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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-KT

 

(Mark One)

 

  o    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended _______

 

x     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from January 1, 2010 to March 31, 2010

 

Commission File No. 000-53465

 

Rebornne (USA), Inc.

(Name of small business issuer in its charter)

 

Florida

 

  90-0515106

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer Identification No.)

 

Level 23, 120 Albert Street, Auckland City, Aukland, New Zealand

 

1010

(Address of principal executive offices)

 

(Zip Code)

 

(+0064) 9-909-8886

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

 

Title of each class registered:

Name of each exchange on which registered:

None

None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

(Title of class)

 

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 x No o

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ¨   No  ¨

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K.    x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer                                                     o                                            Accelerated filer                         o

Non-accelerated filer                                                       o                                           Smaller reporting company      x

(Do not check if a smaller reporting company)

 

Aggregate market value of the voting common stock held by non-affiliates of the registrant as of March 31, 2010, was: $253,829.

 

Number of shares of the registrant’s common stock outstanding as of October 6, 2010 was: 28,800,000

 

Documents Incorporated by Reference :

None.

 

 

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

PART I

 

1

ITEM 1.

DESCRIPTION OF BUSINESS

1

ITEM 2.

DESCRIPTION OF PROPERTY

14

ITEM 3.

LEGAL PROCEEDINGS

14

ITEM 4.

(REMOVED AND RESERVED)

14

PART II

 

15

ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

15

ITEM 6.

SELECTED FINANCIAL DATA

16

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

16

ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

17

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

18

ITEM 9.

CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

19

ITEM 9A.

CONTROLS AND PROCEDURES

19

PART III

 

20

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

20

ITEM 11.

EXECUTIVE COMPENSATION

21

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

21

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

22

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

25

PART IV

 

26

ITEM 15

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

26

SIGNATURES

 

27

 

 

 

 

 

 

 

 

 

 

 

PART I

 

ITEM 1.       DESCRIPTION OF BUSINESS

 

Rebornne (USA) Inc. f/k/a BTX Holdings, Inc. was incorporated under the laws of the State of Florida on April 24, 2003.

 

BioTex Corporation (f/k/a YB Holdings, Inc.) (a development stage company), established in 2003 to develop and employ technologies from around the world to process biomass (plant derived) waste, extract the usable fractions, and then utilize or sell those extractions for varied applications or in further processes.

 

Activities during the development stage include developing the business plan, acquiring technology and raising capital.

 

Pursuant to a share purchase agreement, dated December 30, 2005, BioTex Corporation, consummated an agreement with Rebornne (USA) Inc. f/k/a BTX Holdings, Inc., pursuant to which BioTex Corporation, exchanged all of its issued and outstanding shares of common stock for 180,551 shares or approximately 89% of the common stock of Rebornne (USA) Inc. f/k/a BTX Holdings, Inc. This transaction has been accounted for as a reverse acquisition. Accounting principles applicable to reverse acquisitions have been applied to record the acquisition. Under this basis of accounting, BioTex Corporation is the acquirer and, accordingly, the consolidated entity is considered to be a continuation of BioTex Corporation, with the net assets of Rebornne (USA) Inc. f/k/a BTX Holdings, Inc. deemed to have been acquired and recorded at its historical cost. The statements of operations include the results of BioTex Corporation for the years ended December 31, 2009 and 2008 and for the period from January 3, 2003 (inception) to December 31, 2009.

 

On January 29, 2010, the Company entered into a share purchase agreement (the “Purchase Agreement”) with Rebornne New Zealand Limited (“Rebornne NZ”). On March 22, the Company completed the transactions contemplated by the Purchase Agreement pursuant to which the Company issued a total of 750,000 shares (post reverse split), representing approximately 51% of the issued and outstanding common stock of the Company after the reverse split on the closing date, to Rebornne NZ for a cash payment of $240,000. As a result, Rebornne became the majority shareholder of the Company.  The transaction resulted in a change in control of the Company.

 

In connection with the change of control transaction, Scott J. Silverman resigned from the Board of Directors effective April 2, 2010, which is ten (10) days following the filing and mailing of the Schedule 14f-1 as promulgated by the Securities Exchange Act of 1934. On March 22, 2010, Mr. Silverman resigned from all his positions as officer of the Company effectively immediately. Dairy Global was appointed as the sole officer of the Company effectively immediately and appointed as the sole director effective April 12, 2010.

 

On May 28, 2010, we entered into the Exchange Agreement by and among the Company, Rebornne NZ, and the Rebornne NZ Shareholders. The Closing took place on May 28, 2010. On the Closing Date, pursuant to the terms of the Exchange Agreement, we acquired all of the outstanding shares of Rebornne NZ from the Rebornne NZ Shareholders; and the Rebornne NZ Shareholders transferred and contributed all of their Interests to us. In exchange, we issued an aggregate of 26,546,997 shares (the “Shares Component”) of common stock to the Rebornne NZ Shareholders, their designees or assigns, which totals 92.2% of the Company’s issued and outstanding shares on a fully diluted bases as of and immediately after the Closing of the Share Exchange.  Following the Share Exchange there are 28,800,000 shares of common stock issued and outstanding. Dairy Global remains the sole director and officer of the Company.

 

We operate our business mainly through Rebornne NZ and its subsidiaries. The following sets forth the business plan of Rebornne NZ and its subsidiaries:

 

Overview

 

Rebornne NZ was incorporated in Auckland, New Zealand in 2001 by its sole shareholder and owner Dairy Global.  Rebornne NZ is a growing dairy product company in New Zealand with subsidiaries in the People’s Republic of China (PRC). We produce, market, and sell our products under the “Rebornne” brand name. We focus on selling New Zealand produced colostrums and infant formula products in China, which included both premium and a more affordable series, targeted towards the general masses. In order to sell our products, we have established an extensive sales and distribution network nationwide, covering a total of 9,000 (increasing) sale locations throughout China.

 

Organization and Subsidiaries

 

We conducts business in both New Zealand and in China through our PRC subsidiaries. The New Zealand company operates as a base of administration, including powder purchasing from New Zealand sources and transport.

Our business is conducted through our New Zealand company and our Chinese subsidiaries:

 

·  

Rebornne New Zealand Limited, located in Auckland, New Zealand, was established in late 2001 and is engaged in administration, purchasing of powder from New Zealand, and shipping of premium milk powder to China.

 

·  

Rebornne (Guangzhou) Dairy Company, located in Guangzhou, China, was established in 10 th July 2006 and is engaged in packing, blending of milk powders and various ingredients purchased from sources including New Zealand, United States and Australia. It also serves as the base of marketing, administration, distribution and customer service within the Chinese Guangdong region.

 

·  

Rebornne (Shenzhen) Dairy Company, located in Shenzhen, China, handles marketing, sales, promotion, customer service and administrative functions in the nearby provinces.

 

 

 

1

 

 

 

 

The chart below describes our corporate structure:

 

Products and Services

 

Rebornne NZ is a producer of colostrums, milk powder and energy drinks in the PRC. Throughout our sales network with currently 51 dealers, our products are sold in more than 9,000 sales locations, including GuangZhou, HaiKou, SanYa, MaoMing, JieYang, NanNing, SiChuan, HuNan, SuZhou, HangZhou, NingBo, ShangHai, BeiJing, DaLian, ChangChun, JiuJiang, QingDao, TengZhou, NanChang, ZhengZhou, XiAn, and WenZhou.

 

All of our products are marketed under the same brand: Rebornne. We began using this brand name for our colostrums as early as 2002. The Rebornne name has been associated with our infant milk powders since 2006.

 

Colostrum milk powders

 

In early 2002, we began selling colostrum milk powder produced and packaged in New Zealand under the brand “Rebornne”. These products are made by a contract dairy manufacturer, being marketed as a premium product and used as a nutritional supplement, suitable for babies, children, pregnant or post-birth women and other adults. There is considerable market demand for colostrums from New Zealand, as they are considered as a valuable product in China.

 

 

 

2

 

 

 

Infant Milk Powder Formulas

 

The milk powder market is one of the most lucrative segments in the dairy market. Apart from colostrums, all of our current milk powders are designed specifically for infants and young children. Currently, there are two lines of infant milk powders; Rebornne New Zealand Gold Series and Rebornne Domestic Gold Series. A third major series, QQ Care, will commence production on late 2011 in Guangzhou at the earliest. Rebornne New Zealand Gold Series is the high end series, produced and packed in New Zealand, whereas the QQ Care and Domestic Gold series targets the middle-priced market. Each of our product series uses different formulations and packaging designs, despite having the same branding. However, all products are designed to suit nutritional requirements and promote growth of the baby or toddler at its developmental stage. In order to develop appropriate formulations to suit nutritional needs, we have devoted resources to product development, and emphasize on quality and nutrition. Our product portfolio is consistently adjusted and improved, and capital is spent on upgrading product lines, allowing new products to be introduced, and increase our production capability to meet market demands. The pricing, packaging design is also updated periodically to meet consumer expectations. For example, all currently available milk powder series are available in 900g packs in metal cans. In addition, new 500g packs in metal cans will be available in The Domestic Gold series by August 2010.

 

Our milk powder products include:

 

·  

Milk powder formula for infants aged 0 – 6 months old – it is specially designed as a substitute for breast milk, to provide nutrients such as calcium, phosphorus, bioactives, and more than 20 different nutrients and minerals necessary for healthy growth and development.

 

·  

Milk powder formula for babies 6 – 12 months old – it is specifically designed to provide all the necessary nutrients for babies in that age, optimising their growth and development of the brain and body. The formulation remains similar to the compositions of breast milk.

 

·  

Milk powder formula for toddlers 1 – 3 years old – it is a dairy-based nutritional supplement important for the continuous brain and body development.

 

·  

Milk powder formula for children 3 – 12 years old – it is a dairy-based nutritional supplement important for the continuous growth and development of a child.

 

Planned future products

 

We plan to introduce several milk powder products in the future including:

 

·  

The QQ Care series, specially designed for infants and young children from birth to 12 years old. The products are designed to provide good nutrition for the growth and development suitable for their age group. Novel ingredients such as prebiotics, probiotics, and nucleotides are incorporated into particular products. These are targeted toward the middle-priced market in China. Milk powders of the products will be sourced mainly from New Zealand, Australia or the United States. Planned production will commence on late 2011, at the Guangzhou factory.

 

·  

Adult milk powder-series. Multi-dimensional formula for pregnant women and breast-feeding mothers, these will be designed to supplement the women with nutrition needed to ensure good health of the infant and mother. Planned production will commence on early 2012.

 

·  

High calcium and sugar-free milk powder for mature and elderly individuals. These will be marketed as a nutritional supplement, enriched with calcium which prevents osteoporosis of elderly consumers. Planned production will commence on late 2012.

 

In addition to milk powder products, we also plan to produce Protein Powder specially designed for women, Grain Powder, and Rice Powder to use as a nutritional supplement. These products will all be manufactured under the brand name “Rebornne”, at the Guangzhou factory. We have also formulated an ‘Energy Drink’ to tailor to local taste, and production will begin from the end of 2010.

 

Market Summary

 

The dairy industry in China is a fast growing industry with increasing marketing demands. Currently, the Chinese dairy market exceeds US$13 billion, and is predicted to grow at a rate of 15% annually. The Chinese government understands that the consumption of dairy products improves the health, diet and well-being of the Chinese people, and recognizes its importance towards its domestic agricultural industry.

 

 

 

3

 

 

 

Raw Materials and Suppliers

 

Our business depends on maintaining a regular and adequate supply of high-quality raw materials. A key ingredient for our powdered formulas is high-quality raw milk. For our Domestic Gold Infant Formula Series produced in Guangzhou, we currently source the majority of milk powder from New Zealand, Australia and the United States. The imported milk powder is purchased in bulk (25kg bags). We generally negotiate the prices for each separate purchase on spot and do not sign long term contracts with our suppliers. In New Zealand, milk powder is purchased by our agent, Sutton Group, from Fonterra. The foreign milk powder sources ensure that the milk used is of high quality, without the presence of harmful adulterants such as melamine.

 

Whey protein powder is the other key ingredient used in the production of our powdered infant formula products and our other dairy-based products. Like all powdered milk producers, we use whey protein powder as the active ingredient to help reconstituted dairy-based formula to mimic the consistency of breast milk, which can constitute as much as 40.0% of the final powdered infant formula product by weight. Whey protein powder is a byproduct of cheese-making processes, and is difficult and costly to produce as a stand-alone product. Our New Zealand Gold Series uses whey powder produced from New Zealand. For our Domestic Gold Series, we obtain whey protein powder in volume from overseas sources (eg: France), as China is not a large consumer or producer of cheese and cheese products. Based on our experience, prices of milk powder and whey protein powder can fluctuate over relatively short periods of time depending on market conditions. We carefully monitor price movements and makes major purchases at times when prices are low, subject to projected customer order flow and other factors.

 

Many of our powdered milk products, including our powdered infant formulas, also include additives such as DHA and ARA fatty acids and other nutritional additives. DHA and ARA fatty acids are long-chain poly-unsaturated fatty acids found in breast milk that are believed to aid in the development of an infant’s brain, eyes and nervous system. Studies have suggested that DHA and ARA fortification can replicate some of the nutritional benefits of breast milk in infant formulas. Currently the DHA and ARA powders of our New Zealand Gold Series products are manufactured, and added within New Zealand, whereas we purchase these powders from foreign countries for our Domestic Gold Series products. We use vegetable oils in our dry-spraying powder infant formula production processes as a binder for the dry ingredients, helping diminish the occurrence of “lumpiness” or uneven texture when reconstituting powdered infant formula. After years of development, we have formed steady, complementary and cooperative relationships with many of our suppliers. As our sales increase, more capital will be obtained to strengthen our negotiation leverage, allowing us to acquire less expensive and quality raw materials more easily. The procurement of raw materials is mainly done through bidding and other forms of network transactions. Product packages, packaging boxes, packing cans, and other packaging materials are also mainly settled by the long-term vendors.

 

In most cases, we have managed to purchase all major raw materials we need from these suppliers without difficulties, and have been able to sell all the products we have produced.  We believe the suppliers of our raw materials and packaging materials will be able to keep up with our growth for the foreseeable future.

 

Sales and Distribution

 

Our market network in China include 51 dealers and 9000 point-of-sale in China, including GuangZhou, HaiKou, SanYa, MaoMing, JieYang, NanNing, SiChuan, HuNan, SuZhou, HangZhou, NingBo, ShangHai, BeiJing, DaLian, ChangChun, JiuJiang, QingDao, TengZhou, NanChang, ZhengZhou, XiAn and WenZhou, etc. Our sales staff sells to chain store head offices who distribute to their own stores. The agents sell to supermarkets. There are also strong sales online, driven by marketing letters sent out to local new families. Currently, our sales and distribution only cover a very small part of China, but we plan to cover all provinces of China in the future.

 

We currently employ 22 sales persons and plan to increase our sales force to 50 persons by the end of 2010.

 

Our milk powders manufactured in New Zealand are shipped or transported by air-flight to our headquarters in China, as required. Orders are initiated by sales people depending on their customers’ needs, and are approved by their province (regional) manager.  Regional managers combine orders from various sales people and send orders to headquarters. After confirmation of the orders from the regional managers, headquarters gives instructions to third party trucking companies to distribute products, according to the combined orders, to regional hub offices. We distribute our products from our headquarters to the sale subsidiaries in a large combined order based on region, as compiled by the regional manager.

 

We compensate our sales personnel through a combination of fixed salaries and bonuses determined based on sales growth.

 

Research and development

 

Our research and development activities focus on new product formulation, new ingredient development, creation of new methods to incorporate certain nutrients in our products, and improvement in product tastes and ingredient shelf stabilities. We engage in regular product refinement and new product development for our dairy-based formula products, as well as other forms of foods and nutritional supplements. Currently, new formulas of energy drinks, milk drinks and yoghurts are being developed for manufacture at the Dong Ying facility. In addition, a product series using local milk sources will be developed, priced lower compared to the currently available series, and targeting for the lower end of the market.

 

We utilize our research and development facilities to engage in the development of trial products that improve our technical capabilities and serve to promote our brand image. We also engage third-party research institutions to research and develop such trial products for us.

 

We seek to leverage our research and development resources in order to extend our new product pipeline. We believe we can accomplish this goal with new formulations and product concepts in dairy-based formula products as well as other nutritional food products and supplements.

 

 

 

4

 

 

 

Market Share and Competitors

 

The infant formula industry in China is highly competitive. We only have a small market share within China, accounting for less than 0.1% of the Chinese market. Some of our major competitors include Healtheries, Nutricia Karicare, and Natrapure. These are New Zealand imported infant formulas currently available in China, and occupy a similar market niche to us. In addition, we also compete with larger, more established multinational and domestic Chinese infant formula producers. Competitive factors include brand recognition, perceived quality, advertising, formulation, packaging and price. With the demise of Sanlu, the main infant formula brands in China include Wyeth, Dumex, MeadJohnson, Abbot, Nestle, Yili, Yashili, Shengyuan and Beingmate. According to data collected by the PRC National Commercial Information Center, or CIC, an entity affiliated with the PRC General Chamber of Commerce responsible for collecting retail sales data, the top ten brands accounted for 78.4% of total infant formulas sold in China in 2008. We seek to increase our market share within China by emphasizing our brand as a safe, foreign brand using imported milk sources.

 

In some aspects, we are at a competitive disadvantage because many of our current and potential competitors have longer operating histories and greater name recognition, and possess substantially greater financial, marketing and other competitive resources than we do.

 

Our competitors can be classified generally into the following two groups:

 

Multinational and New Zealand Producers

 

•  

Nutricia, a New Zealand producer of infant formulas marketed under the brand name Karicare;

•  

Abbot Laboratories’ Ross Products Division, a U.S. producer and distributor of infant formulas marketed under the brand names of Similac and Enfalac family of formulas;

•  

Biolife, a producer of New Zealand infant formulas marketed under the brand name Natrapure;

•  

Mead Johnson Nutrition Co., or Mead Johnson, formerly a Bristol-Myers Squibb Company Division, a U.S.;producer and distributor of the Enfamil family of formulas;

•  

Groupe Danone SA’s Numico division, or Numico, a Dutch producer of baby foods, which sells and markets infant formula products in China under the Dumex brand;

•  

Wyeth, a U.S. producer and distributor of infant formula sold under private label brands;

•  

Nestlé Suisse SA, or Nestlé, a Swiss producer and distributor of starter and follow-up formulas, milk, cereals, oral supplements and performance foods marketed under Nestlé brands such as Carnation; and

 

Domestic Producers

 

•  

Inner Mongolia Yili Industrial Group Co., Ltd., or Yili, a PRC producer and distributor of liquid and powdered milk under their Yili brand;

•  

Beingmate Group Company Limited, or Beingmate, a PRC producer and distributor of infant formula products under their Beingmate brand;

•  

Guangdong Yashili Group Co., Ltd., or Yashili, a PRC consumer brand marketer which sells a line of infant formula products under their Yashili brand; and

•  

American Dairy, Inc., a PRC producer and distributor of milk formula products under their Feihe brand.

 

Growth Strategy

 

The growth of the business has been severely limited by the ability of the current shareholder to fund it. Since Rebornne products have built up high reputation and trust among the consumers, this will facilitate the new capital funding. In addition, to establish an invisible advertisement and confidence in physical not only required big amount capital but also time consuming. Below are our growth strategies:

 

·  

New capital is crucial resource to the large-scale of markets in China. With this resource on hand, Rebornne could speed up the market sales volume and bring in mainly the high quality infant formula milk powder and liquid milk products.

 

·  

Raw materials and qualified complementary documents. Rebornne could use domestic products license to manufacture large amount of milk powder to replace the 50% low-end market vacancies that caused by melamine incident and reinforce more advertisements through media by using new capital.

 

·  

Market share. Liquid milk powder products for instance, since we already have formula, these products could be introduced into the current dealer networks and therefore salespeople could monitors new products with other products at the same time which then help to minimize the market cost.

 

·  

Current employees from Rebornne are with high qualification and have professional milk powder formula knowledge which helps to minimize time consuming for training.

 

 

 

5

 

 

 

Production strategy

 

Since we owned most of the dairy product licenses in China, we can manufacture more different products and therefore could occupy greater market share in the future.

 

With our PRC product licenses, we can produce milk products  including pure milk, milk yogurt, milk drinks, fruit drinks, infant formula milk powder, middle/elder –aged formula milk powder, maternal formula milk powder, children formula milk powder, lady protein powder, children protein powder and colostrums milk powder.

 

The factory in Guangzhou was initially established to process New Zealand powder, but funding issues due to higher prices in New Zealand, shipping costs, and the delivery time, meant a mixture of New Zealand and other imported product from other countries is used. The owner considers a move to more New Zealand sourced powder would be desirable.

 

Market strategy

 

Rebornne has advertised about our products at the China Education Meteorological Station Advertisement, Jilin Life Desk and Yanbian Satellite TV Desk throughout the year. Our own markets are distributed around WM, ZhongBai, WuShang, JiaLeFu, RenRenLe etc.

 

Currently, we have sales and marketing infrastructure set up in China using sales agents, but not all of the country is covered. Throughout our sales network, our products are distributed throughout 26 provinces in China, covering more than 9,000 sale locations, including GuangZhou, HaiKou, SanYa, MaoMing, JieYang, NanNing, SiChuan, HuNan, SuZhou, HangZhou, NingBo, ShangHai, BeiJing, DaLian, ChangChun, JiuJiang, QingDao, TengZhou, NanChang, ZhengZhou, XiAn, WenZhou etc.

 

We also plan to enter into energy drink and functional health drink market. We are in the process of acquiring a factory in Dong Ying city in Shandong province, which will allow us to expand our products to Beijing and Northern Chinese markets. The new investment in Shandong will allow diversification into other market segments, but still using the strengths the Rebornne brand has in China.

 

In particular, the energy drink and functional health drink market has huge potential in China. A functional beverage can be defined as a drink product that is non-alcoholic, ready to drink and includes non-traditional ingredients in its formulation. This includes herbs, vitamins, minerals, amino acids or additional raw fruit or vegetable ingredients, so as to provide specific health benefits that go beyond general nutrition. These include sports and performance drinks, energy drinks, ready to drink (RTD) teas, enhanced fruit drinks, soy beverages and enhanced water. Up until now, the only entrants (products such as ‘V’) have not allowed for the local Asian taste preferences, so their uptake has been poor compared to western markets. Therefore, the Dong Ying facility will serve as a manufacturing base for energy drink suited to the tastes of the Chinese masses. There is considerable room for development in the Chinese energy drink and functional health drink market, and Rebornne is seizing this opportunity to capitalize this market opportunity. This is to respond to the gradual increasing demands of healthy beverages in China, and our realization that the health awareness of the Chinese people leads to an increased preference of functional beverages.

 

Functional beverages have become popular due to its appeal to consumers who are seeking specific health benefits in their foods and beverages with their 'healthiness-on-the-go' idea. Both convenience and health have been identified as important factors when consumers make decisions about purchasing foods and beverages. Functional drinks are promoted with benefits such as heart health, improved immunity and digestion, joint health, satiety, and energy-boosting. Provided that we market these products focusing on health and well-being, this will offer us a huge potential in product diversification and expansion.

 

Intellectual Property

 

We have obtained trademark registrations for the use of our tradename “Rebornne”, which have been registered with the Trademark Bureau of the State Administration for Industry and Commerce in PRC with respect to our milk powder products. We believe our trademarks are important to the establishment of consumer recognition of our products.

 

The formulations for the blends have been formulated with the co-operation of Rebornne Guangzhou, Sutton New Zealand and the Laboratory of Chinese Research. We have not registered or applied for protections in China for most of our intellectual property or proprietary technologies relating to the formulations of our powdered infant formula. Although we believe that, as of today, patents and copyrights have not been essential to maintaining our competitive market position, we intend to assess appropriate occasions in the future for seeking patent and copyright protections for those aspects of our business that provide significant competitive advantages.

 

 

 

6

 

 

 

Environmental Protection

 

Our manufacturing 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. Our operating subsidiaries have received certifications from the relevant PRC government agencies in charge of environmental protection indicating that their business operations are in material compliance with the relevant PRC environmental laws and regulations. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.

 

Regulations

 

We are regulated under both national and county laws in China. The following information summarizes certain aspects of those regulations applicable to us and is qualified in its entirety by reference to all particular statutory or regulatory provisions.

 

Regulations at the national, province and county levels are subject to change. To date, compliance with governmental regulations has not had a material impact on our level of capital expenditures, earnings or competitive position, but, because of the evolving nature of such regulations, management is unable to predict the impact such regulation may have in the foreseeable future.

 

As a manufacturer and distributor of food products, we are subject to regulations of China’s Agricultural Ministry. This regulatory scheme governs the manufacture (including composition and ingredients), labeling, packaging and safety of food. It also regulates manufacturing practices, including quality assurance programs, for foods through its current good manufacturing practices regulations, and specifies the standards of identity for certain foods, including the products we sell, and prescribes the format and content of many of the products we sell, prescribes the format and content of certain nutritional information required to appear on food products labels and approves and regulates claims of health benefits of food products.

 

In addition, China’s Agricultural Ministry authorizes regulatory activity necessary to prevent the introduction, transmission or spread of communicable diseases. These regulations require, for example, pasteurization of milk and milk products. Both we and our products are also subject to province and county regulations through such measures as the licensing of dairy manufacturing facilities, enforcement of standards for its products, inspection of our facilities and regulation of its trade practices in connection with the sale of dairy products.

 

Employees

 

As of the date hereof, we have approximately 45 employees in Guangzhou, 25 in Shenzhen, and 2 in New Zealand. None of our employees is subject to a collective bargaining agreement. We consider our relationship with its employees to be good.

 

ITEM 1A. RISK FACTORS

 

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities.  The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment.

 

Risks Relating to Our Business

 

MOST OF OUR BUSINESS, ASSETS AND OPERATIONS ARE LOCATED IN THE PRC.

 

Most of our business, assets and operations are located in the PRC. The economy of the PRC differs from the economies of most developed countries in many respects. The economy of PRC has been transitioning from a planned economy to a market-oriented economy. However, a substantial portion of productive assets in PRC is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry by imposing industrial policies. It also exercises significant control over PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Some of these measures may have a negative effect on us.

 

 

 

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OUR PLANS TO EXPAND OUR PRODUCTION AND TO IMPROVE AND UPGRADE OUR INTERNAL CONTROL AND MANAGEMENT SYSTEM WILL REQUIRE CAPITAL EXPENDITURES IN 2010.

 

Our plans to expand our production and to improve and upgrade our internal control and management system will require capital expenditures in 2010. We may also need further funding for working capital,


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