Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-8
Registration Statement
Under
The Securities Act of 1933
ETERNAL TECHNOLOGIES GROUP, INC.
(Formerly Egan Systems, Inc.)
(Exact name of registrant as specified in its charter)
Nevada 62-1655508
- ------------------------------- ------------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
Sect. D, 5/F, Block A. Innotech Tower, 235 Nanjing Rd. Heping
District, Tianjin 300052
(Address of Principal Executive Offices) (Zip Code)
2005 Stock Option Plan
and 2005 Stock Compensation Plan
Copy to:
Hank Vanderkam
Rita Dickson Vanderkam & Associates
1161 Ambassador Drive 1301 Travis, #1200
Reno, NV 89523 Houston, Texas 77002
-------------- (713) 547-8900
(Name, address and telephone
number of agent for service)
Approximate date of proposed sales pursuant to the plan: From time to time after
the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
================================== =============== =================== ===================== ================
Proposed maximum Proposed maximum Amount of
Title of securities Amount to be offering price per aggregate offering registration
to be registered registered share (1) price fee
- ---------------------------------- --------------- ------------------- --------------------- ----------------
Common Stock, $.001 par value 3,060,000 $0.50 1,530,000 63.95
================================== =============== =================== ===================== ================
(1) This Registration Statement covers (i) 2,500,000 shares of Common Stock
(the "Common Stock"), $0.001 par value per share, of Eternal
Technologies Group, Inc. ("Eternal")(the "Registrant") issuable
pursuant to the 2005 Stock Option Plan (the "2005 Option Plan") and
(ii) 560,000 shares of Common Stock issuable pursuant to the Eternal
Technologies Group, Inc. Stock Compensation Plan. In addition, pursuant
to Rule 416(c) under the Securities Act of 1933, as amended (the
"Securities Act") this Registration Statement covers an indeterminable
number of additional shares of Common Stock as may hereafter be offered
or issued pursuant to the Plans, to prevent dilution resulting from
stock splits, stock dividends or similar transactions effected without
receipt of consideration.
(2) Calculated in accordance with Rule 457(c) solely for the purpose of
determining the registration fee. The offering price is based on the
closing price as reported on the Nasdaq Electronic Bulletin Board on
September 14, 2005 under the symbol "ETLT".
This Registration Statement contains two parts. The first part contains a
prospectus pursuant to Form S-3 (in accordance with Section C of the General
Instructions to the Form S-8) which covers reoffers and resales of "restricted
securities" and/or "control securities" (as such terms are defined in Section C
of the General Instructions to Form S-8) of the Company. This reoffer prospectus
relates to up to 2,500,000 shares of Common Stock under the Stock Option Plan
and (ii) 560,000 shares of Common Stock under the 2005 Compensation Plan, that
have been or may be issued to certain officers and directors of the Company
pursuant to the Plans. The second part of this Registration Statement contains
Information Required in the Registration Statement pursuant to Part II of Form
S-8. The Form S-8 portion of this Registration Statement will be used for offers
of shares of Common Stock of the Agreement, and the 2002 Stock Option Agreement.
PART I
INFORMATION REQUIRED IN SECTION 10(a) PROSPECTUS
ITEM 1. PLAN INFORMATION
The document(s) containing the information specified in Part I of Form S-8
will be sent or given to participants in the Plans as specified by Rule
428(b)(1) under the Securities Act. Such documents are not being filed with the
Securities and Exchange Commission, but constitute, along with the documents
incorporated by reference into this Registration Statement, a prospectus that
meets the requirements of Section 10(a) of the Securities Act.
ITEM 2. REGISTRATION INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION
The Company will furnish without charge to each person to whom the
prospectus is delivered, upon the written or oral request of such person, a copy
of any and all of the documents incorporated by reference in Item 3 of Part II
of this Registration Statement, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference to the information that
is incorporated). Those documents are incorporated by reference in the Section
10(a) prospectus. Requests should be directed to Eternal Technologies Group,
Inc., Sect. D, 5/F, Block A. Innotech Tower, 235 Nanjing Rd. Heping District,
Tianjin: attention Wei Jianhseng.
The resale prospectus referred to above follows this page.
PROSPECTUS
ETERNAL TECHNOLOGIES GROUP, INC.
3,060,000 SHARES OF COMMON STOCK
(par value $0.001 per share)
This prospectus relates to up to 3,060,000 shares (the "Shares") of common
stock, par value $0.001 per share, of Eternal Technologies Group, Inc., a Nevada
corporation (the "Company" or "Eternal") which may be offered and sold from time
to time by certain stockholders of the Company (the "Selling Stockholders") who
have acquired or will acquire such Shares pursuant to stock options and stock
grants issued or issuable under the (i) the 2005 Stock Option Plan dated August
31, 2005; (ii) the 2005 Stock Compensation Agreement dated August 31, 2005
collectively referred to herein as the "Plans".
The Company will not receive any of the proceeds from sales of the Shares by any
of the Selling Stockholders. The Shares may be offered from time to time by any
or all of the Selling Stockholders (and their donees and pledgees) through
ordinary brokerage transactions, in negotiated transactions or in other
transactions, at such prices as he or she may determine, which may relate to
market prices prevailing at the time of sale or be a negotiated price. See "Plan
of Distribution." All costs, expenses and fees in connection with the
registration of the Shares will be borne by the Company. Brokerage commissions
and similar selling expenses, if any, attributable to the offer or sale of the
Shares will be borne by the Selling Stockholder (or their donees and pledgees).
Each Selling Stockholder and any broker executing selling orders on behalf
of a Selling Stockholder may be deemed to be an "underwriter" as defined in the
Securities Act of 1933, as amended (the "Securities Act"). If any broker-dealers
are used to effect sales, any commissions paid to broker-dealers and, if
broker-dealers purchase any of the Shares as principals, any profits received by
such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions.
Our common stock is quoted on the OTC Bulletin Board Service under the
symbol "ETLT.OB" On August 31, 2005, the average of the bid and ask price of our
common stock was $0.44 per share.
See "Risk Factors" on page 3 hereof for a discussion of certain factors
that should be carefully considered by prospective purchasers.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is September 1, 2005.
You should rely only on the information included in or incorporated by reference
into this prospectus or information we have referred to in this prospectus. We
have not authorized anyone to provide you with information that is different.
This prospectus may only be used where it is legal to sell these securities.
This prospectus is not an offer to sell, or a solicitation of an offer to buy,
in any state where the offer or sale is prohibited. The information in this
prospectus is accurate on the date of this prospectus and may become obsolete
later. Neither the delivery of this prospectus, nor any sale made under this
prospectus will, under any circumstances, imply that the information in this
prospectus is correct as of any date after the date of this prospectus.
References to "the Company," "Eternal," "we" or "us" refer to Eternal
Technologies Group, Inc.
TABLE OF CONTENTS
Page
4
RISK FACTORS
FORWARD-LOOKING STATEMENTS 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 8
COMPANY OVERVIEW 9
USE OF PROCEEDS 14
SELLING STOCKHOLDERS 14
DESCRIPTION OF SECURITIES 15
PLAN OF DISTRIBUTION 15
WHERE YOU CAN FIND MORE INFORMATION 17
INTERESTS OF NAMED EXPERTS AND COUNSEL 18
RISK FACTORS
Prospective purchasers of the common stock should consider carefully the
following risk factors relating to the business of the Company, together with
the information and financial data set forth elsewhere in this prospectus or
incorporated herein by reference, prior to making an investment decision. This
prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Such statements are
indicated by words or phrases such as "anticipate," "estimate," "project,"
"management believes," "we believe" and similar words or phrases. Such
statements are based on current expectations and are subject to risks,
uncertainties and assumptions. Certain of these risks are described below.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected.
RISKS RELATED TO ETERNAL
An investment in our common stock involves certain risks. Prospective
investors should carefully review the following factors, together with the other
information contained in this prospectus, prior to making a decision to invest
in our common stock. The future trading price of shares of our common stock will
be affected by the performance of our business relative to, among other things,
competition, market conditions and general economic and industry conditions.
Risks Related to Our Financial Condition and Our Business
Need for additional financing
Implementation of our business plan and growth of our business will
require substantial additional funding. Funding will be needed to acquire an
embryo facility in both China and the United States as well as the purchase of
dairy cattle for such facilities. In addition we would like to expand our lamb
meat production all of which will require additional working capital. If we are
unable to raise additional capital, our ability to implement these plans, to
grow our business and to operate profitably could be impaired. Obtaining
additional funding will be subject to a number of factors including market
conditions, operational performance and investor sentiment. These factors may
make the timing, amount, terms and conditions of additional funding
unattractive, or unavailable, to us. Any delay in such funding will reduce our
current earnings. We will be unable to carry out our proposed business plan
unless we are able to sell additional securities or find alternate financing.
Our success depends on our management team and other key personnel, the loss of
any of whom could disrupt our business operations
Our future success will depend in substantial part on the continual
service of our senior management including Mr. Ji Jun Wu, our Chairman and Mr.
Jian Sheng Wei, our Chief Executive Officer. The loss of the services of either
of our key personnel could impede implementation of our business plan and result
in reduced profitability. We do not carry key person life insurance on any of
our officers or employees. Our future success will also depend on the continued
ability to attract, retain and motivate highly qualified technical sales and
marketing customer support, financial, accounting and managerial personnel.
Because of the rapid growth of the economy in China, competition for qualified
personnel in Beijing and Tianjin is intense. If we cannot retain our key
personnel or attract, assimilate or retain qualified personnel in the future,
our business operations could be disrupted.
Our management owns a significant amount of our common stock, giving them
influence or control in corporate transactions and other matters, and their
interests could differ from those of other shareholders
Our principal executive officers along with our founding shareholder,
Shang Jiaji, own approximately 10.35 percent of our outstanding common stock. As
a result, they are in a position to significantly influence or control the
outcome of matters requiring a shareholder vote, including the election of
directors, the adoption of any amendment to our certificate of incorporation or
bylaws, and the approval of mergers and other significant corporate
transactions. Their control may delay or prevent a change of control on terms
favorable to our other shareholders and may adversely affect the voting and
other rights of our other shareholders.
Our Products are in Various Stages of Development and May Not Satisfy Regulatory
Requirements or Become Commercially Viable
Our genetically engineered sheep embryos have only been marketed for a
short time, and we only recently began development and marketing of genetically
engineered dairy cattle embryos. If these products do not generate revenues in
sufficient amounts to justify their continued production and sale, we will be
unable to continue their commercial development. If these products do not
satisfy regulatory requirements, which may change from time to time, we may be
forced to discontinue the products' development. If we are forced to discontinue
a product's development this could seriously hinder our ability to generate
revenues.
We Have Limited Experience in Sales and Marketing; Failure to Assemble or
Contract with an Adequate Sales Organization Could Result in a Lack of Future
Revenues
We have limited experience in marketing our genetically engineered agricultural
products. Our senior management presently carries on substantially all of our
sales and marketing activities. We may have to develop a substantial marketing
and sales force to support future sales. Alternatively, we may, for certain
products, attempt to obtain the assistance of companies with established
distributions systems and direct sales forces. If we are unable to establish
sales and distribution capabilities or if we are unable to enter into licensing
or other agreements with established companies to sell our products, our
business operations could be disrupted.
We May Lose Any Technological Advantage Because Biotechnology Changes Rapidly
The biotechnology field, is characterized by rapid technological
progress and intense competition. As a result, we may not realize the expected
benefits of our strategy. Businesses, academic institutions, governmental
agencies, and other public and private research organizations are conducting
research to develop technologies that may compete with our existing agricultural
products and our proposed pharmaceutical products. It is possible that
competitors could acquire or develop technologies that would render our
technologies obsolete or noncompetitive. If we cannot access the same
technologies at an acceptable price, or at all, our business operations could be
disrupted.
Intense Competition May Result in an Inability to Generate Sufficient Revenues
to Operate Profitably
The agricultural genetics industry is highly competitive. Numerous
companies, many of which are significantly larger than us, which have greater
financial, personnel, distribution and other resources and may be better able to
withstand volatile market conditions, compete with us in the development,
manufacture and marketing of genetically engineered agricultural products. Our
principal competition in the agricultural genetics field comes from foreign food
processing companies such as Smithfield Foods, Inc. of the United States and
Sumitomo Corporation of Japan. If additional national or international companies
seek to enter, or increase their presence in our industries, or seek to expand
their existing markets into China. Increased competition could have a material
adverse effect on our business, as our competitors may have far greater
financial and other resources available to them and possess extensive
manufacturing, distribution and marketing capabilities far greater than ours.
We are Dependent on New Products and Continued Innovation
The agricultural genetics industry, in general, is characterized by
rapid innovation and advances. These advances result in frequent product
introductions and short product life cycles, requiring a high level of
expenditures for research and development and the timely introduction of new
products. We believe our ability to grow and succeed is partially dependent upon
our ability to introduce new and innovative products into such markets. We are
evaluating, and expect to continue to evaluate, the development and introduction
of additional products in our existing markets and related markets. However, if
we are unable to introduce additional products to the market, we may be unable
to fully implement our business plan.
Risks Related to Operations in China
Substantially all of our assets are located in China and all of our
revenue is derived from our operations in China. Accordingly, our results of
operations and prospects are subject, to a significant extent, to the economic,
political and legal developments in China.
China's Economic, Political and Social Conditions, as Well as Government
Policies, could Affect our Business
While China's economy has experienced significant growth in the past
twenty years, growth has been uneven, both geographically and among various
sectors of the economy. The Chinese government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of
these measures benefit the overall economy of China, but may also have a
negative effect on us. For example, our operating results and financial
condition may be adversely affected by the government control over capital
investments or changes in tax regulations which presently gives us a tax
holiday.
The economy of China has been transitioning from a planned economy to a
more market-oriented economy. In recent years the Chinese government has
implemented measures emphasizing the utilization of market forces for economic
reform and the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises. Still a
substantial portion of productive assets in China are owned by the Chinese
government. In addition, the Chinese government continues to play a significant
role in regulating industry development by imposing industrial policies. It also
exercises significant control over China's economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to
particular industries or companies.
Government Control of Currency Conversion may Adversely Affect our Operations
and Financial Results
We receive substantially all of our revenues in Renminbi, which is not
a freely convertible currency. A portion of these revenues must be converted
into other currencies to meet our foreign currency obligations. These foreign
currency-denominated obligations include:
o payment of interest and principal on foreign currency-denominated debt;
o payment for equipment and materials purchased offshore; and
o payment of dividends declared, if any.
Under China's existing foreign exchange regulations, we will be able to
pay dividends in foreign currencies without prior approval from the State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, the Chinese government may take measures at its
discretion in the future as it has done in the past to restrict access to
foreign currencies for both current account transactions and capital account
transactions if foreign currencies become scarce in China. We may not be able to
pay dividends in foreign currencies to our shareholders if the Chinese
government restricts access to foreign currencies for current account
transactions.
Foreign exchange transactions under our capital account, including
foreign currency-denominated borrowings from Chinese or foreign banks and
principal payments in respect of foreign currency-denominated obligations,
continue to be subject to significant foreign exchange controls and require the
approval of the State Administration of Foreign Exchange. These limitations
could affect our ability to obtain foreign exchange through debt or equity
financing, or to obtain foreign exchange for capital expenditures.
Fluctuation of the Renminbi Could Materially Affect our Financial Condition and
Results of Operations
The value of the Renminbi fluctuates and is subject to changes in
China's political and economic conditions. Since 1994, the conversion of
Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been
based on rates set by the People's Bank of China, which are set daily based on
the previous day's inter branch foreign exchange market rates and current
exchange rates on the world financial markets. Any devaluation of the Renminbi,
however, may adversely affect the value of, and dividends, if any, payable on,
our shares in foreign currency terms, since we will receive substantially all of
our revenues, and express our profits, in Renminbi. Our financial condition and
results of operations may also be affected by changes in the value of certain
currencies other than the Renminbi, in which our obligations are denominated. In
particular, a devaluation of the Renminbi is likely to increase the portion of
our cash flow required to satisfy our foreign currency-denominated obligations.
The PRC Legal System has Inherent Uncertainties that Could Limit the Legal
Protections Available to You
Substantially all of our assets and operations are in China and our
principal operating subsidiaries are organized under the laws of China. The
Chinese legal system is based on written statutes. Prior court decisions may be
cited for reference but have limited precedential value. However, because these
laws and regulations are relatively new, and because of the limited volume of
published cases and their non-binding nature, interpretation and enforcement of
these laws and regulations involve uncertainties. The direct enforcement by our
shareholders of any rights of shareholders in respect of violations of corporate
governance procedures may be limited. Unlike in the United States, under
applicable laws of China, shareholders do not have the right to sue the
directors, supervisors, officers or other shareholders on behalf of the
corporation to enforce a claim against such party or parties that the
corporation has failed to enforce itself. Our shareholders may have to rely on
other means to enforce directly their rights, such as through administrative
proceedings. Chinese laws and regulations do not distinguish among minority,
affiliated and unaffiliated shareholders in terms of their rights and
protections. In addition, our minority shareholders may not have the same
protections afforded to them by companies incorporated under the laws of the
United States.
Uncertainty Relating to Chinese Regulation of Pharmaceuticals Could Impair
Introduction of Products in China
In 2003, the Chinese government created a new Food and Drug Administration,
modeled after the U.S. government body, in an attempt to streamline unnecessary
bureaucratic functions and restructure and position the Chinese pharmaceutical
industry for entry into the World Trade Organization ("WTO"), growth and
increased competitiveness. The implementation of the new regulatory scheme is
expected to impose substantial new regulation on the approval and manufacture of
pharmaceuticals for sale in China. Because of the newness of the pharmaceutical
regulatory scheme, there is uncertainty as to the manner in which regulations
will be implemented and interpreted. Such uncertainty may result in delays in
obtaining regulatory clearance of products and introduction of products to the
Chinese market as well as potentially liability and costs associated with
compliance, or lack of compliance, with regulations.
The admission of China into the World Trade Organization could lead to increased
foreign competition
As a result of China becoming a member of the WTO, import restrictions on
both agricultural products and pharmaceuticals are expected to be gradually
reduced. The WTO also requires China to lower its import tariffs as a condition
for membership. Reduced import restrictions and/or lower tariffs may lead to
increased imports of foreign products and therefore lead to increased
competition in the domestic agricultural products and pharmaceuticals markets.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including
information about or related to our future results, certain projections and
business trends. Assumptions relating to forward-looking statements involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this prospectus, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any or all of the assumptions could
prove inaccurate, and we may not realize the results contemplated by the
forward-looking statements. Management decisions are subjective in many respects
and susceptible to interpretations and periodic revisions based upon actual
experience and business developments, the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect our
results of operations. In light of the significant uncertainties inherent in the
forward-looking information included in this prospectus, you should not regard
the inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained in
this prospectus speak only as of the date of this prospectus, and we have no
obligation to update publicly or revise any of these forward-looking statements.
These and other statements, which are not historical facts, are based
largely upon our current expectations and assumptions and are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements. These
risks and uncertainties include, among others, our planned effort to redeploy
our assets and use our cash and cash equivalent assets to enhance stockholder
value following the sale of substantially all of our electronic commerce
business, which represented substantially all of our revenue generating
operations and related assets, and the risks and uncertainties set forth in the
section headed "Risk Factors" of this prospectus. The Company cannot guarantee
its future performance.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange
Commission (the "Commission") are incorporated by reference into this
Registration Statement and are made a part hereof:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2004.
(b) All other reports filed pursuant to
Section 13(a) or 15(d) of the Exchange Act since the end of
the fiscal year covered by the Annual Report referred to in
Item 3(a) above, including, but not limited to, the Company's
quarterly reports on Form 10-QSB through the fiscal quarter
ended June 30, 2005
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act
of 1934, as amended, prior to the filing of a post-effective amendment which
indicates that all securities offered hereby have been sold or which deregisters
all securities then remaining unsold, shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of the filing of such
reports and documents.
COMPANY OVERVIEW
General
Eternal Technologies Group, Inc. is an agricultural genetics company operating
in China and focused on the development and application of advanced animal
husbandry techniques to produce improved food products.
Our agricultural genetics/animal husbandry operations are focused on the
application of advanced embryonic biotechnology techniques with the objective to
shorten the development time for animals resulting in increased output and
profitability and reduced use of animal feed and animal waste. Since 2000, we
have utilized our advanced breeding techniques, and have marketed fine bred
animal embryos, breeding stock and breeding services to develop larger, stronger
and healthier sheep. In the fourth quarter of 2003, we began production and sale
of lamb meat. Also, in the fourth quarter of 2003, we began application of our
advanced breeding techniques to the breeding of higher-yielding purebred
Holstein dairy cattle.
Our pharmaceutical operations focused on the application of our gene engineering
capabilities in the research, development of biological drugs. In September of
2004 the company determined that the pharmaceutical products being developed
were unlikely to mature into commercially viable products and ceased substantial
pharmaceutical operations.
Our principal executive offices are located at Suite D, 5/F, Block A, Innotec
Tower, 235 Nanjing Road Heping District, Tianjin, PRC 300052 and our telephone
number is 011-86-22-2721-7020.
History and Development of the Company
Our current operations are conducted through our wholly-owned subsidiaries,
Eternal Technology Group Ltd. ("Eternal - BVI"), a British Virgin Islands
company, and its subsidiaries.
We acquired Eternal - BVI in December 2002 (the "Reorganization") pursuant to
the terms of an Exchange Agreement. Under the terms of the Exchange Agreement,
we issued 22,050,000 shares of our common stock to the shareholders of Eternal
Technologies - BVI in exchange for all of the issued and outstanding shares of
Eternal - BVI. In conjunction with the Reorganization, we carried out a 1-for-6
reverse split of our common stock, changed our name from Waterford Sterling
Corporation to Eternal Group, Inc., ceased our prior operations and caused the
officers and directors of Eternal Technologies - BVI to be appointed as officers
and directors in place of the pre-Reorganization officers and directors. As a
result of the Reorganization, we adopted as our primary business operations the
operations of Eternal - BVI and the shareholders of Eternal - BVI acquired
approximately 85% of our post-Reorganization outstanding shares.
Eternal - BVI was incorporated in the British Virgin Islands in March 2000. In
May 2000, Eternal - BVI acquired 100% of Willsley Company Limited. Willsley is a
holding company that owns 100% of Inner Mongolia Aershan Agriculture & Husbandry
Technology Co., Ltd. ("Aershan Agriculture"). Aershan Agriculture operates a
breeding center focused on the propagation of genetically engineered breeds of
sheep and livestock in the Inner Mongolia region of China.
In January 2003, we supplemented our research and development and embryo
transfer capabilities by establishing a relationship with Beijing AnBo Embryo
Biotech Center ("AnBo Biotech Center"), a biotech research and development and
embryo transfer center located in Beijing. This relationship was initially going
to be a joint venture, but because the parties were unable to reach agreement on
several key terms of the proposed joint venture, it was not consummated.
Instead, we maintain a close partnership with Anbo Biotech Center on technical
cooperation.
Our operations are focused on developing genetically engineered livestock breeds
in order to improve the quality and yield of livestock in China and the
profitability of livestock operations. We initially imported embryos from
Australia and the United States. We are utilizing our facilities and expertise
to develop a herd of "carrier animals" in order to produce a domestic supply of
embryos, eliminating our dependence on third party foreign embryo suppliers and
reducing our cost of embryos. Under that program, we transfer fine-breed sheep
and dairy cattle embryos into recipient animals and sell the pregnant animals to
customers. The offspring will serve as breeding stock or commercial stock.
We utilize our fine-breed livestock embryos and our breeding and biotech
expertise to offer a range of livestock breeding services and products,
including sale of embryos, artificial insemination and embryo transplant
services, both at our facilities and on-site, and related products and services
designed to improve production, quality and profitability of Chinese livestock
operators.
Our initial operations focused on the production and sale of bio-engineered
embryo and services targeted to sheep growers. In 2003, we expanded our
operations to include the dairy cattle market.
In late 2003, we began implementation of a mutton production and sale program
focused on the processing and sale of mutton from our higher yielding, higher
quality genetically-engineered stock. Because of changes in government policy
relating to plowing in Inner Mongolia, we have determined that we may have
impediments to the ongoing economic use of our farm for grazing. Pending a final
determination with respect to the economic viability of using our farm for
grazing, we continue to carry out our mutton production and sale strategy with
meat processing contracted to slaughter houses and sale of processed meat to
wholesale purchasers in and around Beijing. Depending on the outcome of our
evaluation of the economic viability of our farm, we may attempt to sell the
farm and rely on purchases of sheep from clients to support mutton production or
evaluate other best-economic uses of the farm.
Historically, our business has been highly seasonal with nearly all of our
revenues being generated in the fourth quarter. While our business will remain
seasonal it should be less cyclical in the future because of the sale of lamb
meal thereby making our overall business less seasonal.
Agricultural Genetics / Animal Husbandry Operations
Our core operations are focused in the agricultural genetics/animal husbandry
fields. Our principal objectives in our animal husbandry operations are to
utilize genetic engineering to produce improved breeds of sheep and livestock
with a goal of increasing food yield and reducing growing time, waste by-product
and cost associated with herd management.
Animal Husbandry in China. Spurred in part by China's entry into the World Trade
Organization, the Chinese government has identified improved animal husbandry as
a key to meeting the nutritional needs of its population - the worlds' largest,
minimizing the potential adverse environmental impact of its domestic
agricultural industry and improving China's position in the import/export of
agricultural products.
The Chinese agricultural industry has historically lagged behind Western
countries in the adoption of advanced breeding techniques. As a result, by world
standards, Chinese breeding rates, size, health and meat yield have all been low
and growing periods have been high. These factors have made quality meat
difficult to supply within China without relying on imports, resulted in higher
feed costs and waste production as a result of longer growing cycles and
adversely impacted the competitive position of Chinese producers.
By encouraging the adoption of advanced animal husbandry techniques, in
particular the transplant of fine-breed animal embryo, the Chinese government is
positioning Chinese agricultural businesses to bring the quality and yield of
meat production in line with world standards, improving the living standards of
the Chinese people, while minimizing the environmental impact of operations and
improving the industry's competitive position in world markets.
Key markets that we have targeted in China are mutton and dairy production.
China ranks first in the world in both production and consumption of mutton with
2001 production of approximately 2.55 million tons. With China's entry into the
WTO and the adoption of advanced animal husbandry techniques, we believe that
China can be positioned as a world leader in the production and export of high
quality low-cost mutton while meeting its growing internal demand.
Chinese dairy production and consumption has lagged substantially behind levels
in Western countries. With an improving standard of living and a growing
emphasis on health, milk consumption is rising in China and we expect the
increase in milk consumption to accelerate. In order to meet the expected growth
in demand for dairy products without relying disproportionately on imports,
dairy production must be increased in China. Historical yields from China's
dairy herd are believed to be approximately 50% of the yields produced by U.S.
dairy herds. With the adoption of advanced animal husbandry techniques, we
believe that the quality and yield of the Chinese dairy herd can be increased to
Western standards allowing the Chinese dairy industry to meet the growing
internal demand for dairy products while reducing the cost of production.
Embryo Transfer and Breeding Services. Our initial commercial efforts were
focused on the development and sale of embryo fine-breed to produce stronger,
larger, healthier and more nutritious sheep, and associated breeding services.
In 2000, we imported 10,000 breeding animal embryos out of a total of 13,000
embryos permitted to be imported by the Chinese government. We have utilized our
initial embryo supply to develop a herd of high-quality breeding sheep as well
as a supply of embryo for sale to clients.
We supply our clients, consisting primarily of large commercial and government
farms in China, with genetically engineered breeding stock, embryos, semen and
related technology and consulting services, all designed to increase production
yield and quality, reduce growing costs and increase income.
In the fourth quarter of 2003, we expanded our embryo transfer and breeding
services to include, in addition to sheep, high-yielding pure-bread dairy
cattle. In our dairy cattle breeding and embryo transfer operations, we purchase
relatively high yielding dairy cattle in China, produce embryo's from these
cattle with advanced biotechnology and provide commercial dairy cattle through
embryo transfer and after birth, retain the offspring to serve as breeder stock
and sell the "host animal" back to the original owner.
Food Production. In the fourth quarter of 2003, we commenced the production and
sale of mutton. We purchase cross-breed sheep for sale to slaughterhouses for
processing and sale of mutton. Animals processed for mutton sale are generally
those that are not candidates for future breeding. We continuously evaluate our
farm operations and supplies of sheep for mutton production to assure the
economic viability of our meat supplies in light of changing land use
regulations in China.
We do not presently own slaughterhouse or processing facilities but intend to
purchase such facilities in the future. We are not currently in negotiations to
purchase such facilities, however we are seeking opportunities which would
complement our current operations by allowing us to process our own sheep
mutton.
Genetic Technologies. We utilize a variety of technologies for industrial embryo
production and transfer, all design to produce genetically engineered breeding
stock. The primary techniques we presently employ are (1) peritoneal endoscope
technique, (2) vitrification freezing technique, (3) embryo splitting and
cleavage ball techniques, and (4) external fertilization technique.
- -- Peritoneal Endoscope Technique. Peritoneal endoscope technique involves the
collection of sheep embryo by means of peritoneal endoscopes without surgical
operations. Traditional embryo collection and transfer techniques, using
surgical procedures, have generally limited to four operations after which the
provider is rendered useless as a result of adhesions left by the surgical
procedures. We believe that the peritoneal endoscope technique, a less invasive
procedure, may be used ten or more times, increasing the utilization of
providers. Additionally, we believe that use of endoscopic techniques combined
with deep semen deposition and frozen semen mating can markedly increase
conception rates.
- -- Vitrification Freezing Technique. Vitrification is a process by which a
concentrated anti-freeze solution is transformed into a transparent colloidal
solid through rapid freezing. We have developed an anti-freezing protectant that
enables the freezing process to be carried out at room temperature without a
cooling system, increasing the efficiency of the process. Livestock implanted
with a frozen fertilized ovum have been shown to produce increased pregnancy and
farrowing rates.
- -- Embryo Splitting and Cleavage Ball Techniques. Embryo splitting and cleavage
ball techniques involve the splitting of embryos by microsurgery or the
separation of embryo cleavage balls in early cultivation before the half-embryos
or separate cleavage balls develop into individuals. Newly split half-embryos
have shown an average transfer rate of above 50% -- the equivalent of a 100%
transfer pregnancy rate -- exceeding the average transfer rate of half-embryos
of between 35% and 40%. Embryo splitting, combined with embryo sex
identification, allows for better management of the male/female population of a
herd.
- -- External Fertilization Technique. External fertilization technique involves
the collection of ova from live farm animals, fertilization of the ova and
cultivation of the fertilized ova until the ova reaches a transferable stage at
which time fertilized ova is transferred to a host animal. External
fertilization has been shown to increase pregnancy rates at a lower cost than
internal fertilization. While pregnancy rates of externally fertilized embryo in
China has been only approximately 20%, our fertilized embryo transfer pregnancy
rate has been above 40%, approximately the world standard.
Breeding Facilities. Our breeding operations are conducted on land and in
facilities consisting, generally, of approximately 2.8 million acres of
farmland, an embryo transfer center and a reception center and at the AnBo
Biotech Center in Beijing.
Land use rights with respect to our farm were purchased from the Chinese
government for $6,000,000. Such rights extend through 2025. The farm is located
in Wulagai Development Area in Inner Mongolia. The farm, one of the few
naturally preserved grassland areas in China, is organized into various breeding
sub-pastures. Each sub-pasture includes haciendas, stables and farm equipment
such as wells, mowing machines and tractors. A supply of forage grass is
reserved for winter and for snowstorms.
The farm is equipped with a 60-kilovolt electric transmission line, telephone
and transportation facilities, including a 200 kilometer road system connecting
all sub-pastures. A railway station is located 80 kilometers south of the farm,
facilitating distribution of products throughout China.
Also located on the farm is a 35,000 square foot embryo transfer center
including operating rooms, equipment rooms, offices, conference rooms, lecture
halls and guest rooms. Substantially all research and embryo transfer operations
occur in our embryo transfer center.
Our farm and associated facilities are believed to be adequate to meet our
operating needs for the foreseeable future.
Because of recent changes in Chinese land use regulation, which may prohibit any
plowing on the farm because of past dust storms that affected Beijing our future
land use may be restricted. Although we have not plowed our acreage to plant
grain crops or forage grasses, the pasturing of a large number of animals on the
farms would require plowing to plant the crops necessary to maintain the
livestock. Because we had considered keeping additional livestock on the farms,
these plans are no longer viable and diminish our need for the facility. Despite
these new regulations, the value of the farm has not diminished as it had not
been plowed prior to or subsequent to our purchase and the value paid reflects
the value of unplowed acreage. We are evaluating the economic viability of the
continued operations of the farm and may, if determined to be in our best
economic interests, consider selling some or all of the grazing land on our
farm.
The AnBo Biotech Center is a 6,450 square foot facility located in Beijing and
housing laboratory, operating and relating facilities to support advanced
biotech and embryo research and development activities.
Marketing. Sales and marketing for our animal husbandry products and services is
handled by our senior management team. Our management team maintains regular
communications with farm operators, meat processors and governmental agriculture
officials to assure that potential clients are aware of our capabilities and
services. We may evaluate the adoption of more formal marketing, advertising and
sales programs as necessary in the future.
Pharmaceutical Operations
In September of 2004 the company determined that the pharmaceutical products
being developed were unlikely to mature into commercially viable products. As
such the Company entered into agreements stipulating that the Company's research
and development expenses would not be reimbursed and the Company was released
from any further obligation.
Potential Acquisitions
We intend to evaluate various potential acquisitions of companies and facilities
in order to expand the scope of our operations and accelerate our growth.
Specifically, we intend to evaluate the acquisition of companies or facilities
to provide feedlot, dairy processing, slaughterhouse and meat processing, animal
fattening and similar capabilities. However, there are no current agreements to
purchase any companies or facilities.
Competition
The agriculture industry is highly competitive. While animal genetics is a
relatively new field in China several large foreign companies such as Smithfield
Foods, Inc. of the United states and Sumitomo Corporation of Japan have, entered
the market and compete with us in the development and delivery of advanced
animal husbandry products and services. These companies have a substantial
advantage due to the size and the name recognition each enjoys.
Increased competition in the agriculture industry could have a material adverse
effect on us, as our competitors may have far greater financial and other
resources available to them and possess extensive manufacturing, distribution
and marketing capabilities far greater than those we possess.
Intellectual Property
We currently rely on a combination of patents, trademark, trade secret laws and
contractual provisions to protect our proprietary rights in our product. As of
December 31, 2003, we had applied for three Chinese patents. There can be no
assurance that our applications will result in issued patents and trademarks, or
that, if issued, our applications will be upheld if challenged. Further, even if
granted, there can be no assurance that these patents and trademarks will
provide us with any protection from competitors, or, that if they do provide any
meaningful level of protection, that we will have the financial resources
necessary to enforce our patent and trademark rights. In addition, there can be
no assurance that others will not independently develop technologies similar to
our pending patents and trademarks, or design around the pending patents. If
others are able to design around the patents, our results of operations could be
materially adversely affected. Further, we will have very limited, if any,
protection of our proprietary rights in those jurisdictions where we have not
affected any filings or where we fail to obtain protection through our filings.
There can be no assurance that third parties will not assert intellectual
property infringement claims against us in the future with respect to current or
future products and technologies. We are responsible for defending against
charges of infringement of third party intellectual property rights by our
actions and products and such assertion may require us to refrain from the sale
of our products, enter into royalty arrangements or undertake costly litigation.
Further, challenges may be instituted by third parties as to the validity,
enforceability and infringement of our patents.
Our adherence to industry standards with respect to our products limits our
opportunities to provide proprietary features that may be protected. In
addition, the laws of various countries in which our products may be sold may
not protect our products and intellectual property rights to the same extent as
the laws of the United States.
Governmental Regulation
Our business and the agriculture industry in general is subject to extensive
laws and regulations, including environmental laws and regulations. As such, we
may be required to make large expenditures to comply with environmental and
other governmental regulations.
Under these laws and regulations, we could be liable for personal injuries,
property damage, discharge of hazardous materials, remediation and clean-up
costs and other environmental damages. Failure to comply with these laws and
regulations also may result in the suspension or termination of our operations
and subject us to administrative, civil and criminal penalties. Moreover, these
laws and regulations could change in ways that substantially increase our
operating costs.
The Chinese regulatory scheme, in general, and the regulation of the agriculture
and medical equipment industries in particular, is not well defined and is
subject to substantial uncertainty. With China's entry in the WTO, China has
implemented numerous changes to its existing laws and regulations.
Chinese laws impacting our animal husbandry operations relate primarily to
health and safety regulations covering food products and environmental
regulations covering waste products and other land use regulations. Food product
regulations generally govern the safety of products in the food chain and the
handling of those products.
We believe that we are in compliance with all existing food and environmental
regulations applicable to our animal husbandry operations. However, because many
of those regulations are new and evolving, we must continually monitor the
interpretation, enforcement and modification to those regulations to assure
ongoing compliance.
Employees
As of December 31, 2004, we had 26 full-time employees, including employees
performing administrative functions and animal husbandry services and farming
functions. Bioscience research and related services are performed by third
parties on a contract basis. The employees are not covered by a collective
bargaining agreement, and we do not anticipate that any of our future employees
will be covered by such agreement.
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of the common stock
which may be sold pursuant to this prospectus for the respective accounts of the
Selling Stockholders. The Company, however, will derive proceeds from the sale
of stock to Selling Stockholders and upon the exercise of the options granted to
Selling Stockholders. All such proceeds will be available to the Company for
working capital and general corporate purposes. No assurances can be given,
however, as to when or if any or all of the options will be exercised.
SELLING STOCKHOLDERS
This prospectus relates to Shares that are being registered for reoffers
and resales by Selling Stockholders who have acquired or may acquire Shares
pursuant to each of the Plans. The Selling Stockholders may resell any or all of
the Shares at any time they choose while this prospectus is effective.
Executive officers and directors, their family members, trusts for their
benefit, or entities that they own, that acquire common stock under the Plans
may be added to the Selling Stockholder list below by a prospectus supplement
filed with the Commission. The number of Shares to be sold by any Selling
Stockholder under this prospectus also may be increased or decreased by a
prospectus supplement. Non-affiliates who purchased restricted securities, as
these terms are defined in rule 144(a) under the Securities Act, under any of
our employee benefit plans and who are not named below may use this prospectus
for the offer or sale of their common stock if they hold 1,000 shares or less.
Although a person's name is included in the table below, neither that person nor
we are making an admission that the named person is our "affiliate."
Each of the Selling Stockholders is an employee or director of the
Company. The following table sets forth:
* the name and principal position or positions over the past three years
with the Company of each Selling Stockholder;
* the number of shares of common stock each Selling Stockholder beneficially
owned as of August 31, 2005; * the number of shares of common stock
acquired by each Selling Stockholder in connection with stock
options and stock grants pursuant to the Plans and being registered
under this Registration Statement, some or all of which shares may be
sold pursuant to this prospectus; and
* the number of shares of common stock and the percentage, if 1% or more,
of the total class of common stock outstanding to be beneficially owned
by each Selling Stockholder following this offering, assuming the sale
pursuant to this offering of all shares acquired by such Selling
Stockholder in connection with grants pursuant the Plans and registered
under this Registration Statement.
There is no assurance that any of the Selling Stockholders will sell any
or all of the shares offered by them under this Registration Statement. The
address of each Selling Stockholder is Sect. D, 5/F, Block A. Innotech Tower,
235 Nanjing Rd. Heping District, Tianjin.
Name of Seller Relationship to the Company Number of Shares Shares to be Number of Shares to
be Beneficially
Beneficially Owned After the
Owned (1) Sold (2) Offering
--------- -------- --------
Jijun Wu 1,884,500 200,000 1,684,500
Chairman of the Board
Jiansheng Wei President, Chief Executive 802,500 200,000 602,500
Officer and Director
XingJian Ma Chief Financial Officer and 200,100 200,000 100
Director
Garfield W. Hu 120,100 120,000 100
Secretary
1) Based on share ownership as of August 31, 2005. As used in this
table, a beneficial owner of a security includes any person who,
directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (a) the power to vote, or
direct the voting of, such security or (b) investment power which
includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner
of a security if that person has the right to acquire beneficial
ownership of such security within 60 days.
2) Assume the sale of all shares being registered by this Prospectus.
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 95,000,000 shares of common
stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par
value $0.001 per share. The following summary of the material matters relating
to our common stock is qualified in its entirety by reference to our certificate
of incorporation and bylaws.
Common Stock
As of August 31, 2005, there were 30,913,531 shares of our common stock
outstanding.
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of our shareholders, including
the election of directors, and do not have cumulative voting rights. Holders of
our common stock are entitled to receive ratably such dividends, if any, as may
be declared by our board of directors out of legally available funds. Upon our
liquidation, dissolution or winding up, the holders of our common stock will be
entitled to share ratably in the net assets legally available for distribution
to our shareholders after the payment of all our debts and other liabilities.
The holders of our common stock have no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking fund provisions
applicable to our common stock. All outstanding shares of our common stock are
fully paid and nonassessable.
PLAN OF DISTRIBUTION
The Selling Stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of our common stock
or interests in shares of our common stock received after the date of this
prospectus from a Selling Stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of our common stock or interests
in shares of our common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These dispositions
may be at fixed prices, at prevailing market prices at the time of sale, at
prices related to the prevailing market price, at varying prices determined at
the time of sale, or at negotiated prices.
The Selling Stockholders may use any one or more of the following methods
when disposing of shares or interests therein:
* market transactions in accordance with the rules of the OTC Pink Sheets
Electronic Quotation Service or any other available markets or exchanges;
* ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
* block trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
* purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
* an exchange distribution in accordance with the rules of the applicable
exchange;
* privately negotiated transactions;
* short sales entered into after the date of this prospectus;
* through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
* distributions to the partners and/or members of the Selling Stockholders;
* redemptions or repurchases of interests owned by partners and/or members of
the Selling Stockholders;
* broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
* a combination of any such methods of sale; and
* any other method permitted pursuant to applicable law.
In connection with the sale of our common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of our
common stock in the course of hedging the positions they assume with the selling
stockholders. The Selling Stockholders may also sell shares of our common stock
short and deliver these securities to close out their short positions, or loan
or pledge our common stock to broker-dealers that in turn may sell these
securities. The Selling Stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation
of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
Short selling occurs when a person sells shares of stock which the person
does not yet own and promises to buy stock in the future to cover the sale. The
general objective of the person selling the shares short is to make a profit by
buying the shares later, at a lower price, to cover the sale. Significant
amounts of short selling, or the perception that a significant amount of short
sales could occur, could depress the market price of our common stock. In
contrast, purchases to cover a short position may have the effect of preventing
or retarding a decline in the market price of our common stock, and together
with the imposition of the penalty bid, may stabilize, maintain or otherwise
affect the market price of our common stock. As a result, the price of our
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued at any time.
These transactions may be effected on the OTC Pink Sheets Electronic Quotation
Service or any other available markets or exchanges.
The aggregate proceeds to the Selling Stockholders from the sale of our
common stock offered by them will be the purchase price of our common stock less
discounts or commissions, if any. Each of the Selling Stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of our common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering.
The Selling Stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided that they meet the criteria and conform to the requirements of that
rule.
The Selling Stockholders and any underwriters, broker-dealers or agents
that participate in the sale of our common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profits they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling Stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.
To the extent required, the shares of our common stock to be sold, the
names of the Selling Stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealers or underwriters, any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement that includes this
prospectus.
In order to comply with the securities laws of some states, if applicable,
our common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states our common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
We have advised the Selling Stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the Selling Stockholders and their affiliates.
In addition, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the Selling Stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The Selling Stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and
in accordance therewith we are required to file periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by us can be inspected and copied at the
Commission's Public Reference Room located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at the prescribed rates. The Commission also maintains a
site on the World Wide Web that contains reports, proxy and information
statements and other information regarding registrants that file electronically.
The address of such site is http://www.sec.gov. Please call 1-800-SEC-0330 for
further information on the operation of the Commission's Public Reference Room.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"ETLT.OB."
With respect to our common stock, this prospectus omits certain
information that is contained in the registration statement on file with the
Commission, of which this prospectus is a part. For further information with
respect to us and our common stock, reference is made to the registration
statement, including the exhibits incorporated therein by reference or filed
therewith. Statements herein contained concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit or incorporated by reference to the
registration statement. The registration statement and the exhibits may be
inspected without charge at the offices of the Commission or copies thereof
obtained at prescribed rates from the public reference section of the Commission
at the addresses set forth above.
You should rely on the information contained in this prospectus and in the
registration statement as well as other information you deem relevant. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is an offer to sell, or a
solicitation of offers to buy, securities only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale or exchange of securities, however, we have a duty
to update that information while this prospectus is in use by you where, among
other things, any facts or circumstances arise which, individually or in the
aggregate, represent a fundamental change in the information contained in this
prospectus or any material information with respect to the plan of distribution
was not previously disclosed in the prospectus or there is any material change
to such information in the prospectus. This prospectus does not offer to sell or
solicit any offer to buy any securities other than our common stock to which it
relates, nor does it offer to buy any of these securities in any jurisdiction to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the shares of Eternal common stock offered by this prospectus
will be passed on by Vanderkam & Associates, as counsel to Eternal. Hank
Vanderkam, Vanderkam & Associates has been granted 200,000 options under the
Plan. In addition to these shares, Mr. Vanderkam also owns 682,707 shares of the
Company's common stock.
RESALE PROSPECTUS
ETERNAL TECHNOLOGIES GROUP, INC.
3,060,000 Shares of Common Stock, par value $0.001 per share
September 1, 2005
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation, eliminate the personal
liability of directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty to the extent permitted by Nevada law. The
Company's Bylaws provide that the Company shall have the power to indemnify its
officers and directors to the extent permitted by Nevada law. Nevada law
authorizes a corporation to indemnify directors, officers, employees or agents
of the corporation in non-derivative suits if such party acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interest
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful, as determined in
accordance with Nevada law.
The provisions affecting personal liability do not abrogate a
director's fiduciary duty to the Company and its shareholders, but eliminate
personal liability for monetary damages for breach of that duty. The provisions
do not, however, eliminate or limit the liability of a director for failing to
act in good faith, for engaging in intentional misconduct or knowingly violating
a law, for authorizing the illegal payment of a dividend or repurchase of stock,
for obtaining an improper personal benefit, for breaching a director's duty of
loyalty, which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director, or for violations of the federal securities laws.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, for the
receipt of illegal remuneration or if the director received a benefit in money,
property or services to wich the director is not legally entitled. The
provisions also do not provide indemnification for any liability to the extent
such liability is covered by insurance.
The provisions also limit or indemnify against liability resulting from
grossly negligent decisions including grossly negligent business decisions
relating to attempts to change control of the Company.
EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
EXHIBITS
4.1 2005 Stock Option Plan
4.2 2005 Stock Compensation Plan
5.1 Opinion and consent of Vanderkam & Associates re: the legality
of the shares being registered
23.1 Consent of Vanderkam & Associates (included in Exhibit 5.1)
23.2 Consent of Thomas Leger & Co. LLP
UNDERTAKINGS
(a) The registrant hereby undertakes:
(1) To file, during any period in which offers or sells
are being made, a post-effective amendment to this
registration statement to include any material
information with respect to the plan of distribution
not previously disclosed in the registration
statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining liability under
the Securities Act of 1933, each post-effective
amendment shall be treated as a new registration
statement of the securities offered, and the offering
of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold
at the end of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tianjin, PRC on the 1st day of September, 2005.
ETERNAL TECHNOLOGIES GROUP, INC.
By: /s/ JiJun Wu
---------------------------------
JiJun Wu, Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Signatures Title Date
/s/ Wu JiJun September 1, 2005
- ------------
Wu JiJun Chairman and Director
/s/ Wei Jiansheng September 1, 2005
----------------
Wu JiJun CEO and Director
/s/ Zhu Shien
Director September 1, 2005
Zhu Shien
/s/ XingJian Ma
XingJian Ma CFO and Director September 1, 2005
/s/ Genchang Li
Genchang Li Director September 1, 2005
/s/ Shicheng Fu
Shicheng Fu Director September 1, 2005
Vanderkam & Associates
1301 Travis, #1200
Houston, TX 77002
713-547-8900 phone
713-547-8910 facsimile
September 1, 2005
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Eternal Technologies Group, Inc.
Registration Statement on Form S-8
Gentlemen:
We have acted as special counsel to Eternal Technologies Group, Inc., a
Nevada corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-8 (the "Registration Statement") pertaining to
the registration by the Company under the Securities Act of 1933, as amended, of
an aggregate of 3,060,000 shares (the "Shares") of the Company's common stock
(the "Common Stock"), $0.001 par value per share, pursuant to (i) the Company's
2005 Stock Option Plan and (ii) the 2005 Stock Compensation Plan collectively
referred to herein as the "Plans".
We have made such legal and factual examinations and inquiries, including
an examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion. In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as copies.
We have relied, without independent investigation, upon a certificate from
the Company's Chief Executive Officer as to certain factual and other matters
including that the number of shares which the Company is authorized to issue in
its Certificate of Incorporation, as amended, exceeds by at least the number of
shares which may be issued in connection with the Plans, the sum of (i) the
number of shares of the Company's Common Stock outstanding, (ii) the number of
shares of the Company's Common Stock held as treasury shares, and (iii) the
number of shares of the Company's Common Stock which the Company is obligated to
issue (or has otherwise reserved for issuance for any purposes), and we have
assumed for purposes of our opinion herein that such condition will remain true
at all future times relevant to this opinion. We have also assumed that the
Company will cause certificates representing Shares issued in the future to be
properly executed and delivered and will take all other actions appropriate for
the due and proper issuance of such Shares. We have assumed for purposes of this
opinion that options issued under the Plans, the Shares issuable upon exercise
of such options and Shares issued pursuant to the 2005 Stock Compensation Plan
have been duly authorized by all necessary corporate action on the part of the
Company and such options and Shares of restricted stock have been duly
authorized and granted under the Plans. We express no opinion regarding any
shares reacquired by the Company after initial issuance.
We are members of the Bar of the State of Texas and are not admitted to practice
law in any other jurisdiction. We do not hold ourselves out as being conversant
with, and express no opinion as to, the laws of any jurisdiction other than the
laws of the State of Texas, the General Corporation Law of the State of Nevada,
and laws of the United States of America.
Subject to the limitations stated in this letter, and subject further to
the following limitations, it is our opinion that the Shares issued or issuable
by the Company, under and in accordance with all of the provisions of the Plans,
will, upon delivery thereof and receipt by the Company of all and adequate
consideration owed to the Company therefor (assuming such consideration exceeds
the par value therefor), be validly issued, fully paid and non-assessable.
The foregoing assumes that the aforesaid Registration Statement will
become and remain effective under the Securities Act of 1933, as amended, prior
to any offering of the Shares pursuant to the terms thereof and will be amended,
as appropriate, and that there will be compliance with all applicable state
securities laws in connection with the offering of such securities, as well as
compliance with the terms of the offering set forth in the Registration
Statement.
This opinion is rendered solely for your benefit and may not be relied
upon by any other person or entity. This opinion is provided to you as of the
date hereof. We undertake no, and hereby disclaim any obligation to advise you
of any change in any matter set forth herein. Without our prior written consent,
this opinion may not be quoted in whole or in part or otherwise referred to in
any report or document furnished to any person or entity.
We consent to the filing of this letter as an exhibit to the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Vanderkam & Associates
CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
As independent certified public accountants, we hereby consent to the
incorporation by reference in the Registration Statement on Form S-8 of our
report relating to the consolidated financial statements of Eternal Technologies
Group, Inc. which report appears in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2004, and to all references to this firm
included in such Registration Statement.
/s/ Thomas Leger & Co. LLP
Thomas Leger & Co. LLP
Date: September 15, 2005