cdii_forms8.htm
As filed
with the Securities and Exchange Commission on February 19, 2010
Registration
No. 333-_________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
S-8
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
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CHINA
DIRECT INDUSTRIES, INC.
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(Exact
name of registrant as specified in its
charter)
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Florida
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13-3876100
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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431
Fairway Drive, Suite 200, Deerfield Beach, Florida
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33441
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(Address
of Principal Executive Offices)
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(Zip
Code)
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China
Direct Industries, Inc. 2008 Executive Stock Incentive
Plan
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(Full
title of plan)
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__________________________________
Lazarus
Rothstein
Executive
Vice President and General Counsel
China
Direct Industries, Inc.
431
Fairway Drive, Suite 200
Deerfield Beach,
Florida 33441
(Name and
address of agent for service)
(954)
363-7333
(Telephone
number, including area code, of agent for service)
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer
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Accelerated
filer o
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Non-accelerated
filer o
(Do
not check if a smaller reporting company)
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Smaller
reporting company þ
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__________________________________
CALCULATION
OF REGISTRATION FEE
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Title
of securities to be registered
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Amount
to be registered
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Proposed maximum offering price
per share(2)
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Proposed
maximum aggregate offering price
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Amount
of registration fee
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Common
stock, par value $0.0001 per share (1)
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(1) This
registration statement covers 1,000,000 shares of the Registrant's common stock
which have been authorized for issuance under the China Direct Industries, Inc.
2008 Executive Stock Incentive Plan;
(2) Estimated
solely for the purpose of calculating the registration fee based on the average
of the high and low prices of the Registrant's common stock as reported on
February 18, 2010 in accordance with Rule 457(h)(1) under the Securities Act of
1933, as amended.
INTRODUCTORY
STATEMENT
This
registration statement relates to two separate prospectuses. The
first prospectus relates to future issuances to our executive officers of up to
1,000,000 shares of our common stock, $0.0001 par value, per share (the “common
stock”) pursuant to our 2008 Executive Stock Incentive Plan (the
“Plan”).
This
registration statement also includes a reoffer prospectus that relates to the
reoffer or resale of any shares of our common stock that are issued under the
2008 Executive Stock Incentive Plan.
PART
I
INFORMATION
REQUIRED IN THE SECTION 10(a) PROSPECTUS
The
documents containing the information required by Part I of Form S-8 have
been or will be sent or given to the participants in the Plan being registered
hereby as specified by Rule 428(b)(1) of Regulation C under the Securities
Act of 1933, as amended (the “Securities Act”), and these documents taken
together with the documents incorporated by reference in this registration
statement shall constitute a prospectus that meets the requirements of Section
10(a) of the Securities Act. Pursuant to Rule 428 of the Securities Act,
these documents are not required to be filed with the Securities and Exchange
Commission as part of this registration statement or as an Exhibit
hereto.
PROSPECTUS
CHINA
DIRECT INDUSTRIES, INC.
1,000,000
shares
of
Common
Stock
This reoffer prospectus is a combined
prospectus relating to shares of our common stock, par value $0.0001 per
share, that have been registered with the Securities and Exchange Commission
(the “SEC”) and that have been or may be acquired by certain of our executive
officers (the “Selling Stockholders”) under awards made to them under our 2008
Executive Stock Incentive Plan (the “Plan”). The shares of common stock relating
to the Plan issuable to the Selling Stockholders have been registered with the
SEC on the registration statement on Form S-8 of which this reoffer prospectus
is filed as a part.
We will
not receive any proceeds from the sale of the shares under the Plan. However, we
will receive proceeds, if any, from the exercise of the options granted
under the Plan.
The
Selling Stockholders may offer their shares through public or private
transactions, in the over-the-counter markets or on any exchanges on which our
common stock is traded at the time of sale, at prevailing market prices or at
privately negotiated prices. The Selling Stockholders may engage brokers or
dealers who may receive commissions or discounts from the Selling Stockholders.
We will pay substantially all of the expenses incident to the registration of
such shares, except for the selling commissions.
Our
common stock is listed on the NASDAQ Global Market under the symbol
"CDII". On February 18, 2010, the last sale price of our common stock
was $1.70 per share.
INVESTING
IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 3 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS THAT YOU
SHOULD CONSIDER BEFORE MAKING A DECISION TO PURCHASE OUR
SECURITIES.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of 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 February 19, 2010
TABLE
OF CONTENTS
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Page
No.
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The
Company
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1 |
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Cautionary
Statements Regarding Forward-Looking Information
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Risk
Factors
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3 |
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The
2008 Executive Stock Incentive Plan
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Use
of Proceeds
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Selling
Stockholders
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Plan
of Distribution
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Description
of Capital Stock
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Legal
Matters
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Experts
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Available
Information
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Information
Incorporated by Reference
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You
should rely only on the information contained or incorporated by reference into
this prospectus. We have not authorized any person to give any information or to
make any representations other than those contained or incorporated by reference
in this prospectus, and, if given or made, you must not rely upon such
information or representations as having been authorized. This prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any
securities other than the securities described in this prospectus or an offer to
sell or the solicitation to buy such securities in any circumstances in which
such offer or solicitation is unlawful. You should not assume that the
information we have included in this prospectus is accurate as of any date other
than the date of this prospectus or that any information we have incorporated by
reference is accurate as of any date other than the date of the document
incorporated by reference regardless of the time of delivery of this prospectus
or of any securities registered hereunder.
When used
herein, "China Direct Industries", "we", "us" or "our" refers to China Direct
Industries, Inc., a Florida corporation, and our subsidiaries.
THE
COMPANY
We are a
U.S. company that manages a portfolio of Chinese entities. We also provide
consulting services to Chinese businesses. We operate in three identifiable
segments: Magnesium, Basic Materials, and Consulting, in accordance with ASC
Codifications Topic 280 (SFAS 131), “Disclosure about segments of an Enterprise
and Related Information”. In the three months ended December 31, 2006 we
established our Magnesium and Basic Materials segments which have grown through
acquisitions of controlling interests of Chinese private companies. We
consolidate these acquisitions as either our wholly or majority owned
subsidiaries. Through this ownership control, we provide management advice as
well as investment capital to expand their businesses.
Our
Magnesium segment is currently our largest segment by assets and prior to the
nine months ended September 30, 2009 (the” 2009 transition period”) was the
largest segment by revenues. We manufacture and sell pure magnesium and related
by-products. We also purchase and resell magnesium products manufactured by
third parties. Magnesium is used in a variety of markets and applications due to
the physical and mechanical properties of the element and its alloys. Magnesium
is the lightest and strongest of the structural metals; it is one fourth the
weight of steel, two fifths the weight of titanium and two thirds the weight of
aluminum. Due to its light weight and high strength, magnesium and
magnesium related products have a variety of technological and consumer
applications. Magnesium alloys are used in aircraft and automobile parts. In
addition, magnesium in various forms is used in the manufacture of electronic
equipment such as computers, cameras and cell phones. Magnesium powder is used
as desulphurizer that removes sulfur in the production of steel.
Our Basic
Materials segment engages in the sale and distribution of basic resources within
Asia. Our Basic Materials segment includes the sale and distribution of a
variety of products including:
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industrial
grade synthetic chemicals;
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steel
products;
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nonferrous
metals; and
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recycled
materials.
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As well,
within this segment we hold the rights to mining properties and are evaluating
the economic feasibility of commencing mining and production operations at CDI
Jixiang Metal given the current weakness in the market price of zinc and related
products. Presently we do not have a timetable for when our mining operations
will commence.
In July
2009, we launched CDII Trading. CDII Trading is engaged in the global purchase
and sale of industrial commodities which include mineral ores, non-ferrous
metals, scrap metals, rare metals, petrochemicals, and other related
commodities. CDII Trading also markets products from our other business units as
well as some of our consulting clients by leveraging our relationships in China
and abroad.
Our
Consulting segment provides services to Chinese entities seeking access to the
U.S. capital markets. These services include general business consulting,
Chinese regulatory advice, translation services, formation of entities in the
PRC, coordination of professional resources, strategic alliances and
partnerships, advice on effective means of accessing U.S. capital markets,
mergers and acquisitions, coordination of Sarbanes-Oxley compliance, and
corporate asset evaluations.
Our
Corporate Information
We were
incorporated in Delaware in July 1999. In June 2007 we domesticated
the company in the State of Florida. Our principal executive offices
are located at 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441, and
our telephone number at that address is (954) 363-7333. We maintain an Internet
website at www.cdii.net. We have
not incorporated by reference into this prospectus the information in, or that
can be accessed through, our website, and you should not consider it to be a
part of this prospectus.
CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This
prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are
statements other than historical information or statements of current condition
and are based upon our current expectations and projections about future events.
When used in this prospectus, the words ‘‘believe’’, ‘‘anticipate’’, ‘‘intend’’,
‘‘estimate’’, ‘‘expect’’, ‘‘will’’, ‘‘should’’, ‘‘may’’ and similar expressions,
or the negative of such words and expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such words or expressions. These forward-looking statements are subject to known
and unknown risks, uncertainties and other factors which may cause actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements were
based on various factors and were derived utilizing numerous assumptions and
other factors that could cause our actual results to differ materially from
those in the forward-looking statements.
A list of
factors that could cause our actual results of operations and financial
condition to differ materially is set forth below:
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Fluctuations
in the pricing and availability of magnesium and in levels of customer
demand.
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Changes
in the prices of magnesium and magnesium-related
products.
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Our
ability to implement our acquisition strategy of growing our business
through increased magnesium production capacity and
acquisitions.
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Fluctuations
in the cost or availability of coke gas and coal.
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Loss
of orders from any of our major customers.
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Our
dispute with the noncontrolling shareholders of Pan Asia Magnesium that
resulted in our establishment of a reserve for loss and the possibility of
litigation and adverse outcomes in such litigation.
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The
value of the equity securities we accept as compensation is subject to
adjustment which could result in losses to us in future
periods.
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Our
ability to effectively integrate our acquisitions and to manage our growth
and our inability to fully realize any anticipated benefits of acquired
business.
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Our
need for additional financing which we may not be able to obtain on
acceptable terms, the dilutive effect additional capital raising efforts
in future periods may have on our current shareholders and the increased
interest expense in future periods related to additional debt
financing.
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Our
dependence on certain key personnel.
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Difficulties
we have in establishing adequate management, cash, legal and financial
controls in the PRC.
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Our
ability to maintain an effective system of internal control over financial
reporting.
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The
lack various legal protections in certain agreements to which we are a
party and which are material to our operations which are customarily
contained in similar contracts prepared in the United
States.
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Potential
impact of PRC regulations on our intercompany loans.
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Yuwei
Huang, our executive vice president – magnesium, director and an officer
of several of our magnesium subsidiaries and his daughter Lifei Huang is
also an owner and executive officer of several companies which directly
compete with our magnesium
business.
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The
impact of a loss of our land use rights.
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Our
ability to comply with the United States Foreign Corrupt Practices Act
which could subject us to penalties and other adverse
consequences.
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Limits
under the Investment Company Act of 1940 on the value of securities we can
accept as payment for our business consulting services.
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The
acquisition of new businesses is costly and such acquisitions may not
enhance our financial condition.
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The
risks and hazards inherent in the mining industry on the operations of our
basic materials segment.
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Our
inability to enforce our rights due to policies regarding the regulation
of foreign investments in China.
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The
impact of environmental and safety regulations, which may increase our
compliance costs and reduce our overall profitability.
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The
impact of Chinese economic reform policies.
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The
effect of changes resulting from the political and economic policies of
the Chinese government on our assets and operations located in the
PRC.
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The
influence of the Chinese government over the manner in which our Chinese
subsidiaries must conduct our business activities.
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The
impact of any recurrence of severe acute respiratory syndrome, or SAR’s,
or another widespread public health problem.
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The
limitation on our ability to receive and use our revenues effectively as a
result of restrictions on currency exchange in China.
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The
price of our common stock may fluctuate substantially and the impact on
our shareholders.
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Most of
these factors are difficult to predict accurately and are generally beyond our
control. You should consider the areas of risk described in
connection with any forward-looking statements that may be made
herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review our transition
report on Form 10-K for the 2009 transition period ( the “2009 Transition
Report”) , including the risks described in Item 1A. Risk Factors, as well as
our other reports filed with the SEC. Except for our ongoing
obligations to disclose material information under the Federal securities laws,
we undertake no obligation to release publicly any revisions to any
forward-looking statements, to report events or to report the occurrence of
unanticipated events. These forward-looking statements speak only as
of the date of this prospectus, and you should not rely on these statements
without also considering the risks and uncertainties associated with these
statements and our business.
RISK
FACTORS
An
investment in our securities involves a significant degree of
risk. You should not invest in our securities unless you can afford
to lose your entire investment. You should consider carefully the
following risk factors and other information in this prospectus before deciding
to invest in our securities. If any of the following risks and
uncertainties develops into actual events, our business, financial condition or
results of operations could be materially adversely affected and you could lose
your entire investment in our company.
Risks
Related To Our Business
The
metals industry is highly cyclical. Fluctuations in the pricing and availability
of magnesium and in levels of customer demand have historically been severe, and
future changes and/or fluctuations could cause us to experience lower sales
volumes and revenues, which would negatively impact our profit
margins.
The
metals industry is highly cyclical. The length and magnitude of industry cycles
have varied over time and by product, but generally reflect changes in
macroeconomic conditions, levels of industry capacity and availability of usable
raw materials. The overall levels of demand for our magnesium and
magnesium-based products reflect fluctuations in levels of end-user demand,
which depend in large part on general macroeconomic conditions worldwide which
then impact the level of production in China. For example, many of the principal
uses of magnesium and magnesium-related products are for the production of
structural metal, steel and aluminum manufacturing, production of alloys used in
aircraft and automobile parts, the manufacture of electronic equipment such as
computers, cameras, and cell phones and the use of magnesium powder in flares,
flashes and pyrotechnics. The market for these products are heavily dependent on
general economic conditions, including the availability of affordable energy
sources, employment levels, interest rates, consumer confidence and construction
demand. These cyclical shifts in our customers’ industries tend to result in
significant fluctuations in demand and pricing for our products. As a result, in
periods of recession, such as the one we are currently experiencing, or low
economic growth, metals companies, including ours, have generally tended to
under-perform compared to other industries. We generally have high fixed costs,
so changes in industry demand that impact our production volume also can
significantly impact our profit margins and our overall financial condition.
Economic downturns in the worldwide economy or a prolonged decline in demand in
our Magnesium segment has had a negative impact on our operations and a
continuation or further deterioration of current economic conditions could have
a negative impact on our future financial condition or results of
operations.
Changes
in the prices of magnesium and, magnesium-related products, zinc and
zinc-related products will have a significant impact on our operating results
and financial condition.
We derive
a substantial portion of our revenue from the sale of magnesium and
magnesium-based products. Changes in the market price of magnesium and zinc
impact the selling prices of our products, and therefore our profitability is
significantly affected by decreased magnesium prices and to a lesser extent by
decreased zinc prices. Market prices of magnesium and zinc are dependent upon
supply and demand and a variety of factors over which we have little or no
control, including:
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world
economic conditions;
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availability
and relative pricing of metal substitutes;
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labor
costs;
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energy
prices;
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environmental
laws and regulations;
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weather;
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import
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Declines
in the price of magnesium, and to a lesser extent a decrease in zinc prices,
have had a negative impact on our operations since commencing in September 2008,
and further or future declines could have a negative impact on our future
financial condition or results of operations. Market conditions beyond our
control determine the prices for our products, and the price for any one or more
of our products may fall below our production costs, requiring us to either
incur short-term losses. Furthermore, the decline in the price of zinc and zinc
related products resulted in us delaying completion of construction of our
planned zinc ore mining and production facility, our planned aluminum wire
recycling facility and our planned zinc concentrate distribution business.
Consequently, we are evaluating our strategic alternatives for these operations
including the partial or full sale of our interest in these businesses, the
launch of operations in fiscal 2010, seeking potential joint venture partners to
operate the businesses. Market prices for magnesium may decrease even further,
and therefore our operating results may be significantly harmed.
If
we fail to implement our acquisition strategy, our financial condition and
results of operations could be materially and adversely affected.
An
important part of our strategy is to grow our business by acquiring additional
production facilities for magnesium and magnesium related products by
consolidating our Magnesium segment holdings as well as acquire additional
operations owned or controlled by Mr. Huang. We will need additional financing
to implement our acquisition expansion strategy and we may not have access to
the funding required for the acquisitions on acceptable terms. Our planned
acquisitions may also suffer significant delays as a result of a variety of
factors, such as legal and regulatory requirements, either of which could
prevent us from completing our acquisition plans as currently expected. Our
acquisition plans may also result in other unanticipated adverse consequences,
such as the diversion of management’s attention from our existing operations. In
addition, even if we can implement our strategy, expansion in the magnesium
market, increased sales to various industries, including the automobile industry
may not materialize to the extent we expect, or at all, resulting in unutilized
capacity. Any failure to successfully implement our business strategy, including
for any of the above reasons, could materially and adversely affect our
financial condition and results of operations. We may, in addition, decide to
alter or discontinue certain aspects of our business strategy at any
time.
Fluctuations
in the cost or availability of electricity, coke, coal and/or natural gas would
lead to higher manufacturing costs, thereby reducing our margins and limiting
our cash flows from operations.
Energy is
one of our most significant costs in our Magnesium segment. Most of our
magnesium production facilities utilize coke gas as energy, only Baotou Changxin
Magnesium facility utilizes coal. Energy prices, particularly for coal and coke
gas, have been volatile in recent years and currently exceed historical
averages. While we have a fixed price supply agreement for a specified quantity
of waste gas for our Golden Magnesium facility which expires in August 2027,
fluctuations in price impact our manufacturing costs and contribute to earnings
volatility. In the 2009 transition period we witnessed rising energy costs that
were not material to our results of operation which were partially offset by our
fixed price waste gas supply agreement at our Golden Magnesium facility. In the
event of an interruption in the supply of coke gas or coal to our magnesium
facilities, production at our manufacturing facilities would have to be shut
down. In addition, we do not maintain sources of secondary power at our
facilities that only use coke gas, and therefore any prolonged interruptions in
the supply of energy to our facilities could result in lengthy production
shutdowns, increased costs associated with restarting production and waste of
production in progress. While we have not experienced shortages of coke waste
gas in the 2009 transition period like we experienced in fiscal 2008, any future
shortages would reduce our production capacity, reducing our net sales and
potentially impacting our ability to deliver products to our
customers.
If
we were to lose order volumes from any of our major customers, our sales could
decline significantly and our cash flows may be reduced.
In the
2009 transition period, our five largest customers (exclusive of related
parties) in our Magnesium segment were responsible for 45.8% of our
total revenues in this segment and approximately 17.8% of our total consolidated
revenues. These customers purchase products from us on a spot or short term
contract basis and may choose not to continue to purchase our products. A loss
of order volumes from any major customer, including a related party, or a
significant reduction in their purchase orders could negatively affect our
financial condition and results of operations by lowering sales volumes,
increasing costs and lowering profitability.
We
have a dispute with the noncontrolling shareholders of Pan Asia Magnesium that
resulted in our establishment of a reserve for loss and the possibility of
litigation and adverse outcomes in such litigation could have a material adverse
effect on our financial condition.
We have a
dispute with the noncontrolling shareholders of Pan Asia Magnesium and its
Chairman of the Board of Directors, Haixin Zhao that resulted in our
establishment of a $7.4 million reserve for loss which is described in Note 17 –
Commitments and Contingencies in our audited consolidated financial statements
included in our 2009 Transition Report. Any litigation ensuing from this dispute
may be both time consuming and expensive.
We
evaluate this claim to assess the likelihood of an unfavorable outcome and to
estimate, if possible, the amount of potential loss. Based on this assessment
and estimate, we established a reserve of $7.4 million and disclosed the
relevant claim, as appropriate. This assessment and estimate is based on the
information available to management as of the date of this prospectus and
involves a significant amount of management judgment. As a result, the actual
outcome or loss may differ materially from those envisioned by our current
assessment and estimate. Our failure to successfully prosecute or settle this
claim could have a material adverse effect on our financial condition, revenue
and profitability and could cause the market value of our common stock to
decline.
The
value of the equity securities we accept as compensation is subject to
adjustment which could result in losses to us in future periods.
In our
Consulting segment, historically we have accepted equity securities of our
clients as compensation for services. These securities are reflected on our
balance sheet as “investment in marketable securities held for sale” and
“investment in marketable securities held for sale - related party”. At the end
of each period, we evaluate the carrying value of the marketable securities for
a decrease in value. We evaluate the company underlying these marketable
securities to determine whether a decline in fair value below the amortized cost
basis is other than temporary. If the decline in fair value is judged to be
“other- than- temporary”, the cost basis of the individual security is shall be
written down to fair value as a new cost basis and the amount of the write-down
is charged to earnings. At September 31, 2009 we recognized an
“other-than-temporary” impairment of $9.5 million and realized loss on sale of
marketable securities of $1.9 million and at December 31, 2008 a realized loss
on other-than-temporary impairment of $7.5 million related to these marketable
securities. The realized
gain (loss) on investments in marketable securities available for sale in the
three month periods ended December 31, 2009 was $34,691. In the
future, should we identify additional impairments, this would adversely affect
our operating results for the corresponding periods in that we might be required
to reduce the carrying value of these investments. In addition, if we are unable
to liquidate these securities, we will be required to write off the investments
which would adversely affect our financial position.
Our
management may be unable to effectively integrate our acquisitions and to manage
our growth and we may be unable to fully realize any anticipated benefits of
these acquisitions.
We are
subject to various risks associated with our growth strategy, including the risk
that we will be unable to identify and recruit suitable acquisition candidates
in the future or to integrate and manage the acquired companies we have
acquired. We face particular challenges in that our acquisition strategy is
based on companies located in and operating within China. Acquired companies’
histories, the geographical location, business models and business cultures will
be different from ours in many respects. Even if we are successful in
identifying and closing acquisitions of companies, our directors and executive
management will face significant challenges in their efforts to integrate the
business of the acquired companies or assets and to effectively manage our
continued growth. Each of our acquisitions, including any future acquisitions,
will be subject to a number of challenges, including:
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the
diversion of management time and resources and the potential disruption of
our ongoing business;
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difficulties
in maintaining uniform standards, controls, procedures and
policies;
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unexpected
costs and time associated with upgrading both the internal accounting
systems as well as educating each of their staff as to the proper methods
of collecting and recording financial data;
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potential
unknown liabilities associated with acquired
businesses;
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the
difficulty of retaining key alliances on attractive terms with partners
and suppliers; and
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the
difficulty of retaining and recruiting key personnel and maintaining
employee morale.
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There can
be no assurance that our efforts to integrate the operations of any acquired
assets or companies will be successful, that we can manage our growth or that
the anticipated benefits of our past or any future these proposed acquisitions
will be fully realized.
We
need additional financing to fund acquisitions and our operations which we may
not be able to obtain on acceptable terms. Additional capital raising efforts in
future periods may be dilutive to our then current shareholders or result in
increased interest expense in future periods.
We need
to raise additional capital to carry out our plans to acquire additional
production facilities for magnesium and magnesium related products by
consolidating our Magnesium segment holdings as well as acquire additional
operations owned or controlled by Mr. Huang. Also, we may need to raise
additional working capital to fund our operations as a result of our operating
losses which were $10.4 million in the 2009 transition period and $1.0 million
in the three months ended December 31, 2009. Our future capital requirements
depend on a number of factors, including our operations, the financial condition
of an acquisition target and its need for capital, our ability to grow revenues
from other sources, our ability to manage the growth of our business and our
ability to control our expenses. Also, if we raise additional capital through
the issuance of debt, this will result in increased interest expense. If we
raise additional capital through the issuance of equity or convertible debt
securities, the percentage ownership of our company held by existing
shareholders will be reduced and those shareholders may experience significant
dilution. As we will generally not be required to obtain the consent of our
shareholders before entering into acquisition transactions, shareholders are
dependent upon the judgment of our management in determining the number of, and
characteristics of, stock issued as consideration in an acquisition. In
addition, new securities may contain certain rights, preferences or privileges
that are senior to those of our common stock. We cannot assure you that we will
be able to raise the working capital as needed in the future on terms acceptable
to us, if at all, as the current capital markets have been adversely affected by
the severe liquidity crisis. If we do not raise capital as needed, we will be
unable to operate our business or fully implement our acquisition expansion
strategy.
We
are dependent on certain key personnel and the loss of these key personnel could
have a material adverse effect on our business, financial condition and results
of operations.
Our
success is, to a certain extent, attributable to the management, sales and
marketing, and operational expertise of key personnel of our subsidiaries in
China who perform key functions in the operation of our business as well as our
U.S. based management team. We do not exercise any substantive day to day
supervision over the activities of key members of our China based management
team which includes Messrs. Jingdong Chen, Chen Chi, and Xiaowen Zhuang. The
loss of one or more of these key employees or our senior management, including
Dr. Wang, our Chief Executive Officer, or Yuwei Huang, our Executive Vice
President - Magnesium, could have a material adverse effect upon our business,
financial condition and results of operations.
We
have had difficulty establishing adequate management, legal and financial
controls in the PRC.
PRC
companies have in some cases, been resistant to the adoption of Western styles
of management and financial reporting concepts and practices, which include
sufficient corporate governance, cash management and other internal
controls and, computer, financial and other control systems. In addition,
we have had difficulty with compliance by our management at our subsidiaries and
in hiring and retaining a sufficient number of qualified employees to work in
the PRC. See “Part II — Item 9A (T) — Controls and Procedures” of our 2009
Transition Report. As a result of these factors, we have experienced
difficulties with our subsidiaries in establishing management, legal and
financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet western standards. In addition, we may experience these
difficulties with any of our subsidiaries and our future acquisitions.
Therefore, we may, in turn, experience continued difficulties in implementing
and maintaining adequate internal controls. Any such deficiencies, weaknesses or
lack of compliance could have a material adverse effect on our business,
financial condition and results of operations and may result in additional
restatements of our financial statements in future periods.
If
we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results. As a
result, current and potential shareholders could lose confidence in our
financial reporting, which would harm our business and the trading price of our
stock.
Our
management has determined that as of September 30, 2009, we did not maintain
effective internal controls over financial reporting based on criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control-Integrated Framework as a result of identified material
weaknesses in our internal control over financial reporting related to cash
management and related party transactions, the lack of an integrated financial
accounting system, control deficiencies at one of our subsidiaries that
prevented us from auditing its financial statements prompting us to establish a
loss reserve equal to our investment in that subsidiary, failure to maintain a
sufficient complement of accounting personnel in our Magnesium segment
operations and accounting for
other-than-temporary-impairment
related to available for sale securities that caused us to restate our
consolidated financial statements for the year ended December 31, 2008. A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis. For a detailed
description of these material weaknesses and our remediation efforts and plans,
see “Part II — Item 9A (T) — Controls and Procedures” of our 2009 Transition
Report. If the result of our remediation of the identified material weaknesses
is not successful, or if additional material weaknesses are identified in our
internal control over financial reporting, our management will be unable to
report favorably as to the effectiveness of our internal control over financial
reporting and/or our disclosure controls and procedures, and we could be
required to further implement expensive and time-consuming remedial measures and
potentially lose investor confidence in the accuracy and completeness of our
financial reports which could have an adverse effect on our stock price and
potentially subject us to litigation.
Certain
agreements to which we are a party and which are material to our operations lack
various legal protections which are customarily contained in similar contracts
prepared in the United States.
Our
subsidiaries include companies organized under the laws of the PRC and all of
their business and operations are conducted in China. We are a party to certain
contracts related to our operations in China. While these
contracts contain the basic business terms of the agreements between the
parties, these contracts do not contain certain clauses which are customarily
contained in similar contracts prepared in the U.S., such as representations and
warranties of the parties, confidentiality and non-compete clauses, provisions
outlining events of defaults, and termination and jurisdictional clauses.
Because our contracts in the PRC omit these customary clauses, notwithstanding
the differences in PRC Chinese and U.S. laws, we may not have the same legal
protections as we would if the contracts contained these additional clauses. We
anticipate that our Chinese subsidiaries will likely enter into contracts in the
future which will likewise omit these customary legal protections. Although we
have a dispute with the minority shareholders of our Pan Asia Magnesium
subsidiary we have not been subject to any adverse consequences as a result of
the omission of these customary clauses, and we consider the contracts to which
we are a party to contain all the material terms of our business arrangements
with the other party, future events may occur which lead to additional disputes
which could have been avoided if the contracts included customary clauses in
conformity with U.S. standards. Contractual and other disputes which may arise
from this lack of legal protection and our dispute with the minority
shareholders of Pan Asia Magnesium could divert management’s time from the
operation of our business, require us to expend funds attempting to settle a
possible dispute, limit the time our management would otherwise devote to the
operation of our business, and have a material adverse effect on our business,
financial condition and results of operations.
Intercompany
loans may be subject to PRC regulations.
We
currently have several inter-company loans between our PRC subsidiaries and PRC
based client companies totaling $15.2 million as of December 31, 2009, and
we may continue to enter into inter-company and client based financing
arrangements to meet our internal capital needs and those of our client
companies. PRC laws generally do not permit companies that do not possess a
financial service business license to extend loans directly to other companies,
including affiliates, without proceeding through a financial agency. The
enforcement of these restrictions remains unpredictable, and government
authorities may declare these loans void, require the forfeiture of any interest
paid and levy fines or other penalties upon the parties involved, among
other remedies.
From
time to time we engage in related party transactions. There are no assurances
that these transactions are fair to our company.
From time
to time our subsidiaries enter into transactions with related parties which
include purchases from or sales to a related party, advancing related parties
significant sums as prepayments for future goods or services and working capital
and the payment of fees for consulting services, among other transactions. In
December 2009 we adopted a related person transaction policy which will require
the pre-approval of the board of directors pre-approval or ratification of
transactions between us or one or more of our subsidiaries and any related
person involving an amount in excess of $120,000. Notwithstanding this policy,
we cannot assure you that in every instance the terms of the transactions with
related parties are on terms as fair as we might receive from or extend to third
parties.
Yuwei
Huang, our Executive Vice President – Magnesium, an officer of several of our
magnesium subsidiaries and a director of our company and his daughter Lifei
Huang is also an owner and executive officer of several companies which directly
compete with our magnesium business.
Mr. Yuwei
Huang who serves as our Executive Vice President – Magnesium, an executive
officer of several of our Magnesium segment subsidiaries and a director of our
company and his daughter Lifei Huang who is the General Manager of International
Magnesium Trading are also the principal owners and executive officers the
Chairman of a competitor of ours, YiWei Magnesium. YiWei Magnesium, a minority
owner of two of our Magnesium segment subsidiaries, owns interests in several
other magnesium factories, a magnesium alloy factory and a magnesium
powder
desulphurization
reagent factory, all located in China. In addition, we have recently signed a
non-binding letter of intent to acquire certain facilities owned by YiWei
Magnesium. Due to Mr. Huang and Ms. Huang’s interest in our competitors
and Mr. Huang’s management position as an officer and director with
of our company, there are certain inherent conflicts of interest and there can
be no assurances that our business and operations will not be adversely impacted
as a result of these conflicts.
Our
business will suffer if we lose our land use rights.
There is
no private ownership of land in China and all land ownership is held by the
government of China, its agencies, and collectives. In the case of land used for
business purposes, land use rights can be obtained from the government for a
period up to 50 years, and are typically renewable. Land use rights can be
granted upon approval by the land administrative authorities of China (State
Land Administration Bureau) upon payment of the required land granting fee, the
entry into a land use agreement with a competent governmental authority and
certain other ministerial procedures. We have entered into agreements to acquire
land use rights for some of our occupied properties and other agreements to use
the land and the buildings which house our magnesium operations from parties
that we reasonably believe have proper land use rights. We cannot give, however,
any assurance that our land use rights will be renewed or that the parties we
have entered into agreements with will maintain their land use rights. In
addition, we may not have followed all procedures required to obtain the land
use certificate for the land use rights we agreed to purchase or paid all
required fees. If the Chinese administrative authorities determine that we have
not fully complied with all procedures and requirements needed to hold a land
use certificate for this or any other property which we occupy, we may be forced
by the Chinese administrative authorities to retroactively comply with such
procedures and requirements, which may be burdensome and require us to make
payments, or such Chinese administrative authorities may invalidate or revoke
our land use certificate entirely. If the land use right certificates
needed for our operations are determined by the government of China to be
invalid or if they are not renewed, or if we are unable to renew the lease for
our facilities when they , we may lose production facilities or employee
accommodations that would be difficult or even impossible to replace. Should we
have to relocate, our workforce may be unable or unwilling to work in the new
location and our business operations will be disrupted during the relocation.
The relocation or loss of facilities could cause us to lose sales and/or
increase its costs of production, which would negatively impact financial
results.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us
to penalties and other adverse consequences.
We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent
practices occur from time-to-time in the PRC. We can make no assurance, however,
that our employees or other agents will not engage in such conduct for
which we might be held responsible. If our employees or other agents are found
to have engaged in such practices, we could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations.
The
Investment Company Act of 1940 will limit the value of securities we can accept
as payment for our business consulting services which may limit our future
revenues.
We have
historically accepted securities as payment for our services and will likely
continue to do so in the future, but only to the extent that it does not cause
us to become classified as an investment company under the Investment Company
Act 1940. To the extent that we are required to reduce the amount of securities
we accept as payment for our consulting services to avoid becoming an investment
company, our future revenues from our business consulting services may
substantially decline if our clients cannot pay our fees in cash. A reduction in
the amount of our consulting fees will materially adversely affect our financial
condition and results of operations in future periods. Any future change in our
fee structure for our consulting services could also severely limit our ability
to attract business consulting clients in the future.
The
acquisition of new businesses is costly and such acquisitions may not enhance
our financial condition.
A
significant element of our growth strategy is to acquire controlling interests
in companies that operate in China and that offer services, products,
technologies, industry specializations or geographic coverage that extend or
complement our existing business. The process to undertake a potential
acquisition is time-consuming and costly. We expect to expend significant
resources to undertake business, financial and legal due diligence on our
potential acquisition targets and there is no guarantee that we will acquire the
company after completing due diligence. The process of identifying and
consummating an acquisition could result in the use of substantial amounts of
cash and exposure to undisclosed or potential liabilities of acquired companies.
In addition, even if we are successful in acquiring additional companies, there
are no assurances that the operations of these businesses will enhance our
future financial condition. To the extent that a business we acquire does not
meet the performance criteria used to establish a purchase price, some or all of
the goodwill related to that acquisition could be charged against our future
earnings, if any.
The
operations of our basic materials segment will be subject to risks and hazards
inherent in the mining industry.
Our Basic
Materials segment, if and when mining operations commence, will be engaged
in the mining and processing of zinc ore. These operations will be subject to
risks and hazards inherent in the mining industry, including, but not limited
to, ground fall, flooding, environmental hazards and the discharge of toxic
chemicals, explosions and other accidents, unanticipated variations in grade and
other geological problems, water conditions, surface or underground conditions,
metallurgical and other processing problems, mechanical equipment performance
problems, the lack of availability of materials and equipment, the occurrence of
accidents, labor force disruptions, force majeure factors, unanticipated
transportation costs, and weather conditions. Any of these risks could result in
work stoppages, delays in production, the development of properties, production
commencement dates and production quantities, increased production costs and
rates, damage to or destruction of mines and other production facilities, injury
or loss of life, damage to property, environmental damage, and possible legal
liability for such damages. As of the date of this prospectus, we have not
established a reserve on this property. Furthermore, we are evaluating our
strategic alternatives related to this business including the partial or full
sale of our interest, the launch of operations in fiscal 2010 or seeking a
potential joint venture partner to operate this business.
Risks
Related to Doing Business in China
We
may be unable to enforce our rights due to policies regarding the regulation of
foreign investments in China.
The PRC’s
legal system is a civil law system based on written statutes in which decided
legal cases have little value as precedent, unlike the common law system
prevalent in the United States. There are substantial uncertainties regarding
the interpretation and application of Chinese laws and regulations, including
but not limited to the laws and regulations governing our business, or the
enforcement and performance of our investment agreements with the minority
shareholders and management of our subsidiaries, arrangements with customers in
the event of the imposition of statutory liens, death, bankruptcy and criminal
proceedings. The Chinese government has been developing a comprehensive system
of commercial laws, and considerable progress has been made in introducing laws
and regulations dealing with economic matters such as foreign investment,
corporate organization and governance, commerce, taxation and trade. However,
because these laws and regulations are relatively new, and because of the
limited volume of published cases and judicial interpretation and their lack of
force as precedents, interpretation and enforcement of these laws and
regulations involve significant uncertainties. New laws and regulations that
affect existing and proposed future businesses may also be applied
retroactively. We are considered a foreign invested enterprise under
Chinese laws, and as a result, we must comply with Chinese laws and regulations.
We cannot predict what effect the interpretation of existing or new Chinese laws
or regulations may have on our business. If the relevant authorities find us to
be in violation of Chinese laws or regulations, they would have broad discretion
in dealing with such a violation, including, without limitation: levying fines;
revoking our business and other licenses; requiring that we restructure our
ownership or operations; and requiring that we discontinue any portion or
all of our business. The PRC does not have a well-developed, consolidated body
of laws governing foreign investment enterprises. As a result, the
administration of laws and regulations by government agencies may be subject to
considerable discretion and variation, and may be subject to influence by
external forces unrelated to the legal merits of a particular matter. China’s
regulations and policies with respect to foreign investments are evolving.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published. Statements regarding these evolving
policies have been conflicting and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. The uncertainties regarding such regulations
and policies present risks which may affect our ability to achieve our stated
business objectives. Also, if we are unable to enforce any legal rights we may
have under our agreements or otherwise with the shareholder of Pan Asia
Magnesium or the shareholders of our other subsidiaries, our ability to control
their operations could be limited. Any significant limitation on our ability to
control the operations of our subsidiaries could result in a loss of our
investment which could have a material adverse effect on our business, financial
condition and results of operations.
We
are subject to environmental and safety regulations, which may increase our
compliance costs and reduce our overall profitability.
We are
subject to the requirements of environmental and occupational safety and health
laws and regulations in China. In addition, there are governmental initiatives
under consideration in an effort to, among other things, moderate the
environmental impact of magnesium production industry. These initiatives
include, but are not limited to national standards for environmental quality and
discharge of pollutants in China. See “Item 1. Business – Government Regulation
– Environment” of our 2009 Transition Report on Form 10-K. We may incur
substantial costs or liabilities in connection with these requirements that
could reduce our overall profitability. The capital requirements and other
expenditures that may be necessary to comply with environmental requirements
could increase and become a significant expense linked to the conduct of our
business.
Substantially
all of our assets and operations are located in the PRC and are subject to
changes resulting from the political and economic policies of the Chinese
government.
Our
business operations could be restricted by the political environment in the PRC.
The PRC has operated as a socialist state since 1949 and is controlled by the
Communist Party of China. In recent years, however, the government has
introduced reforms aimed at creating a socialist market economy and policies
have been implemented to allow business enterprises greater autonomy in their
operations. Changes in the political leadership of the PRC may have a
significant effect on laws and policies related to the current economic reform
programs, other policies affecting business and the general political, economic
and social environment in the PRC, including the introduction of measures to
moderate the environmental impact of manufacturing businesses, control
inflation, changes in the rate or method of taxation, the imposition of
additional restrictions on currency conversion and remittances abroad, and
foreign investment. Moreover, economic reforms and growth in the PRC have been
more successful in certain provinces than in others, and the continuation or
increases of such disparities could affect the political or social stability of
the PRC.
Although
we believe that the economic reform and the macroeconomic measures adopted by
the Chinese government have had a positive effect on the economic development of
China, the future direction of these economic reforms is uncertain and the
uncertainty may decrease the attractiveness of our company as an investment,
which may in turn result in a decline in the trading price of our common
stock.
We
cannot assure you that the current Chinese policies of economic reform will
continue. Because of this uncertainty, there are significant economic risks
associated with doing business in China.
Although
the majority of productive assets in the PRC are owned by the Chinese
government, in the past several years the government has implemented economic
reform measures that emphasize decentralization and encourages private economic
activity. In keeping with these economic reform policies, the PRC has been
openly promoting business development in order to bring more business into the
PRC. Because these economic reform measures may be inconsistent or ineffective,
there are no assurances that:
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the
Chinese government will continue its pursuit of economic reform
policies;
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the
economic policies, even if pursued, will be successful;
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economic
policies will not be significantly altered from time to time;
or
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business
operations in China will not become subject to the risk of
nationalization.
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We cannot
assure you that we will be able to capitalize on these economic reforms,
assuming the reforms continue. Because our business model is dependent upon the
continued economic reform and growth in China, any change in Chinese government
policy could materially adversely affect our ability to continue to implement
our business model. China’s economy has experienced significant growth in the
past decade, but such growth has been uneven across geographic and economic
sectors and has recently been slowing. Even if the Chinese government continues
its policies of economic reform, there are no assurances that economic growth in
that country will continue or that we will be able to take advantage of these
opportunities in a fashion that will provide financial benefit to
us.
The
Chinese government exerts substantial influence over the manner in which our
Chinese subsidiaries must conduct our business activities.
The PRC
only recently has permitted provincial and local economic autonomy and private
economic activities. The government of the PRC has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. 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 the implementation of economic policies, could have a significant
effect on economic conditions in the PRC or particular regions of the PRC, and
could require us to divest ourselves of any interest we then hold in our Chinese
subsidiaries.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could interrupt our operations
A renewed
outbreak of SARS or another widespread public health problem in China could have
a negative effect on our operations. Our operations may be impacted by a number
of health-related factors, including the following:
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quarantines
or closures of some of our offices which would severely disrupt our
operations;
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the
sickness or death of our key management and employees;
or
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a
general slowdown in the Chinese
economy.
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An
occurrence of any of the foregoing events or other unforeseen consequences of
public health problems could result in a loss of revenues in future periods and
could impact our ability to conduct the operations of our Chinese subsidiaries
as they are presently conducted. If we were unable to continue the
operations of our Chinese subsidiaries as they are now conducted, our revenues
in future periods would decline and our ability to continue as a going concern
could be in jeopardy. If we were unable to continue as a going concern, you
could lose your entire investment in our company.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively. We may not have ready access to cash on deposit in banks in the
PRC.
Because a
substantial portion of our revenues are in the form of Renminbi (RMB), the main
currency used in China, any future restrictions on currency exchanges may limit
our ability to use revenue generated in RMB to fund any future business
activities outside China or to make dividend or other payments in U.S.
Dollars. Although the Chinese government introduced regulations in 1996 to allow
greater convertibility of the RMB for current account transactions, significant
restrictions still remain, including primarily the restriction that
foreign-invested enterprises may only buy, sell or remit foreign currencies,
after providing valid commercial documents, at those banks authorized to conduct
foreign exchange business. In addition, conversion of RMB for capital account
items, including direct investment and loans, is subject to government approval
in China, and companies are required to open and maintain separate foreign
exchange accounts for capital account items. At September 30, 2009 our PRC
subsidiaries had approximately $4.2 million on deposit in banks in China, which
represented approximately 32.9% of our cash. We cannot be certain that we could
have ready access to that cash should we wish to transfer it to bank accounts
outside the PRC nor can we be certain that the Chinese regulatory authorities
will not impose more stringent restrictions on the convertibility of the RMB,
especially with respect to foreign exchange transactions.
Risks Related to Our Common
Stock
The
price of our common stock may fluctuate substantially and your investment may
decline in value.
The
market for common stock has recently been subject to significant disruptions
that have caused substantial volatility in the prices of these securities, which
may or may not have corresponded to the business or financial success of the
particular company. The market price for shares of our common stock has declined
substantially in the past and could decline further if our future operating
results fail to meet or exceed the expectations of market analysts and investors
and/or current economic or market conditions persist or worsen.
Some
specific factors that may have a significant effect on the future market price
of our shares of common stock include:
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actual
or expected fluctuations in our operating results;
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variance
in our financial performance from the expectations of market
analysts;
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changes
in general economic conditions or conditions in our industry
generally;
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changes
in conditions in the financial markets;
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announcements
of significant acquisitions or contracts by us or our
competitors;
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our
inability to raise additional capital;
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changes
in applicable laws or regulations, court rulings and enforcement and legal
actions;
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additions
or departures of key management personnel;
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actions
by our shareholders;
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changes
in market prices for our products or for our raw
materials; and
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changes
in stock market analyst research and recommendations regarding the shares
of our common stock, other comparable companies or our industry
generally.
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In
addition, the stock market in general, and the Nasdaq and the market for
companies with China based operations in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of the affected companies. These broad market and
industry factors may materially harm the market price of our common stock,
regardless of our operating performance. In the past, following periods of
volatility in the market price of a company’s securities, securities
class-action litigation has often been instituted against that company. Such
litigation, if instituted against us, could result in substantial costs and a
diversion of management’s attention and resources, which could have a material
adverse effect on our business, financial condition and results of
operations.
As a
result of these and other factors, you may be unable to resell your shares of
our common stock at or above the price you paid for such
shares.
Risks
Related To This Offering
This
prospectus permits selling security holders to resell their
shares. If they do so, the market price for our shares may fall and
purchasers of our shares may be unable to resell them.
This
prospectus permits Selling Stockholders to resell their shares of common
stock. If they do so, the market price for our common stock may fall
and purchasers of our common stock may be unable to resell them.
THE
2008 EXECUTIVE STOCK INCENTIVE PLAN
We have
summarized below certain key provisions of the Plan . This summary may not
contain all the information that is important to you. You should review the
entire Plan, a copy of which is included as Appendix D to our Proxy Statement
filed with the SEC on April 30, 2008.
Introduction
The
purpose of the Plan is to advance the interests of our company by providing an
incentive to attract, retain and motivate highly qualified and competent persons
who are important to us and upon whose efforts and judgment the success of our
company is largely dependent. Only our executive officers will be eligible to
receive awards under the Plan.
Shares
Subject to the Plan
The
aggregate number of shares available for issuance pursuant to restricted stock
grants and/or the exercise of ISOs or NSOs granted under the Plan may not exceed
1,000,000 shares of our common stock. Should any award granted under the Plan
expire or become unexercisable for any reason without having been exercised in
full, the shares subject to the portion of the option not so exercised or
awarded will become available for subsequent stock awards or option
grants.
Administration
and Eligibility
The Plan
will be administered by the compensation committee of our board of directors.
The compensation committee will determine, from time to time, those of our
executive officers to whom stock awards or plan options will be granted, the
terms and provisions of each such grant, the dates such grants will become
exercisable, the number of shares subject to each grant, the purchase price of
such shares and the form of payment of such purchase price. All other questions
relating to the administration of the Plan and the interpretation of the
provisions thereof are to be resolved at the sole discretion of the compensation
committee.
Amendment
and Termination of the Plan
The board
of directors may amend, suspend or terminate the Plan at any time, except that
no amendment shall be made which:
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increases
the total number of shares subject to the plan or changes the minimum
purchase price therefore (except in either case in the event of
adjustments due to changes in our capitalization),
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affects
outstanding options or any exercise right thereunder,
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extends
the term of any option beyond 10 years, or
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extends
the termination date of the plan.
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Unless
the Plan is suspended or terminated by the board of directors, the Plan will
terminate 10 years from the date of the plan’s adoption. Any termination of the
Plan will not affect the validity of any options previously granted
thereunder.
Grants
under the Plan
Plan
options under the Plan may either be options qualifying as ISOs under
Section 422 of the Code, or options that do not so qualify which are known
as NSOs. Any ISO granted under the Plan must provide for an exercise price of
not less than 100% of the fair market value of the underlying shares on the date
of such grant, but the exercise price of any ISO granted to an eligible employee
owning more than 10% of our common stock must be at least 110% of such fair
market value as determined on the date of the grant. NSOs must provide for an
exercise price of not less than 85% of the fair market value of our common stock
on the date of grant.
In
addition, the Plan allows for the inclusion of a reload option provision, which
permits an eligible person to pay the exercise price of the option with shares
of common stock owned by the eligible person and receive a new option to
purchase shares of common stock equal in number to the tendered shares.
Furthermore, restricted stock grants may also be made, as well as deferred stock
grants and stock appreciation rights.
Subject
to the limitation on the aggregate number of shares issuable under the plan,
there is no maximum or minimum number of shares as to which a stock grant or
plan option may be granted to any person. Shares used for stock grants and plan
options may be authorized and unissued shares or shares reacquired by us,
including shares purchased in the open market.
Adjustment
Upon Changes in Capitalization or other Corporate Event
The Plan
provides that, if our outstanding shares are increased, decreased, exchanged or
otherwise adjusted due to a share dividend, forward or reverse share split,
recapitalization, reorganization, merger, consolidation, combination or exchange
of shares, an appropriate and proportionate adjustment shall be made in the
number or kind of shares subject to the plan or subject to unexercised options
and in the purchase price per share under such options. Any adjustment, however,
does not change the total purchase price payable for the shares subject to
outstanding options. In the event of our proposed dissolution or liquidation, a
proposed sale of all or substantially all of our assets, a merger or tender
offer for our shares of common stock, the compensation committee may declare
that each option granted under the plan shall terminate as of a date to be fixed
by the committee; provided that not less than 30 days written notice of the date
so fixed shall be given to each participant holding an option, and each such
participant shall have the right, during the period of 30 days preceding such
termination, to exercise the participant’s option, in whole or in part,
including as to options not otherwise exercisable.
Assignability
of Plan Options and Termination of Employment
All plan
options are nonassignable and nontransferable, except by will or by the laws of
descent and distribution, and during the lifetime of the optionee, may be
exercised only by such optionee, except as provided by the compensation
committee. If an optionee shall die while our employee or within three months
after termination of employment by us because of disability, retirement or
otherwise, such options may be exercised, to the extent that the optionee shall
have been entitled to do so on the date of death or termination of employment,
by the person or persons to whom the optionee’s right under the option pass by
will or applicable law, or if no such person has such right, by his executors or
administrators. Options are also subject to termination by the compensation
committee under certain conditions.
In the
event of termination of employment because of death while an employee, or
because of disability, the optionee’s options may be exercised not later than
the expiration date specified in the option or one year after the optionee’s
death, whichever date is earlier, or in the event of termination of employment
because of retirement or otherwise, not later than the expiration date specified
in the option or one year after the optionee’s death, whichever date is earlier.
If an optionee’s employment by us terminates because of disability and such
optionee does not die within the following three months after termination, the
options may be exercised, to the extent that the optionee shall have been
entitled to do so at the date of the termination of employment, at any time, or
from time to time, but not later than the expiration date specified in the
option or one year after termination of employment, whichever date is earlier.
If an optionee’s employment terminates for any reason other than death or
disability, the optionee may exercise the options to the same extent that the
options were exercisable on the date of termination, for up to three months
following such termination, or on or before the expiration date of the options,
whichever occurs first. In the event that the optionee was not entitled to
exercise the options at the date of termination or if the optionee does not
exercise such options (which were then exercisable) within the time specified
herein, the options shall terminate. If an optionee’s employment terminates for
any reason other than death, disability or retirement, all rights to exercise
the option will terminate not later than 90 days following the date of such
termination of employment, except as otherwise provided under the plan.
Non-qualified options are not subject to the foregoing restrictions unless
specified by the compensation committee.
Summary
of Federal Tax Consequences
The
following is only a brief summary of the effect of federal income taxation on an
optionee under the Plan. Effective January 1, 2006, we adopted SFAS
No. 123R, “Share-Based Payment.” This Statement requires that compensation
costs related to share-based payment transactions, such as stock options or
restricted stock award, be recognized in the financial statements. Under 123R,
an optionee, recipient of a restricted stock award and our company will be
subject to certain tax consequences and accounting charges, regardless of the
type of option or restricted stock award.
Options
granted under the Plan may be either ISOs which satisfy the requirements of
Section 422 of the Code or NSOs which do not meet such requirements. The
federal income tax treatment for the two types of options differs, as summarized
below.
ISOs. No
taxable income is recognized by an optionee at the time of the grant of an ISO,
and no taxable income is generally recognized at the time an ISO is exercised.
However, the excess of the fair market value of the common stock received upon
the exercise of an ISO over the exercise price is includable in the employee’s
alternative minimum taxable income (“AMTI”) and may be subject to the
alternative minimum tax (“AMT”). For AMT purposes only, the basis of the common
stock received upon exercise of an ISO is increased by the amount of such
excess.
An
optionee will recognize taxable income in the year in which the purchased shares
acquired upon exercise of an ISO are sold or otherwise disposed. For federal tax
purposes, dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. An optionee will make a qualifying disposition of the purchased
shares if the sale or disposition is made more than two years after the grant
date of the option and more than one year after the exercise date. If an
optionee fails to satisfy either of these two holding periods prior to sale or
disposition, then a disqualifying disposition of the purchased shares will
result.
Upon a
qualifying disposition, an optionee will recognize long-term capital gain or
loss in an amount equal to the difference between the amount realized upon the
sale or other disposition of the purchased shares and the exercise price paid
for the shares except that, for AMT purposes, the gain or loss would be the
difference between the amount realized upon the sale or other disposition of the
purchased shares and the employee’s basis increased as described above. If there
is a disqualifying disposition of the shares, then the optionee will generally
recognize ordinary income to the extent of the lesser of the difference between
the exercise price and (i) the fair market value of the common stock on the date
of exercise, or (ii) the amount realized on such disqualifying disposition. Any
additional gain recognized upon the disposition will be capital gain. If the
amount realized is less than the exercise price, the optionee will, in general,
recognize a capital loss. If the optionee makes a disqualifying disposition of
the purchased shares, then we will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, to the extent the optionee
recognizes ordinary income. In no other instance will we be allowed a deduction
with respect to the optionee’s disposition of the purchased shares.
NSOs. No
taxable income is recognized by an optionee upon the grant of an NSO. The
optionee will in general recognize ordinary income, in the year in which an NSO
is exercised, equal to the excess of the fair market value of purchased shares
on the date of exercise over the exercise price paid for such shares, and the
optionee will be required to satisfy the tax withholding requirements applicable
to such income. Upon a subsequent sale of the purchased shares, the optionee
will generally recognize either a capital gain or a capital loss depending on
whether the amount realized is more or less than the exercise price. We will be
entitled to a business expense deduction equal to the amount of ordinary income
recognized by the optionee with respect to an exercised NSO. The deduction will
in general be allowed for our taxable year in which ordinary income is
recognized by the optionee in connection with the acquisition of the option
shares.
Restricted
Stock. Unless the recipient of a restricted stock grant elects to treat such
grant as ordinary income at the time the grant is made, the recipient does not
recognize taxable income upon the grant of restricted stock. Instead, the
recipient will recognize ordinary income at the time of vesting (i.e. when the
restrictions on the grant lapse) equal to the fair market value of the
restricted shares on the vesting date minus any amount paid for the restricted
shares. At the time that the recipient recognizes ordinary income in respect of
the restricted stock grant, we would be entitled to a tax deduction for
compensation expense equal to the amount of ordinary income recognized by the
recipient.
The
foregoing is only a summary of the effect of federal income taxation upon us and
the participants under the Plan. It does not purport to be complete, and does
not discuss all of the tax consequences of a participant’s death or the
provisions of the income tax laws of any state, municipality, or foreign
country in which the participants may reside.
Effective Date of the Plan.
The Plan became effective on April 25, 2008.
USE
OF PROCEEDS
We are
registering the shares of common stock offered by this prospectus for the
account of the Selling Stockholders identified in the section of this prospectus
entitled “Selling Stockholders.” All of the net proceeds from the sale of the
shares will go to the Selling Stockholders who offer and sell their shares. We
will not receive any part of the proceeds from the sale of such
shares.
SELLING
STOCKHOLDERS
The
information under this heading relates to resales of shares covered by this
prospectus by persons who are our "affiliates" as that term is defined under
federal securities laws. These persons will be members of our Board
of Directors and/or officers of our company. Shares issued pursuant
to this prospectus to our affiliates are "control" shares under federal
securities laws.
The following table sets
forth:
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•
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the
name of each affiliated Selling
Stockholder,
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•
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the
amount of common stock owned beneficially, directly or indirectly, by each
affiliated Selling Stockholder,
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•
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the
maximum amount of shares of our common stock to be offered by the
affiliated Selling Stockholders pursuant to this prospectus,
and
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•
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the
amount of common stock to be owned by each affiliated Selling Stockholder
following sale of the shares.
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Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities and includes any
securities which the person has the right to acquire within 60 days through the
conversion or exercise of any security or other right. The
information as to the number of shares of our common stock owned by each
affiliated Selling Stockholder is based upon our books and records and the
information provided by our transfer agent.
We may
amend or supplement this prospectus from time to time to update the disclosure
set forth in the table. Because the Selling Stockholders identified
in the table may sell some or all of the shares owned by them which are included
in this prospectus, and because there are currently no agreements, arrangements
or understandings with respect to the sale of any of the shares, no estimate can
be given as to the number of shares available for resale hereby that will be
held by the affiliated Selling Stockholders upon termination of the offering
made hereby. We have therefore assumed, for the purposes of the
following table, that the affiliated Selling Stockholders will sell all of the
shares owned by them, which are being offered hereby, but will not sell any
other shares of our common stock that they presently own.
Persons
who receive stock grants under Plan are deemed affiliates. Grants may
be made to affiliates in the future which we are not able to identify at this
time. Before any of our affiliates sell any of his or her shares
received under the Plan, we will supplement this prospectus with the required
information regarding the names of the persons selling, the total number of
shares owned by these persons and the number of shares proposed to be sold under
this prospectus.
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Name
and Position With Us
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Number
of Shares Owned Prior to Offering
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Number
of Shares
Registered
Hereby
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Number
of Shares to Be Owned After Offering(*)
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PLAN
OF DISTRIBUTION
The
information under this heading includes resales of shares covered by this
prospectus by persons who are our "affiliates" as that term in defined under
federal securities laws.
The
shares covered by this prospectus may be resold and distributed from time to
time by the selling security holders in one or more transactions, including
ordinary broker's transactions, privately-negotiated transactions or through
sales to one or more broker-dealers for resale of these shares as principals, at
market prices existing at the time of sale, at prices related to existing market
prices, through Rule 144 transactions or at negotiated prices. The
selling security holders in connection with sales of securities may pay usual
and customary, or specifically negotiated, brokerage fees or
commissions.
The
selling security holders may sell shares in one or more of the following
methods, which may include crosses or block transactions:
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through
the Nasdaq Global Market or on such exchanges or over-the-counter markets
on which our shares may be listed from time-to-time, in transactions which
may include special offerings, exchange distributions and/or secondary
distributions, pursuant to and in accordance with the rules of such
exchanges, or through brokers, acting as principal or
agent;
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in
transactions other than on such exchanges or in the over-the-counter
market, or a combination of such transactions, including sales through
brokers, acting as principal or agent, sales in privately negotiated
transactions, or dispositions for value, subject to rules relating to
sales by affiliates; or
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through
the writing of options on our shares, whether or not such options are
listed on an exchange, or other transactions requiring delivery of our
shares, or the delivery of our shares to close out a short
position.
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Any such
transactions may be effected at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or at
fixed prices.
In making
sales, brokers or dealers used by the selling security holders may arrange for
other brokers or dealers to participate. The selling security holders who are
affiliates of our company and others through whom such securities are sold may
be "underwriters" within the meaning of the Securities Act of 1933 for the
securities offered, and any profits realized or commission received may be
considered underwriting compensation. Information as to whether an
underwriter(s) who may be selected by the selling security holders, or any other
broker-dealer, is acting as principal or agent for the selling security holders,
the compensation to be received by underwriters who may be selected by the
selling security holders, or any broker-dealer, acting as principal or agent for
the selling security holders and the compensation to be received by other
broker-dealers, in the event the compensation of other broker-dealers is in
excess of usual and customary commissions, will, to the extent required, be set
forth in a supplement to this prospectus. Any dealer or broker participating in
any distribution of the shares may be required to deliver a copy of this
prospectus, including the supplement, if any, to any person who purchases any of
the shares from or through a dealer or broker.
We have
advised the selling security holders that, at the time a resale of the shares is
made by or on behalf of a selling security holder, a copy of this prospectus is
to be delivered.
We have
also advised the selling security holders that during the time as they may be
engaged in a distribution of the shares included herein they are required to
comply with Regulation M of the Securities Exchange Act of 1934. With
certain exceptions, Regulation M precludes any selling security holders, any
affiliated purchasers and any broker-dealer or other person who participates in
the distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M
also prohibits any bids or purchase made in order to stabilize the price of a
security in connection with the distribution of that security.
DESCRIPTION
OF CAPITAL STOCK
Our
authorized capital stock consists of 1,000,000,000 shares of common stock, par
value $.0001 per share, 10,000,000 shares of preferred stock, par value $.0001
per share, of which 12,950 shares have been designated as Series A convertible
preferred stock. The following description of our common stock and
our preferred stock is a summary. You should refer to our articles of
incorporation and our bylaws for the actual terms of our capital
stock.
Common
Stock
As of
February 18, 2010 there were 28,093,578 outstanding shares of our common
stock. Holders of shares of our common stock are entitled to one vote
for each share on all matters to be voted on by the
shareholders. Holders of common stock do not have cumulative voting
rights. Holders of common stock are entitled to share ratably in
dividends, if any, as may be declared from time to time by the board of
directors in its discretion from funds legally available therefor. In
the event of a liquidation, dissolution or winding up of our company, the
holders of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. All of the outstanding
shares of common stock are fully paid and non-assessable. Holders of
common stock have no preemptive rights to purchase our common
stock. There are no conversion or redemption rights or sinking fund
provisions with respect to the common stock.
Preferred
Stock
The board
of directors is authorized to provide for the issuance of shares of preferred
stock in series and, by filing an amendment pursuant to the applicable law of
Florida, to establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof without any further vote or action by the
shareholders. Any shares of preferred stock so issued would have
priority over the common stock with respect to dividend or liquidation
rights. Any future issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of our company without
further action by the shareholders and may adversely affect the voting and other
rights of the holders of common stock. At present, we have no plans
to issue any preferred stock nor adopt any series, preferences or other
classification of preferred stock.
The
issuance of shares of preferred stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of preferred stock
might impede a business combination by including class voting rights that would
enable the holder to block such a transaction, or facilitate a business
combination by including voting rights that would provide a required percentage
vote of the shareholders. In addition, under certain circumstances,
the issuance of preferred stock could adversely affect the voting power of the
holders of the common stock. Although the board of directors is
required to make any determination to issue such stock based on its judgment as
to the best interests of our shareholders, the board of directors could act in a
manner that would discourage an acquisition attempt or other transaction that
some, or a majority, of the shareholders might believe to be in their best
interests or in which shareholders might receive a premium for their stock over
the then market price of such stock. The board of directors does not
at present intend to seek shareholder approval prior to any issuance of
currently authorized stock, unless otherwise required by law or stock exchange
rules. We have no present plans to issue any preferred
stock.
Series
A Convertible Preferred Stock
As of
February 18, 2010 there were 1,006 shares of our Series A convertible preferred
stock outstanding. The designations, rights and preferences of the
Series A convertible preferred stock include:
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the
stated value of each share is $1,000;
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the
shares have no voting rights;
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the
shares pay quarterly dividends in arrears at the rate of 8% per annum
beginning on April 1, 2008 and on each conversion date. Subject
to certain conditions, the dividends are payable at our option in cash or
shares of our common stock valued at the lower of the conversion price or
the average of the weighted average price of our common stock on the 10
consecutive trading days immediately preceding the dividend
date;
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each
share is convertible into shares of our common stock at a conversion price
of $7.00 per share, subject to adjustment in the event of default as
specified in the Series A convertible preferred stock. In the
event of a default, the conversion price will be 90% of the lower of the
conversion price or $7.45 until the default has been
cured;
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the
conversion price of the Series A convertible preferred stock is subject to
proportional adjustment in the event of stock splits, stock dividends and
similar corporate events. In addition, the conversion price is
subject to adjustment if we issue or sell shares of our common stock for a
consideration per share less than the conversion price then in effect, or
issue options, warrants or other securities convertible or exchange for
shares of our common stock at a conversion or exercise price less than the
conversion price of the Series A convertible preferred stock then in
effect. If either of these events should occur, the conversion
price is reduced to the lowest price at which these securities were issued
or are exercisable;
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the
Series A convertible preferred stock are not convertible to the extent
that (a) the number of shares of our common stock beneficially owned by
the holder and (b) the number of shares of our common stock issuable upon
the conversion of the Series A convertible preferred stock or otherwise
would result in the beneficial ownership by the holder of more than 4.99%
of our then outstanding common stock. This ownership limitation
can be increased to 9.99% by the holder upon 61 days notice to
us;
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whenever
a holder converts all or any portion of the Series A convertible preferred
stock, if we should redeem the shares, or if the holder requests
redemption, we are required to issue the holder a number of shares a
number of shares (the "Make Whole Amount”) equal to the product of the
dividend rate and the stated value of the shares, subject to certain
instances in which we are required to pay that amount in cash;
and
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the
shares are redeemable by us under certain conditions, and the holders may
also require us to redeem the shares upon the occurrence of certain
events.
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Warrants
At
February 18, 2010 we have issued and outstanding warrants to purchase a total of
5,774,664 shares of our common stock at exercise prices ranging from $1.14 to
$15.00 per share as follows:
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Exercise
price
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Number
of Warrants outstanding
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Weighted
average remaining contractual life (Years)
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Weighted
average exercise price
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Warrants
Exercisable
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Weighted
average exercise price of Warrants exercisable
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$
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1.85
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372,500
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2.25
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$
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1.41
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372,500
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$
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1.85
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$
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2.31
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1,351,352
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4.96
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$
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2.31
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1,351,352
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$
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2.31
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$
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2.50
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50,000
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1.92
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$
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2.50
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50,000
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$
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2.50
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$
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1.14
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50,000
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1.67
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$
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1.14
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50,000
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$
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4.00
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$
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8.00
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1,966,250
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3.03
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$
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7.98
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1,966,250
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$
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8.00
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$
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10.00
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1,894,562
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1.69
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$
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10.01
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1,894,562
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$
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10.00
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$
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15.00
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90,000
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0.38
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$
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15.00
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90,000
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$
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11.00
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5,774,664
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2.93
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$
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6.93
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5,774,664
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$
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6.93
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Certain
of the warrants are subject to anti-dilution protections afforded to the
purchasers. In the event we were to issue any shares of common stock or
securities convertible into or exercisable for shares of common stock to any
third party purchaser at an exercise price per share which is less than the
exercise price per warrant share without the consent of the holder of the
warrant, the holder has the right to elect to retroactively substitute any term
of any such other offering. This right is subject to certain limited exceptions,
including strategic license agreements, mergers and similar acquisitions and
certain option programs.
Transfer
agent
Computer
Share Trust Co., Inc. is the transfer agent for our common stock.
LEGAL
MATTERS
The
validity of the securities offered by this prospectus will be passed upon for us
by Lazarus Rothstein, Esq., our Executive Vice President, General Counsel and
Secretary. Mr. Rothstein beneficially owns 5,000 restricted shares of
our common stock granted under the 2006 Stock Compensation Plan and 2008
Non-Executive Stock Incentive Plan.
EXPERTS
Our
audited consolidated balance sheets as of September 30, 2009 and December 31,
2008 (restated), and the related consolidated statements of operations,
shareholders' equity and cash flows for the periods then ended are incorporated
by reference in the registration statement of which this prospectus is a part
have been audited by Sherb & Co., LLP, independent registered public
accounting firm, as indicated in their report with respect thereto, and have
been so included in reliance upon the report of such firm given on their
authority as experts in accounting and auditing.
AVAILABLE
INFORMATION
We file
annual, quarterly and other reports, proxy statements and other information with
the SEC. You may read and copy any materials that we file at the
SEC's Public Reference Room, 100 F Street, N.E., Washington, D.C.
20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers such as our company that
file electronically with the SEC. In addition, because our stock is
listed for trading on the NASDAQ Global Market, you can read and copy reports
and other information concerning us at the offices of the NASDAQ Stock Market
located at One Liberty Plaza, 165 Broadway, New York, New York
10006. We maintain a website at www.cdii.net. We have not
incorporated by reference into this prospectus the information in, or that can
be accessed through, our website, and you should not consider it to be a part of
this prospectus.
We have
filed with the SEC a registration statement on Form S-8 (of which this
prospectus is a part) under the Securities Act with respect to the securities to
be sold by pursuant to this prospectus. This prospectus does not contain all of
the information set forth in the registration statement because certain parts of
the registration statement are omitted in accordance with the rules and
regulations of the SEC. You should refer to the registration
statement, including the exhibits, for further information about us and the
securities being offered pursuant to this prospectus. Statements in
this
prospectus
regarding the provisions of certain documents filed with, or incorporated by
reference in, the registration statement are not necessarily complete and each
statement is qualified in all respects by that reference. You may
inspect a copy of the registration statement, including the exhibits and
schedules, without charge at the SEC’s Public Reference Room; obtain a copy from
the SEC upon payment of the fees prescribed by the SEC; or obtain a copy from
the SEC’s website.
INFORMATION
INCORPORATED BY REFERENCE
The SEC
allows us to "incorporate by reference" the information we file with them, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to be
part of this prospectus, and later information filed with the SEC will update
and supersede this information. We incorporate by reference the
documents listed below, any of such documents filed since the date this
registration statement was filed and any future filings with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until the termination of
the offering of securities covered by this prospectus:
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our
Transition Report on Form 10-K for the nine month transition period
ended September 30, 2010;
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a
Current Report on Form 8-K as filed on January 4, 2010 (other than
information furnished rather than filed);
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a
Current Report on Form 8-K/A as filed on January 8,
2010;
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a
Current Report on Form 8-K as filed on January 12, 2010 (other than
information furnished rather than filed);
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a
Current Report on Form 8-K/A as filed on January 19,
2010;
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a
definitive proxy statement on Schedule 14A filed on January 28,
2010;
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definitive
additional proxy soliciting materials on Schedule 14A filed on January 28,
2010;
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a
Current Report on Form 8-K as filed on February 11, 2010;
and
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our
Quarterly Report on Form 10-Q for the period ended December 30, 2009 as
filed on February 12, 2010.
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We will
provide without charge to any person to whom this prospectus is delivered, on
the written or oral request of such person, a copy of any or all of the
foregoing documents incorporated by reference, excluding exhibits, unless we
have specifically incorporated an exhibit in the incorporated
document. Written requests should be directed to: Corporate
Secretary, China Direct Industries, Inc., 431 Fairway Drive, Deerfield Beach,
Florida 33441.
Each
document or report subsequently filed by us pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the termination
of the offering of the securities shall be deemed to be incorporated by
reference into this prospectus and to be a part of this prospectus from the date
of filing of such document, unless otherwise provided in the relevant
document. Any statement contained herein, or in a document all or a
portion of which is incorporated or deemed to be incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of the
registration statement and this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of the
registration statement or this prospectus.
PART
II
INFORMATION
REQUIRED IN REGISTRATION STATEMENT
ITEM
3. INCORPORATION OF DOCUMENTS BY REFERENCE
The
following documents filed with the SEC are hereby incorporated by reference in
this registration statement:
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our
Transition Report on Form 10-K for the nine month transition period
ended September 30, 2010;
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a
Current Report on Form 8-K as filed on January 4, 2010 (other than
information furnished rather than filed);
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a
Current Report on Form 8-K/A as filed on January 8,
2010;
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a
Current Report on Form 8-K as filed on January 12, 2010 (other than
information furnished rather than filed);
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a
Current Report on Form 8-K/A as filed on January 19,
2010;
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a
definitive proxy statement on Schedule 14A filed on January 28,
2010;
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definitive
additional proxy soliciting materials on Schedule 14A filed on January 28,
2010;
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a
Current Report on Form 8-K as filed on February 11, 2010;
and
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our
Quarterly Report on Form 10-Q for the period ended December 30, 2009 as
filed on February 12, 2010.
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All
documents filed by the Company or the Plan under Section 13(a), 13(c), 14, and
15(d) of the Exchange Act after the date of this registration statement and
prior to the filing of a post-effective amendment to this registration statement
indicating that all securities offered have been sold or that deregisters the
distribution of all securities then remaining unsold, will be deemed to be
incorporated by reference into this registration statement and will be a part of
this registration statement from the date that document was filed. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this registration statement to the extent that a statement contained in this
registration statement or in any other subsequently filed document that also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this registration
statement.
ITEM
4. DESCRIPTION OF SECURITIES
A
description of the registrant's securities is set forth in the prospectus
incorporated as a part of this registration statement.
ITEM
5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not
applicable.
ITEM
6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Florida Business Corporation Act permits the indemnification of directors,
employees, officers and agents of a Florida corporation. Under our articles of
incorporation and bylaws, our directors are not liable for monetary damages for
breach of fiduciary duty, except in connection with:
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a
breach of the director's duty of loyalty to us or our
shareholders;
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acts
or omissions not in good faith or which involve intentional misconduct,
fraud or a knowing violation of
law;
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a
transaction from which our director received an improper benefit;
or
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an
act or omission for which the liability of a director is expressly
provided under Florida law.
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In
addition, our bylaws provide that we must indemnify our officers and directors
to the fullest extent permitted by Florida law for all expenses incurred in the
settlement of any actions against such persons in connection with their having
served as officers or directors. The effect of Florida law, our
articles of incorporation and our bylaws is to require
us to
indemnify our officers and directors for any claim arising against those persons
in their official capacities if the person acted in good faith and in a manner
that he or she reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful.
We also
maintain an insurance policy under which coverage is provided to our directors
and officers to insure against certain liabilities that such persons may incur
in their capacities as directors and officers of the company.
To the
extent indemnification for liabilities arising under the Securities Act of 1933
may be permitted to our directors, officers or control persons, we have been
informed that in the opinion of the SEC, this indemnification is against public
policy as expressed in the Securities Act of 1933 and is
unenforceable.
ITEM
7. EXEMPTION FROM REGISTRATION CLAIMED
Not
Applicable.
ITEM
8. EXHIBITS
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Exhibit
Number
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Exhibit
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5.1 |
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Opinion
of Lazarus Rothstein, Esq., Executive Vice President, General Counsel and
Secretary. (1)
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10.1 |
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2008
Executive Stock Incentive Plan (incorporated herein by reference to
Appendix D filed as a part of the Company’s Proxy Statement filed with the
Commission on April 30, 2008 (Commission File No.
001-33694)).
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23.1 |
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Consent
of Sherb & Co., LLP, Independent Registered Public Accounting Firm.
(1)
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23.2 |
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Consent
of Lazarus Rothstein, Esq., Executive Vice President, General Counsel and
Secretary. (included in Exhibit 5.1) (1)
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24 |
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Power
of Attorney (included on signature page to this Registration Statement).
(1)
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_____________________
(1) Filed
herewith.
ITEM 9.
UNDERTAKINGS
The
undersigned registrant hereby undertake:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range is reflected in
the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the " Calculation of
Registration Fee” table in the effective registration statement;
and
(iii) 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;
provided, however, that
paragraphs (a)(1)(i) and (a)(1)(ii) do not apply to this registration statement
on Form S-8 to the extent that the information required to be included in a
post-effective amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That,
for purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3)
To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of
determining liability of the registrant under the Securities Act of 1933 to any
purchaser in the initial distribution of the securities: The undersigned
registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of
the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
i. Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
ii.
Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the undersigned
registrant;
iii.
The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
iv.
Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(5)
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.
(6) 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, as amended, 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 Deerfield Beach, Florida on February 18, 2010.
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CHINA
DIRECT INDUSTRIES, INC.
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By:
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/s/
Yuejian (James) Wang
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Yuejian
(James) Wang, Chief Executive Officer, Chairman, principal executive
officer
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Each
person whose signature appears below hereby constitutes and appoints Yuejian
(James) Wang and Lazarus Rothstein and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) and supplements to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, and hereby grants to such
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or either of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
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Signature
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Title
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Date
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/S/
Yuejian (James) Wang
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Chief
Executive Officer, President and Chairman (Principal Executive
Officer)
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February
18, 2010
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Yuejian
(James) Wang
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/S/
Andrew X. Wang
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Executive
Vice President and Chief Financial Officer (Principal Financial and
Accounting Officer)
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February
18, 2010
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Andrew
X. Wang
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Executive
Vice President - Magnesium, Director
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Yuwei
Huang
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/S/
David Barnes
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Director
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February
18, 2010
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David
Barnes
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/S/
Sheldon Steiner
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Director
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February
18, 2010
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Sheldon
Steiner
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/S/
Philip Y. Shen
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Philip
Y. Shen, Ph.D
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Director
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February
18, 2010
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