UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
Amendment
No. 1
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
August 10,
2010 (August 10, 2010)
Date of
Report (Date of earliest event reported)
REGAL
GROUP, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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333-134536
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PENDING
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(State
or other jurisdiction
of
incorporation)
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(Commission
File No.)
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(IRS
Employer
Identification
No.)
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3723
E. Maffeo Road
Phoenix,
Arizona 85050
(Address
of principal executive offices) (Zip Code)
516-659-6677
(Registrant's
telephone number, including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions.
¨
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR240.14d-2(b))
¨
Soliciting
material pursuant to Rule 14a-12 under Exchange Act (17
CFR240.14a-12)
¨
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR240.14d-2(b))
¨
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR240.13e-4(c))
`
This Current Report on Form 8-K
(“Form 8-K”) and other reports filed by the Registrant from time to time with
the Securities and Exchange Commission (collectively the “Filings”) contain or
may contain forward looking statements and information that are based upon
beliefs of, and information currently available to, the Registrant’s management
as well as estimates and assumptions made by the Registrant’s management. When
used in the filings the words “anticipate”, “believe”, “estimate”, “expect”,
“future”, “intend”, “plan” or the negative of these terms and similar
expressions as they relate to the Registrant or the Registrant’s management
identify forward looking statements. Such statements reflect the current view of
the Registrant with respect to future events and are subject to risks,
uncertainties, assumptions and other factors (including the risks contained in
the section of this report entitled “Risk Factors”) relating to the Registrant’s
industry, the Registrant’s operations and results of operations and any
businesses that may be acquired by the Registrant. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended or planned.
Although
the Registrant believes that the expectations reflected in the forward looking
statements are reasonable, the Registrant cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, the
Registrant does not intend to update any of the forward-looking statements to
conform these statements to actual results. The following discussion should be
read in conjunction with the Registrant’s pro forma financial statements and the
related notes filed with this Form 8-K.
Explanatory Note
This
Form 8-K/A amends the disclosure contained in the Form 8-K previously filed by
the Company on July 15, 2010 wherein the Company indicated that it has finalized
the Share Exchange Agreement that is more fully described below and which became
effective on August 10, 2010. Under the Share Exchange Agreement,
Regal Group Inc. became the ultimate parent company of UHF Logistics Limited, a
corporation organized under the laws of Hong Kong (“UHF”).
Unless
otherwise provided in this Current Report on Form 8-K, all references in this
Current Report to “we,” “us,” “Company,” “our,” “Regal Group, Inc.” or the
“Registrant” refer to the combined entity, together with its wholly-owned
subsidiary, UHF and its wholly-owned subsidiary, Shenzhen Rui Pu Da Electronic
Technology Company, Ltd., a China limited liability company. The business
operations of Regal following the transaction consist of those of UHF and
Shenzhen Rui Pu Da Electronic Technology Company, Ltd.
Table
of Contents
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Item
1.01
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Entry
into a Material Definitive Agreement
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4
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Item
2.01
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Completion
of Acquisition or Disposition of Assets
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4
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FORM
10 INFORMATION
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5
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Description
of Business
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5
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Reports
to Security Holders
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19
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Risk
Factors
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20
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Summary
Financial Data
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39
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Management’s
Discussion and Analysis or Plan of Operations
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40
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Description
of Property
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42
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Management
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43
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Executive
Compensation
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45
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Certain
Relationship and Related Transactions, and Director
Independence
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46
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Legal
Proceedings
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46
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Market
Place and Dividends on Common Equity and Related Stockholder
Matters
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47
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Recent
Sales of Unregistered Securities
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49
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Description
of Securities
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49
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Indemnification
of Officers and Directors
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49
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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50
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Financial
Statements and Exhibits
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Item
3.02
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Unregistered
Sales of Equity Securities
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50
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Item
5.01
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Changes
in Control of Registrant
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50
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Item
5.02
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Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangement of Certain
Officers
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51
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Item
5.06
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Changes
in Shell Company Status
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51
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Item
9.01
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Financial
Statements and Exhibits
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51
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Signature
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52
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Exhibit
Index
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53
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Item
1.01
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Entry
into a Material Definitive
Agreement
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On August
10, 2010 (the “Closing Date”), Regal Group Inc., a Nevada corporation (the
“Company”), certain shareholders of the Company (the “Regal
Shareholders”), UHF Logistics Limited, a Hong Kong corporation
(“UHF”), certain shareholders of UHF (the “Selling Shareholders”) and certain
members of senior management (the “Purchasing Shareholders”) of Shenzhen Rui Pu
Da Electronic Technology Company, Ltd., a China limited liability company
(“Shenzhen RPD”) and a subsidiary of UHF, closed on a Share Exchange Agreement
(the “Exchange Agreement”), pursuant to which the Company acquired all of the
issued and outstanding shares of UHF (“UHF Shares”) from the Selling
Shareholders in exchange for 12,000,000 shares of the Company’s common stock,
par value $0.001 (the “Newly Issued Regal Shares”). In addition, the
Exchange Agreement provided that the Regal Shareholders shall sell an aggregate
of 14,500,000 shares of the Company’s common stock, par value
$0.001 (the “Regal Issued Shares”) to the Purchasing Shareholders,
for a purchase price of US$145,000.
Prior to
entering into the Exchange Agreement, there was no relationship between the
Company, UHF or Shenzhen RPD, other than in respect of the Exchange Agreement
and the transactions contemplated thereby.
The
Exchange Agreement is discussed in more detail in Item 2.01 below, which
information is hereby incorporated by reference into this Item
1.01. The description of the Exchange Agreement in this Current
Report is qualified in its entirety by reference to the full text of the
Exchange Agreement, a copy of which is filed as Exhibit 2.1 to this Current
Report, and which is hereby incorporated by reference into this Item
1.01.
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Item
2.01
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Completion
of Acquisition or Disposition of
Assets
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On the
Closing Date, the Company, the Regal Shareholders, UHF, the Selling Shareholders
and the Purchasing Shareholders entered into the Exchange Agreement pursuant to
which the Selling Shareholders were issued an aggregate of 12,000,000 Newly
Issued Regal Shares in exchange for all of the UHF Shares (the “
Exchange
”), so that
after giving effect to the Exchange, the Company became the holder of all of the
UHF Shares.
Pursuant
to the terms of the Exchange Agreement, and in order to protect the Company from
third party claims relating to intellectual property transferred to the Company
pursuant thereto, the Selling Shareholders agreed that the Newly Issued Regal
Shares to be issued to each of the Selling Shareholders pursuant to the Exchange
Agreement shall be deposited in escrow for a period of one year (the “Escrow
Shares”) and shall be released in accordance with the terms of the Exchange
Agreement.
The
Exchange Agreement also provided that after the Closing Date, the Company shall
use its commercially reasonable efforts to raise up to US$1,000,000 of new
capital, either through the issuance of equity, convertible securities or debt,
or a combination thereof, at a purchase price to be determined by Company (the
“Financing”). In order to mitigate the effects of the Financing, the
parties to the Exchange Agreement agreed that of the 12,000,000 Newly Issued
Regal Shares that may be released to the Selling Shareholders upon the expiry of
the one year escrow, up to 5,800,000 Newly Issued Regal Shares may be subject to
further cancellation, as follows:
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(i)
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If
after twelve (12) months from the conclusion of the Financing, the EBITDA
of Shenzhen RPD is less than US$300,000, the Selling Shareholders shall
retain ownership of 6,200,000 Newly Issued Regal Shares and the remaining
5,800,000 Newly Issued Regal Shares shall be released to the Company for
cancellation;
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(ii)
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If
after twelve (12) months from the conclusion of the Financing, the EBITDA
of Shenzhen RPD is less than US$850,000 but greater than US$300,000, the
Selling Shareholders shall retain ownership of 9,000,000 Newly Issued
Regal Shares and 3,000,000 Newly Issued Regal Shares shall be released to
the Company for cancellation; and
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(iii)
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If
after twelve (12) months from the conclusion of the Financing, the EBITDA
of Shenzhen RPD is US$850,000 or greater, the Selling Shareholders shall
retain ownership of the 12,000,000 Newly Issued Regal Shares allocated to
them.
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The
Exchange Agreement further provided that the Regal Shareholders shall sell,
assign and transfer to the Purchasing Shareholders, and the Purchasing
Shareholders agree to purchase from the Regal Shareholders, an aggregate of
14,500,000 Regal Issued Shares owned by the Regal Shareholders for a purchase
price of US$145,000 payable as follows:
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(i)
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20%
of the purchase price, or US$29,000 shall be paid to the Regal
Shareholders in cash, on the Closing Date;
and
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(ii)
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The
remaining 80%, or US$116,000, shall be evidenced by a promissory note
issued by the Purchasing Shareholders in favor of the Regal
Shareholders. The payment of the promissory note shall be
secured by the Regal Issued Shares which shall be held in escrow until the
expiry of the promissory note and released only upon complete payment
thereof, unless otherwise agreed to between the parties, in
writing.
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Upon the
effectiveness of the Exchange Agreement, UHF will become a wholly owned
subsidiary of the Company, and UHF will continue to own its assets and operate
its business as a wholly owned subsidiary of the Company.
For
accounting purposes, we will account for the assets and liabilities of the
Company and UHF on a consolidated basis at their historical cost, as presented
in Exhibit 99.3 (Pro Forma Combined Financial Statements).
FORM
10 INFORMATION
DESCRIPTION
OF BUSINESS
Corporate
Overview
We were
formed in the State of Nevada on July 1, 2005 as “Regal Rock,
Inc”. On December 3, 2007, we changed our name to “Regal Life
Concepts, Inc.,” and on March 31, 2010, we changed our name to “Regal Group
Inc.”
We
commenced operations as a distributor of bamboo wood flooring products focused
on opportunities created by demand in new residential construction and home
improvement activity in North America. However, there was no assurance that our
initial business model was commercially and economically viable and further
marketing of our product in a broader distribution network
was required before a final evaluation as to the economic feasibility
of our initial business plan could be determined. In light of
this uncertainty, we decided to review other potential opportunities in the
hospitality and health and wellness sectors. In 2008, we entered into
a Standstill Agreement with a Thailand corporation, Amaravati Inc., whose
primary asset is a 50-room spa resort located in Chiang Mai, Thailand, with an
aim to open an opportunity in the hospitality sector in
Thailand. Given the geopolitical uncertainty in Thailand, we have put
this project on hold for the time being.
We have
focused our business on acquiring private companies based and operating in the
People’s Republic of China (“PRC” or “China”), with the goal of providing these
companies with support, including administrative, legal, accounting and
marketing assistance. We intend to provide these companies with an
infusion of capital to further their respective business plans. We
believe that equity investments in China present one of the most attractive
global investment opportunities available in the next four to seven
years. Accordingly, we plan to focus on the acquisitions of companies
located in China. Consequently, and in order to ensure the viability
and solvency of our Company, we have phased out our business line involving the
distribution of bamboo flooring.
The local
Chinese equity markets are highly concentrated, serving only a small fraction of
the local corporate market. We believe that this factor, taken
together with current international economic uncertainty, presents a unique
opportunity to acquire small, growing and profitable Chinese companies at
historically realistic valuations.
In
furtherance of our current business strategy, on August 10, 2010, we closed
under the Exchange Agreement for the acquisition of all of the UHF
Shares.
Corporate
History of UHF
UHF is a
corporation formed on October 20, 2009 under the laws of Hong Kong.
UHF was created to hold the shares and assets of Shenzhen RPD.
On March
15, 2010, UHF entered into an agreement to acquire 100% of the equity, assets
and intellectual property of Shenzhen RPD from its original
shareholders. On April 9, 2010, UHF received approval of this
acquisition from the Bureau of Commerce and Industry of the City of Shenzhen,
Guangdong Province, China.
Shenzhen
RPD was organized in China on April 19, 2006 as a limited liability
company. Its corporate license was issued by the Administration for
Industry and Commerce of the City of Shenzhen, Guangdong Province, China and was
granted an operating period of 20 years. Shenzhen RPD is
headquartered in the city of Shenzhen, Guangdong Province in China and commenced
operations upon its formation in 2006. Prior to focusing on the
RFID industry at the outset of 2010, Shenzhen RPD was a distributor of retail
electronic equipment, such as DVD players, televisions, MP3 players and similar
consumer electronic items. On March 5, 2010, Shenzhen RPD
acquired the assets and intellectual property of Shenzhen DDCT Technology Co.,
Ltd., an entity that was formed in January 2006 (hereafter referred to as
“DDCT”), with ¥5 million (US$735,000) in registered capital. DDCT was
funded by both its founders and the Shenzhen Bureau of Science and
Technology. Its business purpose was to focus its efforts on
research and development of RFID systems and to test applications in live
business scenarios. From 2006 through 2009 DDCT developed two RFID
patents and tested their hardware and software with numerous
customers. In 2009, DDCT’s management, with the support of the
Shenzhen Bureau of Science and Technology, began to look for ways to raise
sufficient capital for DDCT to commercialize the applications it had developed
and provide funds for further research and development. As part of
the corporate restructuring to terminate ties with the Chinese government and
pursue foreign funding, DDCT sold all its patents and RFID contracts to Shenzhen
RPD on March 5, 2010. The transfers of the two patents to Shenzhen
RPD from DDCT were approved by the State Bureau of Intellectual Property on June
18, 2010 and June 21, 2010 respectively. In turn, the
acquisition of 100% equity of Shenzhen RPD by UHF was approved by the Bureau of
Commerce and Industry of the City of Shenzhen, Guangdong Province, China on
April 9, 2010.
Upon the
acquisition by UHF of Shenzhen RPD, Shenzhen RPD became a Wholly Foreign Owned
Enterprise (“WFOE”), in compliance with all governmental regulations applicable
to such acquisitions under the laws of the PRC. A WFOE is a
limited liability company operating in China that is wholly owned by
foreign investors, in this case UHF Logistics Ltd. It provides
foreign investors in China with many benefits and legal rights. The
unique feature of a WFOE is that it allows foreign investors to avoid a
multitude of issues which can potentially result from dealing with a domestic
joint venture partner in China.
The
following diagram illustrates our corporate structure from and after the
Exchange Agreement:
Current
Business of our Company
As of
August 10, 2010, we, through our wholly owned subsidiary, UHF, commenced the
business of developing and integrating off-the-shelf and proprietary RFID
solutions and began to service contracts acquired by Shenzhen RPD from
DDCT. We also design and install simple, as well as complex RFID
systems used for numerous industries, including the retail industry
as well as the animal management and logistics industries. Our
current focus is on entering into and servicing contracts within
China. However, we intend to pursue sales in other Asian countries in
the future, although no assurance can be given that we will be successful in
pursuing sales in such other Asian countries.
Radio
Frequency Identification (RFID)
RFID
encompasses technologies that use radio waves to automatically identify
individual items, places or even persons. Several methods exist for
identifying objects using RFID. The most common method is to encode a
serial number that uniquely identifies a person, place or thing. This
information is stored on a microchip that is attached to an
antenna. Together the chip and the antenna are called an RFID
transponder or “tag”. The antenna enables the chip to transmit the
identification information to a reader. The reader converts the radio waves into
digital data that a computer can identify.
RFID
Systems
An RFID
system may consist of several components: tags, tag readers, tag programming
stations, circulation readers, sorting equipment, tag inventory wands and
software to run the system. The purpose of an RFID system is to enable data to
be transmitted by a portable device, called a tag, which is read by an RFID
reader and processed according to the needs of a particular application. The
data transmitted by the tag may provide identification or location information,
or specifics about the product tagged, such as price, color, date of purchase
and the like.
Types
of RFID
In an
RFID system, RFID tags are “interrogated”. The tag reader generates a radio
frequency “interrogation” signal that communicates with the tags. The
reader also has a receiver that captures a reply signal from the tags, and
decodes that signal. The reply signal from the tags reflects, both
literally and figuratively, the tag’s data content. The reply signal
is created as a passive backscatter.
RFID
utilizes two basic types of tags. Passive tags have no power source
of their own, while active tags are self powered, usually by some form of
battery.
Passive
tags generally operate at a maximum distance of 5 meters or less, and have power
only when in communication with an RFID reader. The simplest of these
tags is capable of holding in the range of 64 bits of factory written unique
data. While passive RFID tags do not have their own power supply, the
minute electrical current induced in the antenna by the incoming radio-frequency
scan provides enough power for the tag to send a response to the
reader. The lack of its own power supply makes the device quite
small. At the present, there are passive tags that can be embedded
under the skin. The smallest passive tag commercially available today measures
0.2 mm × 0.2 mm and is thinner than a sheet of paper. Further,
passive tags are relatively cheap, typically costing US$0.10 to US$1.00 per
tag.
Active
tags, which have their own power source, can actively and intensively transmit
and process data over greater distances than passive tags. Active
tags can communicate with readers in excess of 100 meters and need much less
signal from the RFID reader than passive tags. Active RFID tags can also contain
sensors and data loggers to record and transmit information. Active
tags are more expensive than passive tags, typically costing US$10.00 to
US$30.00 per tag.
Our
Products
The
software and hardware utilized to build an RFID solutions system depend on the
needs and objectives of each customer. While UHF, through Shenzhen
RPD, can build and install simple RFID systems, it also specializes in complex
systems where its proprietary software and engineering can be best
utilized. Currently we do not utilize systems integrators or
resellers and handle 100% of the sales and implementation
ourselves.
RFID
Software
For
simple RFID systems, we utilize third party off the shelf
software. This software can be used “as is” or customized by our
software engineers. Complex RFID systems utilize the proprietary
software that has been developed and refined by Shenzhen RPD since
2006. We have the ability, through our software engineers, to design
custom software applications for any use and can integrate the GPS technology
into applications where it is required.
RFID
Hardware
Depending
upon the application, we can use existing off the shelf RFID readers and
antennas or they can build custom hardware. Currently, we manufacture
over 20 different readers and antennas along with numerous hardware
components.
RFID
Industry
The RFID industry can broadly be
segmented into the following 4 areas:
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·
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Tag
manufactures and sellers;
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Tag
manufacturers focus in the manufacturing of passive and active
tags. Manufacturers of RFID tags include large multinational
companies like Phillips Corporation and Hitachi, Ltd. to small
boutique firms located in the US, in China and in other countries. Tag
manufacturers sell primarily to system vendors and integrators.
RFID
software developers can be broken into three sub-groups. Enterprise
software systems, broad user based systems and custom
applications. Large companies such as Microsoft Corporation and Sun
Microsystems, Inc. are focusing their efforts on developing small
user based interfaces that integrate RFID capabilities in their existing
software. Enterprise developers typically focus their efforts on
developing off the shelf software that can be used in RFID applications that
require little or no software modifications. The smallest group of
RFID software developers focuses on the development of RFID technology for
custom applications. These companies can custom design RFID systems
for virtually any use.
System
vendors and system integrators make up the vast majority of companies competing
in the RFID market. These companies either engage in the business of
purely selling off the shelf systems (system vendors) or selling off the shelf
systems and simultaneously acting as consultants to install the RFID system and
facilitating any software modifications with the developer (system
integrators).
We
believe that we are unique in the RFID market place as we are one of the few
vertically integrated RFID system suppliers. For simple applications,
we can modify off the shelf software, obtain off the shelf readers and install
the system. We can also develop complex RFID systems using our own
proprietary software, build custom readers, install and modify systems and
manage systems for clients. We have the capacity and capability to
provide everything to a client except the manufacturing of RFID
tags.
Chinese
RFID Industry
According
to IDTechEx, the global RFID market achieved rapid growth in 2007, and total
market value reached US$4.96 billion. Spending on RFID in East Asia was
approximately US$2.7 billion in 2007, of which US$1.9 billion was spent in China
alone. China has perennially been in the top 3 counties in terms of
RFID spending, as reported by technology research firm, IDTechEx. In
2007, funds spent on RFID projects in China was estimated at nearly US$2
billion, surpassing expenditures in the US and Japan for the first
time. The increase was fueled by the implementation of the national
ID card program where every Chinese citizen was provided an ID card with RFID
technology. In 2009, RFID expenditures in the US and Japan moved
ahead of China, but we believe, though no assurance can be given, that the vast
population in China will ensure an expanding market for years to
come.
In 2009,
the RFID market grew to US$5.56 billion, having almost tripled in five years and
up from US$5.25 billion in 2008. This includes tags, readers and
software/services for RFID cards, labels, fobs and all other form factors. The
majority of such amount consists of costs for RFID cards and their associated
services – totaling US$2.99 billion. The market for RFID is growing and a large
amount of the amount spent on this technology is due to government-led RFID
schemes, such as those for transportation, national ID (contactless cards and
passports) and military and animal tagging. The largest database of RFID
projects in the world is the IDTechEx RFID Knowledgebase, which currently stands
at 3900 projects in 111 countries. China and the U.S. spend, by far, the
most money on RFID.
Within
the RFID industry, a major part of the growth has come from existing
applications such as security/access control, automobile immobilization, animal
tracking and toll collection. However, emerging applications in security-based
solutions, contactless payments, and supply chain management are in late testing
stages and are expected to present significant new market opportunities. In
particular, use of RFID technology in conjunction with contactless payment cards
and Wi-Fi has emerged as a substantial opportunity for RFID
vendors.
The
Chinese government is also embracing the use of RFID technology. RFID
has been utilized in the national ID card program and currently there are
several tests underway to use RFID technology to prevent counterfeiting of
goods, as well as to help secure the food chain in China. In November
2009, Premier Wen Jiabao of China emphasized his country’s focus on the key
technology of “the Internet of Things and Sensor Network” and during September
2009, RFID was listed in the “Direction of Investment for Reformation and
Technical Progress of Electronic Information Industry” by the National
Development and Reform Commission of China. It is anticipated that
the Chinese RFID market will continue to grow rapidly in the years to come in
light of the support received from the Chinese Central Government.
Currently
there are relatively few companies within China that can design and implement
large complex RFID systems. There are relatively few companies in
China that currently can handle the demand. Texas Instruments Inc.
(USA), ST Microelectronics (Switzerland), Infineon Technologies AG (Germany) ,
Amtel Corporation (USA) and other large foreign RFID companies have won
contracts that the few large existing Chinese RFID companies, such
as, Invengo Information Technology Co., Ltd. have been unable to
fill. With the proliferation of RFID in everyday life for consumers,
equipment manufacturers, livestock, logistics, warehousing, shipping and a
multitude of other applications, we believe that the sheer size of the Chinese
population creates an excellent opportunity for us.
While we
have sold systems throughout the world (including Pakistan, Taiwan and Saudi
Arabia), we will focus its sales efforts in Asia, and primarily China for the
next 12 months.
Our
Sales and Marketing
As we
move from the research and development phase to the commercialization stage, we
intend to develop a permanent sales and marketing organization within the
Company. Once such organization is completed, the Company intends to
implement the following sales and marketing activities. However, no
assurance can be given that we will be successful in implementing such
activities:
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·
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Establishment
of a sales and marketing team based in Shenzhen focused on
non-governmental sales, consisting of 1 Vice President, 2 sales
representatives and a Manager of
Resellers
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·
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Establishment
of a resellers team based in Shenzhen, consisting of 1 Vice
President
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·
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Establishment
of a sales and marketing team based in Shenzhen focused on governmental
sales, consisting of 1 Vice President and lead by Mr. Su and his extensive
contacts in Government
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·
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Establishment
of sales offices in Shanghai and
Beijing
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Our sales
goals and targeted milestones from 2010 to 2013 are as follows:
Third and Fourth Quarter of 2010- to
the Fourth Quarter of 2011
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·
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Using
the anticipated success of existing trial installations, leverage into
large, long
term contracts
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·
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Focus
preliminary sales efforts on large sales opportunities in China in power
metering and tobacco inventory
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·
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Commence
the establishment of quality resellers in North America and
Europe
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·
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Continue
research and development activities on traditional RFID and in the
Internet of Things (self-configuring wireless
network)
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First Quarter of 2012- to the Fourth
Quarter of 2013
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·
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Develop
sales channels in the pharmaceutical, warehousing and manufacturing
sectors
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·
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Expand
in tobacco the tobacco industry to include counterfeit
protection.
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·
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Establish
sales offices in North America and
Europe
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·
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Expand
our dedicated sales force in China
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Our
Customers
We are
currently working to secure three contracts with the following entities with
which we currently have test contracts: Henan Electric Power Company, Lilanz
Stores and Xiangyun Tobacco Company.
Henan
Electric Power Company
Henan
Electric Power Company (“HEPC”) maintains and operates the provincial power
transmission network in the Henan province of China. Its transmission
network is an integral part of the Central China Power Network, which covers
Henan, Hubei, Hunan, and Jiangxi provinces. The Henan power transmission network
includes seventy-two 220 KV transmission lines with a total length of 4,749 km.
It is connected to the CCPN via one 500KV and two 220KV transmission lines,
receiving power from the south in the summer when the Yangtze River is at its
highest level and sending power to the south in winter when the Yangtze River is
at its lowest level. Henan Province is located in eastern central China and has
a total area of 103,768.98
square miles
and a population of over 92 million, making it China’s second most populous
province.
HEPC provides electrical power to over
100 million homes and businesses in Hunan province, PRC. It has
signed a test contract with UHF wherein UHF has undertaken to provide inventory
control of electric meters that form part of HEPC’s inventory and are in current
use. UHF will use RFID tags to identify the manufacturer of the
meters, when and where they were installed, as well as log all repairs and
replacement activities on such meters. The initial test contract
between HEPC and UHF encompasses the installation of tags, software and readers
on 20,000 electric meters. UHF is also in the process of completing a
letter of intent with HEPC, which states that upon the successful completion of
the test contract, HEPC will grant UHF a seven year contract for over 100
million meters in Hunan province.
Lilanz
Stores
Lilanz
Stores (“Lilanz”) is one of the leading brands of menswear in
China. Lilanz has entered into a test contract with UHF to utilize
RFID technology as a sales aid for Lilanz.
All
clothing in the Lilanz test store contains has been equipped with an RFID
tag. When a Lilanz customer takes the article of clothing into the
change room, it passes through an RFID reader which gathers information about
that particular piece of clothing and displays the same on a computer
screen. The reader also displays other items that compliment the
clothing brought into the change room. For example, if a man takes a
blue suit into the change room, the reader identifies the exact suit and
produces a list of shirts, ties, sock and shoes that will match the
suit. The system will also produce a list of other suits that may
appeal to the customer.
UHF has
successfully completed the trial in one Lilanz store and Lilanz has requested
additional functionality and had refined its requirements. Once the
second test with the revised requirements is completed, Lilanz will implement
the program in all of its 2,500 stores.
Xiangyun
Tobacco Company
Xiangyun
Tobacco Company (“Xiangyun”) is a large tobacco producer in Yunnan province,
China. UHF has developed a custom RFID system for Xiangyun that
identifies and manages different brands, quality and types of tobacco produced
by Xiangyun. The system developed by UHF not only manages
inventory but is instrumental in helping Xiangyun manage the blending of tobacco
for the many brands it sells. The system also provides inventory
management for the brands produced.
Other
Projects
The
following projects were completed by DDCT, whose operating assets and IP rights
were acquired by Shenzhen RPD on March 5, 2010. These projects enable
the testing of its products in a “live” environment by making sales while
developing and refining software and hardware. The following is a
sampling of the RFID solutions provided to customers:
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Customer:
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Yichang
City Government
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Location:
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Yichang
City, Hubei Province
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Type
of RFID application:
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Parking
lot management to determine vacant stalls and amounts charged
for parking
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Hardware
sold:
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RFID
card readers
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Software
sold:
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Modified
3rd party software
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Date:
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May
2008
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Customer:
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Hubei
Provincial Government
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Location:
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Yichan,
Hubei Province
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Type
of RFID application:
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Identification
of mining trucks and calculation of the weight of ore mined for
tax purposes
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Hardware
sold:
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RFID
readers, tags and card holders
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Software
sold:
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Modified
3rd party software
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Date:
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August
2008
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·
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Person
management in world Buddhist forum
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Customer:
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China
Mobile
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Location:
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Wuxi,
Jiangsu province / Taipei, Taiwan
|
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Type
of RFID application:
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Provide
security for entrance to the 2008 and 2009 World Buddhist
Forums - integration of RFID and GPS technology to provide exact location
attendees at all times
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Hardware
sold:
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RFID
readers, tags, card holders and GPS
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Software
sold:
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Modified
3rd party software integrated with GPS
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Date:
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August
2008 - August 2009
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Customer:
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Hong
Tu Po Tobacco Company
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Location:
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Dali,
Yunnan Province
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Type
of RFID application:
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Provide
protection against counterfeiting of brand name cigarettes by providing
unique RFID tags
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Hardware
sold:
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RFID
readers, tags, card holders and GPS
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Software
sold:
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Modified
3rd party software integrated with GPS
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Date:
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June
2009
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Customer:
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National
Database and Registration Authority
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Location:
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Pakistan
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Type
of RFID application:
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Automatic
collections and calculation of cars entering and existing a portion of a
Pakistani freeway.
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Hardware
sold:
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RFID
readers, tags, card holders and GPS
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Software
sold:
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Modified
3rd party software integrated with GPS
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Date:
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January
2009
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Production
and Quality Control
All
products and software designed, manufactured and programmed by us goes through
rigorous quality control. Every hardware component is put through the
equivalent of one full year of use, while our software is tested for a period of
60 days before going “live” with customers. We have a dedicated team
of Quality Assurance engineers that work on each project to ensure that all
hardware and software is functioning at 100% capacity.
Logistics
and Inventory
The sales
cycle for a typical RFID contract is 4 to 9 months and we do not have to carry
any significant inventory for the manufacturing of RFID hardware.
Seasonality
Our
Company’s operating results are not affected by seasonality.
Competition
The RFID
market is rapidly evolving and is expected to become more competitive in the
near future. Some of our competitors have established a market
position more prominent than ours and if we fail to attract and retain customers
and establish a successful distribution network for our RFID systems, we may be
unable to increase our sales and market share. We compete with major
international and local companies including Texas Instruments Inc., ST
Microelectronics, Infineon Technologies AG, Amtel Corporation and Invengo
Information Technology Co., Ltd. Some of these companies are older and
more established than us, with established manufacturing and software
development capabilities. Further, some of our competitors are
well-capitalized and benefit from earlier development advantages. We
also expect that our future competition will include new entrants to the RFID
market offering new technological solutions. However, we believe that
the cost and performance of our technologies, products and services will have
advantages compared to the technologies, products and services offered by our
competitors. Further, some of our competitors are large enterprises
which we believe have inflexible operations. In addition, some of our
competitors receive less government support. We believe that we also
have the following advantages over our competitors:
1. Our
Cost Advantage
We are a
small company with limited overhead. Our size and our specialization
in custom RFID systems means we can quickly respond to sales opportunities and a
customers unique needs.
2. Our
Relationship with Shenzhen Bureau of Science and Technology
We have
received financial and intellectual support from the Shenzhen Bureau of Science
and Technology. Our relationship with the Shenzhen Bureau of Science
and Technology has many benefits including:
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Access
to engineering prowess;
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·
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Access
to established technology in the RFID
arena;
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·
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Access
for bidding on government contracts;
and
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·
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Credibility
within the utilities industry because it has long-standing relationships
and operating history within the
industry.
|
Research
and Development
We have a
dedicated research and development team, lead by our CEO Mr. Su. Our research
and development activities keep a close eye on the RFID industry and also look
at utilizing RFID solutions in areas where the technology is currently not
utilized. Current research and development activities are focused on
the Internet of Things and how RFID technology can be adapted to support this
futuristic concept. Through our CEO, Mr. Su, UHF is part of a group
of companies working with the Chinese government to establish China as a leader
in the development and implementation of the Internet of Things.
Intellectual
Properties and Licenses
We
believe that our management and staff are leaders in the design and manufacture
of high performance RFID management and logistics systems. This
includes the design and manufacturing of RFID readers and hardware, the
development of proprietary software, as well as the modification of third party
RFID software for simple applications. Our research and development activities
have produced a tremendous amount of intellectual property and in the next
twenty-four (24) months, we plan to file upwards of ten (10) new patents in
China. In addition to the intellectual property currently being
developed, we also have two active patents filed in China, as
follows:
1. Patent
number ZL 200710073223.0, is an algorithm patent for RFID reader
software. This patent enables UHF software to accurately read
multiple targets that pass through our RFID readers rapidly
(thousands per second) with significantly higher accuracy than the rest of the
RFID industry. This patent provides us with a significant competitive
advantage as most RFID software has difficulty reading multiple targets passing
through RFID readers in rapid succession. This patent enables us to
have reached a reading accuracy in excess of 99.1% compared to industry averages
of 96.6%.
2. Patent
number ZL 200710073224.5, is a principle reading method patent for our RFID
reader’s electrical circuit structures. This patent enables our RFID
readers to overcome blind spots during the tag reading which enables the readers
to read RFID signals even when the target readings are in the trough of a
wave. This patent also provides us with a significant competitive
advantage as most RFID readers have “wave length blind spots” that reduce the
number of tags that can be recognized and accurately read. The patent
also enables us to achieve much higher RFID reader whole space readability than
our competitors.
We intend
to take all necessary precautions to protect our intellectual
property. Aside from registering our trademarks with the State
Trademark Administration to protect our intellectual property, we have also
engaged qualified legal professionals tasked to conduct the necessary market
research to ensure that our intellectual property is not being
violated. However, no assurance can be given that we will be able to
protect or enforce our intellectual property rights. In the event of
any infringement upon our intellectual property rights, we will pursue all legal
rights and remedies available to us.
Employees
The
following table sets forth the number of our employees for each of our areas of
operations and as a percentage of our total workforce as of August 9,
2010:
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Number of
Employees
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% of
Employees
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Production
|
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1
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8
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%
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Sales
and Marketing and Quality Assurance
|
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1
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8
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%
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Purchasing
|
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1
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8
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%
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Finance
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1
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8
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%
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Management
and Administration
|
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2
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|
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17
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%
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Technology
and Project Development
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3
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25
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%
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Research
and Development
|
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2
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|
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17
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%
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Administration
and Logistics
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1
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8
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%
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TOTAL
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12
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|
|
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100
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%
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We have
12 employees, most of whom will shortly transition from their current employment
at DDCT and sign employment contracts and confidentiality agreements with UHF.
Generally, the employment contract is 5 to 10 years for senior management
personnel; 3 years for middle management personnel, marketing staff, technicians
and other special staff; and 2 years for the rest. For non-experienced staff,
the employment contract is 1 year. We believe that our relationship with our
employees is good.
We
believe that we are in full compliance with Chinese labor laws and regulations
and are committed to providing safe and comfortable working conditions and
accommodations for our employees. We believe in the
importance of maintaining our social responsibilities, and we are committed
to providing employees with a safe, clean and comfortable working
environment and accommodations. Our employees are also entitled to time off
during public holidays. In addition, we frequently monitor contract
manufacturers’ working conditions to ensure their compliance with related labor
laws and regulations. We believe we are in full compliance with our obligations
to provide pension benefits to our workers, as mandated by the PRC government.
We seek to strictly comply with Chinese labor laws and regulations, and offer
reasonable wages, life insurance and medical insurance to our
workers.
Governmental
Regulations
This
section sets forth a summary of the most significant regulatory requirements
that affect our business activities in China.
Compliance with Circular
75
,
Circular 106 and
the 2006 M&A Regulations
China’s
State Administration of Foreign Exchange (“SAFE”) issued a public notice known
as “Circular 75” in October 2005, requiring PRC residents to register with the
local SAFE branch before establishing or acquiring the control of any company
outside of China for the purpose of financing that offshore company with assets
or equity interest in a PRC company. PRC residents that are shareholders of
offshore special purpose companies established before November 1, 2005 were
required to conduct the overseas investment registration with the local SAFE
branch before March 31, 2006, and once the special purpose vehicle has a major
capital change event (including overseas equity or convertible bonds financing),
the residents must conduct a registration relating to the change within 30 days
of occurrence of the event. On May 29, 2007, the SAFE issued an additional
notice known as “Circular 106,” clarifying some outstanding issues and providing
standard operating procedures for implementing the prior notice. According to
the new notice, SAFE sets up seven schedules that track registration
requirements for offshore fundraising and roundtrip investments.
Likewise,
the “Provisions on Acquisition of Domestic Enterprises by Foreign Investors,”
issued jointly by the Ministry of Commerce (“MOFCOM”), State-owned Assets
Supervision and Administration Commission, State Taxation Bureau, State
Administration for Industry and Commerce, China Securities Regulatory Commission
and SAFE in September 2006, impose approval requirements from MOFCOM for
“round-trip” investment transactions, including acquisitions in which equity was
used as consideration.
Dividend
Distribution
The
principal laws, rules and regulations governing dividends paid by our PRC
operating subsidiary include the Company Law of the PRC (1993), as amended in
2006, Wholly Foreign Owned Enterprise Law (1986), as amended in 2000, and Wholly
Foreign Owned Enterprise Law Implementation Rules (1990), as amended in 2001.
Under these laws and regulations, our PRC subsidiary may pay dividends only out
of its accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, our PRC subsidiary is required to set
aside at least 10% of its after-tax profit based on PRC accounting standards
each year to its statutory surplus reserve fund until the accumulative amount of
such reserve reaches 50% of its respective registered capital. These reserves
are not distributable as cash dividends. The board of directors of a
wholly foreign-owned enterprise has the discretion to allocate a portion of its
after-tax profits to its staff welfare and bonus funds. After the
allocation of relevant welfare and funds, the equity owners can distribute the
rest of the after-tax profits provided that all the losses of the previous
fiscal year have been made up.
Environmental
Protection Regulations
The PRC
has expressed a concern about pollution and other environmental hazards.
Although we believe that we comply with current national and local government
regulations, if it is determined that we are in violation of these regulations,
we can be subject to financial penalties as well as the loss of our business
license, in which event we would be unable to continue in business. Further, if
the national or local government adopts more stringent regulations, we may incur
significant costs in complying with such regulations. If we fail to comply with
present or future environmental regulations, we may be required to pay
substantial fines, suspend production or cease operations. Any failure by us to
control the use of, or to restrict adequately the discharge of, hazardous
substances could subject us to potentially significant monetary damages and
fines or suspensions in our business operations.
Foreign
Exchange Controls
In August
2008, the Foreign Exchange Bureau issued the Foreign Exchange Administration
Regulation, as amended. Under the Regulation, the Renminbi (“RMB”) is freely
convertible for current account items, including the distribution of dividends,
interest payments, trade and service-related foreign exchange transactions, but
not under the “capital account,” which includes foreign direct investment, loans
and investments in securities outside of China, unless the prior approval of the
SAFE is obtained and prior registration with the SAFE is made. These limitations
could affect the PRC company’s ability to obtain foreign exchange through debt
or equity financing. This could negatively impact our financial performance as
it may limit our ability to reallocate capital and to take advantage of market
opportunities.
On
August 29, 2008, SAFE promulgated a notice entitled Circular 142, regulating the
conversion by a foreign-invested company of foreign currency into RMB by
restricting the use of converted RMB. The notice requires that the registered
capital of a foreign-invested company settled in RMB converted from foreign
currencies may only be used for purposes within the business scope stated in the
business license and may not be used for equity investments within PRC. In
addition, SAFE strengthened its supervision of the flow and use of the
registered capital of a foreign-invested company settled in RMB converted
from foreign currencies. The use of such RMB capital may not be changed without
SAFE’s prior approval, and may not in any case be used to repay RMB loans if the
proceeds of such loans have not been used.
Since a
significant amount of our future revenue will be denominated in RMB, any
existing and future restrictions on currency exchange may limit our ability to
utilize revenue generated in RMB to fund our business activities outside China
that are denominated in foreign currencies. We cannot be certain that the
Chinese regulatory authorities will not impose more stringent restrictions on
the convertibility of the RMB.
Compliance
with Environmental Laws
We are
required to comply with several domestic environmental protection laws and
regulations, including Environmental Protection Law of the People’s Republic of
China, Law of the People’s Republic of China on Prevention and Control of
Water Pollution, Law of the People’s Republic of China on the
Prevention and Control of Atmospheric Pollution, Law of the People’s Republic of
China on the Prevention and Control of Environmental Pollution by Solid Waste,
Law of the People’s Republic of China on Prevention and Control of Pollution
From Environmental Noise, Law of the People’s Republic of China on Appraising of
Environment Impact and Regulations on the Administration of Construction Project
Environmental Protection.
In
accordance with the Environmental Protection Law of the People’s Republic of
China adopted by the Standing Committee of the National People’s Congress on
December 26, 1989, the bureau of environmental protection of the State Council
sets the national guidelines for the discharge of pollutants. The provincial and
municipal governments of provinces, autonomous regions and municipalities may
also set their own guidelines for the discharge of pollutants within their own
provinces or districts in the event that the national guidelines are inadequate.
The subdivision environmental protection laws on control of pollution of water,
air, solid waste and noise set more detailed rules, standards and specifications
with respect to their areas of regulation.
Pursuant
to the Environmental Protection Law and its subdivision laws, a company or
enterprise which causes environmental pollution and discharges other polluting
materials which endanger the public should implement environmental protection
methods and procedures into their business operations. This may be achieved by
setting up a system of accountability within the company’s business structure
for environmental protection; adopting effective procedures to prevent
environmental hazards such as waste gases, water and residues, dust powder,
radioactive materials and noise arising from production, construction and other
activities from polluting and endangering the environment. The environmental
protection system and procedures should be implemented simultaneously with the
commencement of and during the operation of construction, production and other
activities undertaken by the company. Any company or enterprise which discharges
environmental pollutants should report and register such discharge with relevant
bureaus of environmental protection and pay any fines imposed for the discharge.
A fee may also be imposed on the company for the cost of any work required to
restore the environment to its original state. Companies which have caused
severe pollution to the environment are required to restore the environment or
remedy the effects of the pollution within a prescribed time limit.
In
addition, the Law of the People’s Republic of China on Appraising of Environment
Impact Issued by the National People’s Congress of China which came into effect
on September 1, 2003 provides the methods and institutions for analyzing,
predicting and appraising the impact of operation and construction projects that
might incur after they are carried out. In case a construction project of any
company or enterprise fails to pass the examination, the construction may not be
started. Regulations on the Administration of Construction Project Environmental
Protection Issued by the State Council of China which came into effect on
November 29, 1998 provide that the building of construction projects having
impacts on the environment within the territory of the People’s Republic of
China shall compile or submit a report on environmental impact, a statement
on environmental impact or a registration form on environmental
impact in accordance with the extent of environmental impact of construction
projects.
REPORTS
TO SECURITY HOLDERS
We are
required to file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission and our filings
are available to the public over the internet at the Securities and Exchange
Commission’s website at http://www.sec.gov. The public may read and copy any
materials filed by us with the Securities and Exchange Commission at the
Securities and Exchange Commission’s Public Reference Room at 100 F Street N.E.
Washington D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-732-0330. The SEC also maintains an Internet site that contains reports,
proxy and formation statements, and other information regarding issuers that
file electronically with the SEC, at http://www.sec.gov.
A copy of
any public filing is also available, at no charge, by contacting us at 3723 E.
Maffeo Road, Phoenix, Arizona 85050, USA. The Company’s main
telephone number is 516-659-6677.
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this Form 8-K before making an investment decision
with regard to our securities. The statements contained in or incorporated into
this Form 8-K that are not historic facts are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements. If
any of the following events described in these risk
factors actually occurs, our business, financial condition or results of
operations could be harmed. In that case, the trading price of our common stock
could decline, and you may lose all or part of your investment.
Risks
Relating to Our Business and Industry
Our
limited operating history makes it difficult to evaluate our future prospects
and results of operations.
UHF,
which commenced business in 2006 (through its wholly owned subsidiary Shenzhen
RPD), has a limited operating history. Accordingly, you should consider our
future prospects in light of the risks and uncertainties experienced by
early-stage companies in evolving industries in China. Some of these
risks and uncertainties relate to our ability to:
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Maintain
our market position
|
|
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·
|
Respond
to competitive market conditions
|
|
|
·
|
Increase
awareness of our UHF brand
|
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·
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Respond
to changes in our regulatory
environment
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Maintain
effective control of our costs and
expenses
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·
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Raise
sufficient capital to sustain and expand our
business
|
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·
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Attract,
retain and motivate qualified
personnel
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If we are
unsuccessful in addressing any of these risks and uncertainties, our business
may be materially and adversely affected.
If
we fail to implement our business strategy, our financial performance and our
growth could be materially and adversely affected.
Our
future financial performance and success are dependent in large part upon our
ability to implement our business strategy successfully. Our business strategy
envisions several initiatives, including driving revenue growth and enhancing
operating results by increasing adoption of our products by targeting
high-growth segments, establishing successful distribution networks in our
target markets for our products, anticipating customer needs in the development
of system-level solutions, strengthening our technology leadership while
lowering cost and pursuing targeted strategic acquisitions and alliances. We may
not be able to implement our business strategy successfully or achieve the
anticipated benefits of our business plan. If we are unable to do so, our
long-term growth and profitability may be adversely affected. Even if we are
able to implement some or all of the initiatives of our business plan
successfully, our operating results may not improve to the extent we anticipate,
or at all. Implementation of our business strategy could also be affected by a
number of factors beyond our control, such as increased competition, legal
developments, government regulation, general economic conditions or increased
operating costs or expenses. In addition, to the extent we have misjudged the
nature and extent of industry trends or our competition; we may have difficulty
in achieving our strategic objectives. Any failure to implement our business
strategy successfully may adversely affect our business, financial condition and
results of operations. In addition, we may decide to alter or discontinue
certain aspects of our business strategy at any time.
We
will require additional funds to expand our operations.
In
connection with the development and expansion of our business, we will incur
significant capital and operational expenses. We do not presently have any
funding commitments. If we are unable to obtain additional funding,
we may be unable to expand our business or finance the growth of our existing
business, which may impair our ability to operate profitably.
Further,
because of the worldwide economic downturn, we may not be able to raise any
additional funds that we require on favorable terms, if any. The
failure to obtain necessary financing may impair our ability to manufacture our
products and continue in business.
Our
business is subject to our customers’ capital budget because we sell capital
equipment and systems, and we may suffer delays or cancellations of orders as a
result of the effects of the worldwide economic downturn.
Our
customers purchase our software and equipment as part of their capital budget.
As a result, we are dependent upon receiving orders from companies that are
either expanding their business, commencing a new business, upgrading their
capital equipment or who otherwise require capital equipment. Our business is
therefore dependent upon both the economic health of these industries and our
ability to offer products that meet regulatory requirements, including
environmental requirements of these industries and are cost justifiable, based
on potential cost savings in using our equipment in contrast to existing
equipment or equipment offered by others. We cannot predict the
extent that the market for capital equipment for RFID systems will be
affected. However, any economic slowdown can affect all purchasers
and manufactures of capital equipment, and we cannot assure you that our
business will not be significantly impaired as a result of the worldwide
economic downturn.
We
are subject to particularly lengthy sales cycles.
We are
subject to lengthy sale cycles that may last over nine months. These
lengthy and challenging sales cycles may mean that it could take longer before
our sales and marketing efforts result in revenue, if at all, and may have
adverse effects on our operating results, financial condition, cash flows and
stock price.
If
we fail to introduce enhancements to our existing products or to keep abreast of
technological changes in our markets, our business and results of operations
could be adversely affected.
Although
certain technologies in the industries that we occupy are well established, we
believe our future success depends in part on our ability to enhance our
existing products and develop new products in order to continue to meet customer
demands. Our failure to introduce new or enhanced products on a timely and
cost-competitive basis, or the development of processes that make our existing
technologies or products obsolete, could harm our business and results of
operations.
Because
we face intense competition from other companies for our operating segment, many
of which have greater resources than we do, we may not be able to compete
successfully and we may lose or be unable to gain market share.
The
markets for products in our business segments are intensely competitive. Many of
our competitors have established more prominent market positions, and if we fail
to attract and retain customers and establish successful distribution networks
in our target markets for our products, we will be unable to increase our sales.
Many of our existing and potential competitors have substantially greater
financial, technical, manufacturing and other resources than we do. Our
competitors’ greater size in some cases provides them with a competitive
advantage with respect to manufacturing costs because of their economies of
scale and their ability to purchase raw materials at lower prices, as well as
securing supplies at times of shortages. Many of our competitors also have
greater brand name recognition, more established distribution networks and
larger customer bases. In addition, many of our competitors have
well-established relationships with our current and potential customers and have
extensive knowledge of our target markets. As a result, they may be able to
devote greater resources to the research, development, promotion and sale of
their products or respond more quickly to evolving industry standards and
changes in market conditions than we can. Our failure to adapt to changing
market conditions and to compete successfully with existing or new competitors
may materially and adversely affect our financial condition and results of
operations.
The
success of our businesses will depend on our ability to effectively develop and
implement strategic business initiatives.
We are
currently implementing various strategic business initiatives. In connection
with the development and implementation of these initiatives, we will incur
additional expenses and capital expenditures to implement the initiatives. The
development and implementation of these initiatives also requires management to
divert a portion of its time from day-to-day operations. These expenses and
diversions could have a significant impact on our operations and profitability,
particularly if the initiatives included in any new initiative proves to be
unsuccessful. Moreover, if we are unable to implement an initiative in a timely
manner, or if those initiatives turn out to be ineffective or are executed
improperly, our business and operating results would be adversely
affected.
Failure
to successfully reduce our production costs may adversely affect our financial
results.
A
significant portion of our strategy relies upon our ability to successfully
rationalize and improve the efficiency of our operations. In particular, our
strategy relies on our ability to reduce our production costs in order to remain
competitive. If we are unable to continue to successfully implement cost
reduction measures, especially in a time of a worldwide economic downturn, or if
these efforts do not generate the level of cost savings that we expect going
forward or result in higher than expected costs, there could be a material
adverse effect on our business, financial condition, results of operations or
cash flows.
If
we are unable to make necessary capital investments or respond to pricing
pressures, our business may be harmed.
In order
to remain competitive, we need to invest in research and development,
manufacturing, customer service and support and marketing. From time to time, we
also have to adjust the prices of our products to remain competitive. We may not
have available sufficient financial or other resources to continue to make
investments necessary to maintain our competitive position.
We
do not have long term contracts with our customers and our customers have the
ability to terminate their relationship with us at any time, which could cause a
material adverse effect on our results of operations.
We do not
have written long term agreements with our customers for the ongoing purchase of
additional RFID systems. As a result, our customers may,
without notice or penalty, terminate their relationship with us at any time or
delay the delivery of products on relatively short notice. We cannot
assure you that any of our current customers will continue to purchase our
products in the future. Additionally, even if customers decide to
continue their relationship with us, there can be no guarantee that they will
purchase the same amounts of products as in the past. Any loss of a
customer, or decrease in the volume of products purchased by a customer could
have a material adverse effect on our business, operating results and financial
condition. There is no assurance that any of these customers will continue to
contribute to our total sales revenue in subsequent years. Under
present conditions, the loss of any one of these customers could have a material
effect on our performance, liquidity and prospects. To reduce this
risk, we continue to build our sales pipeline and diversify our product
line.
We
may incur design and development expenses and purchase inventory in anticipation
of orders which are not placed.
In order
to transact business, we assess the integrity and creditworthiness of our
customers and suppliers and we may, based on this assessment, incur design and
development costs that we expect to recoup over a number of orders produced for
the customer. Such assessments are not always accurate and expose us
to potential costs, including the write off of costs incurred and inventory
obsolescence if the orders anticipated do not materialize. We may
also occasionally place orders with suppliers based on a customer’s forecast or
in anticipation of an order that is not realized. Additionally, from
time to time, we may purchase quantities of supplies and materials greater than
required by customer orders to secure more favorable pricing, delivery or credit
terms. These purchases can expose us to losses from cancellation
costs, inventory carrying costs or inventory obsolescence, and hence adversely
affect our business and operating results.
We
derive the majority of our revenues from sales in the PRC and any downturn in
the Chinese economy could have a material adverse effect on our business and
financial conditions.
A
substantial portion of our revenues are generated from sales in the
PRC. We anticipate that revenues from sales of our products in the
PRC will continue to represent a substantial portion of our total revenues in
the near future. Our sales and earnings can also be affected by
changes in the general economy since purchases of RFID systems are generally
discretionary for our customers in times of economy downturn.
Adverse changes in the economic factors may restrict customer budgeting on
system improvement, thereby negatively affecting our sales and
profitability.
We
are subject to market risk through our sales to international
markets.
A growing
percentage of our sales may derive from international markets. These
operations are subject to risks that are inherent in operating in foreign
countries, including the following:
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Foreign
countries could change regulations or impose currency restrictions and
other restraints
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Changes
in foreign currency exchange rates and hyperinflation or deflation in the
foreign countries in which we
operate
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Some
countries impose burdensome tariffs and
quotas
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Political
changes and economic crises may lead to changes in the business
environment in which we operate
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International
conflict, including terrorist acts, could significantly impact our
financial condition and results of
operations
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Economic
downturns, political instability and war or civil disturbances may disrupt
distribution logistics or limit sales in individual
markets.
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If
our third party sales representatives and distributors fail to adequately
promote, market and sell our products, our revenues could significantly
decrease.
A
significant portion of our product sales are made through third party sales
representative organizations, whose members are not our
employees. Our level of sales depends on the effectiveness of these
organizations, as well as the effectiveness of our own employees. If
any of the third party sales representative organizations engaged by us fails to
adequately promote, market and sell our products, our revenues could be
significantly decreased until we can retain a replacement organization or
distributor. Finding replacement organizations and distributors can
be a time consuming process during which our revenues could be negatively
impacted. Our success is dependent on these distributors finding new
customers and receiving new orders from existing customers.
Unanticipated
disruptions in our operations or slowdowns by our suppliers and shipping
companies could adversely affect our ability to deliver our products to our
customers which could materially and adversely affect our revenues and our
relationships with our customers.
Our
ability to provide high quality customer service, process and fulfill orders and
manage inventory depends on:
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The
efficient and uninterrupted operation of our contractors, distribution
centers
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The
timely and uninterrupted performance of third party suppliers, shipping
companies, and dock workers
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Any
material disruption or slowdown in the operation of our contractors,
distribution centers, manufacturing facilities or management information
systems, or comparable disruptions or slowdowns suffered by our principal
suppliers and shippers could cause delays in our ability to receive, process and
fulfill customer orders and may cause orders to be canceled, lost or delivered
late, goods to be returned or receipt of goods to be refused. As a
result, our revenues and operating results could be materially and adversely
affected.
Our
business depends substantially on the continuing efforts of our executive
officers and our ability to maintain a skilled labor force and our business may
be severely disrupted if we lose their services.
Our
future success depends substantially on the continued services of our executive
officers, especially Mr. Su (Sammul) Si You, the chairman of our board of
directors. We do not maintain key man life insurance on any of our executive
officers and directors. If one or more of our executive officers are unable or
unwilling to continue in their present positions, we may not be able to replace
them readily, if at all. Therefore, our business may be severely disrupted, and
we may incur additional expenses to recruit and retain new officers. In
addition, if any of our executives joins a competitor or forms a competing
company, we may lose some of our customers. Our executive officers and chairman
are parties to contractual agreements as described elsewhere in this Form 8-K.
However, if any disputes arise between our executive officers and us, we cannot
assure you, in light of uncertainties associated with the Chinese legal system,
the extent to which any of these agreements could be enforced in China, where
some of our executive officers reside and hold some of their
assets.
If
we are unable to attract, train and retain technical and financial personnel,
our business may be materially and adversely affected.
Our
future success depends, to a significant extent, on our ability to attract,
train and retain technical, marketing and financial personnel. Recruiting and
retaining capable personnel, particularly those with expertise in our chosen
industries, are vital to our success. There is substantial competition for
qualified technical and financial personnel, and there can be no assurance that
we will be able to attract or retain our technical and financial personnel. If
we are unable to attract and retain qualified employees, our business may be
materially and adversely affected.
Our
failure to protect our intellectual property rights may undermine our
competitive position, and litigation to protect our intellectual property rights
or defend against third-party allegations of infringement may be
costly.
We rely
primarily on trade secret and contractual restrictions to protect our
intellectual property. Nevertheless, these afford only limited protection and
the actions we take to protect our intellectual property rights may not be
adequate. As a result, third parties may infringe or misappropriate our
proprietary technologies or other intellectual property rights, which could have
a material adverse effect on our business, financial condition or operating
results. In addition, policing unauthorized use of proprietary technology can be
difficult and expensive. Litigation may be necessary to enforce our intellectual
property rights, protect our trade secrets or determine the validity and scope
of the proprietary rights of others and the enforcement of intellectual property
rights in China may be difficult. We cannot assure you that the outcome of any
litigation will be in our favor. Intellectual property litigation may be costly
and may divert management attention as well as expend our other resources away
from our business. An adverse determination in any such litigation will impair
our intellectual property rights and may harm our business, prospects and
reputation. In addition, we have no insurance coverage against litigation costs
and would have to bear all costs arising from such litigation to the extent we
are unable to recover them from other parties. The occurrence of any of the
foregoing could have a material adverse effect on our business, results of
operations and financial condition.
We may
receive notice of claims of infringement of other parties’ proprietary
rights. Such actions could result in litigation and we could incur
significant costs and diversion of resources in defending such
claims. The party making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable
relief. Such relief could effectively block our ability to make, use,
sell, distribute or market our products in such jurisdiction. We may
also be required to seek licenses to such intellectual property. We
cannot predict, however, whether such licenses would be available or, if
available, that such licenses could be obtained on terms that are commercially
reasonable and acceptable to us. The failure to obtain the necessary
licenses or other rights could delay or preclude the sale, manufacture or
distribution of our products and could result in increased costs to
us.
Implementation
of China’s intellectual property-related laws has historically been lacking,
primarily because of ambiguities in China’s laws and difficulties in
enforcement. Accordingly, intellectual property rights and confidentiality
protections in China may not be as effective as in the United States or other
countries.
We
have limited business insurance coverage.
The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products. We do not have any
business liability or disruption insurance coverage for our operations in China.
Any business disruption, litigation or natural disaster may result in our
incurring substantial costs and the diversion of our resources.
Corporate
insiders or their affiliates may be able to exercise significant control matters
requiring a vote of our stockholders and their interests may differ from the
interests of our other stockholders.
Our
officers and directors collectively own approximately 35.64% of the outstanding
shares of our common stock. As a result, these officers and
directors may be able to exercise significant control over matters requiring
approval by our stockholders. Matters that require the approval of our
stockholders include the election of directors and the approval of mergers or
other business combination transactions. Certain transactions are effectively
not possible without the approval of these officers and directors by virtue of
their control, including, proxy contests, tender offers, open market purchase
programs or other transactions that can give our stockholders the opportunity to
realize a premium over the then-prevailing market prices for their shares of our
common stock.
We will be
required to evaluate our internal control over financial reporting under Section
404 of the Sarbanes-Oxley Act
Failure
to timely comply with the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002 (“Section 404”) or any adverse results from such evaluation could result
in a loss of investor confidence in our financial reports and have an adverse
effect on the trading price of our debt and equity securities.
We
currently are not an “accelerated filer” as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended. Section 404 requires us to include
an internal control report with our Annual Report on Form 10-K. That report must
include management’s assessment of the effectiveness of our internal control
over financial reporting as of the end of the fiscal year. This report must also
include disclosure of any material weaknesses in internal control over financial
reporting that we have identified. As of February 28, 2010, the management of
the Company assessed the effectiveness of the Company’s internal control over
financial reporting based on the criteria for effective internal control over
financial reporting established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
and SEC guidance on conducting such assessments. Management
concluded, during the year ended February 28, 2010 that its internal controls
and procedures were not effective to detect the inappropriate application of
U.S. GAAP rules. In this regard, management realized there were
material deficiencies in the design or operation of the Company’s internal
controls.
Nevertheless,
our management has determined that all matters to be disclosed in this report
have been fully and accurately reported. We are in the process of improving our
processes and procedures to ensure full, accurate and timely disclosure in the
current fiscal year, with the expectation of establishing effective disclosure
controls and procedures and internal control over financial reporting as soon as
reasonably practicable. Our assessment requires us to make subjective judgments
and our independent registered public accounting firm may not agree with our
assessment.
Achieving
continued compliance with Section 404 may require us to incur significant costs
and expend significant time and management resources. We cannot assure you that
we will be able to fully comply with Section 404 or that we would be able to
conclude that our internal control over financial reporting is effective at
fiscal year end. As a result, investors could lose confidence in our reported
financial information, which could have an adverse effect on the trading price
of our securities, as well as subject us to civil or criminal investigations and
penalties. We will continue to consistently improve our internal control over
the financial reporting with our best efforts and we plan to engage assistance
from outside experts in doing so.
We
do not have sufficient GAAP knowledge or SEC reporting experience.
We
currently do not have a clear process, schedule, segregation of duties or review
with respect to the SEC reporting process or have an accounting and financial
reporting team with sufficient knowledge of U.S. GAAP. In additional, we do not
have sufficient knowledge of the Sarbanes-Oxley Act. The Company is
committed to remedying the deficiency and weakness and has planned to implement
certain remedial measures, including the hiring of a comptroller or other
finance personnel with U.S. GAAP and SEC reporting experience, provision of
additional training to our accounting personnel on the requirements of U.S. GAAP
and SEC reporting requirements to increase their familiarity with those
standards and the reassessment of our existing finance and accounting policies
and procedures.
Risks
Related to Our Corporate Structure
Recent
PRC regulations relating to acquisitions of PRC companies by foreign entities
may create regulatory uncertainties that could restrict or limit our ability to
operate. Our acquisition of UHF could constitute a Round-trip
Investment under the 2006 M&A Rules.
On
October 21, 2005, SAFE issued a
Circular on Relevant Issues
Concerning Foreign Exchange Administration on the Financing and Return
Investment by Chinese Domestic Residents through Overseas Special Purpose
Companies
(“Circular 75”), which became effective on November 1,
2005. Circular 75 regulates the foreign exchange matters in relation
to the use of a “special purpose vehicle” by PRC residents to seek offshore
equity financing and conduct “round trip investment” in China. Under
Circular 75, a “special purpose vehicle” or “SPV” refers to an offshore entity
established or controlled, directly or indirectly, by PRC residents or PRC
entities for the purpose of seeking offshore equity financing using assets or
interests owned by such PRC residents or PRC entities in onshore companies,
while “round trip investment” refers to the direct investment in China by PRC
residents through the “SPV”, including without limitation establishing foreign
invested enterprises and using such foreign invested enterprises to purchase or
control (by way of contractual arrangements) onshore assets. Pursuant
to Circular 75, (1) a PRC resident shall register with a local branch of the
SAFE before he or she establishes or controls an overseas SPV, for the purpose
of overseas equity financing (including convertible debt financing); (2) when a
PRC resident contributes the assets of or his or her equity interests in a
domestic enterprise to an SPV, or engages in overseas financing after
contributing assets or equity interests to an SPV, such PRC resident must
register his or her interest in the SPV and any subsequent changes in such
interest with a local branch of the SAFE; and (3) when the SPV undergoes a
material change outside of China, such as a change in share capital or merger or
acquisition, the PRC resident shall, within 30 days from the occurrence of the
event that triggers the change, register such change with a local branch of the
SAFE. In addition, SAFE issued updated internal implementing rules,
or the Implementing Rules in relation to Circular 75. The
Implementing Rules (“Circular 106”) were promulgated and became effective on May
29, 2007. Circular 106 provides more detailed provisions and
requirements regarding the overseas investment foreign exchange registration
procedures. Under Circular 106, the PRC subsidiary of the offshore SPV are
prohibited from distributing their profits and proceeds from any reduction in
capital, share transfer or liquidation to their offshore special purpose vehicle
parent companies if the SPV shareholders who are PRC residents have not
completed foreign exchange registration pursuant to Circular
75. However, even after the promulgation of Circular 106 there still
exist uncertainties regarding the SAFE registration for PRC residents’ interests
in overseas companies. If any PRC resident stockholder of a SPV fails
to make the required SAFE registration and amended registration, the onshore PRC
subsidiaries of that offshore company may be prohibited from distributing their
profits and the proceeds from any reduction in capital, share transfer or
liquidation to the offshore entity. 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. Because of uncertainty in how the SAFE circulars will
be further interpreted and enforced, we cannot be sure how it will affect our
business operations or future plans. For example, Shenzhen RPD’s
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 circulars by our PRC resident beneficial holders over
whom we have no control. In addition, we cannot assure you that such
PRC residents will be able to complete the necessary approval and registration
procedures required by the SAFE circulars. We cannot assure you that
such registration will be approved. Failure by any PRC resident
beneficial holder to register as required with the relevant branch of SAFE could
subject these PRC resident beneficial holders to fines or legal sanctions,
restrict our overseas or cross-border investment activities, limit Shenzhen
RPD’s ability to make distributions or pay dividends or affect our ownership
structure, which could adversely affect our business and prospects.
On August
8, 2006, the MOFCOM joined by the State-owned Assets Supervision and
Administration Commission of the State Council, the State Administration of
Taxation, the State Administration for Industry and Commerce, the China
Securities Regulatory Commission (“CSRC”) and SAFE, released a substantially
amended version of the Provisions for Foreign Investors to Merge with or Acquire
Domestic Enterprises (the “Revised M&A Regulations”), which took effect
September 8, 2006. These new rules significantly revised China’s
regulatory framework governing onshore-to-offshore restructurings and foreign
acquisitions of domestic enterprises. Depending on the structure of
the transaction, the Revised M&A Regulations require the Chinese parties to
make a series of applications and supplemental applications to the
aforementioned governmental agencies, some of which must be made within strict
time limits and depend on approvals from one or the other of the aforementioned
governmental agencies. These new rules signify greater PRC government
attention to cross-border merger, acquisition and other investment activities,
by confirming MOFCOM as a key regulator for issues related to mergers and
acquisitions in China and requiring MOFCOM approval of a broad range of merger,
acquisition and investment transactions. Further, the new rules
establish reporting requirements for acquisition of control by foreigners of
companies in key industries, and reinforce the ability of the Chinese government
to monitor and prohibit foreign control transactions in key
industries.
Among
other things, the revised M&A Regulations include new provisions that
purport to require that an offshore special purpose vehicle, or SPV, formed for
listing purposes and controlled directly or indirectly by PRC companies or
individuals must obtain the approval of the CSRC prior to the listing and
trading of such SPV’s securities on an overseas stock exchange. On
September 21, 2006, the CSRC published on its official website procedures
specifying documents and materials required to be submitted to it by SPVs
seeking CSRC approval of their overseas listings. However, the
application of this PRC regulation remains unclear with no consensus currently
existing among the leading PRC law firms regarding the scope and applicability
of the CSRC approval requirement.
If the
CSRC or another PRC regulatory agency subsequently determines that CSRC approval
was required, we may face regulatory actions or other sanctions from the CSRC or
other PRC regulatory agencies. These regulatory agencies may impose
fines and penalties on our operations in the PRC, limit our operating privileges
in the PRC, delay or restrict the repatriation of the proceeds from our proposed
public offering into the PRC, or take other actions that could have a material
adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as the trading price of our common
stock. The CSRC or other PRC regulatory agencies also may take
actions requiring us, or making it advisable for us, to halt our proposed public
offering before settlement and delivery of the common stock offered
thereby. Consequently, if investors engage in market trading or other
activities in anticipation of and prior to settlement and delivery, they do so
at the risk that settlement and delivery may not occur.
According
to the M&A Regulations, a “Related Party Acquisition” is defined as having
taken place when a PRC business that is owned by PRC individual(s) is sold to a
non-PRC entity that is established or controlled, directly or indirectly, by
those same PRC individual(s). Under the M&A Regulations, any
Related Party Acquisition must be approved by MOFCOM and any indirect
arrangement or series of arrangements which achieves the same end result without
the approval of MOFCOM is a violation of PRC law.
Prior to
obtaining the approval from the Commerce Bureau of the City of Shenzhen on April
9, 2010 and the business license from the Guangdong Administration for Industry
and Commerce on April 22, 2010, and prior to full payment of the purchase price
and UHF purchasing 100% capital stock of Shenzhen RPD (the “UHF Acquisition”),
Shenzhen RPD was a PRC business incorporated on April 19, 2006. As of the date
on which Shenzhen RPD was incorporated, and at the time when the UHF Acquisition
was approved, none of the shareholders of UHF was a PRC citizen. After the UHF
Acquisition, UHF became the sole shareholder of Shenzhen RPD. On July 15, 2010,
UHF and the Company executed the Share Exchange Agreement (the “Exchange
Transaction”) and immediately after the consummation of the Exchange Transaction
between UHF and the Company, the shareholders of UHF became significant
shareholders. Mr. Su (Sammul) Si You and others, who are PRC
nationals and who have become officers and director of the Company in connection
with the Exchange Transaction, and will acquire shares in the Company in
conjunction with the UHF Acquisition.
The PRC
regulatory authorities may take the view that the UHF Acquisition and Exchange
Transaction are part of an overall series of arrangements which constitute
a round-trip investment under PRC 2006 M&A Rules because the PRC individuals
could collectively become the effective controlling party of a foreign entity
(UHF) that acquired ownership of a PRC entity (RPD). As such, the PRC regulatory
authorities may require registration with and/or approval by the MOFCOM and/or
the State Administration for Industry and Commerce (“SAIC”). If such
registration or approval is required, we cannot assure you that we may be able
to complete such registration or obtain such approval.
If the
PRC regulatory authorities take the view that the UHF Acquisition constitutes a
round-trip investment without approval, they may invalidate our acquisition
and ownership of UHF. Additionally, the PRC regulatory authorities may take the
view that the UHF Acquisition constitutes a transaction which requires the prior
approval of the China Securities Regulatory Commission (“CSRC”) before MOFCOM
approval is obtained. We believe that if this takes place, we may be able to
find a way to re-establish control of UHF’s business operations through a series
of contractual arrangements rather than an outright purchase of UHF. But we
cannot assure you that such contractual arrangements will be protected by PRC
law or that we can receive as complete or effective economic benefit and overall
control of UHF’s business than if the Company had direct ownership of UHF. In
addition, we cannot assure you that such contractual arrangements can be
successfully effected under PRC law. If we cannot obtain MOFCOM or CSRC approval
as may be required by the PRC regulatory authorities to do so, and if we cannot
put in place or enforce relevant contractual arrangements as an alternative and
equivalent means of control of UHF, our business and financial performance will
be materially adversely affected.
Also, if
the CSRC requires that we obtain its approval, we may be unable to obtain a
waiver of the CSRC approval requirements, if and when procedures are established
to obtain such a waiver. Any uncertainties and/or negative publicity
regarding this CSRC approval requirement could have a material adverse effect on
the trading price of our common stock. Furthermore, published news
reports in China recently indicated that the CSRC may have curtailed or
suspended overseas listings for Chinese private companies. These news
reports have created further uncertainty regarding the approach that the CSRC
and other PRC regulators may take with respect to us.
We
believe that Revised M&A Regulations and CSRC approval were not required in
the context of the Exchange Transaction because (i) share exchange is a purely
foreign related transaction governed by foreign laws, not subject to the
jurisdiction of PRC laws and regulations; (ii) we are not an SPV formed or
controlled by PRC companies or PRC individuals, and (iii) we are owned or
substantively controlled by foreigners. However, we cannot assure
you that the relevant PRC government agencies, including the CSRC, would reach
the same conclusion, and we still cannot rule out the possibility that CSRC may
deem that the transactions effected by the share exchange circumvented the
Revised M&A Regulations, related clarifications and PRC Securities
Law. It is also uncertain how our business operations or future
strategy will be affected by the interpretations and implementation of Circular
75, Circular 106, and the Revised M&A Regulations. It is
anticipated that application of the new rules will be subject to significant
administrative interpretation, and we will need to closely monitor how SAFE,
MOFCOM and other ministries apply the rules to ensure that our domestic and
offshore activities continue to comply with PRC law. Given the
uncertainties regarding interpretation and application of the new rules, we may
need to expend significant time and resources to maintain
compliance.
Risks
Related to Doing Business in China
Because
our assets are located overseas, shareholders may not receive distributions that
they would otherwise be entitled to if we were declared bankrupt or
insolvent.
All of
our assets are located in the PRC. Because our assets are located overseas, our
assets may be outside of the jurisdiction of U.S. courts to administer if we are
the subject of an insolvency or bankruptcy proceeding. As a result, if we
declared bankruptcy or insolvency, our shareholders may not receive the
distributions on liquidation that they would
otherwise be entitled to if our assets were to be located within the
U.S., under U.S. Bankruptcy law.
Adverse
changes in economic and political policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
adversely affect our business.
All of
our business operations are currently conducted in the PRC, under the
jurisdiction of the PRC government. Accordingly, our results of
operations, financial condition and prospects are subject to a significant
degree to economic, political and legal developments in China. China’s economy
differs from the economies of most developed countries in many respects,
including with respect to the amount of government involvement, level of
development, growth rate, and control of foreign exchange and allocation of
resources. While the PRC economy has experienced significant growth in the past
20 years, growth has been uneven across different regions and among various
economic sectors of China. The PRC government has implemented various measures
to encourage economic development and guide the allocation of resources. Some of
these measures benefit the overall PRC economy, but may also have a negative
effect on us. Our ability to operate in China may be adversely affected by
changes in Chinese laws and regulations, including those relating to taxation,
import and export tariffs, raw materials, environmental regulations, land use
rights, property and other matters. Under the current government
leadership, the government of the PRC has been pursuing economic reform policies
that encourage private economic activity and greater economic
decentralization. There is no assurance, however, that the government
of the PRC will continue to pursue these policies, or that it will not
significantly alter these policies from time to time without
notice.
Our labor costs are likely to
increase as a result of changes in Chinese labor laws.
We expect
to experience an increase in our cost of labor due to recent changes in Chinese
labor laws which are likely to increase costs further and impose restrictions on
our relationship with our employees. In June 2007, the National
People’s Congress of the PRC enacted new labor law legislation called the Labor
Contract Law and more strictly enforced existing labor laws. The new law, which
became effective on January 1, 2008, amended and formalized workers’ rights
concerning overtime hours, pensions, layoffs, employment contracts and the role
of trade unions. As a result of the new law, the Company has had to
increase the salaries of its employees, provide additional benefits to its
employees, and revise certain other of its labor practices. The increase in
labor costs has increased the Company’s operating costs, which increase the
Company has not always been able to pass through to its
customers. In addition, under the new law, employees who
either have worked for the Company for 10 years or more or who have had two
consecutive fixed-term contracts must be given an “open-ended employment
contract” that, in effect, constitutes a lifetime, permanent contract, which is
terminable only in the event the employee materially breaches the Company’s
rules and regulations or is in serious dereliction of his duty. Such
non-cancelable employment contracts will substantially increase its employment
related risks and limit the Company’s ability to downsize its workforce in the
event of an economic downturn. No assurance can be given that the
Company will not in the future be subject to labor strikes or that it will not
have to make other payments to resolve future labor issues caused by the new
laws. Furthermore, there can be no assurance that the labor laws will
not change further or that their interpretation and implementation will vary,
which may have a negative effect upon our business and results of
operations.
Uncertainties
with respect to the Chinese legal system could have a material adverse effect on
us.
We
conduct substantially all of our business through subsidiaries and affiliated
entities in China. These entities are generally subject to laws and regulations
applicable to foreign investment in China. China's legal system is based on
written statutes. Unlike the common law system prevalent in the
United States, decided legal cases have little value as precedent in
China. Prior court decisions may be cited for reference but have
limited precedential value. There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations,
including but not limited to, governmental approvals required for conducting
business and investments, laws and regulations governing the electronics
business and electric product safety, national security-related laws and
regulations and export/import laws and regulations, as well as commercial,
antitrust, patent, product liability, environmental laws and regulations, and
financial and business taxation laws and regulations.
The
Chinese government has been developing a comprehensive system of commercial
laws, and considerable progress has been made in introducing laws and
regulations dealing with economic matters. However, because these
laws and regulations are relatively new, and because of the limited volume of
published cases and judicial interpretation and their lack of force as
precedents, interpretation and enforcement of these laws and regulations involve
significant uncertainties. New laws and regulations that affect
existing and proposed future businesses may also be applied
retroactively.
Our
principal operating subsidiary, Shenzhen RPD, is considered a foreign invested
enterprise under PRC laws, and as a result is required to comply with PRC laws
and regulations, including laws and regulations specifically governing the
activities and conduct of foreign invested enterprises. We cannot
predict what effect the interpretation of existing or new PRC laws or
regulations may have on our businesses. If the relevant authorities
find us in violation of PRC laws or regulations, they would have broad
discretion in dealing with such a violation, including, without
limitation:
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Revoking
our business license, other licenses or
authorities
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Requiring
that we restructure our ownership or
operations
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Requiring
that we discontinue any portion or all of our
business
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Investors
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based upon U.S. laws,
including the federal securities laws or other foreign laws against us or our
management.
Most of
our current operations, including the manufacturing and distribution of our
products, are conducted in China. Some of our future directors and
officers may be nationals and residents of China. All or
substantially all of the assets of these persons are located outside the United
States and in the PRC. As a result, it may not be possible to effect
service of process within the United States or elsewhere outside China upon
these persons. In addition, uncertainty exists as to whether the courts of China
would recognize or enforce judgments of U.S. courts obtained against us or such
officers and/or directors predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof, or be competent to
hear original actions brought in China against us or such persons predicated
upon the securities laws of the United States or any state thereof.
The
scope of our business license in China is limited, and we may not expand or
continue our business without government approval and renewal,
respectively.
Our
principal operating subsidiary, Shenzhen RPD, is a wholly foreign-owned
enterprise, commonly known as a WFOE. A WFOE can only conduct
business within its approved business scope, which ultimately appears on its
business license. Our license permits us to produce and market RFID
products and relevant components. Any amendment to the scope of our
business requires further application and government approval. In
order for us to expand our business beyond the scope of our license, we will be
required to enter into a negotiation with the PRC authorities for the approval
to expand the scope of our business. We cannot assure investors that
Shenzhen RPD will be able to obtain the necessary government approval for any
change or expansion of its business.
Unprecedented
rapid economic growth in China may increase our costs of doing business, and may
negatively impact our profit margins and/or profitability.
Our
business depends in part upon the availability of relatively low-cost labor and
materials. Rising wages in China may increase our overall costs of production.
In addition, rising raw material costs, due to strong demand and greater
scarcity, may increase our overall costs of production. If we are not able to
pass these costs on to our customers in the form of higher prices, our profit
margins and/or profitability could decline.
Governmental
control of currency conversion may affect the value of your
investment.
The
Chinese government imposes controls on the convertibility of RMB into foreign
currencies and, in certain cases, the remittance of currency out of China. We
receive substantially all of our revenues in RMB. Under our current structure,
our income is primarily derived from payments from UHF. Shortages in the
availability of foreign currency may restrict the ability of our Chinese
subsidiaries and our affiliated entity to remit sufficient foreign currency to
pay dividends or other payments to us, or otherwise satisfy their foreign
currency denominated obligations. Under existing Chinese foreign exchange
regulations, payments of current account items, including profit distributions,
interest payments and expenditures from trade-related transactions, can be made
in foreign currencies without prior approval from China State Administration of
Foreign Exchange by complying with certain procedural requirements. However,
approval from appropriate government authorities is required where RMB 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 Chinese government may also at its discretion restrict access in the future
to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy
our currency demands, we may not be able to pay dividends in foreign currencies
to our stockholders.
Fluctuation
in the value of RMB may have a material adverse effect on your
investment.
The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Our revenues and costs are mostly denominated in RMB, while a significant
portion of our financial assets are denominated in U.S. dollar. We rely entirely
on fees paid to us by our affiliated entity in China. Any significant
fluctuation in the value of RMB may materially and adversely affect our cash
flows, revenues, earnings and financial position, and the value of, and any
dividends payable on, our stock in U.S. dollars. For example, an appreciation of
RMB against the U.S. dollar would make any new RMB denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S.
dollar into RMB for such purposes.
Since
1994, the value of the RMB relative to the U.S. dollar has remained stable and
has appreciated slightly against the U.S. dollar. Countries, including the
United States, have argued that the RMB is artificially undervalued due to
China’s current monetary policies and have pressured China to allow the RMB to
float freely in world markets. In July 2005, the PRC government
changed its policy of pegging the value of the RMB to the
dollar. Under the new policy the RMB is permitted to fluctuate within
a narrow and managed band against a basket of designated foreign
currencies. While the international reaction to the RMB revaluation
has generally been positive, there remains significant international pressure on
the PRC government to adopt an even more flexible currency policy, which could
result in further and more significant appreciation of the RMB against the
dollar.
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 can lead to growth in the money supply
and rising inflation. According to the National Bureau of Statistics
of China, the inflation rate in China reached a high point of 4.8% in 2007 as
compared to the past several years. The inflation rate in China was
4.7% in 2008. The inflation rate is expected to continue to increase
in 2009. If prices for our products and services rise at a rate that
is insufficient to compensate for the rise in the costs of supplies such as raw
materials, it may have an adverse effect on our profitability.
Furthermore,
in order to control inflation in the past, the PRC government has imposed
controls on bank credits, limits on loans for fixed assets and restrictions on
state bank lending. The implementation of such policies may impede
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. In April 2006, the People’s Bank of
China raised the interest rate again. 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 and services.
Because
our funds are held in banks which do not provide insurance, the failure of any
bank in which we deposit our funds could affect our ability to continue in
business.
Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit. A portion of our assets upon the completion of the
Exchange Transaction, are expected to be in the form of cash deposited with
banks in the PRC, and in the event of a bank failure, we may not have access to
our funds on deposit. Depending upon the amount of money we maintain
in a bank that fails, our inability to have access to our cash could impair our
operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue in
business.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us
to penalties and other adverse consequences.
As our
ultimate holding company is a Delaware corporation, we are subject to the United
States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign
officials for the purpose of obtaining or retaining business. Foreign
companies, including some that may compete with us, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and
other fraudulent practices may occur from time-to-time in the PRC. We
can make no assurance, however, that our employees or other agents will not
engage in such conduct for which we might be held responsible. If our
employees or other agents are found to have engaged in such practices, we could
suffer severe penalties and other consequences that may have a material adverse
effect on our business, financial condition and results of
operations.
If
we make equity compensation grants to persons who are PRC citizens, they may be
required to register with the State Administration of Foreign Exchange of the
PRC, or SAFE. We may also face regulatory uncertainties that could
restrict our ability to adopt an equity compensation plan for our directors and
employees and other parties under PRC law.
On April
6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also known as “Circular 78.” It is not clear
whether Circular 78 covers all forms of equity compensation plans or only those
which provide for the granting of stock options. For any plans which
are so covered and are adopted by a non-PRC listed company after April 6, 2007,
Circular 78 requires all participants who are PRC citizens to register with and
obtain approvals from SAFE prior to their participation in the
plan. In addition, Circular 78 also requires PRC citizens to register
with SAFE and make the necessary applications and filings if they participated
in an overseas listed company’s covered equity compensation plan prior to April
6, 2007. We intend to adopt an equity compensation plan in the future
and make option grants to our officers and directors who are PRC
citizens. Circular 78 may require our officers and directors who
receive option grants and are PRC citizens to register with SAFE. We
believe that the registration and approval requirements contemplated in Circular
78 will be burdensome and time consuming. If it is determined that
any of our equity compensation plans are subject to Circular 78, failure to
comply with such provisions may subject us and participants of our equity
incentive plan who are PRC citizens to fines and legal sanctions and prevent us
from being able to grant equity compensation to our PRC employees. In
that case, our ability to compensate our employees and directors through equity
compensation would be hindered and our business operations may be adversely
affected.
We
face risks related to health epidemics and other outbreaks.
Our
business could be adversely affected by the effects of an epidemic outbreak,
such as the SARS epidemic in April 2004, Avian Flu, Swine Flu or another
widespread public health problem in China. Any prolonged recurrence of such
adverse public health developments in China may have a material adverse effect
on our business operations. For instance, health or other government regulations
adopted in response may require temporary closure of our stores or offices. Such
closures would severely disrupt our business operations and adversely affect our
results of operations. We have not adopted any written preventive measures or
contingency plans to combat any future outbreak of SARS or any other
epidemic.
Because
our business is located in the PRC, we may have difficulty establishing adequate
management, legal and financial controls, which we are required to do in order
to comply with U.S. GAAP and securities laws, and which could cause a materially
adverse impact on our financial statements, the trading of our common stock and
our business.
PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. Most of our middle and top management staff are not educated
and trained in the Western system, and we may difficulty hiring new employees in
the PRC with experience and expertise relating to U.S. GAAP and U.S.
public-company reporting requirements. In addition, 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 required under Section 404 of the Sarbanes-Oxley Act of
2002. This may result in significant deficiencies or material weaknesses in our
internal controls which could impact the reliability of our financial statements
and prevent us from complying with SEC rules and regulations and the
requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, material
weaknesses or lack of compliance could result in restatements of our historical
financial information, cause investors to lose confidence in our reported
financial information, have an adverse impact on the trading price of our common
stock, adversely affect our ability to access the capital markets and our
ability to recruit personnel, lead to the delisting of our securities from the
stock exchange on which they are traded, lead to litigation claims, thereby
diverting management’s attention and resources, and which may lead to the
payment of damages to the extent such claims are not resolved in our
favor, lead to regulatory proceedings, which may result in sanctions, monetary
or otherwise, and have a materially adverse effect on our reputation and
business.
Reduction
or elimination of government support and related economic incentives for RFID
implementations could cause demand for our products to decline, thus adversely
affecting our business prospects and results of operations.
Growth of
the RFID market currently depends largely on government support and related
economic incentives. Various governments have used different policy
initiatives to encourage or accelerate the development and adoption of RFID
systems and these governments have themselves been larger purchasers of the
technology. As an example of such government-support programs include
the National ID card implemented in China in 2008. Governments, in
particular, the Chinese government, may decide to reduce or eliminate these
support or related economic incentives for political, financial or other reasons
and such change may have a negative effect on our financial condition.
Risks
Related to an Investment in Our Securities
Our
stock is categorized as a penny stock. Trading of our stock may be restricted by
the SEC’s penny stock regulations which may limit a shareholder’s ability to buy
and sell our stock.
Our stock
is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally
defines “penny stock” to be any equity security that has a market price (as
defined) less than US$ 5.00 per share or an exercise price of less than US$ 5.00
per share, subject to certain exceptions. Our securities are covered by the
penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
FINRA sales
practice requirements may also limit a shareholder’s ability to buy and sell our
stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
We
expect to experience volatility in our stock price, which could negatively
affect shareholders’ investments.
The
market price for shares of our common stock may be volatile and may fluctuate
based upon a number of factors, including, without limitation, business
performance, news announcements or changes in general market
conditions.
Other
factors, in addition to the those risks included in this section, that may have
a significant impact on the market price of our common stock include, but are
not limited to:
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Receipt
of substantial orders or order cancellations of
products
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Quality
deficiencies in services or
products
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International
developments, such as technology mandates, political developments or
changes in economic policies
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Changes
in recommendations of securities
analysts
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Shortfalls
in our backlog, revenues or earnings in any given period relative to the
levels expected by securities analysts or projected by
us
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Government
regulations, including stock option accounting and tax
regulations
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Acts
of terrorism and war
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Proprietary
rights or product or patent
litigation
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Strategic
transactions, such as acquisitions and
divestitures
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Rumors
or allegations regarding our financial disclosures or
practicers
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Earthquakes
or other natural disasters concentrated in Hubei, China where a
significant portion of our operations are
based
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In the
past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its
securities. Due to changes in the volatility of our common stock
price, we may be the target of securities litigation in the
future. Securities litigation could result in substantial costs and
divert management’s attention and resources.
To
date, we have not paid any cash dividends and no cash dividends will be paid in
the foreseeable future.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and we may not have sufficient funds legally available to pay
dividends. Even if the funds are legally available for distribution,
we may nevertheless decide not to pay any dividends. We presently
intend to retain all earnings for our operations.
Our
common shares are not currently traded at high volume, and you may be unable to
sell at or near ask prices or at all if you need to sell or liquidate a
substantial number of shares at one time.
We cannot
predict the extent to which an active public market for its common stock will
develop or be sustained. However, we do not rule out the possibility
of applying for listing on the NYSE Amex (formerly known as American Stock
Exchange) or NASDAQ Capital Market or other markets.
Our
common shares are currently traded, but currently with low volume, based on
quotations on the “Over-the-Counter Bulletin Board”, meaning that the number of
persons interested in purchasing our common shares at or near bid prices at any
given time may be relatively small or non-existent. This situation is
attributable to a number of factors, including the fact that we are a small
company which is still relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a
consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a seasoned issuer which
has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price. We cannot
give you any assurance that a broader or more active public trading market for
our common stock will develop or be sustained, or that trading levels will be
sustained.
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
“penny stocks” has suffered in recent years from patterns of fraud and
abuse. Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. Our management is aware of the
abuses that have occurred historically in the penny stock
market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
The occurrence of these patterns or practices could increase the future
volatility of our share price.
Because
Our President, Directors And Officers Collectively Own 35.64% Of Our Outstanding
Common Stock, They Can Collectively Make And Control Corporate Decisions That
May Be Disadvantageous To Minority Shareholders.
Mr.
Parrish Medley, our President, Mr. Su (Sammul) Si You, our Chairman and
Director, Mr. Eric Wildstein, our CFO and Director and Mr. Jun Tang, our COO and
CTO, collectively own approximately 35.64% of the outstanding shares of our
common stock. Accordingly, they will have significant influence in
determining the outcome of all corporate transactions or other matters,
including the election of directors, mergers, consolidations and the sale of all
or substantially all of our assets, and also the power to prevent or cause a
change in control. The interests of these individuals may differ from
the interests of the other stockholders and thus result in corporate decisions
that are disadvantageous to other shareholders.
Special
Risks Relating to Developing and Emerging Markets
The
economies, business standards and procedures of developing or emerging markets,
such as the People’s Republic of China, may differ, favorably or unfavorably,
from those of the United States. Further, such countries often use legal
and accounting systems which differ substantially from those used in the United
States. Such difference in economies, business standards and procedures,
as well as those relating to the legal and accounting systems utilized, may
present a variety of risks that are unbeknownst to the Company at this
time. While the Company has worked diligently to educate and inform itself
of all possible risks relating to its acquisition of UHF and/or Shenzhen RPD, no
assurance can be given that all relevant risks relating thereto have been
discovered and thus assessed prior to the acquisition.
SUMMARY
FINANCIAL DATA
The
following tables summarize financial data regarding the business of Shenzhen
RPD, the operating subsidiary of UHF, and should be read together with “
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
” and the consolidated
pro forma financial statements of the Company and the related notes included
with those financial statements. The summary consolidated financial
information as of December 31, 2009 and the six months ended June 30, 2010 have
been derived from the financial statements for Shenzhen RPD. All
monetary amounts are expressed in U.S. dollar unless otherwise
indicated.
(in US$
except loss per share data)
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Balance Sheet Data
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Year Ended
December 31, 2009
(in US $)
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Six Month Ended June
30, 2010
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Total
Assets
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14
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Total
Liabilities
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0
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Total
Equity
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14
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MANAGEMENT’S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
The
following discussion and analysis of the results of operations and financial
condition of Shenzhen RPD, the operating subsidiary of UHF, for the fiscal years
ended December 31, 2009 and 2008 and should be read in conjunction
with the Selected Financial Data, the Regal Group, Inc. financial statements,
and the notes to those financial statements that are included elsewhere in this
Form 8-K. Our discussion includes forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and
Business sections in this Form 8-K. We use words such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,”
“intend,” “may,” “will,” “should,” “could,” and similar expressions to identify
forward-looking statements.
OVERVIEW
You
should read the following discussion of our financial condition and results of
operations together with the audited and unaudited financial statements and the
notes to the audited and unaudited financial statements included as Exhibit 99.1
and 99.2 in this Current Report. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ significantly from those projected in the forward-looking
statements as a result of many factors.
Basis
of Presentation of Financial Information
On August
10, 2010, we closed on the Exchange Agreement with UHF. As a result, we
commenced the business conducted by UHF. Because we are the successor
business to UHF and because the operations and assets of UHF and its subsidiary,
Shenzhen RPD, represent our entire business and operations as of the Closing
Date of the Exchange Agreement, our management’s discussion and analysis and
audited and unaudited financial statements are based on the consolidated
financial results of Shenzhen RPD, the operating company of our subsidiary,
UHF.
For
the Six Months Ended June 30, 2010
We did
not earn any revenues for the six-month period ended June 30,
2010. At June 30, 2010, we had incurred a net loss of
$14. We had no assets and no liabilities as of June 30,
2010.
We have
not attained profitable operations and are dependent upon obtaining financing to
pursue our activities. For these reasons our auditors believe that
there is substantial doubt that we will be able to continue as a going
concern.
For
the Year Ended December 31, 2009
We earned
revenues in the amount of $615 during the fiscal year ended December 31,
2009. We have not fully implemented our sales and marketing strategy
for our China business can therefore provide no assurance that our business
model and plan is economically feasible.
We
incurred a net loss of $5,937 for the year ended December 31,
2009. We had assets of $14 and no liabilities as of December 31,
2009.
We have
not attained profitable operations and are dependent upon obtaining financing to
complete our proposed business plan. For these reasons, there is
substantial doubt that we will be able to continue as a going
concern.
Liquidity
and Capital Resources
At June
30, 2010, we had no cash on hand. In the opinion of our management,
we need to raise additional capital to continue our operations. We
will obtain additional funding through either loans from related parties or one
or more private placements. We cannot guarantee that additional
funding will be available on favourable terms, if at all. If adequate
funds are not available, then our ability to expand our operations may be
adversely affected.
Significant
Accounting Policies
Basis of
Presentation
The
financial statements of the Company have been prepared in accordance with
generally accepted accounting principles (“GAAP”) in the United States of
America and are presented in US dollars.
Use of
estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts 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. The Company regularly evaluates estimates and
assumptions. The Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and
adversely from the Company's estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected. The most significant estimates with regard to these
financial statements relate to useful lives of assets and deferred income tax
amounts and rates and timing of the reversal of income tax
differences.
Foreign Currency
Translation
Foreign
denominated monetary assets and liabilities are translated to their United
States dollar equivalents using foreign exchange rates which prevailed at the
balance sheet date. Expenses are translated at average rates of
exchange during the period. Related translation adjustments are reported as a
separate component of stockholders' equity, whereas gains or losses resulting
from foreign currency transactions are included in results of
operations.
DESCRIPTION
OF PROPERTY
Our
principal executive offices will be at 3723 E. Maffeo Road, Phoenix,
Arizona 85050, USA. The Company’s main telephone number is
516-659-6677.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding the number of shares of our
Common Stock beneficially owned as of August 9, 2010 (following the Exchange
Agreement) by (i) each stockholder who we know to own beneficially 5% or more of
our outstanding common stock; (ii) all directors; (iii) all nominees for
director; (iv) our executive officers; and (v) all executive officers and
directors as a group. Except as otherwise indicated, we believe, based on
information furnished by such persons, that each person listed below has sole
voting and investment power over the shares of common stock shown as
beneficially owned, subject to community property laws, where applicable.
Beneficial ownership is determined under the rules of the SEC and includes any
shares which the person has the right to acquire within 60 days after August 9,
2010 through the exercise of any stock option, warrant or other
right.
|
Name and Address of
Beneficial Owners
|
|
Title/Status
|
|
Amount and Nature
of
Beneficial Ownership
|
|
|
Percentage
of Class
(1)
|
|
|
Su
(Sammul) Si You
Flat
202, 23 Jin Hong Road, Shenzhen, PRC
|
|
Chairman
and Director
|
|
|
13,387,300
|
(2)
|
|
|
22.76
|
%
|
|
Tang
(Johnny) Jun
Flat
2331, Building 13, Ting Na Garden, Jianshe Road, Shenzhen,
PRC
|
|
COO
and CTO
|
|
|
1,075,000
|
(2)
|
|
|
1.83
|
%
|
|
Eric
Wildstein
3723
E. Maffeo Road, Phoenix, Arizona 85050, USA
|
|
CFO and
Director
|
|
|
3,000,000
|
|
|
|
5.10
|
%
|
|
Parrish
Medley
8927
St. Ives Drive, Los Angeles, CA 90069, USA
|
|
President
and Director
|
|
|
3,500,000
|
|
|
|
5.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers and directors as a
group (_4_ persons)
|
|
|
20,962,300
|
|
|
|
35.64
|
%
|
(1) Based
on 58,816,665 shares outstanding as of August 9, 2010.
(2) All
shares are currently held in escrow pursuant to the terms of the Exchange
Agreement and will be released in accordance therewith.
Changes
in Control
There are
no arrangements known to us that may, at a subsequent date, result in a change
of control of the Company.
MANAGEMENT
Directors
and Executive Officers, Promoters and Control Persons
The
following individuals serve as the executive officers and key employees of our
Company as of the Closing Date of the Exchange Agreement. The executive officers
of our Company are appointed by our board of directors and hold office as set
forth in their respective employment agreements or until their earlier death,
resignation or removal from office.
|
Name
|
|
Age
|
|
Position
|
|
Su
(Sammul) Si You
|
|
50
|
|
Chairman
and Director
|
|
Tang
(Johnny) Jun
|
|
45
|
|
COO
and CTO
|
|
Eric
Wildstein
|
|
30
|
|
CFO
and Director
|
|
Parrish
Medley
|
|
48
|
|
President
and Director
|
Su (Sammul) Si
You
-
Mr. Su has serves as the Chief Executive Officer of UHF and
also served as a consultant to RPD and DDCT. In 2006 Mr. Su founded
DDCT and served in a wide range of positions at DDCT, including as a business
director, project manager, office director, departmental manager, division head,
vice general manager, and general manager. Mr. Su graduated in 1986 from Nanjing
Institute of Technology, Department of Radio Engineering as Senior
Engineer.
Jun
Tang
–
Mr. Tang currently serves as the COO and CTO of the
Company. He also served as the COO of UHF since its inception in
2009. Mr. Tang joined DDTC in early 2009 and later RPD. Since then,
he has remained in the position to oversee the company’s production and
operation and contribute to building the company’s core competencies and
increasing its market competitiveness in a range of areas from research and
development, production to sales and from service, human resource to
logistics. From 2003 to 2009, he led a 100-strong R&D team to
join Telthink Network Technologies Co., Ltd under Fujian Guomai Technologies,
Inc., helping boost telecom service software sales and lay a foundation for its
listing on Shenzhen Stock Exchange (stock code: 002093). Mr.
Tang Jun obtained a master’s degree in engineering in 1985 and a doctor’s degree
in engineering in 1988 from University of Electronic Science and Technology of
Chin. In 2005, he obtained a MBA degree from China Europe
International Business School.
Eric Wildstein –
Mr. Wildstein joined Regal in August of 2007 as our President, Chief
Executive Officer and director. Since graduating with a Bachelor's of
Science degree in Kinesiology from Arizona State University in 2003, Mr.
Wildstein was involved in the set-up and operation of a successful chain of
health food restaurants and related catering operations in Scottsdale,
Arizona. During this time, Mr. Wildstein was also involved in venture
capital investments, public relations and event management sector.
Parrish
Medley
- Mr. Medley joined Regal in February of 2010 as our Principal
Accounting Officer and director. He has over twenty years experience
in the securities and investment banking industry with service as a manager and
financial consultant for numerous registered broker/dealers, including Bear
Stearns & Co. Since 1997, Mr. Medley has worked as a venture capitalist and
a private money manager. From 1990 to 1997, Mr. Medley founded and grew Palm
Beach Tan, Inc., into a multi-chain business before selling it to a group of
private investors. In 2004 Parrish Medley and Carlo Mondavi, founded
Davi Skin Inc. where Mr. Medley acted as President, CEO until November
2006. Between 2006 to 2010, Mr. Medley is involved in real estate
investment and venture capital investment. Mr. Medley graduated from
Southern Methodist University in 1986 with a Bachelors degree in Business
Administration.
Family
Relationships
There are
no other family relationships between any of our directors or executive
officers.
Involvement
in Certain Legal Proceedings
None of
our directors, executive officers, promoters or control persons has been
involved in any of the following events during the past 10 years:
|
|
1.
|
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;
|
|
|
2.
|
any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offences);
|
|
|
3.
|
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
|
|
|
4.
|
being
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission 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.
|
Meetings
of the Board
The Board
of Directors oversees the conduct and supervises the management of our business
and affairs pursuant to the powers vested in it by and in accordance with the
requirements of the Revised Statutes of Nevada. The Board of
Directors holds regular meetings to consider particular issues or conduct
specific reviews whenever deemed appropriate.
Board
Committees
Our board
of directors does not have any committees. However, at such time in
the future that we appoint independent directors to the board, we expect to form
the appropriate board committees.
Director
Independence
We do not
have any independent directors as all our directors also serve as officers of
the Company. Our determination of independence of directors is made
by using the definition of “independent director” contained under Rule
5605(a)(2) of the NASDAQ Marketplace Rules.
Code
of Ethics
We have
adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of
the Securities Exchange Act of 1934. The Code of Ethics applies
to directors and senior officers, such as the principal executive officer,
principal financial officer, controller, and persons performing similar
functions. The Code of Ethics is attached to this report as an exhibit
14.1
EXECUTIVE
COMPENSATION
The
following table sets forth information concerning the compensation paid and
awarded to those individuals serving as our officers following the entry into
the Exchange Agreement. It includes compensation paid to our Chief
Executive Officer, our Chief Financial Officer, our Chief Operating Officer and
our former President as of the fiscal year end February 28, 2009 and
2010.
|
Name and Principal
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Options
Awards
|
|
|
Non-
Equity
Incentive
Plan
Compensation
|
|
|
Change in
Pension
Value
and Non-
qualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Su
(Sammul) Si You,
|
|
2010
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Chairman
and Director
|
|
2009
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Tang
(Johnny) Jun,
|
|
2010
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
COO
and CTO
|
|
2009
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Eric
Wildstein,
|
|
2010
|
|
|
|
17,500
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
|
17,500
|
|
|
Former
President, CFO and Director
|
|
2009
|
|
|
|
39,884
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
|
39,884
|
|
|
Parrish
Medley,
|
|
2010
|
|
|
|
15,000
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
|
15,000
|
|
|
President
and Director
|
|
2009
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
Employment
Contracts
There is
no employment contract in place at this time.
Director
Compensation
We do not
compensate directors for their services on our Board of Directors.
The
following table reflects all compensation awarded to, earned by or paid to our
directors for the fiscal year ended February 28, 2010.
|
Name
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Options
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Su
(Sammul) Si You*
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Eric
Wildstein
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Parrish
Medley
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
*
Mr. Su did assumed his position as a
member of our Board of Directors on August 10, 2010.
Our Board
of Directors considers good corporate governance to be important to our
effective operations. Our directors are elected at the annual meeting of the
stockholders and serve until their successors are elected or appointed.
Officers are appointed by the Board of Directors and serve at the
discretion of the Board of Directors or until their earlier resignation or
removal.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None of
our directors or officers, nor any proposed nominee for election as a director,
nor any person who beneficially owns, directly or indirectly, shares carrying
more than 10% of the voting rights attached to all of our outstanding shares,
nor any promoter, nor any relative or spouse of any of the foregoing persons has
any material interest, direct or indirect, in any transaction since our
incorporation or in any presently proposed transaction which, in either case,
has or will materially affect us.
Our
management is involved in other business activities and may, in the future
become involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between our business and their other business interests. In the event
that a conflict of interest arises at a meeting of our directors, a director who
has such a conflict will disclose his interest in a proposed transaction and
will abstain from voting for or against the approval of such
transaction.
LEGAL
PROCEEDINGS
We know
of no material, active or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceedings or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered beneficial shareholder are an adverse party or has a material
interest adverse to us.
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our
common stock has been quoted on the OTC Bulletin Board since February 13,
2007. Its initial trading symbol was “RGLC”. Subsequent to
the fiscal year ended February 28, 2010, the stock symbol was changed to “RGLG”
as a result of a change of our Company’s name to Regal Group, Inc. on March 31,
2010.
The
following quotations reflect the high and low bids for our common stock for each
quarter during fiscal 2010 and 2009. The source of these high and low
prices was the OTC Bulletin Board. These quotations reflect inter-dealer prices,
without retail mark-up, markdown or commissions and may not represent actual
transactions. The high and low prices listed have been rounded up to the next
highest two decimal places.
It is anticipated that the market price
of our common stock will be subject to significant fluctuations in response to
variations in our quarterly operating results, general trends in the market for
the products we distribute, and other factors, over many of which we have little
or no control. In addition, broad market fluctuations, as well as general
economic, business and political conditions, may adversely affect the market for
our common stock, regardless of our actual or projected performance. On August
9, 2010, the closing bid price of our common stock as reported by the OTC
Bulletin Board was US$0.23 per share.
|
National Association of Securities Dealers OTC Bulletin Board
|
|
|
Quarter
Ended
|
|
High
|
|
|
Low
|
|
|
Through
August 9, 2010
|
|
$
|
0.31
|
|
|
$
|
0.19
|
|
|
May
31, 2010
|
|
$
|
0.31
|
|
|
$
|
0.18
|
|
|
February
28, 2010
|
|
$
|
0.19
|
|
|
$
|
0.06
|
|
|
November
30, 2009
|
|
$
|
0.28
|
|
|
$
|
0.05
|
|
|
August
31, 2009
|
|
$
|
0.30
|
|
|
$
|
0.16
|
|
|
May
31, 2009
|
|
$
|
0.60
|
|
|
$
|
0.16
|
|
|
February
28, 2009
|
|
$
|
0.59
|
|
|
$
|
0.35
|
|
|
November
30, 2008
|
|
$
|
1.06
|
|
|
$
|
0.46
|
|
|
August
31, 2008
|
|
$
|
1.09
|
|
|
$
|
0.77
|
|
|
May
31, 2008
|
|
$
|
0.80
|
|
|
$
|
0.58
|
|
On
November 13, 2007,
we
effected a 5:1 forward split of our share capital such that every one share of
common stock issued and outstanding prior to the split was exchanged for five
post-split shares of common stock. We also changed our post-split authorized
capital to 100,000,000 shares of common stock with a par value of $0.001 per
share. All share amounts were retroactively adjusted for all periods
presented.
Holders
We have 36 shareholders of record as
of August 9, 2010.
We have not declared any dividends,
and we do not plan to declare any dividends in the foreseeable
future.
Rule
144 Shares
A total of 42,666,665 shares of our
common stock are available for resale to the public in accordance with the
volume and trading limitations of Rule 144 of the Act. In
general, under Rule 144 as currently in effect, a person who has beneficially
owned shares of a company's common stock for at least six months, provided that
the company has been subject to the reporting requirements of the Securities Act
of 1934 for a minimum of 90 days, is entitled to sell within any three month
period a number of shares that does not exceed the greater of:
|
1.
|
1%
of the number of shares of the company's common stock then outstanding;
or
|
|
2.
|
the
average weekly trading volume of the company's 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 the
company.
As of the date of this prospectus,
persons who are our affiliates hold all of the 30,850,000 shares that may be
sold pursuant to Rule 144.
Common
Stock
We are
currently authorized to issue 100,000,000 shares of common stock, par value
$0.001. As of August 9, 2010, we had 58,816,665 shares issued and
outstanding.
Warrants
As of
August 9, 2010, there are warrants to purchase 4,333,335 shares of our common
stock. Such warrants are exercisable at $1.00 per share and expire on May 28,
2012.
Dividend
Policy
We have
not paid any cash dividends and we have no intention of paying any dividends on
our shares of common stock in the near future. Our current policy is to retain
earnings, if any, for use in our operations and in the development of our
business. Our future dividend policy will be determined from time to time by our
board of directors.
Securities
Authorized for Issuance Under Equity Compensation Plans
Not applicable.
RECENT
SALES OF UNREGISTERED SECURITIES
For
information about recent sales of unregistered securities, see Item 3.02 of this
Current Report on Form 8-K.
DESCRIPTION
OF SECURITIES
Our
authorized capitalization consists of 100,000,000 shares of common stock, $0.001
par value. The following summary description of the capital stock describes the
material terms of our capital stock. The Company had 58,816,665 common shares
issued and outstanding as of August 10, 2010 as a result of the issuance of
12,000,000 shares of common stock in connection with the closing of the Exchange
Agreement.
Common
Stock
The
holders of our common stock are entitled to one vote per share on all matters
for which shareholders are able to vote. The holders of our common stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voting in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of preferred
stock, if and when issued. The holders of common stock have no preemptive or
other subscription rights.
The
holders of our common stock are entitled to receive dividends, if they are ever
declared by the Board of Directors from legally available funds, with each share
of common stock sharing equally in the dividends. The possible issuance of
preferred stock with a preference over common stock as to dividends could impact
the dividend rights of holders of our common stock.
There are
no redemption provisions with respect to our common stock. All outstanding
shares of common stock are fully paid and non-assessable.
The
by-laws provide that the number of directors shall be fixed by the board of
directors. Any director of the Company may be removed from office with or
without cause by the holders of a majority of the outstanding shares of the
Company entitled to vote at an election of directors.
Transfer
Agent
Our transfer agent is Holladay Stock
Transfer, with address at 2939 North 67th Place, Scottsdale, Arizona
85251.
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Our
directors and officers are indemnified as provided by the Nevada Revised
Statutes and our Bylaws.
We have
been advised that in the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Act is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities is asserted by one of our
directors, officers, or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our legal counsel the matter
has been settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court’s decision.
At
present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
may result in a claim for indemnification by any director or
officer.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
were no changes in accounting principles or disagreements with our auditors
regarding applications of any accounting principles during the fiscal years
ended February 28, 2010.
FINANCIAL
STATEMENTS AND EXHIBITS
See Item 9.01 below, which is
incorporated by reference herein.
|
Item
3.02
|
Unregistered
Sales of Equity Securities.
|
In
connection with the closing of the Exchange Agreement on August 10, 2010, the
Company issued an aggregate of 12,000,000 Newly Issued Regal Shares to the
Selling Shareholders in exchange for UHF Shares.
The
exchange of the UHF Shares for the Newly Issued Regal Shares qualifies as an the
exemption from registration pursuant to Rule 903 of Regulation S promulgated
under the Securities Act of 1933. We believe that this exemption from
registration was available because each shareholder represented to us
in a duly signed Certificate of Non-US Shareholder, among other things, that he,
she or it was a non-U.S. person as defined in Regulation S, was not acquiring
the shares for the account or benefit of, directly or indirectly, any U.S.
person, had the intention to acquire the securities for investment purposes only
and not with a view to or for sales in connection with any distribution thereof,
and that such shareholder was sophisticated and was able to bear the risk of
loss of the entire investment. Further, we did not otherwise engage
in distribution of these shares in the U.S.
|
Item
5.01
|
Changes
in Control of Registrant
|
As set
forth in more detail in Item 2.01 above, which information is hereby
incorporated by referenced into this Item 5.01, as of the Closing Date, Selling
Shareholders and the Purchasing Shareholders hold approximately 45% of the
issued and outstanding common stock of the Company and control the post-exchange
Company.
Item
5.02 Departure of
Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
Upon the effectiveness of the
Exchange Agreement, Mr. Su (Sammul) Si You has been appointed as the Company’s
Chairman and as a member of our Board of Directors. In addition, Mr.
Tang (Johnny) Jun has been appointed as the Company’s Chief Operating Officer
and Chief Technology Officer. Please see the section above entitled
“Management” for the biographies of each of these individuals.
Item
5.06 Change in Shell
Company Status.
Upon completion of the transactions
contemplated by the Exchange Agreement, which are described in more detail in
Item 2.01 above, management has determined that, as of the Closing Date, the
Company has ceased to be a shell company as defined in Rule 12b-2 of the United
States Securities Exchange Act of 1934, as amended. Prior to the
Closing Date, the Company had no or nominal operation or assets.
Item
9.01. Financial Statements and Exhibits.
|
Exhibit
No.
|
|
Description
|
|
2.1
|
|
Share
Exchange Agreement dated July 15, 2010
|
|
10.1
|
|
Escrow
Agreement dated August 10, 2010
|
|
14.1
|
|
Code
of Ethics
|
|
99.1
|
|
Audited
Financial statements of Shenzhen RPD for the fiscal year ended December
31, 2009 and 2008 and related notes.
|
|
99.2
|
|
Unaudited
Financial Statements of Shenzhen RPD for the quarter ended June 30,
2010
|
|
99.3
|
|
Unaudited
pro forma financial statements and related
notes
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date:
August 10, 2010
|
|
REGAL
GROUP INC.
|
|
|
|
|
|
|
|
By:
|
|
/s/
Eric Wildstein
|
|
|
|
|
Eric
Wildstein
Chief
Executive Officer
|
EXHIBIT
INDEX
|
Exhibit
No.
|
|
Description
|
|
2.1
|
|
Share
Exchange Agreement dated July 15, 2010
|
|
10.1
|
|
Escrow
Agreement dated August 10, 2010
|
|
14.1
|
|
Code
of Ethics
|
|
99.1
|
|
Audited
Financial statements of Shenzhen RPD for the fiscal year ended December
31, 2009 and 2008 and related notes.
|
|
99.2
|
|
Unaudited
Financial Statements of Shenzhen RPD for the quarter ended June 30,
2010
|
|
99.3
|
|
Unaudited
pro forma financial statements and related
notes
|
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