Ping, Cho-Po Chang and Dragon Bright Mintai Botanical Technology Company Limited dated January 10, 2011 (incorporated by reference to Exhibit 10.7 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.9

English Translation of Marketing and Technology Sub-Licensing Agreement for Taiwan Fast Plant Propagation Technology between Dragon Bright Mintai Botanical Technology Company Limited and China Hainan Agriculture Holdings Ltd. (formerly known as China Agri-Tech Holdings Limited) dated October 22, 2010 (incorporated by reference to Exhibit 10.8 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.10

English Translation of Finder’s Fee Agreement between Chanceline Consultant Limited and Dragon Bright Mintai Botanical Technology Company Limited dated October 13, 2010  (incorporated by reference to Exhibit 10.9 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.11

English Translation of Co-operation Agreement between Xiamen Tianzhu Industrial Development Company Limited and Fujian Qianlon Agricultural Technology Company Limited dated December 30, 2010 (incorporated by reference to Exhibit 10.10 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.12

English Translation of two Land-leasing Framework Agreements between Fujian Qianlon Agricultural Technology Company Limited and Xi Dong Village and Xi Xi Village of Hu Yang town of Yong Chun County, Quanzhou city, dated December 20, 2010 (incorporated by reference to Exhibit 10.11 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.13

English translation of three land lease agreements between Fujian Qianlon Agricultural Technology Co., Ltd. and Xi Xi Village of Hu Yang Town, Yong Chun County, Fujian Province dated February 1, 2011 (incorporated by reference to Exhibit 10.12 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)


4.14

English translation of five land lease agreements between Fujian Qianlon Agricultural Technology Co., Ltd. and Xi Dong Village of Hu Yang Town, Yong Chun County, Fujian Province dated February 1, 2011 (incorporated by reference to Exhibit 10.13 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)


4.15

Form of employment agreement with the Registrant’s employees (incorporated by reference to Exhibit 10.14 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)4.16*

Employment Agreement between the Registrant and Mr. SY Wing Kui dated November 1, 20124.17*

Employment Agreement between the Registrant and Mr. Dominick Mark dated April 21, 20124.18*

Employment Agreement between the Registrant and Anita Lai Lai Ho dated January 1, 20138.1

List of the Registrant’s Subsidiaries (incorporated by reference to Exhibit 21.1 of our Registration Statement on Form F-1 (File No. 333-176868), as amended, originally filed with the Securities and Exchange Commission on September 16, 2011)11.1*

Code of Ethics dated May 10, 201312.1*

CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  58
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  12.2*

CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1*

Certification of the CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1*

Letter from GHP Howath P.C dated June 17, 201315.2*

Audit Contract between the Registrant and Albert Wong & Co dated January 9, 2013





*           Filed with this annual report on Form 20-F.














59
 Table of Contents





SIGNATURES


The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.




Dragon Bright Mintai Botanical Technology (Cayman) LimitedBy:

/s/ Anita Lai Lai HoName:

Anita Lai Lai HoTitle:

Chief Executive Officer and Director


Date: June 17, 2013















60
 Table of Contents





CONSOLIDATED FINANCIAL STATEMENTS





FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010














Contents
PagesReport of independent registered public accounting firms
F-1-2Consolidated statements of comprehensive loss
F-3Consolidated statements of financial position
F-4-5Consolidated statements of changes in equity
F-6Consolidated statements of cash flows
F-7Notes to consolidated financial statements
F-8-40













Table of Contents


ALBERT WONG & CO.

CERTIFIED PUBLIC ACCOUNTANTS

7th Floor, Nan Dao Commercial Building

359-361 Queen’s Road Central

Hong Kong

Tel : 2851 7954

Fax: 2545 4086



ALBERT WONG

B.Soc., Sc., ACA., LL.B., C.P.A.(Practising)

















To:  The board of directors and stockholders of


Dragon Bright Mintai Botanical Technology (Cayman) Limited (“the Cayman Company”)





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








We have audited the accompanying consolidated statements of financial position of Dragon Bright Mintai Botanical Technology (Cayman) Limited (Note 1) and subsidiaries (the “Group”) as of December 31, 2012,  and the related consolidated statements of comprehensive loss, changes in equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these 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 about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.




We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 included in the Company’s Item 15 “Controls and Procedures” in the Annual Report on Form 20-F and, accordingly, we do not express an opinion thereon.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dragon Bright Mintai Botanical Technology (Cayman) Limited and subsidiaries as of December 31, 2012,  and the results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.





The accompanying consolidated financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Group reported a total comprehensive loss of approximately $0.9 million for the year ended December 31, 2012, and had accumulated losses attributable to owners of the Company of approximately $2.3 million at December 31, 2012. In addition, the Group has a limited operating history and generated revenue US$14,982 in 2012. These conditions raise substantial doubt about the Group’s ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.











Hong Kong, China
/s/ Albert Wong & Co.June 17, 2013
Certified Public Accountants


F-1
 Table of Contents


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











Board of Directors


Dragon Bright Mintai Botanical Technology (Cayman) Limited














We have audited the accompanying consolidated statements of financial position of Dragon Bright Mintai Botanical Technology (Cayman) Limited (Note 1) and subsidiaries (the “Group”) as of December 31, 2011 and 2010 , and the related consolidated statements of comprehensive loss, changes in equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these 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 about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dragon Bright Mintai Botanical Technology (Cayman) Limited and subsidiaries as of December 31, 2011 and 2010 and the results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.





The accompanying consolidated financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Group reported a total comprehensive loss of approximately $1.8 million for the year ended December 31, 2011, and had accumulated losses attributable to equity shareholders of the Group of approximately $1.6 million at December 31, 2011. In addition, the Group has a limited operating history and no revenue producing operations. These conditions raise substantial doubt about the Group’s ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.











/s/ GHP Horwath, P.C.


Denver, Colorado





April 27, 2012





F-2
 Table of Contents


CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS





Year ended

December 31,


Year ended

December 31,


Year ended

December 31,Notes


2012


2011


2010US$


US$


US$Revenue


5



14,982



47



-Cost of sales






(4,040
)


(138
)


-Gross profit/(loss)






10,942



(91
)


-Other income


6



611,807



1,284



11General and administrative expenses


7



(1,530,633
)


(1,876,818
)


(166,863
)Loss before income tax expense






(907,884
)


(1,875,625
)


(166,852
)Income tax expense


8(a)



-



-



-Loss for the year






(907,884
)


(1,875,625
)


(166,852
)Other comprehensive income/(loss)Exchange differences on translating foreign operations recognized directly in equity






15,361



88,413



6,918Total comprehensive loss for the year






(892,523
)


(1,787,212
)


(159,934
)Loss attributable to:Owners of the Company






(780,952
)


(1,459,589
)


(144,644
)Non-controlling interest






(126,932
)


(416,036
)


(22,208
)(907,884
)


(1,875,625
)


(166,852
)Total comprehensive loss attributable to:Owners of the Company






(774,451
)


(1,418,397
)


(143,115
)Non-controlling interest






(118,072
)


(368,815
)


(16,819
)(892,523
)


(1,787,212
)


(159,934
)Loss per share – basic and diluted


9



*



*



*Weighted average shares outstanding






531,000,000



524,002,329



116,962,192


*Less than (0.01) per share


See accompanying notes to consolidated financial statements.





F-3
 Table of Contents





CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


AS OF DECEMBER 31,





Notes


2012


2011


2010US$


US$


US$ASSETSNon-current assetsProperty, plant and equipment


10



1,048,281



1,198,651



67,042Construction in progress


11



-



-



261,060Biological assets


12



1,088,946



318,274



32,021Deposits and long term prepayments






15,950



126,168



23,348Intangible assets, net


13



4,709



18,665



5,441Cost investment


14



581



579



578Total non-current assets






2, 158,467



1,662,337



389,490Current assetsSupplies inventory


15



28,093



70,171



8,032Account Receivable


16



272,850



-



-Employee advances


17



29,639



82,204



14,011Deposits






25,618



6,204



3,428Prepaid and other






60,531



31,928



-Amount due from a director


18



77,255



-



-Amount due from a related party


19



-



2,364



-Cash and cash equivalents


28(a)



1,998



262,857



1,772,943Total current assets






495,984



455,728



1,798,414Total assets






2,654,451



2.118,065



2,187,904LIABILITIES AND EQUITYNon-Current liabilitiesLong term loan


20



542,243



-



-Long term deferred revenue


22



290,906



-



-Total Non-Current liabilities






833,149



-



-Current liabilitiesBank overdraft


28(a)



29,050



-



-Accounts payable






15,004



10,109



-Accrued expenses and other payables






269,186



86,681



103,641Amount due to a director


21



337,194



103,275



1,092Amount due to a related party


19



-



-



434,131Amounts due to employees






-



790



-Deferred revenue


22



146,181



-



-Total Current liabilities






796,615



200,855



538,864Total liabilities






1,629,764



200,855



538,864




F-4
 Table of Contents





CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31,Notes


2012


2011


2010US$


US$


US$EquityShare capital


24



53,100



53,100



47,200Share premium






3,817,422



3,817,422



1,767,490Foreign exchange reserves






49,203



42,702



1,510Accumulated losses






(2,393,551
)


(1,612,599
)


(153,010
)Total equity/(deficit) attributable to owners of

the Company






1,526,174



2,300,625



1,663,640Non-controlling interest






(501,487
)


(383,415
)


(14,600
)1,024,687



1,917,210



1,649,040Total liabilities and equity






2,654,451



2,118,065



2,187,904











See accompanying notes to consolidated financial statements.














F-5
 Table of Contents





CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010





(Deficit)/equity attributable to owners of the Company

Non-Controlling interestShare

capital

Share

premium

Foreign

exchange

reserve

Accumulated

losses

Total

Foreign

Exchange

Reserve

Accumulated

losses

Share Capital

Total

equity/(deficit)US$

US$

US$

US$

US$

US$

US$

US$

US$Balances at December 31, 2009


10


3


(19
)

(8,366
)

(8,372
)

-


-


-


(8,372
)Issue of shares for cash, net


47,190


1,767,937


-


-


1,815,127


-


-


-


1,815,127Contribution from non-controlling

shareholders























2,219


2,219Total comprehensive loss for the year


-


-


1,529


(144,644
)

(143,115
)

5,389


(22,208
)




(159,934
)Balances at December 31, 2010


47,200


1,767,940


1,510


(153,010
)

1,663,640


5,389


(22,208
)

2,219


1,649,040Issue of shares for cash, net


5,900


2,049,482


-


-


2,055,382


-


-


-


2,055,382Total comprehensive loss for the year


-


-


41,192


(1,459,589
)

(1,418,397
)

47,221


(416,036
)

-


(1,787,212
)Balances at December 31, 2011


53,100


3,817,422


42,702


(1,612,599
)

2,300,625


52,610


(438,244
)

2,219


1,917,210Total comprehensive loss for the year


-


-


6,501


(780,952
)

(774,451
)

8,860


(126,932
)

-


(892,523
)Balances at December 31, 2012


53,100


3,817,422


49,203


(2,393,551
)

1,526,174


61,470


(565,176
)

2,219


1,024,687














F-6
 Table of Contents




CONSOLIDATED STATEMENTS OF CASH FLOWS





Year ended

December 31,


Year ended

December 31,


Year ended

December 31,2012


2011


2010US$


US$


US$Cash flows from operating activitiesLoss before taxation


(907,884
)


(1,875,625
)


(166,852
)Adjustments for:Amortization


376



1,152



187Depreciation


172,385



101,764



2,320Interest income


(152
)


(1,158
)


(11
)Exchange gain


-



(126
)


-Loss on disposal of fixed assets


11,039



-



-Gain on fair value change of biological assets


(443,845
)


-



-Operating loss before working capital changes


(1,168,081
)


(1,773,993
)


(164,356
)Decrease/(increase) in supplies inventory


42,269



(62,139
)


(8,032
)Decrease in biological assets


4,040Decrease/(increase) in employee advances


58,498



(68,175
)


(14,011
)Increase in account receivable


(269,520
)


--



-Increase in deferred revenue


431,753



-



-Increase in deposits and prepayments and other receivable


63,331



(59,023
)


(3,428
)(Increase) /decrease in amount due from a director


(76,808
)


(2,364
)


13Increase in accounts payable


4,733



10,109



-Increase in accrued expenses and other payables


75,825



74,598



11,180(Decrease)/increase in amounts due to employees


(790
)


790



-Cash used in operations


(834,750
)


(1,880,197
)


(178,634
)Interest received


152



1,158



11Net cash used in operating activities


(834,598
)


(1,879,039
)


(178,623
)Cash flows from investing activitiesPurchases of property, plant and equipment


(9,426
)


(928,850
)


(69,379
)Expenditures for construction in progress


-



(3,069
)


(261,060
)Deposits on construction in progress


-



(78,500
)


(23,348
)Additions to biological assets


(318,263
)


(277,554
)


(32,021
)Purchase of intangible assets


-



(14,391
)


(5,628
)Purchase of investment


-



-



(578
)Net cash used in investing activities


(327,689
)


(1,302,364
)


(392,014
)Cash flows from financing activitiesBank overdraft


29,030



-



-Proceeds from issue of shares, net


-



1,963,579



1,906,930(Decrease)/increase in amounts due to directors


350,221



102,182



(6,390
)Long term loan


786,119



-



-Advances from (repayments to) directors


(13,183
)


(9,743
)


-Repayment of long term loan


(250,495
)


-



-Advances from/(repayments to) a related party


-



(434,131
)


434,131Contribution from non-controlling interest


-



-



2,291Net cash generated from financing activities


901,692



1,621,887



2,336,890Net (decrease)/increase in cash


(260,595
)


(1,559,516
)


1,766,253Effect of foreign exchange rate changes


(264
)


49,430



6,690Cash and cash equivalents at beginning of the year


262,857



1,772,943



-Cash and cash equivalents at end of the year


1,998



262,857



1,772,943





F-7
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




1.
ORGANIZATION, REORGANIZATION AND PLAN OF OPERATIONS







(a)
Organization and reorganization






Dragon Bright Mintai Botanical Technology (Cayman) Limited (the “Cayman Company”) is a holding company, which was incorporated in the Cayman Islands on February 17, 2011. The Cayman Company owns 100% of Dragon Bright Mintai Botanical Technology Company Limited (“Dragon Bright HK”) (formerly known as Team Profit Asia Limited). The Cayman Company, through Dragon Bright HK has a 57%-owned subsidiary, Hong Kong Dragon Holdings Limited (“Hong Kong Dragon Holdings”, a holding company which was formed by Dragon Bright HK in August 2010). Hong Kong Dragon Holdings has a wholly-owned operating subsidiary, Fujian Qianlong Agricultural Technology Co., Ltd. (“Fujian Qianlon”), which is in the initial stages of developing a business in the forest seedling industry (described below).






In 2011, the Cayman Company, Dragon Bright HK, and its shareholders completed the following transactions:




(i)
The formation of the Cayman Company, a Cayman Islands holding company, completed in February 2011, which is owned by the same control group as Dragon Bright HK.  The Cayman Company has authorized share capital of 3,500,000,000 shares at $0.0001 each.





(ii)
Pursuant to written board resolutions of the Company, on March 11, 2011, the shareholders of Dragon Bright HK effectively exchanged their outstanding shares of Dragon Bright HK for all of the outstanding shares of the Cayman Company (the "Share Swap"). The Share Swap has been accounted for as a common control transaction. Other than its 100% ownership of Dragon Bright HK, the Cayman Company has no significant assets and no other business operations. Under the Share Swap, Dragon Bright HK exchanged all 521,450,000 of its issued ordinary shares to the Cayman Company. In turn, the Cayman Company allotted and issued 521,450,000 new ordinary shares to the shareholders of the Company in the ratio of one ordinary share in the Cayman Company for every one ordinary share in Dragon Bright HK.  The Share Swap resulted in a change in par value from HK$0.001 to US$0.0001. The accompanying consolidated financial statements and related notes give retroactive effect to this change in par value.





(iii)
The Cayman Company filed a Form F-1 Registration Statement under the Securities Act of 1933 with the U.S. Securities and Exchange Commission (SEC) to register certain shares of the Cayman Company for resale. The Company’s Form F-1 was declared effective by the SEC on September 30, 2011.





(iv)
The Company’s shares are currently quoted on the Over The Counter (OTC) Bulletin Board in the United States with effective on October 10, 2012.





F-8
 Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




(a)
Organization and reorganization (continued)




These consolidated financial statements have been titled "Dragon Bright Mintai Botanical (Cayman) Limited" because:




(i)
Dragon Bright Mintai Botanical (Cayman) Limited is the holding company of Dragon Bright HK, its subsidiaries, and the operations of the Group.





(ii)
Other than its 100% ownership of Dragon Bright HK, Dragon Bright Mintai Botanical (Cayman) Limited has no significant assets and no other business operations.





(iii)
The Form F-1 Registration occured under the name of Dragon Bright Mintai Botanical Technology (Cayman) Limited.





Dragon Bright HK was incorporated in Hong Kong on July 4, 2007, as a private holding company with authorized share capital of HK$10,000 (US$ approximately $1,280), consisting of 10,000 ordinary shares at a par value of HK$1 (US$ approximately 0.128) each. In September 2010 (through an increase in authorized shares and a simultaneous 1-into-1,000 division of shares), Dragon Bright HK’s share capital was effectively increased from 10,000 shares with a par value of HK$1 per share (HK$10,000) to 1,000,000,000 shares with a par value of HK$0.001 (US$ approximately $0.0001) per share (HK$1,000,000 – US$ approximately $128,900).





The consolidated financial statements of Dragon Bright Mintai Botanical Technology (Cayman) Limited and subsidiaries (the “Group”) as of and for the years ended December 31, 2012, 2011and 2010, were authorized for issue in accordance with a resolution of the directors on June 17, 2013. The registered address of the Company is PO Box 309, Ugland House, Grand Cayman, KY-1104, Cayman Islands. The principal place of business of the Group is located at Room 602, 231 Haitian Road, Huli District, Xiamen, Fujian, PRC.







(b)
Plan of operations







HK Dragon Holdings owns a 100% equity interest in Fujian Qianlon Agricultural Technology Co., Ltd. (福建省乾龍農業科技有限公司) (“Fujian Qianlon”), which was established in the People’s Republic of China (“PRC”) as a wholly-owned foreign enterprise (“WOFE”) on December 9, 2010. On November 20, 2010, approval for establishment of enterprises with foreign investment in the PRC was granted by the local government in Xiamen, and a business operating license was obtained from the relevant regulatory authority on December 9, 2010.





The Group is in the initial stages of developing a business in the forest seedling industry. The Group plans to concentrate in the mass propagation and sale of bamboo-willow seedlings to forest tree plantation companies, seedling gravers, manufactures of paper pulp products and dealer agents.  Bamboo-willow is a type of Salicaceae plant; the natural characteristics of which include fast growth, high cultivation density and strong resistance to disease. The Group is also exploring potential opportunities in growing bamboo-willow for use as timber for construction and other general-purpose functions. The Group’s plan to propagate and sell bamboo-willow is dependent on the commercialization and application of an aeroponics cultivation system, an agricultural and botanical technology, known as Taiwan Fast Plan Propagation Technology (“TFPPT”).





F-9
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








2.
BASIS OF PREPARATION





(a)
Management's plans





The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Group reported a total comprehensive loss of approximately $0.8 million for the year ended December 31, 2012, and had accumulated losses attributable to owners of the Company of approximately $2.3 million as of December 31, 2012. In addition, the Group has a limited operating history and just generated revenue $14,982 in 2012. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Group be unable to continue as a going concern.








The Group’s implementation of its business plan is dependent on its future profitability and on additional debt or equity financing, which may not be available in amounts or on terms acceptable to the Group or at all. As a consequence, if the Group is unable to achieve profitability or obtain additional financing in the near term, the Group may be required to delay its business plan implementation, and/or the Group may be required to cease operations in order to offset the lack of available funding, which would have a material adverse impact on the Group.





The Group does not have a revolving loan agreement with any financial institution, nor can the Group provide any assurance it will be able to enter into any such agreement in the future, or be able to raise funds through a future issuance of debt or equity. As of December 31, 2012, the Group has cash of approximately $1,998 and bank overdraft $29,050. In June 2012, in order to further develop the application of our probiotic-based organic fertilizer, we signed an agricultural consultancy agreement with Fujian Province Shan Ge Agricultural Comprehensive Development Company Limited to obtain feasibility study on Chinese Yam application. In November, 2012, we signed a non-binding letter of intent with a regional business partners which is located in Nan’an County, Fujian Province for the purchase of seedlings and related services.





Should the Group require additional cash funding until such a time the Group becomes profitable, management believes that the Group can raise additional funds through either a further issuance of debt or equity necessary to sustain the Group through at least 2013. However, there can be no assurance of such additional fundraisings in amounts that may be required by the Group, if at all.





(b)
Statement of compliance





These consolidated financial statements of the Group have been prepared for the above purpose and in accordance with all International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board ("IASB"). The IASB has issued a number of new or revised IFRSs during the past years. For the purpose of these consolidated financial statements, the Group has consistently adopted all new or revised IFRSs that are effective and applicable to the Group for each accounting period presented.




(c)
Basis of preparation of financial statements





The consolidated financial statements have been prepared under the historical cost convention, as modified for financial assets and liabilities.





F-10
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





2.
BASIS OF PREPARATION (Continued)





(d)
Functional and presentation currency





The Group’s principal operations are conducted in the PRC, and therefore the Group considers its functional currency to be the Renminbi (“RMB”). The reporting currency used by the Group is United States dollars (“US$”), which management considers to be more beneficial to the users of the financial statements.





3.
SIGNIFICANT ACCOUNTING POLICES





(a)
Basis of consolidation





The consolidated financial statements incorporate the financial statements of Cayman Company and its subsidiaries. Subsidiaries are entities over which the Company is able to exercise control. Control is achieved where the Company, directly or indirectly, has the power to govern the financial and operating policies of entities so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.





The results of subsidiaries acquired or disposed of during the year are included in the profit or loss from the effective date of acquisition or up to the effective date of disposal, as appropriate.





All inter-company transactions, balances, income, expenses and unrealised gains on transactions between the Company’s entities are eliminated in full on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred.





Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.





Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interests of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition, plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.





Changes in the Company’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions.  When the Company loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets, and liabilities of the subsidiary and any non-controlling interests.





F-11
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.       SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(b)
Property, plant and equipment





Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.





The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.





Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.  The carrying amount of the replaced part is derecognized.  All other repairs and maintenance are recognized as an expense in profit or loss during the financial period in which they are incurred.





Property, plant and equipment are depreciated so as to write off their cost, net of expected residual value, over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation methods are reviewed, and adjusted if appropriate, at the end of each reporting period.  The useful lives of property, plant and equipment at December 31, 2012, are as follows:





Leasehold improvements
5 yearsFurniture, fixtures and equipment
3-5 yearsMachinery
5 yearsMotor vehicle
4 yearsGreenhouse and facilities
10 years





An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.  Management determined that there is no impairment to property, plant and equipment as of December 31, 2012.





The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognized in profit or loss on disposal.





(c)
Construction in progress





Construction in progress is stated at cost less impairment losses.  Cost consists of direct costs of construction as well as borrowing costs (if any) capitalized during the periods of construction and installation.  Capitalization of these costs ceases and the construction in progress is transferred to the appropriate class of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.  No depreciation is provided for in respect to construction in progress until it is completed and ready for its intended use.





F-12
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.                    SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(d)
Borrowing costs





Borrowing costs attributable directly to the acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for their intended use or sale, are capitalized as part of the cost of those assets.  All other borrowing costs are recognized in profit or loss in the period in which they are incurred.





(e)
Biological assets





Biological assets are living plants involved in the agricultural activities of the transformation of biological assets into agricultural produce for sale or into additional biological assets. Biological assets and agricultural produce are measured at fair value less costs to sell at initial recognition and at each reporting date, except where fair value cannot be reliably measured. If fair value is not reliably measurable due to the nature of the asset not corresponding to traded assets or products in the market, such assets are recorded at cost less impairment.





Agricultural produce to be sold harvested from Group’s biological assets should be treated as inventory of the Group and IAS 2-Inventories applies after harvest.




The gain or loss arising on initial recognition, and subsequent changes in fair values less costs to sell biological assets is recognized in profit or loss in the period in which it arises.





(f)
Intangible assets





Intangible assets acquired separately are measured on initial recognition at cost, which includes its purchase price plus any directly attributable costs of preparing the asset for its intended use. The cost of intangible assets acquired in a business combination is fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization on a straight line basis over their estimated useful lives and any accumulated impairment losses. The estimated useful life of the Group’s intangible asset is 15 years.





F-13
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.                    SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(g)
Supplies inventories





Supplies inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO). Cost of raw materials represents the invoiced cost of inventories which include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.  The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.





(h)
Research and development costs





Research costs are expensed as incurred and were approximately $2,148 in 2012, $126,000 in 2011 and $11,000 in 2010 (presented within administrative expenses). Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate criteria established under the accounting standards. No development expenditures were capitalized in 2012, 2011 and 2010.





(i)
Impairment of tangible and intangible assets





At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss or if an impairment loss previously recognized no longer exists or may have decreased.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment losses (if any).  Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.





Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.  A reversal of an impairment loss is recognized immediately in profit or loss. Management determined that no impairment to tangible or intangible assets exists as of December 31, 2012.





F-14
 Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




3.          SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(j)
Financial assets and liabilities





(i)
Financial assets





Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.





The Group classifies its financial assets at initial recognition, depending on the purpose for which the asset was acquired.  Financial assets at fair value through profit or loss are initially measured at fair value and all other financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets.





(ii)
Financial liabilities





The Group's financial liabilities, which include payables, accruals, and amounts due to a director and other related parties are initially measured and recorded at fair value, and subsequently measured at amortized cost, using the effective interest rate method, unless the effect of discounting would be immaterial. In such cases, they are stated at cost.





(k)
Cash and cash equivalents





For the purpose of the consolidated cash flow statements, cash and cash equivalents consists of cash at banks and on hand.





(l)
Operating leases





Payments made under operating leases are charged to profit or loss in equal instalments over the period of the respective lease.  Lease incentives received are recognized to profit or loss as an integral part of the aggregate lease payments made.  Contingent rentals are charged to profit or loss when incurred.





F-15
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.                    SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(m)
Income taxes





Income tax expense represents the sum of the tax currently payable and deferred tax.





(i)
Current tax





The tax currently payable is based on taxable profit for the year.  Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expenses that are taxable or deductible in other years, and it further excludes items that are never taxable or deductible.  The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period.





(ii)
Deferred tax





Deferred tax liabilities are provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.  Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.





The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.





Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of each reporting period.  The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of reporting period, to recover or settle the carrying amount of its assets and liabilities.





F-16
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.
SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(n)
Value Added Tax (VAT)





Sales of goods in the PRC are subject to VAT at 17% (Output VAT). Input tax on purchases can be deducted from output VAT. The scope of the part of VAT-exempt items cited in Article 15 of Provisional Regulation of Value Added Tax of the PRC includes forestry. Institutions and individuals engaged in agriculture production can apply this value added tax exempt. VAT-exempt would not be granted to the Group autonomously unless the Group applies this exempt and approved by the tax authority. The Group obtained VAT-exempt period from March to December of 2012. Output VAT has been incurred US$7.74 by the Group through December 31, 2012. This VAT amount is taxed on the sales amount of last year before the Group obtained the approval of the exemption.





(o)
Employee benefits





(i)          Employee leave entitlements





Employee entitlements to annual leave and long-service leave are recognized when they accrue to employees.  A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by employees up to the date of reporting period.





Employee entitlements to sick leave and maternity or paternity leave are not recognized until the time of leave.





(ii)
Retirement benefits plan





The Company participates in a mandatory central pension plan (the “Plan”) organised by the PRC government for certain of its employees located in the PRC, the assets of which are held separately from those of the Company.  Contributions made are based on a percentage of the eligible employees’ salaries and are charged to profit or loss as they became payable, in accordance with the rules of the Plan.  The employer’s contributions fully vest once they are made.





(p)
Foreign currencies





Transactions entered into by each individual entity within the Group in currencies other than the currency of the primary economic environment in which it/they operate(s) (the “functional currency”) are recorded at the rates ruling when the transactions occur.  Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of the reporting period.  Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.





F-17
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.                SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(p)       Foreign currencies (continue)





Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognized in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period, except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized in other comprehensive income, in which case, the exchange differences are also recognized in other comprehensive income.





On consolidation, income and expense items of foreign operations are translated into the presentation currency of the Group (US$) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating those ruling when the transactions took place are used.  All assets and liabilities of foreign operations are translated at the rate ruling at the end of the reporting period.  Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity as foreign exchange reserve (attributed to non-controlling interests as appropriate).





(q)
Provisions





Provisions are recognized for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.





Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote.  Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.





(r)
Government grants





Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.





F-18
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.           SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(s)
Revenue recognition





Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts returns and value added taxes.  The Group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below.  The group bases its estimates of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.





1.
Sales of goods


Revenue from the sale of goods is recognised when the goods are delivered at the customers’ premises or agreed point of delivery which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales taxes after deduction of any trade discounts.





The advanced from customer for sale of goods in the future years recognised as deferred revenue and long term deferred revenue based on the period from execution date of contract.





2.
Interest income


Interest income is recognised as it accrues using the effective interest method.





3.
Service fee income


Income from provision of services is recognised at the time when the services are rendered by reference to the stage of completion. The advanced from customer which not yet rendered services is recognised as deferred revenue.





(t)
RELATED PARTY


(i)   A person, or a close member of that person’s family, is related to the group if that person:


(1)  has control or joint control over the group;


(2)  has significant influence over the group; or


(3)  is a member of the key management personnel of the group or the group’s parent.


(ii)  An entity is related to the group if any of the following conditions applies:


(1)  The entity and the group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).


(2)  One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).


(3)  Both entities are joint ventures of the same third party.


(4)  One entity is a joint venture of a third entity and the other entity is an associate of the third entity.


(5)  The entity is a post-employment benefit plan for the benefit of employees of either the group or an entity related to the group.


(6)  The entity is controlled or jointly controlled by a person identified in (a).


(7)  A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).





Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.





F-19
 Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.           SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(u)
ADOPTION OF NEW/ REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)





The following pronouncements issued by the IASB and interpretations published by IFRIC will become effective for annual periods beginning on or after January 1, 2013, with earlier adoption permitted.  IFRS 10, IFRS 11 and IFRS 12 permit early adoption if all of the standards are collectively adopted.





IFRS 10 – Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. A new definition of ‘control’ has been established. IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation—Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.





IFRS 11 – Joint Arrangements establishes the principles for joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. IFRS 11 requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method whereas for a joint operation the venture will be accounted for using the proportionate consolidation method.





IFRS 12 – Disclosure of Interests in Other Entities is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities.





IFRS 13 – Fair Value Measurement defines fair value, requires disclosure about fair value measurements and provides a framework for measuring fair value when it is required or permitted within the IFRS standards.





IAS 19 – Employee Benefits amends the existing standard to eliminate options to defer the recognition of gains and losses in defined benefit plans, requires remeasurement of a defined benefit plan’s assets and liabilities to be presented in other comprehensive income and increases the disclosure.





The IASB also amended the following standard which is effective as per the date identified.





IAS 1 – Presentation of Financial Statements was amended and requires companies to group items presented within Other Comprehensive Income based on whether they may be subsequently reclassified to profit or loss.





IFRS 9 – Financial Instruments addresses the classification and measurement of financial assets. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value.  The new standard also requires a single impairment method to be used.  The IASB has extended the effective date to January 1, 2015.




F-20
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





3.         SIGNIFICANT ACCOUNTING POLICES (CONTINUED)





(v)
Reclassifications





Certain amounts presented in the 2011 and 2010 consolidated financial statements have been reclassified to carry over to the 2012 presentation.








4.
CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY





In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.  The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates.





The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.





(a)
Biological assets





The Group accounts for biological assets at fair value.  Management estimates that the quoted price in similar market less costs to sell as their fair value of biological assets as at December 31, 2012.





Management evaluates fair value of its biological assets in consideration of applicable accounting standards, which provide that a biological asset shall be measured on initial recognition and at the end of each reporting period at its fair value less costs to sell. There is a presumption that fair value can be measured reliably for a biological asset.





If an active market exists for a biological asset or agricultural produce in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset. If an entity has access to different active markets, the entity uses the most relevant one.





F-21
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





4.             Critical accounting judgements and key sources of estimation uncertainty (continued)





(a)
Biological assets (continued)





If an active market does not exist, an entity uses one or more of the following, when available, in determining fair value:





-
the most recent market transaction price, provided that there has not been a significant change in economic circumstances between the date of that transaction and the end of the reporting period;


-
market prices for similar assets with adjustment to reflect differences; and


-
sector benchmarks





In some cases, the information sources listed above may suggest different conclusions as to the fair value of a biological asset or agricultural produce. An entity considers the reasons for those differences, in order to arrive at the most reliable estimate of fair value within a relatively narrow range of reasonable estimates. Alternatively, the fair value of biological assets is determined independently by professional valuers.





In some circumstances, market-determined prices or values may not be available for a biological asset in its present condition. In these circumstances, an entity uses the present value of expected net cash flows from the asset discounted at a current market-determined rate in determining fair value. The objective of a calculation of the present value of expected net cash flows is to determine the fair value of a biological asset.





Cost may sometimes approximate fair value, particularly when:





-
little biological transformation has taken place since initial cost incurrence (for example, for fruit tree seedlings planted immediately prior to the end of a reporting period); or





-
the impact of the biological transformation on price is not expected to be the gain or loss arising on initial recognition, and subsequent changes in fair values less costs to sell biological assets is recognized in profit or loss in the period in which it arises.  Upon the sale of the agricultural produce as forestry products, the carrying amount is transferred to cost of forestry products sold in the statement of comprehensive income.





The Group’s agricultural business is subject to the usual agricultural hazards from fire, wind and insects.  Forces of nature such as temperature and rainfall may also affect harvest efficiency.  Management considers adequate preventive measures are in place to minimize exposure. Nevertheless, to the extent that un-anticipated factors affecting harvestable agricultural produce may result in re-measurement or harvest losses in future accounting periods.





(b)
Useful lives of property, plant, equipment, and intangible assets





Management estimates the expected useful lives for its property, plant, equipment, and intangible assets and determines the related depreciation/amortization policy. The estimated useful lives of the assets and the residual values reflect management’s estimates of the number of years that the Group intends to derive future economic benefits from the use of the assets.  These estimates could change significantly as a result of technological innovations in response to industry cycles.  The depreciation/amortization expense in future accounting periods may be adjusted if there are significant changes in these estimates.




F-22
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







4.
Critical accounting judgements and key sources of estimation uncertainty (continued)








(c)
Impairment of tangible and intangible assets





At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss or if an impairment loss previously recognized no longer exists or may have decreased.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment losses (if any).  Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.





Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.  A reversal of an impairment loss is recognized immediately in profit or loss.   Management determined that no impairment to tangible or intangible assets exists as of December 31, 2012.











5.
REVENUE





Revenue represents the net invoiced value of goods sold, after allowances or returns and trade discounts.





2012


2011


2010US$


US$


US$Sales of sapling


14,982



47



-














F-23
 Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








6. OTHER INCOME





2012


2011


2010US$


US$


US$Interest income



153



1,158



11Exchange gain



2



126



-Subsidies
(a)


27,129



-



-Sundries income



140,678



-



-Gain on fair value change of biological assets



443,845



-



-611,807



1,284



11





(a)
Fujian Qianlong received a grant US$27,129 under the Yong Chun Town government EnvironmentalIncentive

Program because its plant size met the requirement of the Program. The grant money

was recognized as other income when the money was receipt.





7.
NATURE OF EXPENSE INFORMATION





Loss before income tax expense primarily consists of the following expenses, by nature:





2012


2011


2010US$


US$


US$Directors’ remuneration:Salaries and allowances


1,856



1,774



6,719Key management remunerationSalaries and allowances


150,043



57,371



4,431Staff costs:Salaries and allowances


354,023



322,663



28,986Retirement benefits plan contributions


20,138



13,497



440Staff benefits and training


35,463



33,635



-Lease expense under operating leases of land and buildings


174,083



45,215



8,991Depreciation of property, plant and equipment


172,385



101,764



2,320Amortization of intangible assets


376



1,152



187Research and development


2,148



126,313



11,071Meals/entertainment


44,300



117,788



10,392Professional fees


372,523



705,693



54,396Office general and administrative expenses


68,993



76,928



38,930Travel expenses


14,209



51,898



-Other expenses


25,123



127,316



-Advertising & marketing


503



10,002



-Seedling loss


44,407



26,493



-Motor vehicle expenses


50,060



57,316



-1,530,633



1,876,818



166,863





F-24
 Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





8.
INCOME TAX EXPENSE





(a)
No provision for Hong Kong profits tax has been made, as there was no assessable taxable profit derived during the years presented.  The applicable corporate income tax rate for Hong Kong for 2012, 2011 and 2010 is 16.5%.





No provision for the PRC enterprise income tax has been made for the Company’s subsidiary, Fujian Qianlon, as it also had no taxable profits during the years presented. The applicable PRC enterprise income tax rate for Fujian Qianlon for 2012, 2011 and 2010 is 25%.





(b)
The Group had no income tax expense (benefit) in the consolidated statements of comprehensive loss for each of the year presented, as reconciled below:





2012


2011


2010US$


US$


US$Loss before income tax


(907,883
)


(1,875,625
)


(166,852
)Expected income tax benefit calculated at tax rates applicable to loss in the applicable jurisdictions


(170,238
)


(387,436
)


(31,363
)Tax effect on expenses not deductible for tax purpose


15,851



39,869



1,827Tax effect on income not taxable for tax purpose


(110,961
)


(17
)


-Tax effect of unrecognized temporary differences not recognized


(14,363
)


8,656



(822
)Tax effect on tax losses not recognized


279,711



338,928



30,358Income tax expense (benefit)


-



-



-





The Company has not recognized a deferred tax asset related to accumulated tax losses of approximatelyUS$1,448,805, US$768,165 and US$45,084 as of December 31, 2012, 2011 and 2010, respectively, as it is not considered probable that future taxable profits against which these assets can be utilized will be available in the relevant tax jurisdiction and entity.





Tax losses of approximatelyUS$663,947, US$958,530 and US$115,676  as of December 31, 2012, 2011 and 2010, respectively, were not be carried forward for future deduction as no revenue generated in the respectively year under current tax legislation. Tax losses of approximatelyUS$680,639, US$723,082 and US$45,084 as of December 31, 2012, 2011 and 2010, respectively in respect to the PRC subsidiary expire five years from the respective year of loss.




F-25
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





9.
LOSS PER SHARE





The calculation of basic loss per share is based on the loss for the respective year attributable to owners of the Group, and the weighted average number of ordinary shares during the respective period.





Diluted loss per share for the years ended December 31, 2012, 2011 and 2010, is equivalent to basic loss per share, as no dilutive instruments existed during these periods.








10.
PROPERTY, PLANT AND EQUIPMENT





Leasehold improvements


Furniture

fixtures

and

equipment


Machinery


Motor

vehicles


Green

houses

and

facilities


TotalUS$


US$


US$


US$


US$


US$Cost:At December 31, 2010


30,161



11,643



27,575



-



-



69,379Exchange Realignments


1,470



206



1,344



-



-



3,020Reclassification from construction in progress


18,795



-



15,391



-



242,927



277,113Additions


-



59,179



648,106



245,210



-



952,495At December 31, 2011


50,426



71,028



692,416



245,210



242,927



1,302,007Exchange Realignments


513



644



7,095



2,494



2,470



13,216Additions


-



4,561



4,865



-



-



9,426Disposals


(2,405
)


(12,200
)


(3,170
)


-



-



(17,775
)Transfer from intangible assets


-



14,403



-



-



-



14,403At December 31, 2012


48,534



78,436



701,207



247,704



245,397



1,321,277Accumulated depreciation:At December 31, 2010


398



1,625



314



-



-



2,337Charge for the year


6,381



9,707



21,638



40,980



21,717



100,423Exchange realignments


50



123



120



198



105



696At December 31, 2011


6,829



11,455



22,072



41,178



21,822



103,356Charge for the year


9,057



20,579



65,875



55,053



21,821



172,385Transfer from intangible assets


-



791



-



-



-



791Disposals


(645
)


(5,053
)


(913
)


-



-



(6,611
)Exchange realignments


401



45



1,038



1,099



491



3,074At December 31, 2012


15,643



27,817



88,072



97,330



44,134



272,996Carrying value:At December 31, 2012


32,891



50,619



613,135



150,374



201,262



1,048,281At December 31, 2011


43,597



59,573



670,344



204,032



221,104



1,198,651At December 31, 2010


29,763



10,018



27,261



-



-



67,042





F-26
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








11.
CONSTRUCTION IN PROGRESS





2012


2011


2010US$


US$


US$At beginning of the year


-



261,060



-Exchange realignments


-



12,984Additions


-



3,069



261,060Reclassification to property, plant and equipment


-



(277,113
)


-At end of the year


-



-



261,060





Construction in progress at December 31, 2010 represented material and labor costs incurred through 2010, in connection with the Company’s construction of greenhouse and building facilities located in Xiamen, PRC. The facilities were placed in operation in 2011, and the costs were reclassified to Property, Plant and Equipment.





12.
BIOLOGICAL ASSETS





2012


2011


2010US$


US$


US$At beginning of the year


318,274



32,021



-Additions


318,263



284,827



32,021Transferred to inventory in the year


(4,040
)


(138
)


-Gain on fair value change


443,845



-



-Exchange realignments


12,604



1,564



-At end of the year


1,088,946



318,274



32,021





Biological assets represent the Group’s greenhouse plantations of bamboo-willow and plantation bamboo-willow trees, which are located in Xiamen, PRC. At December 31, 2012 and 2011, biological assets consist of bamboo-willow super mother saplings and bamboo willow seedlings. These biological assets are presented as non-current assets in the accompanying statement of financial position as it has not yet been determined that such assets will be harvested for sale in 2013.





Plantation costs incurred through December 31, 2012, consist of labor and materials incurred in cultivating these assets. The Group has accounted for its biological assets at fair value, as management believes that fair value can be reliably determined. At December 31, 2012, the company estimates the market price less costs to sell approximate as fair value of the biological assets. The gain $443,845 arising from the change of fair value was recognised as fair value gain included in income statement of 2012.  The fair value of the biological assets at December 31, 2011, is estimated to approximate cost. Management believes that the impact on the biological transformation on price is not material, so no fair value gain or loss was recongised in the year.





F-27
 Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





13.
INTANGIBLE ASSETS





The Group’s intangible assets include license rights to an aeroponics cultivation system, which is an agricultural and botanical technology known as Taiwan Fast Plant Propagation Technology (“TFPPT”). TFPPT was invented and is owned by a shareholder, who is also a senior member of the Group’s management (the “Inventor”).  The Inventor had originally granted a worldwide exclusive license to TFPPT to Ms. Tsai, who is a family member related to the Group’s CEO/director, on July 1, 2010.  In July 2010, Ms. Tsai assigned and transferred all of her rights to the license to the Group in exchange for US$5,628.  This transaction was accounted for as a transfer between entities under common control, and the cost of this intangible asset is based on the transferor’s historical cost of the asset. Prior to the Group’s acquisition of the license rights, the TFPPT has no significant business operations, or activities, revenue or expenses, and therefore management determined that the TFPPT and the related license agreement did not meet the definition of a “business” as defined by accounting standards, or as a “predecessor business”, as defined in SEC rules.





The terms of the intellectual property rights agreement provide that the Group is to pay royalty fee to the Inventor at 6% of any income received (as defined) from the use and application of TFPPT, including any income received from sub-licensing TFPPT over the 30-year term of the agreement.  Royalty fee to the Inventor is to be paid quarterly. Amortization of the license right is provided on a straight-line basis over estimated useful life of 15 years.





On January 7, 2011, the Inventor had granted all his rights, title and interest in and to all the technology process related to formulation of the probiotics-based organic fertilizer (a component of the TFPPT) to Ms Tsai who, on January 10, 2011, further assigned and transferred this technological process to the Group for normal consideration. This transaction was also accounted for as a transfer between entities under common control.





F-28
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





13.
INTANGIBLE ASSETS (Continued)





Intangible assets also include computer software which was purchased from a third-party vendor in 2011.  The computer software is being amortized over 3 years.  All Computer Software had moved to tangible asset “Computer Equipment” Category in 2012.





License rights


Computer Software


TotalUS$


US$


US$Cost:At December 31, 2010


5,628



-



5,628Exchange Realignments


12







12Additions


-



14,380



14,380At December 31, 2011


5,640



14,380



20,020Exchange Realignments


11



23



33Transfer to fixed assets


-



(14,403
)


(14,403
)At December 31, 2012


5,651



-



5,651Accumulated amortization:At December 31, 2010


187



-



187Exchange Realignments


16







16Charge for the year


361



791



1,152At December 31, 2011


564



791



1,355Exchange Realignments


2



-



2Charge for the year


376



-



376Transfer to fixed assets


-



(791
)


(791
)At December 31, 2012


942



-



942Carrying value:At December 31, 2012


4,709



-



4,709At December 31, 2011


5,076



13,589



18,665At December 31, 2010


5,441



-



5,441





F-29
 Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





14.
COST INVESTMENT





At December 31, 2012, 2011 and 2010, the Group holds a 14.876% equity interest in China Hainan Agriculture Holdings Ltd. (“CHAH”) which was acquired in October 2010, for HK$4,500 (US$578).  CHAH, previously known as China Agri-Tech Holdings Limited, was formed in 2005, as a Hong Kong limited company, and through December 31, 2011, has had no significant business operations or revenue-generating activities.  CHAH is planning to form a PRC subsidiary, located in Hainan, PRC, to develop a bamboo-willow plantation. The remaining shares of CHAH (other than shares held by the Company) are held by investors unrelated to the Group.





At December 31, 2012, 2011 and 2010, management determined that the Group does not have significant influence over CHAH, pursuant to applicable accounting standards.





CHAH is a privately-owned company that does not have a quoted market price in an active market, and for which fair value cannot be reliably measured, therefore, this investment is measured at cost, less any identified impairment losses.





In October 2010, the Company entered into a 20-year sub-licensing agreement with CHAH, in which the Company sub-licensed to CHAH certain rights to use TFPPT (Note 13).








15.
SUPPLIES INVENTORY





2012


2011


2010US$


US$


US$Raw materials and consumable supplies


28,093



70,171



8,032





Raw material and consumable supplies inventory primarily consist of fertilizer for use on biological assets at December 31, 2012, 2011 and 2010.








16.
ACCOUNT RECEIVABLE





2012


2011


2010US$


US$


US$Account receivable


272,850



-



-





An aged analysis of account receivable of the Group as at the end of the reporting period, based on the contract, is as follows:





2012


2011


2010US$


US$


US$Within one month


-



-



-1-3 months


272,850



-



-Over 3 months


-



-



-




F-30
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





17.
EMPLOYEE ADVANCES





Employee advances are made for general business purposes. These advances are non-interest bearing, unsecured and due on demand.




.
2012

2011

2010US$

US$

US$Employee advances
29,639

82,204

14,011








18.
Amounts due from a director





Maximum amount outstandingduring the year


2012


2011


2010US$


US$


US$


US$Stanley Ang


77,255



77,255



-



-





The amount due from a director was unsecured, non-interest bearing, and due on demand.





The fair value of the above amount due from a director as at the balance sheet, determined based on the present value of the estimated future cash flows discounted using the prevailing market rate at the balance sheet date was approximate to their carrying amount.





19.
Amount due from /( to ) related parties





In 2010, Ms. Tsai (a family member related to the Group’s CEO/Director) advanced $434,131 to the Group, to fund the Group’s capital expenditures.  This amount was unsecured, non-interest bearing and repaid in full in January 2011.





At December 31, 2011, the Group had a $2,364 receivable from an officer of the Group which represented an overpayment of salary at December 31, 2011.





F-31
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





20.
LONG TERM LOAN





Long term loan due to a third unrelated party and a director at December 31, 2012 are summarized as follows:




Interest rate

Due date

December 31Third unrelated party
Nil

3/15/2015

$
160,500Director Stanley Ang
Nil

4/30/2015


24,630Director Stanley Ang
Nil

6/7/2015


72,225Director Stanley Ang
Nil

6/4/2015


32,100Director Stanley Ang
Nil

8/7/2015


32,100Director Stanley Ang
Nil

8/27/2015


24,075Director Stanley Ang
Nil

6/9/2015


24,075Director Stanley Ang
Nil

10/29/2015


40,125Director Stanley Ang
Nil

10/9/2015


48,150Director Stanley Ang
Nil

10/18/2015


6,420Director Stanley Ang
Nil

11/7/2015


40,125Director Stanley Ang
Nil

12/5/2015


2,408Director Stanley Ang
Nil

12/9/2015


35,310Total




$
542,243





All the loans are interest free and repayment upon the expiration of the due date.





21.
Amount due to a director





Amount due to a director is interest-free, unsecured and repayable on demand.





22.
Deferred revenue and long term deferred revenue





Fujian Qianlong signed a one year agriculture consultancy service agreement at consideration of US$240,750 with an unrelated company on June 25, 2012. US$123,141 was recognised as other income based on the stage of services performed in 2012. The remaining amount US$116,087 was recognized as deferred revenue at the year end.





Fujian Qianlong signed regional cooperation agreement with an unrelated company on October 12, 2012. The agreement stated the third party should pay the company US$ 321,000 as advance within 30 days after signed the agreement. At the year end of 2012, the company has received US$48,150, but US$272,850 was still outstanding. According to the agreement, the Group would sell a minimum US$100,312 per year to the counterparty for the following three years, and 30% of the minimum sales amount would be deducted from the advances from the counterparty. US$30,094 was recognized as deferred revenue and US$290,906 was recognized as long term deferred revenue through future sale of goods.





F-32
 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





23.
Statutory reserve





In accordance with the relevant laws and regulations of the PRC, entities established in the PRC are required to transfer 10% of its profit after taxation (in accordance with the accounting regulations of the PRC) to the statutory reserve, until the reserve balance reaches 50% of the entity’s registered capital. The reserve may be used to offset accumulated losses or increase the registered capital, subject to approval from the PRC authorities, and are not available for dividend distribution to the equity owners. No transfers were required to be made during each of the years presented.





24.
Share capital





Issued and fully paid2012


2012


2011


2011


2010


2010Number


US$


Number


US$


Number


US$At beginning of the year


531,000,000



53,100



472,000,000



47,200



100,000



10Issues of shares for cash during the year


-



-



59,000,000



5,900



471,900,000



47,190At end of the year


531,000,000



53,100



531,000,000



53,100



472,000,000



47,200











The Company has financed its business operations through 2011, primarily through cash generated from the sale of its common shares.  In 2011, Dragon Bright HK issued 59,000,000 shares to 61 investors for total cash of $2,055,383 (net of offering costs), of which $5,900 represented share capital (par value), and $2,049,383 represented share premium (the excess of the issue price over the par value of the shares issued).  Offering costs were $81,435 in 2011.





In 2010, Dragon HK issued 399,900,000 shares to seven founding shareholders and 72,000,000 shares to ten investors for total cash of $1,906,930, of which $647,190 represented share capital (par value), and $1,859,740 represented share premium (the excess of the issue price over the par value of the shares issued). Offering costs were $91,803, which were accrued as of December 31, 2010, and paid in 2011.





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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








25.
Commitments and contingencies





(a)
Capital commitments





At the end of each reporting period, the Company had the following commitments:





2012


2011


2010US$


US$


US$Authorized and contracted, but not provided for:- acquisition of property, plant and equipment and

construction in progress


-



-



141,590








(b)
Operating lease commitments





The Group was under a two-year operating lease for office facilities in Hong Kong that was entered into in November 2010.  This lease provided for monthly lease payments of approximately $1,480. This lease was terminated in February 2012. The Group received a refund of a deposit on this lease of $6,204 in 2012. In December 2011, the Group entered into a one-year business centre service agreement, and lease payments under this agreement are approximately $5,900 per month. This lease term began on March 1, 2012 and continues to February 28, 2013. After the termination on February 28, 2013, the director temporarily provides work place with no charges. Starting from May 20, 2013, the Group signed a two-year lease agreement with monthly lease fee $4,580 in Hong Kong.





In addition, in December 2010, the Group began leasing office facilities in Xiamen, PRC under a two-year operating lease which expires in December 2012. Lease payments are approximately $713 per month. This agreement renewed in December 2012 with lease fee US$ 9,246 per year increment at least by 8% each year in the leasing periods till December 2015.





In May 2010, the Company entered into a 20-year cooperative agreement with a third-party company (the “Cooperative Party”), in which the Company agreed to lease up to 100 mu (66,667 square meters) of agricultural land located in Xiamen for approximately $150 per mu (667 square meters) per year. Lease expense under this agreement was $5,655, $5,518 and $6,031 in 2012, 2011 and 2010 respectively. In December 2012, the Company received a refund of $11,098 due to adjustment for usage of only 35 mu of agricultural land.





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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








25.           Commitments and contingencies (continued)





(b)
Operating lease commitments (continued)





Pursuant to the two land-leasing framework agreements entered into in December 2010, the Group entered into nine land-leasing agreements with two village committees which are not related to the Group (“Village Committees”) in February 2011. According to the land-leasing framework agreements, all village farmers have signed the leasing agreements with the Village Committees who then signed official land-leasing contracts, on behalf of the village farmers, with the Group. The Group has agreed to lease from these Village Committees 1,149.51 mu (approximately 766,340 square meters) of farm land and forestry land located in Quanzhou at a price range approximately from $8 to $55 per mu (667 square meters) per year. In 2012 and 2011, lease expense was $12,470 and $12,171 respectively under this agreement. There was no lease expense under this agreement in 2010.





In July 2011, the Company entered into a 3-year cooperative agreement with a third-party, in which the Company agreed to lease 50 square meters located in Xiamen for monthly rent of approximately $278. The Company also entered into a 5-year cooperative agreement with a third-party company, in which the Company agreed to pay annually $80,856 in order to use their buildings and land in Xiamen.











2012


2011


2010US$


US$


US$Lease expense


174,083



45,215



8,991





At the end of each reporting period, the Group had outstanding minimum commitments under non-cancellable operating leases, which fall due as follows:





2012


2011


2010US$


US$


US$Not later than one year


162,499



161,039



38,845Later than one year and not later than

five years


420,601



372,426



81,524More than five years


392,978



391,880



212,934976,078



925,345



333,303





The Group has made various lease deposits which total approximately $47,600 at December 31, 2011, whereas the deposit turned to approximately $41,034 at December 31, 2012.








(c)
Royalty commitment


As further discussed in Note 13 to the financial statements, the Group is committed to pay a royalty fee to the Inventor quarterly in connection to the use and application and sub-licensing of TFPPT.





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 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





25.           Commitments and contingencies (continued)





(d)
Litigation





The Group is involved in a personal injury claim that arose in April 2011. In connection with this matter, the Group paid RMB 120,000 (approximately US$19,000) to the injured party, which has been expensed, and of which RMB 110,550 (approximately US$17,527) was recovered from insurance in 2012.





(e)
PRC Seed Law





According to the Seed Law of the PRC, any companies engaged in the forestry seedlings industry must acquire a “tree seed production and management permit” before conducting business in the industry. The permit is normally issued by forestry administrative departments at the county level of the people's government of provinces, autonomous regions and municipalities. Fujian Qianlong’s application for a tree seed production and management permit was approved on October 18, 2011.




(f)              Environmental Laws





The PRC has laws concerning environmental protection, for which entities subject to such laws are required to adopt effective measures to prevent and control pollution and damage that may be caused to the environment, such as by, waste water, waste residues, dust, and other byproducts generated in the course of production, construction or other activities.





The Group is subject to periodic inspections and assessments by PRC environmental officials, none of which have occurred through December 31, 2012, or subsequent to year end. Should the Group fail such an assessment and/or violate environmental PRC laws, it may be subject to penalties, suspension of operations and/or environmental remediation.





The Group believes the Group is in compliance with all environmental laws and regulations based on their knowledge.





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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





26.
Related party transactions





(a)
Transactions between the Company and its subsidiaries, which are related parties of the Group, have been eliminated on consolidation. Transactions with other related parties which are not disclosed elsewhere in these consolidated financial statements are shown below :





Year ended

December 31,

2012


Year ended

December 31,

2011


Year ended

December 31,

2010US$


US$


US$Purchase of intellectual license rights

from Ms. Tsai


-



-



5,628Consultancy fees paid to a director


23,206



2,569



3,475Consultancy fees paid to Ms. Tsai


19,025



-



-42,231



2,569



9,103





(b)
On October 22, 2010, the Group entered into a sub-licensing agreement with CHAH, to allow CHAH to market, promote, advertise and make use of the TFPPT technology solely in the Hainan province of the PRC.  The license term is for a period of 20 years, commencing on the effective date of the agreement, and is subject to early termination by either party with prior notice. CHAH agreed to pay the Group royalties based on a percentage of revenues from the sale of goods or services derived from the TFPPT technology.  Through December 31, 2012, the Group has not earned any royalty revenue from this sublicense agreement. CHAH is to pay a minimum of $128,921 per annum to the Group starting at the end of the third year from the effective date of the agreement.





(c)
Certain members of key management were directors of the Group, whose remuneration is disclosed in Note 7 to the financial statements.








27.
Capital risk management





The Group’s objective of managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce cost of capital.





In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.





The capital structure of the Group consists of equity attributable to equity holders of the Group only, comprising share capital and reserves.





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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





28.
Financial risk management objectives and policies





The main risks arising from the Group’s financial instruments in the normal course of the Group’s business are credit risk, liquidity risk, interest rate risk and currency risk.





These risks are limited by the Group’s financial management policies and practices described below.





(a)
Credit risk





The carrying amounts of cash and other receivables present the Group with credit risk. The maximum exposure to credit risk is the carrying amounts of the respective financial assets at the end of the reporting period.





The credit risk of the Group’s cash and cash equivalents arises from default of the counterparty.  At December 31, 2012, the Group’s cash and cash equivalents, denominated in RMB, amounted to US$327 (US$145,641 at December 31, 2011 and US$1,297,749 at December 31, 2010). The Group had no cash and cash equivalents in 2009. Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.  The remaining balance of the Group’s cash and cash equivalents was US$1,671 which was denominated in Hong Kong dollars and US dollars at December 31, 2012 (US$117,216, at December 31, 2011 and US$475,194 at December 31, 2010). The Group was overdraft US$29,050 at December 31, 2012 which was denominated in Hong Kong dollars.








(b)
Interest rate risk





As the Group has no significant interest-bearing assets and liabilities, the Group’s income/(loss) and operating cash flows are substantially independent of changes in market interest rate.





(c)
Foreign exchange risk





The Group primarily operates in the PRC with the majority of transactions denominated and settled in RMB, which is not freely convertible into other foreign currencies.  Conversion of RMB into foreign currencies is subject to rules and regulations of foreign exchange control promulgated by the PRC government.  The PRC subsidiaries of the Company transact in their functional currency and therefore no currency risk is expected to arise in respect of these subsidiaries.  The Group’s financial statements are presented in US$ and fluctuations of RMB against US$ will result in adjustment to financial amounts.  The Group currently does not utilize any forward contracts, currency borrowings or other means to hedge against its foreign currency exposure.





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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





28.           Financial risk management objectives and policies (continued)





(d)
Liquidity risk





The Group’s policy is to regularly monitor its liquidity requirements and maintain sufficient reserves ofcash and cash equivalents to meet its liquidity requirements in the short and long term.





The contractual maturities of financial liabilities as of December 31, 2012, 2011 and 2010 are shown below:





Carrying

amount


Total

Contractual

undiscounted

cash flow


More than one year or on demand


Within on

year or on demandUS$


US$





US$2012Account payable


15,004



15,004






15,004Amounts due to officer/directors


337,194



337,194



-



337,194Other payables (included in accrued

expenses)


29,318



29,318







29,318Long term loan


542,243



542,243



542,243



-923,759



923,759



542,243



381,5162011Account payable


10,109



10,109



-



10,109Amounts due to officer/directors


103,275



103,275



-



103,275Other payables (included in accrued

expenses)


39,711



39,711



-



39,711153,095



153,095



-



153,0952010Amount due to Ms. Tsai (related

party)


434,131



434,131



-



434,131Amounts due to officer/directors


1,092



1,092



-



1,092Other payables (included in accrued

expenses)


6,765



6,765



-



6,765441,988



441,988



-



441,988





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 Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





29.
Financial assets and liabilities





The fair value of financial assets and liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.





An analysis of financial instruments carried at fair value by level of fair value hierarchy is as follows:





Level 1:
Quoted prices (unadjusted) in active markets for identical assets or liabilities;





Level 2:
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and





Level 3:
Inputs for the asset or liabilities that are not based on observable market data (unobservable inputs).





The carrying amounts of the Group’s financial assets and liabilities with maturity of less than one year approximate their fair values. The Group does not anticipate that the carrying amounts recorded at the financial position date would be significantly different from the values that would be eventually be received or settled.





30.
Principle subsidiaries





Details of the Company’s subsidiaries as of December 31, 2012 and 2011 were as follows:





Name of

subsidiary company

Place of

incorporation/

establishment

and operation

Paid-up capital

Percentage of equity

attributable to

the Company

Principal activitiesDirect

IndirectDragon Bright Mintai Botanical Technology Company Limited

Hong Kong

HK$24,334,000

100%

-

Investment holdingHong Kong Dragon Holdings

Hong Kong

HK$40,000

57%

-

Investment holdingFujian Qianlon *

The PRC

RMB16,961,000

-

100%

Tree plantation and management, manufacture and distribution of forestry products





* Fujian Qianlon is a wholly-owned subsidiary of Hong Kong Dragon Holdings, and the name above is a direct translation of their registered name in Chinese.  As of December 31, 2012, the registered capital of the Company’s PRC subsidiary, Fujian Qianlon was $2,583,704. The amount contributed in 2011 was $1,287,470. On February 16, 2011 and June 8, 2011, the Company remitted approximately $642,000 and approximately $645,470 respectively to Fujian Qianlon, as the second and final trenches of registered capital to fulfil the obligation of remitting a total registered capital of $2,583,704 within two years from the date of establishment.






F-40