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)
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Florida
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90-0515106
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(State or
other jurisdiction of
incorporation
or organization)
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(IRS
Employer Identification No.)
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Level 23,
120 Albert Street, Auckland City, Aukland, New
Zealand
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1010
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(Address
of principal executive offices)
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(Zip
Code)
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(+0064)
9-909-8886
(Registrant’s
telephone number, including area code)
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Securities
registered under Section 12(b) of the Exchange Act:
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Title of
each class registered:
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Name of
each exchange on which registered:
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None
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None
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Securities
registered under Section 12(g) of the Exchange Act:
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Common
Stock, $0.001 par value
(Title of
class)
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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
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PART
I
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1
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ITEM
1.
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DESCRIPTION
OF BUSINESS
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1
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ITEM
2.
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DESCRIPTION
OF PROPERTY
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14
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ITEM
3.
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LEGAL
PROCEEDINGS
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14
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ITEM
4.
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(REMOVED
AND RESERVED)
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14
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PART
II
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15
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ITEM
5.
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MARKET FOR
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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15
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ITEM
6.
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SELECTED
FINANCIAL DATA
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16
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ITEM
7.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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16
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ITEM
7A
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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17
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ITEM
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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18
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ITEM
9.
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CHANGES IN
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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19
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ITEM
9A.
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CONTROLS
AND PROCEDURES
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19
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PART
III
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20
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ITEM
10.
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DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
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20
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ITEM
11.
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EXECUTIVE
COMPENSATION
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21
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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21
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ITEM
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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22
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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25
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PART
IV
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26
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ITEM
15
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EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
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26
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SIGNATURES
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27
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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:
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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.
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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.
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Rebornne
(Shenzhen) Dairy Company, located in Shenzhen, China, handles
marketing, sales, promotion, customer service and administrative
functions in the nearby provinces.
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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:
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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.
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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.
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Milk
powder formula for toddlers 1 – 3 years old – it is a
dairy-based nutritional supplement important for the continuous
brain and body development.
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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.
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Planned
future products
We plan to
introduce several milk powder products in the future
including:
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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.
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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.
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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.
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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
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Nutricia,
a New Zealand producer of infant formulas marketed under the brand
name Karicare;
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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;
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Biolife, a
producer of New Zealand infant formulas marketed under the brand
name Natrapure;
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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;
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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;
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Wyeth, a
U.S. producer and distributor of infant formula sold under private
label brands;
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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
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Domestic
Producers
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Inner
Mongolia Yili Industrial Group Co., Ltd., or Yili, a PRC producer
and distributor of liquid and powdered milk under their Yili
brand;
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Beingmate
Group Company Limited, or Beingmate, a PRC producer and distributor
of infant formula products under their Beingmate brand;
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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
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American
Dairy, Inc., a PRC producer and distributor of milk formula
products under their Feihe brand.
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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:
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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.
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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.
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·
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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.
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·
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Current
employees from Rebornne are with high qualification and have
professional milk powder formula knowledge which helps to minimize
time consuming for training.
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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.
7
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,