Item 1. Business
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This annual report on Form 10-K and other statements issued or made from time to time by Worldwide Biotech & Pharmaceutical Company, a Delaware corporation (the “Company” and/or “Worldwide”), contain statements which may constitute “Forward-Looking Statements” within the meaning of the Securities Act of 1933, as amended (the “Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”), including the Private Securities Litigation Reform Act of 1995, 15 U.S.C.A. Sections 77Z-2 and 78U-5 (SUPP. 1996). Those statements include statements regarding the intent, belief or current expectations of Worldwide and its officers/directors as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
General Background
Worldwide, a Delaware corporation, is sometimes referred to herein as “we,” “us,” “our” and the “Company.” The Company was incorporated in Delaware in 1961 as Sun City Dairy Products, Inc. and changed its name to Sun City Industries, Inc. in 1969. The Company originally registered its shares of common stock under the Exchange Act in 1994.
Change in Control
Michael F. Manion in June 2003 became the sole officer and director of the Company as the result of the sale of the Company that took place in U.S. Bankruptcy Court on June 27, 2003 and was issued 1,000,000 post-reverse split shares of common stock par value $.001 bearing restrictive legend. He resigned as sole officer and director of the Company on June 28, 2004. On June 30, 2004, Coast to Coast Equity Group, Inc. (“Coast to Coast”), a Florida corporation located in Sarasota, Florida, whose sole officer and director is Charles Scimeca purchased from Mr. Manion his 1,000,000 shares of the Company in a private stock transaction for payment to Mr. Manion of $375,000, which funds had been loaned to Coast to Coast by George Frudakis. As a result of the transaction, Coast to Coast owned approximately 94.6% of the voting securities of registrant. Dr. Tony Frudakis, who is the son of George Frudakis, was appointed director effective June 30, 2004.
On December 16, 2004, the Company closed on a Reorganization Agreement that had previously been entered into on April 20, 2004 with Yangling Daiying Biological Engineering Co. Ltd. (“Daiying” or “Yangling Daiying”), a corporation organized under the Peoples Republic of China. The Company, as a result of the closing of this transaction, acquired all of the issued and outstanding stock of Daiying which became a 100% owned subsidiary of the Company. At closing, the shareholders of Daiying were issued 30,880,000 shares which equaled 89.10% of the issued and outstanding shares not including 1,400,000 shares to be held in escrow for additional compensation to Coast to Coast pursuant to a Consulting Agreement. The total number of shares issued to consummate the transaction including shares issued to consultants were 33,600,000, and the total issued at closing were 35,000,000 shares including the shares issued to Coast to Coast held in escrow. On this date four new directors were elected, which included Wenxia Guo, Peiyi Tian, JianJun Liu, and Humin Zhang.
New Business of the Company and Acquisitions
Daiying, was established in 2000 in the People’s Republic of China. Wenxia Guo was the founder of Daiying and funded the Company with approximately US$1,000,000. In November 2001 six investment firms invested an additional US$4,000,000 in the Company to participate in the HCV research project and the Company was reorganized at this time as a stock based company.
On July 26, 2005, Glory Dragon Investments Ltd. (“Glory Dragon”), an international business company, was formed in the British Virgin Islands and a Certificate of Incumbency was signed on December 6, 2005. The sole shareholder, officer and director was Peiyi Tian. He was also a director and CFO of the Company. On the same date, Peiyi Tian, in a Declaration of Trust, declared that 100% of the stock (50,000 shares) of Glory Dragon is owned by the Company.
Glory Dragon then established a wholly-owned foreign investment company in the People’s Republic of China known as Shaanxi Allied Shine International Investment Management Consulting Ltd. (“Shaanxi Allied”) on December 27, 2005. Shareholders of Daiying then transferred their shares of Daiying to Shaanxi Allied on December 27, 2005.
On July 12, 2005, Daiying formed a medical product distribution company, Shaanxi Daiying Medicine Distribution Co., Ltd. Daiying owns 90% of the shares of this company. The company’s purpose is the wholesale distribution of traditional Chinese medicine, including Chinese medicine drink tablets, synthetic medicine, antibiotics, biotech medicine and biotech reagents; wholesale of Class II medical devices, Class III medical devices, including but not limited to, medical sewing materials and bond, medical high molecular materials and products, and disposable sterile medical devices.
On January 19, 2006, Daiying entered into a Reorganization Agreement with Hunan Hua Yang Pharmaceutical Co. Ltd. formerly Hunan Changde Huaan Pharmaceutical Co. Ltd. (“Hua Yang”) and its shareholders Aibin Chen and Zhuobin Li, pursuant to which Daiying acquired 51% of Hua Yang..
Pursuant to this agreement, Daiying caused Worldwide to issue 482,800 shares of its common stock to the above mentioned shareholders in connection with the acquisition Daiying was given, among other rights, the right to appoint board members of Hua Yang. The transaction closed on January 19, 2006, with the said shares being issued to Mr. Chen and Mr. Li on February 28, 2006.
On January 19, 2006, Daiying also entered into a Reorganization Agreement with Hunan Ze An Pharmaceutical Co. Ltd. (“Ze An”) formerly Hunan Jinjin Pharmaceutical Co. Ltd. and its shareholders Zhongyu Lu, Aibin Chen, and Weiliang Wu, pursuant to which Daiying acquired 65% of Ze An. Daiying paid RMB3,400,000, which equates to US$411,124.53, using the agreed upon exchange rate of RMB8.27 to US$1.00, as follows: (a) 1,960,000 RMB to Zhongyu Lu for 37% of his share capital of Ze An; (b) 1,440,000 RMB to Weiliang Wu for 18% of his share capital of Ze An. In addition, Daiying caused Worldwide to issue 219,670 shares of common stock to Aibin Chen for 10% of his share capital of Ze An. Daiying financed the 3.4 million RMB cash portion of the purchase price with a loan at an annual interest rate of 12% from Xian Jin Jou Sci-tech Investment Management Co., Ltd., payable monthly with principle due on a demand note.
On May 23, 2006, the Company filed a Form 8-K/A with the Commission pursuant to which it provided audited financial statements of the two acquired subsidiaries as well as unaudited pro forma combined financial statements for the companies as a whole.
On December 18, 2006, Daiying, Mr. Chen and Mr. Li entered into a Consolidation and Reorganization Agreement with respect to the two newly acquired subsidiaries, pursuant to which Hua Yang acquired Ze An as part of a plan to optimize capital resources and to diminish operational costs and management costs at the two subsidiaries. As a result of the reorganization, Daiying acquired 67.3% of the share capital of Hua Yang, Mr. Chen acquired 18.7% of the share capital of Hua Yang and Mr. Li acquired 14.0% of the share capital of Hua Yang. In addition, as part of the reorganization, a 15% interest in the share capital of Ze An owned by Mr. Chen was transferred to Daiying in exchange for Daiying agreeing to assume Mr. Chen’s payment obligation of 1.2 million RMB plus interest due in two years, which was owing to a former shareholder. All existing assets and liabilities of Ze An were assumed by Hua Yang as part of the plan of reorganization. The full name of the entity that survives is Hunan Hua Yang Pharmaceutical Co., Ltd.
Description of Current Business
Daiying is a high-tech biopharmaceutical company that specializes in the development and potential marketing of viruses/viral vectors, bio-medicines, external diagnostic reagents, prophylactic vaccines for humans, and oral dosage forms of traditional Chinese medicine. The Company is developing a hepatitis C vaccine primarily in China. The Company employs 57 full time employees, with corporate headquarters, manufacturing facilities and main laboratory in the Yangling Agricultural Hi-Tech Industrial Demonstration Zone, Shaanxi Province, China.
ABOUT HCV: G14
Hepatitis C virus (“HCV”) is a blood-borne RNA virus, a major cause of liver disease in the United States and the world. It’s also one of the four most dangerous blood-borne viruses, with infection rate four times higher than HIV. About 1.3-3% of the worldwide population is infected with the virus and 200 million people were infected with HCV by the end of 2005. In the United States, about 2.4% of the population is infected by HCV and it’s even as high as 10% in some Asian and European Countries.
About 70% of HCV infected cases become chronic hepatitis. Ninety percent (90%) of HCV infected people are asymptotic. HCV accounts for about 15 percent of acute hepatitis cases, 60 to 70 percent of chronic hepatitis cases, and up to 50 percent of cases of cirrhosis, end-stage liver disease, and liver cancer.
There is no medication available that can cure HCV infection and no vaccine for prevention, and existing diagnostics suffer from poor sensitivity and specificity. Statistics show that the rate of misdiagnosis of HCV is relatively high. The development of reliable diagnostic methods and treatment for HCV is delayed due to lack of the resource of HCV particles, despite the fact that numerous famous research institutions and big pharmaceutical companies put so much effort into HCV research. Scientists need viral material to learn about the virus’ biology, identify therapeutic targets, screen compounds to discover new drugs, and identify the best diagnostic target proteins and antigens for vaccines. The titer of HCV in patients is so low that scientist could not directly extract HCV particles out of patient blood. Other than human beings, HCV can only infect chimpanzees. That means, except chimpanzees, there is no other small animal model nor robust in vitro model for HCV experimental study like scientists usually do with most other viruses or bacteria. Until recently, the inability to produce and propagate HCV in vitro has been the biggest bottleneck in HCV research.
INTACT HCV FROM HCV IN VITRO CELL CULTURE SYSTEM
Yangling Daiying has committed a large amount of cash and resources to the development of its cornerstone technology: a laboratory method for culturing (growing, propagating) intact Hepatitis C virus. After three years of intensive research, the scientists at Yangling Daiying achieved a technological breakthrough for culturing HCV in vitro, making it the first to overcome the main hurdle to HCV research and product development. HCV virus produced in Yangling Daiying has viral genome replication, viral gene expression and protein production/processing demonstrated using molecular biological approaches. The titer of virus in the culture medium is over 106 which are much higher than that in patient serum. The purified virus is stable for 2 years in -20°C～-80°C. The viruses produced possess well-defined biological HCV characteristics that are inheritable and the virus have propagated in the Yangling Daiying over 30 generations.
The first batch of HCV ever produced in a laboratory was cultured by Yangling Daiying and given the historical significance, this batch was deposited China General Microbiological Culture Collection Center (CGMCC), directed by State Intellectual Property Office of the People’s Republic of China on March 28th, 2001. Given the fact that no other company or research institution had ever been able to produce intact HCV virions in vitro, China General Microbiological Culture Collection Center named this strain of HCV the ”DY” strain. Yangling Daiying obtained a Chinese patent for this invention on October 23rd, 2002, securing a strong independent IP position. A pending PCT (Patent Co-operation Treaty) international application was filed on August 2nd, 2002 to cover countries and areas including the United States, Japan, Korea, Russia and the European Union. In December 2003, our patent “The Intact Hepatitis C Virus (HCV) and Method for Culturing HCV in Vitro by Cell Culture” was awarded the prestigious China Patent Golden Metal in the 8th China Patent Assessment. Over the past 10 years in China, this medal was the only golden metal issued for achievement in the biomedical sciences. The Assessment is administrated by the General World Intellectual Property Organization (WIPO) and recognized by 46 countries all over the world.
The breakthrough in establishing a cell culture system for HCV production and infection by Yangling Daiying scientists provides a potentially unlimited source for HCV and a comprehensive technology platform upon which Yangling Daiying can be built. From this Rosetta stone, Yangling Daiying hopes to develop new generation HCV diagnostics, new classes of HCV drugs, HCV vaccines and to be part of the development of next-generation anti-HCV targeted (gene) therapies.
Principal Products and Services and Their Market
PRODUCT LINE 1: HEPATITIS C VIRUS PRODUCED IN VITRO
Whole virus HCV material that we have been able to produce can be sold and/or partnered in non-core, non-competitive market areas to generate sales revenues for the Company during its growth stage. We have already achieved a production scale level of 10,000 ml of concentrated material per month. HCV antigen production is 10 grams per month.
According to the decision of the Board of Directors, intact HCV viral material will be sold and/or partnered only in non-core, non-competitive market areas in order to get more patent protections on HCV related products under development in our company at the current stage.
PRODUCT LINE 2: ELISA KITS FOR HCV ANTIBODY DETECTION
Yangling Daiying scientists recently completed the development of a new generation ELISA test for HCV antibodies. The simple mechanism of this kit is that the specific HCV antigens in the kit can be recognized by the corresponding HCV antibodies in patient blood. Different than other HCV antibody detection kit, the antigen for producing our kit is purified directly from the intact HCV virus particles instead of using recombinant HCV proteins or synthesized polypeptides. The antigens from intact HCV virus have better epitopes which could be more specifically recognized by HCV antibody for the following reasons. 1. Antigens from intact HCV virus are assumed to natural 3D structures which is required for antibody-antigen interaction. 2. Antigens in mammalian cells are sugar modified while the recombinant antigens from yeast are not. 3. Natural HCV proteins offers multiple epitopes for antibody interaction while the synthesized polypeptides only have one or two epitopes, therefore, natural antigens is more sensitive to capture the antibodies than polypeptides.
Compared with HCV diagnostic products on the current market, our HCV antibody detection kit has following advantages:
High sensitivity: Our product is one only one developed based on intact HCV virus, it could catch HCV antibodies in the samples with much higher sensitivity than HCV diagnostics developed based on recombinant HCV antigen. Therefore, our kit could dramatically lower down the false negative rate.
High specificity: Our HCV diagnostic kit developed from intact HCV virus could more specifically recognize HCV antibodies.
Stable Raw Material Supply: Unlike the other companies which have to depend on the third parties for supply, the major raw material for our HCV kit, HCV antigen, produced by our own HCV in vitro cell culturing system which could guarantee stable supply for our production.
Low Price: Large-scale culturing of HCV virus can provide to our company high quality HCV antigens with very low cost. This low cost raw material gives competing advantage to our product on the market.
Intellectual Property Protection: The HCV virus we use for our HCV diagnostics is protected by Chinese patent. We also filed patent applications in both United States and European Countries.
A large-scale State Food and Drug Administration (“SFDA”) (Chinese FDA) sanctioned clinical trial of this test involving 10,000 samples has already been examined by the National Institute for the Control of Pharmaceutical and Biological Products and demonstrated ultra high sensitivity and high specificity relative to the other HCV diagnostics technology currently on the market.
The Company obtained SFDA approval for its HCV antibody detection kit on May 10, 2006, the certificate number is S20063051. The production line for the diagnostic kit got a good manufacturing practice (“GMP”) certificate in November of 2006. Production and sales of this diagnostic product started in 2007.
PRODUCT LINE 3: ANTI-HCV MEDICINES
About 200 million people have been infected by HCV virus worldwide. The most recent reach carried by Dr. Brian Edlin from Cornell University shows there are 5 million people infected by HCV virus in the United Stated by the end of year 2005. Majority HCV infected people become chronic cases and carry the virus for the whole life. There’s no cure for this disease. The only medicine available for HCV patients, such as interferon, can only slow down the process of this disease. In addition, only 40% to 50% patients can actually response to interferon treatment. The effective rate is even lower in China and some other Asian countries with majority people infected by type I HCV virus. There’s no any medicine available for these patients.
A lot of pharmaceutical companies and HCV research institute have invested a lot of money on the battle for anti-HCV research. However, they are moving forward extremely slow due to lack of intact HCV virus.
We have already established an anti HCV drug-screening assay based on our in vitro cell culture system and we have started the primary screening stage. The mechanism of this system is shown the figure. In the human hepatocytes culturing plates, intact HCV virus is used to infect hepatocytes. Anti-HCV drug candidate is added to the cell culture plate. If the drug can kill HCV virus or inhibit invasion of HCV virus into hepatocytes, the morphology of hepatocytes would be as normal as healthy hepatocytes and HCV virus can not kill these cells.
This is only in vitro anti-HCV drug screen system in the world with the low-cost and high-speed characters. With the careful optimization, this system can screen thousands of chemical and drugs in very short period of time which increase the chances of getting anti-HCV target medicine dramatically.
This in vitro anti-HCV medicine screening system has the following advantages:
Uniqueness: This system so far is the only one available for in vitro anti-HCV medicine screening; It will dramatically speed up new drug development for HCV;
Suitable for High-through Put Screening: The speed can be extremely fast and hundreds drugs could be tested by this system every three days;
Intuitive: This system can help scientist to clearly know what’s the anti-HCV mechanism of drug candidates, e.g. to figure out whether drugs can directly kill HCV virus, or prohibit the enter of HCV virus into human hepatocytes, or inhibit replication of virus;
Safe: This system allows anti-HCV medicine to be tested before they are used directly to clinical trial due to lacking of in vitro system.
Our first batch of candidates to screen will be the known anti-viral drugs. Except interferon (which performance is also not satisfying for anti-HCV), there’s no effective anti-HCV medications clinically used. Some of Traditional Chinese Medicine has been proved to be helpful for treating HCV infection. The anti-HCV drug screen system set up by our company will use these precious resources. These medicines are low-cost and suitable for more HCV infected patients. If capital funding is adequate enough, the Company will start to screen chemical library as well.
The Company also would like to collaborate with other research institutes and allow them to test their drug candidates by using our in vitro system.
PRODUCT LINE 4: HCV HUMAN VACCINE
Ninety percent of HCV infected people are asymptomatic and 70% among them become chronic cases. This asymptomatic population is the major source for spreading HCV virus. Effective preventive method is the most efficient way to eradicate HCV virus. The development of HCV vaccine meets the major obstacles because the bio-characters of HCV are not clear yet.
Vaccines contain antigenic components which can stimulate an immune response (but not the disease), and leads to immunity for certain pathogen. There are two types of vaccine, activated (live virus which cannot replicate or be pathogenic) and inactivated (components of actual virus). Many research results show that inactivated HCV vaccine is not effective. However, activated HCV vaccine cannot be made without live HCV virus. Yangling Daiying is developing an attenuated live HCV vaccine using replication-deficient HCV virus and making fast progress with the support of 863 grants from Chinese government. It can hold the whole market share if it can be released soon. The markets of activated HCV vaccine are including both domestic and international market.
Prophylactics such as vaccines enabled with our “Rosetta stone” also promise to be highly profitable and our HCV vaccine research program has also already been initiated; this research has been awarded prestigious Chinese government high-Tech 863 project statuses. Chinese 863 projects are special industrial projects the Chinese government deems to be of profound significance to their nation in important research areas, and they receive substantial financial support from the Chinese government. As the main institution for the execution of the HCV human vaccine project, Yangling Daiying has obtained three years of government funding grants through the prestigious 863 mechanism - grants that come to Yangling Daiying with no strings attached whatsoever.
At current stage, the Company has successfully created replication-deficient HCV virus. Results from immunolized animal show: Replication-deficient HCV can induce high production of anti-HCV virus. The Company can purify large-scale these special virus for human vaccine production.
Further studies include using animal models to evaluate the effectiveness and safety of HCV vaccine, Phase I, II and III clinical trials, application for registration approvals and so on.
PRODUCT LINE 5: OVER-THE-COUNTER MEDICINES
In addition to research and development of innovative, high-tech biological products, the Company is also actively involved in the development and manufacturing of over-the-counter (OTC) Traditional Chinese Medicines (TCM), synthetic medicines and functional foods. As the consequences of acquisitions, the Company owns 36 medicines with National Drug Production Licenses and 6 functional foods with National Food Production Licenses approved by SFDA. These various medicines include liver-care medicines, anti-inflammation medicines, anti-cold medicines, cough suppressant, vitamins, and other nutrient supplements. Most of medicines have been on the market for year and well accepted by Chinese customers.
PRODUCT LINE 6: MEDICAL DEVICES AND OTHER MEDICAL PRODUCTS DISTRIBUTED FOR THE OTHER COMPANIES
Daiying, through its subsidiary, Shaanxi Daiying Medicine Distribution Co., Ltd. a GSP (Good Sales Practice) - compliant medical products distribution company, distributes medical products from international biological and pharmaceutical companies on China’s market. On May 12, 2005, Yangling Daiying signed the Sole Distribution Agreement and the Sole Co-production Agreement with Taramedic Corporation Sdn. BHD, a Malaysian company for distribution of its product, Tara KLampТ Disposable Circumcision Device. The product owns patent protection in both Malaysia and China (China Patent Number 93104792.7). The Company has obtained the Registration Approval for this imported product from SFDA on January 26, 2006. Marketing and sales has presently commenced.
Services
SERVICE 1: ANTI-HCV MEDICINE SCREEN
We have already established an anti HCV drug-screening assay based on our in vitro cell culture system and we have started the primary screening of anti-HCV medicines.
This is only in vitro anti-HCV drug screen system in the world with the low-cost and high-speed characters. With the careful optimization, this system can screen thousands of chemical and drugs in very short period of time which increase the chances of getting anti-HCV target medicine dramatically.
In order to speed up the development of new anti-HCV drugs, Yangling Daiying is willing to offer the services for some companies and research institutes to use its in vitro virus culture system to test their anti-HCV drug candidates.
SERVICE 2: GMP-COMPLIANT MEDICAL PRODUCTS PRODUCTION
Our high-output GMP manufacturing facility provides an opportunity to commercialize products licensed from third-parties and developed through collaborations. Yangling Daiying plans to manufacture several dozen other diagnostic product pharmaceutical chemicals and oral dosage forms for various foreign companies through Original Equipment Manufacturer (OEM) relationships.
Distribution Methods of Products
MARKETING MODELS
The Company’s products will be distributed through hundreds of sub distributors in Chinese, taking advantages of existing sales networks of these distributors, quickly spread the Company’s products all over in China.
TECHNICAL SEMINARS AND TRAINING:
It’s very important for the Company to build up a good image among its customers and let them know the Company’s products are developed from advanced technology. Marketing strategies will be different among different customers. Main efforts will be focused on biggest 20 to 30 customers. For example, we would pick out a couple of biggest hospitals from some big cities; for marketing to those blood stands, we will be focusing on the blood stands at Beijing, Shanghai and Xi’an, et al.
The Company will spend a lot of efforts to help customers understand the value of intact HCV virus. Seminars will be held for various customers to help them understand our technology.
Based on the quantities and dependence on our products, we will select VIP customers each year. Our expert team will provide training on recent trends of HCV reach and hepatology. People attended will be award training certificate. VIP customers will enjoy more advantage on prices of our products and after-sales services so that those customers will be bond more tightly to our products.
Based on unique and advanced technology, the new diagnostic products from the Company will bring new mileage for HCV diagnostic. The Company will break-up traditional low-price, more-sales model, and bring more profits for its distributors and stabilize our sales network.
MEDIA ADVERTISEMENT:
To make customers understand advantages of the Companies products and technologies based, advertisement through media plays important roles. The media channels include newspaper, internet and international scientific journals, et al. The contents include recognition of HCV, self-protection for HCV infection and self-detection for HCV infection, et al. Through this program, the Company will help the general populations to recognize the dangerous of HCV infection, as the same time, let them understand the break-through the Company brings to HCV treatment and prevention.
Status of any publicly announced new products or services
The Company currently has no new products or services announced to the public. It will make public announcements in the future upon development of any new products or services.
Competitive business conditions, and the Company’s competitive position in the industry, and methods of competition
MARKET POSITIONING VS. COMPETITORS
HCV Virus and Antigen
There is no real competition at this time since Daiying has the only system available to produce HCV virus and antigen, and we have obtained domestic patents to protect the replication of the technology by others and products derived from it.
Anti-HCV Drug-screen System
Due to the limitation of treatment for chronic HCV infection, intensive research and development activities are being done in pharmaceutical companies and HCV research institutes. However, we have no real competition currently because Yangling Daiying has the only system available that is using an intact HCV culturing system for screening anti-HCV drugs in vitro. Instead of the extensive drug screening from the synthetic compounds that most pharmaceutical companies are doing, Yangling Daiying has sources of traditional medicines that are known to be effective to control HCV infection. Screening anti-HCV drugs out of these traditional Chinese medicines would be much faster and less expensive than screening tens of thousands of synthetic medicines.
HCV Antibody Detection ELISA Kits
Our main competitors are domestic companies, of which there are over 200 currently. All these companies rely on a third party to supply antigen for their kits. Yangling Daiying is different in this respect because it is self-sufficient for its antigen supply.
Over-the-counter Medicines
China is a huge market for OTC medicine. Because of historical reasons and relaxed government regulation, development of OTC products has its own unique cultural and market background. The large base of users, as well as extensive media coverage, make the Chinese OTC market very attractive.
COMPETITIVE ADVANTAGES
The competitive advantages of the Company mainly lie in:
HCV research abilities
Daiying has a distinctive technology for culturing (growing, propagating) intact Hepatitis C virus in vitro, which provides an excellent foundation for developing other HCV products.
Government supports
Daiying’s HCV vaccine research program has been awarded the prestigious High-Tech 863 project status by the Chinese government. Daiying also enjoys special tax considerations and support for acquiring land to expand its business.
Advanced manufacturing facilities
Daiying has the most comprehensive 10,000-grade GMP-compliant manufacturing facilities in China, which include fully equipped GMP standard production lines for oral dosage forms of Chinese medicines, synthetic medicines, functional foods, virus and in vitro diagnostics.
Patent protection in China
Daiying obtained a Chinese patent for this invention on October 23, 2002, securing a strong independent IP position. In December 2003, the patent was awarded the prestigious China Patent Golden Medal by the General World Intellectual Property Organization (WIPO).
COMPETITIVE WEAKNESSES
The competitive weaknesses of the Company mainly lie in:
Although Daiying has filed an application of PCT, US patent and European patent protection, patents haven’t been issued in other countries/districts but only in China currently.
Daiying’s HCV research needs substantial long term funding, therefore, Daiying needs to spend tremendous efforts on marketing and sales for current products to generate sufficient revenues and profits to support its research. Meanwhile, Yangling Daiying needs to raise funds to support its growth and long-term research lines.
Daiying has its sales network mainly in China for its existing products and it expects to broaden its network to the international market.
Sources and Availability of Raw Materials and Names of Suppliers
The following is a list of raw materials that we utilize and the name of our suppliers:
1. Sigma: all chemical reagents, American company, branch office in Xi’an, China: #1 Wenyi South Rd, Xi’an.
2. Gibco: medium and fetal bovine serum, American company, branch office in Xi’an, China: #17 Changle West Rd, Xi’an.
3. Shenzhen Jincanhua Enterprise Co., Ltd: 96-well plat and glassware, Hi-tech Demonstration Zone, Bldg. 3, Shenzhen, China.
4. Shaanxi Ruibo Pharmaceutical Co., Ltd.: chemical compound #113 Xi’an Changle Rd, Xi’an China.
5. Shaanxi Daxin Suye Co., Ltd.: tablets for medicine #1 Huoju Rd, Xi’an China.
6. Xi’an Raw Chinese Traditional Medicine Supply Company: Raw Traditional Medicine, #93 Dongguan South Rd, Xi’an China.
7. Wuningxian Linquan Capicule Co., Ltd.: Capicule shell Dongdu Development Zone, Wuning County, Jiangxi, China.
8. Xi’an Ruikang Rubber Manufacturing Co., Ltd: plastics, Sanqiao Xinjie Xibaozi, Weiyang District, Xi’an China.
9. Shaanxi Guoyi New Special Medicine Co., Ltd.: Chinese Traditional Medicine Industry Trading Zone, Huxian County, Xi’an China.
Dependence on one or a few major customers
Daiying believes that it will not be dependent on a few major customers for the sales and distribution of its products and services. Its potential customers will include hospitals, pharmacies and research institutes, of which there are many.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements, or Labor Contracts
Daiying obtained a Chinese patent for “The Intact Hepatitis C Virus (HCV) and Method for Culturing HCV in vitro by Cell Culture” on October 23, 2002. The patent number is 01124001.6. A pending Patent Co-operation Treaty (PCT) international application was filed on August 2, 2002 to cover countries and areas including the United States, Japan, Korea, Russia and the European Union, and obtained the priority protection from these countries.
On February 5, 2004, Daiying filed a patent application to the United States Patent and Trademark Office, the processing number is 10/486,024. The publication number is US-2004-0166488-A1. The patent has been reviewed and a comment letter was sent to Yangling Daiying on January 9, 2006. An amendment needs to be filed to continue the patent application.
On March 11, 2004, Daiying filed patent application to the European Patent Office. The processing number is 02754159.8. The Company registered “Daiying Biotech” as its trademark at the National Institute of Trademark in China effective May 21, 2002 to May 20, 2012. The Company has no licenses, franchises, concessions, royalty agreements, or labor contracts.
Need for Governmental Approval of Products
The Company acquired all necessary regulation approvals for its existing products from SFDA by the end of year 2006.
Effect of Existing Governmental Regulations
The manufacturing facilities for both biological and medical products have to be GMP-compliant. We have received the GMP certificate from the government. In order to sell or distribute the pharmaceutical products in China, the Company has to have a Good Sales Practice for Pharmaceutical Products (GSP) certificate. Daiying’s subsidiary, Shaanxi Daiying Medicine Distribution Co., Ltd., has obtained the GSP certificate, which allows the company to wholesale medical products to pharmacies, hospitals, clinics and sub-distributors. For commercialization of new drugs in China, companies have to get New Drug Approval from SFDA. We have obtained a New Drug License for three of our TCM Products.
The amount spent during last two fiscal years on research and development costs
Research and product development costs are charged to expense as incurred. The Company incurred $13,862 and $31,303 in product development costs for the years ended December 31, 2010 and December 31, 2009, respectively.
Costs and Effects of Compliance with Environmental Laws
At the present time, Daiying is in compliance with applicable environmental laws in China, both nationally and locally. Its current cost of compliance is approximately $50,000 per year, assuming no change in the current laws.
Number of Full Time and Part Time Employees:
The Company and its subsidiaries had 57 full-time employees as of December 31, 2010.
COMPLIANCE WITH RELATED LAWS AND REGULATIONS
In China, the Company relies on the advice of Chinese legal counsel to maintain compliance with all laws, rules, regulations and government policies in China. The biotech and pharmaceutical industries in China are subject to extensive government regulation, which regulations have been changing rapidly, and there is no assurance that the Company will not be adversely impacted by such regulations in the future.
(a) Local Regulations
The Company cannot determine to what extent its future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations on a local level in China.
(b) National Regulations
The Company cannot determine to what extent its future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations on a national level in China.
(c) Other Factors
Since the operations of the Company are conducted in the People's Republic of China ("PRC"), they are subject to special considerations and significant risks not typically associated with investments in equity securities of United States and Western European companies. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. These are described further in the following:
POLITICAL ENVIRONMENT
The value of the Company's businesses in China may be adversely affected by significant political, economic and social uncertainties in the PRC. A change in policies by the Chinese government could adversely affect the Company's interests in its subsidiaries by, among other factors: changes in laws, regulations or the interpretation thereof; confiscatory taxation; restrictions on foreign currency conversion, imports or sources of suppliers; or the expropriation or nationalization of private enterprises.
ECONOMIC ENVIRONMENT
The economy of the PRC differs significantly from the economies of the United States and Western Europe in such respects as structure, level of development, gross national product, growth rate, capital reinvestment, resource allocation, self-sufficiency, rate of inflation and balance of payments position, among others. Only recently has the Chinese government encouraged substantial private economic activities.
The Chinese economy has experienced significant growth in the past ten years, but such growth has been uneven among various sectors of the economy and geographic regions. Actions by the Chinese central government to control inflation have significantly restrained economic expansion recently. Similar actions by the central government of the PRC in the future could have a significant adverse effect on economic conditions in the PRC and the economic prospects for our Company.
FOREIGN CURRENCY EXCHANGE
The Chinese central government imposes control over its foreign currency reserves through control over imports and through direct regulation of the conversion of its national currency into foreign currencies. As a result, the Renminbi is not freely convertible into foreign currencies.
The Company conducts, or plans to conduct, substantially all of its business in the PRC, and its financial performance and condition is measured in terms of Renminbi. The revenues and profits of the Company’s subsidiaries are predominantly denominated in Renminbi, and will have to be converted to pay dividends to the Company’s shareholders in United States Dollars. Should the Renminbi devalue against these currencies, such devaluation would have a material adverse effect on the Company's profits and the foreign currency equivalent of such profits repatriated by the subsidiaries to the Company. The Company currently is not able to hedge its exchange rate exposure in the PRC because neither the banks in the PRC nor any other financial institution authorized to engage in foreign exchange transactions offer forward exchange contracts.
LEGAL ENVIRONMENT
Since 1979, many laws and regulations dealing with economic matters in general and foreign investment in particular have been enacted in the PRC. However, the PRC still does not have a comprehensive system of laws and enforcement of existing laws may be uncertain and sporadic.
Item 2.
Item 2. Properties
PLANTS
The Company owns three manufacturing facilities. The Company’s headquarters is located in Yangling, which is only 82 km away from Xi’an, one of the biggest cities in China. Daiying has a GMP-compliant manufacturing facility which is one of the few GMP-compliant facilities for both biological and pharmaceutical products in China. The Company’s research center and manufacturing plant is in Shaanxi province. The Company acquired 35,940 m2 of land in the Yangling Agricultural Hi-tech Industrial Demonstration Zone in China. Yangling Daiying has already constructed a 5,359 m2 GMP standard facility. The overall production facility meets the cleanness standard of 10,000-grade GMP compliance, and it includes a production facility for HCV particles and antigens, a biological kits facility, and a fully-equipped factory for producing Traditional Chinese Medicine (TCM) and Western solid medicines. The other two manufacturing facilities are Hua Yang and Ze An, which are located Hunan province. The two facilities have over 58,640 m2 of land with GMP certified production area 13,000 m2.
EQUIPMENT
The manufacturing plants are designed based on Chinese GMP requirements. High class facilities are selected for the establishment of the manufacturing workshop.
Item 3.
Item 3. Legal Proceedings
We know of no material, active or pending legal proceedings against us, our subsidiaries or our property, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholders are an adverse party or have a material interest adverse to us.
Item 4.
Item 4. (Removed and Reserved).
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock is currently quoted on a limited basis on the OTCQB tier of OTC Markets Group inter-dealer quotation and trading system under the symbol “WWBP.” The Company’s common stock consists of 90,000,000 shares authorized, par value $.001 per share, of which, as of December 31, 2010, there are 53,915,653 shares issued and outstanding. According to the Company’s Restated Certificate of Incorporation, shareholders are not entitled to preemptive rights nor are they entitled to cumulative rights. The common stock started trading under the symbol SCII on August 20, 2003, the effective date of the 1-100 reverse stock split. The following is the high and low prices of our stock for the last eight quarters.
The following table sets forth the range of bid prices of our common stock as quoted on the OTCQB during the periods indicated. The prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions.
Our common shares are issued in registered form. American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038, is the registrar and transfer agent for our common stock.
From January 1 to March 24, 2011, the highest and lowest prices of our common shares on the OTCQB were $0.009 per share and $0.006 per share. On March 24, 201, the closing price of our common stock on the OTCQB on the last day it traded before the filing of this Annual Report was $0.006 per share.
As of March 30, 2011, there were approximately 126 shareholders of record of the Company’s common stock, which does not include shareholders who own our shares in so-called “street name.”
Dividends
We have not paid dividends on our shares of common stock, and do not intend to pay dividends in the foreseeable future. We intend to retain earnings, if any, to finance development and expansion of our business. Payment of dividends in the future will depend among other things, upon our ability to generate earnings, our need for capital, and our overall financial condition.
Equity Compensation Plans
The Company filed a Form S-8 with the Commission on May 20, 2005 wherein it registered 5,000,000 shares to be issued under a Non-Qualified Employee Stock Compensation Plan. (“Plan”) Employees, directors, officers, consultants, advisors and other persons associated with the issuer are entitled to be issued shares for bona fide services rendered to the Company pursuant to the Plan. As of the year ended December 31, 2010, 2,000,000 shares have been issued to employees and 3,000,000 shares have been issued to consultants.
Recent Sales of Unregistered Securities
We have not made any previously unreported sales of unregistered securities from January 1, 2010 to December 31, 2010.
Purchases of Equity Securities by Issuer and Affiliated Purchasers
We have not repurchased any of our common stock and have no publicly announced repurchase plans or programs as of December 31, 2010.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following discussion of our financial condition and results of our operations should be read in conjunction with the Financial Statements and Notes thereto. Our fiscal year ends December 31. This document contains certain forward-looking statements including, among others, anticipated trends in our financial condition and results of operations and our business strategy. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include (i) changes in external factors or in our internal budgeting process which might impact trends in our results of operations; (ii) unanticipated working capital or other cash requirements; (iii) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate; and (iv) various competitive market factors that may prevent us from competing successfully in the marketplace.
OVERVIEW OF OUR BUSINESS
The Company was incorporated in Delaware and was founded in 1961. On Dec. 16, 2004, through a Reorganization Agreement, the Company reorganized with Yangling Daiying Biotech & Pharmaceutical Group Co., Ltd. (“Daiying”), located at Yangling High-tech Agricultural Demonstration Zone, P.R. China. The Company operates its business mainly through its wholly subsidiary, Daiying and its subsidiaries in P.R. China. The Company focuses on research & develop, manufacture and distribution of in vitro diagnostics, human vaccine, biomedicines, traditional Chinese medicines, synthetic medicines and medical devices with frontier technologies and great potentials.
Summary of research
As a biotech-focused company, we have made significant progress on our HCV research pipelines. We were able to successfully set up the in vitro intact HCV virus culturing system which could continuously replicate the HCV virus in vitro and we are the first entity in the world to break this bottle neck in the HCV research field. We made some progress on the improving of sensitivity and specificity on HCV diagnostic reagents in 2007. We screened four Chinese traditional medicines using high-throughput anti-HCV medicine screening system and got some primary data. The data will be verified by further test. We expect to get one or two new anti- HCV leads in next years if we could raise enough capital funding for our research. We optimized large-quantity purification methods for replication-deficient HCV virus and setting up ideal animal models for efficacy and safety studies of HCV human vaccine in 2007. We will actively seek new collaboration opportunities and promising research projects. The progress on our research projects depend on our ability to raise enough funding in the following year.
RESULTS OF OPERATIONS
The following table shows the financial data of the consolidated statements of operations of the Company and its subsidiaries for the years ended December 2010 and 2009. The data should be read in conjunction with the audited consolidated financial statements of the Company and related notes thereto.
Fiscal Year Ended December 31, 2010 compared to year ended December 31, 2009
REVENUES
For the year ended December 31, 2010, our revenues were $12,804, as compared to $60,480 for the year ended December 31, 2009, a decrease of $47,676 in revenue. We attribute this decrease in net revenues to a decline in sales due to lower demand of the Company’s products in the market.
OPERATING EXPENSES
For the year ended December 31, 2010, the selling, general and administrative expenses amounted to $701,676 as compared to the selling, general and administrative expenses of $664,178 for the year ended December 31, 2009. Gross profit for the year ended December 31, 2010 was $(124,877), as compared to $(142,433) for the year ended December 31, 2009.
The changes in operating expenses include:
· For the year ended December 31, 2010, we incurred selling expense of $182,869 compared to $101,189 for the year ended December 31, 2009. The increase was due more expenditure in sales center in Beijing for marketing.
· For the year ended December 31, 2010, we incurred research and development expense of $13,862 compared to $31,303 for the year ended December 31, 2009, a decrease of $17,441 or 55.7%. The decrease was attributable to decreased testing and experiments in new product development, specifically drug screening.
· For the year ended December 31, 2010, we incurred professional fees of $35,320 as compared to $112,562 for the year ended December 31, 2009, a decrease of $79,942, or 20%. The decrease was due to over accrual of professional fees in 2009.
· For the year ended December 31, 2010, general and administrative expenses were $470,425 as compared to $419,124 for the year ended December 31, 2009, an increase of $51,301, or approximately 12.2%. The increase in administrative expenses in 2010 was attributable to the Company’s larger expenditures on resources and operational activities.
For the year ended December 31, 2010, interest expense was $487,464 as compared to $476,575 for the year ended December 31, 2009. For the year ended December 31, 2010, other expense was $628 as compared to other income of $19,635 for the year ended December 31, 2009. For the year ended December 31, 2010, other expense (income)-related parties was $(131,768) as compared to $(45,169) for the year ended December 31, 2009. The increase is due to more other income from sales and processing of “Emergency Haemostatic Patch” for related parties.
As a result of these factors, the Company reported a net loss of $1,426,238 or $0.02 per share for the year ended December 31, 2010, as compared to a net loss of $1,460,932 or $0.02 per share for the same period in 2009.
INCOME TAXES
Worldwide is registered in the State of Delaware and is subject to United States of America tax law. Worldwide did not have any assessable income for the years ended December 31, 2010 and 2009 and made no provision for income taxes in the United States.
The Company conducts all of its business through its PRC subsidiaries namely Shaanxi Allied, Daiying, Shaanxi and Hua Yang. All of the Company’s PRC subsidiaries are subjected to PRC’s Enterprise Income Tax governed by the Income Tax Law of the People’s Republic of China (the “PRC Income Tax Law”). Under the PRC Income Tax Law, Shaanxi Allied, as a foreign investment enterprises is exempted from income tax for two years from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by a 50% exemption of income tax for the immediate next three 3 calendar years (“tax holiday”). Shaanxi Allied did not have any taxable income for the years ended December 31, 2001 and 2009 and no provision for income taxes has been made. Daiying is located in Yangling High Tech Zone approved by the relevant PRC tax bureau whereas Daiying is entitled to a preferential tax rate of 15%. The statutory income tax rate for Daiying for relevant periods is 15% prior to December 31, 2007 and 25% as of January 1, 2008 and forward. Shaanxi Daiying Medicine Distribution Company and Hua Yang, which are local PRC companies are generally subjected to a statutory income tax rate of 33%. The statutory income tax rate for Shaanxi and Hua Yang for relevant periods is 33% prior to December 31, 2007 and 25% as of January 1, 2008 and forward.
The Company accounts for income taxes pursuant to the standard, “Accounting for Income Taxes,” codified with ASC 740 which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2010, we had cash and cash equivalent of $35,036.
Net cash used in operating activities for the year ended December 31, 2010 was $540,618 as compared to net cash used in operating activities of $241,714 for the year ended December 31, 2009. For the year ended December 31, 2010, we used cash to fund our loss of $1,426,238 and to fund such as accounts receivable of $3,184, inventories of $107,639, prepayment and other receivables of $12,969, accounts payable of $19,309, other current liabilities of 214,897 and offset by non-cash items such as depreciation and amortization of $426,959, and imputed interest for due to related parties of $133,269. For the year ended December 31, 2009, we used cash to fund our loss of $1,460,932 and to fund such as accounts receivable of $24,375, inventories of $12,922, prepayments and other receivables, of $25,170, accounts payable of $19,309, other current liabilities of 627,938, and offset by non-cash items such as depreciation and amortization of $433,469 and imputed interest for due to related parties of $169,969.
Net cash used in investing activities for the year ended December 31, 2010 was $9,947 as compared to net cash used in investing activities for the year ended December 31, 2009 of $37,050. We attribute this decrease to the fact that the company’s investment in fixed assets for new products has been substantially completed, and no further significant expansion of investment is needed.
Net cash generated from financing activities for the year ended December 31, 2010 was $62,861 as compared to net cash provided by financing activities of $629,009 for the year ended December 31, 2009. For the year ended December 31, 2010, the Company received $70,249 from stockholders/officers, offset by repayment of note payable to stockholder, $7,388. For the year ended December 31, 2009, the Company received $665,606 from stockholders/officers, offset by repayment of note payable to stockholder, $36,597.
The Company currently has no material commitments for capital expenditures.
Efforts to improve the Company’s financial results
The Company has incurred losses over the past years. Management is making every effort and continues to implement changes designed to significantly improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives and growth strategies, including:
(a) Improve capital conditions
Taking steps to improve the capital conditions, including increasing our bank loan and attracting new investment.
(b) Expand the market for our products by increasing marketing activities and sales
Manufacturing some drugs that we did not make before, increasing marketing activities and instituting polices to motivate salespersons to increase sales.
(c) Strengthen internal controls
Taking steps to strengthen internal controls aimed at bringing down production costs and various expenses.
(d) Continue our cooperation with Yangling Daiying Biotech Institute
Continue cooperation with Yangling Daiying Biotech Institute on the manufacturing and sale of its SFDA-approved product Emergency Haemostatic Patch, as well as increasing other incomes.
Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations through December 31, 2010.
Critical Accounting Policies
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our businesses operate in environments where we pay a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
VALUATION OF LONG-LIVED ASSETS
We review our long-lived assets for impairment, including property, plant and equipment, and identifiable intangibles with definite lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of our long-lived assets, we evaluate the probability that future undiscounted net cash flows will be greater than the carrying amount of our assets. Impairment is measured based on the difference between the carrying amount of our assets and their estimated fair value.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience credit loss rates similar to those we have experienced in the past. Measurement of such losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and financial health of specific customers.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. As of December 31, 2009, substantially all of the Company's cash and cash equivalents were held by major financial institutions located in the PRC, none of which are insured. However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.
Item 8.
Item 8. Financial Statements and Supplementary Data
WORLDWIDE BIOTECH & PHARMACEUTICAL COMPANY AND SUBSIDIARIES
December 31, 2010 and 2009
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Worldwide Biotech & Pharmaceutical Company
We have audited the accompanying consolidated balance sheet of Worldwide Biotech & Pharmaceutical Company as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive income (loss), and cash flows for each of the years in the two-year period ended December 31, 2010. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Worldwide Biotech & Pharmaceutical Company as of December 31, 2010 and 2009, and the results of operations and cash flows for each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to consolidated financial statements, the Company has incurred accumulated deficit of $15,785,696 and $14,645,196 as of December 31, 2010 and 2009, respectively that include losses of $1,426,238 and $1,460,932 for the years ended December 31, 2010 and 2009, respectively. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 3. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Yichien Yeh, CPA
Oakland Gardens
March 21, 2011
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
WORLDWIDE BIOTECH & PHARMACEUTICAL COMPANY
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 1 - ORGANIZATION AND OPERATIONS
Worldwide Biotech & Pharmaceutical Company, (“Worldwide” or the “Company”) was incorporated in Delaware in 1961. In the fourth quarter of 2005, the Company commenced revenue producing operations.
On April 20, 2004, as amended on August 3, 2004 and effective December 16, 2004, under an Agreement and Plan of Reorganization, the Company issued 33,600,000 shares of its common stock for the acquisition of all of the outstanding capital stock of Yangling Daiying Biological Engineering Co., Ltd. (“Daiying”) with the former shareholders of the Company retaining 1,057,102 or approximately 5% of the outstanding stock. As a result of the ownership interests of the former shareholders of Daiying, for financial accounting purposes, the exchange of stock has been treated as a recapitalization of Worldwide with Daiying deemed the accounting acquirer and Worldwide deemed the accounting acquiree under the purchase method of accounting in accordance with FASB ASC 805 "Business Combinations." Additionally, as part of the Merger, the Company, whose former name was Sun City Industries, Inc., amended its Articles of Incorporation, and changed its name to Worldwide Biotech & Pharmaceutical Company.
Daiying was incorporated on November 26, 2001 in Shaanxi Province, the People's Republic of China (the “PRC”). Its principal business activities are to develop and market viruses/viral vectors, external diagnostic reagents, prophylactic vaccines for humans, and oral solid dosage forms of traditional Chinese medicine products.
On March 7, 2005, Daiying formed Shaanxi Daiying Medicine Distribution Co., Ltd. (“Shaanxi”) with a stockholder of the Company, in which Daiying holds a 90% interest. The stockholder's contribution for its 10% interest was Renminbi (“RMB”) 500,000 (equivalent to $61,956 at December 31, 2005), which has been reduced by its proportional share of Shaanxi's loss from inception-to-date. Shaanxi's principal business activities are trading of medicine products.
On July 26, 2005, Glory Dragon Investments Ltd. (“Glory Dragon”), an international business company, was formed in the British Virgin Islands by the Company. Glory Dragon then established a wholly-owned foreign investment company in the People's Republic of China known as Shaanxi Allied Shine International Investment Management Consulting Ltd. (“Shaanxi Allied”) on December 27, 2005. Worldwide transferred all of its shares in Daiying to Shaanxi Allied on December 27, 2005.
On January 19, 2006, Worldwide by and through its wholly owned subsidiary, Daiying, entered into a Reorganization Agreement with Hunan Hua Yang Pharmaceutical Co. Ltd. (“Hua Yang”) and its shareholders. Pursuant to this agreement, the Company issued 482,800 shares of its common stock to the shareholders of Hua Yang to acquire 51%. Hua Yang, incorporated on June 22, 1999 in Hunan Province, China, engages in developing, manufacturing and marketing synthetic chemical medicine, antibiotics, immune vaccine and nutrient supplements.
Also on January 19, 2006, Daiying entered into a Reorganization Agreement with Hunan Ze An Pharmaceutical Co. Ltd. (“Ze An”) and its shareholders. Daiying paid RMB3,400,000 (equivalent to US$424,115 at March 31, 2006) and 217,600 shares of common stock of Worldwide for 65% of Ze An. Ze An was incorporated in February 2000 in Hunan Province, China, and engages in developing, manufacturing and marketing essential traditional Chinese medicine, organic herbal medicine, and neutraceutical products.
On December 18, 2006, Daiying, Mr. Aibin Chen and Mr. Zuobin Li, minority shareholders of Ze An and Hua Yang, entered into a Consolidation and Reorganization Agreement (“Consolidation”). Pursuant to the Consolidation, Ze An merged into Hua Yang with Hua Yang assuming all assets and liabilities of Ze An and Hua Yang continuing as the surviving entity. In addition, as part of the Consolidation, Daiying acquired an additional 15% equity interest in Ze An for a note payable to Mr. Zhongyu Lu, a former shareholder of Ze An, of RMB 1,351,200 (equivalent to $172,954 at December 31, 2006). The note included the principal of RMB1.2 million (equivalent to $153,600 at December 31, 2006) and accrued interest of RMB151,200 (equivalent to $19,354 at December 31, 2006) based on an interest rate of 6.3% per annum with both principal and interest due December 4, 2007; the note is currently passed due. The Company owns a 67.3486% equity interest of Hua Yang subsequent to the consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements include all the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant inter-company balances and transactions have been eliminated. The results of operations for Hua Yang have been included in the Consolidated Statements of Operations and Comprehensive Loss since the date of acquisition.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.
Use of estimates
In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates. The Company regularly evaluates estimates and assumptions related to obsolete inventory, useful life and recoverability of long lived assets, and goodwill. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less. Cash deposits with banks are held in financial institutions in China, which has no federally insured deposit protection. Accordingly, the Company has a concentration of credit risk related to these uninsured deposits.
Marketable securities
Marketable securities, available-for-sale, securities consisted of investments in the equity of publicly traded companies in China and are stated at market value based on the most recently traded price of these securities. Unrealized gains and losses, determined by the difference between historical purchase price and the market value at each balance sheet date, are recorded as a component of Accumulated other comprehensive income in stockholders’ equity. Realized gains and losses are determined by the difference between historical purchase price and gross proceeds received when the marketable securities are sold.
Trade accounts receivable
Trade accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense is included in general and administrative expenses, if any.
Outstanding account balances are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure to its customers.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average cost method. Costs include direct material, direct labor and applicable manufacturing overhead. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if market value is below cost. Management also regularly evaluates the composition of the Company’s inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives ranging from five (5) years to 20 years. Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations. Leasehold improvements, if any, are amortized on a straight-line basis over the lease period or the estimated useful life, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts. Construction in progress includes direct costs of construction of factory building. Interest incurred during the period of construction has not been capitalized as such amounts are considered to be immaterial at this time. Construction in progress is not depreciated until such time as the assets are completed and put into operational use.
Land use rights
Land use rights represent the cost to obtain the right to use land in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the lives of the right ranging from 40 to 50 years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Licenses
The Company has adopted the guidelines as set out in the standard, “Goodwill and Other Intangible Assets,” codified with ASC 350, for the licenses. Under the requirements as set out in SFAS No. 142, the Company amortizes the costs of acquired licenses over their remaining legal lives or the term of the contract, whichever is shorter. Licenses are stated at cost less accumulated amortization and accumulated impairment losses, if any. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Impairment of long-lived assets
The Company follows the standard, “Accounting for the Impairment or Disposal of Long-Lived Assets,” codified with ASC 360, for its long-lived assets. The Company's long-lived assets, which include property, plant and equipment, land use rights and licenses are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset's expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company determined that there were no impairments of long-lived assets for the years ended December 31, 2010 and 2009.
Segment information
The standard, “Disclosures about Segments of an Enterprise and Related Information,” codified with ASC 280, requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. The Company believes that it operates in one business segment (research, development, production, marketing and sales of auto electronic products) and in one geographical segment (China), as all of the Company’s current operations are carried out in China.
Revenue recognition
The Company follows the guidance of the standard, “Revenue Recognition,” codified with ASC 605, for revenue recognition. The Company revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred and the title and risk of loss transfer to the buyer, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Persuasive evidence of an arrangement is demonstrated via invoice to the customer; product delivery is evidenced by the warehouse shipping log as well as a signed bill of lading from the trucking company and no product return is allowed except for defective or damaged products; the sales price to the customer is fixed upon acceptance of the purchase order; and there are no separate sales rebates, discounts, or volume incentives. The Company manufactures and distributes traditional Chinese medicine, including drink tablets, synthetic medicine, antibiotics, biotech medicine and biotech reagents; wholesale Class II medical devices, Class III medical devices, including but not limited to, medical sewing materials and bond, medical high molecular materials and products, and disposable sterile medical devices. The majority of the Company's revenue derives from sales contracts with distributors. The Company sells certain products to certain customers on a consignment basis. The Company records revenue for consignment transactions when the consignee sells the product to the end users.
Stock based compensation
Effective January 1, 2006, the Company adopted the fair value recognition provisions of the standard, “Share-Based Payment,” codified with ASC 718, using the modified prospective method. On January 12, 2007, the Company issued 1,400,000 shares of its common stock to three employees pursuant to the 2005 Non-Qualified Stock Compensation Plan (see Note 15(i)). The Company valued the shares at $0.15 per share, the closing price of the Company's common stock on the date of issuance and charged $210,000 to stock based compensation. The Company did not issue any stock options or warrants to any employees, directors, officers or third parties since January 1, 2006.
Research and development
Research and development costs are charged to expense as incurred. Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment and material costs for research and development.
Government grants
Receipts of government grants to encourage research and development activities which are non-refundable are credited to deferred income upon receipt. The Company recognizes government grants income when the government completes inspection on regulated use of the subsidy. There was no government grants income recognized for the years ended December 31, 2010 or 2009. As of December 31 2010 and 2009, government grants of $378,655 and $366,192, respectively, which were recorded as deferred income.
Shipping and handling costs
The Company accounts for shipping and handling fees in accordance with the standard, “Accounting for Shipping and Handling Fees and Costs,” codified with ASC 605. While amounts charged to customers for shipping product are included in revenues, the related costs are classified in cost of goods sold as incurred.
Income taxes
The Company follows the standard, “Accounting for Income Taxes,” codified with ASC 740, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations and Comprehensive Income in the period that includes the enactment date.
Fair value of financial instruments
The Company adopted the standard “Fair Value Measurements,” codified with ASC 820 and effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.
ASC 820 clarifies that fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Under ASC 820, fair value measurements are not adjusted for transaction cost. ASC 820 provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:
Level 1:
Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2:
Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.
Level 3:
Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.
An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.
Foreign currency translation
Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with the standard, “Foreign Currency Translation,” codified with ASC 830.
The financial records of the Company are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency. Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the combined and consolidated financial statements. Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders' equity.
RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People's Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into United States dollars (“US$”) has been made at the following exchange rates for the respective years:
December 31, 2010
Balance sheet RMB 6.6023 to US$1.00
Statement of operations and comprehensive income (loss) RMB 6.7682to US$1.00
December 31, 2009
Balance sheet RMB 6.8270 to US$1.00
Statement of operations and comprehensive income (loss) RMB 6.8311 to US$1.00
Commencing July 21, 2005, China adopted a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. The exchange rate of the US dollar against the RMB was adjusted from approximately RMB 8.2765 per US dollar to approximately RMB 8.11 per US dollar on July 21, 2005. Since then, the PBOC administers and regulates the exchange rate of the US dollar against the RMB taking into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.
Net gains and losses resulting from foreign exchange transactions, if any, are included in the Consolidated Statements of Operations and Comprehensive loss. The foreign currency translation gain (loss) for the years ended December 31, 2010 and 2009 were ($70,244) and $38,897, respectively and effect of exchange rate changes on cash flows for the years ended were ($72,738) and $55,194, respectively.
Related parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
Comprehensive income (loss)
The Company has adopted the standard, “Reporting Comprehensive Income” codified with ASC 220. This statement establishes rules for the reporting of comprehensive income (loss) and its components. Comprehensive income (loss), for the Company, consists of net loss and foreign currency translation adjustments and is presented in the Consolidated Statements of Operations and Comprehensive Income (loss) and Stockholders' Equity.
Net loss per common share
Net loss per common share is computed pursuant to the standard, “Earnings Per Share,” codified with ASC 260. Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of December 31, 2010 or 2009.
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Recently Accounting Pronouncements
In June 2009, the FASB issued a new standard regarding the accounting for transfers of financial assets amending the existing guidance on transfers of financial assets to, among other things, eliminate the qualifying special-purpose entity concept, include a new unit of account definition that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarify and change the derecognition criteria for a transfer to be accounted for as a sale, and require significant additional disclosure. For the Company, this standard is effective for new transfers of financial assets beginning January 1, 2010. Because the Company historically does not have significant transfers of financial assets, the adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
In June 2009, the FASB issued a new standard that revises the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities, a new approach for determining who should consolidate a variable-interest entity, and changes to when it is necessary to reassess who should consolidate a variable-interest entity. For the Company, this standard was effective January 1, 2010. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.
In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues Task Force,” that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding the application of the multiple-deliverable revenue arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. For the Company, ASU No. 2009-13 is effective beginning January 1, 2011. The Company may elect to adopt the provisions prospectively to new or materially modified arrangements beginning on the effective date or retrospectively for all periods presented. The Company is currently evaluating the impact of this standard on its Company’s consolidated results of operations and financial condition.
In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements-a consensus of the FASB Emerging Issues Task Force,” that reduces the types of transactions that fall within the current scope of software revenue recognition guidance. Existing software revenue recognition guidance requires that its provisions be applied to an entire arrangement when the sale of any products or services containing or utilizing software is considered more than incidental to the product or service. As a result of the amendments included in ASU No. 2009-14, many tangible products and services that rely on software will be accounted for under the multiple-element arrangements revenue recognition guidance rather than under the software revenue recognition guidance. Under the ASU, the following components would be excluded from the scope of software revenue recognition guidance: the tangible element of the product, software products bundled with tangible products where the software components and non-software components function together to deliver the product’s essential functionality, and undelivered components that relate to software that is essential to the tangible product’s functionality. The ASU also provides guidance on how to allocate transaction consideration when an arrangement contains both deliverables within the scope of software revenue guidance (software deliverables) and deliverables not within the scope of that guidance (non-software deliverables). For the Company, ASU No. 2009-14 is effective beginning January 1, 2011. The Company is currently evaluating the impact of this standard on the its consolidated results of operations and financial condition.
In January 2010, the FASB issued ASU No. 2010-6, “Improving Disclosures About Fair Value Measurements,” that amends existing disclosure requirements under ASC 820 by adding required disclosures about items transferring into and out of Levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. For the Company, this ASU is effective for the first quarter of 2010, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of 2011. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on the Company’s consolidated results of operations or financial condition.
In April 2010, the FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition- a consensus of the FASB Emerging Issues Task Force that recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development arrangements. This standard would require its provisions be met in order for an entity to recognize consideration that is contingent upon achievement of a substantive milestone as revenue in its entirety in the period in which the milestone is achieved. In addition, this ASU would require disclosure of certain information with respect to arrangements that contain milestones. For the Company, this standard would be required prospectively beginning January 1, 2011. The Company is currently evaluating the impact of this standard on 3M’s consolidated results of operations and financial condition.
NOTE 3 - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $15,785,696 and $14,645,196 at December 31, 2010 and 2009, respectively that include losses of $1,426,238 and $1,460,932 for the years ended December 31, 2010 and 2009, respectively. The Company also had a working capital deficiency of $8,196,239 and $7,074,083 at December 31, 2010 and 2009, respectively.
While the Company is attempting to produce sufficient revenues, the Company's cash position may not be enough to support the Company's daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 2010 and 2009 consisted of the following:
For the years ended December 31, 2010 and 2009, the Company recorded bad debt expense of $10,124 and $45,504, respectively.
NOTE 5 - INVENTORIES
Inventories at December 31, 2010 and 2009 consisted of the following:
NOTE 6 - PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets at December 31, 2010 and 2009 consisted of the following:
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment stated at cost, less accumulated depreciation at December 31, 2010 and 2009 consisted of the following:
(a)
Depreciation expense
Depreciation expense for the years ended December 31, 2010 and 2009 was $408,086 and $415,039, respectively.
(b)
Construction in progress
Construction in progress comprised capital expenditures for construction of the Company’s new production line, including machinery and equipment and facility set up charges. Upon completion of the construction, the construction in progress was reclassified as machinery and equipment. The Company did not capitalize any interest expense to construction in progress for the years ended December 31, 2010 or 2009.
NOTE 8 - LAND USE RIGHTS
Land use rights at cost, less accumulated amortization at December 31, 2010 and 2009 consisted of the following:
(a)
Amortization expense
Amortization expense for the years ended December 31, 2010 and 2009 was $18,573 and $18,430, respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS
Due to and notes payable - related parties at December 31, 2009 and 2008 consisted of the following:
The chief executive officer and a stockholder advanced funds to the Company for its working capital. These advances are unsecured, due on demand and non-interest bearing.
Due to Xian Jin Hao Tech bears the interest at 12% per annum. For the years ended December 31, 2010 and 2009, the interest expense was $195,457 and $147,948 respectively.
Note payable to a stockholder is unsecured, payable to a stockholder with interest at 6.3% per annum and due December 4, 2007. The note is currently past due. For the years ended December 31, 2010 and 2009, the interest expense accrued for this note payable was $10,018 and $11,308, respectively.
On March 31, 2007, Xian Jin Hao Sci-Tech Investment Management Co., Ltd. (Xian Jin Hao), a stockholder of the Company converted RMB7.73 million (equivalent to $1 million at the date of conversion) to 10,000,000 shares of the Company’s common stock at $0.10 per share, the closing price of the Company’s common stock on the date of conversion
On September 30, 2007, the Company and Xian Jin Hao, a stockholder of the Company reached an agreement whereby the Company transferred certain property to Xian Jin Hao, with the original cost of RMB3,030,707 and Xian Jin Hao assumed the remaining mortgage of RMB1,087,250 and relieved debt of RMB1,943,457. Upon transfer of the property, the related cost of RMB3,030,707 (equivalent to $41,547 at December 31, 2007), accumulated depreciation of RMB447,032 ($61,283) remaining mortgage of RMB1,087,250 ($149,049) and the payable to Jin Hao of RMB1,943,457 ($266,424) were removed from the accounts with the excess value of the payable and assumed mortgage over the net book value of the transferred property being recorded as a contribution to capital.
Due to related parties do not bear interest and have no definite terms of repayment. For the years ended December 31, 2010 and 2009, the Company imputed interest of $133,269 and $169,969, respectively based on a 5.5% interest rate which approximates the bank lending rate.
In 2009, Daiying Bio-Tech Research Institute entrusted the Company to process “Emergency Haemostatic Patch” of which the patent belongs to Daiying Bio-Tech Research Institute. In the agreement, the Company will receive $0.3 (RMB 2) by processing each patch. The Company will be reimbursed for cost input for the process. However, the Company has to be responsible for the abnormal spoilage. For the year ended December 31, 2009, due to abnormal spoilage, there is loss of $25,097 for processing Emergency Haemostatic Patch.
For raising funds of processing Emergency Haemostatic Patch, Daiying Bio-Tech Research Institute entrusts the Company to apply government grants. The Company is able to get 8% of government grants applied for Emergency Haemostatic Patch as commission. For the year ended December 31, 2009, the company recognized $35,133 other income for providing this service. This income is for government’s grant of $439,168 received in 2007 and government completed inspection on this grant in 2009.
Daiying Bio-Tech Research Institute rents Company’s building and plant for processing Emergency Haemostatic Patch. The lease agreement is valid from 2009 to 2016. The net value of leased building is $1,499,524 and $1,602,739 as of December 31, 2010 and 2009, respectively. For the years ended December 31, 2010 and 2009, other income-rental was 26,595 and $ $35,133, respectively.
In September 2010, Daiying Bio-Tech Research Institute transferred the patent of “Emergency Haemostatic Patch” to Andiyuan Bio-Tech Co, Ltd (Andiyuan), another company controlled by Wenxia, Guo. After transfer of the patent, Andiyuan mostly inherited Daiying Bio-Tech Research Institute’s all agreement related to “Emergency Haemostatic Patch” with the Company including the rental and patch process. The lease agreement between Anidyuan and Company is valid from September 2010 to September 2015. In addition, the Company agrees to sell “Emergency Haemostatic Patch” for Andiyuan. The Company needs to refund RMB125 to Andiyuan for every patch sold.
For the year ended December 31, 2010, there is income of $91,521 for processing and sale of “Emergency Haemostatic Patch.” Rental income from Andiyuan for the year ended December 31, 2010 is $13,652
NOTE 10 - LOAN PAYABLE
Loans payable at December 31, 2010 and 2009 consisted of the following:
Loan payable is collateralized by all of Hua Yang’s equipment, building and land use right, payable to a financial institution, with interest at 6.696% per annum payable monthly, with principal due May 27, 2007. The loan is currently past due. The Company paid interest through May 20, 2007 and interest accrued through December 31, 2010 was included in accrued interest.
NOTE 11 - CURRENT MATURITIES OF NOTE PAYABLE- BANK
Loans payable at December 31, 2010 and 2009 consisted of the following:
Note payable - bank is collateralized by all of Hua Yang’s equipment, building and land use right, and is payable to a financial institution, with interest at 6.696% per annum payable monthly, with RMB5 million (equivalent $667,307) due April 29, 2007 and RMB5 million ($667,308) due April 27, 2008. The note is currently past due for the first principal payment due on April 29, 2007. The Company paid interest through May 20, 2007 and interest accrued through December 31, 2010 was included in accrued interest.
The accrued interest for above Loan Payable and Current Maturities of Note Payable was $616,346 and $452,234 as of December 31, 2010 and December 31, 2009, respectively. Interest expense accrued for above Loan Payable and Current Maturities of Note Payable was $148,720 and $147,350 for the years ended December 31, 2010 and 2009, respectively.
The net value of equipment, building and land use right collateralized for loan payable in Note 10 and note payable in Note 11 is 834,517 as of December 31, 2010, and classified as long-lived assets-held for sale due to Court’s judgment to disposal of collaterals (Note 15).
NOTE 12 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at December 31, 2010 and 2009, consisted of the following:
NOTE 13 - INCOME TAXES
The Company accounts for income taxes pursuant to the standard, “Accounting for Income Taxes,” codified with ASC 740 which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
Prior to January 1, 2008, the Company was governed by the Income Tax Law of the People’s Republic of China concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws (the previous income tax laws and rules). Pursuant to the previous income tax laws and rules, wholly-owned foreign enterprises were subject to tax at a statutory rate of 33% (30% state income tax plus 3% local income tax).
In March 2007, the Chinese government enacted the Corporate Income Tax Law, and promulgated related regulations, which were effective January 1, 2008. The Corporate Income Tax Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises. The previous income tax laws and rules, which stipulated income tax rates for domestic and foreign invested enterprises at different rates, expired upon the effectiveness of the Corporate Income Tax Law.
Due to the Company’s net loss, there was no provision for income taxes. The Company’s effective tax rate for the years ended December 31, 2010 and 2009 was 0% and 0% due to the net loss position in both years.
The Company’s taxes were subject to a full valuation allowance as follows:
The net deferred tax asset generated by the loss carry-forward has been fully reserved.
The tax authority of the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises had completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional tax liabilities.
The Company has no United States corporate income tax liability as of December 31, 2010 and 2009.
NOTE 14 - STATUTORY RESEARVES
Under the Corporation Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following: (i) cumulative prior years' losses, if any; (ii) allocations to the “Statutory Surplus Reserve” of at least 10% of net income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital; (iii) allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's “Statutory Common Welfare Fund,” which is established for the purpose of providing employee facilities and other collective benefits to employees in PRC; and (iv) allocations to any discretionary surplus reserve, if approved by stockholders.
As of December 31, 2010 and 2009, the Company had no Statutory Surplus Reserve and the Statutory Common Welfare Fund established and segregated in retained earnings.
NOTE 15 - CONTINGENCIES, RISKS AND UNCERTAINTIES
Operating Lease Commitment
Future minimum lease rentals to be received on noncancelable leases in the aggregate and for each of the next five fiscal years are as follows
Credit risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. As of December 31, 2010 and 2009, substantially all of the Company's cash and cash equivalents were held by major financial institutions located in the PRC, none of which are insured. However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.
Country risk
Substantially all of the Company's operations are carried out and all of its assets are located in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.
Litigation
The Company is currently named as a defendant in the lawsuit in which the plaintiff alleged default of loan agreement. In July 2010, Court, Changde City, Hunan province, judged to order the Company evaluate and dispose the collaterals and repay the loan with the proceeds. In August 2010, the Company filed an appeal claiming controversy on the content of collaterals described in Court’s judgment. The Company is in the process of evaluating the collaterals and waiting for Court’s response to its appeal.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On February 4, 2010, we engaged Yichien Yeh, CPA (“Yeh”) as our new independent registered public accounting firm. Our Board of Directors recommended, authorized, and approved the decision to dismiss Kempisty & Company as our independent registered public accounting firm and to engage Yeh to serve as our independent registered public accounting firm. We had not consulted with Yeh regarding the application of accounting principles to any contemplated or completed transactions nor the type of audit opinion that might be rendered on our financial statements, and neither written nor oral advice was provided that would be an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issue.
On February 4, 2010, we dismissed Kempisty & Company, Certified Public Accountants, P.C. (“Kempisty & Company”) as our independent registered public accounting firm.
For the year ended December 31, 2008, Kempisty & Company issued an audit report on the our consolidated balance sheet as of December 31, 2008, and the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive income (loss), and cash flows for the year then ended. The report of Kempsity & Company on the foregoing financial statements did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to any uncertainty, audit scope or accounting principles, except for an explanatory paragraph related to our ability to continue as a going concern.
In addition, Kempisty & Company reviewed management’s prepared consolidated financial statements for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009.
During the year ended December 31, 2008 and all subsequent interim periods and through February 4, 2010, (i) there were no disagreements between us and Kempisty & Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Kempisty & Company would have caused Kempisty & Company to make reference to the subject matter of disagreement in connection with its reports on our financial statements, and (ii) there were no reportable events as that term is described in Item 304(a)(1)(iv) of Regulation S-K.
Item 9A.
Item 9A. Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer, Wenxia Guo (“CEO”) and Chief Financial Officer, Peng Wang (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules, regulations and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and (iii) compliance with applicable laws and regulations.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that the Company’s internal control over financial reporting is effective as of December 31, 2010.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this annual report.
Changes in Internal Controls
During the quarter ended December 31, 2010 there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
(i) Loan payable
Loan payable is collateralized by all of Hua Yang’s equipment, building and land use right, payable to a financial institution, with interest at 6.696% per annum payable monthly, with principal due May 27, 2007. The loan is currently past due. The Company paid interest through May 20, 2007 and interest accrued through December 31, 2010 was included in accrued interest.
(ii) Note payable - bank
Note payable - bank is collateralized by all of Hua Yang’s equipment, building and land use right, and is payable to a financial institution, with interest at 6.696% per annum payable monthly, with RMB5 million (equivalent $667,307) due April 29, 2007 and RMB5 million ($667,308) due April 27, 2008. The note is currently past due for the first principal payment due on April 29, 2007. The Company paid interest through May 20, 2007 and interest accrued through December 31, 2010 was included in accrued interest.
The accrued interest for above Loan Payable and Current Maturities of Note Payable was $616,346 and $452,234 as of December 31, 2010 and December 31, 2009, respectively. Interest expense accrued for above Loan Payable and Current Maturities of Note Payable was $148,720 and $147,350 for the years ended December 31, 2010 and 2009, respectively.
The net value of equipment, building and land use right collateralized for loan payable and note payable is 834,517 as of December 31, 2010, and classified as long-lived assets-held for sale due to Court’s judgment to disposal of collaterals.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
The following table sets forth the names, ages and positions of our executive officers and directors as of the date of this filing:
Name
Age
Position
Wenxia Guo
President, CEO and Director
Peng Wang
CFO, Treasurer and Director
Yuan Cheng
Vice President of Operations
Qiang Li
Director
The officers and directors shall serve until replaced by a vote of the majority of the shareholders. Officers shall serve until removed by the directors.
Background of Directors and Officers
Ms. Wenxia Guo, President, CEO and Director. Winner of “National Labor Medal.” Ms. Guo is a law major graduate from the Education Institute of Xi’an Jiao-Tong University. Since 1990, she has set up five pharmaceutical companies successfully and made great achievement on medicine production, distribution, management and development. She has almost 20 years of business experience. She has connections with the Singapore Pharmaceutical Commerce Committee, Hong Kong Commerce Committee and similar committees in other south-east Asian countries. All of this background provides a solid basis for international business development. She currently holds many important organization positions, such as Director of Project Review Department of Chinese Primary Healthcare Foundation, member of the Financial and Economic Committee of Chinese Peasants and Workers Democratic Party, member of Shaaxi Provincial Committee of the Chinese People’s Political Consultative Conference, Standing Member of Industrial and Commercial Union of Shaanxi Province, Vice Chairman of Committee of Yangling Demonstration Zone of the Chinese People’s Political Consultative Conference, Vice Chairman of Medical & Pharmaceutical Union of Shaaxi Province, Vice Chairman, Woman’s Union of Yangling Demonstration Zone. In 1999, she successfully founded Yangling Daiying Biotech & Pharmaceutical Group Co., Ltd. The successful development of new HCV products helped the Company transition from a development-stage company to a comprehensive pharmaceutical company with research, production and distributions of biomedical products. In August 2003, Ms. Guo was awarded with “National Best Professional Woman” and Hu Jintao, the President of China, gave her the medal in person.
Mr. Peng Wang, CFO, Treasurer and Director. Mr. Wang, a graduate from Xi’an University of Finance and Economics, has worked for over 23 years in finance as a Certified Public Accountant. Prior to Mr. Wang’s appointment as the Registrant’s Chief Financial Officer and Treasurer, he served as a financial officer in governmental organizations from 1977 to 1995 and as the Chief Financial Officer of Shaanxi Yuqi Functional Product Factory from 1995 to 2000.
Mr. Yuan Cheng, VP of Operations. Mr. Cheng graduated in 1993 from Xi’An Medical College with a Bachelors Degree in pharmacy. Following his graduation through 1996, Mr. Cheng worked in the quality control department of Xi’An Medical Company. From 1996 to 2002, Mr. Cheng was the head of the production and research and development departments of Nanjing Meirui Pharmaceutical Co., Ltd. Mr. Cheng attended Tianjin University from 2002 to 2006, where he was awarded a Masters Degree in pharmaceutical engineering. After receiving his Masters Degree, Mr. Cheng worked Shaanxi Haoqijun Pharmaecutical Co., Ltd. until his appointment on February 24, 2010 as Vice President of Operations of Yangling Daiying Biotech & Pharmaceutial Group Co., Ltd., one of our subsidiaries.
Mr. Qiang Li, Director. Mr. Qiang Li has 14 years of experience working extensively in medicine and publishing. For the two years immediately following Mr. Li’s graduation from Ruicang Health School of Jiangxi Province in 1994, he worked in Medicare services in the Nancang Taohua Hospital in Jiangxi Province. From 1996 to 2004, Mr. Li was the chief editor at the Guangdong Branch of the Xinhua News Agency. Since 2004, Mr. Li has been working for Shaanxi Daiying Medicine Distribution Co., Ltd., one of our subsidiaries.
Family Relationships
There are no familial relationships between our officers and directors.
Meetings of Our Board of Directors
The Registrant’s Board of Directors held four meetings during the fiscal year ended December 31, 2010.
The Registrant’s Board of Directors held four meetings during the fiscal year ended December 31, 2009.
Board Committees
Audit Committee. The Company intends to establish an audit committee of the board of directors, which will consist of soon-to-be-nominated independent directors. The audit committee’s duties would be to recommend to the Company’s Board of Directors the engagement of independent auditors to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee would at all times be composed exclusively of directors who are, in the opinion of the Company’s Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Compensation Committee. The Company intends to establish a compensation committee of the Board of Directors. The compensation committee would review and approve the Company’s salary and benefits policies, including compensation of executive officers.
Director Compensation
We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. The Board of Directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director.
Limitation of Liability of Directors
The laws of the State of Delaware and the Company's By-laws provide for indemnification of the Company's directors for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful.
The Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Significant Employees
Other than the directors and officer described above, we do not expect any other individuals to make a significant contribution to our business.
Involvement in Legal Proceedings
None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:
Ÿ
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
Ÿ
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
Ÿ
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
Ÿ
being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Code of Ethics
The Company has adopted a code of ethics for all of the employees, directors and officers, a copy of which is included as Exhibit 14.1 to our Form 8-K filed on July 7, 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and the Company is required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 31, 2010. The Company believes that all of these filing requirements were satisfied by its executive officers, directors and by the beneficial owners of more than 10% of the Company’s common stock. In making this statement, the Company has relied solely on copies of any reporting forms received by it, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission.
Item 11.
Item 11. Executive Compensation
Compensation Discussion and Analysis
We maintain a peer-based executive compensation program comprised of fixed and performance variable elements. The design and operation of the program reflect the following objectives:
-
Recruiting and retaining talented leadership.
-
Implementing measurable performance targets.
-
Correlating compensation directly with shareowner value.
-
Emphasizing performance based compensation, progressively weighted with seniority level.
-
Adherence to high ethical, safety and leadership standards.
Designing a Competitive Compensation Package
Recruitment and retention of leadership to manage our Company requires a competitive compensation package. Our Board of Directors emphasizes (i) fixed compensation elements of base salary that compare with our compensation peer group of companies, and (ii) variable compensation contingent on above-target performance. The compensation peer group consists of those companies in the Guangdong region that we deem to compete with our Company for executive talent. Individual compensation will vary depending on factors such as performance, job scope, abilities, tenure, and retention risk.
Fixed Compensation
The principal element of fixed compensation not directly linked to performance targets is based salary. We target the value of fixed compensation generally at the median of our compensation peer group to facilitate a competitive recruitment and retention strategy.
Incentive Compensation
Our incentive compensation programs are linked directly to earnings growth, cash flow, and total shareowner return. Annual bonuses are tied to the current year’s performance of our company. Restrictive stock awards are tied to an individual’s success in exceeding targeted results set by management.
The following table sets forth all compensation awarded to, earned by, or paid for all services rendered to the Company during the fiscal years 2010, 2009 and 2008 by those persons who served as Chief Executive Officer and Chief Financial Officer, and any Named Executive Officer who received compensation in excess of US$100,000 during such years.
SUMMARY COMPENSATION TABLE
The above amounts are reflected in U.S. Dollars.
Option Grants in Last Fiscal Year
During the fiscal year ending December 31, 2010, no executive officer or director was granted options to purchase shares of common stock.
During the fiscal year ending December 31, 2010, no executive officer or director exercised any options to purchase shares of common stock, and as of December 31, 2008, no executive, officer or director possessed any options to purchase shares of common stock.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
Employment Agreements
Our executives do not have the typical employment agreements that specify compensation or length of employment. These matters are left to the discretion of the Board of Directors and the employee. At present, there are no employment contracts with any of our executives.
Equity Compensation Plan
The Company currently does not have any equity compensation plans.
Compensation Committee
We currently do not have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.
Compensation of Directors
We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. The Board of Directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director.
Change of Control
As of December 31, 2010, we had no pension plans or compensatory plans or other arrangements which provide compensation on the event of termination of employment or change in control of us.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information concerning the number of shares of our common stock beneficially owned as of March 30, 2011 by: (i) each of our directors, (ii) each of our named executive officers and (iii) owners of 5% or more of our common shares. There was no other person or group known by us to beneficially own more than 5% of our outstanding shares of common stock. The Company believes that unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares beneficially owned.
(1) Except as otherwise indicated, the shares are owned of record and beneficially by the persons named in the table.
(2) Based on 53,915,653 shares of common stock issued and outstanding.
Item 13.
Item 13. Certain Relationships, Related Transactions and Director Independence
None.
Director Independence
Our securities are quoted on the OTCQB tier of the OTC Markets Group inter-dealer quotation and trading system, which does not have any director independence requirements. Once we engage further directors and officers, we will develop a definition of independence and scrutinize our Board of Directors with regard to this definition.
Item 14.
Item 14. Principal Accounting Fees and Services
Fees Billed For Audit and Non-Audit Services
The following table represents the aggregate fees billed for professional audit services rendered by the accounting firms of Kempisty & Company, Certified Public Accountants, P.C., and Yichien Yeh, CPA, our current independent auditor, and all fees billed for other services rendered by the said firms during those periods.
(1)
Audit Fee. These are fees for professional services for the audit of the Company's annual financial statements, and for the review of the financial statements included in the Company's filings on Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements.
(2)
Audit-Related Fee. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of the Company's financial statements.
(3)
Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.
(4)
All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) (1) Financial Statements
See “Index to Consolidated Financial Statements” set forth on page 18.
(a) (2) Financial Statement Schedules
None. The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.
(a) (3) Exhibits
*
Filed herewith.
(1)
Included as an exhibit to our Form 8-K filed with the Commission on August 8, 2003.
(2)
Incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007.
(3)
Incorporated by reference to Exhibit 14.1 of our Form 8-K filed on July 7, 2004.
(4)
Incorporated by reference to Exhibit 16.1 of our Form 8-K filed on June 27, 2008.
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.