Sino Green Land Corp. 10-K/A

Item 1. Business Overview of Our Business We are engaged in the sale and distribution of various fruits and vegetables in the People’s Republic of China, or the PRC. To date, almost all of our revenues have been generated by sales of the following products: · Fuji apples; · Emperor bananas; and · Tangerine oranges. Historically, Fuji apples have been our main profit centers, comprising 87% and 85% of our revenues in 2008 and 2009, respectively. Emperor bananas and tangerine oranges have been the only other products that have generated meaningful revenues for us to date. Our Growth Strategy Our growth strategy for 2010 and 2011 is to increase sales of our current products and to develop a new line of higher margin green foods, to begin selling our products through our green foods distribution hub and to export our products to new markets both within the PRC and internationally. Our long-term growth plans include both the expansion of our present distribution business and the development and implementation of our green foods distribution hub, which is described under “Business – Proposed Green Foods Distribution Hub.” As a company that seeks to market premium specialty fruit, we believe we are well positioned to capitalize on future industry growth in China. We believe that our produce can be treated as premium fruit because we have been successfully marketing our produce at premium prices because of the overall quality of our produce. We are dedicated to providing healthy and high nutritional premium specialty fruit and vegetables. We intend to implement the following strategic plans to take advantage of industry opportunities and our competitive strengths: · Strengthen and expand our supply sources. We believe that a steady supply of premium specialty fruits is crucial to our future success. Currently, we have built strong relationships with three plantation bases in Shaanxi, Guangdong, and Guangxi Provinces. We intend to further strengthen our existing cooperative relationships with our plantation bases and plan to expand our supply sources by securing more first priority purchase rights with suppliers across China. Thus, in order to expand, we need to purchase the long-term leases, which have a significant up-front cost. 1 · Expand our distribution network to increase the prevalence of our products nationwide. Our current sales depend heavily on our regional distributors and their network. To support our rapid growth in sales, we plan to further expand our distribution network by leveraging our steady and expanding supply sources and capture the higher margin business of sales to retail stores and super markets. · Expand the fruits that we sell to satisfy different customer preferences. We currently focus on apples, bananas and oranges because they are the best selling fruits in the world. However, we constantly evaluate our product line and seek to adapt to changing market conditions by updating our products to fulfill market needs. Currently, we are testing a few new fruits, such as pears. Additionally, we recently introduced a new product, sweet corn, and we have started a test plantation for the sweet corn. Revenue from sweet corn accounted for less than 1% of our revenue for 2009. Proposed Green Foods Distribution Hub We have commenced construction of our green foods distribution hub in the Guangzhou Yuncheng wholesale market. The building, when completed, will cover approximately 220,000 square feet. At this hub, we intend to sell to both wholesale and retail accounts. We also intend to market our products to supermarkets and other retail stores. We expect that construction of the hub will be completed in late 2010 with operations commencing in 2011, although we can give no assurance that we will be able to meet these schedules. Our ability to meet these schedules is dependent upon our ability to raise the necessary financings to complete the physical structure and the initial inventory. At the green foods distribution hub, we plan to sell a wide variety of food items which are sold by members of the China Green Food Association whose food products meet standards set by the China Ministry of Agriculture. We believe that foods that meet these standards can be sold at a higher price than produce that does not meet these standards. The China Green Food Association has more than 6,000 members who sell more than 17,000 food items. We expect that our food items will include fruits and vegetables, rice and other grains, meat, eggs and oil that have been certified as green foods by the Green Food Development Center. Green food is a Chinese certification program for food. The China Green Food Development Center, an agency of the Ministry of Agriculture, is responsible for establishing the green food standards and granting the green food certification In general, in order for a food product to obtain green food certification, it must meet four conditions. · It must be grown in a good ecological environment. The quality of the soil, air and water must meet the environmental requirements for the area in which the foods are grown. · The production process for green foods must comply with the green food production technical standards, relating to such matters as pesticides, fertilizers, veterinary drugs, feed and food additives. · The food products must be tested by an authorized testing organization. The physical and chemical (heavy metals, pesticide residues and veterinary drug residues and microbiological indices must meet the green food product standards. · The packing of the green food product, including the use of the green food logo, must meet the requirements for green food packaging. Information on the Green Food Development Center is available at http://www.greenfood.org.cn/sites/GREENFOOD/ ; however, information on that website is not provided by us and does not constitute a part of this annual report. In developing this business we will require supply agreements with each supplier. At present we have informal understandings with the suppliers through the China Green Food Association. However, these understandings are subject to further negotiation which will be conducted as we are closer to opening our green food distribution hub. We anticipate that the agreements will have a range of payment terms, with some suppliers being paid in advance, others providing us with food on consignment and others being paid in installments. We anticipate that our initial cash requirement for inventory will be approximately $2 million and that we will normally have an inventory of approximately $4 million. 2 We also intend to market our foods to supermarkets and other retail stores from our green food distribution hub. We anticipate that some of these customers will take delivery from the distribution hub, while others will require that we deliver the foods to their stores or their own distribution center. In order for us to offer a delivery service, we will require a fleet of refrigerated trucks for us to deliver perishable foods to our retail customers. Our Corporate History and Structure Corporate History and Share Exchange We were incorporated under the laws of Virginia in May 1948 as Henry County Plywood Corporation. We were originally formed for the purchase, sale, lease and manufacture of lumber, and other wood products. We reincorporated in Nevada on March 18, 2008. From July 2004 until January 15, 2009, we were a shell company with no operations and our sole purpose was to consummate a merger or acquisition with a private operating company. Organic Region Group Limited, or Organic Region, was incorporated in the BVI on January 30, 2003. On January 15, 2009, we completed a reverse acquisition transaction with Organic Region, whereby we issued to the stockholders of Organic Region 81,648,554 shares of our common stock, par value $0.001 per share, in exchange for 100% of the issued and outstanding capital stock of Organic Region. As a result of the reverse acquisition transaction, we now conduct our operations in the PRC through subsidiaries and related entities. Organizational Chart The following chart reflects our organizational structure as of the date of this report: 3 Variable Interest Entity In 2005, Organic Region entered into exclusive arrangements with Guangzhou Greenland Co., Ltd., or Guangzhou Greenland, an individual business entity incorporated in Guangdong Province, PRC on July 20, 2004. Guangzhou Greenland is the operating company for our wholesale fruits and vegetables business. Mr. Xiong Luo, our chief executive officer and president, is the owner and holder of the business license for Guangzhou Greenland. Pursuant to these arrangements, Organic Region has agreed to provide consulting services, including business operations, human resources and research and development services necessary for Guangzhou Greenland to operate its wholesale fruit and vegetable distribution business in China. In exchange for such services, Mr. Luo agreed to pay a consulting services fee to Organic Region equal to all of the revenues obtained by Guangzhou Organic. In addition, Organic Region obtained the right to substantially influence Guangzhou Greenland’s daily operations and financial affairs, appoint its senior executives and approval all matters requiring stockholder approval. Mr. Luo also irrevocably granted the Company an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in Guangzhou Greenland and agreed to entrust all voting power to a person designated by Organic Region. Guangzhou Greenland is considered a variable interest entity, and its financial statements are included in our consolidated financial statements. Subsidiaries Organic Region is a holding company which owns 100% of the following entities: Zhuhai Organic Region Modern Agriculture Ltd., or Zhuhai Organic, and Guangzhou Organic Region Agriculture Ltd., or Guangzhou Organic, are wholly foreign-owned entities which were formed in the PRC on November 13, 2003 and August 20, 2004, respectively. Fuji Sunrise International Enterprises Limited, or Fuji Sunrise, and Southern International Development Limited, or Southern, were formed in the British Virgin Islands on March 6, 2008 and March 5, 2008, respectively. HK Organic Region Limited, or HK Organic, was formed in Hong Kong on February 4, 2008. The following table describes our corporate structure: Name of Entity Relationship to Us Nature of Business Sino Green Land Corporation N.A. Holding company Organic Region Group Limited 100% owned by us Holding company Zhuhai Organic Region Modern Agriculture Ltd. 100% owned by Organic Region Plantation and export Guangzhou Organic Region Agriculture Ltd. 100% owned by Organic Region Cleaning and preparing vegetables for distribution and distribution of vegetables Fuji Sunrise International Enterprises Limited 100% owned by Organic Region Presently inactive, with plans for apple distribution Southern International Develop Limited 100% owned by Organic Region Leaseholder for green food distribution center presently under construction HK Organic Region Limited 100% owned by Organic Region Proposed import and export operations Guangzhou Greenland Co., Ltd. 100% owned by our former chief operating officer and treated as a variable interest entity controlled by us Wholesale sale of fruit, and the source of substantially all of our revenue. We intend to form a new domestic subsidiary to be 100% owned by our wholly-owned subsidiary, Southern International Development Ltd., which will operate our new higher margin green foods business. See “Item 1. Business —Our Products—Green Foods.” 4 Corporate Information Our corporate headquarters are located at 6/F No. 947, Qiao Xing Road, Shi Qiao Town, Pan Yu District, Guang Zhou, China. Our telephone number is +86-20-84890337. Our website is http://www.sinogreenland.com . Information on our website or any other website does not constitute a part of this annual report. Our Industry In 1984, the PRC government began to implement a system of reforms in the industry which transformed the industry from a fully state oriented structure, including state oriented pricing and state controlled distribution, to a market oriented structure, with market oriented pricing and multi channel distribution. These changes promoted the development of fruit production through increased income for farmers and more variation in the fruits and vegetables available to residents. These reforms led to the development of planting and storage technologies which enabled consumers to purchase fruits all year round and in small amounts, rather than purchase an annual supply all at one time when fruits were in season. The reforms also led to the introduction of multiple transportation channels and the opening up of new markets across China. As a result, consumers throughout China today have access to fruits from all regions in China and are no longer limited to locally produced fruits. In addition, the improvement of people’s living standards in the PRC has led to an increased emphasis in the PRC on consumption of healthy foods, including fresh fruits and vegetables. This increase in demand has led to good prospects for the whole fruit and vegetable industry. As a result of land reforms during the past 20 years, orchards in China are generally small and the average farmer only owns between 0.4 to 0.5 acres of land. As a result, there are very few large marketing and distribution enterprises in the Chinese fruit industry. In general, apples in China are sold through small fruit brokers who buy apples from farmers for cash. The brokers sort and pack the fruit and resell it at fresh fruit markets or package it for delivery to processors. Our Products We are engaged in the sale and distribution of various fruits and vegetables in the PRC. To date, almost all of our revenues have been generated by sales of the following products: · Fuji apples; · Emperor bananas; and · Tangerine oranges. Historically, Fuji apples have been our main profit centers. Emperor bananas and tangerine oranges have been the only other products that have generated meaningful revenues for us to date. We also sell a variety of vegetables, as described below. Fuji Apples Fuji apples comprised approximately 85% of our sales in the year ended December 31, 2009 and approximately 87% of our sales in the year ended December 31, 2008. Because we are able to sell high quality Fuji apples throughout the entire year, these apples are considered a high-end fruit in the PRC and our revenues from sales of these apples are not seasonal. See “Item 1. Business —Processing and Storage.” Emperor Bananas Emperor bananas comprised approximately 9% of our sales in the year ended December 31, 2009 and approximately 7% of our sales in the year ended December 31, 2008. The emperor bananas that we purchase from farmers and subsequently sell to wholesale customers are harvested throughout the year. Because we are able to sell high quality emperor bananas throughout the entire year, these bananas are considered a high-end fruit in the PRC and our revenues from sales of these bananas are not seasonal. 5 Tangerine Oranges Tangerine oranges comprised approximately 5% of our sales in the year ended December 31, 2009 and approximately 6% of our sales in the year ended December 31, 2008. Our tangerine oranges are harvested and distributed from October to March each year. Consequently, our revenues from sales of these oranges are seasonal. See “—Seasonality” below. Vegetables We also sell a variety of vegetables, including tomatoes, cauliflower, cucumber, lettuce, spinach, leek, celery, peppers, Chinese cabbage, carrots, loofah, pumpkin, bitter gourd, white gourd, gherkin and yams. Vegetable products have comprised a small percentage of our business to date. We use production line processing technology to cleanse and sort all of our vegetables. Deep processing involves the following steps: water immersion, screening, high pressure spraying, sorting, freezing, rinsing, ultraviolet treatment and packaging. Our vegetable products generate higher margins as a result of this processing. We plan to increase sales of the deep processed vegetables that we believe will increase our revenues and gross margin. Green Foods Our goal is to sell green food agriculture products, including fruits, vegetables, rice, meat, eggs, and oil that have been certified as green foods by Green Food Development Center under the PRC Ministry of Agriculture. Green foods are healthy and environmentally friendly, and their profit margins are expected to be significantly higher than our current products. Over 17,000 food items are currently certified as green foods in the PRC. There are currently more than 6,000 suppliers of green foods certified by Green Food Development Center. Because of the diversity of available sources of these products, we believe that we will be able to obtain an adequate supply of green foods at a reasonable cost. We expect to develop a strong customer base in the PRC for our green food products, which represented approximately 5% of total agricultural output in China in 2007, and to export these products internationally. Over 40 trade partner countries with the PRC currently recognize the Green Food Development Center’s certifications of green food products. In addition, our long-term goal is to sell green foods agriculture products, including fruits, vegetables, rice, meat, eggs and oil that have been certified as green foods by the Green Food Development Center under the PRC Ministry of Agriculture. Green foods are healthy and environmentally friendly whose profit margins are expected to be significantly higher than our current products. We are in the process of constructing a new hub in the Guangdong wholesale market. We believe that our hub will be the first hub in the PRC to provide wholesale customers with the ability to purchase such a wide variety of green foods from one distributor in one location. Wholesale distributors who purchase from our hub will sell our products to customers in various regions in the PRC and to the Pearl River Delta, including Hong Kong and Macao, thereby potentially providing us with a larger market and significant revenues. Our Raw Materials and Suppliers General Our business depends on obtaining a reliable supply of various agricultural products, including primarily Fuji apples, emperor bananas and tangerine oranges. In 2008, approximately 86.8% of our raw materials consisted of Fuji apples, 6.9% emperor bananas and 5.7% tangerine oranges. The remaining 0.6% consisted of various vegetables, including tomatoes, cauliflower, cucumber, lettuce, spinach, leek, celery, peppers, Chinese cabbage, carrots, loofah, pumpkin, bitter gourd, white gourd, gherkin and yams. In 2009, approximately 85.4% of our raw materials consisted of Fuji apples, 8.9% emperor bananas and 5.1% tangerine oranges. The remaining 0.6% consisted of various vegetables, including tomatoes, cauliflower, cucumber, lettuce, spinach, leek, celery, peppers, Chinese cabbage, carrots, loofah, pumpkin, bitter gourd, white gourd, gherkin and yams. 6 Fruits We purchase all of our Fuji apples, emperor bananas and tangerine oranges from farming cooperatives located in the PRC. Each farming cooperative consists of individual farmers that grow the same type of product and sell to the same customers. We have entered into several land lease agreements with various farming cooperatives in the PRC since 2004. The term of each agreement is 25 years. Pursuant to each agreement, we lease from the cooperative the land on which the plantation is situated at a price of approximately $1,200 per acre. We grant the farming rights to such lands to the cooperative, so that the cooperative is responsible for farming the land and we acquire the fruits that the members of the cooperative produce. In exchange for our lease payment, we have first priority on purchasing the cooperative’s production at market wholesale prices. We do not receive any rental or other income from these arrangements. These arrangements allow us to avoid the substantial capital required to maintain and finance agricultural production. Because we have first priority to purchase produce from these cooperatives, we believe that our raw materials are currently in adequate supply and will continue to be so in the future. The following table provides the size of the plantations on which our fruits are harvested, the type of fruit produced and the annual number of tons produced for the year ended December 31, 2009. Plantation Acres Product Tons Kuibai Town,Luochuan County, Shaanxi Province 7,428 Apples 62,132 Laomiao Town,Luochuan County, Shaanxi Province 3,778 Apples 32,031 Shiquan Town,Luochuan County, Shaanxi Province 2,500 Apples 9,874 Wanqingsha Town, Nansha District, Guangzhou in Guangdong Province 2,864 Bananas 12,100 Liuzhou, Guangxi Province 1,283 Oranges 7,540 We intend to expand the size of these plantations and to acquire additional plantations in the future. Other Products We purchase all of our other vegetable products from wholesalers located in the PRC. We do not have any long-term contracts with any of these suppliers. We purchased approximately 1,100 tons of these vegetables, in the aggregate, from these wholesalers in 2008 and approximately 1,600 tons in 2009. Vegetable products have comprised a small percentage of our business to date. Our Customers and Sales In 2008 and 2009, we sold almost all of our products to various wholesale fruit and vegetable distributors located in Beijing and Guangdong in the PRC. These distributors then distributed these products to retail stores and supermarkets in Beijing and Guangdong, respectively, as well as neighboring regions in the PRC. We distributed almost all of our products in 2008 and 2009 from our leased space in the Guangdong Yun Cheng Wholesale Market and the Beijing Xin Fadi Agricultural Products Wholesale Market. A wholesale market is a marketplace designated for bulk sales by distributors such as us to wholesalers. Numerous distributors lease space in the wholesale market and distribute their products to their customers from this location. The Guangdong Yun Cheng Wholesale Market is one of the major wholesale centers for apples in southern China, with an annual sales volume of approximately 1.8 million tons of apples. The wholesalers who purchase products at this market distribute their products to regions populated by approximately 43 million people within a 200 kilometer radius from the market. Similarly, the Beijing Xin Fadi Agricultural Products Wholesale Market has an annual sales volume of approximately 3.5 million tons of apples. The wholesalers who purchase products at this market distribute their products to regions populated by approximately 24 million people. 7 We generally do not enter into long-term contracts with our customers. Our customers generally purchase our products pursuant to purchase orders. Our customers generally purchase on credit, depending on their credit history and volume of purchases from us. However, in 2008 and 2009, we did not experience any significant delays in the collection of our accounts receivable. We do not depend heavily on any of our customers. In 2008 and 2009, none of our customers accounted for 10% or more of our revenues. To date, all of our products have been sold to a limited number of regions in the PRC. Our goal is to expand our domestic distribution network and distribute our products to other regions in the PRC and to export our products to various foreign countries. Our Marketing Efforts We have not spent a significant amount of capital on advertising to date. Our marketing team is located at the wholesale markets where we sell our products and they market our products to various wholesale distributors in the PRC who conduct business in these markets. Since the end of 2009, our marketing team has initiated discussions with numerous retail companies in an attempt to sell our products directly to these companies. Our goal is to begin selling our products directly to retail customers instead of wholesale customers in the near future. Quality Control In 2006, we passed both the ISO9001:2000 quality management system and the HACCP-EC-01 food security management system granted by the National Business Inspection Bureau. We have also established our own quality control system for all our fresh fruits and vegetables, and we have adopted what we consider a very high quality standard. For our tangerine oranges and emperor bananas, our field quality control teams check and inspect all products before they are delivered to the wholesale markets and to our customers. In addition, we have a quality control team in Shaanxi Province which monitors all shipments of Fuji apples with a view to making sure that the fruit in each truck load complies with our standards. Existing Plantations We currently lease three main plantations: the Luochuan Apple Plant Base in Yan’an, Shaanxi Province; the Nansha Wanqingsha emperor banana plantation base in Guangzhou, Guangdong Province and the Rong’an tangerine orange plantation base in Liuzhou, Guangxi Province. See “—Our Raw Materials and Suppliers” above. Proposed New Green Foods Hub We are in the process of constructing a new hub for the sale of green foods in the Guangdong wholesale market. We believe that our hub will be the first hub in the PRC to provide wholesale and retail customers with the ability to purchase such a wide variety of green foods from one distributor in one location. We have invested approximately $4 million in the construction of this hub to date from cash generated by our operations and from funds which we raised from several small equity offerings in 2009 and early 2010. We anticipate completing the construction of the hub by the end of 2010 and to begin the operations of our new green foods product line in 2011. We anticipate that the total investment to launch this business will be $18 million. We will need to raise a substantial amount of capital from equity or debt markets in order to complete the construction of our hub and launch our new green food product line. We currently have no commitments from any financing source. There is no assurance that we will be able to raise any funds on terms favorable to us, or at all. In the event that we issue shares of equity or convertible securities, holdings of our existing stockholders would be diluted. 8 Competition As a result of land reforms during the past 20 years, orchards in China are generally small and the average farmer only owns between 0.4 to 0.5 acres of land. As a result, there are very few large marketing and distribution enterprises in the Chinese fruit industry. In general, apples in China are sold through small fruit brokers who buy apples from farmers for cash. The brokers sort and pack the fruit and resell it at fresh fruit markets or package it for delivery to processors. Although statistics are not available, we do not believe that there are any distributors of Fuji apples, emperor bananas or tangerine oranges that handle more overall annual tonnage than we do. We also believe that our emphasis on premium products set us apart from other distributors of apples, bananas and oranges, although other companies market premium products, including Fuji and other premium quality apples. In the Chinese market, we believe that only the Yan’an Apple Group and the Qixia Apple Group, which are state-owned enterprises, are our closest competitors. We face indirect competition from the publicly held companies Chaoda Modern Agriculture (Holdings) Limited and China Green Agriculture, Inc. Chaoda Modern Agriculture, a Hong-Kong listed company, primarily produces vegetables and, to a lesser extent, fruits, while China Green Agriculture, a Hong-Kong listed company, primarily produces fertilizers. We believe that our success to date and potential for future growth can be attributed to a combination of our strengths, including the following: · Strong Supplier Relationships – We implement a cooperative (collaborative) supply chain model, under which we have total control of the production cycle of our high value fruits and of our resale at wholesale centers. Under the 25-year lease agreements, we acquire first priority purchase rights from what we believe are the best plantation bases, we provide farming cooperatives with technological support to enable them to produce high yields and we provide them with ready market for their produce through our multi-channel marketing network. We believe that our structure provides motivation to the farmers. · Recognition for the Way we Conduct Business – In 2007, we became qualified for bidding as a United Nations supplier, which means that we are recognized as subscribing to the UN Supplier Code of Conduct in the conduct of our business and operations. In 2006, we received both the ISO9001:2000 quality management system certificate and the HACCP-EC-01 food security management system certificate from the National Business Inspection Bureau. · Production Line Processing Technology – Our production line processing technology (for which we have applied for a patent in China) provides standardized procedures for inspection, grading, cleansing and packaging of our fruits and vegetables. We use this “deep cleansing” technology to provide healthy, fresh and high-quality produce with our Organic Region brand name. In 2006, our Organic Region brand was granted the National “3.15” China Famous Brand Authentication award, and in 2006, we received the Guangzhou Nansha District Agricultural Technology Breakthrough Support Prize Certificate for introducing emperor banana cultivation technology. · High Product Quality – Based on the market acceptance of our products as premium prices, we believe that our products are viewed as high quality products by our customers, and in the past three years we believe that we have established a reliable reputation in wholesale centers in China. We have chosen to focus on the premium fruits and vegetables. We do not compete in low-end markets. We believe that only by providing high quality and adhering to high-end market standards can we remain successful. 9 Research and Development Our research and development programs concentrate on sustaining the productivity of our agricultural lands, product quality, value-added product development and packaging design. Agronomic research is directed toward sustaining and improving product yields and product quality by examining and improving agricultural practices in all phases of production (such as development of specifically adapted fruit varieties, land preparation, fertilization, cultural practices, pest and disease control, post-harvesting, handling, packing and shipping procedures). We also provide on-site technical services to our suppliers and is also responsible for the implementation and monitoring of recommended agricultural practices. Our research and development expenses were not significant in 2008 or 2009. Intellectual Property We have no patents or patent applications outside of China. Our application for a Chinese invention patent for “cleaning, freshening and sterilizing method and device for fruit and vegetable” (Application No. 2005100888659) is pending. This patent application right is held in the names of Mr. Xiong Luo and Mr. Anson Yiu Ming Fong, who transferred the application right to us for no consideration, pursuant to a patent transfer agreement, among Mr. Luo, Mr. Fong and the Company, dated January 10, 2009. We also have 16 trademark applications pending, including our logo and the term organic region in both English and Chinese. We also seek to protect our technological know-how through confidentiality agreements entered into with the employees in our production department. However, we cannot assure you that our patents, trademarks and confidentiality agreements will be adequate to protect our intellectual property rights. Regulation The food industry is subject to extensive regulation in China. The following summarizes the most significant PRC regulations governing our business in China. Food Hygiene and Safety Laws and Regulations As a distributor and producer of food products in China, we are subject to a number of PRC laws and regulations governing food safety and hygiene, including: · the PRC Product Quality Law; · the PRC Food Hygiene Law; · the Implementation Rules on the Administration and Supervision of Quality and Safety in Food Producing and Processing Enterprises (trail implementation); · the Regulation on the Administration of Production Licenses for Industrial Products; · the General Measure on Food Quality Safety Market Access Examination; · the General Standards for the Labeling of Prepackaged Foods; · the Standardization Law; · the Regulation on Hygiene Administration of Food Additive; · the Regulation on Administration of Bar Code of Merchandise; and · the PRC Metrology Law. 10 These laws and regulations set out safety and hygiene standards and requirements for various aspects of food production, such as the use of additives, production, packaging, handling, labeling and storage, as well as facilities and equipment. Failure to comply with these laws and regulations may result in confiscation of our products and proceeds from the sales of non-compliant products, destruction of our products and inventory, fines, suspension of production and operation, product recalls, revocation of licenses, and, in extreme cases, criminal liability. We believe that our exposure to these risks is limited since our business model and our agreements with our suppliers provide a cushion which shields us from product liability exposure and we control food hygiene and food quality by implementing a strict quality control system and we believe that we comply in all material respects with these laws and regulations. To the extent that the government imposes additional laws or restrictions, we would have to comply with those laws as well. To the extent that we purchase foods from other suppliers for our green food distribution hub, we may be subject to liability exposure to the extent that our suppliers either do not comply with all applicable regulation or from impurities in foods we purchase from them. Environmental Regulations We are subject to various governmental regulations related to environmental protection. The major environmental regulations applicable to us include: · the Environmental Protection Law of the PRC; · the Law of PRC on the Prevention and Control of Water Pollution; · Implementation Rules of the Law of PRC on the Prevention and Control of Water Pollution; · the Law of PRC on the Prevention and Control of Air Pollution; · Implementation Rules of the Law of PRC on the Prevention and Control of Air Pollution; · the Law of PRC on the Prevention and Control of Solid Waste Pollution; and · the Law of PRC on the Prevention and Control of Noise Pollution. We have obtained all permits and licenses required for production of our products and believe that we are in material compliance with all applicable laws and regulations. Our packaging facilities are subject to various pollution control regulations with respect to noise, water and air pollution and the disposal of waste and hazardous materials. We are also subject to periodic inspections by local environmental protection authorities. We have received certifications from the relevant PRC government agencies in charge of environmental protection, indicating that our business operations are in material compliance with relevant PRC environmental laws and regulations. Employees As of December 31, 2009, we employed a total of 146 full-time employees. The following table sets forth the number of our employees by function. Function Number of Employees Senior Management 5 Human resource and administration. 10 Production 38 Procurement 8 Marketing 4 Sales 17 Logistic 41 Research and development 3 quality control 10 Accounting 10 Total 146 11 Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages. We believe that our employee relations are good. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the after-tax profit. In addition, we are required by the PRC law to cover employees in China with various types of social benefits. We believe that we are in material compliance with the relevant PRC laws. Seasonality Our fresh fruit business is highly seasonal. Fuji apples are harvested mainly from late August until early November and are sold throughout the year. Tangerine oranges are harvested in late September through late November with the result that we have limited sales of tangerine oranges in the third quarter of the year. Emperor bananas are harvested throughout the year. They grow in an eight-month cycle, and are cultivated and harvested all year long. As harvested fruits cannot be stored at room temperature for a long time, they must be processed for sale as soon as they are harvested or stored at a cold temperature. As a result, the sales volume for our produce occurs during the harvesting season and for the months following the harvesting season. We generally experience higher sales in the second half of the year. Sales in second half of 2009 accounted for approximately 63% of our revenue for 2009, and sales in the second half of 2008 accounted for approximately 59% of our revenue for 2008. If sales in the second half of the year are lower than expected, our operating results would be adversely affected, and it would have a disproportionately large impact on our annual operating results. Sales of tangerine oranges were nominal during the third quarter of 2009. Because of the large number of green foods products which we plan to distribute through at our green foods distribution hub, there will be many different seasons for the different products we operate. We cannot predict at this time how the seasonality of the various products we propose to sell will affect our overall profitability.