XI’A 38 FULE HEALTH & ADVISORY CO., LTD. COMPA Y I FORMATIO A D DISCLOSURE STATEME T
Part A General Company Information
Item I: The Exact ame of the Issuer and its predecessor.
XI’AN 38 Fule Health & Advisory Co., Ltd. (hereafter referred to herein as “we,” “us” and “our.” Our agreements also refer to Xian Sanba Fule Health and Advisory Co, Ltd., which is our equivalent name since “Sanba” in the Chinese language means “38”.
Item II: The address of the issuer’s principal executive offices .
Company’s address and contact information XI'AN 38 FULE HEALTH & ADVISORY CO., LTD Room 11402 A Building, Haosheng Mansion No. 9, Hongying Road, Beilin District Xi’an, 710068 People’s Republic of China
Telephone number of principal executive offices: (86-29) 86178238 Facsimile: (86)(29) 8651651 Website: www.38fule.com
Investor relations contact We presently have no person or company responsible for investor relations.
Item III: The jurisdiction and the date of the issuer’s incorporation or organization .
We were originally incorporated as XI’AN 38 Fule Health & Advisory Co., Ltd. in Xi’an, China on February 15, 2006.
Part B Share Structure
Item IV. The exact title and class of the securities outstanding We have one class of securities outstanding which is our common shares. Our trading symbol is XNFHF. Our CUSIP Number is Y9725M 109.
Item V. Par or stated value and a description of the security.
A. Par or Stated Value. We are authorized to issue 200,000,000 shares of common stock, with a par value of $0.51 per share. We are not authorized to issue preferred stock.
B. Common or Preferred Stock. 1. For common equity, describe any dividend, voting and preemption rights.
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Dividends. Holders of common stock are entitled to dividends, pro rata, when, as and if declared by the Board of Directors out of funds available therefore.
Voting Rights. Holders of common stock are entitled to cast one vote for each share held at all stockholder meetings for all purposes, including the election of directors. The holders of 51% of the common stock issued and outstanding and entitled to vote, present in person or by proxy, constitute a quorum at all meetings of our stockholders.
Preemptive Rights. Our Shareholders do not have pre-emptive rights.
2. For Preferred stock describe the dividend, voting, conversion and liquidation rights as well as redemption or sinking fund provisions. We are not authorized to issue Preferred Stock.
3. Describe any other material rights of common or preferred stockholders. Holders of our common stock have no preemptive rights. 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 shareholders after the payment of all of our debts and other liabilities.
4. Describe any provision in issuer’s charter or by laws that would delay, defer or prevent a change in control of the issuer.
We have no provisions in our Articles of Incorporation or Bylaws that would prevent or delay a change in our control.
Item VI. The number of shares or total amount of the securities outstanding for each class of securities authorized.
The number of shares or total amount of the securities outstanding for each class of securities outstanding.
The number of shares as of June 30, 2008 (most recent fiscal quarter) (i) As of June 30, 2008 the issuer was authorized to issue 200,000,000 shares of common stock, with 0.51 par value. We are not now and have never been authorized to issue preferred stock. (ii) As of June 30, 2008, we had 16,207,800 shares of common stock outstanding. (iii) As of June 30, 2008, we had 4,679,100 shares of the Company’s outstanding stock designated as free trading shares. (iv) As of June 30, 2008, we had 4,679,100 free tradable shares (public float). (v) As of June 30, 2008, we had 3 beneficial owners. (vi) As of June 30, 2008, we had 176 common stock shareholders of record.
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The number of shares as of March 31, 2008 (i) As of March 31, 2008 the issuer was authorized to issue 200,000,000 shares of common stock, with 0.51 par value. We are not now and have never been authorized to issue preferred stock. (ii) As of March 31, 2008, we had 11,782,800 shares of common stock outstanding. (iii) As of March 31, 2008, we had 4,679,100 shares of the Company’s outstanding stock designated as free trading shares. (iv) As of March 31, 2008, we had 4,679,100 free tradable shares (public float). (v) As of March 31, 2008, we had 3 beneficial owners. (vi) As of March 31, 2008, we had 175 common stock shareholders of record.
The umber of Shares outstanding as of December 31, 2007 (most recent fiscal year end).
(i) As of December 31, 2007, we were authorized to issue 200,000,000 shares of common stock, with $0.51 par value and no shares of preferred stock. (ii) As of December 31, 2007, we had 11,782,800 shares of common stock outstanding. (iii) As of December 31, 2007, we had 4,679,100 shares of the Company’s outstanding stock designated as free trading shares. (iv) As of December 31, 2007, we had 4,679,100 free tradable shares (public float). (v) As of December 31, 2007, we had 3 beneficial owners (v) As of December 31, 2007, we had 175 common stock shareholders of record.
The Total umber of Shares as of December 31, 2006.
(i) As of December 31, 2006, we were authorized to issue 200,000,000 shares of common stock, with $0.51 par value and no shares of preferred stock. (ii) As of December 31, 2006, we had 9,282,800 shares of common stock outstanding. (iii) As of December 31, 2006, we had 0 shares outstanding stock designated as free trading shares. (iv) As of December 31, 2006, we had 0 free tradable shares (public float) (v) As of December 31, 2006, we had 2 beneficial owners. (v) As of December 31, 2006, we had 175 common stock shareholders of record.
Part C. Business Information.
Item VII. The name and address of the transfer agent. Our transfer agent is Island Stock Transfer, Inc. with an address of 100 2nd Ave S St Petersburg, Florida 33701, Telephone: (727) 289-0010; Facsimile: (727) 289-0069; Email: [email protected].
Our transfer agent is registered under the Securities Exchange Act of 1934 pursuant to Section 17A.
Item VIII:
3 A. Business Development
We serve as a sales and distribution arm of Shannxi San Ba Fule Science and Technology, Ltd. (Shannxi) which is also owned by our Shareholders and Chief Executive Officer. Shannxi granted us the right to establish network and distribution centers for Shannxi’s health supplemental products and health consulting services throughout China, which they manufacture, with the exception of those areas where there are agreements with certain agents. Our contract responsibilities include product selling, sales management, sales services, establishing marketing networks, and improving the product distribution system.
1. The form of organization of the issuer:
We are a China limited liability company
2. The year that the Issuer (or any predecessor) was organized:
We were originally incorporated as XI’AN 38 Fule Health & Advisory Co., Ltd. in Xi’an, China on February 15, 2006. Shannxi, the company that we act as a distribution arm for was incorporated in China during January 1999.
In February 2006, we were acquired by Shannxi’s shareholders, and our Chief Executive Officer, Meining Han, at which time Shannxi’s shareholders made capital contributions of 60% ($473,684)) and our Chief Executive Officer made capital contributions of 40% ($315,789) to us in connection with our initial formation. As such, Shannxi’s shareholders and our Chief Executive Officer own a 60% and 40% interest in us, respectively. On or about February 15, 2006, our shareholders received shares of our common stock proportionate and equivalent to the 40% interest they held at the time in Shannxi.
3. Issuer's fiscal year end date:
The fiscal year end is December 31.
4. Whether the Issuer (and/or any predecessor) has been in bankruptcy, receivership or any similar proceeding:
The Company has never filed for bankruptcy, receivership, or any similar proceeding nor is it in the process of preparing to file or plan to file for any such proceedings.
5. Whether the Issuer has made a material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business:
Apart from our being acquired by Shannxi’s shareholders and our Chief Executive Officer in February 2006, we have not been involved in a material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of business.
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6. Has the Company had any default of any terms of any note, loan lease, or other indebtedness or financing arrangement requiring the Issuer to make payments?
No.
7. Has the Issuer had a change of control?
No
8. Has there been an increase of 10% or more of the same class of outstanding equity securities?
No.
9. Describe the past, pending or anticipated stock split, stock dividend, recapitalization, merger, acquisition, spin-off, or reorganization:
Apart from our being acquired by Shannxi’s shareholders and our Chief Executive Officer in February 2006, there has been no other such event and we have no anticipation of engaging in a stock split, stock dividend, recapitalization, merger, acquisition, spin-off, or reorganization.
10. Whether the Issuer has been de-listed by any securities exchange or NASDAQ:
No.
11. Are there any current, past, pending, or threatened legal proceedings or administrative actions either by or against the issuer that could have a material effect on the Issuer's business, financial condition, or operations. State the names of the principal parties, the nature and current status of the matters, and the amounts involved.
There is no current material litigation pending or threatened against us, nor have we ever had any material litigation brought against us.
B. Business of Issuer .
1. The issuer's primary and secondary SIC Codes:
Primary code: 2833 (Medical Chemicals and Botanical Products) Secondary code: 5190 (Wholesale – Miscellaneous Non Durable Goods
2. We have conducted our operations since March 18, 2006. We serve as a sales and distribution arm of Shannxi through a March 18, 2007 agreement between Shannxi and us, wherein Shannxi granted us the right to establish network and distribution centers for health supplemental products and health consulting services throughout China, with the exception of those areas where there are agreements with certain agents. Our contract
5 responsibilities include product selling, sales management, sales services, establishing marketing networks, and improving the product distribution system. The prices at which we sell Shannxi’s products are subject to their total control and are identical to the unified price of all Company distributors. This agreement expires on March 18, 2009. We previously had a similar agreement with Shannxi from March 18, 2006 to March 18, 2007.
3. We are not a shell company and have never been a shell company.
4. State the names of any parent, subsidiary, or affiliate of the Issuer, and describe its business purpose, its method of operations, its ownership, and whether it is included in the financial statements attached to this disclosure statement:
As noted in Item 5A2 above, we were originally incorporated as XI’AN 38 Fule Health & Advisory Co., Ltd. in Xi’an, China on February 15, 2006. Shannxi, which we act as a distributor for, was incorporated in China during January 1999. The business purpose of Shannxi is development, manufacture, marketing and distribution through us of medical and healthcare related products, primarily for women in China. All products are sold under the “38 Fule” brand name. In February 2006, we were acquired by Shannxi’s shareholders, and our Chief Executive Officer, Meining Han, at which time Shannxi’s shareholders contributed 60% ($473,684)) and our Chief Executive Officer contributed 40% (315,789) of capital to us in connection with our initial formation. As such, Shannxi’s shareholders and our Chief Executive Officer own a 60% and 40% interest in us, respectively, and we and Shannxi are affiliates of one another. On or about February 15, 2006, our shareholders received shares of our common stock proportionate and equivalent to the 40% interest they held at the time in Shannxi.
5. The effect of existing or probable governmental regulations on the business:
Our business is largely subject to China’s uncertain legal environment. The China legal system is a civil law system based on written statutes and unlike common law systems, it is a system where historical legal precedents are generally irrelevant. Although the overall effect of legislation enacted over the past 20 years has been to enhance the protections afforded to foreign invested enterprises in China, such laws, regulations and legal requirements are relatively recent and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold licenses and permits such as requisite business licenses. In addition, all of our executive officers, our directors, and, at present, all of our shareholders, with the exception of two US residents, are residents of China. Additionally, substantially all the assets of these persons are located outside of the U.S. As a result, it could be difficult for investors to affect service of process in the U.S., or to enforce a judgment obtained in the U.S. against any of these persons.
We cannot predict any material costs or effects upon our business related to compliance with Chinese Law. The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. China only recently has permitted
6 provincial and local economic autonomy and private economic activities. Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state of ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in he implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.
6. An estimate of the amount spent during each of the last two fiscal years on research and development activities, and, if applicable, the extent to which the cost of such activities are borne directly by customers:
We have spent $0 on research and development in the last two years; however, Shannxi, which developed the products that we distribute on their behalf, have spent the following on research and development: (a) in 2005, $466,666; (b) in 2006, $800,000; and (c) thus far in 2007, $933,333. Our customers do not bear any of the costs associated with Shannxi’s research and development costs.
7. Costs and effects of compliance with environmental laws (Federal, state, and local);
None. We have not spent any funds on compliance with environmental laws and our products are not subject to environmental laws. We do not anticipate any costs of compliance with environmental laws in the future and our sales and distribution of the products are not subject to environmental laws. Shannxi does not have any environmental costs.
8. Number of total employees and number of full time employees.
We currently have 23 full time employees, as follows: (a) 2 in administration; (b) 16 in sales; (c) 3 in finance; and (d) 1 in production.
Item IX, ature of products or services offered.
A. Principal Products and/or Services and their Markets.
Principal products – We sell and distribute over 100 varieties of “38 Fule” branded medical and health care related products in China, which are classified into three
7 categories of personal health care products, cosmetics and small medical apparatuses, and health supplements, as follows: (I) Personal Health Care Products, which consist of:(a) Women’s Catholicon Patch, which is applied below a woman’s stomach area for womb pain and cervictis; (b) Yanjing Eco-Pad, which is used for the treatment of common gynecological diseases based on the theory of micro ecosystem and traditional Chinese medical theory; (c) Feminine Patch, which is applied to some common acupuncture points an designed to invigorate the circulation of blood and improve microcirculation; (d) Yanjing Women Care Lotion, which is a feminine care product applied to most of a woman’s body, and consists of soybean lecithin as the main ingredient and vitamins that serve to relieve itching, repair damaged mucous membrane, provide a cleaning and nourishing agent, provide long lasting fragrance, and prevent vaginal inflammations; (e) Qingqing Fragrant Body Lotion, a body odor product that combines bactericidal, action, deodorization, decontamination; (f) Yuting Series Sanitary Napkins, which is designed to improve the physiological conditions of women during their menstrual period; (II) Cosmetics and Small Medical Apparatus Products, which consist of: (a) Nami Breast Beatifying Cream, which is designed for the treatment of breast shrink and atrophy; (b) Skin Lightening Cream, which is designed to inhibit and break down the development of freckles, and lighten and remove other skin coloration or spot related conditions; and (c) Footboy Palmtop Healthcare System, a high tech product that uses physical and microelectronic technologies to treat acute and chronic diseases, such as hypertension, rheumatic diseases, arthritis, and abdominal pain; and (III) Health Supplement Products , which consists of phytoestrogen and weight reducing capsule.
B. Distribution Methods of the Products and/or Services.
Distribution methods – Our products are distributed and sold in China through:
• Independent Contractors or Dealers/Direct Product Sales – We have approximately 3 independent dealers that operate in 3 cities in China, which directly sell our products to their customers. These independent dealers are not our employees and operate independently by purchasing our products at a discount directly from us and then selling our products to their customers at a mark-up. During the first half year of 2007, this direct sales method through independent contractors has accounted for 6% and US$27,000 of our total sales, respectively.
• Retail Outlets – We have established 21 retail outlets that sell a full line of our products in the following cities in China: Xian, Xianyang, Weinan, Lanzhou, Baoji, Chendu, Dezhou, Zhenjiang, Wulumuqi and Taiyuan. During the first 6 months of 2007, our retail outlets accounted for $57,000 or 13% of our total sales.
8 • Franchise Stores – We have established 30 franchise stores in 6 cities in China through our franchise agreement with each franchise. We furnish a discount product rate and cooperation period in assisting the franchisee with establishing the franchise. We generate franchise related revenue primarily through product sales to franchisees, franchise fees, ad security deposits paid by the franchisees. To assist our franchisees in the operation of their stores, we provide training, site selection, construction assistance, and accounting services. During first half year in 2007, our franchise operations have accounted for 63% and US$277,200 of our total sales, respectively.
• Online Order System – We utilize an online ordering system through our website at www.38fule.com where we offer a complete line of our products to potential customers 24 hours a day, 7 days a week. Our online sales method has enabled us to sell our products in regions where we do not have independent contractors affecting direct sales or franchise shops. During the first half-year in 2007, our online sales have accounted for 18% and US$79,200 of our total sales, respectively.
Sales Regions The following chart depicts the sales regions where we sell our products.
Region of China Cities Located in Region Where Products are Sold Northwest Xian, Xianyang, Baoji, Weinan, Lanzhou, Xining Southwest Chendu, Kunming, Chongqin, Guiyong Hua Dong Jiangsu, Sandong Hua Zhong Henan
Sales Location The following chart depicts a breakdown of the number of our franchise stores, independent dealers, and retail outlets located in each region of China.
Franchise Stores Independent Retail Outlets Dealers Northwest 16 10 10 Southwest 4 5 6 Hua Dong 6 4 3 Hua Zhong 4 4 2
Revenue By Region for First Six Months of 2007 The following chart depicts our sales revenue in each region of China.
Sales Revenue Percentage % Northwest $285,560 64.9% Southwest $49,280 11.2% Hua Dong $63,800 14.5% Hua Zhong $41,360 9.4%
9 Total $440,000 100%
Revenue By Distribution Methods for First Six Months of 2007 The following chart depicts revenue breakdown by distribution method.
Sales Revenue Percentage % Franchise Stores $277,200 63% Independent Dealers 6% $26,400 Retail Outlets $57,200 13% Internet $79,200 18% Total $440,000 100%
C. Status of any new publicly announced new product or service.
Not Applicable.
D. Competitive Business Conditions. The Issuer’s competitive place in the industry, and methods of competition
Our industry, both within China and globally is highly fragmented and intensely competitive and increased competition could reduce our operating income. We compete with a number of domestic and international distributors that are marketing products in China that are similar to our products, especially Amway China, Roche China, and Jiang Kang Yuan Company. We may be unable to effectively compete against them because our existing or potential competitors may have superior financial, technical, distribution, marketing, sales and other resources, as well as significantly greater name recognition and established positions in the markets we serve. Increased competition could force us to lower our prices or offer services at a higher cost to us, which could reduce our operating income.
Our future plans over the next 5 years to compete in this marketplace, include: (a) selling our products in supermarkets and grocery stores to customers who may not customarily frequent specialty health care stores; (b) increase our brand name recognition through marketing program budget/activities, which include television advertising, customer flyers, brochures, promotional pieces, and sales and marketing magazines, (c) continually refine our special incentive programs that reward superior sales performance to our direct selling independent representatives; (d) attempt to increase our franchise stores by 100 per year for the next 5 years; (e) increase our already wide range of products to meet the various needs of women; and (f) continue our alliances with the following academic research institutions to jointly develop new products: Medical Drug Institution - No. 4 Army Medical University in Xian, China and Shannxi Chinese Medical University in Shanghai, China.
10 E. Sources of Raw Materials and the names of Principal Suppliers.
We do not use raw materials in our business. Shannxi also does not use raw materials in its business.
F. Dependence on one or a few major customers.
We are not dependant upon one or a few customers and we do not expect to become so. From March 2006 to present, we have had 30 franchised stores in 6 cities and 21 retail outlets in 10 cities in China.
G. Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts, including their duration.
We have no patents, trademarks, licenses, concessions, royalty agreements or labor contracts; however, Shannxi has the following trademarks and patents.
Trademarks – No duration for trademarks.
Trademark o# Issued By Issue Date 1 38 Fule 731813 State Administration For Industry & 2/28/1995 Commerce Trademark Registration 2 ami 1720281 State Administration For Industry & 2/28/2002 Commerce Trademark Registration 3 Little 3421960 State Administration For Industry & 6/14/2004 Servant Commerce Trademark Registration
Patents - Duration for 10 years
Trademark Patent o# Issued By Issue Date 1 38 Fule ZL98316078.3 State Intellectual Property office 11/28/1998 Sanitary of the Serviette People’s Republic of China 2 38 Fule Rabbit ZL06327401.3 State Intellectual Property office 7/30/2006 Shape Pillow of the People’s Republic of China
Franchises/Franchise Agreements
We have franchise agreements with 30 franchises. Each such agreement provides that we have the following contractual obligations to the franchisee: (a) we will grant exclusive rights to the franchisee to develop city franchised shops at a certain specified level, scale
11 and area coverage (“the Authorized Area”); (b) we will not allow any third parties to infringe upon the franchisee’s Authorized Area; (c) we will provide all of our products to the franchisee; (d) we will serve and supervise the operation sites, equipment, and decoration of the franchised shops; (e) we will train 3 employees of the franchisee prior to the opening of the franchised shop ad provide training for 3 employees for free every year after opening;
The franchisee has the following contractual obligations to us: (a) the franchisee will be prohibited from selling similar third party products similar to our products; (b) the franchisee is prohibited from sponsoring or organizing a chain business or franchise business activities of products similar to our products; (c) the franchisee will not sublet the franchise rights or rent or lend the franchise license; (d) the franchisee will pay us a negotiated non-refundable franchise fee upon execution of the franchise agreement; (e) the franchisee will pay us a lump-sum performance fee of US$2,500 upon execution of the franchise agreement, subject to forfeiture if the franchisee violates the franchise agreement or damages our interest; (f) the franchisee will strictly abide by our franchise regulations, regimes, and processes; (g) the franchisee will assume the responsibility of transportation, storage, maintaining product, product distribution upon receipt of product from us and will be liable for the product quality regarding the foregoing; (h) the franchisee is subject to our random inspections of the franchise shops; (i) the franchisee will be responsible for raising all the capital needed for the operation of the franchised shop and guarantee that the investment in the franchised sop is not less than US$13,500; (j) the franchisee is subject to penalty fees for overdue franchise fees, performance security payment, or overdue payments for our products; (k) if the franchisee breaches the franchise agreement, we have the right to take any one or two of the following measures: (i) rescind the franchise agreement; (ii) not return the security paid by the franchisee; and (iii) require the franchisee to pay a US$125 penalty.
The 30 franchise stores are located in Xian, Xianyang, Weinan, Lanzhou, Jiangsu and Sichan, China and their names are:
1. 38 Fule Store - Xian Changan Lu 2. 38 Fule Store - Xian Changle Lu 3. 38 Fule Store - Xian Qinyian Lu 4. 38 Fule Store - Xian Wanshou Lu 5. 38 Fule Store - Xian Gaoxin Lu 6. 38 Fule Store - Xianyang XinChendu 7. 38 Fule Store - Chengdu 8. 38 Fule Store - Kunming 9. 38 Fule Store - Guiyang 10. 38 Fule Store - Jiangsu Zhenjiang 11. 38 Fule Store – Jiangsu Xinhua 12. 38 Fule Store – Shangdon Dezhou 13. 38 Fule Store – Jiansu Yiangzhou 14. 38 Fule Store – Qindao Lu 15. 38 Fule Store – Dalian Lu 16. 38 Fule Store – Xianyang Xinshin Lu
12 17. 38 Fule Store – Xianyang Xilan Lu 18. 38 Fule Store – Xianyang Zhongshan Lu 19. 38 Fule Store – Baoji Jin Er Lu 20. 38 Fule Store – Baoji Qingjiang Lu 21. 38 Fule Store – Weinan Shenli Lu 22. 38 Fule Store – Weinan Dongfeng Lu 23. 38 Fule Store – Henan Chianjin Lu 24. 38 Fule Store – Henan Minshen Lu 25. 38 Fule Store – Henan Shancai Lu 26. 38 Fule Store – Lanzhou Yianchan Lu 27. 38 Fule Store – Lanzhou Binhe Lu 28. 38 Fule Store – Lanzhou Donggang Lu 29. 38 Fule Store – Lanzhou Tianshui Lu 30. 38 Fule Store – Henan Kaifong
H. The need for any government approval of principal products or services and the status of any requested government approvals.
We obtain sales licenses from Shannxi from the following governmental approvals in China: (a) Shannxi Commerce Department, which is responsible for regulating business related rules and regulations in China pertaining to sales transactions; and (b) Shannxi Medical Examination and Management Bureau, which is responsible for regulating: (i) licenses, such as matters pertaining to a new corporate entity, business activity ranges, and enterprise levels; and (ii) product quality, which require products that are sold by us to meet certain product quality standards, obtaining a product sales permit, and meeting certain product levels.
Because we do not sell our products in the United States we are not required to obtain approval of any United States governmental agencies to sell our products. We have not applied for any governmental approvals in the US and we have no pending approvals.
Item X: The nature and extent of the Issuer's facilities .
In responding to this item, please give the location of the principal plants and other property of the Issuer and describe the condition of the properties. If the issuer does not have complete ownership of the property (for example, if others also own the property or if there is a mortgage on the property), describe the limitations on the ownership.
The Government owns all land in China, as such we do not own our facilities. We have acquired land use rights for the specific purpose for our business and as such these rights allow us to conduct our business. In the case of land used for industrial purposes, the land use rights are granted for a period of up to 50 years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations.
Our main executive office, which is composed of operating offices and is approximately 2500 square feet, is located at Room 11402 A Building, Haosheng Mansion, No. 9,
13 Hongying Road, Beilin District, Xi’an, China 710068. We have land use rights relating to the land and physical office space within the building where our offices are located. We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.
We lease our office and inventory space from Shannxi 38 under two operating leases with terms of five years each. For the periods ended December 31, 2006 and 2007, rental expense related to the two leases amounted to $7,875 and $13,503, respectively. For the period ended June 30, 2008, rental expense related to the two leases amounted to $6,752. The approximate monthly rent on the office space and inventory space is $710 and $415, respectively.
PART D. MA AGEME T STRUCTURE A D FI A CIAL I FORMATIO .
ITEM XI. The name of the chief executive officer, members of the board of directors, as well as counsel, accountant and public relations consultant .
A. Officers and Directors . In responding to this item, please provide the full names, business addresses, employment histories, board memberships, other affiliations, and number of securities (and of which class) beneficially owned by each such person, which information must be no older than the end of the most recent fiscal year.
ame, business address, employment history during the last five years of our officers and directors, and any board memberships and affiliations of each executive officer and director of the Issuer as of the date hereof:
Meining Han has been our Chief Executive Officer and President since February 2006. From March 2000 to present, Ms. Han has been the President of Shannxi, which manufacturers the medical and health care products we sell in China. In 1994, Ms. Han received a Masters Degree in Business Administration from Xian Jiaotong University located in Xian, China. The business address of Meining Han is Room 11402, A Building, Haosheng Mansion, No. 9, Hongying road, Beilin District, Xi’an, China 410068.
Xiaofeng Yuan has been our Chairman of the Board/Director since March 2006. Mr. Yuan has also been the Chief Executive Officer of Shannxi, which manufacturers the medical and health products we sell in China, since May 1999. In 1994, Mr. Yun received a Bachelor of Science Degree in Chinese Medicine from Shaanxi Chinese Medical University located in Xian, China. The business address of Xiaofeng Yuan is Room 11402, A Building, Haosheng Mansion, No. 9, Hongying road, Beilin District, Xi’an, China 410068.
Linjjing Zhuang has been our Chief Financial Officer since February 2006. Ms. Zhuang was the Chief Financial Officer of Shannxi from May 2001 to February 2006. Ms. Zhuang received a Master degree in accounting from Capital Economy and Trade University located in Beijing, China. The business address of Liniing Zhuang is Room
14 11402, A Building, Haosheng Mansion, No. 9, Hongying road, Beilin District, Xi’an, China 410068.
Meisen Lu has been our Chief Operating Officer and Independent Director since February 2006. From July 2003 to February 2006, Mr. Lu was the Administration Manager of Shaanxi 38 Sciences and Technologies, Ltd., a manufacturer of medical and health products in China. In 1989, Mr. received a Bachelor of Science in Chinese from Shaanxi Normal University located in Xian, China. The business address of Meisen Lu is Room 11402, A Building, Haosheng Mansion, No. 9, Hongying road, Beilin District, Xi’an, China 410068.
Guowei Zhou has been our Independent Director since June 2006. From January 2001 until now, Guowei Zhou is CEO of Beijing GlenTech Company, which is involved import/export electronic components for color TV and consultation on business strategic planning. Since June 2006, he became an independent board member of Xian 38 Fule Health & Advisory Co., Ltd. Guowei graduated from Xian Jiaotong University located in Xian, China with Bachelor degree in Computer Science in 1987 and MBA in 1995. The business address of Guowei Zhou is 115 Fucheng Road, Beijing, China 100036
Compensation by the Issuer. Our officers and directors receive the following compensation:
Our officers and directors receive the following compensation:
OFFICER/DIRECTOR NAME MONTHLY SALARY Mingning Han $285 Xiaofeng Yuan $268 Lingqing Zhuang $151 Meisen Lu $160 Guowei Zhou $0
umber and class of our securities beneficially owned by each officer, director and control person. The following table sets forth, as of June 30, 2008, the beneficial ownership of the Company's Common Stock by each of our officers and directors.
Name Number of Beneficially Percentage Shares Owned Beneficially Owned
Meining Han 5,740,000 35.4% Chief Executive Officer President Bi Shui Ming Ju Xianyang, Shannxi People’s Republic of China
15 Xiaofeng Yuan 3,700,000 22.8% Chairman of the Board No. 14 Xiangzi Temple St. Xianyang, Shannxi People’s Republic of China
Guowei Zhou 2,800,000 17.3% Director 7-137 Beijing Ying Xiang Building 115 Fu Chen Road Beijing, 100036 People’s Republic of China
Linjuing Zhuang 13,700 0.08% Chief Financial Officer No. 78 Xinjian Road Newspaper Office Taiyuan, Shannxi People’s Republic of China
Meisen Lu 150,000 0.9% Chief Operating Officer No. 6 Zhongshan Street Xianyang, Shannxi People’s Republic of China
TOTAL 12,403,700 76.5%
B. Legal/Disciplinary History . Please also identify whether any of the foregoing persons have, in the last five years, been the subject of:
1. A conviction in a criminal proceeding or named as a defendant in a pending criminal proceeding. (Excluding traffic violations and other minor offenses)
None
2. The entry of an order, judgment, or decree, not subsequently reversed, suspended or vacated, by a court of competent jurisdiction that permanently or temporarily enjoined, barred, suspended or otherwise limited such person's involvement in any type of business, securities, commodities, or banking activities:
None
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3. A finding or judgment by a court of competent jurisdiction (in a civil action), the SEC, the CFTC, or a state securities regulator of a violation of federal or state securities or commodities law, which finding or judgment has not been reversed, or vacated; or
None.
4. The entry of an order by a self-regulatory organization that permanently or temporarily barred, suspended or otherwise limited such person's involvement in any type of business or securities activities.
None.
C. Disclosure of Family Relationships. Describe any family relationships4 among and between the issuer’s directors, officers, persons nominated or chosen by the issuer to become directors or officers, or beneficial owners of more than five percent (5%) of the any class of the issuer’s equity securities.
Xiaofeng Yuan, our Chairman of the Board, is the husband of our Chief Executive Officer/President, Meining Han.
D. Disclosure of Related Party Transactions . Describe any transaction during the issuer’s last two full fiscal years and the current fiscal year or any currently proposed transaction, involving the issuer, in which (i) the amount involved exceeds the lesser of $120,000 or one percent of the average of the issuer’s total assets at year-end for its last three fiscal years and (ii) any related person had or will have a direct or indirect material interest. Disclose the following information regarding the transaction: 1. The name of the related person and the basis on which the person is related to the issuer; 2. The related person’s interest in the transaction; 3. The approximate dollar value involved in the transaction (in the case of indebtedness, disclose the largest aggregate amount of principal outstanding during the time period for which disclosure is required, the amount thereof outstanding as of the latest practicable date, the amount of principal and interest paid during the time period for which disclosure is required, and the rate or amount of interest payable on the indebtedness); 4. The approximate dollar value of the related person’s interest in the transaction; and 5. Any other information regarding the transaction or the related person in the context of the transaction that is material to investors in light of the circumstances of the particular transaction.
E. Disclosure of Conflicts of Interest Describe any conflicts of interest. Describe the circumstances, parties involved and mitigating factors for any executive officer director with competing professional or personal interests.
Xiaofeng Yuan, our Chairman of the Board, is the husband of our Chief Executive Officer/President, Meining Han.
As noted in Section 11A, our officers and directors are or have been officers and directors of Shannxi and have potential conflicts of interest where they may favor the interests of
17 Shannxi over the interests of our shareholders. We have no policies to resolve such conflicts.
As noted in Item X, we lease our office and inventory space from Shannxi 38 under two operating leases with terms of five years each.
ITEM XII. Financial Information for the Issuer’s Most Recent Fiscal Period.
The following financial statements for our fiscal years ending December 31, 2006 and December 31, 2007, were posted on the Pink Sheets on July 6, 2008, and are herein incorporated by reference: • Balance Sheet; • Statement of Operations; • Statements of Cash Flows; and • Statements of Stockholders’ Equity.
The following financial statements for the interim periods ending March 31, 2008 and June 30, 2008 and the six months ended June 30, 2008 were posted on the Pink Sheets on July 8, 2008, and are herein incorporated by reference: • Balance Sheet; • Statement of Operations; • Statements of Cash Flows; and • Statements of Stockholders’ Equity.
ITEM XIII. Similar financial information for such part of the two preceding fiscal years as the issuer or its predecessor has been in existence.
ITEM. XIV. Beneficial Owners. Provide a list of the name, address and shareholdings of all persons beneficially owning more than five percent (5%) of any class of the issuer’s equity securities.
The following table sets forth, as of June 30, 2008, the beneficial ownership of the Company's Common Stock by each of our officers and directors.
Name Number of Beneficially Percentage Shares Owned Beneficially Owned
Meining Han 5,740,000 35.4% Chief Executive Officer President Bi Shui Ming Ju Xianyang, Shannxi People’s Republic of China
Xiaofeng Yuan 3,700,000 22.8% Chairman of the Board
18 No. 14 Xiangzi Temple St. Xianyang, Shannxi People’s Republic of China
Guowei Zhou 2,800,000 17.3% Director 7-137 Beijing Ying Xiang Building 115 Fu Chen Road Beijing, 100036 People’s Republic of China
TOTAL 12,240,700 75.5%
ITEM XV. The name, address, telephone number, and email address of each of the following outside providers that advise the issuer on matters relating to the operations, business development and disclosure:
1. Investment Banker.
None
2. Promoters.
None
3. Counsel:
Frederick M Lehrer, Esquire Hamilton & Lehrer, P.A. 101 Plaza Real South Suite 201 Boca Raton, FL 33432 (561) 416-8956
Hamilton & Lehrer, P.A. assisted in the preparation of this Information and Disclosure Statement.
4. Accountant or Auditor Shannxi Hua Zing Certified Public Accounting Firm 78 Zhu Qiu Street Xian, Shannxi Province China
19 Telephone number: (86)(29) 82090941
5. Public Relations Consultants.
None
6. Investor Relations Consultant.
None
7. Any other advisor(s) that assisted, advised, prepared or provided information with respect to this disclosure statement
None
Item XVI. MA AGEME T’S DISCUSSIO A D A ALYSIS OF FI A CIAL CO DITIO A D RESULTS OF OPERAITO S.
B.Fiscal Years 2006 and 2007
The following discussion regards the Balance Sheet and Statement of Operations for the year 2006 and 2007.
Xi’an 38 Fule Health & Advisory, LTD (or “38 Fule”) is a development stage company founded in Xi’an, China on February 15, 2006. Since our inception and continuing through the end of year 2007, “38 Fule” had been continued as a sales and distribution arm of Shannxi San Ba Fule Science & Technology, Ltd.
From the inception, we were starting to sell and distribute the over 100 varieties of “38 Fule” branded medical and health care related products in China, which are classified into three categories of personal health care products, cosmetics and small medical apparatuses, and health supplements.
The distribution channel had been expanded to 30 franchise stores in 6 cities in China through our franchise agreement with each franchise. During the year of 2007, our franchise operations have accounted for 63% and US$277,200 of our total sales, respectively.
We had established 21 retail outlets that sold a full line of our products in the following cities in China: Xian, Xianyang, Weinan, Lanzhou, Baoji, Chendu, Dezhou, Zhenjiang, Wulumuqi and Taiyuan. Our retail outlets accounted for $57,000 or 13% of our total sales in year 2007.
We also utilized an online ordering system through our website at www.38fule.com where we offer a complete line of our products to potential customers 24 hours a day, 7
20 days a week. Our online sales have accounted for 18% or US$79,200 of our total sales in 2007.
On October 15, 2007, we issued 2,500,000 shares of our common stocks to the following entity and persons. The compensation to Hamilton & Lehrer, P.A. was for compensation and the compensation to Guowei Zhou was for compensation and job performance awards for their service.
ame umber of Shares Hamilton & Lehrer, P.A. 500,000 Guiwei Zhou 2,000,000
“38 Fule” believes its Balance Sheet and Statement of Operations for the year 2006 and 2007 fairly present its financial condition and current company situation as of that date. These statements were prepared by our accounting department in conformity with accounting principles generally accepted in the United States of America, and had been reviewed by Shannxi Hua Zing, Certified Public Accounting Firm in Xi’an, China.
Six Months Ended June 30, 2008
The following discussion regards the Balance Sheet and Statement of Operations from January 1, 2008 to June 30, 2008.
Xi’an 38 Fule Health & Advisory, LTD (or “38 Fule”) is a development stage company founded in Xi’an, China on February 15, 2006. Since our inception and continuing through the first half of 2008, “38 Fule” continued as a sales and distribution arm of Shannxi San Ba Fule Science & Technology, Ltd.
Net sales for the first half of 2008 ended June 30, 2008 were $444,526 compared to $890,433 for the whole year of 2007, a decrease of $691, (i.e. $444,526 – $890,433 / 2) of the average based net sales of first half year of 2007. The decrease in net sales for this period is primary due to the costs associated with an aggressive marketing and advertising campaign. The cost of goods sold for the 6 months ended June 30, 2008 was $374,834, compared to $352,409 for all of Fiscal Year 2007. The increase in cost of goods sold is also due to an aggressive marketing and advertising campaign.
As of June 30, 2008, we had $1,112,264 in current assets of which $660,676, or 59.40%, was cash and receivables. Total current liabilities for the same period totaled $609,885, of which $558,230 or 91.53% represented payroll and operating payables. The ratio of current assets to current liabilities is 1.82.
Our gross profit margin for the three-month period ended June 30, 2008 was 15.68% compared to 24.03% for the first three-month period ended March 31, 2008, and 60.42%
21 for the year 2007. The overall decrease in gross margin for the 6 months ended June 30, 2008 is primarily due to the higher cost of sales during that period for our marketing and advertising costs. In general, in any particular quarter, we may experience fluctuations in gross profit due to our utilization of sales discounts and promotion that we implement from time to time to introduce our products to our retail customers and franchise stores. Any fluctuation in gross margin that may occur, in management’s belief, is indicative of our product viability or appeal in the marketplace. These discounts and promotion may be necessary from time to time as we continue market penetration that will enable our products to become more widely distributed and well recognized.
Inventory has increased dramatically to $382,499 for the 6 months ended June 30, 2008, compared to $104,604 for the entire fiscal year 2007. The increase in inventory is due to management’s estimated product sales during the summer of 2008 and making inventory provisions accordingly. Additionally, inflation pressure was also considered in conjunction with our increase in accumulated inventory (due to worldwide economic environment, especially in China, May 2008’s CPI (Consumer Price Index) has increased to 8.80% to 2.37% in May 2007.
On April 29, 2008, we issued 2,175,000 shares of our common stocks to the following entity and persons. The compensation to our officers and directors, Messrs. Han, Yuan, and Zhou, were for compensation and job performance awards for their service.
ame umber of Shares Island Stock Transfer 175,000 Meining Han 1,000,000 Xiaofeng Yuan 500,000 Guiwei Zhou 500,000
If sales grow in the future, we will budget our expenditures for certain marketing and selling expenses accordingly. We may promote our products through print in trade and consumer publications, public relations appearances, product seminars, radio, television, Internet and other advertising mediums if sales increase.
Management has focused its efforts on adding new products for potentially higher growth. Noni juice and coconut oil products from South Pacific Trading Company, Dade City, Florida, and Breast Chek Kits from Plexusworld Inc. located in Phoenix, Arizona have been added to our promotion catalog and quarterly trade magazine. Management believes that the bundle sales of Breast Chek Kits with our own breast pain relief pads, Sanba Paste for Women, will have a significant market effect, although the actual starting sale date for Breast Chek Kits is dependent on the approval of sale registration from the China Food And Drug Administration.
“38 Fule” believes its Balance Sheet and Statement of Operations from January 1, 2008 to June 30, 2008 fairly present its financial condition and current company situation as of
22 that date. These statements were prepared by our accounting department, and have not been reviewed by independent accountant firm or outside business consultants.
C. Off Balance Sheet Arrangements
As of June 30, 2008, we did not have any off-balance sheet transactions.
PART E. ISSUA CE HISTORY.
XVII. List below any events, in chronological order, that resulted in changes in total shares outstanding by the issuer (1) within the two-year period ending on the last day of the issuer’s most recent fiscal year and (2) since the last day of the issuer’s most recent fiscal year. The list shall include all offerings of securities, whether private or public, and shall indicate: (i) The nature of each offering (e.g., Securities Act Rule 504, intrastate, etc.); (ii) Any jurisdictions where the offering was registered or qualified; (iii) The number of shares offered; (iv) The number of shares sold; (v) The price at which the shares were offered, and the amount actually paid to the issuer; (vi) The trading status of the shares; and (vii) Whether the certificates or other documents that evidence the shares contain a legend (1) stating that the shares have not been registered under the Securities Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Securities Act.
We relied upon Section 4(2) of the Securities Act of 1933, as amended for the following offering of our common stock in the state of Florida. We believed that Section 4(2) was available because the offer and sale did not involve a public offering: 1. On April 29, 2008, we issued 1,000,000 restricted shares of our common stock to our Chief Executive Officer/President, Meining Han; 2. On April 29, 2008, we issued 500,000 restricted shares of our common stock to our Chairman of the Board/President, Xiafeng Yuan; 3. On April 29, 2008, we issued 500,000 restricted shares of our common stock to Guowei Zhou; 4. On April 29, 2008, we issued 175,000 restricted shares of our common stock to Meining Han; 5. On October 15, 2007, we issued 500,000 restricted shares of our common stock to the law firm of Hamilton, & Lehrer P.A. for legal services rendered to us; and 6. On October 15, 2007, we issued 2,000,000 restricted shares of our common stock to our Director, Guowei Zhou, for services rendered to us.
The certificates evidencing the foregoing shares contain a legend (1) stating that the shares have not been registered under the Securities Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Securities Act. Apart from these issuances, there have not been any changes in our total shares outstanding in the past two years.
PART F. EXHIBITS ITEM XVIII. Material Contracts. A. Every material contract, not made in the ordinary course of business that will be performed after the disclosure document is posted on the
23 Pink Sheets News Service or was entered into not more than two years before such posting.
Also include the following contracts: 1) Any contract to which directors, officers, promoters, voting trustees, security holders named in the disclosure document, or the Designated Advisor for Disclosure are parties other than contracts involving only the purchase or sale of current assets having a determinable market price, at such market price;
2) Any contract upon which the issuer’s business is substantially dependent, including but not limited to contracts with principal customers, principal suppliers, and franchise agreements;
3) Any contract for the purchase or sale of any property, plant or equipment for consideration exceeding 15 percent of such assets of the issuer;
4) Any material lease under which a part of the property described in the disclosure document is held by the issuer.
B. Any management contract or any compensatory plan, contract or arrangement, including but not limited to plans relating to options, warrants or rights, pension, retirement or deferred compensation or bonus, incentive or profit sharing (or if not set forth in any formal document, a written description thereof) in which any director or any executive officer of the issuer participates shall be deemed material and shall be included; and any other management contract or any other compensatory plan, contract, or arrangement in which any other executive officer of the issuer participates shall be filed unless immaterial in amount or significance.
Item XIX Articles of Incorporation, Bylaws Corporate Documents. The following Exhibits are attached (i) Articles of Association of Xi’an Sanba Fule Health and Advisory Co., Ltd. dated February 15, 2006. (ii) Revised Version of Articles of Association (Amendment to Articles of Association) dated June 16, 2006. (iii) Resolutions of Shareholders meetings dated June 18, 2006 and April 29, 2008. (iv) Minutes of General Meetings of Shareholders dated March 2, 2006, March 20, 2006, June 18, 2006 of Xian 38 Fule Health and Advisory Co., Ltd (v) Agreement between Xi’an 38 Fule Health and Advisory Co., Ltd. and Shannxi San Ba Fule Science and Technology Co., Ltd. dated March 18, 2007. (vi) Agreement between Xi’an 38 Fule Health and Advisory Co., Ltd. and Medical Drug Institution of No. 4 Army Medical University in Xian, China. (vii) Agreement between Xi’an 38 Fule Health and Advisory Co., Ltd. and Shannxi Chinese Medical University in Xian, China. (viii) Contract for Franchise of the Franchised Shop between Xi’an 38 Fule Health and Advisory Co., Ltd. and franchisee (ix). Product Handbook - Xi’an 38 Fule Health and Advisory Co., Ltd. (x). Internal Control Management System - Xi’an 38 Fule Health and Advisory Co., Ltd.
24 (xi). Employee Manual - Xi’an 38 Fule Health and Advisory Co., Ltd. (xii). Certified Shareholder list from the Company’s Transfer Agent. xv Tradability Opinion xvi Financial Statements
Item XX Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Inapplicable. There have been no such purchases by us or affiliates.
CERTIFICATIO : I, Meining Han, Chief Executive Officer/President, hereby certify that: 1.I have reviewed this Quarterly Disclosure Statement of Xi’an 38 Fule Health & Advisory Co., Ltd.; 2.Based on my knowledge, this disclosure statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this disclosure statement; and 3. Based on my knowledge, the financial statements and other information included or incorporated by reference in this disclosure statement, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of June 30, 2008, and for, the periods presented in the disclosure statement.
CERTIFICATIO : I, Linjuing Zhuang, Chief Financial Officer, hereby certify that: 1.I have reviewed this Quarterly Disclosure Statement of Xi’an 38 Fule Health & Advisory Co., Ltd.; 2.Based on my knowledge, this disclosure statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this disclosure statement; and 3. Based on my knowledge, the financial statements and other information included or incorporated by reference in this disclosure statement, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of June 30, 2008, and for, the periods presented in the disclosure statement.
25