The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and the selling stockholders are not soliciting offers to buy these securities, in any state where the offer or sale of these securities is not permitted.

 

Subject to completion dated December 14, 2009

 

PROSPECTUS

 

 3,169,212 shares of common stock

 

CHINA MEDICINE CORPORATION

 

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This prospectus relates to the resale, from time to time, of up to 3,169,212 shares of our common stock by the stockholders referred to throughout this prospectus as “selling stockholders.”  Of the total number of shares of our common stock offered in this prospectus, 199,474 shares are issuable upon the exercise of Series A common stock purchase warrants issued on February 8, 2006 which have an exercise price of $1.70 per share and 2,969,738 shares are issuable upon the exercise of Series B common stock purchase warrants issued on February 8, 2006 which have an exercise price of $2.43 per share.  The Series A and Series B common stock purchase warrants both expire on February 7, 2011.

 

The selling stockholders may offer all or part of their shares for resale from time to time through public or private transactions, either at prevailing market prices or at privately negotiated prices. We will not receive any of the proceeds from sales of the shares by the selling stockholders.  However, if the warrants are exercised for cash, we will receive the aggregate exercise price for those warrants.  The terms of the warrants require the holder to exercise for cash so long as there is an effective registration statement covering the shares issuable thereunder.

We will pay all of the registration expenses incurred in connection with this offering (estimated to be $40,493.39), but the selling stockholders will pay all of the selling commissions, brokerage fees and related expenses. We have agreed to indemnify the selling stockholders against certain liabilities, including liabilities under the Securities Act. 

 

Our common stock is currently quoted on the Financial Industry Regulatory Authority’s OTC Bulletin Board under the symbol “CHME.OB”. As of November 30, 2009, the last reported bid price of our common stock was $2.77 per share and the last reported ask price was $2.81 per share.

 

Investing in our common stock involves a high degree of risk. See the “Risk Factors” beginning on page 5

 

 

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The date of this prospectus is December 14, 2009

 

 

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TABLE OF CONTENTS  

		Page
ABOUT THIS PROSPECTUS		1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS		1
PROSPECTUS SUMMARY		2
RISK FACTORS		5
USE OF PROCEEDS		5
SELLING STOCKHOLDERS		6
PLAN OF DISTRIBUTION		8
DESCRIPTION OF SECURITIES		9
INTERESTS OF NAMED EXPERTS AND COUNSEL		10
LEGAL MATTERS		10
MATERIAL CHANGES		10
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE		10
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES		11
WHERE YOU CAN FIND MORE INFORMATION		11
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS		II-1
SIGNATURES		II-4

 

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ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholders are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER

INFORMATION CONTAINED IN THIS PROSPECTUS

This prospectus contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, and our projected expenses, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans, (e) our anticipated needs for working capital, and (f) potential future expansions and government approvals and other future actions. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plans," “potential," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend" or the negative of, or other variations on, these phrases or comparable terminology. These statements may be found under "Management's Discussion and Analysis of Financial Condition” and "Description of Business," which are incorporated herein by reference to the Company’s Annual Report on Form 10-K, as well as in this prospectus generally.

 

Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the results anticipated in the forward-looking statements contained in this prospectus will in fact occur. You should not place undue reliance on these forward-looking statements.

Currency, exchange rate, and “China” and other references

Unless otherwise noted, all currency figures in this filing are in U.S. dollars. References to "yuan" or "RMB" are to the Chinese yuan (also known as the renminbi).  According to the currency exchange website www.xe.com, on November 30, 2009, $1.00 was equivalent to 6.8280 yuan.

References to the “PRC” or “China” are to the People’s Republic of China.

References to the “OTC Bulletin Board,” are to the Financial Industry Regulatory Authority’s, or FINRA’s, over-the-counter Bulletin Board, a securities quotation service, which is accessible at the website www.otcbb.com. FINRA is the successor entity of the National Association of Securities Dealers.

 

On May 20, 2009, Guangzhou Konzern Bio-Tech Co., Ltd. ("Konzern Bio-Tech") was incorporated.  Konzern Bio-Tech was established for the purpose of engaging in research and development and utilizing the supports from the Chinese Government for domestic hi-tech companies. Konzern has 100% ownership in Konzern Bio-Tech. Bio-Tech is still in development and has not undertaken significant operating activities.

On October 26, 2009, Konzern entered into an Equity Transfer Agreement with Sinoform Limited, a company registered under the laws of the British Virgin Islands (“Sinoform”), to acquire 100% of Sinoform’s equity interests in Guangzhou LifeTech Pharmaceuticals Co., Ltd, a wholly-owned subsidiary of Sinoform.  LifeTech is a developer and manufacturer of pharmaceutical products. The acquisition of LifeTech was consumated on December 4, 2009. LifeTech is now a wholly-owned subsidiary of Konzern.

Before the Reverse Acquisition

 

Prior to July 25, 2000, Konzern was a state-owned medicine distribution company located in Guangzhou, China. On July 25, 2000, Konzern was privatized through a sale of its capital stock.

 

Prior to 2004, Konzern did not engage in any research and development activities. In October 2003, we entered into a research and development agreement with the with the Pharmaceutical Research Institute of Nanhua University in Hunan Province to establish a research and development center at that university. Under the agreement, we contribute funds, including the salaries of the research personnel, in return for the ownership of the new medicines so developed. The center has developed four products, one of which is under review by the PRC State Food and Drug Administration, or SFDA.

 

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The Offering

Common stock outstanding as of November 30, 2009

15,320,139 (1)

 

Common stock being offered by us		0 shares
Total common stock that may be offered by selling stockholders in this offering		3,169,212
Common stock to be outstanding after the offering		18,489,351 (2)

 

Use of Proceeds		We will not receive any of the proceeds from the sale of shares by the selling stockholders. However, if our outstanding warrants are exercised for cash, we will receive the net proceeds of the issuance of the underlying stock at the exercise price.  The terms of the warrants require the holder to pay the exercise price in cash (as opposed to by “cashless exercise”) if the underlying shares of common stock are covered by an effective registration statement.  If the selling stockholders exercise all of the outstanding warrants for cash at the current exercise prices, we would issue 3,169,212 shares of common stock and receive $7,555,569 in proceeds from the issuance.  The selling stockholders may choose not to exercise the remaining outstanding warrants for cash or at all. We will use all proceeds from the exercise of warrants for working capital and other general corporate purposes.
Limitation on Issuance of Common Stock:		No holder of our common stock purchase warrants can convert or exercise our securities into common stock if such holder and its affiliates would then own more than 4.9% of our outstanding common stock.
Our OTC Bulletin Board Trading Symbol		CHME.OB
Risk Factors		See "Risk Factors" beginning on page 5 and other information included in this prospectus for a discussion of factors you should consider before deciding to invest in shares of our common stock.

 

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Name		Shares of common stock issuable upon conversion of preferred stock				Shares of common stock issuable upon exercise of Series A warrants				Shares of common stock issuable upon exercise of Series B warrants				Total number of shares of common stock				Amount of investment
Barron Partners			2,640,000				3,126,316				3,126,316				8,892,632			$	3,300,000
Ray and Amy Rivers (jointly)			160,000				189,474				189,474				538,948			$	200,000
Steve Mazur			160,000				189,474				189,474				538,948			$	200,000
William M. Denkin			160,000				189,474				189,474				538,948			$	200,000

 

 

·

We agreed that we will have appointed and maintain a board consisting of such number of independent directors that would result in a majority of our directors being independent directors, that our audit committee would be composed solely of independent directors and our compensation committee would have a majority of independent directors. Our failure to meet these requirements would results in the payment of liquidated damages that are to be paid either in cash or by the issuance of additional shares of Series A preferred stock. Although we did not meet the required deadline for having independent directors, because we have elected independent directors who comprise both a majority of the board, all of the members of the audit committee and the compensation committee, the investors waived our failure to be in compliance when initially required. This waiver would not apply to any subsequent failure to continue to meet this requirement.

 

·

We and the investors entered into a registration rights agreement pursuant to which we agreed to file, within 60 days after the closing, the registration statement of which this prospectus is a part. Since the closing was on February 8, 2006, we were required to file the registration statement by April 10, 2006 and have the registration statement declared effective by August 8, 2006. We will be required to issue 1,025 shares of Series A preferred stock for each day of the delay in filing and each date after the required effective date. As a result we may be required to issue 3,225 shares of Series A preferred stock for the delay in filing the initial registration statement and an additional 1,025 share of Series A preferred stock for each day between August 8, 2006 and the effective date of the registration statement of which this prospectus forms a part. We will also be required to issue 1,025 shares of preferred stock for each day that we fail to keep this registration statement current and effective, with certain limited exceptions. At June 30, 2006, we had accrued $44,003 in respect of this obligation.

 

·

The investors have the right to participate in any future financing.

 

·

We are required to elect a chief financial officer who is familiar with both the conduct of business in China and the SEC's rules and regulations relating to accounting, financial statements and accounting controls within fifteen days after closing. We believe that we are in compliance with this provision. The agreement does not include any liquidated damages provision with respect to our failure to comply with this requirement.

 

	·	With certain limited exceptions, if we issue stock at a purchase price or warrants or convertible securities at an exercise or conversion price which is less than the exercise price of the warrants, the conversion price and exercise price will be reduced to such lower ratio. The initial conversion price of the Series A preferred stock was $1.25 and the initial conversion ratio was one share of common stock for each share of Series A preferred stock.  Any change in the conversion price automatically resulted in an adjustment in the conversion ratio of the Series A preferred stock.
	·	If our earnings before interest, taxes, depreciation and amortization ("EBITDA") for 2005 had been less than $5,650,000, there would have been a reduction in the exercise price of the warrants. Since our EBITDA was greater than that amount, no adjustment was required.

·

If our fully-diluted pre-tax income per share for 2006 had been less than $0.40, the exercise price of the warrants would have been reduced proportionately by the percentage shortfall, up to a maximum of 50%. Our fully-diluted pre-tax income per share for 2005, computed in the manner provided in the agreement, was $0.297. Fully-diluted pre-tax income per share is based on the number of outstanding shares of common stock plus all shares of common stock issuable upon conversion of all outstanding convertible securities and upon exercise of all outstanding warrants, options and rights, regardless of whether (i) such shares would be included in determining diluted earnings per share and (ii) such convertible securities are subject to a restriction or limitation on exercise.

 

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PLAN OF DISTRIBUTION

 

This offering is not being underwritten. The selling stockholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which our shares are traded or in private transactions. These sales may be made at fixed or negotiated prices. To the extent required, specific information about a particular sale (such as the purchase price and public offering prices, the names of any broker or dealer, and any applicable commission or discounts) will be described in an accompanying prospectus.

 

There is a limited public market for our common stock.  Our common stock is currently quoted on FINRA’s Over-the-Counter Bulletin Board.

 

We intend to keep this prospectus current until all of the common stock being offered under this prospectus is sold. The selling stockholders may offer the common stock pursuant to this prospectus so long as this prospectus is current under the rules of the SEC and we have not withdrawn the registration statement of which this prospectus forms a part.

 

Subject to the foregoing, the selling stockholders may use any one or more of the following methods when selling or otherwise transferring shares:

 

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

·

block trades in which a broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

·

sales to a broker-dealer as principal and the resale by the broker-dealer of the shares for its account;

 

·

an exchange distribution in accordance with the rules of the applicable exchange;

 

·

privately negotiated transactions, including gifts;

 

·

covering short sales made after the date of this prospectus.

 

·

pursuant to an arrangement or agreement with a broker-dealer to sell a specified number of such shares at a stipulated price per share;

 

·

a combination of any such methods of sale; and

 

·

any other method of sale permitted pursuant to applicable law.

 

The selling stockholders acquired their shares pursuant to the preferred stock purchase agreement and may also sell shares pursuant to Rule 144 or Rule 144A under the Securities Act, if available, rather than pursuant to this prospectus.

 

The holders of our Series A and Series B warrants may not exercise them for our common stock if that would result in the holder and his or its affiliates beneficially owning more than 4.9% of our common stock. Because of the limitation whereby Barron Partners LP, Ray and Amy Rivers, Steve Mazur and William M. Denkin cannot hold more than 4.9% of our stock at one time, there is a limit on the number of shares that any of them may sell at any time. For information on the selling shareholder limitation, see “Selling Stockholders” in this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

 

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A selling stockholder may from time to time pledge or grant a security interest in some or all of the shares or common stock or warrant owned by them and, if the selling stockholder defaults in the performance of the secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgees, transferees or other successors in interest as selling stockholders under this prospectus.

 

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions which may in turn engage in short sales of our common stock in the course of hedging the positions they assume. The selling stockholders may, after the date of this prospectus, also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge their common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

 

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

 

Because the selling stockholders may be deemed to be "underwriters" within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. Federal securities laws, including Regulation M, may restrict the timing of purchases and sales of our common stock by the selling stockholders and any other persons who are involved in the distribution of the shares of common stock pursuant to this prospectus.

 

We are required to pay all fees and expenses incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

DESCRIPTION OF SECURITIES

 

We are authorized to issue 90,000,000 shares of common stock, par value $.0001 per share, and 10,000,000 shares of preferred stock, par value $.0001 per share. As of the date of this prospectus, we have 15,320,139 shares of common stock and no shares of Series A preferred stock outstanding.

 

Common Stock

 

Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Pursuant to the certificate of designation relating to the Series A preferred stock, we are prohibited from paying dividends on our common stock while preferred stock is outstanding. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are fully paid and non-assessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Common Stock Purchase Warrants

 

In connection with our February 2006 private placement, we issued Series A warrants to purchase 3,694,738 shares of common stock at an exercise price of $1.75 per share and Series B warrants to purchase 3,694,738 shares of common stock at an exercise price of $2.50 per share. On April 23, 2007, the exercise price of the Series A warrants was reduced to $1.70 per share and the exercise price of the Series B warrants was reduced to $2.43 per share, representing reductions of 3% in each case.  These reductions in exercise price were made under a Waiver and Amendment entered into between the Company and the initial investors in the private placement. The Waiver and Amendment cancelled and replaced an adjustment provision contained in the warrants, which provided that the exercise price of our warrants would have been reduced by approximately 23% because the Company did not meet a 2006 pre-tax income-per-share target of $0.40 per share. The warrants are not subject to any further adjustment based on the Company’s financial results.

 

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The warrants also provide that, with certain exceptions, if the Company issues common stock at a price, or warrants or other convertible securities with an exercise or conversion price, which is less than the exercise price of the warrants, the exercise price of the warrants will be reduced to the sales price, exercise price or conversion price, as the case may be, of such other securities.

 

The holders of the warrants have cashless exercise rights, which provide them with the ability to receive common stock with a value equal to the appreciation in the stock price over the exercise price of the warrants being exercised. This right was not exercisable during the first six months that the warrants were outstanding, and it is not exercisable thereafter if the underlying shares are subject to an effective registration statement.  To the extent that the holders of the warrants exercise using a cashless exercise, we will not receive proceeds from such exercise.

 

INTEREST OF NAMED EXPERTS AND COUNSEL

Neither our independent public accountant, Moore Stephens Wurth Frazer and Torbet, LLP, nor our counsel passing upon the validity of the securities offered under this prospectus, Pryor Cashman LLP, will receive a direct or indirect interest in us, was hired on a contingent basis, or has been a promoter, underwriter, voting trustee, director, officer, or employee of ours.

LEGAL MATTERS

 

 

Signature		Title		Date
/s/ Senshan Yang    Senshan Yang		Chief Executive Officer and Director (Principal Executive Officer)		December 14, 2009
* Minhua Liu		Director		December 14, 2009
* Robert Adler		Director		December 14, 2009
* Rachel Gong		Director		December 14, 2009
* Yanfang Chen		Director		December 14, 2009

 

*By:	/s/ Senshan Yang
	Senshan Yang ATTORNEY-IN-FACT

 

II-4

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