Attached files
U.S.
Securities and Exchange Commission
Washington,
D.C. 20549
FORM
10-K
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[X]
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Annual
Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
for the Fiscal Year Ended December 31,
2009
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[
]
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Transition
Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
for the Transition Period from _______ to
_______
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Commission
File Number 000-52350
WEIKANG BIO-TECHNOLOGY GROUP
CO, INC.
(Exact
name of small business issuer as specified in its charter)
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Nevada
(State
or other jurisdiction of
incorporation
or organization)
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26-2816569
(I.R.S.
employer
identification
number)
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No.
365 Chengde Street, Daowai District, Harbin
Heilongjiang Province, PRC
150020
(Address
of principal executive offices and zip code)
(86451) 8835 5530
(Registrant’s
telephone number, including area code)
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Securities
registered under Section 12(b) of the Act:
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Title of each class
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Name
of each exchange
on which registered
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None
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Not
Applicable
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Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.00001 par value
(Title
of Class)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes
[x] No
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 if
Regulation S-K (229.405 of this Chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K.
Yes
[ ] No
[x]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files).
Yes
[
] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
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Non-accelerated
filer
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(Do not check if a smaller reporting company)
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Accelerated
filer
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Smaller
reporting company
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þ
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Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the exchange act).
Yes
[ ] No
[x]
The
Registrant’s revenues for its fiscal year ended December 31, 2009 were
$47,484,188.
The
aggregate market value of the voting stock on March 31, 2010
(consisting of Common Stock, $0.00001 par value per share) held by
non-affiliates was approximately $9,940,523 based upon the most recent sales
price ($3.05) for such Common Stock on said date, March 31, 2010,
there were 27,984,388 shares of our Common Stock issued and outstanding, of
which approximately 3,259,188 shares were held by non-affiliates.
Number of
shares of common stock, par value $.00001, outstanding as of March 31, 2010:
27,984,388
DOCUMENTS
INCORPORATED BY REFERENCE
None
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
The
discussion contained in this 10-K under the Securities Exchange Act of 1934, as
amended, contains forward-looking statements that involve risks and
uncertainties. The issuer's actual results could differ significantly from those
discussed herein. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the
Company believes," "management believes" and similar language, including those
set forth in the discussions under "Notes to Financial Statements" and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-K. We base our forward-looking statements on
information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-K that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.
1
PART
I:
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Item
1.
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Business
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3 | |||
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Item
1A.
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Risk
Factors
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7 | |||
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Item
1B.
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Unresolved
Staff Comments
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12 | |||
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Item
2.
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Properties
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12 | |||
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Item
3.
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Legal
Proceedings
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12 | |||
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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12 | |||
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PART
II:
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|||||
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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12 | |||
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Item
6.
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Selected
Financial Data
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13 | |||
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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13 | |||
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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16 | |||
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Item
8.
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Financial
Statements and Supplementary Data
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17 | |||
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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30 | |||
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Item
9A.
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Controls
and Procedures
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30 | |||
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Item
9A(T)
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Controls
and Procedures
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30 | |||
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Item
9B.
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Other
Information
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30 | |||
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PART
III:
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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31 | |||
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Item
11.
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Executive
Compensation
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32 | |||
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters
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33 | |||
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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33 | |||
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Item
14.
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Principal
Accounting Fees and Services
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33 | |||
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PART
IV:
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|||||
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Item
15.
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Exhibits,
Financial Statement Schedules
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33 | |||
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SIGNATURES:
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35 |
2
ITEM 1.
BUSINESS
As used
herein the terms "We", the "Company", "WKBT", the "Registrant," or the "Issuer"
refers to Weikang Bio-Technology Group Co., Inc., its subsidiaries and
predecessors, unless indicated otherwise. The Company was originally
incorporated on May 12, 2004 in the State of Florida as Expedition Leasing, Inc.
(“Expedition”). On July 12, 2008, the Company redomiciled from the State of
Florida to the State of Nevada and changed its name to Weikang Bio-Technology
Group Co., Inc. pursuant to an acquisition of Sinary Bio-Technology
Holdings Group, Inc. (“Sinary”), a Nevada corporation and, Sinary’s wholly owned
subsidiary, Heilongjiang Weikang Biotechnology Group Co., Ltd. (“Weikang” or
“Heilongjiang Weikang”), a limited liability company organized and existing
under the laws of the People’s Republic of China (“PRC” of “China”). Upon
completion of the transaction on December 7, 2007, Sinary and Heilongjiang
Weikang became our wholly-owned subsidiary. The transaction was treated for
accounting purposes as a capital transaction and recapitalization by Sinary and
Heilongjiang Weikang, the accounting acquirer (legal acquiree) and as a
re-organization by WKBT, the accounting acquiree (legal acquirer)
On July
22, 2008, Heilongjiang Weikang acquired 100% of the issued and outstanding
equity interest of Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a
Chinese limited liability company, for $15,000,000, pursuant to a Stock Transfer
Agreement dated and entered into on June 30, 2008 by and among Heilongjiang
Weikang, Tianfang, and Tianfang’s two shareholders, Beijing Shiji Qisheng
Trading Co., Ltd. and Tri-H Trade (U.S.A.) Co., Ltd. The $15,000,000 was paid in
full by Heilongjiang Weikang as of December 31, 2009. We believe the acquisition
of Tianfang has strengthened our distribution channels and improved our
production capacity. As a result of the acquisition we now not only sell Chinese
herbal extract products, but we also sell “western”
pharmaceuticals.
Overview
of Sinary
Sinary was incorporated under
the laws of the State of Nevada on August 31, 2007. On October 25, 2007, Sinary
entered into an equity interests transfer agreement with the owners of
Heilongjiang
Weikang to acquire 100% of the equity interests of Heilongjiang Weikang for the sum of 57
million Renminbi (“RMB”), or approximately 7.6
million dollars (the “Acquisition
Price”). In
connection with this acquisition, on November 6, 2007, Heilongjiang Weikang was approved by the
Heilongjiang Provincial Government as a foreign invested enterprise
(“FIE”), and the acquisition of
Heilongjiang
Weikang was deemed completed on November 9, 2007, the date when the Heilongjiang
Office of the State Administration for Industry and Commerce (“Heilongjiang
SAIC”) issued a
FIE business license to Heilongjiang Weikang, and registered
Sinary as the 100% owner of Heilongjiang Weikang’s registered
capital. Pursuant to the terms of the equity interest transfer agreement and the
requirements of applicable PRC laws and regulations, Sinary had a grace period
to remit the Acquisition Price by August 6, 2009, which was extended to June 30,
2010 pursuant to an approval letter issued by PRC government on August 7,
2009. (Please see the
risk factors concerning the acquisition of Weikang under the sections titled
“Risks Related to Our Corporate Structure” and “Risks Related to an Investment
in Our Securities” in the Risk Factor section of this current report beginning
on page
7.) Other
than the 100% equity interest in Heilongjiang Weikang, Sinary has no other
assets. Sinary conducts all of its business operations through
Heilongjiang Weikang.
Overview
of Heilongjiang Weikang
Heilongjiang
Weikang was incorporated in the Heilongjiang Province, PRC on March 29, 2005,
formerly known as Heilongjiang Province Weikang Bio-Engineering Co., Ltd.
Heilongjiang Weikang had initial registered capital of
RMB 5 million. On November 21, 2006, Heilongjiang Weikang changed its corporate name
to “Heilongjiang Weikang Bio-Technology Group Co., Ltd.” and increased its
registered capital to RMB 40 million. On October 25, 2007, the owners of
Heilongjiang Weikang sold and
transferred 100% of Heilongjiang Weikang’s equity
interests to Sinary pursuant to an equity interest transfer agreement.
Upon completion of the transaction on November 9, 2007, Sinary became the 100%
owner of Heilongjiang Weikang’s registered
capital; and Heilongjiang Weikang was
subsequently approved as an FIE by the Heilongjiang
Provincial Government. Heilongjiang Weikang is primarily
engaged in the development, manufacture, marketing and distribution of health
and nutritional supplements in China.
On June
30, 2008, Heilongjiang Weikang entered into a stock transfer agreement with
Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a limited liability
company organized and existing under the laws of China, and Tianfang’s two
shareholders: Beijing Shiji Qisheng Trading Co., Ltd., a limited liability
company organized and existing under the laws of China (“Shiji Qisheng”), and
Tri-H Trade (U.S.A.) Co., Ltd., (“Tri-H”) a California corporation. Pursuant to
the terms of the agreement, Heilongjiang Weikang acquired 100% of the issued and
outstanding equity interest in Tianfang in exchange for the aggregate purchase
price of $15,000,000. The transaction was completed on July 22, 2008. The
$15,000,000 was paid in full by Heilongjiang Weikang as of December 31, 2009. We
believe the acquisition of Tianfang has strengthened our distribution channels
and improved our production capacity. As a result of the acquisition we now not
only sell Chinese herbal extract products, but we also sell “western”
pharmaceuticals.
Overview
of Tianfang
Tianfang
was incorporated in Guizhou Province, China in 1998 with registered capital of
RMB 5,900,000. Tianfang is located within the “Zhazuo Medicine Industry Area” of
Xiuwen country, Guiyang City, Guizhou Province, China where it engages in the
development, manufacture and distribution of Chinese herbal extract products and
GMP certified western prescription pharmaceuticals. Tianfang operates
on 71,907 square meters with 14,675 square meters of factory facilities.
Tianfang has a well-established business that benefits greatly from economy of
scale and cost. Tianfang, as an independent subsidiary, currently has
approximately 244 employees, including 68 full-time administrators, 126
full-time production workers and 50 full-time sales representatives. Tianfang
has six production lines and all of their products have received a Good
Manufacturing Practices (“GMP”) certification. In 2009, Tianfang had sales
revenues of $34 million and net income of $10 million.
Business
Description of the Company
Since the
reverse merger with Sinary and Heilongjiang Weikang was consummated, the Company
has continued operations of Heilongjiang Weikang, which is principally engaged
in developing, manufacturing and distributing health and nutritional supplements
in China, in compliance with requisite Chinese licenses and
approvals. The Company is also expanding its business scope to develop,
manufacture and distribute Chinese herbal extract products and GMP certified
western prescription pharmaceuticals through its acquisition of
Tianfang.
3
Principal Products or
Services
Heilongjiang
Weikang is located in Heilongjiang Province in Northeastern
China. The principal office and manufacturing facility is located in
the “Economic and Technology Development Zone” in the city of Shuangcheng,
approximately 42 kilometers south of the provincial capital Harbin. Our primary
products are Chinese herbal-based health and nutritional supplements.
Heilongjiang Weikang actively seeks to maintain and improve the quality of its
products, and since April 2006, Heilongjiang Weikang has implemented the
“GB/T19001-2000 idt ISO9001:2000” quality assurance management system into all
of its manufacturing processes.
Heilongjiang
Weikang currently manufactures and distributes a series of internally developed
health supplements under a Chinese trade name known as “Rongrun”. The “Rongrun”
line of products presently includes:
Rongrun
Youth Keeping Capsules
Rongrun
Youth Keeping Capsules contain kudzu vine root, soybean isoflavone, oil extract
from Chinese forest frog, jequirity fruit, and Vitamin E. These capsules may
promote the restoration of the natural balance of female hormones, reduce
symptoms of irritability, depression, headache, vomiting, high blood pressure,
and other conditions related to menopause. Balancing female hormones may lower
the risk of arteriosclerosis by utilizing the body’s natural protection against
heart disease before menopause. These capsules are also intended to increase the
absorption of calcium, which may deter the onset of osteoporosis, and to enhance
the body’s immune system in order to counter negative health conditions
associated with aging beyond menopause. This product accounted for approximately
3.78% of our total sales in 2010.
Rongrun
Energy Keeping Capsules
The key
component of the Rongrun Energy Keeping Capsules is grape seed extract, which is
harvested for its high content of oligomeric proacnthocyanidins (OPC). OPC is
being studied for its antioxidant properties in reducing free radicals and
oxidative stress, which may be effective in reducing the risk of cardiovascular
disease by promoting blood vessel elasticity and countering inflammation, and
promote a slower and healthier aging process by increasing skin elasticity and
smoothness, joint flexibility and heightening immunity. Other ingredients of the
Energy Keeping Capsules include Barbary wolfberry fruit, which may improve
eyesight and promote liver function by reducing lipid accumulation in the liver,
Vitamin E and oil extracted from corn endosperm, which is the albumin tissue
produced in the seeds during fertilization and is rich in nutrients. This
product accounted for approximately 3.75% of our total sales in
2010.
Rongrun
Vitamin Sugar Capsules
The
Rongrun Vitamin Sugar Capsules contain bitter melon, hawthorne fruit, propolis,
cactus, Vitamin E, and oil extract from corn endosperm, and aims to reduce the
onset of cardiovascular disease and fatigue, and promote healthy aging.
Propolis, which is a resinous substance that bees collect from tree buds or
other botanical sources and used as a sealant in the hive, has long been used in
Chinese traditional medicine for the relief of inflammations, viral diseases,
ulcers, and superficial burns or scalding. This product accounted for
approximately 4.11% of our total sales in 2010.
Rongrun
Intestine Cleansing Capsules
The
Rongrun Intestine Cleansing Capsules contain shisonin, black currant, Vitamin E,
and oil extract from corn endosperm. Shisonin (perilla frutescens), or wild
red basil, has long been harvested in China for its medicinal properties. These
capsules are intended to lower blood lipid levels in order to reduce the
likelihood of brain and heart vessel related diseases, to provide nutrition for
the brain and the optic nerve, to strengthen the immune system, and to promote
a healthy aging process. This product accounted for approximately 3.84% of
our total sales in 2010.
Rongrun
Artery Cleansing Capsules
The
constituent ingredients of the Rongrun Artery Cleansing Capsules are gingko,
hawthorn fruit, Vitamin E, and oil extract from corn endosperm. Ginkgo extract
may have three effects on the human body: it may improve blood flow
(including microcirculation in small capillaries) to most tissues and organs; it
may protect against oxidative cell damage from free radicals; and it
may block many of the effects of platelet-activating factor (platelet
aggregation, blood clotting) that have been related to the development of a
number of cardiovascular, renal, respiratory and central nervous system
diseases are intended to reduce the level of cholesterol built-up in the
arteries in order promote healthier heart and brain functions and to decrease
the likelihood of heart attacks and strokes. This product accounted for
approximately 3.95% of our total sales in 2010.
Rongrun
Royal Jelly Extract
Royal
Jelly is a honey bee secretion that is used in the nutrition of the bee larvae,
and has been used as part of traditional Chinese medicine since the early first
century. Royal Jelly is a rich source of complete protein, containing all the
essential amino acids, as well as essential fatty acids, minerals and vitamins,
particularly pantothenic acid (B-5) and pyridoxine (B-6). Royal Jelly also
contains collagen; lecithin; and vitamins A, C, D and E. Additionally, Royal
Jelly contains several other compounds that have been shown to help lower
cholesterol. Another component in Royal Jelly, 10-Hydroxy-2-Decenoic Acid
(10-HDA), is being studied for its immuno-regulatory and anti-cancer properties.
While Royal Jelly is widely available commercially, Weikang’s Rongrun Royal
Jelly Extract is distinguished from the competition by its enhanced
concentration of 10-HDA. Weikang introduced its Royal Jelly product in 2007.
This product accounted for approximately 4.63% of our total sales in
2010.
Rongrun
Kidney Boost Tonic
Rongrun
Kidney Boost Tonic contains various traditional Chinese herbs including ginseng,
dioscorea and cistanche salsa. All of the components in our tonic have been used
for centuries in China to strengthen and promote healthy kidney functions. A
tenet of traditional Chinese medicine is that a strong kidney attributes to
strong “qi”, which
translates into strong bones, sharp vision, clarity of hearing, and healthy
organs, while unhealthy kidneys are responsible for weak “qi” as manifested by physical
weakness, low energy level, mental deficiency, high blood pressure and reduced
sex drive. This product accounted for approximately 4.06% of our total sales in
2010.
Ferrous
Fumarate Granule
Ferrous
Fumarate Granule contains Ferrous Fumarate. It is used for iron deficiency
anemia caused by various reasons, such as, chronic blood loss, malnutrition,
pregnancy, or child development period. This product accounted for
approximately 24.24% of our total sales in 2010.
4
Eucommia
Ulmoides Oliv Granule
The key
components of Eucommia Ulmoides Oliv Granule are Eucommiae ulmoides Oliv,
Eucommiae ulmoides Oliv leaves, which is nourishing liver and kidney,
strengthening muscles and bones. This product accounted for approximately 23.26%
of our total sales in 2010.
Bushen
Qiangshen Tablet
Bushen
Qiangshen Tablet contains Epimedium, dodder, Rosa laevigata, glossy privet fruit
and cibot rhizome, which may be effective in nourishing the liver and kidney,
enriching yin, strengthening yang, and enhancing health and brain function. This
product accounted for approximately 7.85% of our total sales in
2010.
Tinidazole
Vaginal Effervescent Tablet
The key
component of Tinidazole Vaginal Effervescent Tablet is Tinidazole. It
is intended to fight infections caused by anaerobe, especially for anaerobic
infection of female reproductive systems. This product accounted for
approximately 14.87% of our total sales in 2010.
Product
Development
Our
current products currently under development as of December 31, 2008 include:
10-hydroxy-2-decylenic acid, commonly known as 10-HDA, in gel capsule and in
powder form. 10-HDA has been promoted as having anti-cancer properties and used
in the treatment of radiation sickness and angiocardiopathy. Our products have
been approved by the Heilongjiang Department of Health, although we have not yet
begun production as of the date of this annual report we expect production to
begin in Q3 in 2010.
In
cooperation with the Forest Ecology Department of Northeast Forestry University,
in 2008 we began developing new product lines involving the planting of
‘ShuangBaoGu’( a variety of mushroom) on “Saline-alkali Soil”. By
combining the saline-alkali soil cultivated ‘ShuangBaoGu’ mushroom, sweet
corn, and beet we can produce sweet corn bamboo juice, sweet corn straw juice,
and beet juice. These juices are thought to have several positive
health benefits including the prevention and treatment of cardiovascular
disease. Through the development of these products we hope to help
customers reduce the level of cholesterol built-up in arteries, and promote
healthier heart and brain functions. We have not yet begun production on this
project as of the date of this annual report, but we anticipate that production
should commence sometime near the end of 2010.
As a
result of the recent acquisition of Tianfang, we are developing a new product
known as Dofetilide. Dofetilide is a medicine given to patients with
atrial fibrillation (irregular heartbeats). Atrial fibrillation occurs when
certain parts of the heart (the chambers known as atria) beat too fast or
irregularly, causing an uncomfortable chest pain and 'fluttering' or
'palpitations.' Dofetilide may help your heart to beat more regularly and stay
beating regularly for a longer period of time. This medicine is currently
approved by Chinese regulatory authorities to conduct clinical
test, however the process has not yet commenced as of the date of this
filing.
Our
Distribution Methods
Since
Weikang first launched its products from its home base of Heilongjiang Province
in May 2006, we have extended our sales and distribution network to the national
capital of Beijing as well as to four provinces, namely: Anhui, Hebei, Henan and
Jiangsu. Currently, we only sell to wholesale dealers, who then distribute our
products to their customers such as local retail stores and pharmacies. Weikang
will continue to identify and establish business relationships with more
wholesale vendors across China in order to strengthen our distribution
network.
The
acquisition of Tianfang has helped to expand our distribution network and
substantially increase our sales channels. Tianfang has more than 60
retail sales locations throughout China in many of the major cities. Tianfang
was acquired by Weikang in July 2008, and since then both companies have
operated together on only a trial basis while adjusting to the
acquisition. In 2010, we hope to expand Weikang’s distribution
network through the channels that Tianfang provides. We see this
strategy as an excellent opportunity for corporate growth of both
organizations.
We
recognize the importance of branding as well as packaging. All of Weikang’s
products bear a uniform brand but have specialized designs to differentiate
the different categories of Weikang's products. Additionally, Weikang conducts
promotional marketing activities to publicize and enhance its image as well as
to reinforce the recognition of its brand name, which includes: (1) organizing
cooperative promotional activities with distributors; (2) conducting product
informational meetings with distributors; and (3) creating sales incentive
programs such as rebates for distributors.
Dependence
on Major Customers
For the
year ended December 31, 2009, approximately 28% of the Company's total net
revenues were generated by six customers, Weikang Pharmaceutical Group Co., Ltd.
(0.08%), Mr. Zhiming Xu who is our Anhui distributor (6.05%), Ms. Min Wu who is
our Jiangsu distributor (6.33%), Ms.Huimin Zhang who is our Henan distributor
(5.75%), Ms. Suqin Xiao who is our Hebei distributor (5.79%), and Ms. Fengying
Yin who is our Beijng distributor (4.14%). The loss of any and/or all of
these customers could have a material adverse effect on our
business.
Our
largest customer, Weikang Pharmaceutical Group Co., Ltd., is owned by Mr. Yin
Wang, our current chief executive officer and chairman of the board of
directors. Mr. Wang was also a shareholder of Heilongjiang Weikang
Bio-Technology Group Co., Ltd., our Chinese operating company before the company
was acquired by Sinary.
Competition
Although
we presently do not have any direct competitors in the PRC due to the uniqueness
of most of our products, competitive products are available on the marketplace
that offer features similar to those of our products. For example, Jinwanxia
Technology Development Co., Ltd., a subsidiary of the state-owned pharmaceutical
conglomerate Heilongjiang Pharmaceutical Group Holding Co., Ltd., distributes a
line of bee-derived products which potentially compete with Weikang’s Royal
Jelly Extract. China’s health supplements industry is highly fragmented and
competitive, and companies such as Jinwanxia have greater financial, marketing
and technical resources than us. Additionally, there can be no assurance that
one or more of these companies will not develop products that compete directly
with, and are equal or superior to, our products. Nevertheless, we believe that
we can maintain and increase our market position through our strong R&D
capability, unique products, growing sales network and competitive
prices.
Sources
and Availability of Raw Materials and Our Principle Suppliers
Our
principal raw materials are the various vitamins, minerals, and herbal compounds
and extracts used in its products, many of which are staples in traditional
Chinese pharmacology. Our principal suppliers include Hebei Baoen Bio-Technology
Co., Ltd. (for extracts of grape seed, Barbary wolfberry and hawthorn berry),
Xuchang Yuanhua Bio-Technology Co., Ltd. (for shisonin extracts) and
Shijiazhuang South Wind Rihua Co., Ltd. (for plant oil extracts). The
prices for these raw materials are subject to market forces largely beyond our
control, including energy costs, market demand, and freight costs. We have no
long term agreements with our suppliers, and purchase raw materials on a
purchase order basis. Our management recognizes that this strategy also carries
with it the potential disadvantages and risks of shortages and supply
interruptions. Our suppliers are meeting our supply requirements, and we believe
our relationships with our suppliers are stable.
5
Intellectual
Property
We rely
on a combination of trademark, copyright and trade secret protection laws in PRC
and other jurisdictions, as well as confidentiality procedures and contractual
provisions to protect our intellectual property and brand. As a part of their
employment with Weikang, each employee agree to abide by the confidentiality
provisions set forth in Weikang’s employee procedure guide. We currently have a
trademark application pending before the PRC Trademark Office for the Chinese
characters which English transliteration is “Rongrun”. We have also submitted
trademark applications for the Chinese characters which English transliterations
are “Weikang” and “Shenqi”. The examination process is expected to take up to
three years to complete.
Health
and nutritional supplements manufacturers may at times be involved in litigation
based on allegations of infringement or other violations of intellectual
property rights. Furthermore, the application of laws governing intellectual
property rights in the PRC is uncertain and evolving and could involve
substantial risks to us.
Government
Approval and Regulation of Our Principle Products
General
PRC Government Approval
Weikang
currently has the requisite approval and licenses from the Heilongjiang
Provincial Government and the Heilongjiang Office of the State Administration
for Industry and Commerce to manufacture, process and distribute health
supplements in pill and tonic forms.
Compliance
with Circular 106 and the 2006 M&A Regulations
On May
31, 2007, China’s State Administration of Foreign Exchange (“SAFE”) issued an
official notice known as “Circular 106”, which requires the owners of Chinese
companies to obtain SAFE’s approval before establishing any offshore holding
company structure in so-called “round-trip” investment transactions for foreign
financing as well as subsequent acquisition matters in China. Likewise, the
“Provisions on Acquisition of Domestic Enterprises by Foreign Investors” (the
“2006 M&A
Regulations”), issued jointly by Ministry of Commerce (“MOFCOM”), State-owned
Assets Supervision and Administration Commission, State Taxation Bureau, State
Administration for Industry and Commerce, China Securities Regulatory Commission
and SAFE in September 2006, impose approval requirements from MOFCOM for
“round-trip” investment transactions, including acquisitions in which equity is
used as consideration.
Because
Sinary was not established by the owners of Weikang and because Sinary and
Weikang are owned by unrelated parties, the two companies did not have any
direct or indirect connection until Sinary’s acquisition of Weikang. Sinary
acquired Weikang for cash, rather than equity, consideration. Sinary’s sole
stockholder (immediately prior to the share exchange transaction with Expedition
Leasing) is not a “domestic person” as defined under Circular 106. Accordingly,
Sinary is not a “special purpose company” as defined in Circular 106 and
Sinary’s acquisition of Weikang is not a “round trip” investment transaction. As
such, Circular 106 and the provisions of the 2006 M&A Regulations relating
to special purpose companies are not implicated. Sinary’s acquisition of Weikang
is a pure cross-border merger and acquisition transaction governed by and
permitted under the 2006 M&A Regulations, and Weikang was accordingly
approved and issued a business license as a FIE by the Heilongjiang Provincial
Government and the Heilongjiang Office of the State Administration for Industry
and Commerce, respectively.
Costs
and Effects of Compliance with Environmental Laws
We are
subject to certain requirements and potential liabilities under national,
regional and municipal environmental laws, ordinances and regulations in the PRC
(collectively the “Environmental Laws”). We may generate certain wastes that may
be deemed hazardous or toxic under applicable Environmental Laws, and we from
time to time have incurred, and in the future may incur, costs relating to
compliance with the Environmental Laws. Although we may incur remediation
and other environmental-related costs during the ordinary course of
operations, management anticipates that such costs will not have a material
adverse effect on our operations or financial condition.
Research
and Development
We are
committed to quality research and development (R&D). We focus on the
development of new products and the improvement of existing products. Our
R&D team is led by Dr. Zhengbin Xu, M.D., who has over 40 years of clinical
and research experience with traditional Chinese herbs and
nutrition. Mr. Xu has published 56 scientific articles in
international and domestic journals and has professional affiliations with the
Chinese Medicine Research Bureau (as Vice Director of Research and Development),
Heilongjiang Province Chinese Medicine Co., Ltd. (as General Manager), and the
Chinese Medical Association (as Vice President).
Other
members of our R&D team include: (i) Mr. Hongbin Cui, who is an Executive of
Harbin Medical School’s Public Health Institute with over 20 years of research
experience in dermatology and nutrition; (ii) Mr. Zuo Zhang, Vice President and
Chief Pharmacist of Harbin Medical School Hospital, and an executive of
Heilongjiang Province Medical Association; (iii) Mr. Hua Shi, Vice Administrator
of Heilongjiang Province Health Quality Control Bureau and a health supplements
expert; (iv) Mr. Bingchun Wu,
who is a former Executive of Heilongjiang Province Chinese Medicine
Research Association; and (v) Mr. Huisheng Qin, M.D., Ph.D., who has over 20 years
experience as a surgeon, professor and scientist and knowledge in neurobiology,
molecular cell biology, pathology, pharmacology and nutritional
science.
For
fiscal year 2009, we had approximately $RMB 12,700,000 (or $1,859,000) in
R&D expenses.
Our
Employees
In 2009
the Registrant had 425 full-time employees. Out of our 425 employees
approximately 124 are involved in our administration, 246 are involved in
production and 55 are part-time sales representatives. We have not
experienced any significant work stoppage or production shutdown since inception
and we do not anticipate any in the near future. Our management
believes that we have a strong relationship with our workers.
Our
Principal Executive Offices
Our
principal executive office is located in the “Economic & Technology
Development Zone” of Chengxu Village, Shuangcheng Town, Shuangcheng City,
Heilongjiang Province, People's Republic of China. Our telephone number is (86)
0451-88355530.
Reports
to Security Holders
We file
reports including our annual report, information statements as well as other
reports required of publicly held companies with the Securities and Exchange
Commission ("SEC"). You can read and copy any materials we file with the
Commission at its' Public Reference Room at 100 F Street, N.E, Washington, DC
20549. You can obtain additional information about the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission, including us.
6
ITEM 1A. RISK
FACTORS
In addition to the other
information set forth in this report, you should carefully consider the risks
described below together with all of the other information included in this
Annual Report before making an investment decision with regard to our
securities. The statements contained in or incorporated into this offering that
are not historic facts are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those set forth in or implied by forward-looking statements. If any of the
following risks actually occurs, our business, financial condition or results of
operations could be harmed. In that case, the trading price of our common stock
could decline, and you may lose all or part of your investment.
Risks
Relating to Our Business
Our
limited operating history makes it difficult to evaluate our future prospects
and results of operations.
We have a
limited operating history. Although Weikang commenced operations in 2005, the
company was a developmental stage company until May 2006 when it began selling
its products. Accordingly, you should consider our future prospects in light of
the risks and uncertainties experienced by early stage companies such as our
company in China. Some of these risks and uncertainties relate to our ability
to:
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maintain
our market position in the health supplements business in
China;
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offer
new and innovative products to attract and retain a larger customer
base;
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attract
additional customers and increase spending per
customer;
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increase
awareness of our brand and continue to develop user and customer
loyalty;
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respond
to competitive market conditions;
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respond
to changes in our regulatory
environment;
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manage
risks associated with intellectual property rights;
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maintain
effective control of our costs and
expenses;
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raise
sufficient capital to sustain and expand our business;
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attract,
retain and motivate qualified personnel;
and
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upgrade
our technology to support additional research and development of new
products.
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If we are
unsuccessful in addressing any of these risks and uncertainties, our business
may be materially and adversely affected.
We
may need additional financing to execute our business plan.
The
revenues from the production and sale of health supplements products and the
projected revenues from these products may not be adequate to support our
expansion and product development programs. We may need substantial additional
funds to build new production facilities, pursue further research and
development, obtain regulatory approvals, market our products, and file,
prosecute, defend and enforce our intellectual property rights. We may seek
additional funds through public or private equity or debt financing, strategic
transactions and/or from other sources. We could enter into collaborative
arrangements for the development of particular products that would lead to our
relinquishing some or all of our rights to the related technology or
products.
There are
no assurances that future funding will be available to us on favorable
terms or at all. If additional funding is not obtained, we will need to reduce,
defer or cancel development programs, planned initiatives or overhead
expenditures, to the extent necessary. The failure to fund our capital
requirements would have a material adverse effect on our business, financial
condition and results of operations.
Our
certificates, permits, and licenses are subject to governmental control and
renewal, and Weikang will not be able to operate if they are not
maintained.
Heilongjiang
Weikang has attained the certificates, permits, and licenses required for the
manufacturing, processing and distribution of health supplement products in the
PRC and Tianfang has attained the certificates, permits, and licenses required
for the manufacturing, processing and distribution of western medicine and
Chinese herbal extracts. In the event that we are not able to renew the
certificates, permits and licenses, all or part of our operations may be
terminated. Furthermore, if escalating compliance costs associated with
governmental standards and regulations restrict or prohibit any part of our
operations, it may adversely affect our operation and
profitability.
Our
profitability could be adversely affected from the loss of preferential tax
treatment.
Weikang
has been exempt from income tax for a period of three years. The preferential
tax concession that was granted by the Shuangcheng Municipal Government expired
in 2008, and has not been renewed. Weikang’s tax liabilities will increase as a
result and its profits will likely decline. The company will now be
responsible for a 25% income tax.
We
cannot guarantee the protection of our intellectual property
rights.
To protect the reputation of
our products, we have applied for registration of our trademarks in the PRC
where our sole operating business is located. Please refer to the paragraph
headed “Intellectual Property” in the Business section of this current report on
page
6.
Presently,
all of our products are sold under the brand name “Rongrun”. Since we
launched our products in May 2006, we have not experienced any infringements of
such trademark for sales of health supplement products. However, there is no
assurance that there will not be any infringement of our brand name or other
trademarks or counterfeiting of our products in the future. Should any such
infringement or counterfeiting occur, our reputation and business may be
adversely affected. We may also incur significant expenses and substantial
amount of time and effort to enforce our intellectual property rights in the
future. Such diversion of our resources may adversely affect our existing
business and future expansion plan.
7
We
rely on a few suppliers and any disruption with our suppliers could have an
adverse effect on our business.
We have
developed good working relationships with a limited number of suppliers for our
raw materials that are otherwise generally available. Although we believe that
alternative suppliers are available to supply materials, should any of these
suppliers terminate its business arrangements with us or increase the prices of
materials supplied by these suppliers, it could delay product shipments and
adversely affect our business operations and profitability.
We
are subject to the environmental protection laws of the PRC, which may result in
restrictions on our operations or liabilities for pollution.
Our
manufacturing process may produce by-products such as effluent, gases and noise,
which are harmful to the environment. We are subject to multiple laws governing
environmental protection, such as “The Law on Environmental Protection in the
PRC” and “The Law on Prevention of Effluent Pollution in the PRC”, as well as
standards set by the relevant governmental bodies determining the classification
of different wastes and proper disposal. China is experiencing substantial
problems with environmental pollution. Accordingly, it is likely that the
national, provincial and local governmental agencies will adopt stricter
pollution controls. There can be no assurance that future changes in
environmental laws and regulations will not impose costly compliance
requirements on us or otherwise subject us to future liabilities. Our business’s
profitability may be adversely affected if additional or modified environmental
control regulations are imposed upon us.
We
may suffer as a result of product liability or defective products.
We may
produce products which, despite proper testing, inadvertently have an adverse
pharmaceutical effect on the health of individuals. The existing PRC laws and
regulations do not require us to maintain third party liability insurance to
cover product liability claims. However, if a product liability claim is brought
against us, it may, regardless of merit or eventual outcome, result in damage to
our reputation, breach of contract with our customers, decreased demand for our
products, costly litigation, product recalls, loss of revenue, and the inability
to commercialize our some products. We currently are not aware of any existing
or anticipated product liability claims with respect to our
products.
There
are no conclusive studies regarding the medical benefits of nutritional
supplements.
We
currently manufacture, market and distribute seven nutritional supplement
products: (1) Rongrun Youth Keeping Capsules; (2) Rongrun Energy Keeping
Capsules; (3) Rongrun Vitamin Sugar Capsules; (4) Rongrun Intestine Cleansing
Capsules; (5) Rongrun Artery Cleansing Capsules; (6) Rongrun Royal Jelly
Extract; (7) Rongrun Kidney Boost Tonic; (8) Ferrous Fumarate Granule; (9)
Eucommia Ulmoides Oliy Granule; (10)Bushen Qiangshen Table; and (11) Tinidazole
Vaginal Effervescent Table. Some of the ingredients in our current
products (and we anticipate in our future products) are vitamins, minerals,
herbs and other substances for which there is not a long history of human
consumption. Although we believe all of our products to be safe when taken as
directed by us, there is little experience with human consumption of certain of
these product ingredients in concentrated form. In addition, we are highly
dependent upon consumers' perception of the safety and quality of our products
as well as similar products distributed by other companies. We could be
adversely affected in the event any of our products or any similar products
distributed by other companies should prove or be asserted to be harmful to
consumers. In addition, because of our dependence upon consumer perceptions,
adverse publicity associated with illness or other adverse effects resulting
from consumers' failure to consume our products as we suggest or other misuse or
abuse of our products or any similar products distributed by other companies
could have a material adverse effect on the results of our operations and
financial condition and could expose us to legal liability.
The
manufacture and distribution of nutritional supplements could result in product
liability claims.
We, like
any other retailer, distributor and manufacturer of products that are designed
to be ingested, face an inherent risk of exposure to product liability claims in
the event that the use of our products results in injury. Such claims may
include, among others, that our products contain contaminants or include
inadequate instructions as to use or inadequate warnings concerning side effects
and interactions with other substances. While we may obtain product liability
insurance in the future, we may not be able to obtain such insurance at a
reasonable cost, or, if available, cannot assure that it will be adequate
to cover liabilities. We do not anticipate obtaining contractual indemnification
from parties supplying raw materials or marketing our products. In any event,
any such indemnification if obtained will be limited by our terms and, as a
practical matter, to the creditworthiness of the indemnifying party. In the
event that we do not have adequate insurance or contractual indemnification,
product liabilities relating to defective products could have a material adverse
effect on our operations and financial conditions.
Adverse
publicity due to unfavorable research findings in connection with our products
could adversely affect our sales and financial condition.
We
believe the growth experienced by the nutritional supplement market is based in
part on national media attention regarding scientific research suggesting
potential health benefits from regular consumption of certain vitamins and other
nutritional products. Such research has been described in major medical
journals, magazines, newspapers and television programs. The scientific research
to date is preliminary.
In the
future, scientific research and/or publicity may not be favorable to the
nutritional supplement market or any particular product, or may be inconsistent
with earlier favorable research or publicity. Future reports of research that
are perceived as less favorable or that question earlier research could
have a material adverse effect on our operations and financial condition.
Because of our dependence upon consumer perceptions, adverse publicity
associated with illness or other adverse effects resulting from the consumption
of our products or any similar products distributed by other companies could
have a material adverse effect on our operations. Such adverse publicity could
arise even if the adverse effects associated with such products resulted from
consumers' failure to consume such products as directed. In addition, we may not
be able to counter the effects of negative publicity concerning the efficacy of
our products. Any such occurrence could have a negative effect on our
operations.
8
Risks
Related to Our Corporate Structure
If
we are unable to timely remit the purchase price for the acquisition of Weikang,
the approval and designation of Weikang as a foreign investment enterprise and
Sinary as the 100% owner of Weikang may be revoked, and the acquisition of
Weikang may be deemed void.
Pursuant
to the Transfer Agreement, Sinary agreed to acquire 100% of the equity interest
in Weikang from its owners for RMB 57 million. As of the date of this report we
have paid RMB 0 towards the Acquisition Price of RMB 57 million. Under
applicable PRC regulations, the acquisition is deemed completed as of November
9, 2007, the date when
the Heilongjiang Office of the State Administration for Industry and Commerce
issued a FIE business license to Heilongjiang Weikang, and registered
Sinary as the 100% owner of Heilongjiang Weikang’s registered
capital. Pursuant to the terms of the equity interest transfer agreement and the
requirements of applicable PRC laws and regulations, Sinary had a grace period
to remit the Acquisition Price of RMB 57 million by August 6, 2009, which
was extended to June 30, 2010 pursuant to an approval letter issued by
PRC government on August 7, 2009. In the event that we
are unable to timely remit the Acquisition Price by June 30, 2010, the
Heilongjiang Provincial Government and Heilongjiang Office of the State
Administration for Industry and Commerce may revoke the approval and license of
Weikang as a foreign invested enterprise, and Sinary as the 100% owner of
Weikang, thereby unwinding the acquisition. In the event that the acquisition is
unwound, we will not be the owner of any equity interest in Weikang, and as a
result, Weikang will no longer be our operating business. Should this occur, it
would have an absolutely detrimental effect on our business; the Company would
most likely fail and YOUR INVESTMENT IN OUR STOCK WOULD BECOME
WORTHLESS. Although we may seek to acquire the equity interest of
Weikang through other means, we cannot guarantee that we will do so, nor can we
guarantee that we will be successful if we do.
PRC
laws and regulations governing our business are uncertain. If we are found to be
in violation, we could be subject to sanctions. In addition, changes in such PRC
laws and regulations may materially and adversely affect our
business.
There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including, but not limited to, the laws and regulations
governing our business. We are considered a foreign person or foreign invested
enterprise under PRC law. As a result, we are subject to PRC law limitations on
foreign ownership of Chinese companies. These laws and regulations are
relatively new and may be subject to change, and their official interpretation
and enforcement may involve substantial uncertainty. The effectiveness of newly
enacted laws, regulations or amendments may be delayed, resulting in detrimental
reliance by foreign investors. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively.
The PRC
government has broad discretion in dealing with violations of laws and
regulations, including levying fines, revoking business and other licenses and
requiring actions necessary for compliance. In particular, licenses and permits
issued or granted to us by relevant governmental bodies may be revoked at a
later time by higher regulatory bodies. We cannot predict the effect of the
interpretation of existing or new PRC laws or regulations on our businesses. We
cannot assure you that our current ownership and operating structure would not
be found in violation of any current or future PRC laws or regulations. As a
result, we may be subject to sanctions, including fines, and could be required
to restructure our operations or cease to provide certain services. Any of these
or similar actions could significantly disrupt our business operations or
restrict us from conducting a substantial portion of our business operations,
which could materially and adversely affect our business, financial condition
and results of operations.
Risks
Related to Doing Business in China
Adverse
changes in economic and political policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
adversely affect our business.
Substantially all of our business operations are conducted in China.
Accordingly, our results of operations, financial condition and prospects are
subject to a significant degree to economic, political and legal developments in
China. China's economy differs from the economies of most developed countries in
many respects, including with respect to the amount of government involvement,
level of development, growth rate, control of foreign exchange and allocation of
resources. While the PRC economy has experienced significant growth in the past
20 years, growth has been uneven across different regions and among various
economic sectors of China. The PRC government has implemented various measures
to encourage economic development and guide the allocation of resources. Some of
these measures benefit the overall PRC economy, but may also have a negative
effect on us. For example, our financial condition and results of operations may
be adversely affected by government control over capital investments or changes
in tax regulations that are applicable to us. Since early 2004, the PRC
government has implemented certain measures to control the pace of economic
growth. Such measures may cause a decrease in the level of economic activity in
China, which in turn could adversely affect our results of operations and
financial condition.
Uncertainties
with respect to the PRC legal system could adversely affect us.
We
conduct our business primarily through our affiliated Chinese entities, Weikang
and Tianfang. Our operations in China are governed by PRC laws and
regulations. We are generally subject to laws and regulations applicable to
foreign investments in China and, in particular, laws applicable to wholly
foreign-owned enterprises. The PRC legal system is based on written statutes.
Prior court decisions may be cited for reference but have limited precedential
value.
Since
1979, PRC legislation and regulations have significantly enhanced the
protections afforded to various forms of foreign investments in China. However,
China has not developed a fully integrated legal system and recently enacted
laws and regulations may not sufficiently cover all aspects of economic
activities in China. In particular, because these laws and regulations are
relatively new, and because of the limited volume of published decisions and
their nonbinding nature, the interpretation and enforcement of these laws and
regulations involve uncertainties. In addition, the PRC legal system is based in
part on government policies and internal rules (some of which are not published
on a timely basis or at all) that may have a retroactive effect. As a result, we
may not be aware of our violation of these policies and rules until some time
after the violation. In addition, any litigation in China may be protracted and
result in substantial costs and diversion of resources and management
attention.
You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based on United States
or other foreign laws against us, our management or the experts named in this
current report.
We
conduct substantially all of our operations in China and substantially all of
our assets are located in China. In addition, most of our senior executive
officers reside within China. As a result, it may not be possible to effect
service of process within the United States or elsewhere outside of China upon
our senior executive officers, including with respect to matters arising under
U.S. federal securities laws or applicable state securities laws. Moreover, our
PRC counsel has advised us that the PRC does not have treaties with the United
States or many other countries providing for the reciprocal recognition and
enforcement of judgment of courts.
Governmental
control of currency conversion may affect the value of your
investment.
The PRC
government imposes controls on the convertibility of RMB into foreign currencies
and, in certain cases, the remittance of currency out of China. We receive
substantially all of our revenues in RMB. Under our current structure, our
income is primarily derived from Weikang. Shortages in the availability of
foreign currency may restrict the ability of our PRC subsidiaries and our
affiliated entity to remit sufficient foreign currency to pay dividends or other
payments to us, or otherwise satisfy their foreign currency denominated
obligations. Under existing PRC foreign exchange regulations, payments of
current account items, including profit distributions, interest payments and
expenditures from trade-related transactions, can be made in foreign currencies
without prior approval from the PRC State Administration of Foreign Exchange by
complying with certain procedural requirements. However, approval from
appropriate government authorities is required where RMB is to be converted into
foreign currency and remitted out of China to pay capital expenses such as the
repayment of bank loans denominated in foreign currencies. The PRC government
may also, at its discretion, restrict access in the future to foreign currencies
for current account transactions. If the foreign exchange control system
prevents us from obtaining sufficient foreign currency to satisfy our currency
demands, we may not be able to pay dividends in foreign currencies to our
shareholders.
Fluctuation
in the value of RMB may have a material adverse effect on your
investment.
The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Our revenues and costs are mostly denominated in RMB, while a significant
portion of our financial assets are denominated in U.S. dollars. Our revenue is
based entirely on that generated by our affiliated entity in China. Any
significant fluctuation in value of RMB may materially and adversely affect our
cash flows, revenues, earnings and financial position, and the value of, and any
dividends payable on, our stock in U.S. dollars. For example, an appreciation of
RMB against the U.S. dollar would make any new RMB denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S.
dollars into RMB for such purposes. An appreciation of RMB against the U.S.
dollar would also result in foreign currency translation losses for financial
reporting purposes when we translate our U.S. dollar denominated financial
assets into RMB, as RMB is our reporting currency.
We
face risks related to health epidemics and other outbreaks.
Our business could be adversely affected by the effects of SARS or another
epidemic or outbreak. China reported a number of cases of SARS in April 2004.
Any prolonged recurrence of SARS or other adverse public health developments in
China may have a material adverse effect on our business operations. For
instance, health or other government regulations adopted in response may require
temporary closure of our production facilities or of our offices. Such closures
would severely disrupt our business operations and adversely affect our results
of operations. We have not adopted any written preventive measures or
contingency plans to combat any future outbreak of SARS or any other
epidemic.
9
Risks
Related to an Investment in Our Securities
To
date, we have not paid any cash dividends and no cash dividends will be paid in
the foreseeable future.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and we may not have sufficient funds legally available to pay dividends. Even if
the funds are legally available for distribution, we may nevertheless decide not
to pay any dividends. We intend to retain all earnings from our
operations.
We
recently entered into a financing transaction that could significantly
dilute your investment in the Company and cause your shares to become
worthless.
On
January 20, 2010 the Company entered into agreements with accredited investors
to raise $2,500,000 in gross proceeds and received net proceeds of approximately
$2,052,500, after placement agent fees and other offering
expenses. The accredited investors in this transaction also received
one Series A Warrant and one Series B Warrant for every $8.00 invested in the
Company. Series A Warrants grant the holder the right to purchase
shares of Common Stock at an exercise price of $3.00. Series B
Warrants grant the holder the right to purchase shares of Common Stock at an
exercise price of $5.00. Pursuant to this transaction the Company has
issued Series A Warrants to purchase 312,500 shares of Common Stock and Series B
Warrants to purchase 312,500 shares of Common Stock for a period of three years
from the date of issuance. The Warrants provide for antidilution
adjustments to the exercise price for certain convertible securities issued with
conversion prices lower than the Warrants’ exercise price. If the
Company issues these types of convertible securities and the antidilution
provisions of the warrants are triggered your investment in the Company will be
significantly diluted and your shares will likely become
worthless. The Company has also agreed to provide these investors
with registration rights for their securities. In the event that the
Company cannot meet certain deadlines for registering these securities they
could be subject to damages of up to 9% of the investment or
$225,000.
The
application of the "penny stock" rules could adversely affect the market price
of our common stock and increase your transaction costs to sell those
shares.
As long
as the trading price of our common shares is below $5 per share, the open-market
trading of our common shares will be subject to the "penny stock" rules. The
"penny stock" rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the willingness
of broker-dealers to sell our common shares, and may result in decreased
liquidity for our common shares and increased transaction costs for sales and
purchases of our common shares as compared to other securities.
Our
common shares are thinly traded and, you may be unable to sell at or near ask
prices or at all if you need to sell your shares to raise money or otherwise
desire to liquidate your shares.
We cannot
predict the extent to which an active public market for our common stock will
develop or be sustained. However, we do not rule out the possibility of applying
for listing on the NASDAQ National Market or other exchanges.
Our
common shares have historically been sporadically or "thinly-traded" on the
“Over-the-Counter Bulletin Board”, meaning that the number of persons interested
in purchasing our common shares at or near bid prices at any given time may be
relatively small or non-existent. This situation is attributable to a number of
factors, including the fact that we are a small company which is relatively
unknown to stock analysts, stock brokers, institutional investors and others in
the investment community that generate or influence sales volume, and that even
if we came to the attention of such persons, they tend to be risk-averse and
would be reluctant to follow an unproven company such as ours or purchase or
recommend the purchase of our shares until such time as we became more seasoned
and viable. As a consequence, there may be periods of several days or more when
trading activity in our shares is minimal or non-existent, as compared to a
seasoned issuer which has a large and steady volume of trading activity that
will generally support continuous sales without an adverse effect on share
price. We cannot give you any assurance that a broader or more active public
trading market for our common stock will develop or be sustained, or that
current trading levels will be sustained.
The
market price for our common stock is particularly volatile given our status as a
relatively small company with a small and thinly traded “float” and lack of
current revenues that could lead to wide fluctuations in our share price. The
price at which you purchase our common stock may not be indicative of the price
that will prevail in the trading market. You may be unable to sell your common
stock at or above your purchase price if at all, which may result in substantial
losses to you.
The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and/or thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, we are a speculative or "risky" investment due to our
lack of revenues or profits to date and uncertainty of future market acceptance
for our current and potential products. As a consequence of this enhanced risk,
more risk-adverse investors may, under the fear of losing all or most of their
investment in the event of negative news or lack of progress, be more inclined
to sell their shares on the market more quickly and at greater discounts than
would be the case with the stock of a seasoned issuer. The following factors may
add to the volatility in the price of our common shares: actual or anticipated
variations in our quarterly or annual operating results; adverse outcomes,
additions or departures of our key personnel, as well as other items discussed
under this "Risk Factors" section, as well as elsewhere in this Current Report.
Many of these factors are beyond our control and may decrease the market price
of our common shares, regardless of our operating performance. We cannot make
any predictions or projections as to what the prevailing market price for our
common shares will be at any time, including as to whether our common shares
will sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price.
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (2)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
10
Volatility
in our common share price may subject us to securities litigation.
The
market for our common stock is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
In the past, plaintiffs have often initiated securities class action litigation
against a company following periods of volatility in the market price of its
securities. We may, in the future, be the target of similar litigation.
Securities litigation could result in substantial costs and liabilities and
could divert management's attention and resources.
Our
corporate actions are substantially controlled by a single
stockholder.
As a
result of the share exchange transaction with Sinary, the Sinary Stockholder
currently owns approximately 88% of our outstanding common shares, representing
approximately 88% of our voting power. This stockholder could exert substantial
influence over matters such as electing directors and approving mergers or other
business combination transactions. In addition, because of the percentage of
ownership and voting concentration in the principal stockholder, elections of
our board of directors will generally be within the control of this stockholder.
While all of our shareholders are entitled to vote on matters submitted to our
shareholders for approval, the concentration of shares and voting control
presently lies with this principal stockholder. As such, it would be extremely
difficult for shareholders to propose and have approved proposals not supported
by the Sinary Stockholder. There can be no assurances that matters voted upon by
the Sinary Stockholder will be viewed favorably by all shareholders of our
company.
The
elimination of monetary liability against our directors, officers and employees
under Nevada law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by us and may
discourage lawsuits against our directors, officers and employees.
Our
articles of incorporation contain specific provisions that eliminate the
liability of our directors for monetary damages to our company and shareholders,
and we are prepared to give such indemnification to our directors and officers
to the extent provided by Nevada law. We may also have contractual
indemnification obligations under our employment agreements with our officers.
The foregoing indemnification obligations could result in our company incurring
substantial expenditures to cover the cost of settlement or damage awards
against directors and officers, which we may be unable to recoup. These
provisions and resultant costs may also discourage our company from bringing a
lawsuit against directors and officers for breaches of their fiduciary duties,
and may similarly discourage the filing of derivative litigation by our
shareholders against our directors and officers even though such actions, if
successful, might otherwise benefit our company and shareholders.
Legislative
actions, higher insurance costs and potential new accounting pronouncements may
impact our future financial position and results of operations.
There
have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
there may potentially be new accounting pronouncements or additional regulatory
rulings that will have an impact on our future financial position and results of
operations. The Sarbanes-Oxley Act of 2002 and other rule changes as well as
proposed legislative initiatives following the Enron bankruptcy are likely to
increase general and administrative costs and expenses. In addition, insurers
are likely to increase premiums as a result of high claims rates over the past
several years, which we expect will increase our premiums for insurance
policies. Further, there could be changes in certain accounting rules. These and
other potential changes could materially increase the expenses we report under
generally accepted accounting principles, and adversely affect our operating
results.
The
market price for our stock may be volatile.
The
market price for our stock may be volatile and subject to wide fluctuations in
response to factors including the following:
|
·
|
actual
or anticipated fluctuations in our quarterly operating
results;
|
|
·
|
changes
in financial estimates by securities research
analysts;
|
|
·
|
conditions
in pharmaceutical and agricultural markets;
|
|
·
|
changes
in the economic performance or market valuations of other pharmaceutical
companies;
|
|
·
|
announcements
by us or our competitors of new products, acquisitions, strategic
partnerships, joint ventures or capital commitments;
|
|
·
|
addition
or departure of key personnel;
|
|
·
|
fluctuations
of exchange rates between RMB and the U.S. dollar;
|
|
·
|
intellectual
property litigation;
|
|
·
|
general
economic or political conditions in
China.
|
In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also materially and
adversely affect the market price of our stock.
We
may need additional capital, and the sale of additional shares or other equity
securities could result in additional dilution to our shareholders.
We
believe that our current cash and cash equivalents, anticipated cash flow from
operations and the net proceeds from a proposed offering will be sufficient to
meet our anticipated cash needs for the near future. We may, however, require
additional cash resources due to changed business conditions or other future
developments, including any investments or acquisitions we may decide to pursue.
If our resources are insufficient to satisfy our cash requirements, we may seek
to sell additional equity or debt securities or obtain a credit facility. The
sale of additional equity securities could result in additional dilution to our
shareholders. The incurrence of indebtedness would result in increased debt
service obligations and could result in operating and financing covenants that
would restrict our operations. We cannot assure you that financing will be
available in amounts or on terms acceptable to us, if at all.
If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent fraud.
We will
be subject to reporting obligations under the U.S. securities laws. The
Securities and Exchange Commission, or the SEC, as required by Section 404 of
the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to
include a management report on such company's internal controls over financial
reporting in its annual report, which contains management's assessment of the
effectiveness of our internal controls over financial reporting. In addition, an
independent registered public accounting firm must attest to and report on
management's assessment of the effectiveness of our internal controls over
financial reporting. Our management may conclude that our internal controls over
our financial reporting are not effective. Moreover, even if our management
concludes that our internal controls over financial reporting are effective, our
independent registered public accounting firm may still decline to attest to our
management's assessment or may issue a report that is qualified if it is not
satisfied with our controls or the level at which our controls are documented,
designed, operated or reviewed, or if it interprets the relevant requirements
differently from us. Our reporting obligations as a public company will place a
significant strain on our management, operational and financial resources and
systems for the foreseeable future. Effective internal controls, particularly
those related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to help prevent fraud. As a result, our
failure to achieve and maintain effective internal controls over financial
reporting could result in the loss of investor confidence in the reliability of
our financial statements, which in turn could harm our business and negatively
impact the trading price of our stock. Furthermore, we anticipate that we will
incur considerable costs and use significant management time and other resources
in an effort to comply with Section 404 and other requirements of the
Sarbanes-Oxley Act.
We
will incur increased costs as a result of being a public company.
As a
public company, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. In addition, the Sarbanes-Oxley Act,
as well as new rules subsequently implemented by SEC have required changes in
corporate governance practices of public companies. We expect these new rules
and regulations to increase our legal, accounting and financial compliance costs
and to make certain corporate activities more time-consuming and costly. In
addition, we will incur additional costs associated with our public company
reporting requirements. We are currently evaluating and monitoring developments
with respect to these new rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.
Declining
economic conditions could negatively impact our business
Our
operations are affected by local, national and worldwide economic
conditions. Markets in the United States and elsewhere have been
experiencing extreme volatility and disruption for more than 12 months, due in
part to the financial stresses affecting the liquidity of the banking system and
the financial markets generally. In recent weeks, this volatility and
disruption has begun to level off but there is no guarantee that markets will
remain stable. The consequences of a potential or prolonged recession
may include a lower level of economic activity and uncertainty regarding energy
prices and the capital and commodity markets. While the ultimate outcome and
impact of the current economic conditions cannot be predicted, a lower level of
economic activity might result in a decline in energy consumption, which may
adversely affect the price of oil, liquidity and future
growth. Instability in the financial markets, as a result of
recession or otherwise, also may affect the cost of capital and our ability to
raise capital.
11
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM 2.
PROPERTIES
Heilongjiang
Weikang’s principal executive offices and manufacturing facility are located
approximately 42 kilometers south of the provincial capital Harbin, in the
“Economic and Technology Development Zone” in the City of
Shuangcheng. We acquired the land use rights for 50 years for this
property in 2005 and the land underlying the facility is approximately 9.63
acres in size. The facility includes two work shops, an administrative office
building, a warehouse and cafeteria building, all of which are owned by us. We
acquired the land use rights and the buildings of the facility from the
Shuangcheng Municipal Government pursuant to a lease, under which we agreed to
renovate and utilize the site and existing buildings and structures for our
health supplements business. In return, we were exempted from certain municipal
fees during our renovation efforts, and we are also exempted from income tax
from 2005 to 2008.
In
November 2009, the Company signed a new lease for the right to use an additional
143,688 square meters of property located in the “Shuangcheng Economic
Development Zone” in the City of Shuangcheng. We paid approximately
$3,530,000 for the use of this additional land from November 2009 until November
2059. There is no tax exemption or other arrangements for this
lease.
Our
subsidiary Tianfang leases property located within the Zhazuo Medicine Industry
Area of Xiuwen county, Guiyang City, Guizhou Province, China, where it engages
in the development, manufacture and distribution of Chinese herbal extract
products and GMP certified western prescription
pharmaceuticals. Tianfang’s operations comprise 71,907 square meters
with 14,675 square meters of factory facilities. Tianfang has four
workshops, one administration building, four warehouses, and one staff building,
all of which are owned by Tianfang including the land use rights for 50 years,
starting from 2001.
We may be
subject to, from time to time, various legal proceedings relating to claims
arising out of our operations in the ordinary course of our business. We are not
currently a party to any legal proceedings, the adverse outcome of which,
individually or in the aggregate, would have a material adverse effect on the
business, financial condition, or results of operations of the
Company.
We did
not submit any matters to a vote of security holders during the fourth quarter
of fiscal year 2009.
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Trading
Market for Common Equity
Our
common stock is quoted on the Electronic Bulletin Board under the symbol,
WKBT.OB. Trading in the common stock in the over-the-counter market has been
limited and sporadic and the quotations set forth below are not necessarily
indicative of actual market conditions. Further, these prices reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and may
not necessarily reflect actual transactions. The following tables set forth the
high and low sale prices for our common stock as reported on the Electronic
Bulletin Board for the periods indicated.
|
Year
Ended December 31, 2008:
|
High
|
Low
|
||||||
|
3/31/2008
|
$
|
0.60
|
$
|
0.60
|
||||
|
6/30/2008
|
$
|
1.15
|
$
|
1.15
|
||||
|
9/30/2008
|
$
|
1.15
|
$
|
1.15
|
||||
|
12/31/2008
|
$
|
1.04
|
$
|
1.04
|
||||
|
Year
Ended December 31, 2009:
|
High
|
Low
|
||||||
|
3/31/2009
|
$
|
1.04
|
$
|
1.04
|
||||
|
6/30/2009
|
$
|
2.75
|
$
|
2.75
|
||||
|
9/30/2009
|
$
|
2.00
|
$
|
2.00
|
||||
|
12/31/2009
|
$
|
2.50
|
$
|
2.35
|
||||
|
Year
Ended December 31, 2010:
|
High
|
Low
|
||||||
|
3/31/2010
|
$
|
3.05 |
$
|
3.05 | ||||
Dividends
We do not
currently intend to pay any cash dividends in the foreseeable future on our
common stock and, instead, intend to retain earnings, if any, for future
operation and expansion. Any decision to declare and pay dividends in the future
will be made at the discretion of our board of directors and will depend on,
among other things, our results of operations, cash requirements, financial
condition, contractual restrictions and other factors that our board may deem
relevant.
Number
of Holders
As of
March 11, 2010, we had 41 common shareholders of record.
Securities
Authorized for Issuance Under Equity Compensation Plans
2008 Stock Incentive
Plan
On June
24, 2008, our Board of Directors approved a 2008 Stock Incentive Plan for our
employees, officers, and directors, and our consultants and advisors. We also
filed a related Form S-8 with the SEC. As of March 11, 2010, we had 297,000
shares issued to our consultants pursuant to the 2008 Stock Incentive
Plan.
Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
None.
Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers
None.
Transfer
Agent
Our transfer agent is Florida Atlantic
Stock Transfer Inc. located at 7130 Nob Hill Road, Tamarac,
Florida 33321.
12
ITEM 6. SELECTED FINANCIAL
DATA
If the registrant qualifies as a smaller
reporting company as defined by Rule 229.10(f)(1),
it is not required to provide the information required by this
Item.
Note
Regarding Forward-Looking Statements
This
annual report on Form 10-K and other reports filed by the Company from time to
time with the Securities and Exchange Commission (collectively called the
"Filings") contain or may contain forward-looking statements and information
that are based upon beliefs of and information currently available to, Company's
management as well as estimates and assumptions made by Company's management.
Readers are urged not to place undue reliance on these forward-looking
statements, which are only predictions and speak only as of the date
hereof. When used in the filings, the words "anticipate", "believe", "estimate",
"expect", "future", "intend", "plan", or the negative of these terms and similar
expressions as they relate to Company or Company's management identify
forward-looking statements. Such statements reflect the current view of Company
with respect to future events and are subject to risks, uncertainties,
assumptions, and other factors (including the risk contained in the section of
operations and results of operations, and any businesses that Company may
acquire.) Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual results may differ
significantly from those anticipated, believed, estimated, expected, intended,
or planned.
Although
Company believes that expectations reflected in the forward-looking statements
are reasonable, the Company cannot guarantee future results, levels of activity,
performance, or achievements. Except as required by applicable law, including
the securities laws of the United States, the Company does not intend to update
any of the forward-looking statements to conform to these statements to actual
results. Readers are urged to carefully review and consider the various
disclosures made throughout the entirety of this annual report, which
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, results of operations, and
prospects.
Our
financial statements are prepared in US Dollars and in accordance with
accounting principles generally accepted in the United States. See "Foreign
Currency Translation and Comprehensive Income (Loss)" and "Foreign Exchange
Rates" below for information concerning the exchange rates at the Renminbi
("RMB") were translated into US Dollars ("USD") at various pertinent dates and
for pertinent periods.
Overview
Weikang
Bio-Technology Company, Inc. (“we”, “us”, the “Company”) was incorporated in
Florida on May 12, 2004 as Expedition Leasing, Inc. On December 7, 2007, we
acquired Sinary Bio-Technology Holdings Group, Inc. (“Sinary”), a Nevada
corporation and, as a result, Sinary’s wholly-owned subsidiary Heilongjiang
Weikang Bio-Technology Group Co., Ltd. (“Heilongjiang Weikang”), a limited
liability company in the People’s Republic of China (“China” or “PRC”), by
exchanging 24,725,200 shares of our common stock for 100% of the issued and
outstanding common stock of Sinary.
Having no
substantive operation of its own, Sinary, through Heilongjiang Weikang, engages
in the research, development, manufacturing, marketing, and sales
of Traditional Chinese Medicine ("TCM") in China. Heilongjiang Weikang
is located in Heilongjiang Province in Northeastern China, with our principal
office and manufacturing facility located in the Economic and Technology
Development Zone in the city of Shuangcheng, approximately 42 kilometers south
of the provincial capital Harbin. All of our products are Chinese herbal-based
health and nutritional supplements. We seek to maintain and improve the quality
of our products, and as of April 2006, implemented the “GB/T19001-2000 idt
ISO9001:2000” quality assurance management system to all of our manufacturing
processes.
Through
our subsidiary Heilongjiang Weikang, we manufacture and distribute throughout
China a series of internally developed TCM products under a Chinese trade name,
“Rongrun”. The “Rongrun”line includes seven products. We developed two new
products during 2007, which were approved by the Heilongjiang Department of
Health.
On July
22, 2008, Heilongjiang Weikang acquired 100% of the issued and outstanding
equity interest of Tianfang (Guizhou) Pharmaceutical Co., Ltd. (“Tianfang”), a
Chinese limited liability company, for $15,000,000, pursuant to a Stock Transfer
Agreement dated and entered into on June 30, 2008 by and among Heilongjiang
Weikang, Tianfang, and Tianfang’s two shareholders, Beijing Shiji Qisheng
Trading Co., Ltd. and Tri-H Trade (U.S.A.) Co., Ltd.
Tianfang
was incorporated in Guizhou Province, PRC in 1998. Tianfang is
engaged in the development, manufacture and distribution of Over the Counter
(“OTC”) Pharmaceuticals.
Critical
Accounting Policies and Estimates
Our
management's discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which were
prepared in accordance with accounting principles generally accepted in the
United States (“US GAAP”). The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported net
sales and expenses during the reporting periods. On an ongoing basis, we
evaluate our estimates and assumptions. We base our estimates on historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
While our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements, we believe the following accounting policies
are the most critical to aid you in fully understanding and evaluating this
management discussion and analysis.
13
Basis
of presentation
These
accompanying consolidated financial statements have been prepared in accordance
with US GAAP and pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) for annual or quarterly financial
statements.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Sinary, and the results of operations
of Heilongjiang Weikang, Sinary’s wholly-owned subsidiary; and Tianfang,
Heilongjiang Weikang’s wholly-owned subsidiary. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves.
Inventories
Inventories
are valued at the lower of cost or market with cost determined on a moving
weighted average basis. Cost of work in progress and finished goods comprises
direct material, direct production cost and an allocated portion of production
overheads.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for all assets with estimated lives ranging from 3 to 20 years as
follows:
|
Building
|
20
years
|
|
Vehicle
|
5
years
|
|
Office
Equipment
|
3-7
years
|
|
Production
Equipment
|
3-10
years
|
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (“SAB”) 104, codified in FASB ASC Topic 480. Revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectability is
reasonably assured. Payments received before all of the relevant criteria for
revenue recognition are recorded as unearned revenue.
Revenue
represents the invoiced value of goods, net of value-added tax (“VAT”). All of
the Company’s products sold in the PRC are subject to Chinese value-added tax of
17% of the gross sales price. This VAT may be offset by VAT paid by the Company
on raw materials and other materials included in the cost of producing their
finished product. The Company recorded VAT payable and VAT receivable net of
payments in the financial statements. The VAT tax return is filed offsetting the
payables against the receivables.
Foreign
Currency Translation and Comprehensive Income (Loss)
The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting
purposes, RMB were translated into United States dollars ("USD") as the
reporting currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Revenues and expenses are translated at the
average rate of exchange prevailing during the reporting period. Translation
adjustments arising from the use of different exchange rates from period to
period are included as a component of stockholders' equity as "Accumulated other
comprehensive income". Gains and losses resulting from foreign currency
transactions are included in income. There has been no significant fluctuation
in exchange rate for the conversion of RMB to USD after the balance sheet
date.
The
Company uses SFAS No 130, “Reporting Comprehensive Income”, codified in FASB ASC
Topic 220. Comprehensive income is comprised of net income and all changes to
the statements of stockholders’ equity, except those due to investments by
stockholders, changes in paid-in capital and distributions to
stockholders.
NEW
ACCOUNTING PRONOUNCEMENTS
In
October 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding
accounting for own-share lending arrangements in contemplation of convertible
debt issuance or other financing. This ASU requires that at the date
of issuance of the shares in a share-lending arrangement entered into in
contemplation of a convertible debt offering or other financing, the shares
issued shall be measured at fair value and be recognized as an issuance cost,
with an offset to additional paid-in capital. Further, loaned shares are
excluded from basic and diluted earnings per share unless default of the
share-lending arrangement occurs, at which time the loaned shares would be
included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years.
The Company is currently evaluating the impact of this ASU on its consolidated
financial statements.
In August
2009, the FASB issued an ASU regarding measuring liabilities at fair value. This
ASU provides additional guidance clarifying the measurement of liabilities at
fair value in circumstances in which a quoted price in an active market for the
identical liability is not available; under those circumstances, a reporting
entity is required to measure fair value using one or more of valuation
techniques, as defined. This ASU is effective for the first reporting period,
including interim periods, beginning after the issuance of this ASU. The
adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No.
168, “The
FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC
registrants, guidance issued by the SEC. The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC. The
Codification is amended to effect non-SEC changes to authoritative
GAAP. Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Consolidated Financial
Statements.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.
14
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS 165 requires that public entities evaluate subsequent
events through the date that the financial statements are
issued.
In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009. This FSP had no
material impact on the Company’s financial position, results of operations or
cash flows.
In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulate other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on the
Company’s financial position, results of operations or cash flows.
In April
2009, the FASB issued FSP No. SFAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP
No. SFAS 157-4”). FSP No. SFAS 157-4, which is codified in
FASB ASC Topics 820-10-35-51 and 820-10-50-2, provides additional guidance for
estimating fair value and emphasizes that even if there has been a significant
decrease in the volume and level of activity for the asset or liability and
regardless of the valuation technique(s) used, the objective of a fair value
measurement remains the same. The Company adopted FSP No. SFAS 157-4
beginning April 1, 2009. This FSP had no material impact on the Company’s
financial position, results of operations or cash flows.
Results
of Operations
Comparison
of the Years Ended December 31, 2009 and 2008
The
following table summarizes our results of operations. The table and the
discussion below should be read in conjunction with the unaudited financial
statements and the notes thereto appearing elsewhere in this
report.
|
2009
|
2008
|
|||||||||||||||
|
(in
U.S. Dollars, except for percentages)
|
||||||||||||||||
|
Sales
|
$
|
47,484,188
|
$
|
12,852,884
|
||||||||||||
|
Cost
of Sales
|
21,640,326
|
46
|
%
|
4,584,093
|
36
|
%
|
||||||||||
|
Gross
Profit
|
25,843,862
|
54
|
%
|
8,268,791
|
64
|
%
|
||||||||||
|
Operating
Expense
|
5,856,040
|
12
|
%
|
1,208,998
|
9
|
%
|
||||||||||
|
Income
from Operations
|
19,987,822
|
42
|
%
|
7,059,793
|
55
|
%
|
||||||||||
|
Other
Income (Expenses), net
|
984,738
|
2
|
%
|
959,735
|
7.5
|
%
|
||||||||||
|
Income
Tax Expense
|
5,355,758
|
11
|
%
|
748,919
|
6
|
%
|
||||||||||
|
Net
Income
|
$
|
15,616,802
|
33
|
%
|
$
|
7,270,609
|
57
|
%
|
||||||||
Sales. During the year ended
December 31, 2009, we had sales of $47.48 million, compared to $12.85 million
for 2008, an increase of $34.63 million or 269%. The increase in sales was
primarily a result of increased sales from Tianfang, which brought us about
$34.09 million sales or 72% of our total sales during 2009. Tianfang’s sales
increased $28.45 million or 493% during the year ended December 31,
2009; while in 2008, Tianfang had only 6 months operations due to the snow
disaster in China. In addition, there was increased demand from our
dealers and distributors as a result of increased acceptance and trust in our
products from end users despite our increased selling price in
2009. We believe our sales will continue to grow as we develop new
products and continue to improve the quality of our existing
products.
Cost of Sales. Cost of
sales increased $17.06 million or 372%, from $4.58 million for the year ended
December 31, 2008 to $21.64 million for the year ended December 31, 2009. The
increase was mainly due to increased production as a result of our acquisition
of Tianfang and increased demand from the end users. The cost of sales as a
percentage of sales for the year ended December 31, 2009, approximated 46% as
compared to 36% for 2008, which was attributable to relatively higher cost of
sales of Tianfang, approximating 51% of sales, while the cost of sales was
approximately 33% of the sales for Heilongjiang Weikang. The relatively higher
cost of Tianfang was mainly due to Tianfang’s high cost product type which are
popular and well-accepted products in order to meet customers’ demand and which
are being used for expanding its market share in the new regions. When the
market becomes stable and recognition of Tianfang brand is established in these
new regions, we will launch new product lines to replace the low profit margin
products.
Gross Profit. Gross profit
was $25.84 million for the year ended December 31, 2009, compared to $8.27
million for 2008, representing profit margins of 54% and 64% of sales,
respectively. The decrease in our profit margin was mainly due to increase in
cost of sales as a percentage of sales as a result of relatively high cost of
sales from Tianfang’s operations during the year 2009.
Operating Expenses. Total
operating expenses consisted of selling, general and administrative expenses of
$5.85 million for the year ended December 31, 2009 compared to $1.21 million for
the year ended December 31, 2008, an increase of $4.64 million or 383%.
Operating expenses as a percentage of sales was 12% for the year ended December
31, 2009 while it was 9% for 2008. This increase was attributable to the
combined expenses of Heilongjiang Weikang and Tianfang due to the acquisition of
Tianfang in July 2008. In addition, we had R&D expense of approximately
$1.95 million in 2009 for developing certain new medicine and health
supplemental products with the Botany medicine research center of Northeast
Forestry University.
Net Other Income. Other
income was $0.98 million in the year ended December 31, 2009 compared to $0.96
million in the year ended December 31, 2008, an increase of $25,000 or
3%. Other income in the year 2009 and 2008 mainly consisted of lease
income received from leasing a workshop and right to use our technology for
manufacturing the royal jelly.
Net Income. Our net income
for the year ended December 31, 2009 was $15.62 million compared to $7.27
million for the year ended December 31, 2008, an increase of $8.35 million or
115%. The increase was mainly attributed to growth in revenue
and efficiency of operations. Our management believes net income will continue
to increase as we continue to offer better quality and variety of products and
improve our manufacturing efficiency.
15
Liquidity
and Capital Resources
As of
December 31, 2009, the Company had cash and cash equivalents of $11.38 million,
other current assets of $0.31 million, and current liabilities of $10.54
million. Working capital was $1.15 million at December 31, 2009. The ratio of
current assets to current liabilities was 1.11-to-1 as of December
31, 2009.
The
following is a summary of cash provided by or used in each of the indicated
types of activities during the years ended December 31, 2009 and 2008,
respectively:
|
2009
|
2008
|
|||||||
|
Cash
provided by (used in):
|
||||||||
|
Operating
Activities
|
$
|
17,468,437
|
$
|
10,178,609
|
||||
|
Investing
Activities
|
$
|
(3,563,305
|
)
|
$
|
(808,739
|
)
|
||
|
Financing
Activities
|
$
|
(2,550,714)
|
$
|
(9,635,668)
|
||||
Net
cash provided by operating activities was $17.47 million for the year ended
December 31, 2009, compared to $10.18 million for 2008. The increase in net cash
inflow from operating activities was mainly due to an increase in our net income
with faster collection on accounts receivable.
Net
cash used in investing activities was $3.56 million for the year ended December
31, 2009, compared to $0.81 million for the year ended December 31,
2008. The cash outflow during the year ended December 31, 2009 was
mainly due to the acquisition of additional office equipment at $29,491 and
purchase of a new land use right for $3.53 million.
Net cash
used in financing activities was $2.55 million for the year ended December 31,
2009 compared to $9.64 million for the year ended December 31, 2008. The net
cash outflow in financing activities for the year ended December 31, 2009 mainly
consisted of payment of $3.81 million for the remaining portion of the
acquisition price of Tianfang; and repayment of sales receipts of $1.26 million
from the management that was previously deposited into a personal bankcard owned
by the Company’s officer mainly for the purpose of convenience on payment
collection.
We
do not believe inflation had a significant negative impact on our results of
operations during 2009.
Off-Balance
Sheet Arrangements
We
have not made any other financial guarantees or other commitments to guarantee
the payment obligations of any third party. We have not entered into any
derivative contracts that are indexed to our shares and classified as
stockholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit,
liquidity or market risk support to such entity. We do not have any variable
interest in any unconsolidated entity that provides financing, liquidity, market
risk or credit support to us or engages in leasing, hedging or research and
development services with us.
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
response to this Item is set forth under the caption “Quantitative and
Qualitative Disclosures About Market Risk” in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and
is incorporated herein by reference.
16
ITEM 8. FINANCIAL
STATEMENTS
Contents
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Financial
Statements:
|
||
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-2
|
|
|
Consolidated
Statements of Operations and Comprehensive Income
|
||
|
for
the years ended December 31, 2009 and 2008
|
F-3
|
|
|
Consolidated
Statement of Stockholders' Equity (Deficiency) for the years
ended
|
||
|
December
31, 2009 and 2008
|
F-4
|
|
|
Consolidated
Statements of Cash Flows for the years ended
|
||
|
December
31, 2009 and 2008
|
F-5
|
|
|
Notes
to Consolidated Financial Statements
|
F-6-12
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
shareholders
Weikang
Bio-Technology Group Company, Inc.
We have
audited the consolidated balance sheets of Weikang Bio-Technology Group Company,
Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the
related consolidated statements of operations and comprehensive income,
shareholders equity (deficiency) and cash flows for the years ended December 31,
2009 and 2008. These 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 audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit 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 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 includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company as of December 31,
2009 and 2008, and the consolidated results of its operations and its cash flows
for the years ended December 31, 2009 and 2008 in conformity with U.S. generally
accepted accounting principles.
Goldman
Parks Kurland Mohidin LLP
Encino,
California
March 22,
2010
F-1
|
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIES
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
December
31,
|
December
31,
|
|||||||
|
ASSETS
|
2009
|
2008
|
||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
& cash equivalents
|
$ | 11,380,019 | $ | 16,927 | ||||
|
Advances
to suppliers and other receivables
|
24,334 | 41,697 | ||||||
|
Inventory
|
285,395 | 151,942 | ||||||
|
Due
from management
|
1,745 | 1,243,672 | ||||||
|
Total
current assets
|
11,691,493 | 1,454,238 | ||||||
|
NONCURRENT
ASSETS
|
||||||||
|
Property
and equipment, net
|
10,162,946 | 11,098,046 | ||||||
|
Intangible
assets
|
15,558,731 | 12,214,405 | ||||||
|
Total
noncurrent assets
|
25,721,677 | 23,312,451 | ||||||
|
TOTAL
ASSETS
|
$ | 37,413,170 | $ | 24,766,689 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable
|
$ | 12,668 | $ | 12,996 | ||||
|
Unearned
revenue
|
11,716 | 224,271 | ||||||
|
Taxes
payable
|
2,247,410 | 1,250,087 | ||||||
|
Other
payables
|
7,620,321 | 11,434,937 | ||||||
|
Advance
from officer
|
650,000 | 650,000 | ||||||
|
Total
current liabilities
|
10,542,115 | 13,572,291 | ||||||
|
CONTINGENCIES
|
||||||||
|
DEFERRED
TAX LIABILITY
|
3,450,005 | 3,551,025 | ||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Common
stock, $.00001 par value; authorized
shares
|
||||||||
|
100,000,000; issued
and outstanding shares 25,486,600
|
||||||||
|
and
25,229,800 at December 31, 2009 and 2008, respectively
|
255 | 252 | ||||||
|
Additional
paid in capital (deficit)
|
139,245 | (252 | ) | |||||
|
Statutory
reserve
|
1,069,507 | 512,637 | ||||||
|
Accumulated
other comprehensive income
|
844,526 | 823,151 | ||||||
|
Retained
earnings
|
21,367,517 | 6,307,585 | ||||||
|
Total
stockholders' equity
|
23,421,050 | 7,643,373 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 37,413,170 | $ | 24,766,689 | ||||
F-2
|
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIES
|
||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
||||||||
|
YEAR
ENDED
|
||||||||
|
DECEMBER
31, 2009
|
DECEMBER
31, 2008
|
|||||||
|
Net
sales
|
$ | 47,484,188 | $ | 12,852,884 | ||||
|
Cost
of goods sold
|
21,640,326 | 4,584,093 | ||||||
|
Gross
profit
|
25,843,862 | 8,268,791 | ||||||
|
Operating
expenses
|
||||||||
|
Selling
expenses
|
2,583,202 | 351,840 | ||||||
|
General
and administrative expenses
|
1,321,838 | 857,158 | ||||||
|
Research
and development expenses
|
1,951,000 | - | ||||||
|
Total
operating expenses
|
5,856,040 | 1,208,998 | ||||||
|
Income
from operations
|
19,987,822 | 7,059,793 | ||||||
|
Non-operating
income (expenses)
|
||||||||
|
Interest
income
|
13,206 | 997 | ||||||
|
Financial
expense
|
(1,664 | ) | (4,973 | ) | ||||
|
Other
income
|
1,034,885 | 1,032,896 | ||||||
|
Other
expenses
|
(61,689 | ) | (69,185 | ) | ||||
|
Total
non-operating income, net
|
984,738 | 959,735 | ||||||
|
Income before
income tax
|
20,972,560 | 8,019,528 | ||||||
|
Income
tax
|
5,355,758 | 748,919 | ||||||
|
Net
income
|
15,616,802 | 7,270,609 | ||||||
|
Other
comprehensive income
|
||||||||
|
Foreign
currency translation gain
|
21,375 | 626,719 | ||||||
|
Comprehensive
Income
|
$ | 15,638,177 | $ | 7,897,328 | ||||
|
Basic
and diluted weighted average shares outstanding
|
25,375,581 | 25,229,800 | ||||||
|
Basic
and diluted net earnings per share
|
$ | 0.62 | $ | 0.29 | ||||
F-3
|
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
|
||||||||||||||||||||||||||||
|
YEARS
ENDED DECEMBER 31, 2009 AND 2008
|
||||||||||||||||||||||||||||
|
Common
stock
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Additional
paid in capital
|
Statutory
reserves
|
Other
comprehensive income
|
Retained
Earnings / (Accumulated Deficit)
|
Total
|
||||||||||||||||||||||
|
Beginning
at January 31, 2008
|
25,229,800 | $ | 252 | $ | (252 | ) | $ | 19,961 | $ | 196,432 | $ | (470,348 | ) | $ | (253,955 | ) | ||||||||||||
|
Net
income for the year
|
- | - | - | - | - | 7,270,609 | 7,270,609 | |||||||||||||||||||||
|
Transfer
to statutory reserves
|
- | - | - | 492,676 | - | (492,676 | ) | - | ||||||||||||||||||||
|
Foreign
currency translation gain
|
- | - | - | - | 626,719 | 626,719 | ||||||||||||||||||||||
|
Balance
at December 31, 2008
|
25,229,800 | $ | 252 | $ | (252 | ) | $ | 512,637 | $ | 823,151 | $ | 6,307,585 | $ | 7,643,373 | ||||||||||||||
|
Shares
issued for capital contribution
|
257,000 | 3 | 139,497 | - | - | - | 139,500 | |||||||||||||||||||||
|
Net
income for the year
|
- | - | - | - | - | 15,616,802 | 15,616,802 | |||||||||||||||||||||
|
Transfer
to statutory reserves
|
- | - | - | 556,870 | - | (556,870 | ) | - | ||||||||||||||||||||
|
Foreign
currency translation gain
|
- | - | - | - | 21,375 | - | 21,375 | |||||||||||||||||||||
|
Balance
at December 31, 2009
|
25,486,800 | $ | 255 | $ | 139,245 | $ | 1,069,507 | $ | 844,526 | $ | 21,367,517 | $ | 23,421,050 | |||||||||||||||
F-4
|
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC. AND SUBSIDIARIES
|
||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
|
YEAR
ENDED
|
YEAR
ENDED
|
|||||||
|
DECEMBER
31, 2009
|
DECEMBER
31, 2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income
|
$ | 15,616,802 | $ | 7,270,609 | ||||
|
Adjustments
to reconcile net income to net cash
|
||||||||
|
provided
by operating activities:
|
||||||||
|
Depreciation
and amortization
|
1,176,909 | 1,338,326 | ||||||
|
Stock
issued for consulting expenses
|
139,500 | - | ||||||
|
Changes
in deferred tax
|
(104,306 | ) | (38,104 | ) | ||||
|
(Increase)
decrease in current assets:
|
||||||||
|
Accounts
receivable
|
- | 416,885 | ||||||
|
Advances
to suppliers and other receivables
|
(1,903 | ) | 113,384 | |||||
|
Inventory
|
(133,257 | ) | 104,205 | |||||
|
Increase
(decrease) in current liabilities:
|
||||||||
|
Accounts
payable
|
(340 | ) | (12,856 | ) | ||||
|
Unearned
revenue
|
(212,677 | ) | 220,706 | |||||
|
Other
payables
|
8,559 | 243 | ||||||
|
Taxes
payable
|
979,150 | 765,211 | ||||||
|
Net
cash provided by operating activities
|
17,468,437 | 10,178,609 | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Acquisition
of property & equipment
|
(3,563,305 | ) | (808,739 | ) | ||||
|
Net
cash used in investing activities
|
(3,563,305 | ) | (808,739 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Changes
in due from management
|
1,261,882 | 1,712,790 | ||||||
|
Cash
acquired at purchase of business
|
- | 10,176 | ||||||
|
Payment
for purchase of Tianfang
|
(3,812,596 | ) | (11,278,744 | ) | ||||
|
Changes
in due from related party
|
- | (79,890 | ) | |||||
|
Net
cash used in financing activities
|
(2,550,714 | ) | (9,635,668 | ) | ||||
|
EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
|
8,674 | 165,485 | ||||||
|
INCREASE
(DECREASE) IN CASH & CASH EQUIVALENTS
|
11,363,092 | (100,313 | ) | |||||
|
CASH
& CASH EQUIVALENTS, BEGINNING OF YEAR
|
16,927 | 117,240 | ||||||
|
CASH
& CASH EQUIVALENTS, END OF YEAR
|
$ | 11,380,019 | $ | 16,927 | ||||
|
Supplemental
Cash flow data:
|
||||||||
|
Income
tax paid
|
$ | 4,163,362 | $ | 372,423 | ||||
|
Interest
paid
|
$ | - | $ | - | ||||
F-5
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Weikang
Bio-Technology Group Co., Inc., a Nevada corporation (“Weikang” or “the Company)
was incorporated on May 12, 2004 in Florida as Expedition Leasing, Inc.
(“Expedition”). The Company reincorporated in Nevada and changed to its present
name on July 12, 2008, pursuant to a merger with Weikang, a wholly-owned
subsidiary, with Weikang as the surviving entity. The Company is engaged in
the development, manufacture and distribution of Traditional Chinese Medicine
("TCM") through its indirect wholly-owned operating subsidiary,
Heilongjiang Weikang Biotechnology Group Co., Ltd. (“Heilongjiang Weikang”) in
the People’s Republic of China (“PRC” or “China”).
On
December 7, 2007, the Company (as Expedition) entered into an exchange agreement
with Sinary Bio-Technology Holdings Group, Inc., a Nevada corporation (“Sinary”)
and its sole shareholder (the “Sinary Stockholder”), pursuant to which the
Company issued 24,725,200 shares of common stock to the Sinary Stockholder for
all of the common shares of Sinary. Concurrently, Sinary paid $650,000 to
certain former shareholders of the Company, who surrendered 24,725,200 shares of
the Company’s common stock held by them to the Company for cancellation. As a
result, the Sinary Stockholder currently owns 98% of the Company. On the
Closing Date, Sinary became a wholly-owned subsidiary of the
Company.
Prior
to the acquisition of Sinary, the Company was a non-operating public shell
corporation. Pursuant to Securities and Exchange Commission (“SEC”) rules, the
merger or acquisition of a private operating company into a non-operating public
shell corporation with nominal net assets is considered a capital transaction,
rather than a business combination. Accordingly, for accounting purposes, the
transaction was treated as a reverse acquisition and recapitalization, and
pro forma information is not presented. Transaction costs incurred in the
reverse acquisition were expensed.
Sinary
was incorporated under the laws of the State of Nevada on August 31, 2007. On
October 25, 2007, Sinary entered into an equity interests transfer agreement
with the stockholders of Heilongjiang Weikang, a limited liability company in
the PRC, to acquire 100% of the equity interests of Heilongjiang Weikang for 57
million Renminbi (“RMB”), or approximately $7.6 million.
Heilongjiang
Weikang was incorporated in the Heilongjiang Province, PRC on March 29,
2005, and was formerly known as Heilongjiang Province Weikang Bio-Engineering
Co., Ltd. Heilongjiang Weikang is engaged in development, manufacture and
distribution of Traditional Chinese Medicine ("TCM") in the
PRC.
On
July 22, 2008, Heilongjiang Weikang completed the acquisition of 100% of the
issued and outstanding equity interests of Tianfang (Guizhou) Pharmaceutical
Co., Ltd. (“Tianfang”), a Chinese limited liability company, for $15,000,000
(the “Consideration”), pursuant to a stock transfer agreement entered into on
June 30, 2008 by and among the Heilongjiang Weikang, Tianfang, and Tianfang’s
two shareholders: Beijing Shiji Qisheng Trading Co., Ltd., a Chinese limited
liability company (“Shiji Qisheng”) and Tri-H Trade (U.S.A.) Co., Ltd., a
California corporation (“Tri-H”, and together with Shiji Qisheng collectively as
the “Selling Shareholders”).
Tianfang
was incorporated in the Guizhou Province, PRC in 1998. Tianfang is
engaged in the development, manufacture and distribution of Over the Counter
(“OTC”) Pharmaceuticals. The Company believes its market share can be
expanded to the southern part of China through the acquisition of
Tianfang.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Sinary, and the results of operations
of Weikang, Sinary’s wholly-owned subsidiary, Tianfang, Weikang’s wholly-owned
subsidiary from the date of acquisition (August 1, 2008). All significant
inter-company accounts and transactions were eliminated in
consolidation.
Use
of Estimates
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”), management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting year. Significant estimates, required by
management, include the recoverability of long-lived assets, allowance for
doubtful accounts, and the reserve for obsolete and slow-moving inventories.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with an original maturity of three months or less as cash
equivalents.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. There was no bad debt allowance
recorded based on the Company’s past payment collection experience.
F-6
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Inventory
Inventories
are valued at a lower cost or market with cost determined on a moving weighted
average basis. Costs of work in progress and finished goods comprise direct
material, direct production cost and an allocated portion of production
overheads.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in
operations. Depreciation of property and equipment is provided using the
straight-line method for all assets with estimated lives ranging from 3 to 20
years as follows:
|
Building
|
20
years
|
|
Vehicle
|
5
years
|
|
Office
Equipment
|
3-7
years
|
|
Production
Equipment
|
3-10
years
|
Land
Use Right
Right
to use land is stated at cost less accumulated amortization. Amortization is
provided using the straight-line method over 50 years.
Impairment
of Long-Lived Assets
Long-lived
assets, which include property, plant and equipment and intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability
of long-lived assets to be held and used is measured by a comparison between the
carrying amount of an asset and the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge is
the amount that the carrying amount of the asset exceeds the fair value of the
assets. Fair value is generally determined by the assets
expected
future discounted cash flows or market value, if readily determinable. Based on
its review, the Company believes that, as of December 31, 2009 and 2008, there
were no significant impairments of its long-lived assets.
Income
Taxes
The
Company uses Statement of Financial Accounting Standards (“SFAS”) No. 109,
“Accounting for Income Taxes,” codified in FASB ASC Topic 740, which
requires recognition of deferred tax assets and liabilities for expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are considered as the
tax consequences in future years for differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes at inception of the business (codified in FASB ASC
Topic 740) on August 31, 2007. Based on FIN 48, the Company made a
comprehensive review of its portfolio of tax positions in accordance with
recognition standards established by FIN 48. Based on FIN 48, the Company
recognized no material adjustments to liabilities or stockholders’ equity. When
tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the positions taken or the amount of the
positions that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50 percent likely to be realized upon settlement
with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above is
reflected as a liability for unrecognized tax benefits in the accompanying
balance sheets along with any associated interest and penalties that would be
payable to the taxing authorities upon examination. Interests
associated with unrecognized tax benefits are classified as interest expenses
and penalties are classified in selling, general and administrative expenses in
the statements of income. At December 31, 2009 and 2008, the Company
did not take any uncertain positions that would necessitate recording of tax
related liability.
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (“SAB”) 104, codified in FASB ASC Topic
480. Sales revenue is recognized at the date of shipment to customers
when a formal arrangement exists, the price is fixed or determinable, the
delivery is completed, no other significant obligations of the Company exist and
collectability is reasonably assured. Payments received before all the relevant
criteria for revenue recognition is met are recorded as unearned
revenue.
Sales
revenue represents the invoiced value of goods, which is subject to net of
value-added tax (“VAT”). All of the Company’s products are sold in the PRC and
are subject to Chinese value-added tax of 17% of the gross sales price. This VAT
may be offset by VAT paid by the Company on raw materials and other materials
included in the cost of producing their end product. The Company recorded VAT
payable and VAT receivable net of payments in the financial statements. The VAT
tax return is filed offsetting the payables against the
receivables.
Sales
and purchases are recorded net of VAT collected and paid as the Company acts as
an agent for the government. VAT taxes are not affected by the income
tax holiday.
Sales
returns and allowances was $0 for the years ended December 31, 2009 and
2008. The Company does not provide unconditional right of return, price
protection or any other concessions to its dealers or other
customers.
Cost
of Goods Sold
Cost
of goods sold consists primarily of material costs, employee compensation,
depreciation and related expenses, which are directly attributable to the
production of products. Write-down of inventory to lower cost or market is
also recorded in cost of goods sold.
Goodwill
Goodwill
represents the excess of purchase price and related costs over the value
assigned to the net tangible and identifiable intangible assets of businesses
acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
codified in FASB Accounting Standards Codification (“ASC”) Topic 350, goodwill
is not amortized but is tested for impairment annually, or when circumstances
indicate a possible impairment may exist. Impairment testing is performed at a
reporting unit level. An impairment loss generally would be recognized when the
carrying amount of the reporting unit exceeds the fair value of the reporting
unit, with the fair value of the reporting unit determined using a discounted
cash flow (DCF) analysis. A number of significant assumptions and estimates are
involved in the application of the DCF analysis to forecast operating cash
flows, including the discount rate, the internal rate of return, and projections
of realizations and costs to produce. Management considers historical experience
and all available information at the time the fair values of its reporting units
are estimated.
F-7
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist
primarily of accounts and other receivables. The Company does not require
collateral or other security to support these receivables. The Company conducts
periodic reviews of its clients' financial condition and customer payment
practices to minimize collecting risk on accounts receivable.
The
operations of the Company 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, as well as by the
overall performance of the PRC’s economy.
Statement
of Cash Flows
In
accordance with SFAS No. 95, “Statement of Cash Flows,” codified in FASB ASC
Topic 230, cash flows from the Company's operations are calculated based upon
local currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows may not necessarily agree with changes
in the corresponding balances on the balance sheet. Cash flows from operating,
investing and financing activities exclude the effect of the acquisition of
Tianfang in 2008.
Fair
Value of Financial Instruments
For certain of the Company’s financial instruments,
including cash and cash equivalents, accounts and other payables, accrued
liabilities and short-term debt, the carrying amounts approximate their fair
values due to their short maturities.
ASC
Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the
fair value of financial instruments held by the Company. ASC Topic 825,
“Financial Instruments,” defines fair value, and establishes a three-level
valuation hierarchy for disclosures of fair value measurement that enhances
disclosure requirements for fair value measures. The carrying amounts
reported in the consolidated balance sheets for receivables and current
liabilities each qualify as financial instruments and are a reasonable estimate
of their fair values because of the short period of time between the origination
of such instruments and their expected realization and their current market rate
of interest. The three levels of valuation hierarchy are defined as
follows:
Level
1 inputs to the valuation methodology are quoted prices for identical assets or
liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of
the financial instrument.
Level
3 inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC
815.
As
of December 31, 2009, the Company did not identify any assets and liabilities
that are required to be presented on the balance sheet at fair
value.
Foreign
Currency Translation and Comprehensive Income (Loss)
The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting
purposes, RMB were translated into United States Dollars ("USD") as the
reporting currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Revenues and expenses are translated at the
average rate of exchange prevailing during the reporting period. Translation
adjustments arising from the use of different exchange rates from period to
period are included as a component of stockholders' equity as "Accumulated other
comprehensive income".
Gains
and losses resulting from foreign currency transactions are included in income.
There has been no significant fluctuation in exchange rate for the conversion of
RMB to USD after the balance sheet date.
The
Company uses SFAS No 130, “Reporting Comprehensive Income,” codified in FASB ASC
Topic 220. Comprehensive income is comprised of net income and all changes to
the statements of stockholders’ equity, except the changes in paid-in capital
and distributions to stockholders due to investments by stockholders.
Comprehensive income for the years ended December 31, 2009 and 2008 included net
income and foreign currency translation adjustments.
Stock-Based
Compensation
The
Company accounts for its stock-based compensation in accordance with SFAS No.
123R, “Share-Based Payment, an Amendment of FASB Statement No.
123,” codified in FASB ASC Topic 718. The Company recognizes in the
statement of operations the grant-date fair value of stock options and other
equity-based compensation issued to employees and
non-employees.
Basic
and Diluted Earnings per Share (EPS)
Basic
EPS is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
is computed similarly to basic net income per share except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. Diluted net earnings per share is based
on the assumption that all dilutive convertible shares and stock options were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, options and warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average market
price during the period. For the years ended December 31, 2009 and 2008,
the Company did not have any dilutive securities.
Segment
Reporting
SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
requires a use of the “management approach” model for segment reporting,
codified in FASB ASC Topic 280. The management
approach
model is based on the way a company's management organizes segments within the
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manners in which management disaggregates a
company.
SFAS
131 has no effect on the Company's financial statements as substantially all of
the Company's operations are conducted in one industry
segment.
Research
and Development
Research
and development costs are related primarily to the development of new
nutritional and health supplements products. Research and development costs are
expensed as incurred. For the years ended December 31, 2009 and 2008, the
research and development expense was $1,951,000 and $0,
respectively.
On
January 20, 2009, the Company made an agreement with Botany medicine research
center of Northeast Forestry University (“the University”) to develop
certain new medicine and health supplemental products. The Company is
responsible for funding the research and development expense and project
examination and registration fee of RMB 15,000,000 (or $2,195,000). According to
the contract, upon successful completion of the research by the University, the
Company is required to pay 85% of total fund to the University and will own the
rights to the research findings, and is required to pay the remaining 15% upon
registration and approval of the researching findings from State Food and Drug
Administration and Department of Public Health of Heilongjiang Province.
The Company is responsible for registration of the research findings and getting
approval from related authorities. In case the registration
application is not approved by the authorities, the Company will not be entitled
to the refund of the amount it already paid and will not be required to pay the
remaining 15% or RMB 2,300,000 ($336,000). During the second quarter of
2009, the research and development of the new medicine and health supplemental
products was completed successfully. During the term of the contract, the
Company paid RMB 12,700,000 (or $1,859,000) to the University and obtained the
ownership rights of the research findings. The Company is registering the
research findings with the related authorities. The Company recorded
the payment for the R&D project as R&D expense.
F-8
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Reclassifications
Certain
prior year amounts were reclassified to conform to the manner of presentation in
the current year.
New Accounting Pronouncements
In
October 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding
accounting for own-share lending arrangements in contemplation of convertible
debt issuance or other financing. This ASU requires that at the date
of issuance of the shares in a share-lending arrangement entered into in
contemplation of a convertible debt offering or other financing, the shares
issued shall be measured at fair value and be recognized as an issuance cost,
with an offset to additional paid-in capital. Further, loaned shares are
excluded from basic and diluted earnings per share unless default of the
share-lending arrangement occurs, at which time the loaned shares would be
included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years.
The Company is currently evaluating the impact of this ASU on its consolidated
financial statements.
In
August 2009, the FASB issued an ASU regarding measuring liabilities at fair
value. This ASU provides additional guidance clarifying the measurement of
liabilities at fair value in circumstances in which a quoted price in an active
market for the identical liability is not available; under those circumstances,
a reporting entity is required to measure fair value using one or more of
valuation techniques, as defined. This ASU is effective for the first reporting
period, including interim periods, beginning after the issuance of this ASU. The
adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
On
July 1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168
, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally
Accepted Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC
registrants, guidance issued by the SEC. The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC. The
Codification is amended to effect non-SEC changes to authoritative
GAAP. Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Consolidated Financial
Statements.
In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.
In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”)
codified in FASB ASC Topic 855-10-05, which provides guidance to establish
general standards of accounting for and disclosures of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. SFAS 165 also requires entities to disclose the date
through which subsequent events were evaluated as well as the rationale for why
that date was selected. SFAS 165 is effective for interim and annual periods
ending after June 15, 2009, and accordingly, the Company adopted this
pronouncement during the second quarter of 2009. SFAS 165 requires that public
entities evaluate subsequent events through the date that the financial
statements are issued.
In
April 2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments,” which is codified in
FASB ASC Topic 825-10-50. This FSP essentially expands the disclosure about fair
value of financial instruments that were previously required only annually to
also be required for interim period reporting. In addition, the FSP requires
certain additional disclosures regarding the methods and significant assumptions
used to estimate the fair value of financial instruments. These additional
disclosures are required beginning with the quarter ending June 30, 2009. This
FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making
a
cumulative-effect
adjustment to the opening balance of retained earnings in the period of
adoption. The cumulative-effect adjustment potentially reclassifies the
noncredit portion of a previously other-than-temporarily impaired debt security
held as of the date of initial adoption from retained earnings to accumulate
other comprehensive income. The Company adopted FSP No. SFAS 115-2 and SFAS
124-2 beginning April 1, 2009. This FSP had no material impact on the Company’s
financial position, results of operations or cash flows.
In
April 2009, the FASB issued FSP No. SFAS 157-4, “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP
No. SFAS 157-4”). FSP No. SFAS 157-4, which is codified in
FASB ASC Topics 820-10-35-51 and 820-10-50-2, provides additional guidance for
estimating fair value and emphasizes that even if there has been a significant
decrease in the volume and level of activity for the asset or liability and
regardless of the valuation technique(s) used, the objective of a fair value
measurement remains the same. The Company adopted FSP No. SFAS 157-4
beginning April 1, 2009. This FSP had no material impact on the Company’s
financial position, results of operations or cash flows.
F-9
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
3. INVENTORY
Inventory
at December 31, 2009 and 2008 was as follows:
|
2009
|
2008
|
|||||||
|
Raw
materials
|
$
|
148,519
|
$
|
33,676
|
||||
|
Packing
materials
|
54,777
|
22,409
|
||||||
|
Finished
goods
|
82,099
|
95,857
|
||||||
|
Total
|
$
|
285,395
|
$
|
151,942
|
||||
4.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following at December 31, 2009 and,
2008:
|
2009
|
2008
|
|||||||
|
Building
|
$
|
8,252,397
|
$
|
8,244,669
|
||||
|
Building
improvements
|
912,316
|
911,462
|
||||||
|
Production
equipment
|
2,338,779
|
2,319,654
|
||||||
|
Office
furniture and equipment
|
192,458
|
179,752
|
||||||
|
Vehicles
|
118,559
|
118,448
|
||||||
|
11,814,509
|
11,773,985
|
|||||||
|
Less:
Accumulated depreciation
|
(1,651,563)
|
|
(675,939)
|
|
||||
|
$
|
10,162,946
|
$
|
11,098,046
|
|||||
Depreciation
for the years ended December 31, 2009 and 2008 was $976,000 and $619,000,
respectively.
5.
ADVANCES TO SUPPLIERS AND OTHER RECEIVABLES
Advances
to suppliers represented prepayment for the raw material. Other
receivables represented cash advances to employees and sales representatives for
normal business purposes such as advances for traveling
expense.
6.
RELATED PARTY TRANSACTIONS
Due
from Management
At
December 31, 2009, due from management represented advance payment of $1,745 to
one of the Company’s officers for his paying certain expenses relating to the
Company’s daily operations.
At
December 31, 2008, due from management mainly represented lease payments
received by Weikang’s CEO on behalf of Weikang for leasing the workshop of
manufacturing royal jelly and the right to use its technology for manufacturing
royal jelly from January 1, 2008 through June 30, 2010. During 2008,
Weikang’s CEO received lease income of approximately $1,008,000 (RMB 7,000,000)
and prepaid lease payment of approximately $219,000 (RMB 1,500,000) on behalf of
the Company.
Advance
from Officer
Advance
from officer represented the payment of $650,000 made by an officer of
Heilongjiang Weikang on behalf of Sinary to certain former shareholders of
the Company in connection with the reverse acquisition between the Company
and Sinary on December 7, 2007. The advance from officer bears no
interest and is payable on demand.
7.
INTANGIBLE ASSETS
Intangible
assets consisted of the following at December 31, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
Land
use right
|
$
|
12,266,864
|
$
|
8,723,411
|
||||
|
Goodwill
arising from acquisition of Tianfang
|
3,581,715
|
3,578,359
|
||||||
|
Software
|
7,216
|
7,209
|
||||||
|
15,855,795
|
12,308,979
|
|||||||
|
Less:
Accumulated amortization
|
(297,064)
|
|
(94,574)
|
|
||||
|
$
|
15,558,731
|
$
|
12,214,405
|
|||||
All
land in the PRC is government owned and cannot be sold to any individual or
company. However, the government grants the user a “land use right” to use the
land. The Company has the right to use the land for 50 years and amortizes the
right on a straight-line basis for 50 years.
Amortization
for the years ended December 31, 2009 and 2008 was $202,000 and $93,000,
respectively. Amortization for the next five years from
December 31, 2009 is expected to be $273,000, $273,000, $273,000, $272,000 and
$272,000, respectively.
8. MAJOR CUSTOMERS AND
VENDORS
There
were no customers which accounted for over 10% of the Company’s sales for the
year ended December 31, 2009.
Five
customers who are dealers of the Company accounted for 47% of the Company’s net
revenues for 2008. Each customer accounted for 14%, 12%, 11% and 10%
of sales, of which, one was the related party owned by the shareholder
of Weikang accounting for about 1% of total sales. At December
31, 2009, the total receivable balance due from these five customers was
$0.
Three
and two vendors provided 38% and 26% of the Company’s purchases of raw material
for the year ended December 31, 2009 and 2008, respectively. For 2009, each
vendor accounted for 16%, 11%, 11%. For 2008, each vendor accounted for 16% and
10%. Accounts payable to these vendors is $0 at December 31, 2009 and
2008.
F-10
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
9.
TAXES PAYABLE
Taxes
payable consisted of the following at December 31, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
Income
tax payable
|
$
|
1,679,250
|
$
|
381,659
|
||||
|
Value
added tax payable
|
505,545
|
306,012
|
||||||
|
Individual
income tax withholding payable
|
22
|
504,123
|
||||||
|
Sales
tax payable
|
29,290
|
51,210
|
||||||
|
Other
|
33,303
|
7,083
|
||||||
|
$
|
2,247,410
|
$
|
1,250,087
|
|||||
10.
OTHER PAYABLES
At
December 31, 2009, other payable is $7.62 million that Sinary was obligated to
pay Heilongjiang Weikang’s former owners within one year from the closing of the
acquisition of Heilongjiang Weikang. This payable does not bear any
interest, and was extended to June 30, 2010.
At
December 31, 2008, other payables consisted of $7.62 million purchase price of
Heilongjiang Weikang and the unpaid portion of the purchase price of
approximately $3.8 million Heilongjiang Weikang was obligated to pay to
Tianfang’s former owners within one year from the closing of acquisition
date. The $3.8 million was paid during 2009.
11.
DEFFERED TAX LIABILITY, NET
Deferred
tax represented differences between the tax bases and book bases of property,
equipment and land use right.
At
December 31, 2009 and, 2008, deferred tax asset (liability) consisted of the
following:
|
2009
|
2008
|
|||||||
|
Deferred
tax asset on property and equipment for bases differences
|
$
|
142,141
|
$
|
37,758
|
||||
|
Deferred
tax asset arising from the acquisition of Heilongjiang
Weikang
|
29,620
|
29,591
|
||||||
|
Deferred
tax liability arising from the acquisition of Tianfang
|
(3,621,766)
|
(3,618,374)
|
||||||
|
Deferred
tax liability, net
|
$
|
(3,450,005)
|
$
|
(3,551,025)
|
||||
12.
INCOME TAXES
Weikang
and Sinary were incorporated in the US and have net operating losses (NOL) for
income tax purposes. Weikang and Sinary had net operating loss carry
forwards for income taxes of $139,500 and $650,000 at December 31, 2009,
respectively, which may be available to reduce future years’ taxable income
as NOL; NOL can be carried forward up to 20 years from the year the loss is
incurred. Management believes the realization of benefits from these losses
uncertain due to the Company’s limited operating history and continuing losses.
Accordingly, a 100% deferred tax asset valuation allowance was
provided.
Heilongjiang
Weikang and Tianfang are governed by the Income Tax Law of the PRC concerning
the private enterprises that are generally subject to tax at a statutory rate of
25% on income reported in the statutory financial
statements
after appropriate tax adjustments. Heilongjiang Weikang was exempt
from income tax for three years from 2006 to 2008. Tianfang is subject to 25%
income tax rate. Net income for year ended December 31, 2008 would have
been lower by approximately $1,251,000 or $0.05 earnings per share, if
Heilongjiang Weikang was not subject an income tax holiday.
Foreign
pretax earnings approximated $21,112,000 and $8,020,000 for the years ended
December 31, 2009 and 2008 respectively. Pretax earnings of a foreign subsidiary
are subject to U.S. taxation when effectively repatriated. The Company provides
income taxes on the undistributed earnings of non-U.S. subsidiaries except to
the extent that such earnings are indefinitely invested outside the US. At
December 31, 2009, $22,157,000 of accumulated undistributed earnings of non-U.S.
subsidiaries was indefinitely invested. At the existing U.S. federal income tax
rate, additional taxes of $1,994,000 would have to be provided if such earnings
were remitted currently.
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the years ended December 31, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
US
statutory rates
|
34.0
|
% |
34.0
|
%
|
||||
|
Tax
rate difference
|
(9.1)
|
%
|
(9.0)
|
%
|
||||
|
Effect
of tax holiday
|
-
|
%
|
(16.0)
|
%
|
||||
|
Other
|
0.4
|
%
|
- |
%
|
||||
|
Valuation
allowance for US NOL
|
0.2
|
%
|
- |
%
|
||||
|
Tax
per financial statements
|
25.5
|
%
|
9.0
|
%
|
||||
The
provisions for income tax expenses for the years ended December 31, 2009 and
2008 consisted of the following:
| 2009 | 2008 | |||||||
|
Income
tax expenses – current
|
$ | 5,460,063 | $ | 787,023 | ||||
|
Income
tax benefit – deferred
|
(104,306 | ) | (38,104 | ) | ||||
|
Total
income tax expenses
|
$ | 5,355,758 | $ | 748,919 |
13.
OTHER INCOME
Other
income consisted of income for leasing the workshop of manufacturing the royal
jelly and the right to use its technology for manufacturing royal jelly from
January 1, 2008 through June 30, 2010. Total lease payment from
leasing out the workshop for the lease term is RMB 7,500,000, and RMB
10,000,000for leasing out the use right of the technology. The Company
received $1,034,885 and $1,032,896 lease income for 2009 and 2008,
respectively.
14.
STATUTORY RESERVES
Pursuant
to the corporate law of the PRC effective on January 1, 2006, the Company is now
only required to maintain one statutory reserve by appropriating from its
after-tax profit before declaration or payment of dividends. The statutory
reserve represents restricted retained earnings.
Surplus
Reserve Fund
The
Company is now only required to transfer 10% of its net income, as determined
under the PRC accounting rules and regulations, to a statutory surplus reserve
fund until such reserve balance reaches 50% of the Company’s registered
capital.
The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholding or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.
Common
Welfare Fund
Common
welfare fund is a voluntary fund that the Company can elect to transfer 5% to
10% of its net income to this fund. This fund can only be utilized on capital
items for the collective benefit of the Company’s employees, such as
construction of dormitories, cafeteria facilities, and other staff welfare
facilities. This fund is non-distributable other than upon
liquidation. The Company didn’t contribute to this fund.
F-11
WEIKANG
BIO-TECHNOLOGY GROUP CO, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
15.
CONTINGENCIES
The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’ s operations may be adversely affected by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation,
among other things.
The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be conducted only by
authorized financial institutions. Remittances in currencies other than RMB may
require certain supporting documentation in order to affect the
remittance.
16.
ACQUISITION OF TIANFANG AND UNAUDITED PRO FORMA INFORMATION
On
July 22, 2008, Heilongjiang Weikang completed the acquisition of 100% of the
issued and outstanding equity interests of Tianfang for $15,000,000 (RMB
102,886,500). For convenience of reporting the acquisition for
accounting purposes, August 1, 2008 was designated the acquisition date. Cash
from operating, investing and financing activities in 2008, exclude the effect
of this acquisition.
The
following table summarizes the fair values of the assets acquired and
liabilities assumed of Tianfang, at the date of acquisition. The
total consideration for acquisition exceeded fair value of the net assets
acquired by $3,565,578. The excess was recorded as goodwill.
|
Cash
|
$
|
10,146
|
||
|
Accounts
receivable
|
388,641
|
|||
|
Other
receivables
|
3,988
|
|||
|
Inventory
|
45,161
|
|||
|
Property
and equipment
|
7,194,302
|
|||
|
Land
use right
|
8,117,686
|
|||
|
Goodwill
|
3,565,578
|
|||
|
Tax
payable
|
(498,259)
|
|
||
|
Advances
from shareholder
|
(221,794)
|
|
||
|
Deferred
tax liability
|
(3,605,449)
|
|
||
|
Purchase
price
|
$
|
15,000,000
|
||
The
intangible asset, which is principally land use rights, is being amortized over
50 years.
The
following unaudited pro forma consolidated results of operations for
Heilongjiang Weikang and Tianfang for the year ended December 31, 2008 presents
the operations of Heilongjiang Weikang and Tianfang as if the acquisitions
occurred on January 1, 2008. The pro forma results are not
necessarily indicative of the actual results that would have occurred had the
acquisitions been completed as of the beginning of the periods presented, nor
are they necessarily indicative of future consolidated results.
|
Net
revenue
|
$
|
13,925,832
|
||
|
Cost
of revenue
|
5,102,876
|
|||
|
Gross
profit
|
8,822,956
|
|||
|
Total
operating expenses
|
1,317,008
|
|||
|
Income
from operations
|
7,505,948
|
|||
|
Total
non-operating (income)
|
(959,016)
|
|||
|
Income
before income tax
|
8,464,964
|
|||
|
Income
tax
|
881,677
|
|||
|
Net
income
|
$
|
7,583,287
|
||
|
Basic
and diluted weighted average shares outstanding
|
25,229,800
|
|||
|
Basic
and diluted net earnings per share
|
$
|
0.30
|
||
17.
SUBSEQUENT EVENT
On
January 20, 2010, the Company entered into Subscription Agreements with
"accredited" investors. Pursuant to the Purchase Agreements, the Investors
purchased 1,470,588 shares of Company common stock at $1.70 per share. The
Company raised $2,500,000 in gross proceeds and received net proceeds of
$2,047,500, after placement agent fees and other offering expenses.
The
Investors received one Series A Warrant and one Series B Warrant for every $8.00
invested in the Company under the Purchase Agreement. Series A Warrants grant
the holder the right to purchase shares of Common Stock at an exercise price of
$3.00. Series B Warrants grant the holder the right to purchase shares of Common
Stock at an exercise price of $5.00. At the closing the Investors received
Series A Warrants to purchase 312,500 shares of Common Stock and Series B
Warrants to purchase 312,500 shares of Common Stock.
The
Series A and Series B Warrants expire three years from the date of issuance. The
Warrants provide for antidilution adjustments to the exercise price for certain
convertible securities issued with conversion prices lower than the Warrants'
exercise price. The value of warrants was determined by using the Black-Scholes
pricing model with the following assumptions: discount
rate – 2.76%; dividend yield – 0%; expected
volatility – 100% and term of 3 years. The value of the
Warrants was $1,212,278.
In
connection with the Financing the Company entered into an Investor Relations
Escrow Agreement, pursuant to which the Company agreed to establish an escrow
account of $150,000 which may be allocated and released to investor relations
firms for marketing purposes at the sole discretion of a representative of the
Investors.
In
connection with the Financing the Company paid the following: (i) $150,000 to an
Investment Relations escrow account described above, (ii) $250,000 in placement
agent fees, and (iii) $52,500 in offering expenses, including legal
fees.
In
addition the Company issued the following securities: (i) Series A Warrants to
purchase 73,528 shares of Common Stock to placement agents, (ii) Series B
Warrants to purchase 73,528 shares of Common Stock to placement agents, (iii)
180,000 shares of Common Stock to an investor relations firm, (iv) 600,000
shares of Common Stock to a consultant for business development and capital
markets advice, and (v) 7,000 shares of Common Stock for legal
services. The value of warrants was determined by using the
Black-Scholes pricing model with the following assumptions: discount
rate – 2.76%; dividend yield – 0%; expected
volatility – 100% and term of 3 years. The value of the
Warrants was $285,236.
The
Company agreed to file a resale Registration Statement on Form S-1 by April 9,
2010 registering the Investor Shares and the Investors' Warrants with the SEC.
In the event the Company has not filed the Registration Statement by the
Required Filing Date, or the Registration Statement is not declared effective by
the SEC by 120 days after the Required Filing Date, the Company agreed to pay
liquidated damages to each Investor, from and including the day following such
Filing Default until the date the Registration Statement is filed with the SEC,
or until the Registration Statement is declared effective, as applicable, at a
rate per month (or portion thereof) equal to 0.50% of the total purchase price
of the Shares purchased by such Investor pursuant to the Purchase Agreement. In
no event, however, may the penalties exceed 9% in the aggregate of such total
purchase price.
F-12
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES.
Management’s
Report on Internal Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the
United States of America. The Company’s internal control over financial
reporting includes those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.
Any
system of internal control, no matter how well designed, has inherent
limitations, including the possibility that a control can be circumvented or
overridden and misstatements due to error or fraud may occur and not be detected
in a timely manner. Also, because of changes in conditions, internal control
effectiveness may vary over time. Accordingly, even an effective system of
internal control will provide only reasonable assurance with respect to
financial statement preparation.
Management
carried out an assessment, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2009, pursuant to Exchange Act Rule
13(a)-14(c). We carried out this evaluation using criteria similar to that
proscribed by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control — Integrated Framework. Based on this
assessment, management concluded that the Company’s disclosure controls and
procedures were adequate to ensure that information required to be disclosed in
reports that the Company files or submits under the Exchange Act would be
recorded, processed, summarized and reported in accordance with the rules and
forms of the SEC.
While
management concluded that no material weaknesses existed, management also
determined that there were two significant deficiencies:
|
|
a
need for additional controls and procedures to improve the recordkeeping
systems at the Company; and
|
|
|
a
need for additional financial personnel, particularly at the executive
level, with experience with U.S. public companies and an appropriate level
of knowledge, experience and training in the application of generally
accepted accounting principles in the United
States.
|
To
address these concerns, we intend to retain a consultant to evaluate our
internal controls and procedures and to assist us in making improvements to the
quality of our controls, policies and procedures. In addition, we are in search
for more qualified financial personnel with experience with U.S. GAAP and U.S.
public company reporting and compliance obligations, while we are in efforts to
remediate these deficiencies through improving supervision, education, and
training of our accounting staff.
This
annual report on Form 10-K 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 the
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this annual report on Form
10-K.
Changes
in internal control over financial reporting
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules
13a-15 or 15d-15 that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM
9A(T). CONTROLS
AND PROCEDURES
(a) Conclusions
regarding disclosure controls and procedures. Disclosure controls and
procedures are the Company’s controls and other procedures that are designed to
ensure 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 Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
under the Exchange Act is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) promulgated under the Exchange Act as of December 31, 2009,
and, based on their evaluation, as of the end of such period, the our disclosure
controls and procedures were effective as of the end of the period covered by
the Annual Report,
(b) Management’s
Report On Internal Control Over Financial Reporting. It is management’s
responsibilities to establish and maintain adequate internal controls over the
Company’s financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a
process designed by, or under the supervision of, the issuer’s principal
executive and principal financial officers and effected by the issuer’s
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
• Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the issuer;
and
• Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the issuer are being
made only in accordance with authorizations of management of the issuer;
and
• Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer’s assets that could have a
material effect on the financial statements.
As
of the end of the period covered by the Annual Report, an evaluation was carried
out under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our internal control over financial reporting.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework.
Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, internal controls over financial
reporting were effective as of the end of the period covered by the
Report.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. 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. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report.
(c) Changes in
internal control over financial reporting. There were no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER
INFORMATION
None.
30
PART
III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
Current
Executive Officers and Directors
The
following tables set forth information regarding the Company’s current executive
officers and directors of the Company. The Board of Directors is comprised of
only one class. Except as otherwise described below, all of the directors will
serve until the next annual meeting of stockholders or until their successors
are elected and qualified, or until their earlier death, retirement, resignation
or removal. Also provided herein are brief descriptions of the business
experience of each director and executive officer during the past five years and
an indication of directorships held by each director in other companies subject
to the reporting requirements under the federal securities laws.
|
Name
|
Age
|
Positions
|
||||
|
Yin
Wang
|
55
|
Chief
Executive Officer and Chairman of the Board of Directors
|
||||
|
Yanhua
Liu
|
56
|
Chief
Financial Officer, Secretary and Director
|
||||
|
Wei
Wang
|
57
|
Director
|
||||
|
Guangxin
Wang
|
30
|
Director
|
||||
|
Yuanyuan
Jing
|
32
|
Director
|
||||
|
Weili
Wang
|
60
|
Director
|
||||
Yin Wang
is the founder and Chairman of Weikang. Mr. Yin Wang has extensive clinical
training and bio-medical research experience, having been a physician in China
for over 30 years. From 1980 to 1982, Mr. Yin Wang served as the Director of the
Surgical Department at the Harbin Geriatric Hospital. Thereafter, from 1982
until 2001, Mr. Yin Wang served as the Director of Harbin No. 2 Chinese Medical
Hospital. Shortly thereafter, in 2002, he founded Weikang. Mr. Yin Wang is a
graduate of Harbin Medical University, a prestigious and nationally recognized
medical school in China.
Yanhua Liu
has been Weikang’s Chief Accountant and Chief Financial Officer since 2005. Ms.
Liu is well-versed in financial and accounting matters, having been a certified
public accountant in China for over 20 years. Prior to joining Weikang, Ms. Liu
was the Chief Financial Officer of Harbin Hexin Group Co., Ltd. from 2002 to
2005. Ms. Liu is a graduate of Heilongjiang Agricultural and Mechanical College
with bachelor’s degree in finance.
Wei Wang
has extensive business management experience, having been the Deputy General
Manager in charge of Management and Distribution at Heilongjiang Weikang
Pharmaceutical Co., Ltd. since its founding in 2002. Before then, Ms. Wang was
the Sales Director at Harbin No. 8 Department Store. Ms. Wei is a graduate of
Heilongjiang No. 2 Professional Technical School.
Guangxin
Wang is presently a researcher with Heilongjiang University Software
Institute, a position he has held since 2004. Mr. Guangxin Wang has a master’s
degree in software engineering from Heilongjiang University, and has also
pursued scholarship-based advanced studies in Japan.
Yuangyuan
Jing has been the Administrative Director of Weikang since she joined the
company in 2005. Ms. Jing has extensive administrative experience, having been
the Chief Administrator of Huawai Technologies Co., Ltd., a global leading
provider of next generation telecommunications networks, from 2002 to 2005. Ms.
Jing has a master’s degree in international business from the University of
International Business and Economics in Beijing.
Weili Wang
has been a business entrepreneur for many years, both as the founder of
Guandali Technology Group in China in 1992 and as a private consultant advising
Chinese companies on foreign trading. After she immigrated permanently to the
United States in 1999, Ms. Wang continued as a private entrepreneur conducting
trades between the United States and China. Ms. Wang is a 1989 graduate of
Beijing Foreign Language University with a bachelor’s degree in
business.
Audit,
Nominating and Compensation Committees
Due to
our lack of operations and size, we have not designated an audit committee.
Furthermore, we are currently quoted on the OTC Bulletin Board, which is
sponsored by the NASD, under the symbol “WKBT.OB” and the OTCBB does not have
any listing requirements mandating the establishment of any particular
committees. Our board of directors acts as our audit committee and performs
equivalent functions, such as: recommending a firm of independent certified
public accountants to audit the annual financial statements; reviewing the
independent auditors’ independence, the financial statements and their audit
report; and reviewing management's administration of the system of internal
accounting controls. For these same reasons, we did not have any other
committees during fiscal 2009.
Our board
believes that, considering our size and the members of our board, decisions
relating to director nominations can be made on a case-by-case basis by all
members of the board without the formality of a nominating committee or a
nominating committee charter. To date, we have not engaged third parties to
identify or evaluate or assist in identifying potential nominees, although we
reserve the right in the future to retain a third party search firm, if
necessary.
The board
does not have an express policy with regard to the consideration of any director
candidates recommended by shareholders since the board believes that it can
adequately evaluate any such nominees on a case-by-case basis. The board will
evaluate shareholder-recommended candidates under the same criteria as
internally generated candidates. Although the board does not currently have any
formal minimum criteria for nominees, substantial relevant business and industry
experience would generally be considered important, as would the ability to
attend and prepare for board, committee and shareholder meetings. Any candidate
must state in advance his or her willingness and interest in serving on the
board of directors.
We
have not received any recommendations for a director nominee from any
shareholder.
Family
Relationships
There are
no family relationships between or among any of the current directors, executive
officers or persons nominated or charged by the Company to become directors or
executive officers.
Involvement
in Certain Legal Proceedings
There are
no orders, judgments, or decrees of any governmental agency or administrator, or
of any court of competent jurisdiction, revoking or suspending for cause any
license, permit or other authority to engage in the securities business or in
the sale of a particular security or temporarily or permanently restraining any
of our officers or directors from engaging in or continuing any conduct,
practice or employment in connection with the purchase or sale of securities, or
convicting such person of any felony or misdemeanor involving a security, or any
aspect of the securities business or of theft or of any felony. Nor are any of
the officers or directors of any corporation or entity affiliated with us so
enjoined.
Code
of Ethics
We have
adopted a code of ethics (the "Code of Ethics") that applies to our principal
chief executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. The Code of
Ethics is being designed with the intent to deter wrongdoing, and to promote the
following:
|
•
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships
|
|
•
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that a small business issuer files with, or submits to, the
Commission and in other public communications made by the small business
issuer
|
|
•
|
Compliance
with applicable governmental laws, rules and regulations. The prompt
internal reporting of violations of the code to an appropriate person or
persons identified in the code
|
|
•
|
Accountability
for adherence to the code
|
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 we are required to report, in this Form 10-K, any failure
to comply therewith during the fiscal year ended December 2008. We believe that
all of these filing requirements were satisfied by our executive officers,
directors and by the beneficial owners of more than 10% of our common stock. In
making this statement, hawse have 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.
31
ITEM 11. EXECUTIVE
COMPENSATION
The
following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to us for the prior fiscal
years ended December 31, 2009, 2008 and 2007, of those persons who were
either the chief executive officer during the last completed fiscal year or any
other compensated executive officers as of the end of the last completed fiscal
year, and whose compensation exceeded $100,000 for those fiscal
periods.
|
SUMMARY COMPENSATION
TABLE
|
|||||||||
|
Name
and principal position
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
Awards ($)
(e)
|
Option
Awards ($)
(f)
|
Non-Equity
Incentive Plan Compensation ($)
(g)
|
Nonqualified
Deferred Compensation Earnings ($)
(h)
|
All
Other Compensation ($)
(i)
|
Total
($)
(j)
|
|
Yin
Wang
Chief
Executive Officer and Chairman
|
2009
|
4,000
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2008
|
4,000
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2007
|
4,000
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
Yanhua
Liu
Chief
Financial Officer and Director
|
2009
|
3,000
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2008
|
3,000
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2007
|
3,000
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
Wei
Wang Director
|
2009
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
Guangxin
Wang
Director
|
2009
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
Yuanyuan
Jing
Director
|
2009
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
Weili
Wang Director
|
2009
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Outstanding
Equity Awards at Fiscal Year-End
There are
no unexercised options, unvested stock awards or equity incentive plan awards
for any of the above-named executive officers outstanding as of December 31,
2009.
Compensation
of Directors
We did
not pay any compensation to our directors for any services provided as a
director during the year ended December 31, 2009. There are no other formal or
informal understandings or arrangements relating to compensation.
Employment
Agreements, Termination of Employment, and Change-in-Control
Arrangements
We
currently have no employment agreements with any of our executive officers, nor
any compensatory plans or arrangements resulting from the resignation,
retirement or any other termination of any of our executive officers, from a
change-in-control, or from a change in any executive officer’s responsibilities
following a change-in-control.
32
ITEM 12. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER
MATTERS.
As of March 11, 2010, we had 41 stockholders of
record and 27,984,388 shares of our Common Stock issued and outstanding. The
following table sets forth as of March 11, 2009, certain information with
respect to the beneficial ownership of Common Stock by (i) each of our Director,
nominee and executive officer; (i) each person who owns beneficially more than
5% of the common stock; and (iii) all Directors, nominees and executive officers
as a group. The percentage of shares beneficially owned is based on there having
been 27,984,388 shares of our Common Stock issued and outstanding as of March
11, 2010.
OFFICERS,
DIRECTORS AND BENEFICIAL OWNERS, AS OF MARCH 11, 2010
|
Title
of Class
|
Name
& Address of Beneficial Owner(1)
|
Amount
& Nature of Beneficial Owner
|
%
of Class(2)
|
||||||
|
Common
Stock,
$.00001
par value
|
Weili
Wang
18138
Via Calma
Rowland
Heights, CA 91758
|
24,725,200 | 88.35 | % | |||||
|
Common
Stock,
$.00001
par value
|
All
directors and executive officers as a group (three
persons)
|
24,725,200 | 88.35 | % | |||||
(1) Unless
stated otherwise, the business address for each person named is c/o Weikang
Bio-Technology Group Co., Inc.
(2) Calculated
pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants, rights
or conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by a person, but not
deemed outstanding for the purpose of calculating the percentage owned by each
other person listed. We believe that each individual or entity named has sole
investment and voting power with respect to the shares of common stock indicated
as beneficially owned by them (subject to community property laws where
applicable) and except where otherwise noted.
Changes
in Control
None.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Our
largest customer, Weikang Pharmaceutical Group Co., Ltd., is owned by Mr. Yin
Wang, our current chief executive officer and chairman of the board of
directors. Mr. Wang was also a shareholder of Heilongjiang Weikang
Bio-Technology Group Co., Ltd., our Chinese operating company before the company
was acquired by Sinary.
Due
from Management
At
December 31, 2009, due from management represented advance payment of $1,745 to
one of the Company’s officers for his payment of certain expenses relating to
the Company’s daily operations.
At
December 31, 2008, due from management mainly represented lease payments
received by Weikang’s CEO on behalf of Weikang for leasing the royal jelly
manufacturing workshop and the right to use Weikang's technology for
manufacturing royal jelly from January 1, 2008 through June 30,
2010. During 2008, Weikang’s CEO received lease income of
approximately $1,008,000 (RMB 7,000,000) and prepaid lease payment of
approximately $219,000 (RMB 1,500,000) on behalf of the Company.
Advance
from Officer
Advance
from officer represented the payment of $650,000 made by an officer of
Heilongjiang Weikang on behalf of Sinary to certain former shareholders of
the Company in connection with the reverse acquisition between the Company
and Sinary on December 7, 2007. The advance from officer bears no
interest and is payable on demand.
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 to the independent auditor, Goldman Parks Kurland Mohidin-GPKM
LLP (“GPKM”), for our audits of the annual financial statements for the year
ended December 31, 2008 and 2007. Audit fees and other fees of auditors are
listed as follows:
|
Year Ended December 31
|
2009(2)
|
2008(3)
|
||||||
|
Audit
Fees (1)
|
$
|
185,000
|
$
|
117,500
|
||||
|
Audit-Related
Fees (4)
|
$
|
$
|
115,000
|
|||||
|
Tax
Fees (5)
|
-
|
-
|
||||||
|
All
Other Fees (6)
|
-
|
-
|
||||||
|
Total
Accounting Fees and Services
|
$
|
185,000
|
$
|
232,500
|
||||
|
(1)
|
Audit Fees. These are
fees for professional services for the audit of our annual financial
statements, and for the review of the financial statements included in our
filings on Form 10-Q, and for services that are normally provided in
connection with statutory and regulatory filings or
engagements.
|
|
(2)
|
The
amounts shown in 2009 relate to (i) the audit of our annual financial
statements for the fiscal year ended December 31, 2009, and (ii) the
review of the financial statements included in our filings on Form 10-Q
for the quarters of 2010.
|
|
(3)
|
The
amounts shown in 2008 relate to (i) the audit of our annual financial
statements for the fiscal year ended December 31, 2008, and (ii) the
review of the financial statements included in our filings on Form 10-QSB
for the quarters of 2009.
|
|
(4)
|
Audit-Related Fees. The
amount shown hereto relate to the audit of Tianfang’s annual financial
statements for the fiscal years ended December 31, 2007, and 2006 in
connection with the acquisition of
Tianfang.
|
|
(5)
|
Tax Fees. These are
fees for professional services with respect to tax compliance, tax advice,
and tax planning.
|
|
(6)
|
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.
|
Pre-Approval
Policy for Audit and Non-Audit Services
We do not
have a standing audit committee, and the full Board performs all functions of an
audit committee, including the pre-approval of all audit and non-audit services
before we engage an accountant. All of the services rendered to us by Goldman
Parks Kurland Mohidin-GPKM LLP were pre-approved by our Board of
Directors.
We are
presently working with its legal counsel to establish formal pre-approval
policies and procedures for future engagements of our accountants. The new
policies and procedures will be detailed as to the particular service, will
require that the Board or an audit committee thereof be informed of each
service, and will prohibit the delegation of pre-approval responsibilities to
management. It is currently anticipated that our new policy will provide (i) for
an annual pre-approval, by the Board or audit committee, of all audit,
audit-related and non-audit services proposed to be rendered by the independent
auditor for the fiscal year, as specifically described in the auditor's
engagement letter, and (ii) that additional engagements of the auditor, which
were not approved in the annual pre-approval process, and engagements that are
anticipated to exceed previously approved thresholds, will be presented on a
case-by-case basis, by the President or Controller, for pre-approval by the
Board or audit committee, before management engages the auditors for any such
purposes. The new policy and procedures may authorize the Board or audit
committee to delegate, to one or more of its members, the authority to
pre-approve certain permitted services, provided that the estimated
fee for any such service does not exceed a specified dollar amount (to be
determined). All pre-approvals shall be contingent on a finding, by the Board,
audit committee, or delegate, as the case may be, that the provision of the
proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.
(a)
On December 31, 2009, our Chief Executive Officer and Chief Financial Officer
made an evaluation of our disclosure controls and procedures. In our opinion,
the disclosure controls and procedures are adequate because the systems of
controls and procedures are designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows for the respective periods being presented. Moreover,
the evaluation did not reveal any significant deficiencies or material
weaknesses in our disclosure controls and procedures.
(b)
There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls since the last
evaluation.
33
PART
IV
|
(a)
|
Financial
Statements
|
1. The
following financial statements of Weikang Bio-Technology Group Co, Inc. are
included in Part II, Item 8:
Report of
Independent Registered Public Accounting Firm Balance Sheet at December 31, 2009
and 2008
Statements
of Operations - for the years ended December 31, 2009 and 2008
Statements
of Cash Flows - for the years ended December 31, 2009 and 2008
Statements
of Stockholders’ Equity - for the years ended December 31, 2009 and
2008
Notes to
Financial Statements
2.
Exhibits
14.1
Code of Ethics *
*
Previously filed.
|
(b)
|
Reports
on Form 8-K
|
|
(1)
|
On
August 12, 2009, we filed a current report on Form 8-K to announce the
extension of the grace period to remit the Acquisition Price in connection
with the acquisition between Sinary Bio-Technology Holdings Group, Inc.
and Weikang Bio-Technology Group Co.,
Ltd.
|
|
(2)
|
On
August 17, 2009, we filed a current report on Form 8-K to announce a
Securities Purchase Agreement with ARC China, Inc. (“ARC”), dated August
11, 2009, pursuant to which ARC agreed that it will purchase up to an
aggregate of 4,768,877 Units at a purchase price of $1.75 per Unit for an
aggregate purchase price of
$8,345,535.
|
|
(3)
|
On
November 19, 2009, we filed a current report on Form 8-K to announce the
termination of the Securities Purchase Agreement with ARC China, Inc.,
dated August 11, 2009.
|
|
(4)
|
On
January 26, 2010, we filed a current report on Form 8-K to announce a
Subscription Agreements (“Purchase Agreements”) with “accredited”
investors (the “Investors”). Pursuant to the Purchase
Agreements, the Investors purchased 1,470,588 shares (“Investor Shares”)
of the Company’s common stock (“Common Stock”) at $1.70 per share (the
“Financing”). The Company raised $2,500,000 in gross proceeds and received
net proceeds from the Financing of approximately $2,052,500, after
placement agent fees and other offering
expenses.
|
34
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned majority of the Board of Directors, thereunto duly
authorized.
|
WEIKANG
BIO-TECHNOLOGY GROUP CO., INC.
|
||
|
Date:
March 31, 2010
|
/s/ Yin Wang
|
|
|
Yin
Wang
|
||
|
Chief
Executive Officer
|
||
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Yin Wang
|
Chief
Executive Officer and Chairman of the Board
|
March
31, 2010
|
||
|
Yin
Wang
|
||||
|
/s/ Yanhua Liu
|
Chief
Financial Officer and Treasurer
|
March
31, 2010
|
||
|
Yanhua
Liu
|
||||
|
/s/ Wei Wang
|
Director
|
March
31, 2010
|
||
|
Wei
Wang
|
||||
|
/s/ Guangxin Wang
|
Director
|
March
31, 2010
|
||
|
Guangxin
Wang
|
|
/s/ Yuanyuan Jing
|
Director
|
March
31, 2010
|
||
|
Yuanyuan
Jing
|
||||
|
/s/ Weili Wang
|
Director
|
March
31, 2010
|
||
|
Weili
Wang
|