Registration of Securities by a Small-Business Issuer — Form SB-2 Filing Table of Contents
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SB-2 — Registration of Securities by a Small-Business Issuer
Approximate
date of commencement of proposed sale to the public:
From
time to time after the Registration Statement has been declared effective.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of this prospectus is expected to be made pursuant to Rule 434, please
check the following box o
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
Amount
to be registered (1)
Proposed
maximum offering price per share(2)
Proposed
maximum aggregate offering price
Amount
of
registration
fee
Common
stock, par value $.0001 per share
5,580,357
(3)
$
7.75
$
7.75
$
1,327.71
Common
stock, par value $.0001 per share, underlying warrants
382,500
(4)
$
7.75
$
7.75
$
91.00
Total
5,962,857
$
1,418.71
(1)
Pursuant
to Rule 416 promulgated under the Securities Act of 1933, as amended,
there are also registered hereunder such indeterminate number of
additional shares as may be issued to the selling stockholders to
prevent
dilution resulting from stock splits, stock dividends or similar
transactions
(2)
The
registration fee is calculated pursuant to Rule 457(c). As of the
date of
this prospectus, our common stock is quoted under the symbol "JDMC"
on the
NASD's Over-the-Counter Bulletin Board (“OTCBB”). As of November 14, 2007,
the last reported bid price for our common stock was $6.50 per share
and
the last reported asked price was $9.00 per share. The average of
those
bid and asked prices was $ 7.75 per share. Accordingly, the registration
fee is $1,418.71 based on $7.75 per share.
(3)
Includes
(i) 5,464,357 shares of common stock issued to the investors in a
private
placement of our common stock that was completed on October 5, 2007,
and
(ii) 116,000 shares of common stock held by our former sole director
and
sole executive officer.
(4)
Consists
of 382,500 shares of common stock underlying six-year placement agent
warrants to purchase 382,500 shares of common stock with an exercise
price
of $5.376 per share (subject to as adjustment).
The
Registrant amends this registration statement on such date or dates as may
be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
hereafter become effective in accordance with Section 8(a) of the Securities
Act
of 1933, or until the registration statement shall become effective on such
date
as the Commission, acting pursuant to Section 8(a), may
determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
This
prospectus relates to the resale by the selling stockholders identified in
this
prospectus of up to 5,962,857 shares of our common stock, including (i)
5,464,357 shares issued to them in a private placement of our common stock
completed on October 5, 2007, (ii) 116,000 shares held by our former sole
director and sole executive officer, and (iii) 382,500 shares issuable upon
the
exercise of placement agent warrants issued on October 5, 2007, in connection
with the private placement. The warrants have an exercise price of $5.376 per
share (subject to adjustment), and expire on October 5, 2013.
The
selling stockholders may offer all or part of their shares for resale from
time
to time through public or private transactions, at either prevailing market
prices or at privately negotiated prices. We will not receive any of the
proceeds from the sale of the shares by the selling stockholders. To the extent
the warrants are exercised for cash, if at all, we will receive the exercise
price for those warrants. Under the terms of the warrants, cashless exercise
is
permitted. We will not receive any proceeds from any cashless exercise of
warrants. We will pay all of the registration expenses incurred in connection
with this offering (estimated to be approximately $236,919) but the selling
stockholders will pay all of the selling commissions, brokerage fees and related
expenses.
Our
common stock is quoted on the National Association of Securities Dealers
Over-the-Counter Bulletin Board under the symbol "JDMC". As
of
November 14, 2007, the last reported bid price for our common stock was $6.50
per share and the last reported asked price was $9.00 per share.
There
is
a limited market in our common stock. The shares are being offered by the
selling stockholders in anticipation of the continued development of a secondary
trading market in our common stock. We cannot give you any assurance that an
active trading market in our common stock will develop, or if an active market
does develop, that it will continue.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 13 for a discussion of certain
risk factors that you should consider. You should read the entire prospectus
before making an investment decision.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is November __, 2007
TABLE
OF CONTENTS
About
This Prospectus
3
Cautionary
Note Regarding Forward Looking Statements and Other Information Contained
in this Prospectus
3
Prospectus
Summary
5
Risk
Factors
13
Selling
Stockholders
29
Plan
of Distribution
35
Use
of Proceeds
36
Market
For Common Equity And Related Stockholder Matters
36
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
39
Business
47
Properties
66
Legal
Proceedings
67
Directors
and Executive Officers
68
Executive
Compensation
71
Security
Ownership of Certain Beneficial Owners and Management
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information other than that contained
in
this prospectus. The selling stockholders are offering to sell and seeking
offers to buy shares of our common stock, including shares they acquire upon
exercise of their warrants, only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as
of
the date of this prospectus, regardless of the time of its delivery or of any
sale of our common stock. This prospectus will be updated and, as updated,
will
be made available for delivery to the extent required by the federal securities
laws.
No
person
is authorized in connection with this prospectus to give any information or
to
make any representations about us, the selling stockholders, the securities
offered hereby or any matter discussed in this prospectus, other than the
information and representations contained in this prospectus. If any other
information or representation is given or made, such information or
representation may not be relied upon as having been authorized by us or any
selling stockholder. This prospectus does not constitute an offer to sell,
or a
solicitation of an offer to buy the securities in any circumstance under which
the offer or solicitation is unlawful. Neither the delivery of this prospectus
nor any distribution of securities in accordance with this prospectus shall,
under any circumstances, imply that there has been no change in our affairs
since the date of this prospectus. This prospectus will be updated and updated
prospectuses made available for delivery to the extent required by the federal
securities laws.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS
This
prospectus contains some forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical
or
current facts. Forward-looking
statements involve risks and uncertainties. Forward-looking statements include
statements regarding, among other things, (a) our projected sales,
profitability, and cash flows, (b) our growth strategies, (c) anticipated trends
in our industries, (d) our future financing plans and (e) our anticipated needs
for working capital. They are generally identifiable by use of the words "may,""will,""should,""anticipate,""estimate,""plans,"“potential,""projects,""continuing,""ongoing,""expects,""management believes,""we believe,""we
intend" or the negative of these words or other variations on these words or
comparable terminology. These statements may be found under "Management's
Discussion and Analysis of Financial Condition and Plan of Operation" and
"Business," as well as in this prospectus generally. In
particular, these include statements relating to future actions, prospective
products or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, the outcome of contingencies
such
as legal proceedings, and financial results.
Any
or
all of our forward-looking statements in this report may turn out to be
inaccurate. They can be affected by inaccurate assumptions we might make or
by
known or unknown risks or uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially
as
a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact occur. You
should not place undue reliance on these forward-looking statements.
3
Currency
Unless
otherwise noted, all currency figures in this filing are in U.S.dollars.
References to "yuan" or "RMB" are to the Chinese yuan (also known as the
Renminbi). According to xe.com, as of November 17, 2007, $1 = 7.4235
yuan.
4
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. This
summary does not contain all of the information you should consider before
investing in our common stock. You should read the entire prospectus, including
"Risk Factors” (beginning on page 13)
and
the consolidated financial statements (beginning on page 13)
and
the related notes before making an investment decision. Except as otherwise
specifically stated or unless the context otherwise requires, the terms
“Company,” we," "our" and "us" refer collectively to Jade Mountain Corporation
(“Jade Mountain,” formerly known as Applied Biometrics, Inc.), Innomind Group
Limited (“Innomind”), a wholly-owned subsidiary of Jade Mountain organized under
the laws of the British Virgin Islands (the “BVI”), Dalian Innomind Environment
Engineering Co., Ltd. (“Dalian Innomind”), a wholly-owned subsidiary of Innomind
organized uner the laws of the People’s Republic of China (the “PRC”), and
Dalain RINO Environment Engineering Science and Technology Co., Ltd., a
controlled affiliate of Dalian Innoming organized under the laws of the
PRC.
The
Company
Business
Overview
In
a
series of transactions that closed on October 5, 2007, we acquired the business
and substantially all of the assets of Dalian RINO Environment Engineering
Science and Technology Co., Ltd., a PRC company (“RINO”). As a result of that
acquisition RINO became the controlled affiliate of our indirect PRC subsidiary,
Dalian Innomind.
Through
Dalian Innomind and RINO, we are engaged in the industrial technology-based
environmental protection and remediation business in the People's Republic
of
China (the "PRC"). More specifically, we design, manufacture, install and
service wastewater treatment and exhaust emission desulphurization equipment
principally for use in China’s iron and steel industry, and de-oxidation
products and equipment designed for use in the manufacturing of hot rolled
steel
plate products. All of our products are custom-built for specific project
installations, and we execute supply contracts during the design phase of our
projects. Our products are all designed to reduce either or both industrial
pollution and energy utilization, and comply with ISO 9001 Quality Management
System and ISO 14001 Environment Management System requirements, for which
RINO
received certificates in 2004.
Since
1978, the PRC has undergone a substantial economic transformation and rapid
economic growth, becoming the world’s fifth largest national economy, with the
world’s largest and most rapidly growing iron and steel market. Through its
continuous focus on nation-wide economic development, China’s overall industrial
pollution output has become a central issue for the national government, and
a
priority in the PRC’s eleventh five-year plan. As a consequence of this and
other industrially-based environmental challenges, our customer base, the
Chinese iron and steel industry, faces governmental mandates to decrease or
eliminate water pollution and sulphur emissions, which are key applications
for
our technologies.
This
has
led to a substantial developing market. For 2007 the PRC market for wastewater
remediation has been estimated at $226 million, and the 2007 desulphurization
market has been estimated at $770 million. In light of the present market size,
pollution control regulation by the central PRC government and the growth of
the
PRC iron and steel industry, we believe (but cannot assure) that our revenues
and profitability will keep pace. RINO’s gross revenues and net profit for 2005
were $3,590,000 and $280,000, respectively, and expanded to $10,310,000 and
$3,150,000 in 2006. For 2007, we forecast estimated gross revenues of
approximately $58,000,000 and an estimated net profit of approximately
$17,800,000.
5
Principal
Products
The
Company has three principal products and product lines: the Lamella
Inclined Tube Settler Waste Water Treatment System (the “Lamella Wastewater
System”), the Circulating, Fluidized Bed, Flue Gas Desulphurization System (the
“Desulphurization System”) and the High Temperature Anti-Oxidation System for
Hot Rolled Steel (the “Anti-Oxidation System”).
The
Lamella Wastewater System is a highly efficient, comprehensive industrial waste
water treatment system utilizing proprietary and patented technology developed
by RINO. The technology has received numerous regional and national design
awards, and has been successfully installed and used at some of the largest
steel mills in China, including Jinan Iron & Steel Group Co., Ltd., Benxi
Iron & Steel (Group) Co., Ltd., Handan Iron & Steel Group Co., Ltd.,
Tianjin Tiangang Group Co., Ltd., Shijiazhuang Iron & Steel Group Co.,
Ltd.,Panzhihua Iron & Steel Group Co., Ltd., and Anyang Iron & Steel
Group Co., Ltd. For more information about the Lamella Wastewater System, please
see “Business — Principal Products, — Lamella Inclined Tube Settler
Wastewater Treatment System" and "Business — Product Technologies, — Lamella
Inclined Tube Settler Wastewater Treatment Technology" at pages 52
and 58-59, respectively, of this prospectus.
The
Desulphurization System is a highly effective system to remove particulate
sulphur from sinter and flue gas emissions of steel mills, and meets all
relevant PRC air pollution standards. The Desulphurization System utilizes
proprietary technology jointly developed by RINO and the Chinese Academy of
Sciences. On May 18, 2007, RINO acquired the intellectual property rights to
this technology (including the right to patent the same) from the Chinese
Academy of Sciences for RMB 1,000,000. The Desulphurization System has been
installed in 7 steel mills, with contract prices totaling approximately $22
million. We have also executed Desulphurization System contracts with Panzhihua
Iron & Steel Co., Ltd., Jinming Co. and Shengfeng Iron and Steel Co.,
Ltd., and a contract with Jinan Iron and Steel Co., Ltd., for
Desulphurization System accessories. For more information about the
Desulphurization System, please see “Business — Principal Products, —
Circulating, Fluidized Bed, Flue Gas Desulphurization System" and "Business
—
Product Technologies, — Circulating, Fluidized Bed, Flue Gas
Desulphurization System" at pages 52 and 60-61, respectively, of
this prospectus.
The
Anti-Oxidation System is a set of products and a mechanized system, jointly
developed by RINO and the Chinese Academy of Sciences, that substantially
reduces oxidation-related output losses in the production of continuous cast,
hot rolled steel. The system operates at significantly higher product
temperatures than its competitors, thereby increasing its general utility and
its range of steel product applications. In March, 2006, RINO acquired the
technology from the Chinese Academy of Sciences under an agreement that provides
for the co-ownership of the intellectual property rights to the formula for
the
anti-oxidizing paint used in the system and to the spray system for applying
the
paint, co-ownership of any patents granted, and the transfer to RINO of all
commercialization rights. The Anti-Oxidation System has been installed at Jinan
Iron & Steel Co., Ltd., and is being installed at Benxi Iron & Steel
Co., Ltd., in China at an aggregate contract price of $1,947,000, and
negotiations are being held for additional installations at Kunming Iron &
Steel, Wuhan Iron & Steel and Nanjing Iron & Steel with an expected
aggregate contract price of $1,298,702, and for supplying our anti-oxidizing
paint to Jinan Iron & Steel Co., Ltd., at a contract price of $156,416.
For more information about the Anti-Oxidation System,
please see “Business — Principal Products, — High Temperature Anti
-Oxidation System for Hot Rolled Steel" and "Business — Product
Technologies, — High Temperature Anti-Oxidation System for Hot Rolled
Steel" at pages 53 and 61-62, respectively, of this prospectus.
Additional
Line of Business
In
addition to the above environmental remediation and protection systems, since
late 2005 RINO filled, and we continue to fill, “down time” on our
proprietary production with contract machining for third-party industrial
enterprises. The specialized heavy machinery and equipment that we use to
produce our Lamella Wastewater System, Gas Desulphurization System, and
Anti-Oxidation System also provides us with a substantial capacity to undertake
the processing of large, high-precision and advanced structures from areas
outside of northeast China. To this end, RINO established and the Company
maintains strategic cooperation relationships with Dalian Heavy Industry
(Zhonggong) and China First Heavy Industries both of which we contract with
to
provide production time on our heavier machine tools, during “down time” on our
own production. Since 2005, such contract manufacturing business provided the
Company with $3.24 million (or 22.48%) of its cumulative gross revenues, and
$1.83 million (or 29.24%) of its cumulative gross profits. The
Company expects that as sales of its own products increase, we will reduce
or
eliminate contracting the use of our machines and equipment to third parties.
6
Corporate
History
The
Company was originally incorporated in Minnesota in 1984 as Applied Biometrics,
Inc., for the purpose of developing and marketing a cardiac output monitoring
system. In August, 2000, the Applied Biometrics Board determined that the
Company would be unable to complete the development of its primary product,
and
thereupon ceased its business operations. In connection with terminating those
business operations, in August, 2000, the Company’s chief executive officer
resigned, all employees were laid off and all but two of the Company’s directors
resigned. During the latter part of 2000 we wound down our operations,
eliminated most expenses and negotiated the termination or satisfaction of
all
of the Company’s obligations.
On
May14, 2002, the Company filed a Form 15 with the Securities and Exchange
Commission (the “SEC”) and ceased being a reporting company under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).
At
a
special meeting held on August 4, 2005, the Company’s shareholders adopted a
plan of complete liquidation and dissolution of the Company (the “Plan”). After
that shareholder vote, but before the Company’s remaining funds were
distributed, on October 20, 2005, Glenn A. Little (“Little”) contacted the
Company and proposed a reorganization that consisted of: (i) revoking the Plan;
(ii) Little lending $100,000 to the Company (the “Loan”) pursuant to a
convertible promissory note (the “Convertible Note”); (iii) a one-time
distribution of all of the Company’s assets (including $75,000 of the Loan
proceeds) to all of our shareholders other than Little; and (iv) amending the
Company’s Articles of Incorporation to increase the authorized capital in order
to permit the conversion of the Convertible Note. At a special shareholders’
meeting held on February 8, 2006, Little’s proposal was approved, and the
Convertible Note was subsequently converted to 10,000,000 shares of the common
stock. As a result, Little became the Company’s majority shareholder with 64.1%
of the issued and outstanding shares.
Pursuant
to a special shareholders’ meeting held on October 18, 2006, in January 2007 the
Company (still named Applied Biometrics) merged with and into its wholly owned
subsidiary, Jade Mountain Corporation (a Nevada corporation), thereby changed
its domicile from Minnesota to Nevada, and changed its name to Jade Mountain
Corporation.
By
written consent of the holder of a majority of the outstanding shares of the
Company’s common stock, on June 5, 2007, the shareholders authorized a one (1)
for two hundred thousand (200,000) reverse stock split (with fractional shares
rounded up to the nearest whole number), which was effectuated on July 16,2007.
On
August31, 2007, the Company’s Board of Directors authorized an amendment to its
Articles of Incorporation to: (i) increase the number of its authorized shares
of Common Stock from 100,000,000 shares, par value $.0001 per share, to
10,000,000,000 shares, par value $.0001 per share (the “Authorized Share
Increase”); and (ii) forward split its issued and outstanding Common Stock on a
one hundred (100) shares for one (1) share basis (the “Forward Split”). Under
Nevada law, neither the Authorized Share Increase nor the Forward Split required
the approval of the Company’s shareholders.
7
Organizational
History of Innomind and Dalian Innomind
Innomind
Group Limited was incorporated under the laws of the British Virgin Islands
on
November 17, 2006. Until the Company’s acquisition of Innomind through a share
exchange transaction on October 5, 2007, Innomind’s sole shareholder was Zhang
Ze, a citizen and resident of the PRC. For more information, please see
“Business —
Acquisition of Innomind and the Business of RINO" at page 48 of this prospectus.
On
July3, 2007, Innomind Group Limited incorporated Dalian Innomind Environment
Engineering Co., Ltd. under the laws of the PRC. All of Dalian Innomind’s
outstanding capital stock is held by Innomind, and by virtue of such ownership
Dalian Innomind is classified as a “wholly foreign owned enterprise (“WFOE”)
under PRC law.
Organizational
History of RINO
Dalian
Rino Engineering Science and Technology Co., Ltd., was formed on March 5, 2003,
under PRC law. Its initial registered capital was RMB 7,000,000 (approximately
US $922,327), which was increased to RMB 30,500,000 (approximately US
$4,018,711) on April 18, 2006. RINO is owned by its two founders, Zou Dejun
(90%) and his wife, Qiu Jianping (10%). Since its founding, RINO has been
engaged in developing, marketing and selling the Lamella Wastewater System,
the
Desulphurization System, and the Anti-Oxidation System.
Share
Exchange, Restructuring Agreements and Private Placement
Financing
In
a
share exchange transaction that closed on October 5, 2007 (the “Share
Exchange”), the Company acquired Innomind, and through that acquisition also
acquired Innomind’s wholly-owned subsidiary, Dalian Innomind, as well as the
assets and business of Dalain Innomind’s PRC affiliate, RINO. In the Share
Exchange the Company issued a controlling number of shares (the “Control
Shares”) of its common stock to Zhang Ze, Innomind’s sole shareholder, in
exchange for all of the issued and outstanding shares of Innomind, which were
owned by Zhang Ze (the “Innomind Shares”). Prior to the Share Exchange: (i) on
July 16, 2007, the Company consummated a one (1) share for two hundred thousand
(200,000) shares reverse split of its Common Stock, with fractional shares
rounded up to the nearest whole number (the “Reverse Split”); and (ii) on August31, 2007, the Company’s Board of Directors authorized a one hundred (100) shares
for one (1) share forward split of the issued and outstanding shares of its
Common Stock (the “Forward Split”). All share and per share amounts set forth in
this prospectus as of dates on or after July 16, 2007, give effect to the
Reverse Split and all share and per share amounts set forth in this prospectus
as of dates after August 31, 2007, give effect to the Forward
Split.
In
connection with the Share Exchange, through a series of agreements between
Dalian Innomind and RINO that we refer to as the “Restructuring Agreements,”
which were executed on October 3, 2007, Dalian Innomind agreed to: (i) purchase
and lease from RINO substantially all of RINO’s assets and properties; and (ii)
fully conduct and manage RINO’s business (the “Business”) in exchange for RINO’s
payment to Dalian Innomind of a management fee equal to the Business’s monthly
net profits. To the extent that any aspect of the Business needs to
be conducted directly through RINO in the future, the Restructuring
Agreements provide Dalian Innomind with the legal right and power to control
RINO and any of its remaining assets and operations. For more information about
the Restructuring Agreements, please see “Business — Acquisition of Innomind and
the Business of RINO, — Restructuring Agreements to Acquire RINO’s
Operating Business” at pages 49-51 of this prospectus.
8
The
Restructuring Agreements were utilized instead of a direct acquisition of RINO's
assets, because of the lack of clarity in the implementation of current PRC
laws
regarding the use of a non-PRC entity’s equity as consideration to acquire a PRC
entity’s equity or assets. This makes it highly uncertain, if not impossible,
for a non-PRC entity (such as the Company or Innomind) to use its equity to
acquire a PRC entity (such as RINO). While PRC law does allow for the purchase
of equity interests in, or assets of a PRC entity by a non-PRC entity for cash,
the purchase price must be based on the appraised value of the equity or assets.
Because the Company did not have sufficient cash to pay the estimated full
value
of all of the assets of RINO, the Company, through Dalian Innomind, purchased
the maximum amount of assets possible with the net proceeds of the private
placement described below, and leased from RINO the remainder of the assets
used
in RINO’s business.
Although
the acquisition of the assets and business of RINO through the Restructuring
Agreements was effective on October 5, 2007, not all of the transactions
contemplated by the Restructuring Agreements have been consummated, and for
that
reason Dalian Innomind has not yet fully assumed total operational control
of
the Business. To complete these transactions, Dalian Innomind must complete
additional steps, filings and registrations. Dalian Innomind has already
completed the verification of capital required under PRC law, as well as
obtaining a new business license to reflect its status as an operating entity.
Remitting to RINO the full purchase price for the assets to be purchased by
it
under the Restructuring Agreements and obtaining an environmental report for
the
assets purchased from RINO remain in progress. We anticipate these steps will
be
completed within approximately 30 days after the date of this prospectus.
At
their
completion, Dalian Innomind will assume full operating control of the Business.
The
funds
used to consummate the Company’s acquisition of Innomind and the Restructuring
Agreements were provided from the proceeds of a private placement of the
Company’s common stock to 24 accredited investors that closed on October 5,2007, simultaneously with the Innomind acquisition and the implementation of
the
Restructuring Agreements. The private placement resulted in gross proceeds
of
$24,435,319 from the sale of 5,464,357 shares of our common stock. For more
information about the private placement, please see the sections of this
prospectus entitled “Selling Stockholders — Background” at pages 31-34 and
“Certain Relationships and Related Transactions — Private Placement” at
page 73 of this prospectus. Pursuant to the Securities Purchase Agreement
between the investors and the Company, the net proceeds of the Private Placement
will otherwise principally be used by the Company and by Dalian Innomind to
expand manufacturing and production capacity and facilities, and to provide
working capital for the Business.
As
a
result of the above transactions, the Company ceased being a “shell company” as
defined in Rule 12b-2 under the Exchange Act.
Our
Corporate Structure
The
Company’s current structure is set forth in the diagram below:
9
Neither
Jade Mountain nor Innomind have any operations or currently intend to have
any
operations in the future other than acting as a holding company and management
company for Dalian Innomind and RINO, and raising capital for their operations.
Employees
We
currently have approximately 270 employees.
Executive
Offices and Manufacturing Facilities
Our
executive offices and manufacturing and production facilities are located at
11
Youquan Road, Zhanqian Street, Jinzhou District, Dalian, People’s Republic of
China 116100.
This
prospectus relates to the resale by the selling stockholders identified in
this
prospectus of up to
5,962,857 shares of our common stock
including
5,464,357 shares issued to the investors in the private placemment, 116,000
shares held by Glenn A. Little, who was the Company’s sole director, sole
executive officer and majority stockholder until the completion of the Share
Exchange, and 382,500 shares issuable upon the exercise of warrants issued
in
connection with the Private Placement. The
warrants were issued to the placement agent in connection with the Private
Placement. No shares are being offered for sale by the Company.
10
Total
shares of common stock outstanding prior to the Offering
Total
shares of common stock offered by the selling stockholders
5,962,857
Total
shares of common stock to be outstanding after the Offering (assuming
all
warrants have been exercised)
25,382,500
Use
of Proceeds
We
will not receive any of the proceeds from the sales of the shares
by the
selling stockholders. To the extent the warrants are exercised
for cash,
if at all, we will receive the exercise price for those warrants.
Under
the terms of the warrants cashless exercise is permitted. We
will not
receive any proceeds from any cashless exercise of the
warrants. We
intend to use any cash proceeds received from the exercise of
warrants for
working capital and other general corporate purposes. We cannot
assure you
that any of the warrants will ever be exercised for cash or at
all.
Our
OTC Bulletin Board Trading Symbol
JDMC
Risk
Factors
See
"Risk Factors" beginning on page 13 and other information included
in this
prospectus for a discussion of factors you should consider before
deciding
to invest in shares of our common
stock.
Background
On
October 5, 2007, we completed a private placement of our securities for an
aggregate purchase price of $24,435,319. We received approximately $21,251,000
as net proceeds from this financing.
In
connection with the private placement we entered into a registration rights
agreement with the selling stockholders, which granted the selling stockholders
registration rights with respect to the shares of common stock they purchased
in
the private placement, and the shares of common stock underlying the warrants
issued to the placement agent in connection with the private placement
financing. In addition, in the Share Exhange Agreement we granted “piggy-back”
registration rights to Glenn A. Little, the Company’s former sole director,
executive officer and majority stockholder, pursuant to which he may opt to
include up to 116,000 shares of common stock that he held at the time of the
closing of the Share Exchange and private placement in subsequent registration
statements filed by the Company.
11
Under
the
terms of the registration rights agreement we are required to:
·
within
45 days (November 19, 2007) of the private placement closing (the
“Filing
Date”), prepare and file with the SEC a registration statement to register
for resale by the investors all of the shares of common stock sold
in the
private placement, and all of the shares of common stock underlying
the
warrants (or such lesser number as the SEC shall permit); and
·
cause
that registration statement to be declared effective by the SEC on
the
earlier to occur of the following dates (the “Effective Date”)
the
fifth trading day (i.e., the fifth day on which securities exchanges
are
open for business) following the day on which the SEC notifies us
that the
registration statement will not be reviewed or is no longer subject
to
further review and comments by the SEC.
We
have
also agreed to, by the earlier to occur of six months after the Effective Date
of this registration statement or the 5th
trading
day following the date on which we are permitted by then current SEC guidance
to
file a subsequent registration statement, file a subsequent registration
statement covering 100% of the remaining registrable securities (or such lesser
number as the SEC shall permit). We have agreed to continue this process until
such time as all of the registrable securities have been registered.
Our
failure to meet this schedule and other timetables provided in the registration
rights agreement could result in the imposition of liquidated damages equal
to:
in the event the registration statement is not filed by the applicable Filing
Date, $249,460 for each whole or partial month after the Filing Date until
the
registration statement is filed, and in the event the registration statement
is
not declared effective by the applicable Effective Date, an additional $249,460
for each whole or partial month after the Effective Date until the registration
statement is filed. The aggregate of all such liquidated damages is capped
at
$2,494,600.
Please
see “Selling
Stockholders - Background” in
this
prospectus for disclosure of the material terms of the other agreements entered
into by us on June 13, 2007 in connection with the private placement.
Plan
of Distribution
This
offering is not being underwritten. The selling stockholders themselves
directly, or through their agents, or through their brokers or dealers, may
sell
their shares from time to time, in: (i) privately negotiated transactions,
or
(ii) in one or more transactions, including block transactions, on the OTC
Bulletin Board or on any stock exchange on which the shares may then be listed
in the future pursuant to and in accordance with the applicable rules of such
exchange. The selling price of the shares may be at market prices prevailing
at
the time of sale, at prices related to the prevailing market prices or at
negotiated prices. To the extent required, the specific shares to be sold,
the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agent, broker or dealer and any applicable
commission or discounts with respect to a particular offer will be described
in
an accompanying prospectus. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this prospectus. We will keep this prospectus
current until the earlier to occur of: (x) two years after the Effective Date,
(y) all of the securities covered by the registration statement of which this
prospectus is a part have been publicly sold, or (z) the time when all of the
securities covered by that registration statement can be sold pursuant to Rule
144 (k) promulgated under the Securities Act of 1933, as amended (the
“Securities Act”).
12
We
will
pay all expenses of registration incurred in connection with this offering
(estimated to be approximately $236,919) but the selling stockholders will
pay
all of the selling commissions, brokerage fees and related expenses. We have
agreed to indemnify the selling stockholders against certain liabilities,
including liabilities under the Securities Act.
The
selling stockholders and any broker-dealers or agents that participate with
the
selling stockholders in the distribution of any of the shares may be deemed
to
be “underwriters” within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
The
selling stockholders may offer the common stock pursuant to this prospectus
in
varying amounts and transactions so long as this prospectus is then current
under the rules of the SEC and we have not withdrawn the registration
statement.
The
offering of common stock may be through the facilities of the OTCBB or such
other exchange where our common stock may then be traded. Brokerage commissions
may be paid and discounts are allowed in connection with such sales. However,
it
is anticipated that the discounts allowed or commissions paid will be no more
than the ordinary brokerage commissions paid on sales effected through brokers
or dealers. To our knowledge, as of the date hereof, no one has made any
arrangements with a broker or dealer concerning the offer or sale of the common
stock.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this prospectus before deciding to invest in our common
stock.
The
risks
and uncertainties described below are not the only ones we may face. Additional
risks and uncertainties not currently known to us or that we currently deem
immaterial may also adversely affect our business, financial condition, and/or
operating results. If any of the following risks, or any other risks not
described below, actually occur, it is likely that our business, financial
condition, and operating results could be seriously harmed. As a result, the
trading price of our common stock could decline and you could lose part or
all
of your investment.
Risks
Related to our Business
Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.
RINO
began its operations in 2003. Our limited operating history in the environmental
protection industry may not provide a meaningful basis on which to evaluate
our
business. Although RINO’s revenues have grown rapidly since its inception, we
cannot assure you that we will maintain our profitability or that we will not
incur net losses in the future. We expect that our operating expenses will
increase as we expand. Any significant failure to realize anticipated revenue
growth could result in significant operating losses. We will continue to
encounter risks and difficulties frequently experienced by companies at a
similar stage of development, including our potential failure to:
·
maintain
our cutting edge proprietary
technology;
·
expand
our product offerings and maintain the high quality of our products;
13
·
manage
our expanding operations, including the integration of any future
acquisitions;
·
obtain
sufficient working capital to support our expansion and to fill customers’
orders in time;
·
maintain
adequate control of our expenses;
·
implement
our product development, marketing, sales, and acquisition strategies
and
adapt and modify them as needed;
·
anticipate
and adapt to changing conditions in the iron and steel
industry markets
in which we operate as well as the impact of any changes in government
regulation, mergers and acquisitions involving our competitors,
technological developments and other significant competitive and
market
dynamics.
If
we are
not successful in addressing any or all of these risks, our business may be
materially and adversely affected.
We
may encounter substantial competition in our business and our failure to compete
effectively may adversely affect our ability to generate
revenue.
We
believe that existing and new competitors will continue to improve the design
and performance of their products and to introduce new products with competitive
price and performance characteristics. We expect that we will be required to
continue to invest in product development and productivity improvements to
compete effectively in our markets. Our competitors could develop a more
efficient product or undertake more aggressive and costly marketing campaigns
than ours, which may adversely affect our marketing strategies and could have
a
material adverse effect on our business, results of operations and financial
condition.
Our
major
competitors may be better able than we to successfully endure downturns in
our
industrial sector. In periods of reduced demand for our products, we can either
choose to maintain market share by reducing our selling prices to meet
competition or maintain selling prices, which would likely sacrifice market
share. Sales and overall profitability would be reduced in either case. In
addition, we cannot assure you that additional competitors will not enter our
existing markets, or that we will be able to compete successfully against
existing or new competition.
Our
inability to fund our capital expenditure requirements may adversely affect
our
growth and profitability.
Our
continued growth is dependent upon our ability to raise capital from outside
sources. Our ability to obtain financing will depend upon a number of factors,
including:
·
our
financial condition and results of
operations,
·
the
condition of the PRC economy and the environmental protection product
industry in the PRC, and
·
conditions
in relevant financial markets
If
we are
unable to obtain financing, as needed, on a timely basis and on acceptable
terms, our financial position, competitive position, growth and profitability
may be adversely affected.
14
We
may not be able to effectively control and manage our
growth
Our
sales
revenues (excluding government grants) have increased from approximately
$3,585,999for
the
fiscal year ended December 31, 2005 to approximately $10,308,000 for the fiscal
year ended December 31, 2006. Our sales revenues for the nine months ended
September 30, 2007 were $46,193,396, an increase of approximately 718 % over
sales revenues of $6,399,469 for the same period of 2006. If
our
business and markets continue to grow and develop, it will be necessary for
us
to finance and manage expansion in an orderly fashion. In addition, we may
face
challenges in managing expanding product offerings and in integrating acquired
businesses with our own. These eventualities will increase demands on our
existing management, workforce and facilities. Failure to satisfy these kinds
of
increased demands could interrupt or adversely affect our operations and cause
production backlogs, longer product development time frames and administrative
inefficiencies.
An
important element of our growth strategy is expected to be the pursuit of
acquisitions of other businesses that increase our existing market share and
expand our production capacity. However, integrating businesses involves a
number of special risks, including the possibility that management may be
distracted from regular business concerns by the need to integrate operations,
unforeseen difficulties in integrating operations and systems, problems relating
to assimilating and retaining the employees of the acquired business, accounting
issues that arise in connection with the acquisition, challenges in retaining
customers, and potential adverse short-term effects on operating results. In
addition, we may incur debt to finance future acquisitions, and we may issue
securities in connection with future acquisitions that may dilute the holdings
of our current or future stockholders. If we are unable to successfully complete
and integrate strategic acquisitions in a timely manner, our growth strategy
may
be adversely impacted.
We
depend on a concentration of customers.
Our
revenue is dependent, in large part, on significant orders from a limited
number
of
customers. Sales to our five largest customers accounted for approximately
90%
and 88% of our net sales during the years ended December 31, 2006 and 2005,
respectively. We
believe that revenue derived from current and future large customers will
continue to represent a significant portion of our total revenue. Our inability
to continue to secure and maintain a sufficient number of large customers would
have a material adverse effect on our business, operating results and financial
condition. Moreover, our success will depend in part upon our ability to obtain
orders from new customers, as well as the financial condition and success of
our
customers and general economic conditions.
Any
significant fluctuation in price of our raw materials may have a material
adverse effect on the manufacturing cost of our
products.
The
prices of steel, electronic components and power systems, valves, machine tools,
paints and welding rods, our principal raw materials, are subject to market
conditions and generally we do not, and do not expect to, have long-term
contracts with our suppliers for those items. While these raw materials are
generally available and we have not experienced any raw material shortage in
the
past, we cannot assure you that the necessary materials will continue to be
available to us at prices currently in effect or acceptable to us. The prices
for these raw materials have varied significantly and may vary significantly
in
the future. Numerous factors, most of which are beyond our control, influence
prices of our raw material. These factors include general economic conditions,
industry capacity utilization, vendor backlogs and transportation delays and
other uncertainties.
We
may
not be able to adjust our product prices, especially in the short-term, to
recover cost increases in these raw materials. Our future profitability may
be
adversely affected to the extent we are unable to pass on higher raw material
costs to our customers.
We
may engage in future acquisitions that could dilute the ownership interests
of
our stockholders, cause us to incur debt and assume contingent
liabilities.
As
part
of our business strategy, we review acquisition and strategic investment
prospects that we believe would complement our current product offerings,
augment our market coverage or enhance our technological capabilities, or
otherwise offer growth opportunities. From time to time we review investments
in
new businesses and we expect to make investments in, and to acquire, businesses,
products, or technologies in the future. In the event of any future
acquisitions, we could:
·
issue
equity securities which would dilute current stockholders’ percentage
ownership;
15
·
incur
substantial debt;
·
assume
contingent liabilities; or
·
expend
significant cash.
These
actions could have a material adverse effect on our operating results or the
price of our common stock. Moreover, even if we do obtain benefits in the form
of increased sales and earnings, there may be a lag between the time when the
expenses associated with an acquisition are incurred and the time when we
recognize such benefits. Acquisitions and investment activities also entail
numerous risks, including:
·
difficulties
in the assimilation of acquired operations, technologies and/or
products;
·
unanticipated
costs associated with the acquisition or investment transaction;
·
the
diversion of management’s attention from other business concerns;
·
adverse
effects on existing business relationships with suppliers and customers;
·
risks
associated with entering markets in which we have no or limited prior
experience;
·
the
potential loss of key employees of acquired organizations; and
·
substantial
charges for the amortization of certain purchased intangible assets,
deferred stock compensation or similar items.
We
cannot
ensure that we will be able to successfully integrate any businesses, products,
technologies, or personnel that we might acquire in the future, and our failure
to do so could have a material adverse effect on our business, operating results
and financial condition.
We
may not be able to prevent others from unauthorized use of our patents, which
could harm our business and competitive position.
Our
success depends, in part, on our ability to protect our proprietary
technologies. We own three patents in the PRC covering our waste water treatment
technology. We also have two international invention patents pending and have
applied for an additional international invention patent for our anti-oxidation
technology under the International Patent Cooperation Treaty. The process of
seeking patent protection can be lengthy and expensive and we cannot assure
you
that our patent applications will result in patents being issued, or that our
existing or future issued patents will be sufficient to provide us with
meaningful protection or commercial advantages.
16
We
also
cannot assure you that our current or potential competitors do not have, and
will not obtain, patents that will prevent, limit or interfere with our ability
to make, use or sell our products in either the PRC or other countries.
The
implementation and enforcement of PRC intellectual property laws historically
has not been vigorous or consistent, primarily because of ambiguities in the
PRC
laws and a relative lack of developed enforcement mechanisms. Accordingly,
intellectual property rights and confidentiality protections in the PRC are
not
as effective as in the United States and other countries. Policing the
unauthorized use of proprietary technology is difficult and expensive, and
we
might need to resort to litigation to enforce or defend patents issued to us
or
to determine the enforceability, scope and validity of our proprietary rights
or
those of others. Such litigation will require significant expenditures of cash
and management efforts and could harm our business, financial condition and
results of operations. An adverse determination in any such litigation will
impair our intellectual property rights and may harm our business, competitive
position, business prospects and reputation.
We
may need additional capital to fund our future operations and, if it is not
available when needed, we may need to reduce our planned development and
marketing efforts, which may reduce our sales revenues.
We
believe that our existing working capital and cash available from operations
will enable us to meet our working capital requirements for at least the next
12
months. However, if cash from future operations is insufficient, or if cash
is
used for acquisitions or other currently unanticipated uses, we may need
additional capital. The development and marketing of new products and the
expansion of distribution channels and associated support personnel requires
a
significant commitment of resources. In addition, if the markets for our
products develop more slowly than anticipated, or if we fail to establish
significant market share and achieve sufficient net revenues, we may continue
to
consume significant amounts of capital. As a result, we could be required to
raise additional capital. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, the issuance of such
securities could result in dilution of the shares held by existing stockholders.
If additional funds are raised through the issuance of debt securities, such
securities may provide the holders certain rights, preferences, and privileges
senior to those of common stockholders, and the terms of such debt could impose
restrictions on our operations. We cannot assure you that additional capital,
if
required, will be available on acceptable terms, or at all. If we are unable
to
obtain sufficient amounts of additional capital, we may be required to reduce
the scope of our planned product development and marketing efforts, which could
harm our business, financial condition and operating results.
We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.
The
PRC
historically has not adopted a western style of management and financial
reporting concepts and practices, as well as in modern banking, computer and
other control systems. We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in the PRC. As a result of
these factors, we may experience difficulty in establishing management, legal
and financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet Western standards.
17
We
may not have adequate internal accounting controls. While we have certain
internal procedures in our budgeting, forecasting and in the management and
allocation of funds, our internal controls may not be
adequate.
We
are
constantly striving to improve our internal accounting controls. We hope to
develop an adequate internal accounting control to budget, forecast, manage
and
allocate our funds and account for them. There is no guarantee that such
improvements will be adequate or successful or that such improvements will
be
carried out on a timely basis. If we do not have adequate internal accounting
controls, we may not be able to appropriately budget, forecast and manage our
funds, we may also be unable to prepare accurate accounts on a timely basis
to
meet our continuing financial reporting obligations and we may not be able
to
satisfy our obligations under US securities laws.
Our
internal controls over financial reporting may not be effective, and our
independent auditors may not be able to certify as to their effectiveness,
which
could have a significant and adverse effect on our
business.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting,
and
attestation of this assessment by our company's independent registered public
accountants. The SEC extended the compliance dates for “non-accelerated filers,”
as defined by the SEC. Accordingly, we believe that the annual assessment of
our
internal controls requirement will first apply to our annual report for the
2007
fiscal year and the attestation requirement of management's assessment by our
independent registered public accountants will first apply to our annual report
for the 2008 fiscal year. The
standards that must be met for management to assess the internal control over
financial reporting as effective are new and complex, and require significant
documentation, testing and possible remediation to meet the detailed standards.
We
have
not yet evaluated our internal controls over financial reporting in order to
allow management to report on, and our independent auditors to attest to, our
internal controls over financial reporting, as will be required by Section
404
of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC.
We
have never performed the system and process evaluation and testing required
in
an effort to comply with the management assessment and auditor certification
requirements of Section 404, which will initially apply to us as of December31,2007. Our lack of familiarity with Section 404 may unduly divert management’s
time and resources in executing the business plan. If, in the future, management
identifies one or more material weaknesses, or our external auditors are unable
to attest that our management’s report is fairly stated or to express an opinion
on the effectiveness of our internal controls, this could result in a loss
of
investor confidence in our financial reports, have an adverse effect on our
stock price and/or subject us to sanctions or investigation by regulatory
authorities.
Potential
environmental liability could have a material adverse effect on our operations
and financial condition.
To
the
knowledge of our management team, neither the production nor the sale of our
products constitutes activities, or generates materials that create any
environmental hazards or requires our business operations to comply with PRC
environmental laws. Although it
has not
been alleged by PRC government officials that we have violated any current
environmental regulations, we cannot assure you that the PRC government will
not
amend the current PRC environmental protection laws and regulations. Our
business and operating results may be materially and adversely affected if
we
were to be held liable for violating existing environmental regulations or
if we
were to increase expenditures to comply with environmental regulations affecting
our operations.
18
We
do not have key man insurance on our Chairman and CEO, on whom we rely for
the
management of our business.
We
depend, to a large extent, on the abilities and participation of our current
management team, but have a particular reliance upon Mr. Zou Dejun our CEO,
and
Ms. Qiu Jianping, our Chairman of the Board. The loss of the services of Mr.
Zou
or Ms. Qiu, for any reason, may have a material adverse effect on our business
and prospects. We cannot assure you that the services of Mr. Zou and Ms. Qiu
will continue to be available to us, or that we will be able to find a suitable
replacement for either of them. We do not carry key man life insurance for
any
key personnel.
We
may not be able to hire and retain qualified personnel to support our growth
and
if we are unable to retain or hire such personnel in the future, our ability
to
improve our products and implement our business objectives could be adversely
affected.
If
one or
more of our senior executives or other key personnel are unable or unwilling
to
continue in their present positions, we may not be able to replace them easily
or at all, and our business may be disrupted and our financial condition and
results of operations may be materially and adversely affected. Competition
for
senior management and senior technology personnel is intense, the pool of
qualified candidates is very limited, and we may not be able to retain the
services of our senior executives or senior technology personnel, or attract
and
retain high-quality senior executives or senior technology personnel in the
future. Such failure could materially and adversely affect our future growth
and
financial condition.
We
currently do not carry any product liability or other similar insurance. Unlike
the U.S. and other countries, product liability claims and lawsuits are
extremely rare in the PRC. However, we cannot assure you that we would not
face
liability in the event of the failure of any of our products. We cannot assure
you that, especially as China’s domestic consumer economy and industrial economy
continues to expand, product liability exposures and litigation will not become
more commonplace in the PRC, or that we will not face product liability exposure
or actual liability as we expand our sales into international markets, like
the
United States, where product liability claims are more prevalent.
Except
for property and automobile insurance, we do not have other insurance such
as
business liability or disruption insurance coverage for our operations in the
PRC.
Rapid
technological changes in our industry could render our products non-competitive
or obsolete and consequently affect our ability to generate
revenues.
The
environmental protection and remidiation industry is subject to rapid
technological change. Our future success will depend on our ability to respond
to rapidly changing technologies and improve the quality of our products. Our
failure to adapt to these changes could harm our business. Our future plans
to
market our products require them to be innovative. If we are slow to develop
new
products and technologies that are attractive to and useful solutions for the
PRC iron and steel industry, we may not be successful in capturing an
increasingly significant share of this market.
We
face the risk that changes in the policies of the PRC government could have
a
significant impact upon the business we may be able to conduct in the PRC and
the profitability of such business.
The
PRC’s
economy is in a transition from a planned economy to a market oriented economy
subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government can have
significant effects on economic conditions in China. The PRC government has
confirmed that economic development will follow the model of a market economy,
such as the United States. Under this direction, we believe that the PRC will
continue to strengthen its economic and trading relationships with foreign
countries and business development in the PRC will follow market forces. While
we believe that this trend will continue, we cannot assure you that this will
be
the case. Our interests may be adversely affected by changes in policies by
the
PRC government, including:
·
changes
in laws, regulations or their
interpretation
·
confiscatory
taxation
·
restrictions
on currency conversion, imports or sources of
supplies
·
expropriation
or nationalization of private
enterprises.
Although
the PRC government has been pursuing economic reform policies for more than
two
decades, we cannot assure you that the government will continue to pursue such
policies or that such policies may not be significantly altered, especially
in
the event of a change in leadership, social or political disruption, or other
circumstances affecting the PRC's political, economic and social
life.
There
are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing our business, and the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and criminal proceedings. We and any future subsidiaries are
considered foreign persons or foreign funded enterprises under PRC laws, and
as
a result, we are required to comply with PRC laws and regulations. These laws
and regulations are sometimes vague and may be subject to future changes, and
their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance by foreign investors. New
laws
and regulations that affect existing and proposed future businesses may also
be
applied retroactively. We cannot predict what effect the interpretation of
existing or new PRC laws or regulations may have on our businesses.
The
restructuring of RINO may affect RINO’s existing customer relationships and
result in additional transactional costs that may adversely impact our
profitability.
We
will
conduct our business out of Dalian Innomind after we complete the asset
purchases and leases as contemplated in the Restructuring Agreements. The
restructuring of RINO’s business through assets transfers and leases to Dalian
Innomind may affect RINO’s existing customer relationships. To the extent the
existing customers do not want to assign their purchase orders to a newly formed
entity (i.e., Dalian Innomind) the Restructuring Agreements provide a mechanism
to allow RINO to continue its operations under Dalian Innomind’s control.
However, we cannot assure you that the customers will continue their business
relationships with us or RINO after this complicated restructuring. Any loss
of
RINO’s existing customers will have an adverse impact on our revenues and net
profits.
In
addition, the assets transfers and leases involved in the restructuring
inevitably will incur costs and expenses, such as taxes (both at central and
local levels), filing fees and registration fees with government authorities.
We
believe that these transactional costs for the restructuring are manageable.
However, due to the complexity of the tax regime in PRC and the great discretion
the local tax authorities enjoy, we cannot assure you that there are no
unpredictable costs and expenses associated with the restructuring and any
such
costs and expenses will not adversely impact our profitability.
20
Our
Restructuring Agreements with RINO and its shareholders may not be as effective
in providing control over these entities as direct
ownership.
We
operate our business through Dalian Innomind, our indirect wholly-owned
subsidiary in the PRC, and rely on the Restructuring Agreements with RINO and
its shareholders to control the operations of RINO. While we own and/or lease
substantially all of RINO’s manufacturing assets through Dalian Innomind, and
to
the
extent that any aspect of RINO’s business needs to be conducted through RINO in
the future, the Restructuring Agreements provide Dalian Innomind with the legal
right and power to control RINO and any of its remaining assets and operations,
the
Restructuring Agreements may not be as effective in providing control over
RINO
as direct ownership. For example, if we had direct ownership of RINO, we would
be able to exercise our rights as a shareholder to effect changes in the board
of directors of RINO, which in turn could effect changes, subject to any
applicable fiduciary obligations, at the management level.
Furthermore,
if RINO or any of its shareholders fails to perform its or his respective
obligations under the Restructuring Agreements, we may have to incur substantial
costs and resources to enforce those agreements, and rely on legal remedies
under PRC law, including seeking specific performance or injunctive relief,
and
claiming damages, which may not be effective. For example, if the shareholders
of RINO refuse to transfer their equity interest in RINO to us or our designee
if we exercise the equity purchase option under the Restructuring Agreements,
then we will have to pursue available remedies under PRC law for them to fulfill
their contractual obligations. In addition, we cannot assure you that RINO’s
shareholders always will act in our best interests.
The
Restructuring Agreements are governed by PRC law and provide for the resolution
of disputes through arbitration in the PRC. Accordingly, these agreements would
be interpreted in accordance with PRC law and any disputes would be resolved
in
accordance with PRC legal procedures. The legal environment in the PRC is not
as
developed as in other jurisdictions, such as the United States. As a result,
uncertainties in the PRC legal system could limit our ability to enforce the
Restructuring Agreements. If we are unable to enforce the Restructuring
Agreements, we may not be able to exert effective control over our operating
entities, and our ability to conduct our business may be negatively affected.
A
slowdown or other adverse developments in the PRC economy may harm our customers
and the demand for our services and our products.
All
of
our operations are conducted in the PRC and all of our revenues are generated
from sales in the PRC. Although the PRC economy has grown significantly in
recent years, we cannot assure you that this growth will continue. The solar
hot
water and renewable energy industry in the PRC is relatively new and growing,
but we do not know how sensitive we are to a slowdown in economic growth or
other adverse changes in the PRC economy which may affect demand for solar
hot
water heaters and boilers. A slowdown in overall economic growth, an economic
downturn, a recession or other adverse economic developments in the PRC could
significantly reduce the demand for our products and harm our
business.
21
Inflation
in the PRC could negatively affect our profitability and
growth.
While
the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth could lead to growth in the money supply and
rising inflation. If prices for our products rise at a rate that is insufficient
to compensate for the rise in the costs of supplies, it may harm our
profitability.
In
order
to control inflation in the past, the PRC government has imposed controls on
bank credit, limits on loans for fixed assets and restrictions on state bank
lending. Such an austere policy can lead to a slowing of economic growth. In
October 2004, the People's Bank of China, the PRC's central bank, raised
interest rates for the first time in nearly a decade and indicated in a
statement that the measure was prompted by inflationary concerns in the Chinese
economy. Repeated rises in interest rates by the central bank would likely
slow
economic activity in China which could, in turn, materially increase our costs
and also reduce demand for our products.
Dalian
Innomind and RINO are subject to restrictions on paying dividends and making
other payments to us. We might be unable to pay dividends to you.
We
are a
holding company incorporated in the State of Nevada and do not have any assets
or conduct any business operations other than our investments in our
subsidiaries and affiliates, Innomind, Dalian Innomind and RINO. As a result
of
our holding company structure, we rely entirely on dividends payments from
Dalian Innomind, our subsidiary in China. PRC regulations currently permit
payment of dividends only out of accumulated profits, as determined in
accordance with PRC accounting standards and regulations. Our subsidiary and
affiliated entity in the PRC also are required to set aside a portion of their
after-tax profits according to PRC accounting standards and regulations to
fund
certain reserve funds. The PRC government also imposes controls on the
conversion of RMB into foreign currencies and the remittance of currencies
out
of the PRC. We may experience difficulties in completing the administrative
procedures necessary to obtain and remit foreign currency. Furthermore, if
Dalian Innomind or RINO incurs debt on its own in the future, the instruments
governing the debt may restrict its ability to pay dividends or make other
payments. If we or Innomind are unable to receive all of the revenues from
RINO’s operations, we may be unable to pay dividends on our common stock.
The
PRC
government imposes controls on the convertibility of Renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the PRC.
We
receive substantially all of our revenues in Renminbi, which is currently not
a
freely convertible currency. Shortages in the availability of foreign currency
may restrict our ability to remit sufficient foreign currency to pay dividends,
or otherwise satisfy foreign currency dominated obligations. Under existing
PRC
foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from the transaction,
can be made in foreign currencies without prior approval from the PRC State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, approval from appropriate governmental authorities is
required where Renminbi is to be converted into foreign currency and remitted
out of China to pay capital expenses such as the repayment of bank loans
denominated in foreign currencies.
The
PRC
government may also in the future restrict access to foreign currencies for
current account transactions. If the foreign exchange control system prevents
us
from obtaining sufficient foreign currency to satisfy our currency demands,
we
may not be able to pay certain of our expenses as they come due.
22
The
fluctuation of the Renminbi may harm your investment.
The
value
of the RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in the PRC's political and economic
conditions. As we rely entirely on revenues earned in the PRC, any significant
revaluation of the RMB may materially and adversely affect our cash flows,
revenues and financial condition. For example, to the extent that we need to
convert U.S. dollars we receive from an offering of our securities into RMB
for
our operations, appreciation of the RMB against the U.S. dollar would diminish
the value of the proceeds of the offering and this could harm our business,
financial condition and results of operations. Conversely, if we decide to
convert our RMB into U.S. dollars for the purpose of making payments for
dividends on our common shares or for other business purposes and the U.S.
dollar appreciates against the RMB, the U.S. dollar equivalent of the RMB we
convert would be reduced. In addition, the depreciation of significant U.S.
dollar denominated assets could result in a charge to our income statement
and a
reduction in the value of these assets.
On
July21, 2005, the PRC government changed its decade-old policy of pegging the value
of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in significant appreciation
of
the RMB against the U.S. dollar. There remains significant international
pressure on the PRC government to adopt an even more flexible currency policy,
which could result in a further and more significant appreciation of the RMB
against the U.S. dollar.
If
the PRC were to eliminate the “grandfathered” preferential tax benefits
currently enjoyed by Dalian Innomind, we would have to pay more taxes in the
PRC, which could have a material and adverse effect on our financial condition
and results of operations.
Recent
changes in the PRC’s tax laws have, effective January 1, 2008, made wholly
foreign-owned enterprises (“WFOEs”) subject to standard enterprise income tax
rates, which as of January 1, 2008, will be 25%. Prior to these changes, WFOEs
enjoyed tax preferences consisting of multi-year exemptions followed by a period
of reduced rate taxation and ending with the application of standard tax
rates.
Because
Dalian Innomind was incorporated before the effective date of these recent
tax
law changes, it has been “grandfathered” into the pre-change schema. As a
consequence, as a WFOE, Dalian Innomind is entitled to: (i) a two-year exemption
from enterprise income taxation beginning in its first year of operations;
(ii)
a 12% enterprise income tax rate for the next three years; and (iii) application
of the standard enterprise income tax rate (which will be 25% as of January1,2008) thereafter.
If
the
PRC were to eliminate these “grandfathered” tax preferences, Dalian Innomind
would immediately be subject to the standard statutory tax rate. The loss of
these preferential tax treatments and the resulting acceleration of the
application of standard PRC tax rates to our Business, could have a material
and
adverse effect on our financial condition and results of operations.
The
Restructuring Agreements we have entered into among our subsidiaries and
affiliated entities or persons may be subject to scrutiny by the PRC tax
authorities and a finding that we owe additional taxes or are ineligible for
our
tax exemption, or both, could substantially increase our taxes owed, and reduce
our net income and the value of your investment.
Dalian
Innomind has purchased assets from RINO, our affiliated company, at prices
lower
than their book value and leased the remaining assets from RINO at nominal
amount. Under PRC law, arrangements and transactions among related parties
may be subject to audit or challenge by the PRC tax authorities. If any of
the
transactions we have entered into between Dalian Innomind and RINO are found
not
to be on an arm’s-length basis, or to result in an unreasonable reduction in tax
under PRC law, the PRC tax authorities have the authority to disallow our tax
savings, adjust the profits and losses of Dalian Innomind and RINO, and assess
late payment interest and penalties. A finding by the PRC tax authorities that
we are ineligible for the tax savings achieved in the past, or that RINO or
Dalian Innomind are ineligible for preferential tax benefits, would
substantially increase our taxes owed and reduce our net income and the value
of
your investment.
In
October 2005, the PRC State Administration of Foreign Exchange (“SAFE”) issued a
public notice, the Notice on Relevant Issues in the Foreign Exchange Control
over Financing and Return Investment Through Special Purpose Companies by
Residents Inside China (the “SAFE Notice”), which requires PRC residents,
including both legal persons and natural persons, to register with the competent
local SAFE branch before establishing or controlling any company outside of
China, referred to as an “offshore special purpose company,” for the purpose of
overseas equity financing involving onshore assets or equity interests held
by
them. In addition, any PRC resident that is the shareholder of an offshore
special purpose company is required to amend its SAFE registration with the
local SAFE branch with respect to that offshore special purpose company in
connection with any increase or decrease of capital, transfer of shares, merger,
division, equity investment or creation of any security interest over any assets
located in China. Moreover,
if the offshore special purpose company was established and owned the onshore
assets or equity interests before the implementation date of the SAFE notice,
a
retroactive SAFE registration is required to have been completed before March31, 2006.
If any
PRC shareholder of any offshore special purpose company fails to make the
required SAFE registration and amendment, the PRC subsidiaries of that offshore
special purpose company may be prohibited from distributing their profits and
the proceeds from any reduction in capital, share transfer or liquidation to
the
offshore special purpose company. Moreover, failure to comply with the SAFE
registration and amendment requirements described above could result in
liability under PRC laws for evasion of applicable foreign exchange
restrictions. After
the
SAFE notice, an implementation rules on the SAFE notice was issued on May 29,2007 which provides for implementation guidance and supplements the procedures
as provided in the SAFE notice. For an
offshore
special purpose company
which was established and owned the onshore assets or equity interests before
the implementation
date of the SAFE notice, a retroactive SAFE registration requirement is
repeated.
Due
to
lack of official interpretation, some of the terms and provisions of the SAFE
Notice and its implementation rules remain unclear, and the implementation
of
the SAFE Notice by central SAFE and local SAFE branches has been inconsistent
since its adoption. Based on the advice of our PRC counsel, Global Law Offices,
located in Beijing,, and after consultation with relevant SAFE officials, we
believe that the PRC resident shareholders of our parent company, Jade Mountain
Corporation, were required to complete their respective SAFE registrations
pursuant to the SAFE Notice.
Moreover,
because of uncertainty over how the SAFE Notice will be interpreted and
implemented, and how or whether the SAFE Notice and implementation rules will
apply to us, we cannot predict how SAFE will affect our business operations
or
future strategies. For example, our present and prospective PRC subsidiaries’
ability to conduct foreign exchange activities, such as the remittance of
dividends and foreign currency-denominated borrowings, may be subject to
compliance with the SAFE Notice by our or our parent company’s PRC resident
shareholders. In addition, such PRC residents may not always be able to complete
registration procedures required by the SAFE Notice. We also have little control
over either our present or prospective direct or indirect shareholders or the
outcome of such registration procedures. A failure by our or our parent
company’s PRC resident shareholders or future PRC resident shareholders to
comply with the SAFE Notice, if SAFE requires it, could subject us to fines
or
legal sanctions, restrict our overseas or cross-border investment activities,
limit our subsidiary’s ability to make distributions or pay dividends or affect
our ownership structure, which could adversely affect our business and
prospects.
24
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect our
operations.
A
renewed
outbreak of SARS or another widespread public health problem in the PRC, where
all of our revenue is derived, could have an adverse effect on our operations.
Our operations may be impacted by a number of health-related factors, including
quarantines or closures of some of our offices that would adversely disrupt
our
operations.
Any
of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our operations.
Because
our principal assets are located outside of the United States and all of our
directors and all our officers reside outside of the United States, it may
be
difficult for you to use the United States Federal securities laws to enforce
your rights against us and our officers and some directors in the United States
or to enforce judgments of United States courts against us or them in the
PRC.
All
of
our present officers and directors (other than Glenn A. Little, who is a
resident of the United States) reside outside of the United States. In addition,
our operating subsidiary, Dalian Innomind, is located in the PRC and
substantially all of its assets are located outside of the United States. It
may
therefore be difficult for investors in the United States to enforce their
legal
rights based on the civil liability provisions of the United States Federal
securities laws against us in the courts of either the United States or the
PRC
and, even if civil judgments are obtained in courts of the United States, to
enforce such judgments in PRC courts. Further, it is unclear if extradition
treaties now in effect between the United States and the PRC would permit
effective enforcement against us or our officers and directors of criminal
penalties, under the United States Federal securities laws or
otherwise.
The
PRC’s legal and judicial system may not adequately protect our business and
operations and the rights of foreign investors
The
PRC
legal and judicial system may negatively impact foreign investors. In 1982,
the
National People's Congress amended the Constitution of China to authorize
foreign investment and guarantee the "lawful rights and interests" of foreign
investors in the PRC. However, the PRC's system of laws is not yet
comprehensive. The legal and judicial systems in the PRC are still rudimentary,
and enforcement of existing laws is inconsistent. Many judges in the PRC lack
the depth of legal training and experience that would be expected of a judge
in
a more developed country. Because the PRC judiciary is relatively inexperienced
in enforcing the laws that do exist, anticipation of judicial decision-making
is
more uncertain than would be expected in a more developed country. It may be
impossible to obtain swift and equitable enforcement of laws that do exist,
or
to obtain enforcement of the judgment of one court by a court of another
jurisdiction. The PRC's legal system is based on the civil law regime, that
is,
it is based on written statutes; a decision by one judge does not set a legal
precedent that is required to be followed by judges in other cases. In addition,
the interpretation of Chinese laws may be varied to reflect domestic political
changes.
The
promulgation of new laws, changes to existing laws and the pre-emption of local
regulations by national laws may adversely affect foreign investors. However,
the trend of legislation over the last 20 years has significantly enhanced
the
protection of foreign investment and allowed for more control by foreign parties
of their investments in Chinese enterprises. There can be no assurance that
a
change in leadership, social or political disruption, or unforeseen
circumstances affecting the PRC's political, economic or social life, will
not
affect the PRC government's ability to continue to support and pursue these
reforms. Such a shift could have a material adverse effect on our business
and
prospects.
25
The
practical effect of the PRC legal system on our business operations in the
PRC
can be viewed from two separate but intertwined considerations. First, as a
matter of substantive law, the Foreign Invested Enterprise laws provide
significant protection from government interference. In addition, these laws
guarantee the full enjoyment of the benefits of corporate Articles and contracts
to Foreign Invested Enterprise participants. These laws, however, do impose
standards concerning corporate formation and governance, which are qualitatively
different from the general corporation laws of the United States. Similarly,
the
PRC accounting laws mandate accounting practices, which are not consistent
with
U.S. generally accepted accounting principles. PRC’s accounting laws require
that an annual "statutory audit" be performed in accordance with PRC accounting
standards and that the books of account of Foreign Invested Enterprises are
maintained in accordance with Chinese accounting laws. Article 14 of the
People's Republic of China Wholly Foreign-Owned Enterprise Law requires a wholly
foreign-owned enterprise to submit certain periodic fiscal reports and
statements to designated financial and tax authorities, at the risk of business
license revocation. While the enforcement of substantive rights may appear
less
clear than United States procedures, the Foreign Invested Enterprises and Wholly
Foreign-Owned Enterprises are Chinese registered companies, which enjoy the
same
status as other Chinese registered companies in business-to-business dispute
resolution. Any award rendered by an arbitration tribunal is enforceable in
accordance with the United Nations Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (1958). Therefore, as a practical matter, although
no
assurances can be given, the Chinese legal infrastructure, while different
in
operation from its United States counterpart, should not present any significant
impediment to the operation of Foreign Invested Enterprises.
We
may face obstacles from the communist system in the
PRC.
Foreign
companies conducting operations in PRC face significant political, economic
and
legal risks. The Communist regime in the PRC, which includes a cumbersome
bureaucracy, may hinder Western investment.
We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.
The
PRC
historically has not adopted a Western style of management and financial
reporting concepts and practices, as in modern banking, computer and other
control systems. We may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in the PRC. As a result of these factors,
we may experience difficulty in establishing management, legal and financial
controls, collecting financial data and preparing financial statements, books
of
account and corporate records and instituting business practices that meet
Western standards. Therefore, we may, in turn, experience difficulties in
implementing and maintaining adequate internal controls as will be required
under Section 404 of the Sarbanes Oxley Act of 2002.
The
relative lack of public company experience of our management team may put us
at
a competitive disadvantage.
Ourmanagement
team lacks public company experience, which could impair our ability to comply
with legal and regulatory requirements such as those imposed by Sarbanes-Oxley
Act of 2002. The individuals who now constitute our senior management have
never
had responsibility for managing a publicly traded company. Such responsibilities
include complying with federal securities laws and making required disclosures
on a timely basis. Our senior management may not be able to implement programs
and policies in an effective and timely manner that adequately respond to such
increased legal, regulatory compliance and reporting requirements. Our failure
to comply with all applicable requirements could lead to the imposition of
fines
and penalties and distract our management from attending to the growth of our
business.
Our
officers and directors beneficially own approximately 71.6% of our Common
Stock.
As a
result, they are able to control the outcome of stockholder votes on various
matters, including the election of directors and extraordinary corporate
transactions, including business combinations. The
interests of our directors and officers may differ from other stockholders.
Furthermore, the current ratios of ownership of our common stock reduce the
public float and liquidity of our common stock which can, in turn, affect the
market price of our common stock.
We
are not likely to pay cash dividends in the foreseeable
future.
We
currently intend to retain any future earnings for use in the operation and
expansion of our business. We do not expect to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate.
Should
we
decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends
or
other payments from our operating subsidiary. In addition, our operating
subsidiary, Dalian Innomind, from time to time, may be subject to restrictions
on its ability to make distributions to us, including as a result of
restrictions on the conversion of local currency into U.S. dollars or other
hard
currency and other regulatory restrictions.
Our
common stock is thinly traded, so you may be unable to sell at or near ask
prices or at all if you need to sell your shares to raise money or otherwise
desire to liquidate your shares.
Prior
to
the October 5, 2007, Share Exchange our shares were not publicly traded. Through
the Share Exchange we have essentially become public without the typical initial
public offering procedures which usually include a large selling group of
broker-dealers who may provide market support after going public. Thus, we
have
undertaken efforts to develop market recognition for our stock. Our common
stock
was added to the OTC Bulletin Board (the “OTC-BB”) daily list on July 3, 2007.
As a result, there is limited market activity in our stock and we are too small
to attract the interest of many brokerage firms and analysts. We cannot give
you
any assurance that a broader or more active public trading market for our common
stock will develop or be sustained. Currently our common stock is quoted in
the
OTC Bulletin Board market and the trading volume we will develop may be limited
by the fact that many major institutional investment funds, including mutual
funds, as well as individual investors follow a policy of not investing in
Bulletin Board stocks and certain major brokerage firms restrict their brokers
from recommending Bulletin Board stocks because they are considered speculative,
volatile and thinly traded. The OTC Bulletin Board market is an inter-dealer
market much less regulated than the major exchanges and our common stock is
subject to abuses and volatilities and shorting. Thus there is currently no
broadly followed and established trading market for our common stock. An
established trading market may never develop or be maintained. Active trading
markets generally result in lower price volatility and more efficient execution
of buy and sell orders. Absence of an active trading market reduces the
liquidity of the shares traded there.
27
The
trading volume of our common stock has been and may continue to be limited
and
sporadic. As a result of such trading activity, the quoted price for our common
stock on the OTC Bulletin Board may not necessarily be a reliable indicator
of
its fair market value. Further, if we cease to be quoted, holders would find
it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of our common stock and as a result, the market value of our common stock
likely would decline.
Our
common stock is currently subject to the "penny stock" rules which require
delivery of a schedule explaining the penny stock market and the associated
risks before any sale.
Our
common stock is currently subject to regulations prescribed by the SEC relating
to “penny stocks.” The SEC has adopted regulations that generally define a penny
stock to be any equity security that has a market price (as defined in such
regulations) of less than $5.00 per share, subject to certain exceptions. On
November 14, 2007, the last sale price of our common stock was $8.10 per share.
These regulations impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 and individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 (individually) or $300,000 (jointly with their
spouse)). For transactions covered by these rules, the broker-dealer must make
a
special suitability determination for the purchase of these securities and
have
received the purchaser's prior written consent to the transaction. Additionally,
for any transaction, other than exempt transactions, involving a penny stock,
the rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the common stock and may affect
the ability of investors to sell their common stock in the secondary
market.
Our
common stock is illiquid and subject to price volatility unrelated to our
operations.
The
market price of our common stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our common stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or
us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.
A
large number of shares will be eligible for future sale and may depress our
stock price.
We
are authorized to issue "blank check" preferred stock, which, if issued without
stockholders approval, may adversely affect the rights of holders of our common
stock.
We
are
authorized to issue 50,000,000 shares of preferred stock, none of which have
been issued. Our Board of Directors is authorized under our Articles of
Incorporation to provide for the issuance of shares of preferred stock by
resolution, and by filing a certificate of designations under Nevada law, to
fix
the designation, powers, preferences and rights of the shares of each such
series of preferred stock and the qualifications, limitations or restrictions
thereof without any further vote or action by the stockholders. Any shares
of
preferred stock so issued are likely to have priority over our common stock
with
respect to dividend or liquidation rights. In
the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
in
control, which could have the effect of discouraging bids for the Company and
thereby prevent stockholders from receiving the maximum value for their shares.
We have no present intention to issue any shares of our preferred stock in
order
to discourage or delay a change of control or for any other reason. However,
there can be no assurance that preferred stock will not be issued at some time
in the future.
We
are responsible for the indemnification of our officers and
directors.
Our
Bylaws provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against costs and expenses incurred
by
them in any litigation to which they become a party arising from their
association with or activities on our behalf. Consequently, we may be required
to expend substantial funds to satisfy these indemnity obligations.
SELLING
STOCKHOLDERS
This
prospectus relates to the offer and sale of our common stock by the selling
stockholders identified in the table below. Other than Glenn A. Little, each
of
the selling stockholders acquired his or its common stock as an investor in
our
private placement transaction completed on October 5, 2007. Douglas Financial,
LLC and the other warrant-holders acquired their warrants in connection with
Douglas’s role as the placement agent in the private placement
transaction.
Glenn
A.
Little, who until the completion of the Share Exchange on October 5, 2007,
had
been the Company’s sole director and executive officer, and its majority
shareholder, acquired his shares of common stock by direct purchase and by
the
conversion of the Convertible Note issued to him in connection with the
Company’s 2005 reorganization. All of the selling stockholders are “accredited
investors” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
Except
for Glenn A. Little, who from 2005 until the completion of the Share Exchange
had been the Company’s sole director and executive officer, none of the selling
stockholders has held a position as an officer or director of the Company,
nor
has any selling stockholder had a material relationship of any kind with the
Company.
The
table
set forth below lists the names of the selling stockholders as well as (i)
the
number of shares of common stock acquired by the selling stockholder in the
October 5, 2007 private placement (all of which are being registered), (ii)
the
number of shares of common stock being registered on behalf of Glenn A. Little
pursuant to the “piggy-back” registration rights that we granted to him in the
Share Exchange Agreement, and (iii) the number of shares underlying the warrants
issued to Douglas Financial and its assignees in connection with the private
placement, all of which are being registered.
Each
selling stockholder is offering for sale all of the shares he or it will acquire
upon exercise of the warrants acquired in the private placement.
29
Each
selling stockholder may offer for sale all or part of the shares from time
to
time. The table below assumes that the selling stockholders will sell all of
the
shares offered for sale and that they beneficially own no other shares other
than those (i) acquired in the private placement, (ii) in the case of Glenn
A.
Little, those being registered on his behalf, and (iii) those issuable upon
exercise of the warrants. Accordingly, it is being assumed that they will
beneficially own no shares of common stock upon completion of the offering.
A
selling stockholder is under no obligation, however, to sell any shares
immediately pursuant to this prospectus, nor is a selling stockholder obligated
to sell all or any portion of his or its shares at any time.
Name
of Selling Stockholder
Positions
and Offices held, and Material Relationships with, the
Issuer
Number
of Shares of Common Stock Owned Prior to the
Offering
Number
of Shares of Common Stock Underlying the Placement Agent Warrants
Owned
Prior to the Offering (1)
Total
Number And Percentage Of Shares Beneficially Owned Prior to the Offering
(2)(3)
Maximum
Number of Shares to be Sold (4)
Percentage
Ownership After the Offering (%) (5)
Alder
Capital Partners 1 LP
None
160,200
0
160,200
0.6%
160,200
0%
Alder
Offshore Master Fund, LP
None
63,000
0
63,000
0.3%
63,000
0%
Ancora
Greater China Fund, LP
None
133,929
0
133,929
0.5%
133,929
0%
Merlin
Partners, LP
None
33,482
0
33,482
0.1%
33,482
0%
Hare
& Co.
None
1,785,714
0
1,785,714
7.1%
1,785,714
0%
Vyle
Investment Inc.
None
111,602
0
111,602
0.4%
111,602
0%
Blue
Earth Fund, LP
None
446,429
0
446,429
1.8%
446,429
0%
Michael
Roy Crawford
None
11,161
0
11,161
0.04%
11,161
0%
Bai
Ye Feng
None
44,643
0
44,643
0.2%
44,643
0%
Lake
Street Fund LP
None
89,286
0
89,286
0.4%
89,286
0%
Futurtec
LP
None
33,482
0
33,482
0.1%
33,482
0%
Golden
Bridge Asset Management
None
334,821
0
334,821
1.3%
334,821
0%
Heller
Capital Investments, LLC
None
125,000
0
125,000
0.5%
125,000
0%
Jayhawk
Private Equity Co-Invest LP
None
46,276
0
46,276
0.2%
46,276
0%
Jayhawk
Private Equity Fund
None
734,974
0
734,974
2.9%
734,974
0%
John
W. Krieger
None
16,741
0
16,741
0.1%
16,741
0%
Lawrence
Kaplan
None
44,643
0
44,643
0.2%
44,643
0%
Michael
Miller
None
33,482
0
33,482
0.1%
33,482
0%
Michael
Morris
None
33,482
0
33,482
0.1%
33,482
0%
30
Patara
Capital, LP
None
111,608
0
111,608
0.4%
111,608
0%
Pope
Investments, LLC
None
524,554
0
524,554
2.1%
524,554
0%
Pinnacle
China Fund, LP
None
300,313
0
300,313
1.2%
300,313
0%
Straus
Partners LP
None
147,321
0
147,321
0.6%
147,321
0%
Straus-CEPT
Partners LP
None
98,214
0
98,214
0.4%
98,214
0%
Glenn
A. Little
Sole
director, sole executive officer 2005-10/5/07
392,800
0
392,800
1.6%
116,000
1.10%
James
N. Pritchard
None
21,875
9,562
31,437
0.1%
9,562
.09%
Chris
Linn Bickel
None
99,750
38,721
138,471
0.6%
38,721
.40%
Li
Jun
None
731,500
283,956
1,015,456
4.1%
283,956
2.90%
Douglas
Financial, LLC
None
21,875
9,563
31,438
0.1%
9,563
.09%
Monarch
Capital Group, LLC
None
0
6,105
6,105
0.02%
6,105
0%
HC
International, Inc.
None
0
8,140
8,140
0.03%
8,140
0%
Christopher
Donnelly
None
0
26,453
26,453
0.1%
26,453
0%
(1)
Each
warrant entitles the holder to purchase one share of common stock at the
exercise price of $5.376 per share, subject to adjustment, at any time prior
to
the close of business on October 5, 2013.
(2)
As of
November 14, 2007, we had outstanding 25,000,000 shares of common stock. Under
applicable SEC rules, a person is deemed to beneficially own securities which
he
has the right to acquire within 60 days through the exercise of any option
or
warrant or through the conversion of another security, and also is deemed to
be
the "beneficial owner" of a security with regard to which he directly or
indirectly, has or shares (a) voting power (which includes the power to vote
or
direct the voting of the security), or (b) investment power (which includes
the
power to dispose, or direct the disposition, of the security), in each case
irrespective of the person's economic interest in the security. Each listed
selling stockholder has the sole investment and voting power with respect to
all
shares of common stock shown as beneficially owned by such selling
stockholder.
(3)
Subject to footnote 2, in determining the percent of common stock beneficially
owned by a selling stockholder on November 14, 2007, (a) the numerator is the
number of shares of common stock beneficially owned by such selling stockholder,
including shares the beneficial ownership of which may be acquired, within
60
days upon conversion of the warrants, if any, held by that selling stockholder,
and (b) the denominator is the sum of (i) the 25,000,000 shares of common stock
outstanding on November 14, 2007, and (ii) the aggregate number of shares of
common stock underlying the warrants, all of which are exercisable within 60
days of November 14, 2007.
(4)
Includes shares that will be acquired upon exercise of the warrants as indicated
in column 3 of the table.
(5)
Assumes the sale of all shares offered by the selling stockholders.
Background
As
of
September 27, 2007 we entered into a number of agreements with the selling
stockholders providing for the sale, for an aggregate purchase price of
$24,435,319, of 5,464,357 shares of our common stock.
1,674,000
shares of common stock are required to be delivered to the private placement
investors if the Company fails to achieve a net profit target of $16,000,000
for
the fiscal year ended December 31, 2007, and a further 3,906,000 shares are
required to be delivered to those investors if the Company fails to achieve
a
$28,000,000 net profit target for the 2008 fiscal year.
31
In
connection with the private placement we issued to the placement agent, Douglas
Financial,
LLC, as
a placement fee (i)warrants
to purchase 382,500 shares of common stock exercisable for a period of six
years
at an exercise price of $5.376 per share, subject to adjustment and (ii) 875,000
shares of common stock, and (iii) paid to Douglas $1,750,000. Also in connection
with the private placement, we paid Douglas $80,000 as an engagement and
documentation fee.
As
of
November 14, 2007 the closing sale price of our common stock was $8.10 per
share.
The
agreements we entered into with the investors include a Securities Purchase
Agreement, a Registration Rights Agreement, a Lock-Up Agreement and various
ancillary agreements and certificates, disclosure schedules and exhibits in
connection therewith. The following is a summary of their material terms.
Securities
Purchase Agreement
In
addition to providing for the purchase by the investors named therein of up
to5,580,357 shares of our common stock for an aggregate purchase price of
$25,000,000, the Securities Purchase Agreement contains:
·
Representations
and Warranties; Indemnification:
The Securities Purchase Agreement contains representations and warranties
by us and the investors which are customary for transactions of this
type.
The Securities Purchase Agreement also obligates us to indemnify
the
investors for any losses arising
out of any breach of the agreement or failure by us to perform with
respect to the representations, warranties or covenants in the
agreement.
·
Covenants:
The Securities Purchase Agreement contains certain covenants on our
part,
including the following:
·
Until
April 5, 2008, the Company may not issue any “Future Priced Securities” as
that term is described by IM 4350-1 of the NASD
Manual.
·
We
must use the proceeds of the financing for working capital purposes
and
not to repay any outstanding debt (other than trade payables and
accrued
expenses incurred in the ordinary course of business) or to redeem
or
repurchase any common stock or common stock equivalents.
·
Hare
& Co., an investor in the private placement, has the right to
designate one member of the Company’s (or at their election, Dalian
Innomind’s or RINO’s) Board of
Directors.
·
No
later than February 2, 2008, the Company’s Board of Directors must consist
of a minimum of 5 members, a majority of whom must be “independent
directors” as defined in NASDAQ Marketplace Rule 4200(a)(15). Until this
covenant is complied with, we are required to hold $1,000,000
in escrow.
If for any reason or no reason the escrow agent does not receive
requisite
written notice from the investor representatives as to releasing
this sum
from escrow within 65 days after the private placement closing,
we are
required to pay liquidated damages of $244,353 per month (or
partial
month) until the default is cured.
·
Our
common stock presently is quoted and trades on the OTC:BB. If
we apply to
have our common stock traded on another trading market, we are
required to
include in that application all of the shares of common stock
purchased in
the private placement. We are also required to take all reasonably
necessary action to continue the listing and trading of our common
stock
on the OTC:BB and any other trading market on which the common
stock is
listed, and to comply with all applicable rules of the trading
market.
32
·
On
or prior to November 5, 2007, we were required to retain one of three
specified investor relations firms, and a specified accounting firm.
We
have satisfied these requirements by retaining Hayden Communications
International as our investor relations firm, and Jimmy C.H. Cheung
&
Co. CPA as our independent public auditors. Nonetheless, under the
Securities Purchase Agreement, by February 2, 2008, we are required
to
engage Grant Thornton LLP or another major accounting firm acceptable
to
the private placement investors as our independent public accountants.
We
are pursuing discussions with a range of auditors with regard to
the 2008
audit and quarterly reviews.
·
Right
of First Refusal. Each
investor has the right to participate pro rata in any financing prior
to
April 5, 2009.
·
Delivery
of up to 5,580,000 Additional Shares of Common Stock from Escrow
Based on
After-Tax Net Income. At
the private placement closing, Zuo Dejun and Qiu Jianping - who,
through
The Innomind Trust, together control 71.6% of the Company’s outstanding
common stock, and are the founders of RINO - delivered to an escrow
agent
3,900,000 of their beneficially owned shares of common stock in order
to
secure the Company’s obligation under the Securities Purchase Agreement to
deliver additional common stock to the private placement investors
in the
event the Company fails to achieve certain pre-tax net income targets
for
fiscal years 2007 and 2008. Those targets are $16,000,000 in after-tax
net
income for the fiscal year ended December 31, 2007, and $28,000,000
in
after-tax net income for the fiscal year ended December 31, 2008.
In the
event we do not achieve the 2007 net income target, we are obligated
to
transfer 1,674,000 shares of our common stock to the private placement
investors on a pro-rata basis, and if we fail to achieve the 2008
net
income target, we must transfer to the investors a further 3,906,000
shares to the investors. Of the 17,899,643 shares of common stock
issued
on behlf of Mr. Zou and Ms. Qiu in the Share Exchange, 5,580,000
have been
deposited into escrow to secure these
obligations.
·
Liquidated
Damages for PRC Governmental Rescission of Restructuring Transaction.
If
any governmental agency in the PRC challenges or otherwise takes
any
action that adversely affects the transactions contemplated by the
Restructuring Agreements or the Share Exchange Agreement, and the
Company
cannot undo or otherwise address its materially adverse effect to
the
investors’ reasonable satisfaction within sixty (60) days of the
occurrence of the PRC governmental action, then, upon written demand
from
an investor, we are required to, within thirty (30) days from the
date of
the written demand, pay to the investor, as liquidated damages, an
amount
equal to the entire amount that he or it invested in the private
placement, without interest.
·
SAFE
Compliance.
Not later than 90 days after the private placement closing, the Company,
Zou Dejun and Qiu Jianping are required to deliver to the investors
reasonably satisfactory documentation showing that Mr. Zou and Ms.
Qiu
have each complied with the registration requirements under Circular
75
issued by the State Administration of Foreign Exchange of the PRC
(“SAFE”)
on October 21, 2005, titled "Notice Regarding Certain Administrative
Measures on Financing and Inbound Investments by PRC Residents Through
Offshore Special Purpose Vehicles", effective as of November 1, 2005
("Circular
75"),
or any successor rule or regulation under PRC law, in relation to
their
acquisition of shares of the Company. The Company shall not be deemed
to
have breached this requirement if the application is completed in
good
faith and in all material respects and either (A) the applicable
governmental authority determines unilaterally not to approve such
application or (B) such application is not approved with such 90
day
period as a result of an adverse change in applicable law or
interpretation of the law then in effect or (ii) in the event of
abuse of
discretion on the part of the applicable governmental authority which
abuse is outside the Company’s
control.
33
·
Integration.
Neither we nor any of our affiliates may sell, offer for sale or
solicit
offers to buy any security that would be integrated with the offer
or sale
of our common stock in the private placement in a manner that would
(i)
require the sale of our common stock in the private placement to
be or
have been registered under the Securities Act, or (ii) for purposes
of the
rules and regulations of any trading market, require stockholder
approval
of the sale of our common stock in the private
placement.
·
Subsequent
Registrations.The Company may not file with the SEC any registration statement
(other
than on Form S-8) with respect to any securities of the Company prior
to
the time that all shares issued to the investors in the private placement
are registered pursuant to one or more effective registration
statement(s), and the prospectuses forming a portion of such registration
statement(s) is available for the resale of all such shares.
Lock
Up Agreement.
Pursuant
to Lock-Up agreements executed as of October 5, 2007, our CEO (Zou Dejun),
Chairman of the Board (Qiu Jianping), The Innomind Trust (which is the record
holder of 17,899,643 shares of our common stock for the benefit of Mr. Zou
and
Ms. Qiu) and our Chief Financial Officer and Secretary (Bruce Richardson) are
prohibited
from offering,
pledging, selling, contracting to sell, selling any option or contract to
purchase, purchasing any option or contract to sell, granting any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, or announcing the offering of, any of their common stock (including
any securities convertible into, or exchangeable for, or representing the rights
to receive, common stock) until 1 year after the date on which the registration
statement of which this prospectus forms a part is declared effective by the
SEC.
Not
later
than November 19, 2007, we are obligated to file a registration statement with
the SEC covering and registering for re-sale all of the common stock offered
and
sold in the private placement. If a registration statement is not filed by
that
date we will be obligated to pay the private placement investors liquidated
damages equal in amount to 1% of the principal amount subscribed for by the
investors for each month (or part of a month) after that date until the
registration statement is filed (“Filing Damages”). If the registration
statement is not declared effective by the SEC on or before March 3, 2008,
we
will be obligated to pay further liquidated damages to the investors equal
in
amount to 1% of the principal amount subscribed for by the investors for each
month (or part of a month) after March 3, 2008, until the registration statement
is declared effective (“Effectiveness Damages”). The aggregate of Filing Damages
and Effectiveness Damages is capped at 10%.
Piggy-Back
Registration Rights.
In
the
Share Exchange Agreement we granted to Glenn A. Little “piggy-back” registration
rights as to 116,000 of the shares of common stock beneficially owned by him.
These rights, pursuant to which 116,000 of those shares are being registered
in
this prospectus, allow Mr. Little to elect to include all or any portion of
those 116,000 shares in registration statements otherwise filed by the Company.
Mr. Little has elected to include all such shares in the present registration
statement.
34
PLAN
OF DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or quoted or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any
one
or more of the following methods when selling shares:
·
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
·
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
·
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
·
an
exchange distribution in accordance with the rules of the applicable
exchange;
·
privately
negotiated transactions;
·
to
cover short sales made after the date that the registration statement
of
which this prospectus is a part is declared effective by the SEC;
·
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
·
a
combination of any such methods of sale;
and
·
any
other method permitted pursuant to applicable
law.
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon
the
Company being notified in writing by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to
this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling stockholder and
of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such the shares of common stock were sold, (iv) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference
in
this prospectus, and (vi) other facts material to the transaction. In addition,
upon the Company being notified in writing by a selling stockholder that a
donee
or pledgee intends to sell more than 500 shares of common stock, a supplement
to
this prospectus will be filed if then required in accordance with applicable
securities law.
35
The
Selling Stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of
the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of the
securities will be paid by the selling stockholder and/or the purchasers. Each
selling stockholder has represented and warranted to the Company that it
acquired the securities subject to this registration statement in the ordinary
course of such selling stockholder’s business and, at the time of its purchase
of such securities such selling stockholder had no agreements or understandings,
directly or indirectly, with any person to distribute any such securities.
The
Company has advised each selling stockholder that it may not use shares
registered on the registration statement of which this prospectus forms a part
to cover short sales of common stock made prior to the date on which that
registration statement shall have been declared effective by the SEC. If a
selling stockholder uses this prospectus for any sale of the common stock,
it
will be subject to the prospectus delivery requirements of the Securities Act.
The selling stockholders will be responsible to comply with the applicable
provisions of the Securities Act and Exchange Act, and the rules and regulations
thereunder promulgated, including, without limitation, Regulation M, as
applicable to such selling stockholders in connection with re-sales of their
respective shares under that registration statement.
The
Company is required to pay all fees and expenses incident to the registration
of
the shares, but the Company will not receive any proceeds from the sale of
the
common stock. The Company has agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the sales of the shares by the selling
stockholders. To the extent the warrants are exercised for cash, if at all,
we
will receive the exercise price for those warrants. Under the terms of the
warrants cashless exercise is permitted. We intend to use any proceeds received
from the exercise of warrants for working capital and other general corporate
purposes. We cannot assure you that any of the warrants will ever be exercised
for cash or at all. If
all of
these outstanding warrants are exercised for cash, we would receive aggregate
gross proceeds of approximately $2,056,320.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market
Information
Our
common stock is quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under
the symbol "JDMC". There has never been any established public market for shares
of our common stock. On November 14, 2007, 382,500 warrants (subject to
adjustment) to purchase our common stock were outstanding at an exercise price
of $5.376 per share. We have registered for re-sale by the selling stockholders
the 382,500 shares underlying those warrants, which shares are offered pursuant
to this prospectus.
The
following table sets forth the high and low bid prices, in the over-the-counter
market, as reported and summarized by Yahoo Finance (http://finance.yahoo.com)
, for
each fiscal quarter during each of the fiscal years ended December 31, 2005
and
December 31, 2006 and for the quarters ended March 31, 2007, June 30, 2007
and
September 30, 2007. These prices are based on inter-dealer prices, without
retail markup, markdown or omissions and may not represent actual transactions.
These prices have been adjusted to give effect to the August 31, 2007, 100
for
one forward stock split of all issued and outstanding shares of our common
stock.
36
On
May14, 2002, the Company filed a Form 15 with the SEC and ceased being a reporting
company under the Exchange Act. On April 4, 2007, the Company filed a Form 10SB
registration statement with the SEC and again became a reporting company, and
on
July 3, 2007, the common stock was listed for quotation on the OTC:BB.
Consequently, from May 14, 2002, until July 3, 2007, our common stock was not
traded. The following table reflects this absence of trading.
Quarter
Ended
High
Low
03/31/2005
(1)
(1)
06/30/2005
(1)
(1)
09/30/2005
(1)
(1)
12/31/2005
(1)
(1)
03/31/2006
(1)
(1)
06/30/2006
(1)
(1)
09/30/2006
(1)
(1)
12/31/2006
(1)
(1)
03/31/2007
(1)
(1)
06/30/2007
(1)
(1)
09/30/2007
$
56.00
(2)
$
0.51
(1)
Common stock not listed, quoted or traded.
(2)
The
high bid is an arbitrarily assigned figure.
From
October 5, 2007, until November 14, 2007, the high bid for our common stock
was
$10.50 per share, and the low bid was $2.40 per share. As of November 13, 2007,
the last reported sale price of our common stock was $8.00 per share and the
last reported bid price was $6.00 per share.
Since
the
completion of the share exchange and private placement, our common stock has
traded sporadically and with high volatility. Consequently, our historical
prices may not be an accurate indication of the future prices of our common
stock.
Holders
As
of
November 14, 2007, there were 25,000,000 shares of our common stock issued
and
outstanding, and there were approximately 126 holders of record of our
outstanding shares of common stock. This does not reflect the number of persons
or entities who held stock in nominee or "street" name through various brokerage
firms.
Dividends
We
have
not declared or paid any cash dividends on our common stock during either of
our
last two fiscal years or during our last two fiscal quarters. The payment of
dividends, if any, is at the discretion of the Board of Directors and is
contingent on the Company's revenues and earnings, capital requirements,
financial conditions and the ability of our operating subsidiary, Dalian
Innomind, to obtain approval to send monies out of the PRC. We currently intend
to retain all earnings, if any, for use in business operations. Accordingly,
we
do not anticipate declaring any dividends in the near future.
37
The
PRC's
national currency, the Yuan, is not a freely convertible currency. Please refer
to the risk factors "Governmental control of currency conversion may affect
the
value of your investment,""The fluctuation of the Renminbi may harm your
investment;" and "Recent PRC State Administration of Foreign Exchange ("SAFE")
Regulations regarding offshore financing activities by PRC residents have
undergone a number of changes which may increase the administrative burden
we
face.”
Securities
Authorized for Issuance Under Equity Compensation Plans
We
do not
have any equity compensation plans.
Penny
Stock Regulations
The
SEC
has adopted regulations which generally define "penny stock" to be an equity
security that has a market price of less than $5.00 per share. Although the
market price of our common stock has, on a few occasions, risen above %5.00,
the
impact of other provisions of the penny stock regulations causes our common
stock to fall within the definition, and be subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000, or annual incomes
exceeding $200,000 or $300,000, together with their spouse).
For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's prior written consent to the transaction. Additionally, for
any
transaction, other than exempt transactions, involving a penny stock, the rules
require the delivery, prior to the transaction, of a risk disclosure document
mandated by the Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell the common stock and may affect the ability of investors to sell their
common stock in the secondary market.
Shares
Eligible for Future Sale
There
is
no established trading market for our common stock. Future sales of substantial
amounts of our common stock in the trading market could adversely affect market
prices.
This
is
an offering of 5,962,857 shares
of
our common stock by the selling stockholders, among which up to 382,500
shares they may be acquired upon the exercise of the placement agent warrants.
As
of
November 14, 2007, there were 25,000,000 shares
of
our common stock outstanding. Assuming the exercise of all of the placement
agent warrants, there will be 25,382,500 shares of common stock outstanding.
Of
these 25,382,500 shares, 5,962,857 shares are being registered for re-sale
pursuant to this prospectus. All
other
outstanding shares not registered in this prospectus will be deemed "restricted
securities" as defined under Rule 144 promulgated under the Securities Act
(“Rule 144”). Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule
144,
which is summarized below.
38
Rule
144
In
general, under Rule 144 as currently in effect, a person, or persons whose
shares are aggregated, who has beneficially owned shares of common stock for
at
least one year, including the holding period of any prior owner, except if
the
prior owner was one of our affiliates, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
·
1%
of the number of shares of our common stock then outstanding; or
·
the
average weekly trading volume of our common stock during the four
calendar
weeks preceding the filing of a notice on Form 144 with respect to
the
sale.
Sales
under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about our
company.
Rule
144(k)
Under
Rule 144(k), a person who is not deemed to have been one of our affiliates
at
any time during the 90 days preceding a sale, and who has beneficially owned
the
shares proposed to be sold for at least two years, including the holding period
of any prior owner except one of our affiliates, is entitled to sell the shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
Lock-Up
Agreement
On
October 5, 2007, in connection with the closing of the private placement, Mr.
Zou Dejun, our CEO, Ms. Qiu Jianping, our Chairman of the Board, and The
Innomind Trust (which is the record holder of 17,899,643 shares of our common
stock for the benefit of Mr. Zou and Ms. Qiu) entered into “lock-up” agreements
with the investors pursuant to which they have agreed not to sell, transfer
or
hypothecate any shares of our common stock in the public market until June13,2009 (or the date, if earlier, on which the investors have converted all the
Series A Preferred Stock, exercised all warrants and sold the underlying shares
in the public market). Under the terms of the securities purchase agreement
all
of the officers, directors and affiliates have agreed to be subject to a similar
lock up however only Mr. Du has executed a formal lock- up agreement. As of
August 3, 2007, Mr. Du is the beneficial owner of 3,152,886 shares of our common
stock. As an “affiliate” Mr. Du would not be permitted sell under Rule 144(k).
Other
Registration Rights
Other
than the registration rights (which include the shares underlying the placement
agent warrants) set forth in the registration rights agreement entered into
as
of September 27, 2007, with certain of the selling stockholders, and the
“piggy-back” registration rights granted to Glenn A. Little in the Share
Exchange Agreement, we have no other obligation to register under the Securities
Act any of our shares of common stock.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The
Company is engaged in designing, developing, manufacturing, and installing
environmental protection and energy saving equipment for the Chinese iron and
steel industry. Most of our customers are large, state-owned iron and steel
companies. Our business operations are conducted throughout China.
39
China’s
iron and steel companies have experienced robust growth during the last twenty
years, following the expansion of China’s economy and industrial base,
generally. Along with this growth, the iron and steel industry has produced
large amounts of waterborne and airborne industrial waste and pollution, and
as
a consequence it faces increasingly stringent governmental mandates to reduce
or
eliminate sulphur dixoide emissions and untreated wastewater discharges. Failure
to meet mandated emission and discharge standards can result in financial
penalties.
Demand
for our core product, the Lamella Wastewater System, increased in 2006 and
we
expect demand to continue in 2007. One of our two new products, the
Desulphurization System which we introduced in late 2006, is based on
proprietary technology we jointly developed with the Research Institute of
the
Chinese Academy of Sciences, and can reduce flue gas sulphur dioxide levels
by
over 90%. We expect to see strong demand from the industry for the solutions
that our Desulphurization System offers for airborne sulphur dioxide emissions.
Starting in January 2007, we launched another new product, our Anti-Oxidation
System, that materially reduces scrap loss in the production of hot rolled
steel
plate production caused by oxidation. Anti-oxidation is a long-sought solution
in the Iron and Steel industry. We believe our Anti-Oxidation System, including
paint and spraying equipment, is the only online system that prevents or reduces
oxidation without needing to first cool down the steel slab. We anticipate
that
our Anti-Oxidation System will be an important driver of revenue
growth.
In
addition to the foregoing, we provide machining services to third parties,
utilizing our heavy machine tools’ idle time to generate contract manufacturing
revenue. In the first quarter of 2007, we also earned a significant amount
of
revenue from providing technical support to a business partner for the
fulfillment of its desulphurization contract. The technical support business
maintains our revenue growth while we continue to experience production capacity
constraints. We anticipate that this business will decline beginning in 2008
as
we build up adequate production capacity.
We
also
receive grants from local government with amounts varying from year to year
as
rewards for our continued investment in new technologies.
All
our
products are custom-built pursuant to our customers’ specific requirements. We
enter into fixed price engineering and installation agreements with our
customers that are performed in engineering, manufacturing, construction and
installation phases. Equipment and components are engineered and manufactured
primarily at our headquarter facilities. Generally, we fulfill our contracts
in
twelve months.
Our
project-based revenue is affected directly by our customers’ capital budgets and
need to build new plants. Since most of our customers are
state-owned-enterprises, their budgeting decisions are influenced by the central
government’s environmental protection and pollution control policies, which
presently are favorable to our business and products. We expect such policy
emphasis to continue for the foreseeable future.
The
cost
of revenue for our products includes direct materials, direct labor, and
manufacturing overhead, with a significant portion allocable to materials costs,
which are subject to fluctuation.
Recent
Developments
Share
Exchange, Restructuring Agreements and Private Placement
Financing
In
a
share exchange transaction that closed on October 5, 2007 (the “Share
Exchange”), the Company acquired Innomind, and through that acquisition also
acquired Innomind’s wholly-owned subsidiary, Dalian Innomind, as well as the
assets and business of Dalain Innomind’s PRC affiliate, RINO. In the Share
Exchange the Company issued a controlling number of shares (the “Control
Shares”) of its common stock to Zhang Ze, Innomind’s sole shareholder, in
exchange for all of the issued and outstanding shares of Innomind, which
were
owned by Zhang Ze (the “Innomind Shares”). Prior to the Share Exchange: (i) on
July 16, 2007, the Company consummated a one (1) share for two hundred thousand
(200,000) shares reverse split of its Common Stock, with fractional shares
rounded up to the nearest whole number (the “Reverse Split”); and (ii) on August31, 2007, the Company’s Board of Directors authorized a one hundred (100) shares
for one (1) share forward split of the issued and outstanding shares of its
Common Stock (the “Forward Split”).
The
acquisition of Innomind and Dalian Innomind on October 5, 2007 by Jade
Mountain
Corporation effected a change in control and was accounted for as a “reverse
acquisition” whereby Innomind is the accounting acquirer for financial statement
purposes. Accordingly, for all periods and filings subsequent to the October5,2007“reverse acquisition” transaction, the historical financial statements of
the Company reflect the consolidated financial statements of Innomind since
its
inception and the operations of Jade Mountain subsequent to October 5,2007.
In
connection with the Share Exchange, through a series of agreements between
Dalian Innomind and RINO that we refer to as the “Restructuring Agreements,”
which were executed on October 3, 2007, Dalian Innomind agreed to: (i) purchase
and lease from RINO substantially all of RINO’s assets and properties; and (ii)
fully conduct and manage RINO’s business (the “Business”) in exchange for RINO’s
payment to Dalian Innomind of a management fee equal to the Business’s monthly
net profits. To the extent that any aspect of the Business needs to
be conducted
directly through RINO in the future, the Restructuring Agreements provide
Dalian
Innomind with the legal right and power to control RINO and any of its remaining
assets and operations.
40
The
Restructuring Agreements were utilized instead of a direct acquisition of
RINO's
assets, because of the lack of clarity in the implementation of current PRC
laws
regarding the use of a non-PRC entity’s equity as consideration to acquire a PRC
entity’s equity or assets. This makes it highly uncertain, if not impossible,
for a non-PRC entity (such as the Company or Innomind) to use its equity
to
acquire a PRC entity (such as RINO). While PRC law does allow for the purchase
of equity interests in, or assets of a PRC entity by a non-PRC entity for
cash,
the purchase price must be based on the appraised value of the equity or
assets.
Because the Company did not have sufficient cash to pay the estimated full
value
of all of the assets of RINO, the Company, through Dalian Innomind, purchased
the maximum amount of assets possible with the net proceeds of the private
placement described below, and leased from RINO the remainder of the assets
used
in RINO’s business.
Although
the acquisition of the assets and business of RINO through the Restructuring
Agreements was effective on October 5, 2007, not all of the transactions
contemplated by the Restructuring Agreements have been consummated, and for
that
reason Dalian Innomind has not yet fully assumed total operational control
of
the Business. To complete these transactions, Dalian Innomind must complete
additional steps, filings and registrations. Dalian Innomind has already
completed the verification of capital required under PRC law, as well as
obtaining a new business license to reflect its status as an operating entity.
Remitting to RINO the full purchase price for the assets to be purchased
by it
under the Restructuring Agreements and obtaining an environmental report
for the
assets purchased from RINO remain in progress. We anticipate these steps
will be
completed within approximately 30 days after the date of this prospectus.
At
their
completion, Dalian Innomind will assume full operating control of the Business.
The
funds
used to consummate the Company’s acquisition of Innomind and the Restructuring
Agreements were provided from the proceeds of a private placement of the
Company’s common stock to 24 accredited investors that closed on October 5,2007, simultaneously with the Innomind acquisition and the implementation
of the
Restructuring Agreements. The private placement resulted in gross proceeds
of
$24,435,319 from the sale of 5,464,357 shares of our common stock. Pursuant
to
the Securities Purchase Agreement between the investors and the Company,
the net
proceeds of the Private Placement will otherwise principally be used by the
Company and by Dalian Innomind to expand manufacturing and production capacity
and facilities, and to provide working capital for the Business.
Change
in Independent Accountants
On
October 5, 2007, we engaged Jimmy C.H. Cheung & Co., CPAs as our independent
accountants to perform our 2007 full year financial audit.
Basis
of presentation
The
accompanying unaudited condensed financial statements have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they
do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In
the
opinion of management, the unaudited condensed financial statements contain
all
adjustments consisting only of normal recurring accruals considered necessary
to
present fairly the Company's financial position at September 30, 2007, the
results of operations for the three months and nine months ended September30,2007 and 2006, and cash flows for the nine months ended September 30, 2007
and
2006. The results for the nine months ended September 30, 2007 are not
necessarily indicative of the results to be expected for the entire fiscal
year
ending December 31, 2007.
For
further information, refer to the financial statements and footnotes of the
Company for the years ended December 31, 2006 and 2005.
Recent
Accounting Pronouncements
In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”),
which clarifies the accounting for uncertainty in tax positions. This
Interpretation provides that the tax effects from an uncertain tax position
can
be recognized in the Company’s financial statements, only if the position is
more likely than not of being sustained on audit, based on the technical
merits
of the position. The provisions of FIN 48 are effective as of the beginning
of
fiscal 2007, with the cumulative effect of the change in accounting principle
recorded as an adjustment to opening retained earnings. The Company does
not
expect the adoption of FIN 48 to have an impact on the Company’s results of
operations or financial condition.
In
September 2006, FASB issued Statement 157, Fair Value Measurements. This
statement defines fair value and establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP). More precisely,
this
statement sets forth a standard definition of fair value as it applies to
assets
or liabilities, the principal market (or most advantageous market) for
determining fair value (price), the market participants, inputs and the
application of the derived fair value to those assets and liabilities. The
effective date of this pronouncement is for all full fiscal and interim periods
beginning after November 15, 2007. The Company does
not
expect the adoption of SFAS 157 to have an impact on the Company’s
results of operations or financial condition.
41
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”) which permits entities to choose
to measure many financial instruments and certain other items at fair value
that
are not currently required to be measured at fair value. SFAS 159 will
become
effective for us on January 1, 2008. The Company is currently evaluating
the
impact of this new standard, but believes that it will not have a material
impact on the Company’s financial position.
Critical
Accounting Policies and Estimates
The
following discussion and analysis is based upon the Company’s consolidated
financial statements, which have been prepared in conformity with accounting
principles generally accepted in the United States of America. The Company’s
significant accounting policies are more fully described in the Notes to
the
Consolidated Financial Statements. However, certain accounting policies
and
estimates are particularly important to the understanding of the Company’s
financial position and results of operations and require the application
of
significant judgment by the Company’s management or can be materially affected
by changes from period to period in economic factors or conditions that
are
outside of the control of management. As a result they are subject to an
inherent degree of uncertainty. In applying these policies, the Company’s
management uses their judgment to determine the appropriate assumptions
to be
used in the determination of certain estimates. Those estimates are based
on the
Company’s historical operations, its future business plans and projected
financial results, the terms of existing contracts, the Company’s observance of
trends in the industry, information provided by customers and information
available from other outside sources, as appropriate. The following discusses
the Company’s significant accounting policies and estimates.
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements for
2007
include the unaudited financial statements of Innomind and its wholly owned
subsidiary, Dalian Innomind and Dalian Rino, a Variable Interest Entity
of
Dalian Innomind.
The
accompanying unaudited condensed financial statements for 2006 only include
the
unaudited financial statement of Dalian Rino.
All
significant inter-company accounts and transactions have been eliminated
in
consolidation.
Revenue
Recognition
The
Company enters into long-term fixed price contracts with customers to
manufacture and install industrial equipment. Revenue on long-term fixed
price
contracts is recognized under the percentage-of-completion method in accordance
with the American Institute of Certified Public Accountants Statement of
Position 81-1 “Accounting for Performance of Construction-Type and Certain
Production-Type Contracts”. Under the percentage-of-completion method,
management estimates the percentage-of-completion based upon costs incurred
as a
percentage of the total estimated costs to the customer. When total cost
estimates exceed revenues, the Company accrues for the estimated losses
immediately. The use of the percentage of completion method requires significant
judgment relative to estimating total contract revenues and costs, including
assumptions relative to the length of time to complete the project, the
nature
and complexity of the work to be performed, and anticipated changes in
estimated
costs. Estimates of total contract revenues and costs are continuously
monitored
during the term of the contract, and recorded revenues and costs are subject
to
revision as the contract progresses. When revisions in estimated contract
revenues and costs are determined, such adjustments are recorded in the
period
in which they are first identified. For instances where the work performed
on
fixed price contracts is of relatively short duration, revenue is recognized
when the work is completed.
42
The
Company also provides technical professional services to its customers
based on
a fixed-price time contract. The Company recognizes services-based revenue
from
all of its contracts when the services have been performed, the customers
have
approved the completion of the services and invoices have been issued and
collectibility is reasonably assured.
To
utilize the idle time of its heavy duty machining tools, the Company provides
machining services to customers. The machining service revenue is recognized
when the performance of the service is completed, customer’s acceptance has been
received and invoice is issued and collectibility is reasonably assured.
Consolidation
of Variable Interest Entity
On
October 5, 2007 Dalian Innomind entered into Restructuring Agreements with
Dalian Rino and its shareholders in which Dalian Innomind took over the
management of the business activities of Dalian Rino. The Restructuring
Agreements consist of the following agreements:
(a)
Dalian
Rino sold substantially all of its manufacturing equipment and
tangible
assets to Dalian Innomind for RMB 2,250,343;
(b)
Dalian
Rino transferred all of its three, presently owned patents, and
three
presently pending patent applications, to Dalian Innomind for
an aggregate
transfer fee of RMB 10,000;
(c)
Dalian
Rino will lease to Dalian Innomind substantially all of its manufacturing
plant and land at an annual rent of RMB 612,000;
(d)
With
respect to its presently owned patents, Dlian Rino will contemporaneously
enter into a separate transfer agreement (the “Patent Transfer Contract”)
with Dalian Innomind to accomplish their actual transfer to Dalian
Innomind;
(e)
With
respect to its presently pending patent applications, and in
order to
accomplish the actual transfer of, each such applied-for patent,
Dalian
Rino will enter into additional patent transfer contracts within
ten days
after the issuance of the patents; and
(f)
Dalian
Rino has granted to Dalian Innomind the royalty-free, perpetual
right to
use the “RINO” trademark and logo.
Under
the
requirements of FASB Interpretation No. 46 (R), Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 (“FIN 46”), the Company
consolidated the financial statements of Dalian Rino, a VIE of Dalian Innomind.
As both companies are under common control, the financial statements have
been
prepared as if the transaction had occurred retroactively.
Contracts
in progress are stated at the lower of cost or market value and include
the
costs and earnings in excess of billings, pursuant to the percentage of
completion method of accounting for long-term fixed price contracts. The
costs
of contracts in progress include production costs and related overhead,
including an applicable portion of general and administrative expenses.
Inventories
Raw
materials are stated at the lower of cost or market value, cost being calculated
on the weighted average basis.
The
Company provided inventory allowances based on excess and obsolete inventories
determined principally by customer demand.
43
Property
and equipment
Property
and equipment are stated at cost, less accumulated depreciation. Expenditures
for additions, major renewals and betterments are capitalized and expenditures
for maintenance and repairs are charged to expense as incurred.
Depreciation
is provided on a straight-line basis, less estimated residual value over
the
assets’ estimated useful lives. The estimated useful lives are as
follows:
Buildings
30
Years
Plant
and machinery
15
Years
Motor
vehicles
10
Years
Furniture,
fixtures and equipment
5
Years
Land
use rights are stated at cost, less accumulated amortization and are amortized
over the term of the relevant rights of 50 years from the date of
acquisition.
The
Company’s principal office and its manufacturing facilities are located in the
Jinzhou Industry Cooperation Zone of Dalian, PRC. In 2003 RINO acquired from
the
government the right to use 287,117 square feet of land in the Jinzhou Industry
Cooperation Zone for a 50 year period that expires in 2053 (the “Land Use
Rights”). Instead of periodic rent, RINO paid a one-time fee of $580,203 for the
Land Use Rights.
Of
the
area leased by us, our factory occupies 91,570 square feet, and office space,
warehouse facilities and living quarters comprise 90,148 square feet.
Dalian
Facilities
Our
Dalian facilities have a staff of 270 managerial, technical, clerical and
manufacturing employees, who cover the Company’s national operations,
generally.
Branch
Offices
In
addition to the head office in Dalian, the Company leases branch offices in
Lanzhou, Beijing, Chongqing, Wuhan and Nanchang. Each branch office covers
and
is responsible for the Company’s operations in a specific territory in
China:
City
Staff
Sq. Meters
Lease Expires
Rent
Territory
Lanzhou
3
100
May
2008
$
196
per mo.
Northwest
China
Beijing
5
400
July
2008
$
4,196
per mo.
Mid
China
Chongqing
3
100
February
2008
$
196
per mo.
Southwest
China
Wuhan
2
100
February
2008
$
196
per mo.
Southeast
China
Nanchang
2
130
November
2007
$
209
per mo.
Jiangxi
Province
Management
believes that it will be able to renew these leases.
Revenues.
Revenues, excluding government grants, increased by $15.0 million or 573% for
the three months ended September 30, 2007, as compared to the three months
ended
September 30, 2006. The revenue increase in 2007 was due to the growing demand
for our flue gas desulphurization product. Equipment sales revenues in the
three
months ended September 30, 2007 were entirely related to flue gas
desulphurization projects which were signed in July.
45
The
composition of our revenues in the three months ended September 30, 2007 is
as
follows:
Cost
of Revenue.
The
cost of revenue for the three months ended September 30, 2007 increased by
$8.7
million to $10.3 million from $1.6 million for the three months ended September30, 2006, largely due to increased sales. As a percentage of revenue excluding
government grants, the cost of revenue decreased to 58% for the three months
ended September 30, 2007 from 60% for the same period of 2006, primarily because
we continue to realize savings in machining through using in-house heavy machine
tools acquired in 2006.
Operating
Expenses
Operating
expenses for the three months ended September 30, 2007 increased to $2.2 million
from $0.2 million for the same period ended September 30, 2006 as a result
of
[higher levels of operations during 2007]. As a percentage of revenue, the
operating expenses increased by 3% to 12% for the three months ended September30, 2007 from 9% for the same period in 2006.
Other
Income and Expenses
Other
income and expenses include primarily interest income and interest expense.
Interest income was immaterial due to the fact we have maintained a low cash
balance for most of our operations. Interest expense increased to $0.2 million
for the three months ended September 30, 2007 from $0.08 million for the three
months ended September 30, 2006, due to an increased amount of the bank debt
financing we undertook during 2006.
Net
Income
Net
income was $4,262,802 in the three months ended September 30, 2007, compared
with $488,219 in the same period last year, primarily due to the increased
sales, higher gross margins, and lower income taxes as a percentage of revenue
than realized in the same period in 2006.
Revenues.
Revenues,
excluding government grants, increased by $39.8 million or 622% for the nine
months ended September 30, 2007, as compared to the nine months ended September30, 2006. The revenue increase in 2007 was due to the growing demand for our
flue gas desulphurization and contract machining services. In addition, our
new
flue gas desulphurization product became our largest selling product by sales
turnover, while our new deoxidation treatment product registered strong
growth. Technical consulting services grew strongly in the first
six months of 2007 but fell off in the third quarter as we reassigned
engineers to work on other projects.
47
We
sell
to large iron and steel companies around China. The following table sets for
our
composition of revenues by product in the nine months ended September 30, 2007
and September 30, 2006.
Cost
of Revenues. The
cost
of revenue for the nine months ended September 30, 2007 increased by $20.1
million to $23.7 million from $3.7 million for the nine months ended September30, 2006, largely due to increased sales. As a percentage of revenue excluding
government grants, the cost of revenue decreased to 51% for the nine months
ended September 30, 2007 from 57% for the same period of 2006, primarily because
our acquisition of heavy machine tools in 2006 allowed us to process product
parts and components in-house, resulting in machine processing
savings.
Operating
Expenses
Operating
expenses for the nine months ended September 30, 2007 increased to $6.1 million
from $0.5 million for the same period ended September 30, 2006 as a result
of
higher levels of operations during the year of 2006. As a percentage of revenue,
the operating expenses decreased by 6% to 13% for the nine months ended
September 30, 2007 from 7% for the same period in 2006. Half of the increase
was
due to a significant increase in selling expense during the first two quarters
in 2007. No material selling expense was incurred during the same period in
2006. Excluding selling expense, operating expenses remained at 6% of revenue,
slightly below the same level of the operating expenses during the same period
in 2006.
Other
Income and Expenses
Other
income and expenses include primarily interest income and interest expense.
Interest income was immaterial due to the fact we have maintained a low cash
balance for most of our operations. Interest expense increased to $0.5 million
for the nine months ended September 30, 2007 from $0.2 million for the nine
months ended September 30, 2006, due to an increased amount of the bank debt
financing we undertook during 2006.
Net
Income
Net
income was $11,600,349 in the nine months ended September 30, 2007, compared
with $1,740,072 in the same period last year, primarily due to the increased
sales, stable gross margins partly offset by rising operational expenses, and
lower income taxes as a percentage of revenue than realized in the same period
in 2006.
Revenues.
Revenues, excluding government grants, increased by $6.7 million or 188% for
the
twelve months ended December 31, 2006, as compared to the twelve months ended
December 31, 2005. The revenue increase in 2006 was due to the growing demand
for our wastewater treatment product, contract machining services, and technical
support services. The breakdown of the revenue growth, excluding government
grants, is as follows:
Cost
of Revenue.
The
cost of revenue for the twelve months ended December 31, 2006 increased by
$2.5
million to $5.3 million from $2.8 million for the twelve months ended December31, 2005, largely due to increased sales. As a percentage of revenue excluding
government grants, the cost of revenue decreased to 50% for the twelve months
ended December 31, 2006 from 76% for the same period of 2005, primarily because
our acquisition of heavy machine tools in 2006 allowed us to process product
parts and components in-house, resulting in machine processing
savings.
Operating
Expenses.
Operating expenses for the twelve months ended December 31, 2006 increased
to
$0.8 million from $0.4 million for the same period ended December 31, 2005
as a
result of higher levels of operations during the year of 2006. As a percentage
of revenue, the operating expenses decreased by 3% to 7% for the twelve months
ended December 31, 2006 from 10% for the same period in 2005.
Other
Income and Expenses.
Other
income and expenses include primarily interest income and interest expense.
Interest income was immaterial due to the fact we have maintained a low cash
balance for most of our operations. Interest expense increased to $0.3 million
for the twelve months ended December 31, 2006 from $0.09 million for the period
ended December 31, 2005, due to an increased amount of the bank debt financing
we undertook during 2006.
Liquidity
and Capital Resources
We
have
historically funded our working capital needs from operations, advance payments
from customers, bank borrowings, and capital from shareholders. Our working
capital requirements are influenced by the level of our operations, the
numerical and dollar volume of our project contracts, the progress of our
contract execution, and the timing of accounts receivable
collections.
Cash
flow from operating activities. Net
cash
used in operating activities was $3.5 million for the twelve months ended
December 31, 2006 as compared to $0.15 million for the same period ended
December 31, 2005. The positive cash flow from operating activities was chiefly
attributable to a decrease in inventory and increases in production and project
installations.
Cash
used in investing activities.
For the
twelve months ended December 31, 2006, net cash used in investing activities
increased by $0.2 million to $4.5 million as compared to $4.3 million for the
same period ended December 31, 2005. This increase primarily resulted from
the
purchase of intangible assets.
Cash
provided by financing activities.
Our
operations historically have been financed by capital contributions and loans
from RINO’s founder and by bank loans. For the twelve months ended December 31,2006, net cash provided by financing activities increased by $0.66 million
to
$4.47 million as compared to $3.81 million for the same period ended December31, 2005. This was principally the result of capital contributions from RINO’s
founders and a net increase in bank loans in 2006.
Off-Balance
Sheet Arrangements
The
Company does not have any off-balance sheet arrangements.
BUSINESS
Our
History
The
Company was originally incorporated in Minnesota in 1984 as Applied Biometrics,
Inc., for the purpose of developing and marketing a cardiac output monitoring
system. In August, 2000, the Company’s Board of Directors determined that the
Company would be unable to complete the development of its primary product,
and
thereupon ceased its business operations. In connection with terminating the
Company’s business operations, in August, 2000, the Company’s CEO resigned, all
employees were laid off and all but two of the Company’s directors resigned.
During the latter part of 2000 we wound down our operations, eliminated most
expenses and negotiated the termination or satisfaction of all of the Company’s
obligations.
On
May14, 2002, the Company filed a Form 15 with the SEC and ceased being a reporting
company under the Exchange Act.
At
a
special meeting held on August 4, 2005, the Company’s shareholders voted to
adopt a plan of complete liquidation and dissolution of the Company (the
“Plan”). After that shareholder vote, but before the Company’s remaining funds
were distributed, on October 20, 2005, Glenn A. Little (“Little”) contacted the
Company and proposed a reorganization that consisted of: (i) revoking
the Plan; (ii) Little lending $100,000 to the Company (the “Loan”) pursuant to a
convertible promissory note (the “Convertible Note”); (iii) a one-time
distribution of all of the Company’s assets (including $75,000 of the Loan) to
all of our shareholders other than Little; and (iv) amending the Company’s
Articles of Incorporation to increase the authorized capital in order to permit
the conversion of the Convertible Note. At a special shareholders’ meeting held
on February 8, 2006, Little’s proposal was approved, and the Convertible Note
was subsequently converted to 10,000,000 shares of the Company’s common stock.
As a result, Little became the Company’s majority shareholder with (at the time)
64.1% of the issued and outstanding shares.
50
At
a
special meeting held on October 18, 2006, the shareholders voted to approve
a
proposal to change the Company’s state of incorporation from Minnesota to
Nevada, and to authorize the Board of Directors to change the Company’s name
from “Applied Biometrics, Inc.” to such other name as the Board deemed
appropriate. In January 2007 the Company (still named Applied Biometrics) merged
with and into its wholly owned subsidiary, Jade Mountain Corporation (a Nevada
corporation), in order to effect a change of domicile from Minnesota to Nevada.
The Company’s name became Jade Mountain Corporation.
By
written consent of the holder of a majority of the outstanding shares of the
Company’s common stock, on June 5, 2007, the shareholders authorized a one (1)
for two hundred thousand (200,000) reverse stock split (with fractional shares
rounded up to the nearest whole number), which was effectuated on July 16,2007.
On
August31, 2007, the Company’s Board of Directors authorized an amendment to its
Articles of Incorporation to: (i) increase the number of its authorized shares
of Common Stock from 100,000,000 shares, par value $.0001 per share, to
10,000,000,000 shares, par value $.0001 per share (the “Authorized Share
Increase”); and (ii) forward split its issued and outstanding common stock on a
one hundred (100) shares for one (1) share basis (the “Forward Split”). Under
Nevada law, neither the Authorized Share Increase nor the Forward Split required
the approval of the Company’s shareholders.
Organizational
History of Innomind and Dalian Innomind
Innomind.
Innomind
Group Limited (“Innomind”) was incorporated under the laws of the British Virgin
Islands on November 17, 2006. Until the consummation of the Share Exchange,
Innomind’s sole shareholder was Zhang Ze, a citizen and resident of the People’s
Republic of China (the “PRC”). For more information about the Share Exchange,
please see the sections of this prospectus entitled “Prospectus Summary - The
Company, - Corporate History, - Share Exchange, Restructuring Agreements and
Private Placement Financing,” and “Business - Acquisition of Innomind and the
Business of RINO.”
Dalian
Innomind.
On
July3, 2007, Innomind incorporated Dalian Innomind Environment Engineering Co.,
Ltd.
(“Dalian Innomind”) under the laws of the PRC. All of Dalian Innomind’s
outstanding capital stock is held by Innomind, and by virtue of such ownership
Dalian Innomind is a “wholly foreign owned enterprise (“WFOE”) under PRC law.
Organizational
History of RINO
Dalian
Rino Engineering Science and Technology Co., Ltd. (“RINO”) was formed on March5, 2003, under PRC law. Its initial registered capital was RMB 7,000,000
(approximately US $922,327), which was increased to RMB 30,500,000
(approximately US $4,018,711) on April 18, 2006. RINO is owned by its two
founders, DejunZou (90%) and his wife, Qiu Jianping (10%). Since its founding,
RINO has been engaged in developing, marketing and selling its three principal
products: the Lamella Inclined Tube Settler Wastewater Treatment System (also
called the “Lamella Wastewater System”), the Circulating Fluidized Bed Flue Gas
Desulphurization System (also called the “Desulphurization System”), and the
High Temperature Hot Rolled Steel Anti-Oxidation System (also called the
“Anti-Oxidation System”).
Acquisition
of Innomind and the Business of RINO
On
October 5, 2007, Jade Mountain Corporation entered into a share exchange
agreement (the “Share Exchange Agreement”) and consummated a share exchange (the
“Share Exchange”) with Innomind and Zhang Ze (“Zhang”), an individual who is a
citizen and resident of the People’s Republic of China (the “PRC”) and who
immediately prior to the Share Exchange was the holder of all of the outstanding
capital stock of Innomind. Under the Share Exchange Agreement, we issued an
aggregate of 17,899,643 shares (the “Control Shares”) of our common stock to
Zhang in exchange for 100% of the issued and outstanding shares of Innomind’s
capital stock, all of which were owned by Zhang.
51
Simultaneously
with the consummation of the Share Exchange, Zhang transferred and conveyed
all
of the Control Shares (and all of his right, title and interest in and to the
Control Shares) to The Innomind Trust, a trust established under the laws of
and
domiciled in the British Virgin Islands, of which Zou Dejun and Qiu Jianping,
the founders and sole equity owners of RINO, are the sole
beneficiaries.
The
Control Shares represent 71.60 % of our total outstanding common
stock.
As
a
result of the consummation of the Share Exchange, Innomind became a wholly-owned
subsidiary of the Company, and Innomind’s wholly-owned subsidiary, Dalian
Innomind, became the Company’s indirect subsidiary.
The
acquisition of Innomind and Dalian Innomind on October 5, 2007 by Jade Mountain
Corporation effected a change in control and was accounted for as a “reverse
acquisition” whereby Innomind is the accounting acquirer for financial statement
purposes. Accordingly, for all periods and filings subsequent to the October5,2007“reverse acquisition” transaction, the historical financial statements of
the Company reflect the consolidated financial statements of Innomind since
its
inception and the operations of Jade Mountain subsequent to October 5,2007.
Restructuring
Agreements to Acquire RINO’s Operating Business
Dalian
Innomind is a wholly foreign-owned enterprise, or “WFOE,” under the laws of the
PRC
by
virtue of its status as a wholly-owned subsidiary of a non-PRC company,
Innomind. In
connection with the closing of the Share Exchange Agreement, Dalian Innomind
entered into and consummated a series of agreements (the “Restructuring
Agreements”), with RINO. Under the Restructuring Agreements, Dalian Innomind
agreed to: (i) purchase and lease substantially all of the assets of RINO;
and
(ii) assume control of the operations and management of RINO’s business in
exchange for a management fee equal to the business’s monthly net profits. As a
result, the business will be conducted by Dalian Innomind. To the extent that
any aspect of the business needs to be conducted by RINO in the future, the
Restructuring Agreements provide Dalian Innomind with the ability to control
RINO and any of its remaining assets and operations. We anticipate that RINO
will continue to be the contracting party under its customer contracts, bank
loans and certain other assets until such time as those may be transferred
to
Dalian Innomind.
While
the
acquisition of the assets and business of RINO through the Restructuring
Agreements was effective on October 5, 2007, not all of the transactions
contemplated by those agreements have been fully completed, and as a consequence
Dalaian Innomind has not yet assumed full operating control of the business.
Dalian Innomind has completed the PRC registered capital verification process
and obtained a new business license from the State Administration for Industry
and Commerce in Dalian, PRC, to reflect Dalian Innomind's status as an operating
company. Before gaining control of RINO, Dalian Innomind must (i) transfer
to
RINO the full purchase price for the assets to be purchased by it under the
Restructuring Agreements; (ii) obtain an environmental report for the assets
purchased from RINO. We anticipate these steps will be completed within
approximately 25 days after the date of this Prospectus,
at
which
time Dalian Innomind will assume full operating control of the Business.
As
a
result of the Restructuring Agreements, RINO became an indirectly controlled
affiliate of the Company.
The
following is a summary of the material terms of each of the Restructuring
Agreements.
·
Purchase
Agreement.
Under the purchase agreement between Dalian Innomind and RINO (the
"Purchase Agreement"), Dalian Innomind agreed to purchase from RINO:
(i)
substantially all of RINO's manufacturing equipment and tangible
assets
for RMB 2,250,343; and (ii) all of RINO’s three, presently owned patents,
and three presently pending patent applications, for an aggregate
transfer
fee of RMB 10,000. Additionally, under the Purchase Agreement, RINO:
(w)
will lease to Dalian Innomind substantially all of RINO’s manufacturing
plant and land at an annual rent of RMB 612,000; (x) with respect
to its
presently owned patents, will contemporaneously enter into a separate
transfer agreement with Dalian Innomind to accomplish their actual
transfer to Dalian Innomind; (y) with respect to its presently pending
patent applications, and in order to accomplish the actual transfer
of,
each such applied-for patent, will enter into additional patent transfer
contracts within ten days after the issuance of the patents; and
(z) has
granted to Dalian Innomind the royalty-free, perpetual right to use
the
“RINO” trademark and logo.
52
In
connection with these purchases and leases, under the Purchase Agreement,
RINO
has
agreed to transfer its employees and provide its supply and sales channels
to
Dalian
Innomind.
The
following ancillary agreements also were entered into in connection with the
Purchase Agreement:
·
Patent
Transfer Contract.
Under this contract between RINO, Qiu Jianping and Dalian Innomind,
Qiu
Jianping agreed to transfer and assign to Dalian Innomind the three
patents of which Qiu is the registered owner, for an assignment fee
of RMB
10,000. Qiu Jianping is in the process of commencing the patent transfer
process, which is estimated to take approximately 5 - 6 months to
complete. Prior to the effectiveness of the patent transfers, Dalian
Innomind (subject to RINO's right to use these patents) has the exclusive
legal right, royalty free, to use these
patents.
·
Trademark
Authorization.
In this instrument (the "Trademark Authorization"), RINO, as the
PRC
registered owner of the "RINO" trademark and logo, granted Dalian
Innomind
the right to use the same in perpetuity and free of any
royalties.
·
Entrusted
Management Agreement.
Pursuant to this entrusted management agreement among RINO, the RINO
shareholders and Dalian Innomind (the "Entrusted Management Agreement"),
RINO and its shareholders agreed to entrust the operations and management
of the Business to Dalian Innomind. Under the Entrusted Management
Agreement, Dalian Innomind will manage RINO’s operations and assets,
control all of RINO's cash flow through an entrusted bank account,
will be
entitled to RINO's net profits as a management fee, and will be obligated
to pay all RINO payables and loan payments. The Entrusted Management
Agreement will remain in effect until Dalian Innomind acquires all
of the
assets or equity of RINO (as more fully described below under “Exclusive
Option Agreement”). Prior to that acquisition, RINO will only own those
certain assets that have not been sold or leased to Dalian Innomind
pursuant to the Restructuring Agreements. We anticipate that RINO
will
continue to be the contracting party under its customer contracts,
banks
loans and certain other assets until such time as those may be transferred
to Dalian Innomind.
·
Shareholders’
Voting Proxy Agreement.
Under the shareholders' voting proxy agreement among the RINO shareholders
and Dalian Innomind, the RINO shareholders irrevocably and exclusively
appointed the members of Dalian Innomind’s board of directors as their
proxies to vote on all matters that require RINO shareholder approval.
·
Exclusive
Option Agreement.
Under the exclusive option agreement among Dalian Innomind, RINO
and the
RINO shareholders, the RINO shareholders have granted Dalian Innomind
an
irrevocable and exclusive purchase option (the “Option”) to acquire RINO’s
equity and/or remaining assets, but only to
the extent that the acquisition does not violate limitations imposed
by
PRC law on such transactions. Current PRC law does not specifically
provide for a non-PRC entity's equity to be used as consideration
for the
purchase of a PRC entity's assets or equity. Accordingly, the Option
is
exercisable when PRC law would allow foreign equity to be used as
consideration to acquire a PRC entity's equity interests and/or assets,
or
when the Company has sufficient funds to purchase RINO's equity or
remaining assets. The consideration for the exercise of the Option
is to
be determined by the parties and memorialized in future, definitive
agreements setting forth the kind and value of such consideration.
To the
extent the RINO shareholders receive any of such consideration, the
Option
requires them to transfer (and not retain) the same to RINO or Dalian
Innomind.
53
·
Share
Pledge Agreement.
Under the share pledge agreement among Dalian Innomind and the RINO
shareholders (the "Share Pledge Agreement"), the RINO shareholders
have
pledged all of their equity interests in RINO, including the proceeds
thereof, to guarantee all of Dalian Innomind's rights and benefits
under
the Restructuring Agreements. Prior to termination of the Share Pledge
Agreement, the pledged equity interests cannot be transferred without
Dalian Innomind's prior written
consent.
Overview
of the Business
This
section discusses the business that the Company acquired from of RINO in the
Share Exchange. We currently operate the business through RINO until the
completion of the transactions contemplated by the Restructuring Agreements.
While the Restructuring Agreements were entered into and closed on October5,2007, not all of the transactions contemplated by them have been fully
consummated and, consequently, Dalian Innomind has not yet assumed full
operational control of the business. We expect to accomplish the filings and
obtain the approvals and registrations necessary for Dalian Innomind to have
full operational and management control of the business within approximately
30
days after the date of this prospectus, however we cannot assure you that these
steps will be accomplished within such time period, or at all. Please see the
section of this prospectus entitled "Risk Factors - Risks Related to the
Restructuring Agreements, - We may not obtain all approvals required to operate
the business acquired pursuant to the Restructuring Agreements."
We
are an
industrial technology-based, PRC environmental protection and remediation
company. Our business consists of designing, manufacturing, installing and
servicing wastewater treatment and exhaust emission desulphurization equipment
principally for use in China’s iron and steel industry, and de-oxidation
products and equipment designed for use in the manufacture of hot rolled steel
plate products. All of our products are custom-built for specific project
installations, and we execute supply contracts during the design phase of our
projects. Our products are all designed to reduce either or both industrial
pollution and energy utilization, and comply with ISO 9001 Quality Management
System and ISO 14001 Environment Management System requirements, for which
RINO
received certificates in 2004.
Since
1978, the PRC has undergone a substantial economic transformation and rapid
economic growth, becoming the world’s fifth largest national economy, with the
world’s largest and most rapidly growing iron and steel market. Through its
continuous focus on nation-wide economic development, China’s overall industrial
pollution output has become a central issue for the national government, and
a
priority in the PRC’s eleventh five-year plan. For example, in 2006 China’s
industrial enterprises emitted 25.9 million tons of sulphur dioxide, the
principal cause of “acid-rain,” and the PRC has become
the world’s largest emitter of sulphur dioxide pollution. As a consequence of
this and other industrially-based environmental challenges, RINO’s customer base
- the Chinese iron and steel industry - faces governmental mandates to decrease
or eliminate water pollution and sulphur emissions, which are key applications
for our technologies.
54
Accordingly,
environmental protection and remediation is a relatively new industry in the
PRC. Nonetheless, like the Chinese economy, it is rapidly growing - with an
estimated, 2007 waste water remediation market of $226 million, and an
estimated, 2007 desulphurization market of $770 million. Further, the market
for
the Company’s products is highly regulated by the central PRC government, which
sets specific pollution output targets for industrial enterprises. For this
reason, we believe that the demand for our products is predictable, and will
follow the growth of the PRC’s iron and steel industry and government-mandated
pollution control standards that are being made more stringent annually.
We
also
believe that our revenue and profitability growth to date arises from these
same
factors. Gross revenues and net profit for 2005 were $3,637,717 and $270,999,
respectively, and expanded to $10,756,145 and $3,153,126 in 2006. For 2007,
we
forecast estimated gross revenues of approximately $58,000,000 and an estimated
net profit of approximately $17,800,000.
Principal
Products
We
have
three principal products and product lines: the “Lamella Inclined Tube Settler
Waste Water Treatment System,” the “Circulating, Fluidized Bed, Flue Gas
Desulphurization System,” and the “High Temperature Anti-Oxidation System for
Hot Rolled Steel.”
The
Lamella Inclined Tube Settler Wastewater Treatment System (the “Lamella
Wastewater System”) is a highly efficient, comprehensive industrial waste water
treatment system utilizing proprietary and patented technology developed solely
by RINO. The technology has received numerous regional and national design
awards, and has been successfully installed and used at some of the largest
steel mills in China, including Jinan Iron & Steel Group Co., Ltd., Benxi
Iron & Steel (Group) Co., Ltd., Handan Iron & Steel Group Co., Ltd.,
Tianjin Tiangang Group Co., Ltd., Shijiazhuang Iron & Steel Group Co., Ltd.,
Panzhihua Iron & Steel Group Co., Ltd., and Anyang Iron & Steel Group
Co., Ltd.
For
more
information about the Lamella Wastewater System technology, please see the
section of this prospectus entitled “Business, - Technology and Products.”
Circulating,
Fluidized Bed, Flue Gas Desulphurization System.
The
Circulating, Fluidized Bed, Flue Gas Desulphurization System (the
“Desulphurization System”) is a highly effective system to remove particulate
sulphur from sinter and flue gas emissions of steel mills, and the resulting
discharge from the system meets all relevant PRC air pollution standards.
The
Desulphurization System utilizes proprietary technology jointly developed by
RINO and the Chinese Academy of Sciences. On May 18, 2007, RINO acquired the
intellectual property rights to this technology (including the right to patent
the same) from the Chinese Academy of Sciences for RMB 1,000,000.
As
of
November 14, 2007: (i) the Desulphurization System was in the process of being
installed in three steel mills, with contract prices totaling approximately
$22
million; (ii) we executed a contract with Shengfeng Iron and Steel Co., Ltd.,
for a large Desulphurization System at a contract price of $5,642,143; and
(iii)
we executed a contract with Jinan Iron and Steel Co., Ltd., for Flue Gas
Desulphurization System accessories at a contract price of $1,307,190.
55
For
more
information about the Desulphurization System, please see the section of this
prospectus entitled “Business, - Technology and Products.”
High
Temperature Anti-Oxidation System for Hot Rolled Steel
The
Anti-Oxidation System is a set of products and a mechanized system, jointly
developed by RINO and the Chinese Academy of Sciences, to substantially reduce
oxidation-related output losses in the production of continuous cast, hot rolled
steel. The system operates at significantly higher product temperatures than
its
competitors, thereby increasing its general utility and its range of steel
product applications. In March, 2006, RINO acquired the technology from the
Chinese Academy of Sciences under an agreement that provides for the
co-ownership of the intellectual property rights to the formula for the
anti-oxidizing paint used in the system and to the spray system for applying
the
paint, co-ownership of any patents granted, and the transfer to RINO of all
commercialization rights.
As
of
November 15, 2007, the Anti-Oxidation System has been installed at Jinan Iron
& Steel Co., Ltd., and is being installed at Benxi Iron & Steel Co.,
Ltd., in China at an aggregate contract price of $1,947,000, and negotiations
are being held for: (i) three additional installations (Kunming Iron &
Steel, Wuhan Iron & Steel and Nanjing Iron & Steel) with an expected
aggregate contract price of $1,298,702; and (ii) supply of anti-oxidizing paint
(Jinan Iron & Steel Co., Ltd.) at a contract price of $156,416.
For
more
information about the Anti-Oxidation System, please see the section of this
prospectus entitled “Business - Technology and Products.”
Competitive
Advantages
We
believe that the Company’s products have a number of key, competitive advantages
that include:
·
The
Lamella Wastewater System, Desulphurization System and the Anti-Oxidation
System are all manufactured in the PRC, and, therefore, benefit from
favorable labor costs and industry incentives that afford us a significant
price advantage over our international
competitors.
·
Based
on available industry data for the PRC, we believe that the Company
presently is an industry leader in steel mill waste water decontamination,
with a present market share of approximately
10%.
·
The
China market for our products and technology (the iron and steel
industry)
is the fastest growing such market in the
world.
·
Our
technologies give the Company significant installation and operating
cost
advantages as compared to other suppliers of similarly-targeted
environmental protection and pollution control
equipment.
·
All
of our manufacturing facilities are ISO 9001 and ISO 14001 certified,
and
all of our products meet or exceed PRC and international quality
standards.
Additional
Line of Business
In
addition to the environmental remediation and protection systems above, in
late
2005 RINO began utilizing “down time” on its own, proprietary production
equipment by performing contract machining for third-party industrial
enterprises.
The
specialized heavy machinery and equipment that we use to produce our Lamella
Wastewater System, Desulphurization System and Anti-Oxidation System also
provides us with a substantial capacity to
undertake the machining of large, high-precision and advanced structures from
areas outside of northeast China. To this end, RINO established and the Company
maintains strategic cooperation relationships with Dalian Heavy Industry
(Zhonggong) and China First Heavy Industries with which we contract to provide
production time on our heavier machine tools, during “down time” on our own
production. Since 2005, such contract manufacturing business has provided the
Company with $3.24 million (or 22.48%) of its cumulative gross revenues and
$1.83 million (or 29.24%) of its cumulative gross profits.
56
The
Company expects that as sales of its own products increase, we will reduce
or
eliminate contracting the use of our machines and equipment to third parties.
Environmental
Challenges in the PRC
China
currently is in the midst of extraordinarily rapid economic growth and reform
that is closely tied to its pace of industrial development. In 2004, the PRC’s
total industrial output reached RMB 7,238.7 billion (US $934 billion). Since
1978, China’s real GDP has grown at an average rate of approximately 11.3% per
year, while its share of world trade has risen from less than 1% to almost
8% in
the same timeframe. Foreign trade growth has averaged nearly 15% over the same
period, or more than 2,700% in the aggregate.
Over the last decade the PRC has become a preferred destination for
direct foreign
investment, and in 2005 attracted $72.4 billion in foreign direct
investment,
according to the Chinese Ministry of Commerce. China also is competitive in
many
advanced
technologies and continues to be a preferred destination for the relocation
of
global manufacturing facilities in virtually every manufacturing sector. China
is now the fifth largest economy and the third largest trader in the
world.
With
the
PRC’s rapid industrial expansion has come its inevitable by-product:
industrially generated pollution of water, the air and the environment,
generally. It is estimated that approximately 80% of China’s environmental
pollution results from industry-produced solid waste, waste water and waste
gas
emissions. During the 1990’s the extent of and dangers posed by China’s
increasing levels of environmental pollution became widely perceived and
developed into a priority for the PRC’s central government. During the 2000-2005
period, China expended over $90 billion on environmental protection efforts.
For
the new, eleventh five-year plan (2006-2010), the PRC is expected to spend
approximately $193 billion on such efforts. The reduction or elimination of
waste water and airborne pollutants has become a key element in the country’s
next five year economic plan.
PRC
Markets for RINO’s Products and Technologies
Waste
Water Remediation.
China
is
a country that has limited water resources, with approximately 2,200 cubic
meters per person, or one-fourth the world average. Conservation through the
improvement of usage efficiency is the fundamental way to resolve this tension
between water supply and demand. China’s very high rate of industrial water
consumption (as compared to that of developed countries) offers great potential
for water conservation and re-usage programs. Our principal target market,
the
iron & steel industry, consumes large quantities of water by the nature of
the processes employed, and, therefore, has an inherent need to increase
efficiency and thereby reduce its usage costs, as well as reclamation costs
and
governmental penalties.
Today,
there are approximately 730 blast furnaces over 300 cubic meters in size
operating in China. Of these, 470 have already adopted wastewater treatment
facilities utilizing older, coal gas washing techniques, while 260 have no
wastewater treatment whatsoever. The average cost of equipment for wastewater
treatment of a blast furnace of this size is $2,000,000. Additionally, there
are
670 steel-making converters in China with a capacity of over 75 tons. 340 of
these converters have existing coal gas wastewater treatment equipment, while
330 converters have no wastewater treatment facilities whatsoever. The average
cost of equipment for a converter of this size is $1,700,000. The PRC government
has mandated that all blast furnaces and converters have wastewater treatment
facilities in place within five years. Accordingly, these mandates have created
a $216 million annual market for at least each of the next five years. The
following chart illustrates this demand level and values.
57
Available
Market - 11th Five Year Plan
Requirement
Blast
Furnaces
Converters
Total
730
670
Converted
470
340
Untreated
260
330
Avg.
Cost/unit
$
2,000,000
$
1,700,000
#/year
52
66
Annual
Market
$
104,000,000
$
112,200,000
5
Year Market
$
520,000,000
$
561,000,000
In
addition to the blast furnaces and converters with no wastewater treatment
facilities, we believe that there is a large replacement market potential for
those operations that utilize coal gas washing techniques. This is older
technology introduced by the former Soviet Union in the late 1970s and applied
in iron & steel industry in the 1980s. Compared with our proprietary Lamella
Wastewater System technology, coal gas washing has lower throughput capability,
a much larger footprint and involves large maintenance requirements and
expenses. Based on our market research with our end-use customers as well as
market investigation with other iron & steel foundries and mills, as
illustrated in the following chart, we believe there is a substantial need
to
replace this aging technology, thereby creating an additional $87,900,000 market
for blast furnace and converter retrofits.
Blast
Furnaces
Converters
Total
470
340
Avg.
Cost/unit
$
2,000,000
$
1,700,000
#/year
21
27
Annual
Market
$
42,000,000
$
45,900,000
58
The
following chart illustrates the Company’s forecasted, 10 year market for
wastewater treatment equipment in China, generally, and for our Lamella
Wastewater System, specifically.
Wastewater
market
water
#
of furnace
#
of converters
average
total
market
Year
million
mts
above
300cbm
above
50mts
#
of tanks
unit
price
Value
($
millions)
$
millions
2005
4,594
350
175
5,244
$
0.13
$
677
2006
4,667
356
180
5,328
$
0.13
$
687
2007
4,741
362
185
5,412
$
0.13
$
698
2008
4,804
368
189
5,484
$
0.13
$
708
2009
4,867
374
193
5,556
$
0.13
$
717
2010
4,920
380
197
5,616
$
0.13
$
725
2011
4,972
386
201
5,676
$
0.13
$
732
2012
5,025
391
205
5,736
$
0.13
$
740
2013
5,077
396
209
5,796
$
0.13
$
748
2014
5,130
401
213
5,856
$
0.13
$
756
2015
5,182
406
217
5,916
$
0.13
$
763
RINO
market share
capacity
%
of total
water
total
#
new
#
annually
revenue
penetrated
Year
million
mts
of
tanks
of
tanks
unit
price
revenue
accumulated
market
($
millions)
($
millions)
($
millions)
2005
103
118
24
$
0.15
$
3.61
$
3.61
0.53
%
2006
149
170
52
$
0.13
$
6.58
$
10.19
1.48
%
2007
223
254
84
$
0.13
$
10.84
$
21.03
3.01
%
2008
300
342
88
$
0.13
$
11.35
$
32.39
4.58
%
2009
405
462
120
$
0.13
$
15.48
$
47.87
6.68
%
2010
510
582
120
$
0.13
$
15.48
$
63.35
8.74
%
2011
601
686
104
$
0.13
$
13.42
$
76.77
10.48
%
2012
676
772
86
$
0.13
$
11.10
$
87.87
11.87
%
2013
752
858
86
$
0.13
$
11.10
$
98.97
13.23
%
2014
827
944
86
$
0.13
$
11.10
$
110.06
14.57
%
2015
902
1,030
86
$
0.13
$
11.10
$
121.16
15.87
%
Desulphurization
Technology.
In
China,
the main cause of airborne pollution is sulfur dioxide emissions from coal.
According
to joint research by the Chinese Institute of Environmental Science and Xinghua
University,
sulphur
dioxide-caused acid rain annually costs China over $13.3 billion in various
losses, and atmospheric pollution results in an annual loss equivalent to two
or
three percent of China's GDP.
In
2005,
the Chinese iron & steel industry discharged 1.24 million metric tons of
sulphur dioxide into the atmosphere. Decades of lightly monitored growth in
this
industry sector, with little or no consequences attached to sulphur dioxide
emissions, combined with mandatory, industry-wide sulphur dioxide reductions
over the next five years, presents the industry with a pressing need to
remediate these emissions from iron & steel sinters.
Over
the
next five years, coal-fired sinters and other like furnace operations must
install desulphurization facilities or face stiff, monthly penalties or,
possibly, shut down their operations. We believe that, because our
Desulphurization System is the only sinter process equipment that is
specifically designed for flue gas desulphurization applications that are larger
than 90 square meters - the standard size for sinter operations in the PRC
iron
& steel industry - the Company has a substantial competitive advantage over
its international competitors.
Today,
there are more than 165 coal fired sinter processes in China without flue gas
desulphurization equipment (and this number is expected to rise to over 200
by
2010). As illustrated by the following chart, over the next five years, this
translates into a cumulative market for our desulphurization technology of
over
$267 million. We plan to penetrate this market aggressively by marketing the
Desulphurization System as a turn-key solution for the China iron & steel
industry’s sulphur dioxide emissions problems.
59
De-sulphurization
total
market size - RINO
RINO
market share
#
of sinter
average
price of
total
market
#
of sinter
Equip.
Annuall
Accumulated
%
of total
above
Equipment
Value
above
avg
price of
revenue
revenue
penetrated
Year
90sqm
($
millions)
$
millions
90sqm
($
millions)
($
millions)
($
millions)
market
2005
142
$
7.74
$
1,099
0.00
%
2006
154
$
7.74
$
1,192
0.00
%
2007
165
$
7.74
$
1,277
8
$
7.74
$
61.94
$
61.94
4.85
%
2008
176
$
7.74
$
1,363
8
$
7.10
$
56.77
$
118.71
8.71
%
2009
187
$
7.74
$
1,448
8
$
7.10
$
56.77
$
175.48
12.12
%
2010
198
$
7.74
$
1,533
7
$
7.10
$
49.68
$
225.16
14.69
%
2011
209
$
7.74
$
1,618
6
$
7.10
$
42.58
$
267.74
16.55
%
2012
220
$
7.74
$
1,703
6
$
7.10
$
42.58
$
310.32
18.22
%
2013
231
$
7.74
$
1,788
6
$
7.10
$
42.58
$
352.90
19.73
%
2014
242
$
7.74
$
1,874
6
$
7.10
$
42.58
$
395.48
21.11
%
2015
253
$
7.74
$
1,959
6
$
7.10
$
42.58
$
438.06
22.36
%
To
date,
one ofour
Desulphurization Systems has been installed at Jinan Iron & Steel Co., and 6
other PRC steel mills, contracted-for systems are being manufactured for
installation in the fourth quarter of 2007 at Jinan Iron & Steel and
Panzhihua Iron & Steel, a contract has been entered into for a large-scale
Desulphurization System at Shengfeng Iron & Steel, a $1,307,190 contract has
been entered into for desulphurization accessories at Jinan Iron & Steel,
and the commercial terms for contracts with Handan Iron & Steel, Chongqing
Iron & Steel and Kunming Iron & Steel are in the process of being
negotiated.
Anti-Oxidation
Technology.
The
oxidation of hot rolled steel results, on average, in the loss of 3% of finished
product. Although a number of U.S. and European anti-oxidation systems are
available internationally, the high costs of the paints and coatings they use,
as well as their ineffectiveness at high temperatures, have limited their
application and utility to low temperature, specialty steel products. The
suppliers of these anti oxidation systems include America Advanced Technical
Products, ATP Metallurgical, Duffy, Condursal, and Berktekt. Because of the
high
cost of usage, these paint/coating systems are all applied on only specialty
steel and additionally, have limitations of low temperature application - they
cannot be used on-line.
Importantly,
the temperature range limitations of these systems prevent them from being
used
“on-line” in the high temperature ranges of hot rolled steel products, which
historically account for over 90% of the PRC’s crude steel production. China is
expected to produce approximately 460 million tons of steel in 2007, of which
the expected output of hot rolled steel is forecasted at 438 million tons.
On
this basis, it can be expected that, if not treated, China will lose
approximately 13.1 million tons from its forecasted 2007 hot rolled steel
production - a volume that is equal to a large steel producer’s output of an
entire year. Unlike its international competition, the our Anti-Oxidation System
is specifically designed to embody less costly paint and to operate effectively
at temperatures ranging from 600° - 1,000° C - the environment of hot rolled
steel plate. Based on the confirmed results of the installation of our
de-oxidation equipment and technology at Jinan Iron & Steel in 2007, we
believe that the Anti-Oxidation System will reduce hot rolled steel oxidation
loss by a minimum of 60%. This would result in a potential increase of 7.9
million tons of China’s projected 2007 output, and commensurate savings in coal
(6.3 million tons) and water (79 million tons) consumption for processing and
throughput.
As
shown
in the following table, using the PRC hot rolled steel forecast for 2007 as
a
benchmark, we estimate that the full application of the Anti-Oxidation System
to
that projected production output would result in approximately $551,880,000
in
water and cost savings per year.
60
2007
Anit-oxidation Savings
Calculation
Hot
Rolled Steel Output - tons
438,000,000
Avg.
Oxidation rate
3
%
13,140,000
tons
RINO
System Efficiency
60
%
7,884,000
tons
H2O
and Coal Cost/ton
$
70
Savings/year
$
551,880,000
With
these factors in mind, we believe that our Anti-Oxidation System can achieve
a
significant degree of penetration in the PRC market, as it addresses a domestic
production need which is beyond the applicability of presently available U.S.
and European technologies and systems. The following tables illustrate our
projected, multi-year scope of the Chinese market and the revenues that we
project from PRC sales.
Our
core
product, the “Lamella Wastewater System,” is a highly efficient wastewater
treatment system that incorporates our proprietary and patented ‘Lamella
Inclined Tube Settler’ technology. We
believe that the System is among the most technologically advanced wastewater
treatment systems presently in use in China’s iron and steel industry. It
includes industrial water treatment equipment, complete sets of
effluent-condensing equipment, highly efficient solid and liquid abstraction
dewatering equipment and coal gas dust removal and cleaning equipment. The
Lamella Wastewater System has been successfully installed in some of the largest
steel mills in the PRC which include, but are not limited to, installations
at
Jinan
Iron and Steel Group, Co., Ltd.; Benxi Iron & Steel (Group) Co., Ltd.;
Handan Iron & Steel Group Co. Ltd.; Tianjin Tiangang Group Co. Ltd.;
Shijiazhuang Iron & Steel Group Co., Ltd.; Panzhihua Iron & Steel Group
Co. Ltd.; and Anyang Iron & Steel Group Co. Ltd.
61
Our
combination of proprietary system design and patented technology allows
wastewater to flow through the system in layers while at the same time settling
particulate matter without disturbing the water flow. Operating results of
the
above, Lamella Wastewater System installations, show that our technology
improves the stability of the settling deposition, increases the available
settling area, shortens the settling distance for waste particles, reduces
the
settling time, and results in particle removal efficiency rates of up to 99%.
After treatment with our technology and system, coal gas wastewater and
wastewater containing iron mineral powder can be reused and returned to the
production process without further treatment. This lowers the overall use of
industrial water for the enterprises utilizing our technology, reduces the
output of solid industrial waste, and improves the efficient use of
resources.
Compared
with alternative inclined plate technology, the Lamella Wastewater System has
several important advantages as shown in the following table:
Normal
Inclined Plate Settling Pool
Lamella
Inclined Tube Settler
Water
power staying time 30 min, surface load 3m3/m2·h, small volume, small
space use coefficient, short waterpower process (with short current
in
winter).
Water
power staying time 45 min with surface load 8m3/㎡·h,
large use coefficient, long water power process.
First
settling, is not fit for a wide range wave of floats, affected by
the
stability and effect of the water outlet
Tertiary
settling (with sludge abstraction collection system in every layer)
anti-pump load, no interference between water inlet and sludge outlet,
water outlet stable.
Water
inlet float content: SS3000 ~ 5000mg/L,
water outlet float content: SS100 ~
200
mg/L, low treatment efficiency.
Water
inlet float content: SS3000 ~
16000mg/L
water outlet float content: SS50 ~ 80
mg/L, high treatment efficiency.
Inclined
plate, inclining angle 60 degree, small settling deposition
area.
Inclined
plate, inclined tube inclining angle 450,
results show that the smaller the inclining angle of the inclined
tube or
plate, the smaller the settling particles removed, the higher settling
efficiency for removal of particulate matter.
Adopt
glass steel and compound Nylon Ether ketone, easy to age degrade
and
become clogged with sludge, needs to be changed often, has high operation
and maintenance costs.
Compound
new material plate, PP inner Surface Coating, resistant corrosion,
smooth
and clean surface, minimal sludge collection.
Small
sludge abstraction area, bad sludge water abstraction efficiency,
short
life cycle of the sludge outlet, high and unstable water content
of
sludge, adds difficulty to the next sludge treatment
process.
With
sludge water abstraction area and dust collection transmission device,
long sludge outlet circle, special sludge disposal equipment sludge
outlet, lower water content of sludge, convenient for new process
to
recycle.
The
low carbon steel structures - such as pool surface frame - exposed
to
humidity and high temperature, easily corrode, which greatly reduces
the
life of equipment.
Lamella
Inclined Tube Settler system is enclosed, the high humidity of the
tank
will not cause corrosion of the equipment.
Occupies
large area - large footprint, strict requirement for
placement.
Occupying
small area - small footprint - equipment can save over 30% area to
treat
same amount of water and is flexible for installation.
Complicated
system technique, a lot of equipment configuration, a lot of maintenance,
not convenient to use with automated control, often creates secondary
pollution.
Short
technical process, simple equipment, low failure rate - high MTBF,
easy
maintenance, highly automated, low operational cost, closed-end
circulating treatment, without secondary
pollution.
62
Circulating,
Fluidized Bed, Flue Gas Desulphurization System.
Our
Desulphurization System is a joint development of RINO and the Research
Institute of the Chinese Academy of Sciences (originally the Chemical Metallurgy
Research Institute of Chinese Academy of Sciences). The Desulphurization System
is new proprietary technology consisting of a desulphurization agent inlet
system, circulating fluidized bed desulphurization reactor, dust removal system,
desulphurization dust removal treatment system, desulphurization wind pump
system, monitoring system, electrical control system, and smoke flue
system.
Our
Desulphurization System effectively treats the sulphur dioxide emitted from
iron
and steel industry sintering (a process in which sulphur and other impurities
are removed from iron ore by heating, without melting, pulverized iron ore).
The
flue gasses that result from sintering contain sulphur dioxide which reacts
with
atmospheric water and oxygen to produce sulphuric acid that precipitates as
“acid rain.”
The
discharge that results from our Desulphurization System meets all applicable
air
pollution standards.
The
Desulphurization System technology has significant technical advantages as
compared with other desulphurization techniques:
·
The
system overcomes surface contamination and sludge
buildup.
·
The
system allows desulphurization reagents to stay freshly active for
up
to
30 minutes, enabling the ratio of limestone reaction to reach
99%.
·
The
system produces high desulphurization rates. For coal with a high
(i.e.,
6%)
sulphur content, desulphurization rates can reach
92%.
63
·
Infrastructure
investment is relatively low, the equipment’s footprint is relatively
small, and specially trained personnel are not needed to operate
and
maintain the equipment. In sum:
·
Lower
installation costs
·
Less
floor space - small footprint
·
Heavy
duty construction
·
Automated
process control
Although
RINO had concentrated, and the Company will continue to concentrate, its
marketing and sales efforts for this system in the PRC iron and steel industry,
the technology also can be more widely used in fields such as metallurgy,
electrical power generation, rubbish treatment, and others. Targeted for
2008-2009, we plan to expand our sales and marketing to such additional
applications both in the PRC and internationally.
High
Temperature Anti-Oxidation System for Hot Rolled Steel.
The
Company’s Anti-Oxidation System is a high temperature de-oxidation system for
hot rolled steel, and a joint development of RINO and the Research Institute
of
the Chinese Academy of Sciences (originally the Chemical Metallurgy Research
Institute of Chinese Academy of Sciences). This is a new, high temperature
plate
casting anti-oxidation technology which is proprietary to the Company and
patented. We believe that in design and technology the Anti-Oxidation System
is
the only anti-oxidation process available for the iron and steel industry (both
in the PRC and internationally) that can be applied in high temperature
environments, and is a unique solution to the loss of production output due
to
high-temperature oxidation, which is a long-standing problem in the world-wide
iron and steel industry.
In
the
process of continuous cast, hot rolled steel, oxidation loss ranges from 2%
-5%
on average. This translates into a loss of production output or throughput
of
2%-5%. The phenomenon of oxidation in high-temperature steel production results
in the waste of resources including water and energy, and additionally results
in pollution. In the United States, Japan, and Europe, technology has been
developed to ameliorate this problem, but the cost of the paint used in the
process and the inability of the equipment to be utilized in high temperature
environments limits its application to specialty steel products such as
stainless steel, and silicon and carbide steel products. Because our
Anti-Oxidation System is specifically designed to work effectively with the
high
temperature, hot rolled steel that comprises approximately 90% of the PRC’s
steel production and 90% of world-wide production, our technology has a far
broader market both in China and internationally than is the case for competing
systems and technologies.
The
paint
developed by RINO for use with the anti-oxidation equipment can be produced
at
relatively low cost, is usable in high temperature environments and is easily
applied in a uniform manner. That paint can be directly sprayed onto hot steel
slabs at temperatures of 600°-1000° C, thereby saving the increased costs and
energy utilization that all other anti-oxidation equipment entails.
64
Our
Anti-Oxidation System has been installed, tested and accepted by Jinan Iron
& Steel Group Co., a major PRC steel manufacturer. The installation results
show that the paint system fully conforms to the hot rolling mill environment,
effectively reduces oxidation loss by 60%, saves energy, and increases
production throughput.
Raw
Materials Supply
For
our
principal raw materials, the Company presently has eleven PRC suppliers of
the
steel and steel products we use in manufacturing our wastewater,
desulphurization and de-oxidation systems, of which five account for
approximately 77% of our steel purchases. We purchase approximately 87% of
our
paints, cuttings and welding rods from two PRC suppliers, and rely on one
supplier, Sichuan Huipusheng Industry Co., for our power supply cabinets. All
of
our providers of raw materials are carefully selected and qualified with respect
to reputation, solvency, product quality and production capacity.
The
following chart shows the Company’s principal materials suppliers:
Material
Supplier
%
Supplied
Steels
Handan
Xinteer Material & Energy-Saving Co., Ltd.
21.82
%
Handan
Xindonglin Material & Trading Co., Ltd.
31.06
%
Dalian
Kaisheng Economic & Trading Co., Ltd.
5.87
%
Dalian
Yuande Material & Trading Co., Ltd.
2.71
%
Handan
Yingyi Economic & Trading Co., Ltd.
6.12
%
Jinan
Iron & Steel Co., Ltd.
14.85
%
Laiwu
Sanxing Material Co., Ltd.
4.76
%
Handan
Huifeng Iron Co., Ltd.
2.61
%
Dalian
Huayi Iron & Steel Co., Ltd.
5.02
%
Shandong
Qinghai Board Co., Ltd.
1.35
%
Shandong
Fuxin Iron & Steel Co., Ltd.
2.00
%
Power
Supply Cabinets
Sichuan
Huipusheng Industry Co., Ltd.
100.00
%
Paints,
cuttings & Welding
rods
Dalian
Kaisheng Economic & Trading Co., Ltd.
34.75
%
Dalian
Yuande Material & Trading Co., Ltd.
52.63
%
Intellectual
Property
Waste
Water Treatment Technology.
We
have
three Chinese National patents for this product line in place currently. The
patent numbers are: ZL 98 2 16778.4, ZL 03 211913.5 & ZL 03
111178.5.
Anti-Oxidation
Technology.
We
have
two International invention patents (Patent # 1 PCT/CN2007/000339 & Patent #
2 PCT/CN2007/00568) in process and have applied for a 3rd
International Patent.
Desulphurization
Technology.
We
are in
the process of doing a prior art search that will determine if we can apply
for
patents in China or Internationally. If there is no prior art or existing
patents, we will apply for both a PRC and International Patent.
65
Jurisdiction
Project
description
Patent
No.
Patent
type
Authorization
China
Lamella
Inclined Tube Settler
ZL98216778.4
Practical
new
Granted
China
Sludge
disposal equipment
ZL03211913.5
Practical
new
Granted
China
Sewage
comprehensive treatment system and method
ZL03111178.5
Invention
patent
Granted
PCT
International
One
of the steel anti-oxidation paints and anti-oxidation
method
PCT/CN2007/000339
Invention
patent
Pending
PCT
International
Inorganic
compound bond for heat-resistant coat
PCT/CN2007/000568
Invention
patent
Pending
PCT
International
Dynamic
process steel slab high temperature anti-oxidation painting technique
and
equipment
Invention
patent
Applied
International
patent applications are administered under the Patent Cooperation Treaty (the
“PCT”). A PCT application covers all of the PCT member countries, which include
most major industrialized countries. As of November 13, 2007, there were 137
member countries. The PRC became a member of the PCT in 1994.
There
are
two phases in a PCT application. The first phase is the International Phase.
Under this Phase, an applicant like the Company can file an application using
Chinese language in the PRC. Then it will have one year to claim the priority
of
its PRC filing date in other member countries. The main benefit of filing under
the PCT instead of directly in the member countries is to allow an applicant
to
delay the “National Phase” filing in the member countries up to 30 months from
the initial filing, which is 18 months more than the applicant would normally
have when filing directly in foreign countries. During this International Phase,
the applicant can gather more market information and have more time to make
decisions about where to file patent applications. At the end of the
International Phase period, it will enter the National Phase by filing national
applications in each country in which the applicant desires a patent. The
Trade-Related Aspects of Intellectual Property Rights (the “TRIPS”) determine
the term of a patent applied under the PCT in the member countries.
Trademark
and Logo.
The
“RINO” trademark and associated logo are both registered by RINO in the PRC.
Their perpetual, royalty-free use by Dalian Innomind is authorized as part
of
the Restructuring Agreements.
Other
Intellectual Property Rights Protections in the PRC.
In
addition to patent protection law in the PRC, we also rely on contractual
confidentiality provisions to protect its intellectual property rights and
its
brand. The Company’s research and development personnel and executive officers
are subject to confidentiality agreements to keep our proprietary information
confidential. In addition, they are subject to a three-year covenant not to
compete following the termination of employment with our Company. Further,
they
agree that any work product belongs to our Company.
66
Customers
Historical.
The
Company depends for its revenues on orders from a limited number of principal
customers. Sales to our six largest customers accounted for approximately 90%
and 88% of gross sales during the years ended December 31, 2006 and 2005,
respectively.
As
of
November 13, 2007, we have an aggregate of $6,860,000 of Lamella Wastewater
System contracts in progress. We
cannot
assure you that any of these contracts will be fully performed or completed,
or
that if completed, any of them will be fully paid.
users
applications
#
of tanks
Jinan
Iron & Steel Group Ltd.
coking
factory
2
furnace
24
converter
8
converter
12
furnace
10
furnace
12
converter
24
Benxi
Iron & Steel (Group) Co
converter
20
converter
14
Handan
Iron & Steel Group Co. Ltd.
converter
10
Tianjin
Tiangang Group Co. Ltd
furnace
10
Shijiazhuang
Iron & Steel Group Co., Ltd.
converter
8
Panzhihua
Iron & Steel Group Co. Ltd.
converter
14
Anyang
Iron & Steel Group Co. Ltd.
sintering
2
Total
170
On
May30, 2007, RINO successfully completed the initial installation and trial of
its
Desulphurization System for the 120m2
sintering
process at Jinan Iron & Steel Group Ltd. As of November 14, 2007, we have
installed our Desulphurization System at 7 steel mills, and have outstanding
contracts with Jinan Iron & Steel Co., Ltd., Panzhihua Iron & Steel Co.,
Ltd., Shengfeng Iron & Steel, and Jinming Co. for our Desulphurization
System, representing an aggregate contract price of approximately $28,532,000.
We cannot assure you that any of these contracts will be fully performed or
completed, or that if completed, any of them will be fully paid.
In
January and February, 2007, RINO executed two contracts with Jinan Iron &
Steel Co., Ltd., for the manufacture and installation of our Anti-Oxidation
System at an aggregate contract price of approximately $1,103,000. These
contracts were largely installed by the end of October, 2007.
In
addition, the Company presently is completing the contracting process for three
Desulphurization System installations and three Anti-Oxidation System
installations representing in the aggregate approximately $52 million in
projected sales. These contracts are expected to be executed by December 31,2007. However, we cannot assure you that any of these contracts will be
successfully negotiated, executed or performed.
67
Given
the
cost of our Lamella Wastewater System, Desulphurization System and
Anti-Oxidation System products, we believe that for the foreseeable future
the
Company will continue to rely on large customers for a substantial portion
of
its gross revenues. There are approximately 34 iron and steel companies in
the
PRC of a size and with annual production levels that make our products feasible
for sale and installation. In order to expand our sales, the Company will have
to capture increasing numbers of these potential customers for primary product
sales, and aggressively cross-sell our products to each customer. We cannot
assure you that these and similar efforts will be successful.
Competition
Lamella
Wastewater System.
Prior
to
RINO’s introduction of its Lamella Wastewater System, the typical industrial
wastewater treatment technology used in China relied on an inclined “plate
settling pool” process. Such systems continue to be generally available in the
PRC, and a substantial portion of them are self-installed by iron and steel
companies. The Lamella Wastewater System’s advanced technology results in the
following competitive advantages: lower installation cost; lower usage costs;
increased throughput; smaller equipment footprint; and lower ongoing maintenance
costs. We know of no comparable technology presently available in China, and
we
will emphasize the foregoing cost and efficiency advantages as we compete for
customers.
Desulphurization
System.
In
the
PRC the sulphur dioxide (a critical precursor to “acid rain”) emitted in flue
gases from the
sintering of iron during steel-making, is a major component of the environmental
pollution that has followed China’s industrial expansion. Sintering is a step in
steel-making, in which sulphur and other impurities are removed from raw iron
by
heating (without melting) pulverized iron ore. Removing the sulphur dioxide
from
a steel mill’s hot flue gas emissions is, therefore, a principal way of
controlling acid rain.
Presently
in China, major companies engaged in the desulphurization equipment market
include: Beijing Guodian Longyuan Environmental Company, Zhejiang Feida Company,
Fujian Longjing Environmental Company, Wuhan Kaidi Electric Power Company,
Jiulong Electric Power Company, and Qinghua Tongfang Company. These companies
have little or no production and installation experience in the iron and steel
industry, and do not design or manufacture equipment that is applicable to
sintering processes. We are the first company to design, manufacture and
complete an iron and steel sinter machine desulphurization installation in
the
PRC. Accordingly, we do not expect to have any direct competitors in this sector
for approximately 2-3 years - the minimum time necessary for potential
competitors to complete product development.
Anti-Oxidation
System.
We
believe that the Company’s Anti-Oxidation System is unique and virtually without
competition in the China market. We know of no entity other than the Company
that is engaged in developing or supplying anti-oxidation technology that can
operate on-line at the high temperatures (600° - 1,000° C) involved in hot
rolled steel production - which represents 90% of China’s steel output. A number
of anti-oxidation technologies are available internationally from suppliers
that
include: Advanced Technical Products Company, ATP Metallurgical Coatings, Duffy
Company, Condursal and Berktekt. However, the high costs of the anti-oxidizing
paints these technologies rely on, and most especially their ineffectiveness
at
high temperatures, have limited their market to specialty steels, and have
made
them ill-suited to China’s iron and steel industry.
68
Research
and Development; Growth Strategy
In
2006,
RINO expended approximately $65,359 for product research and development. The
Company’s continuing research and development program is linked to our growth
strategy directed towards 2009 and several years thereafter, during which time
we will develop export markets for our products in the United States and Western
Europe and seek to develop new applications for our products suited to and
targeted at these new, international markets.
Accordingly,
during the next three years the Company expects to invest
approximately:
·
$490,000
in developing new applications of the Lamella Wastewater System technology
for non-ferrous, chemical, urban and coking wastewater
remediation;
·
$2.38
million in developing applications of the Desulphurization System
technology for flue gas emissions in the chemical and non-ferrous
metal
industries; and
·
$1.83
million in adapting the Anti-Oxidation System technology to the production
of specialty products, including silicon steel and steel alloys,
that
account for large portions of U.S. and European steel output and
with
respect to which our product’s low cost structure and high-temperature
capabilities will give the Company a significant competitive
advantage.
In
conducting our research and development, the Company expects to continue its
collaborative relationship with the Chinese Academy of Science, and also
collaborate with Dalian Technology University.
DESCRIPTION
OF PROPERTIES
Principal
Office and Manufacturing Facilities
The
Company’s principal office and its manufacturing facilities are located in the
Jinzhou Industry Cooperation Zone of Dalian, PRC. In 2003 RINO acquired from
the
government the right to use 287,117 square feet of land in the Jinzhou Industry
Cooperation Zone for a 50 year period that expires in 2053 (the “Land Use
Rights”). Instead of periodic rent, RINO paid a one-time fee of $580,203 for the
Land Use Rights.
Of
the
area leased by us, our factory occupies 91,570 square feet, and office space,
warehouse facilities and living quarters comprise 90,148 square feet.
Dalian
Facilities
Our
Dalian facilities have a staff of 270 managerial, technical, clerical and
manufacturing employees, who cover the Company’s national operations,
generally.
Branch
Offices
In
addition to the head office in Dalian, the Company leases branch offices in
Lanzhou, Beijing, Chongqing, Wuhan and Nanchang. Each branch office covers
and
is responsible for the Company’s operations in a specific territory in
China:
Management
believes that it will be able to renew these leases.
Legal
Proceedings
Neither
we nor any of our subsidiaries is a party to any pending legal proceedings,
nor
are we aware of any such proceedings threatened against us or our subsidiaries.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information with respect to the beneficial
ownership of our common stock as of August 3, 2007 by (i) any person or group
with more than 5% of our voting securities, (ii) each director, (iii) each
executive officer and (iv) all executive officers and directors as a group.
As
of
November 14, 2007, we had 25,000,000 shares of common stock outstanding. In
determining the percent of common stock owned by a stockholder on November14,2007, (a) the numerator is the number of shares of common stock beneficially
owned by such stockholder, including shares the beneficial ownership of which
may be acquired, within 60 days upon the conversion of convertible securities
or
the exercise of warrants held by such stockholder, and (b) the denominator
is
the sum of (i) 25,000,000, the number of shares outstanding on November 14,2007, and (ii) the total number of shares underlying the convertible securities
and warrants, which each of the stockholders has the right to acquire within
60
days following November 14, 2007.
Unless
otherwise stated, each beneficial owner has sole power to vote and dispose
of
the shares and the address of such person is c/o the Company, at 11 Youquan
Road, Zhanqian Street, Jinzhou District, Dalian, People’s Republic of China
116100.
All
Directors and Officers of the Company as a group (3 people)
17,899,643
70.51
%
(1)
17,899,643 shares of our common stock are owned of record by The Innomind Trust,
a British Virgin Islands trust, of which Zou Dejun, the Company’s Chief
Executive Officer, is the beneficiary of 16,109,679 shares (the “Zou
Shares”),
and
Qiu Jianping, the Company’s Chairman of the Board, is the beneficiary of
1,789,964 shares (the “Qiu Shares”). Each retains voting and investment power
over his/her respective shares. Mr. Zou and Ms. Qiu are married. Mr. Zou
disclaims beneficial ownership of the Qiu Shares, and Ms. Qiu disclaims
beneficial ownership of the Zou Shares.
70
(2)
As a
closing condition to the private placement completed on October 5, 2007, Zou
Dejun and Qiu Jianping agreed to place in escrow for the benefit of the private
placement investors 5,580,000 shares of common stock, some or all of which
is
distributable to the investors in the event the Company fails to attain
specified financial performance milestones. See the section of this prospectus
entitled “Selling Stockholders, — Securities
Purchase Agreement, — Delivery
of up to
5,580,000 Additional Shares of Common Stock from Escrow Based on After-Tax
Net
Income.”
(3)
Chairman of the Board is, in the Company, an executive office and not a
directorship.
DIRECTORS
AND EXECUTIVE OFFICERS
Directors
and Executive Officers of Jade Mountain Corporation
The
directors and executive officers of Jade Mountain as of the date of this
prospectus are as follows:
Name
Position
Age
Zou
Dejun
Director
and CEO
46
Qiu
Jianping
Chairman
of the Board (1)
39
Bruce
Richardson
CFO
and Secretary
49
(1)
In
the Company, Chairman of the Board is an executive office, not a directorship.
The
directors will serve until our next annual meeting, or until their successors
are duly elected and qualified. The officers serve at the pleasure of the
Board.
On
October 5, 2007, in connection with the Share Exchange, Glenn A. Little tendered
his resignation as (i) a director of the Company, effective 10 days after our
Information Statement on Schedule 14 f-1, relating to a change in control of
the
Board, was first mailed to our stockholders. That Information Statement was
so
mailed on October 24, 2007. Mr. Little’s resignation as an executive officer of
the Company was effective on October 5, 2007.
None
of
our directors is an “independent director” under the Rules of NASDAQ,
Marketplace Rule 4200(a)(15). Under the terms of the Securities Purchase
Agreement entered into as of September 27, 2007, with certain of the selling
stockholders, we are required, prior to February 2, 2008, increase our Board
of
Directors to not less than 5 members, a majority of whom must be “independent
directors” as defined in NASDAQ Marketplace Rule 4200(a)(15). Until this
covenant is complied with, we are required to hold $1,000,000 in escrow. If
for
any reason or no reason the escrow agent does not receive requisite written
notice from the investor representatives as to releasing this sum from escrow
within 65 days after the private placement closing, we are required to pay
liquidated damages of $244,353 per month (or partial month) until the default
is
cured.
Directors
and Executive Officers of Dalian Innomind
Dalian
Innomind’s directors and executive officers as of the date of this prospectus
are as follows:
Name
Position
Age
Zou
Dejun
Director
and Chief Executive Officer
46
Qiu
Jianping
Director
and Chairman of the Board
39
Zhang
Ze
Director
25
Bruce
Richardson
Chief
Financial Officer & Secretary
49
Jinyang
Huang
Vice
President
53
Xiaoyong
Yuan
Vice
President - Sales & Marketing
49
Wansheng
Li
Chief
Technology Officer
34
Zhangqing
Yang
Vice
President - Project Management
51
71
All
of
Dalian Innomind’s directors hold offices until the next annual meeting of the
shareholders, and until their successors have been qualified after being elected
or appointed. Officers serve at the discretion of the Board of
Directors.
Directors
and Executive Officers of RINO
RINO’s
directors and executive officers as of the date of this prospectus are as
follows:
Mr.
Zou Dejun
is the
founder of RINO and has been a Director and its Chief Executive Officer since
2003. He is also a Director and the Chief Executive Officer of the Company
and
of Dalian Innomind. Prior to founding RINO, from 1993 until 1996 Mr. Zou served
as Vice President of Yinkou Special Valve Manufacturing Co., and from 1996
until
2003 he served as the chief executive officer of Dalian Yingkun Energy and
Environmental Engineering, Ltd. Mr. Zou graduated from Liaoning Broadcast
University, majoring in Electronic Automation.
Ms.
Qiu Jianping
has been
a Director and Chairman of the Board of RINO since 2003. Ms. Qiu is also the
Chairman of the Board of the Company and a Director and Chairman of the Board
of
Dalian Innomind. From 1988 to 1994, Ms. Qiu was the Director of the Finance
Department of the Water & Electricity No. 5 Engineering Bureau. From 1994
through 1996 Ms. Qiu was engaged in studies at the Dalian University of Foreign
Languages, and from 1996 to 2003, she served as the Chairman of the Board of
Dalian Yingkun Energy and Environmental Engineering, Ltd. Ms. Qiu has won the
prestigious ‘Entrepreneur of the Year’ award in the Jinzhou District of Dalian
and is the holder of three patents. She currently chairs the Association of
Industry and Commerce in Dalian.
Mr.
Bruce Richardson
joined
the Company as its Chief Financial Officer and Secretary on October 1, 2007.
Prior to joining the Company, Mr. Richardson served as a Managing Director
of
Xinhua Finance in Shanghai, PRC, from April 2006 until present, a Senior Analyst
at Evolution Securities China Limited in Shanghai from 2004 until April 2006,
and a Director of New Access Capital in Shanghai from June 2003 until January
2004. From 2001 through May 2003 Mr. Richardson was engaged in a private
consulting practice centered on Chinese financial markets and institutions.
Mr.
Richardson earned a BA in Classics from the University of Notre Dame in 1980,
and graduated with an MA in International Management from the University of
Texas at Dallas in 1986. He was awarded a graduate study grant by the US
National Academy of Sciences in 1987 and completed a year of post-graduate
research on PRC accounting at People’s University in 1988. Mr. Richardson also
serves as the Chief Financial Officer and Secretary of RINO and of Dalian
Innomind.
72
Mr.
Jinyang Huang
has been
the Vice-President of RINO since 2006. He also serves as Vice President of
Dalian Innomind. From 1996 to 2001 Mr. Huang served as Vice President of Beijing
Unicom Internet Communication Technology Co., Ltd., from 2001 to 2003 he served
as the Director of the Project Development Department of Dalian Dali Group,
Ltd., and from 2003 to 2006 Mr. Huang served as a CEO assistant at Dalian Huanyu
Mobile Communications, Ltd., from 2003 through 2006. Mr. Huang obtained a Master
of Radio Engineering degree from Harbin Industrial University in 1996.
Mr.
Xiaoyong Yuan has
been
the Vice President - Sales and Marketing of RINO since June 2006. Mr. Yuan
also
serves as Vice President - Sales and Marketing of Dalian Innomind.. Prior to
joining RINO, Mr. Yuan served as the Deputy Manager of Jiangxi Century
Environment and New Material Technology Ltd. from 2002 to 2004, and as the
Deputy Manager of Jiangxi Weisi Optoelectronic Ltd., from 2004 to 2006. Mr.
Yuan's qualifications also include a Master of Philosophy from Jiangxi
University which he obtained in 1998.
Mr.
Wansheng Li
has been
RINO’s Chief Technology Officer since July 2007. He also serves in that position
with Dalian Innomind. From 1997 to 2003 he served as the Deputy Director of
the
School of Electronic Engineering of Beihua University, and was the Deputy
Manager of Beijing CYCS High Tech Co., Ltd., from 2003 - 2007. Mr. Li obtained
his bachelor’s degree in Automation from North China University of Technology in
1986 and his Master’s degree from Central South University in 1992.
Mr.
Zhanqing Yang
has been
the Vice President - Project Management of RINO since August 2006. Mr. Yang
also
serves in that position with Dalian Innomind. He has more than 20 years of
experience in environmental project management. From 1992 - 1994 he was the
project designer of Pacific Environmental Project, Ltd., and served as the
Vice
President of Anshan Industrial Environment Protection Group from 1994 -
2006.
Mr.
Zhang Ze
has been
a director of Dalian Innomind since July, 2007. Mr Zhang is also the founder
of
Innomind Group Limited, the parent corporation of Dalian Innomind. Prior to
joining RINO’s and Dalian Innomind’s boards of directors, he served as a
technician at Inner Mongolia Shenhua Coal Petroleum Co., Ltd. Mr. Zhang is
a
graduate of Liaoning Shihua University, where he majored in Chemical Engineering
and Technology.
There
are
no family relationships among our directors or executive officers, except that
Zou Dejun and Qiu Jianping are married, and Zhang Ze is a nephew of Zou Dejun.
To our knowledge, none of our directors and executive officers (including the
directors and
executive officers of our subsidiaries) has been involved in any of the
following proceeding during the past five years:
·
any
bankruptcy petition filed by or against any business of which such
person
was a general partner or executive officer either at the time of
the
bankruptcy or within two years prior to that
time;
·
any
conviction in a criminal proceeding or being subject to a pending
criminal
proceeding (excluding traffic violations and other minor
offenses);
73
·
being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting
his
involvement in any type of business, securities or banking activities;
or
·
being
found by a court of competent jurisdiction (in a civil action), the
SEC or
the Commodity Futures Trading Commission to have violated a federal
or
state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
Audit
Committee Financial Expert
Our
board
of directors currently acts as our audit committee. We currently do not have
a
member who qualifies as an “audit committee financial expert” as defined in Item
401(e) of Regulation S-B and is “independent” as the term is used in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act. Our Board of
Directors is in the process of searching for a suitable candidate for this
position.
Audit
Committee
We
have
not yet appointed an audit committee. At the present time, we believe that
the
members of board of directors are collectively capable of analyzing and
evaluating our financial statements and understanding internal controls and
procedures for financial reporting.
EXECUTIVE
COMPENSATION
The
Company’s executive officers each hold the same position with RINO and Dalian
Innomind. None of the Company’s executive officers receive any compensation for
serving as executive officers of the Company, but are compensated by and through
RINO. The following table sets forth information concerning cash and non-cash
compensation paid by RINO to its Chief Executive Officer and Chairman of the
Board for each of the two years ended December 31, 2005 and December 31, 2006.
No executive officer of the Company, Dalian Innomind or RINO received
compensation in excess of $100,000 for any of those two years.
Name
and Principal Position
Year
Ended
Salary
($)
Bonus
($)
Stock
Awards
Non-Equity
Incentive Plan Compensation ($)
Non-Qualified
Deferred Compensation Earnings
($)
All
Other Compensation ($)
Total
($)
Dejun
Zou
CEO
12-31-05
12-31-06
62,745
62,745
0
0
0
0
0
0
0
0
0
0
62,745
62,745
Jianping
Qiu
Chairman
of the Board
12-31-05
12-31-06
62,745
62,745
0
0
0
0
0
0
0
0
0
0
62,745
62,745
Outstanding
Equity Awards at 2006 Fiscal Year End
There
were no option exercises or options outstanding in 2006.
74
Employment
Agreements
We
have
employment agreements with each of our executive officers, which are summarized
below.
·
Zou
Dejun. Pursuant
to an employment agreement dated August 1, 2007, Zou Dejun is employed
by
Dalian Innomind as its Manager at a monthly salary of 40,000 RMB
(approx.
$5,230). The employment agreement expires on December 31, 2010. Under
the
agreement, Mr. Zou’s salary is subject to adjustment commensurate with
Dalian Innomind’s revenues, but in no event less than the lowest standard
salary prescribed by the Dalian city government. In addition, Mr.
Zou is
entitled to annual vacation in compliance with PRC rules pertaining
to the
same. The agreement is terminable by Dalian Innomind for cause, on
30 days
notice.
Mr.
Zou
has also signed a non-competition/non-disclosure agreement with the
Company.
·
Qiu
Jianping. Pursuant
to an employment agreement dated August 1, 2007, Qiu Jianping is
employed
by Dalian Innomind as its Chairman of the Board at a monthly salary
of
40,000 RMB (approx. $5,230). The employment agreement expires on
December31, 2010. Under the agreement, Ms. Qiu’s salary is subject to adjustment
commensurate with Dalian Innomind’s revenues, but in no event less than
the lowest standard salary prescribed by the Dalian city government.
In
addition, Ms. Qiu is entitled to annual vacation in compliance with
PRC
rules pertaining to the same. The agreement is terminable by Dalian
Innomind for cause, on 30 days
notice.
Ms.
Qiu
has also signed a non-competition/non-disclosure agreement with the
Company.
·
Bruce
Richardson. Pursuant
to an employment agreement dated September 27, 2007, Bruce Richardson
is
employed by Jade Mountain Corporation as the Company’s Chief Financial
Officer for a term of 3 years at a monthly salary of $11,667. In
addition,
Mr. Richardson is granted 250,000 options to purchase common stock
at an
exercise price of $5.38 per share, vesting in 3 equal annual installments
beginning on January 1, 2009. Under the agreement, Mr. Richardson
is
entitled to 20 days of paid vacation per year. The agreement is terminable
on 30 days notice, and contains non-competition and non-disclosure
covenants.
Mr.
Richardson has also agreed to serve as the Company’s Secretary for no additional
compensation.
Director
Compensation
The
Company’s directors did not receive compensation for their service on the Board
of Directors for the fiscal year ended December 31, 2006.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Restructuring
Agreements with RINO
At
the
present time, PRC law does not provide for a direct share exchange between
a PRC
entity and an offshore company. To obtain the same result as a direct share
exchange, RINO and our indirect subsidiary, Dalian Innomind, entered into the
Restructuring Agreements on October 3, 2007. For a description of the
Restructuring Agreements, see the section of this prospectus entitled “Business
- Acquisition of Innomind and the Business of RINO, - Restructuring Agreements
to Acquire RINO’s Operating Business.”
75
Private
Placement
In
connection with the private placement, Chief Capital, Ltd., received 250,000
shares of our common stock as an advisory fee, and Douglas Financial, LLC,
as
placement agent, received the following compensation for advisory, placement
and
related services: (i) $80,000 cash as an engagement and documentation fee;
(ii)
$1,750,000 as a placement commission; (iii) 875,000 shares of our common stock,
and (iv) a warrant to purchase 382,500 shares of common stock at an exercise
price of $5.376 per share, exercisable within 6 years of the date of
issue.
Issuance
of Common Stock to Former Majority Shareholder and Sole Director and Executive
Officer
On
September 11, 2007, the Company issued 92,800 shares of its common stock to
Glenn A. Little (the “Little Shares”) at prices that exceeded the then-current
bid. At that time and immediately prior to the consummation of the Share
Exchange, Mr. Little was the Company’s majority shareholder and its sole
director and executive officer.
The
investors in the private placement netted the number of shares of common stock
purchasable therein and the aggregate purchase price for those shares against
the issuance of the Little Shares, resulting in gross private placement proceeds
of $24,435,319 and the issuance of 5,464,357 shares of common stock to those
investors.
DESCRIPTION
OF OUR SECURITIES
The
following is a summary of the material terms of our capital stock. This summary
is subject to and is qualified in its entirety by the Company’s Articles of
Incorporation, By-laws and applicable provisions of Nevada law.
Holders
of shares of common stock are entitled to one vote for each share on all matters
to be voted on by the stockholders. According to our charter documents, holders
of our common stock do not have preemptive rights, and are not entitled to
cumulative voting rights. There are no conversion or redemption rights or
sinking funds provided for our stockholders. Shares of common stock share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion from funds legally available for distribution
as
dividends. In the event of a liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. All of the outstanding
shares of common stock are fully paid and non-assessable.
Preferred
Stock
The
Board
of Directors is authorized under our Articles of Incorporation to provide for
the issuance of shares of preferred stock by resolution, and by filing a
certificate of designations under Nevada law, to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof without any further vote or action by the
stockholders. The
preferred stock may be issued from time to in one or more series, each series
having such voting, dividend and other rights and preferences as the Company’s
board of directors establish in the resolutions providing for their issuance.
All shares of referred stock in any one series shall be identical with each
other in all respects, except that shares of a series issued at different times
may differ as to the dates from which dividends thereon, if any, may be
cumulative. Any
shares of preferred stock so issued are likely to have priority over the common
stock with respect to dividend or liquidation rights.
76
Warrants
We
have
granted warrants to Douglas Financial and its designees to purchase 382,500
shares of Common Stock at an exercise price of $5.376 per share, exercisable
within 6 years of the issuance date. At the election of the warrantholder,
the
warrants may be exercised on a cashless basis. The number of shares of common
stock for which the warrants may be exercised is subject to adjustment in the
case of (i) subdivisions, combinations, issuances of additional shares and
the
declaration of cash dividends on or of the common stock, and (ii) in the event
of reclassifications, capital reorganizations and other changes (other than
subdivisions, combinations, issuances of additional shares and the declaration
of cash dividends) in the common stock.
Forward
Split
In
connection with the Share Exchange and the private placement, on August 31,2007, the Company’s Board of Directors authorized an amendment to its Articles
of Incorporation to: (i) increase the number of authorized shares of common
stock to 10,000,000,000 shares, par value $.0001 per share; and (ii) forward
split its issued and outstanding common stock on a one hundred (100) shares
for
one (1) share basis (the “Forward Split”).
Neither
this increase in the number of the Company’s authorized shares of common stock
nor the Forward Split affected the rights of the holders of our common
stock.
Reduction
of Authorized Shares of Common Stock
In
connection with the private placement, the Company has agreed to, within 120
days of the closing, reduce the number of its authorized shares of common stock
from 10,000,000,000 shares, par value $.0001 per share, to 100,000,000 shares,
par value $.0001 per share (the “Authorized Share Reduction”). The Authorized
Share Reduction will occur upon the filing of a certificate of amendment to
the
Company’s Articles of Incorporation and a Certificate of Change with the Office
of the Secretary of State of Nevada, not less than 20 days after, but within
25
days of, the Company’s mailing of an information statement on Schedule 14C to
the Company’s shareholders.
The
Authorized Share Reduction will not affect the rights of holders of common
stock.
Our
counsel, Guzov Ofsink, LLC, located at 600 Madison Avenue, 14th Floor, NewYork,
New York10022, is passing upon the validity of the issuance of the common
stock
that we are offering under this prospectus.
77
EXPERTS
Jimmy
C.H. Cheung & Co., independent public accountants located at 1607 Dominion
Center, 43 Queen’s Road, East, Wanchai, Hong Kong, have audited the financial
statements of RINO included in this registration statement, and S.W. Hatfield,
CPA, independent certified public accountants, located at 9002 Green Oaks
Circle, 2nd
Floor,
Dallas, Texas75243-7212, have audited the financial statements of Jade Mountain
included in this registration statement, each to the extent, and for the periods
set forth in their respective reports. We have relied upon such reports, given
upon the authority of such firms as experts in accounting and auditing.
INTEREST
OF NAMED EXPERTS AND COUNSEL
No
"expert" or "counsel" as defined by Item 509 of Regulation S-B promulgated
pursuant to the Securities Act, whose services were used in the preparation
of
this Form SB-2, was hired on a contingent basis or will receive a direct or
indirect interest in the Company, nor was any of them a promoter, underwriter,
voting trustee, director, officer or employee of the Company.
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
Our
Bylaws provide that we will indemnify our directors and officers from
liabilities incurred by them in connection with actions, suits or proceedings
in
which they are involved by reason of their acting as our directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons, we have been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities (other
than
the payment by us of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
Previous
Independent Accountants
On
October 5, 2007, in connection with the Company’s acquisition of RINO’s assets
and business and the related change in control of the Company, our Board of
Directors elected to discontinue our relationship with S.W. Hatfield, CPA as
our
independent accountant.
S.W.
Hatfield, CPA’s audit opinions on the Jade Mountain’s financial statements for
the fiscal years ended December 31, 2005 and December 31, 2006 did not contain
an adverse opinion or a disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles, except that
the report of S.W. Hatfield, CPA for the fiscal years ended December 31, 2005
and December 31, 2006 indicated conditions that raised substantial doubt about
the Company’s ability to continue as a going concern.
78
During
the fiscal years ended December 31, 2005 and December 31, 2006, the interim
period ended June 30, 2007, and through the date of the discontinuance of S.W.
Hatfield, CPA’s engagement as the Company’s independent accountant, we have had
no disagreements with S.W. Hatfield, CPA on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of S.W. Hatfield,
CPA,
would have caused it to make reference to the subject matter of such
disagreements in its report on our financial statements for such
periods.
During
the fiscal years ended December 31, 2005 and December 31, 2006, the interim
period ended June 30,2007, and through the date of the discontinuance of S.W.
Hatfield’s engagement, there were no reportable events as defined under Item
304(a)(1)(v) of Regulation S-K adopted by the SEC.
New
Independent Accountants
Our
Board
of Directors has appointed Jimmy C.H. Cheung & Co. (“Cheung”) as our new
independent registered public accounting firm as of October 5, 2007. During
the
two most recent fiscal years and through the date of our engagement, the Company
did not consult with Cheung regarding either (1) the application of accounting
principles to a specified transaction, either completed or proposed, or the
type
of audit opinion that might be rendered on our financial statements, or (2)
any
matter that was the subject of a disagreement (as defined in Regulation S-K
Item
304(a)(1)(v)). Prior to our acquisition of RINO’s assets and business, however,
RINO had been audited by Cheung, and RINO consulted with Cheung with regard
to
certain aspects of such acquisition.
FINANCIAL
STATEMENTS
The
Company’s unaudited consolidated financial statements for the three and nine
months ended September 30, 2007 and the notes thereto, RINO’s audited financial
statements for the fiscal years ended December 31,2006 and 2005, and Jade
Mountain's audited financial statements for the fiscal years ended December31,2006 and 2005, together with the report of the independent certified public
accounting firm thereon and the notes thereto, are presented beginning at page
F-1.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the U.S. Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a registration statement on Form SB-2 under the
Securities Act for the common stock offered by this prospectus. We have not
included in this prospectus all the information contained in the registration
statement and you should refer to the registration statement and its exhibits
for further information.
The
registration statement and other information may be read and copied at the
SEC's
Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room
by
calling the SEC at 1-800-SEC-0330. The SEC maintains a web site
(HTTP://WWW.SEC.GOV.) that contains the registration statements, reports, proxy
and information statements and other information regarding registrants that
file
electronically with the SEC such as us.
You
may also read and copy any reports, statements or
other information that we have filed with the SEC at the addresses indicated
above and you may also access them electronically at the web site set forth
above. These SEC filings are also available to the public from commercial
document retrieval services.
79
INDEX
TO FINANCIAL STATEMENTS
1.
Unaudited
Consolidated Financial Statements for the Three and Nine Months ended
September 30, 2007
The
accompanying unaudited condensed consolidated financial statements have
been
prepared in accordance with accounting principles generally accepted in
the
United States of America for interim financial information and pursuant
to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In
the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring
accruals
considered necessary to present fairly the Company's financial position
at
September 30, 2007, the results of operations for the three and nine months
ended September 30, 2007 and 2006 and cash flows for the nine months ended
September 30, 2007 and 2006. The results for the nine months ended September30,2007 are not necessarily indicative of the results to be expected for the
entire
fiscal year ending December 31, 2007.
These
financial statements should be read in conjunction with the Company's current
report on Form 8-K as filed with the Securities and Exchange Commission
on
October 5, 2007.
NOTE
2
ORGANIZATION
Jade
Mountain Corporation (“JMC”) was originally incorporated in 1984 as Applied
Biometrics, Inc. in accordance with the laws of the State of Minnesota.
On
December 27, 2006, the shareholders of JMC approved proposal to re-domicile
JMC
from the State of Minnesota to the State of Nevada. JMC effected the re-domicile
through a merger with a new Nevada corporation which was formed by JMC
on
September 12, 2006 solely and specifically for the purpose of effecting
the
re-domicile of JMC. At this time, JMC changed its name to Jade Mountain
Corporation. During the first six months ended June 30, 2007, JMC ceased
all
business operations and disposed of all its assets, liabilities and operating
activities. JMC has had no operations or significant assets since the year
ended
December 31, 2006.
Innomind
Group Limited (“Innomind”) was incorporated in the British Virgin Islands
(“BVI”) on November 17, 2006
as
an investment holding company. Through its wholly owned subsidiary, Dalian
Innomind Environment Engineering Co., Ltd. (“Dalian Innomind”) incorporated in
the People’s Republic of China (“PRC”) as a wholly owned foreign limited
liability company on July 9, 2007, Innomind’s principal activities are the
design, development, manufacturing and installation of industrial equipment
used
mainly for environmental protection purposes in the PRC. In accordance
with the
business permit, Dalian Innomind’s right of operation expires on July 8, 2022
and is renewable on expiry.
Dalian
Rino Environment Engineering Science And Technology Co., Ltd. (“Dalian Rino”)
was incorporated in the People’s Republic of China (“PRC”) on March 5, 2003 as a
limited liability company. The business activities of Dalian Rino are the
same
with those of Dalian Innomind. In accordance with the business permit,
Dalian
Rino’s right of operation expires on March 4, 2021 and is renewable.
On
October 5, 2007, JMC consummated a Share Exchange Agreement (“the Agreement”)
with the shareholders of Innomind pursuant to which JMC issued 17,899,643
shares, par value $0.0001 per share to the shareholders of Innomind for
100%
equity interest in Innomind. Prior to the Share Exchange: (i) on July 16,2007,
the Company consummated a one (1) share for two hundred thousand (200,000)
shares reverse split of its Common Stock, with fractional shares rounded
up to
the nearest whole number (the “Reverse Split”); and (ii) on August 31, 2007, the
Company’s Board of Directors authorized a one hundred (100) shares for one (1)
share forward split of the issued and outstanding shares of its Common
Stock
(the “Forward Split”). All share and per share amounts set forth in this Current
Report as of dates on or after July 16, 2007, give effect to the Reverse
Split
and all share and per share amounts set forth in this Current Report as
of dates
after August 31, 2007, give effect to the Forward Split.
The
merger of JMC and Innomind was treated for accounting purposes as a capital
transaction and recapitalization by Innomind (“the accounting acquirer”) and
re-organization by JMC (“the accounting acquiree”). The financial statements
have been prepared as if the reorganization had occurred
retroactively.
Accordingly,
the financial statements include the following:
(1)
The
balance sheet consists of the net assets of the acquirer at historical
cost and the net assets of the acquiree at historical
cost.
(2)
The
statement of operations includes the operations of the acquirer
for the
periods presented and the operations of the acquiree from the
date of the
merger.
On
the same date, Dalian Innomind entered into a series of agreements (collectively
known as the Restructuring Agreements) with Dalian Rino and the shareholders
of
Dalian Rino in which Dalian Innomind will take over the management of the
business activities of Dalian Rino and will hold a 100% variable interest
in
Dalian Rino. As both companies are under common control, this has been
accounted
for as a reorganization of entities and the financial statements have been
prepared as if the reorganization had occurred retroactively.
JMC,
Innomind, Dalian Innomind and Dalian Rino are hereinafter referred to as
(“the
Company”).
The
accompanying unaudited condensed consolidated financial statements for
2007
include the unaudited financial statements of Innomind and its wholly owned
subsidiary, Dalian Innomind and Dalian Rino, a Variable Interest Entity
of
Dalian Innomind.
The
accompanying unaudited condensed financial statements for 2006 only include
the
unaudited financial statement of Dalian Rino.
All
significant inter-company accounts and transactions have been eliminated
in
consolidation.
NOTE
4
REVENUE
RECOGNITION
The
Company enters into long-term fixed price contracts with customers to
manufacture and install industrial equipment. Revenue on long-term fixed
price
contracts is recognized under the percentage-of-completion method in accordance
with the American Institute of Certified Public Accountants Statement of
Position 81-1 “Accounting for Performance of Construction-Type and Certain
Production-Type Contracts”. Under the percentage-of-completion method,
management estimates the percentage-of-completion based upon costs incurred
as a
percentage of the total estimated costs to the customer. When total cost
estimates exceed revenues, the Company accrues for the estimated losses
immediately. The use of the percentage of completion method requires significant
judgment relative to estimating total contract revenues and costs, including
assumptions relative to the length of time to complete the project, the
nature
and complexity of the work to be performed, and anticipated changes in
estimated
costs. Estimates of total contract revenues and costs are continuously
monitored
during the term of the contract, and recorded revenues and costs are subject
to
revision as the contract progresses. When revisions in estimated contract
revenues and costs are determined, such adjustments are recorded in the
period
in which they are first identified. For instances where the work performed
on
fixed price contracts is of relatively short duration, revenue is recognized
when the work is completed.
The
Company also provides technical professional services to its customers
based on
a fixed-price time contract. The Company recognizes services-based revenue
from
all of its contracts when the services have been performed, the customers
have
approved the completion of the services and invoices have been issued and
collectibility is reasonably assured.
To
utilize the idle time of its heavy duty machining tools, the Company provides
machining services to customers. The machining service revenue is recognized
when the performance of the service is completed, customer’s acceptance has been
received and invoice is issued and collectibility is reasonably assured.
NOTE
5
CONSOLIDATION
OF VARIABLE INTEREST
ENTITY
On
October 5, 2007 Dalian Innomind entered into Restructuring Agreements with
Dalian Rino and its shareholders in which Dalian Innomind took over the
management of the business activities of Dalian Rino. The Restructuring
Agreements consist of the following agreements:
(a)
Dalian
Rino sold substantially all of its manufacturing equipment and
tangible
assets to Dalian Innomind for RMB 2,250,343;
(b)
Dalian
Rino transferred all of its three, presently owned patents, and
three
presently pending patent applications, to Dalian Innomind for
an aggregate
transfer fee of RMB 10,000;
(c)
Dalian
Rino will lease to Dalian Innomind substantially all of its manufacturing
plant and land at an annual rent of RMB 612,000;
(d)
With
respect to its presently owned patents, Dlian Rino will contemporaneously
enter into a separate transfer agreement (the “Patent Transfer Contract”)
with Dalian Innomind to accomplish their actual transfer to Dalian
Innomind;
(e)
With
respect to its presently pending patent applications, and in
order to
accomplish the actual transfer of, each such applied-for patent,
Dalian
Rino will enter into additional patent transfer contracts within
ten days
after the issuance of the patents; and
(f)
Dalian
Rino has granted to Dalian Innomind the royalty-free, perpetual
right to
use the “RINO” trademark and logo.
Under
the requirements of FASB Interpretation No. 46 (R), Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 (“FIN 46”), the Company
consolidated the financial statements of Dalian Rino, a VIE of Dalian Innomind.
As both companies are under common control, the financial statements have
been
prepared as if the transaction had occurred retroactively.
Other
current assets and prepaid expenses as of September 30, 2007 consist of
the
following:
Other
receivables
$
416,178
Advances
to staff
119,026
Deposits
with suppliers
8,426,003
Prepaid
expenses
23,944
$
8,985,151
During
the nine months ended September 30, 2007, the Company paid deposits totaling
$7,436,966 to a supplier for materials to be used in future
contracts.
NOTE
7
PREPAID
EXPENSES
(NON-CURRENT)
These
represent research and development costs paid to a third party under two
agreements for services over a period of three years and five years. The
costs
will be amortized over the lives of the agreements.
The
amount amortized as research and development expenses for the
nine months
ended September 30, 2007 and 2006 was $103,091 and $0
respectively.
NOTE
8
INTANGIBLE
ASSETS
In
2006, the Company acquired from a third party an exclusive license under
patent
rights for $268,628 for a de-oxidation paint formula and production techniques
for a period of three years subject to further renewal. In April 2007,
the
Company re-negotiated with the third party to extend the license to fifteen
years for an additional cost of $255,976.
In
May 2007, the Company acquired from a third party a patent right for $131,151
for a desulphurization technology for a period of ten years.
The
following is a summary of intangible assets as of September 30,2007:
Patents
$
665,106
Less:
accumulated amortization
31,038
$
634,068
The
intangible assets acquired for the de-oxidation and desulphurization technology
are amortized on a straight-line basis over their useful lives starting
from
January 2007 and June 2007 respectively. For the nine months ended September30,2007 and 2006, the amount amortized was $30,399 and $0
respectively.
NOTE
9
LAND
USE RIGHTS
Under
the laws of the PRC, land is owned by the government. Private enterprises
are
allowed to lease and use of the land. The following is a summary of land
use
rights acquired by the Company as of September 30, 2007:
Cost
$
927,282
Less:
accumulated amortization
50,127
$
877,155
The
land use rights are amortized over the term of the leases of fifty years.
The
amortization expense for the nine months ended September 30, 2007 and 2006
was
$8,674 and 8,303, respectively.
As
of September 30, 2007, the Company owed a stockholder $466,766 for advances
made
on an unsecured basis and free of interest payment and repayable on demand.
Imputed interest is charged at 7% per annum on the amount due. Total imputed
interest recorded as additional paid-in capital amounted to $31,005 and
$19,491
for the nine months ended September 30, 2007 and 2006,
respectively.
NOTE
11
SUBSEQUENT
EVENTS
(A)
Share
Exchange Agreement
On
October 5, 2007, JMC consummated the Agreement with the shareholders of
Innomind
pursuant to which JMC issued 17,899,643 shares to the shareholders of Innomind
for 100% equity in Innomind.
(B)
Restructuring
Agreements
On
October 3, 2007 Dalian Innomind entered into Restructuring Agreements with
Dalian Rino and its shareholders in which Dalian Innomind took over the
management of the business activities of Dalian Rino.
(C)
Private
Placement
On
October 3, 2007, the Company completed a private placement with 24 accredited
investors for $24,438,319 from the sale of 5,464,357 shares of the common
stock
of the Company.
NOTE
12
RECENT
ACCOUNTING PRONOUNCEMENTS
In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”),
which clarifies the accounting for uncertainty in tax positions. This
Interpretation provides that the tax effects from an uncertain tax position
can
be recognized in the Company’s financial statements, only if the position is
more likely than not of being sustained on audit, based on the technical
merits
of the position. The provisions of FIN 48 are effective as of the beginning
of
fiscal 2007, with the cumulative effect of the change in accounting principle
recorded as an adjustment to opening retained earnings. The Company does
not
expect the adoption of FIN 48 to have an impact on the Company’s results of
operations or financial condition.
In
September 2006, FASB issued Statement 157, Fair Value Measurements. This
statement defines fair value and establishes a framework for measuring
fair
value in generally accepted accounting principles (GAAP). More precisely,
this
statement sets forth a standard definition of fair value as it applies
to assets
or liabilities, the principal market (or most advantageous market) for
determining fair value (price), the market participants, inputs and the
application of the derived fair value to those assets and liabilities.
The
effective date of this pronouncement is for all full fiscal and interim
periods
beginning after November 15, 2007. The Company does not expect the adoption
of SFAS 157 to have an impact on the Company’s results of operations or
financial condition.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”) which permits entities
to choose to measure many financial instruments and certain other items
at fair
value that are not currently required to be measured at fair value. SFAS
159
will become effective for us on January 1, 2008. The Company is currently
evaluating the impact of this new Standard, but believes that it will not
have
that it will not have a material impact on the Company’s financial
position.
F-8
DALIAN
RINO ENVIRONMENT ENGINEERING SCIENCE AND TECHNOLOGY
CO., LTD.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of:
Dalian
Rino Environment Engineering Science And Technology Co., Ltd.
We
have
audited the accompanying balance sheets of Dalian
Rino Environment Engineering Science And Technology Co., Ltd.,
as of
December 31, 2006 and 2005 and the related statements of operations
and
comprehensive income, stockholders’ equity and cash flows for the
years
ended December 31, 2006 and 2005.
These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements
based on
our audits.
We
conducted our audits in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Those standards require
that we plan
and perform the audit to obtain reasonable assurance about whether
the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the
overall
financial statement presentation. We believe that our audits of the
financial
statements provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Dalian Rino Environment
Engineering
Science And Technology Co., Ltd., as of December 31, 2006 and 2005,
and the
profits of
its
operations and its cash flows for the years ended December 31, 2006
and 2005, in
conformity with accounting principles generally accepted in the United
States of
America.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
(A)
Organization
Dalian
Rino Environment Engineering Science And Technology Co., Ltd.
(the “Company”) was incorporated in the People’s Republic of China (“PRC”)
on March 5, 2003 as a company with limited liabilities.
Dalian
Rino’s principal activities are the
design, development, manufacturing and installation of industrial
equipment
used
mainly for environment protection purposes in the PRC.
In
accordance with the business permit, the Company’s right of operation expires on
March 4, 2021 and is renewable.
(B)
Use
of estimates
The
preparation of the financial statements in conformity with generally
accepted
accounting principles requires management to make estimates and
assumptions that
affect the reported amount of assets and liabilities and disclosure
of
contingent assets and liabilities at the date of the financial
statements and
the reported amounts of revenues and expenses during the reporting
period.
Actual results could differ from those estimates.
(C)
Cash
and cash equivalents
For
purpose of the statements of cash flows, cash and cash equivalents
include cash
on hand and demand deposits with a bank with a maturity of less
than three
months.
(D)
Accounts
receivable
The
Company extends unsecured credit to its customers in the ordinary
course of
business but mitigates the associated risks by performing credit
checks and
actively pursuing past due accounts. An allowance for doubtful
accounts is
established and recorded based on managements’ assessment of the credit history
with the customers and current relationships with them.
Contracts
in progress are stated at the lower of cost or market value and
include the
costs and earnings in excess of billings, pursuant to the percentage
of
completion method of accounting for long-term fixed price contracts.
The costs
of contracts in progress include production costs and related overhead,
including an applicable portion of general and administrative expenses.
As of
December 31, 2006, the Company has no contracts in progress.
(F)
Inventories
Raw
materials are stated at the lower of cost or market value, cost
being calculated
on the weighted average basis.
The
Company provided inventory allowances based on excess and obsolete
inventories
determined principally by customer demand.
F-16
DALIAN
RINO ENVIRONMENT ENGINEERING SCIENCE AND TECHNOLOGY CO., LTD.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
(G)
Property
and equipment
Property
and equipment are stated at cost, less accumulated depreciation.
Expenditures
for additions, major renewals and betterments are capitalized and
expenditures
for maintenance and repairs are charged to expense as incurred.
Depreciation
is provided on a straight-line basis, less estimated residual value
over the
assets’ estimated useful lives. The estimated useful lives are as
follows:
Buildings
30
Years
Plant
and machinery
15
Years
Motor
vehicles
10
Years
Furniture,
fixtures and equipment
5
Years
Land
use
rights are stated at cost, less accumulated amortization and are
amortized over
the term of the relevant rights of 50 years from the date of
acquisition.
(H)
Long-lived
assets
In
accordance with Statement of Financial Accounting Standards No.
144, “Accounting
for the impairment or disposal of Long-Lived Assets", long-lived
assets and
certain identifiable intangible assets held and used by the Company
are reviewed
for impairment whenever events or changes in circumstances indicate
that the
carrying amount of an asset may not be recoverable. For purposes
of evaluating
the recoverability of long-lived assets, the recoverability test
is performed
using undiscounted net cash flows related to the long- lived assets.
The Company
reviews long-lived assets to determine that carrying values are
not impaired.
(I)
Fair
value of financial instruments
Statement
of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of
Financial Instruments," requires certain disclosures regarding
the fair value of
financial instruments. The carriying amounts of accounts receivable,
other
receivables and prepaid expenses, accounts payable, other payables
and accrued
liabilities and due to a stockholder approximate their fair values
because of
the short-term nature of the instruments. The fair value of long
term notes
payable approximates their carrying value as the interest rates
does not
significantly differ from market.
(J)
Intangible
assets
Under
the
Statement of Accounting Standards (“SFAS”) No. 142, “Goodwill and Other
Intangible Assets”, all goodwill and certain intangible assets determined to
have indefinite lives will not be amortized but will be tested
for impairment at
least annually. Intangible assets other than goodwill will be amortized
over
their estimated useful lives and reviewed for impairment in accordance
with SFAS
No. 144, “Accounting for Impairment or Disposal of Long-Lived
Assets”.
F-17
DALIAN
RINO ENVIRONMENT ENGINEERING SCIENCE AND TECHNOLOGY
CO., LTD.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
(K)
Revenue
recognition
Industrial
equipment
The
Company enters into long-term fixed price contracts with customers
to
manufacture and install industrial equipment. Revenue on long-term
fixed price
contracts is recognized under the percentage-of-completion method
in accordance
with the American Institute of Certified Public Accountants Statement
of
Position 81-1 “Accounting for Performance of Construction-Type and Certain
Production-Type Contracts”. Under the percentage-of-completion method,
management estimates the percentage-of-completion based upon costs
incurred as a
percentage of the total estimated costs to the customer. When total
cost
estimates exceed revenues, the Company accrues for the estimated
losses
immediately. The use of the percentage of completion method requires
significant
judgment relative to estimating total contract revenues and costs,
including
assumptions relative to the length of time to complete the project,
the nature
and complexity of the work to be performed, and anticipated changes
in estimated
costs. Estimates of total contract revenues and costs are continuously
monitored
during the term of the contract, and recorded revenues and costs
are subject to
revision as the contract progresses. When revisions in estimated
contract
revenues and costs are determined, such adjustments are recorded
in the period
in which they are first identified. For instances where the work
performed on
fixed price contracts is of relatively short duration, revenue
is recognized
when the work is completed.
The
Company also provides technical professional services to its customers
based on
a fixed-price time contract. The Company recognizes services-based
revenue from
all of its contracts when the services have been performed, the
customers have
approved the completion of the services and invoices have been
issued and
collectibility is reasonably assured.
Government
grant
The
local
government of Dalian City also approved grants to the Company to
encourage the
high technology industry. The grants are recognized as revenue
on receipt from
the local government.
(L)
Income
taxes
The
Company accounts for income taxes under the Statement of Financial
Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
Statement 109, deferred tax assets and liabilities are recognized
for the future
tax consequences attributable to differences between the financial
statement
carrying amounts of existing assets and liabilities and their respective
tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates
expected to apply to taxable income in the years in which those
temporary
differences are expected to be recovered or settled. Under Statement
109, the
effect on deferred tax assets and liabilities of a change in tax
rates is
recognized in income in the period included the enactment date.
(M)
Foreign
currency transactions
The
Company maintains its accounting records in its functional currency
of Renminbi
(“RMB”).
Foreign
currency transactions during the year are translated to the functional
currency
at the approximate rates of exchange on the dates of transactions.
Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet
date are translated at the approximate rates of exchange at that
date.
Non-monetary assets and liabilities are translated at the rates
of exchange
prevailing at the time the asset or liability was acquired. Exchange
gains or
losses are recorded in the statement of operations.
F-18
DALIAN
RINO ENVIRONMENT ENGINEERING SCIENCE AND TECHNOLOGY
CO., LTD.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
(N)
Foreign
currency translation
The
financial statements of the Company (whose functional currency
is RMB) are
translated into US$ using the closing rate method. The balance
sheet items are
translated into US$ using the exchange rates at the respective
balance sheet
dates. The capital and various reserves are translated at historical
exchange
rates prevailing at the time of the transactions while income and
expense items
are translated at the average exchange rate for the year. All exchange
transaction differences are recorded within equity.
(O)
Comprehensive
income
The
foreign currency translation gain or loss resulting from translation
of the
financial statements expressed in RMB to US$ is reported as other
comprehensive
income gain (loss) in the statements of operations and stockholders’ equity.
Comprehensive income for the years ended December 31, 2006 and
2005 were
$174,303 and $22,975 respectively.
(P)
Segments
The
Company operates in only one segment, thereafter segment disclosure
is not
presented.
(Q)
Recent
Accounting Pronouncements
In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”),
which clarifies the accounting for uncertainty in tax positions.
This
Interpretation provides that the tax effects from an uncertain
tax position can
be recognized in the Company’s financial statements, only if the position is
more likely than not of being sustained on audit, based on the
technical merits
of the position. The provisions of FIN 48 are effective as of the
beginning of
fiscal 2007, with the cumulative effect of the change in accounting
principle
recorded as an adjustment to opening retained earnings. The Company
is currently
evaluating the impact this new Standard, but believes that it will
not have a
material impact on the Company’s financial position.
In
September 2006, FASB issued Statement 157, Fair Value Measurements. This
statement defines fair value and establishes a framework for measuring
fair
value in generally accepted accounting principles (GAAP). More
precisely, this
statement sets forth a standard definition of fair value as it
applies to assets
or liabilities, the principal market (or most advantageous market)
for
determining fair value (price), the market participants, inputs
and the
application of the derived fair value to those assets and liabilities.
The
effective date of this pronouncement is for all full fiscal and
interim periods
beginning after November 15, 2007. The Company is currently evaluating the
impact this new Standard, but believes that it will not have a
material impact
on the Company’s financial position.
In
September 2006, FASB issued Statement 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, which amend
FASB
Statements No. 87, 88, 106 and 132(R). This statement requires employers to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its financial statements
and to
recognize changes in that funded status in the year in which the
changes occur.
The effective date for the Company would be for any full fiscal
years ending
after December 15, 2006. The Company is currently evaluating the impact
this new Standard, but believes that it will not have a material
impact on the
Company’s financial position.
F-19
DALIAN
RINO ENVIRONMENT ENGINEERING SCIENCE AND TECHNOLOGY
CO., LTD.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
(R)
Recent
Accounting Pronouncements
(Continued)
In
September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
statements” (SAB No. 108”), which provides interpretive guidance on the
consideration of the effects of prior year misstatements in quantifying
current
year misstatements for the purpose of materiality assessment. SAB
No. 108 is
effective as of the end of the Company’s 2006 fiscal year, allowing a one-time
transitional cumulative effect adjustment to beginning retained
earnings as of
January 1, 2006 for errors that were not previously deemed material,
but are
material under the guidance in SAB No. 108. The adoption of SAB
108 did not have
an impact on the Company’s financial statements.
The
following is a summary of property and equipment at December 31:
2006
2005
Buildings
$
3,290,591
$
1,672,760
Plant
and machinery
6,898,832
3,050,743
Motor
vehicles
606,877
463,167
Furniture
and office equipment
254,269
181,524
Construction
in progress
66,837
1,209,479
11,117,406
6,577,673
Less:
accumulated depreciation
656,679
272,401
Property
and equipment, net
$
10,460,727
$
6,305,272
Depreciation
expenses for the years ended December 31, 2006 and 2005 were $367,630
and
$234,710 respectively.
6.
INTANGIBLE
ASSETS
The
following is a summary of intangible assets at December 31:
2006
2005
Patents
$
268,628
$
-
Less:
accumulated amortization
-
-
$
268,628
$
-
In
2006,
the Company acquired from a third party an exclusive license under
patent rights
of $268,628 for a plastic materials integration technology for
a period of three
years subject to further renewal.
The
intangible assets will be amortized over the period from the date
of application
of the technology to the Company’s products to the expiry date of the license
agreement on a straight line basis. No amortization expense for
2006 was
recorded as the Company is in the process of integrating the technology
into its
products. The
intangible assets were placed in service in January 2007 and May
2007
respectively.
7.
LAND
USE RIGHTS
The
following is a summary of land use rights at December 31:
2006
2005
Cost
$
567,772
$
549,775
Less:
accumulated amortization
39,688
27,434
$
528,084
$
522,341
The
land
use rights are amortized over fifty years of the term of the leases.
The
amortization expense for both 2006 and 2005 was $11,122 and 10,821,
respectively.
F-21
DALIAN
RINO ENVIRONMENT ENGINEERING SCIENCE AND TECHNOLOGY
CO., LTD.
Interest
paid in 2006 and 2005 was $297,303 and $85,457 respectively.
10.
INCOME
TAX
The
Company was incorporated in the PRC and is subject to PRC income
tax which is
computed according to the relevant laws and regulations in the
PRC. The
applicable tax rate has been 33% and no tax benefit is expected
from the tax
credits in the future. The income tax expenses for 2006 and 2005
are summarized
as follows:
Tax
effect of timing difference arising from depreciation
not
recognized
(58,979
)
(24,173
)
Other
adjustments
3,978
-
Total
income tax expenses
$
1,151,300
$
85,390
Deferred
income tax liabilities for 2006 and 2005 reflect the effect of
temporary
differences between amounts of assets, liabilities, and equity
for financial
reporting purposes and the bases of such assets, liabilities, and
equity as
measured by tax laws.
Deferred
income tax liabilities mainly result from temporary differences
for revenues
earned but not yet taxable under the PRC tax regulations. All the
deferred tax
liabilities are classified as long-term liabilities as the Company
will not be
demanded for payment within the next twelve months.
11.
RELATED
PARTY TRANSACTIONS
The
Company owed $450,645 and $385,159 to a stockholder as of December31, 2006 and
2005 respectively for advances made on an unsecured basis, repayable on demand
and interest free. Imputed interest is charged at 6% per annum
on the amount
due. Total imputed interest recorded as additional paid-in capital
amounted to
$26,482 and $22,744 for the year ended December 31, 2006 and 2005,
respectively.
F-24
DALIAN
RINO ENVIRONMENT ENGINEERING SCIENCE AND TECHNOLOGY
CO., LTD.
The
Company is required to make appropriations to the statutory surplus
reserve
based on the after-tax net income determined in accordance with
the laws and
regulations of the PRC. Prior to January 1, 2006 the appropriation
to the
statutory surplus reserve should be at least 10% of the after tax
net income
determined in accordance with the laws and regulations of the PRC
until the
reserve is equal to 50% of the entities’ registered capital. Appropriations to
the statutory public welfare fund are at 5% to 10% of the after
tax net income
determined by the Board of Directors. Effective January 1, 2006,
the Company is
only required to contribute to one statutory reserve fund at 10
percent of net
income after tax per annum, such contributions not to exceed 50
percent of the
respective company’s registered capital.
The
statutory reserve funds are restricted for use to set off against
prior period
losses, expansion of production and operation or for the increase
in the
registered capital of the Company. These reserves are not transferable
to the
Company in the form of cash dividends, loans or advances. These
reserves are
therefore not available for distribution except in liquidation.
During
2006 and 2005, the Company appropriated $315,313 and $11,243 respectively
to the
reserves funds based on its net income in accordance with the laws
and
regulations of the PRC.
13.
COMMITMENTS
AND CONTINGENCIES
(A)
Employee
benefits
The
full
time employees of the Company are entitled to employee benefits
including
medical care, welfare subsidies, unemployment insurance and pension
benefits
through a Chinese government mandated multi-employer defined contribution
plan.
The Company is required to accrue for those benefits based on certain
percentages of the employees’ salaries and make contributions to the plans out
of the amounts accrued for medical and pension benefits. The total
provisions
and contributions made for such employee benefits was $9,746 and
$14,043 for the
years ended December 31, 2006 and 2005, respectively. The Chinese
government is
responsible for the medical benefits and the pension liability
to be paid to
these employees.
(B)
Capital
commitments
As
of
December 31, 2006 and 2005, the Company had firm purchase commitments
for
capital projects in progress of $702,494 and $829,794 respectively.
14.
CONCENTRATIONS
AND RISKS
During
2006 and 2005, 100% of the Company’s assets were located in China and 100% of
the Company’s revenues were derived from companies located in China.
The
Company relied on five customers and sales to those customers for
the years
ended December 31, 2006 and 2005 were as follows:
At
December 31, 2006 and 2005, accounts receivable from those customers
totaled
$3,500,807 and $0 respectively.
15.
SUBSEQUENT
EVENT
On
January 12, 2007, the Company entered into an agreement for the
purchase of land
use rights in the PRC of $281,061.
F-25
PART
II:
INFORMATION
NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Pursuant
to Article VII of our By-Laws, we shall, to the fullest extent permitted by
law,
indemnify any of our directors for monetary damages incurred for breach of
fiduciary duty as a director, except with respect to (i) a breach of the
director’s duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) liability specifically defined by law or (iv) a
transaction from which the director derived an improper personal benefit.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended, may be permitted to our directors or officers pursuant to the foregoing
provisions, we have been informed that, in the opinion of the SEC, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable.
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
Although
we will not receive any of the proceeds from the sale of the shares being
registered in this registration statement, we have agreed to bear the costs
and
expenses of the registration of those shares. Our expenses in connection with
the issuance and distribution of the securities being registered, other than
the
underwriting discount, are as follows:
SEC
Registration Fee
$
1,418.71
Professional
Fees and Expenses*
$
225,000.00
Printing
and Engraving Expenses *
$
5,000.00
Transfer
Agent's Fees*
$
2,500.00
Miscellaneous
Expenses*
$
3,000.00
Total
$
236,918.71
*
*
Estimates
RECENT
SALES OF UNREGISTERED SECURITIES
Issuance
of Common Stock in Acquisition of Innomind
Under
the
Share Exchange Agreement, on October 5, 2007, we issued 17,899,643 shares of
our
common stock in exchange for all of the outstanding shares of the common stock
of Innomind. At the completion of that share exchange, Innomind became the
Company’s wholly owned subsidiary. The Share Exchange was accomplished in
reliance upon Section 4(2) of the Securities Act.
II-I
Issuance
of Common Stock in Private Placement
On
October 5, 2007, in a private placement through Douglas Financial, LLC, an
NASD
and SEC registered broker-dealer (“Douglas Financial”), we sold 5,464,357 shares
of our common stock for $24,435,319 under a Securities Purchase Agreement by
and
among the Company and the investors named therein dated as of September 27,2007
(the “Securities Purchase Agreement”), and issued to Douglas Financial 6 year
placement agent warrants to purchase 382,500 shares of our common stock at
an
exercise price of
$5.376
per share.
In
the
private placement we sold the common stock in reliance upon the exemption from
registration provided by Rule 506 of Regulation D promulgated under the
Securities Act of 1933.
Under
the
Securities Purchase Agreement, we are required to register for resale each
share
of common stock sold therein as well as the shares of common stock underlying
the above, placement agent warrants.
In
connection with the private placement, 250,000 shares of common stock was issued
to Chief Capital, Ltd., for advisory services, and Douglas Financial, as
placement agent, received the following compensation: (i) $80,000 cash as an
engagement and documentation fee; (ii) $1,750,000 as a placement commission;
(iii) 875,000 shares of our Common Stock, and (iv) warrants to purchase 382,500
shares of Common Stock at an exercise price of $5.376 per share, exercisable
within 6 years of the date of issue.
Issuance
of Common Stock to Former Majority Shareholder
Please
see prospectus section entitled “Certain Relationships and Related Party
Transactions - Issuance of Common Stock to Former Majority Shareholder and
Sole
Director and Executive Officer.”
Issuance
of Common Stock to Former Chief Financial Officer of RINO
At
the
Closing of the Share Exchange and the private placement, the Company issued
20,000 shares of common stock to Eric Gan (“Gan”), RINO’s former chief financial
officer, in full satisfaction of RINO’s obligations to Gan under a Compensation
Agreement dated July 30, 2007.
Legal
Opinion of Guzov Ofsink, LLC re legality of the common stock being
registered
10.1
Share
Exchange Agreement dated October 5, 2007 by and among the Company,
Zhang
Ze and Innomind Group Limited (2)
II-II
10.2
Translation
of Purchase Agreement, dated as of October 3, 2007, by and among
Dalian
Rino Engineering Science and Technology Co., Ltd., and Dalian Innomind
Environment Engineering Co., Ltd. (2)
10.3.1
Translation
of Entrusted Management Agreement, dated as of October 3, 2007, by
and
among Dalian Innomund Environment Engineering Co., Ltd., Dalian Rino
Engineering Science and Technology Co., Ltd., Dejun Zou and Jianping
Qiu
(2)
10.4
Translation
of Patent Transfer Contract, dated as of October 3, 2007, by and
among
Dalian Rino Engineering Science and Technology Co., Ltd., and Dalian
Innomind Environment Engineering Co., Ltd. (2)
10.5
Translation
of Shareholders’ Voting Proxy Agreement, dated as of October 3, 2007, by
and among Dalian Innomind Environment Engineering Co., Ltd., Dejun
Zou and
Jianping Qiu (2)
10.6
Translation
of Exclusive Option Agreement, dated as of October 3, 2007, by and
among
Dalian Innomind Environment Engineering Co., Ltd., Dejun Zou and
Jianping
Qiu (2)
10.7
Translation
of Pledge of Equity Agreement, dated as of October 3, 2007, by and
among
Dalian Innomind Environment Engineering Co., Ltd., Dejun Zou and
Jianping
Qiu (2)
10.8
Securities
Purchase Agreement, dated as of September 27, 2007 by and among the
Company and the named investors (2)
10.9
Lock-Up
Agreement, dated September 27, 2007, by and among Jade Mountain
Corporation and Zou Dejun and Qiu Jianping
10.9.1
Lock-Up
Agreement, dated September 27, 2007, by and among Jade Mountain
Corporation and The Innomind Trust
10.9.2
Lock-Up
Agreement, dated September 27, 2007, by and among Jade Mountain
Corporation and Bruce Richardson
10.10
Registration
Rights Agreement, dated as of September 27, 2007, by and among Jade
Mountain Corporation and the investors signatory –
thereto
Consent
of counsel to the use of the opinion annexed at Exhibit 5.1 (contained
in
the opinion annexed at Exhibit 5.1)
23.2
Consent
of accountants (Jimmy C.H. Cheung & Co.) for use of their
report
(1)
Incorporated
herein by reference to the Registration Statement on Form SB-2
filed
with the SEC on April 4,2007.
(2)
Incorporated
herein by reference to the Current Report on Form 8-K filed by the
Current
Report filed
by the Company on October 12,2007.
(3)
Incorporated
herein by reference to the Current Report on Form 8-K/A filed by
the
Company on
October 19, 2007.
II-III
UNDERTAKINGS
The
undersigned Registrant hereby undertakes:
(1)
To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
i.
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
ii.
To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(2) That,
for
the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(3)
File
a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
(4) Insofar
as indemnification for liabilities arising under the Act may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer
will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and
will be governed by the final adjudication of such issue.
II-IV
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned in Dalian, PRC, on November 19,2007.
Jade
Mountain Corporation
/s/
Zou Dejun
By:
Zou Dejun,
Chief
Executive Officer and
Director
(principal
executive officer)
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates stated.
