Attached files
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EX-4.1 - EX-4.1 - BIO BRIDGE SCIENCE INC | v184782_ex4-1.htm |
EX-31.2 - EX-31.2 - BIO BRIDGE SCIENCE INC | v184782_ex31-2.htm |
EX-31.1 - EX-31.1 - BIO BRIDGE SCIENCE INC | v184782_ex31-1.htm |
EX-32.1 - EX-32.1 - BIO BRIDGE SCIENCE INC | v184782_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For the
quarterly period ended: March 31, 2010
or
o TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(D) OF
THE SECURITIES EXCHANGE
ACT
OF 1934
For the
transition period from _______ to _______
Commission
File Number: 000-51497
BIO-BRIDGE
SCIENCE, INC.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
20-1802936
|
|
(State
or Other jurisdiction of
|
(IRS
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
1211
West 22nd Street, Suite 615
|
||
Oak
Brook, Illinois
|
60523
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
630-928-0869
(Issuer's
telephone number including area code)
Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
|
Accelerated filer o
|
|
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company x
|
Indicate by
check mark whether the registrant is a shell company: Yes o
No
x
State the
number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date.
Common
Stock Outstanding as of March 31, 2010: 41,070,245
shares
Bio-Bridge
Science, Inc.
Index to
Form 10-Q
Page
|
||||
Item
1.
|
Financial
Statements
|
|||
Condensed
Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December
31, 2009
|
3
|
|||
Condensed
Consolidated Statements of Operations for the three month periods
ended March 31, 2010 and 2009 (unaudited)
|
4
|
|||
Condensed
Consolidated Statements of Changes in Shareholders' Equity for the three
month period ended March 31, 2009 (unaudited)
|
5
|
|||
Condensed
Consolidated Statements of Cash Flows for the three month periods ended
March 31, 2009 and 2008 (unaudited)
|
6
|
|||
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
|||
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operation
|
14
|
||
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
18
|
||
Item
4.
|
Controls
and Procedures
|
19
|
||
Part
II
|
Other
Information
|
19
|
||
Item
1.
|
Legal
Proceedings
|
19
|
||
Item
1A.
|
Risk
Factors
|
19
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
||
Item
5.
|
Other
Information
|
19
|
||
Item
6.
|
Exhibits
|
19
|
||
SIGNATURES
|
19
|
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
MARCH
31, 2010 AND DECEMBER 31, 2009
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$
|
750,545
|
$
|
1,481,851
|
||||
Accounts
receivable, net
|
300,061
|
471,236
|
||||||
Inventories
|
872,366
|
589,730
|
||||||
Trading
securities, at fair value
|
168,785
|
162,044
|
||||||
Prepaid
expenses and other current assets
|
163,862
|
62,663
|
||||||
Total
Current Assets
|
2,255,619
|
2,767,524
|
||||||
Property and
equipment, net
|
3,398,941
|
3,465,302
|
||||||
Construction
in progress
|
4,395
|
-
|
||||||
Land
use right, net
|
517,026
|
522,510
|
||||||
Intangible
assets
|
219,738
|
219,677
|
||||||
Goodwill
|
243,248
|
243,248
|
||||||
Total
Long-term Assets
|
4,383,348
|
4,450,737
|
||||||
TOTAL
ASSETS
|
$
|
6,638,967
|
$
|
7,218,261
|
||||
LIABILITIES
AND EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$
|
296,420
|
$
|
161,122
|
||||
Accrued
expenses and other payables
|
115,201
|
144,795
|
||||||
Payable
for leasehold and equipment purchases
|
-
|
273,558
|
||||||
Payable
to contractors
|
-
|
42,471
|
||||||
Due
to director
|
19,359
|
15,183
|
||||||
Derivative
liabilities
|
200,981
|
377,013
|
||||||
Total
Current Liabilities
|
631,961
|
1,014,142
|
||||||
EQUITY
|
||||||||
Preferred
stock, $0.001 par value, 5,000,000 shares authorized, 4,000,000 shares
issued and outstanding
|
4,000
|
4,000
|
||||||
Common
stock, $0.001 par value, 100,000,000 shares authorized, 41,070,245 and
40,819,285 shares issued and outstanding, respectively
|
41,070
|
40,819
|
||||||
Additional
paid-in capital
|
18,353,895
|
16,475,947
|
||||||
Preferred
stock dividend, payable in common shares
|
-
|
74,200
|
||||||
Subscription
receivable
|
(210,325)
|
(210,325
|
)
|
|||||
Stock
to be issued, 280,000 and 350,960 shares, respectively
|
210,000
|
248,140
|
||||||
Accumulated
other comprehensive income
|
263,534
|
261,948
|
||||||
Accumulated
deficit
|
(13,603,941)
|
(11,678,908
|
)
|
|||||
Total
Bio-Bridge Science, Inc. shareholders’ equity
|
5,058,233
|
5,215,821
|
||||||
NONCONTROLLING
INTEREST
|
948,773
|
988,298
|
||||||
Total
equity
|
6,007,006
|
6,204,119
|
||||||
TOTAL
LIABILITIES AND EQUITY
|
$
|
6,638,967
|
$
|
7,218,261
|
See
accompanying notes to the condensed consolidated financial
statements.
3
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months
Ended March 31,
2010
|
Three Months
Ended March 31,
2009
|
|||||||
Revenue
|
$
|
60,257
|
$
|
264,129
|
||||
Cost
of goods sold
|
(37,396)
|
(162,259
|
)
|
|||||
Gross
profit
|
22,861
|
101,870
|
||||||
Research
and development costs
|
88,336
|
32,812
|
||||||
Selling
and distribution expenses
|
40,325
|
29,341
|
||||||
General
and administrative expenses
|
1,859,491
|
208,533
|
||||||
Loss
from operations
|
(1,965,291)
|
(168,816
|
)
|
|||||
Change in fair value of derivative liability |
-
|
171,277 | ||||||
Interest
expense
|
(801)
|
(274
|
)
|
|||||
Unrealized
gain (loss) on trading securities
|
6,741
|
(3,630
|
)
|
|||||
Dividend
income
|
3,559
|
4,308
|
||||||
Income
(loss) before income taxes
|
(1,955,792
|
)
|
2,865
|
|
||||
Benefit (provision)
for income taxes
|
12,434
|
(20,967
|
)
|
|||||
Net
loss
|
(1,943,358)
|
(18,102
|
)
|
|||||
Net
(loss) income attributable to noncontrolling
interests
|
(39,525)
|
34,674
|
||||||
Net
loss attributable to Bio-Bridge Science, Inc.
|
(1,903,833)
|
(52,776
|
)
|
|||||
Preferred
stock dividends
|
21,200
|
55,550
|
|
|||||
Net
loss attributable to common shareholders
|
$
|
(1,925,033)
|
$
|
(108,326
|
)
|
|||
Net
loss per share, attributable to common shareholders, basic and
diluted
|
$
|
(0.05)
|
$
|
(0.00
|
)
|
|||
Weighted
average shares outstanding, basic and diluted
|
38,183,573
|
34,973,009
|
4
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF
CHANGES
IN EQUITY (UNAUDITED)
FOR
THE THREE MONTHS ENDED MARCH 31, 2010
Common
Stock |
Preferred stock |
Preferred
stock dividend payable in common share
|
Additional
Paid-in Capital
|
Accumulated
Other Comprehensive Gain
|
Common
Stock To be Issued
|
Subscriptions
Receivable
|
Accumulated
Deficit |
Non
controlling interest
|
Total
|
|||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||||||||||
BALANCE
December
31, 2009
|
40,819,285 | $ | 40,819 | 4,000,000 | $ | 4,000 | $ | 74,200 | $ | 16,475,947 | $ | 261,948 | $ | 248,140 | $ | (210,325 | ) | $ | (11,678,908 | ) | $ | 988,298 | $ | 6,204,119 | ||||||||||||||||||||||||
Accrual
of preferred stock dividend
|
- | - | - | - | 21,200 | - | - | - | - | (21,200 | ) | - | - | |||||||||||||||||||||||||||||||||||
Payment
of preferred stock dividend through issuance of common
shares
|
180,000 | 180 | - | - | (95,400 | ) | 95,220 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Fair
value of vested options
|
- | - | - | - | - | 46,822 | - | - | - | - | - | 46,822 | ||||||||||||||||||||||||||||||||||||
Fair
value of warrants issued to directors
|
- | - | - | - | - | 1,521,805 | - | - | - | - | - | 1,521,805 | ||||||||||||||||||||||||||||||||||||
Issuance
of shares
|
70,960 | 71 | - | - | - | 38,069 | - | (38,140 | ) | - | - | - | ||||||||||||||||||||||||||||||||||||
Extinguishment
of derivative recorded as contribution to capital
|
176,032 | 176,032 | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign
currency translation gain
|
- | - | - | - | - | - | 1,586 | - | - | - | - | 1,586 | ||||||||||||||||||||||||||||||||||||
Net
Loss
|
- | - | - | - | - | - | - | - | - | (1,903,833 | ) | (39,525 | ) | (1,943,358 | ) | |||||||||||||||||||||||||||||||||
BALANCE
March
31, 2010
|
41,070,245 | $ | 41,070 | 4,000,000 | $ | 4,000 | $ | - | $ | 18,353,,895 | $ | 263,534 | $ | 210,000 | $ | (210,325 | ) | $ | (13,603,941 | ) | $ | 948,773 | $ | 6,007,006 |
See
accompanying notes to the condensed consolidated financial
statements.
5
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For Three
Months Ended
March 31, 2010
|
For Three
Months Ended
March 31, 2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$
|
(1,943,358)
|
$
|
(189,379
|
)
|
|||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
99,984
|
13,552
|
||||||
Amortization
of land use right
|
5,484
|
4,779
|
||||||
Fair
value of vested options and warrants
|
1,568,627
|
-
|
||||||
Unrealized
loss (gain) on trading securities
|
(6,741)
|
3,630
|
||||||
Change
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
171,175
|
(95,210
|
)
|
|||||
Inventories
|
(282,636)
|
973
|
||||||
Prepaid
expense and other assets
|
(101,199)
|
(164,304
|
)
|
|||||
Accounts
payable
|
135,298
|
(20,012
|
)
|
|||||
Payable
to contractors
|
(42,471)
|
(52,099
|
)
|
|||||
Accrued
expenses and other payables
|
(303,152)
|
(48,907
|
)
|
|||||
Net
cash used in operating activities
|
(698,989)
|
(546,977
|
)
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Increase
in construction in progress
|
(4,395)
|
(42,085
|
)
|
|||||
Purchase
of property and equipment
|
(33,684)
|
(145,482
|
)
|
|||||
Net
cash used in investing activities
|
(38,079)
|
(187,567
|
)
|
|||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from issuance of common stock
|
-
|
873,935
|
||||||
Advances
from director
|
4,176
|
(21,442
|
)
|
|||||
Net
cash provided by financing activities
|
4,176
|
852,493
|
||||||
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(732,892)
|
117,949
|
||||||
Effect
of exchange rate changes on cash
|
1,586
|
(249
|
)
|
|||||
Cash
and cash equivalents, beginning of period
|
1,481,851
|
1,486,252
|
||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
750,545
|
$
|
1,603,952
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||
Interest
Paid
|
$
|
-
|
$
|
-
|
||||
Income
taxes Paid
|
$
|
-
|
$
|
33,166
|
||||
SUPPLEMENTAL
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Net
(loss) income attributable to noncontrolling
interests
|
$
|
(39,525)
|
$
|
34,674
|
||||
Extinguishment
of derivative recorded as contribution to capital
|
$
|
176,032
|
$
|
-
|
||||
Accrual
of preferred stock dividend payable in common stock
|
$
|
21,200
|
$
|
55,500
|
||||
Payment
of preferred stock dividend in shares of common stock
|
$
|
95,400
|
$
|
162,000
|
See
accompanying notes to the condensed consolidated financial
statements.
6
BIO-BRIDGE
SCIENCE, INC. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
AS OF MARCH 31, 2010
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Bio Bridge
Science Inc. and Subsidiaries (the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and pursuant to the requirements for reporting
on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting
companies. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in United States of America
for complete financial statements. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments), which are, in
the opinion of management, necessary for the fair presentation of the
consolidated financial position and the consolidated results of operations.
Results shown for interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year.
The
condensed consolidated balance sheet information as of March 31, 2010 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K filed with the SEC on March 31, 2010. These
interim financial statements should be read in conjunction with that
report.
NOTE
2 - ORGANIZATION AND PRINCIPAL ACTIVITIES
Bio-Bridge
Science, Inc ("the Company") was incorporated in the State of Delaware on
October 26, 2004. The Company's fiscal year end is December
31. On December 1, 2004, the Company acquired all of the outstanding
shares of Bio-Bridge Science Corporation ("BBS"), a Cayman Islands corporation,
in exchange for 29,971,590 shares of its common stock, and as a result, BBS
became a wholly owned subsidiary of Bio-Bridge Science, Inc. The acquisition was
accounted for as a reverse merger (recapitalization) with BBS deemed to be the
accounting acquirer, and the Company the legal acquirer.
BBS was
incorporated in the Cayman Islands on February 11, 2002. At the time
of the exchange, BBS held a 100% interest in Bio-Bridge Science (Beijing) Corp.
("Bio-Bridge Beijing"), a wholly-foreign funded enterprise of the People's
Republic of China ("PRC") which was established on May 20, 2002.
Bio Bridge Beijing is currently engaged in the development
and commercialization of several vaccine candidates, such as HIV-PV vaccine
I, cervical cancer vaccine, colon cancer vaccine, in mainland
China.
On July
31, 2008, the Company acquired 51 percent of the outstanding capital interest of
Bio-Bridge Xinheng Baide Biotechnology Co., Ltd. (“Bio-Bridge XBB”). The primary
operations of Bio-Bridge XBB are the manufacture and distribution of bovine
serum products, which is used in research, the production of pharmaceuticals,
and production of veterinary medicines.
In June,
2009, the Company entered into an equity joint venture contract to purchase 51
percent of Bio-Bridge JRS Biosciences (Beijing) Co., Ltd. (“Bio-Bridge JRS”). On
October 16, 2009 the joint venture received a business license to do business in
China and began minimal start up activities.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. As reflected in the
accompanying financial statements, the Company had a net loss of $1,943,358 and
used cash in operations of $698,989 for the quarter ended March 31, 2010,
and had an accumulated deficit of $13,603,941 at March 31,
2010. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to raise additional
funds and implement its business plan. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
Based on
our current operating plan, we believe that we have sufficient cash and cash
equivalents for the remainder of the calendar year. We will need
to obtain additional financing in addition to the funds already raised through
the sale of equity securities to fund our cash needs and continue our operations
beyond January 2011. Additional financing, whether through public or private
equity or debt financing, arrangements with stockholders or other sources to
fund operations, may not be available, or if available, may be on terms
unacceptable to us. Our ability to maintain sufficient liquidity is dependent on
our ability to raise additional capital. If we issue additional equity
securities to raise funds, the ownership percentage of our existing stockholders
would be reduced. New investors may demand rights, preferences or privileges
senior to those of existing holders of our common stock. Debt incurred by us
would be senior to equity in the ability of debt holders to make claims on our
assets. The terms of any debt issued could impose restrictions on our
operations. If adequate funds are not available to satisfy either medium or
long-term capital requirements, our operations and liquidity could be materially
adversely affected and we could be forced to cut back our
operations.
NOTE
3 - SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
7
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of
Bio-Bridge Science Inc. and our wholly owned subsidiaries, Bio-Bridge Science
Corp., Bio-Bridge Beijing, Bio-Bridge Science Holding Co., Bio-Bridge Science
(HK), Co. and our 51% owned subsidiaries Bio-Bridge XBB and Bio-Bridge
JRS. Intercompany accounts and transactions have been eliminated in
consolidation.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Management makes these estimates using the best
information available and the best judgment at the time the estimates are made,
however actual results could differ materially from those
estimates.
Revenue
recognition
The
Company recognizes revenue from the sales of products in accordance with
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin ("SAB") No.
104, when persuasive evidence of an order arrangement exists, delivery has
occurred, the sales price is fixed or determinable and collectibility is
reasonably assured. Generally, these criteria are met at the time the
product is shipped to customers when title and risk of loss have
transferred.
Intangible
Assets and Goodwill
As
required by guidance issued by the FASB, management performs impairment tests of
goodwill and indefinite-lived intangible assets whenever an event occurs or
circumstances change that indicate impairment has more likely than not occurred.
Also, management performs impairment testing of goodwill and indefinite-lived
intangible assets at least annually.
Goodwill
is related to the Company's acquisition of Bio-Bridge XBB on July 31,
2008. Goodwill and other intangible assets are accounted for in
accordance with guidance issued by the FASB on goodwill and other intangible
assets. Under this guidance, goodwill is not amortized. Rather,
goodwill is assessed for impairment at least annually. The Company
tests goodwill by using a two-step process. In the first step, the
fair value of the reporting unit is compared with the carrying amount of the
reporting unit, including goodwill. If the carrying amount of the
reporting unit exceeds its fair value, goodwill is considered impaired and a
second step is performed to measure the amount of impairment loss, if
any. Based on management’s assessment, there were no indicators of
impairment of recorded goodwill at March 31, 2010 or 2009.
Intangible
assets subject to amortization are related to technology for producing cell
culture medium contributed to Bio-Bridge JRS by a noncontrolling
interest. In accordance with guidance issued by the FASB on
accounting for the impairment and disposal of long-lived assets, the Company
reviews intangible assets subject to amortization at least annually to determine
if any adverse conditions exist or a change in circumstances has occurred that
would indicate impairment or a change in the remaining useful
life. If the carrying value of an asset exceeds its undiscounted cash
flows, the Company writes down the carrying value of the intangible asset to its
fair value in the period identified. If the carrying value of assets
is determined not to be recoverable, the Company records an impairment loss
equal to the excess of the carrying value over the fair value of the
assets. The Company’s estimate of fair value is based on the best
information available, in the absence of quoted market prices. The
Company generally calculates fair value as the present value of estimated future
cash flows that the Company expects to generate from the asset using a
discounted cash flow income approach as described above. If the
estimate of an intangible asset’s remaining useful life is changed, the Company
amortizes the remaining carrying value of the intangible asset prospectively
over the revised remaining useful life. The discounted cash flow valuation
methodology and calculations will be used in 2010 impairment
testing. The Company’s first measurement period will be in the third
quarter of 2010.
Impairment
of Long-Lived Assets
Authoritative
guidance issued by the Financial Accounting Standards Board established
guidelines regarding when impairment losses on long-lived assets, which include
property and equipment, should be recognized, and how impairment losses should
be measured.
Management
regularly reviews property, equipment and other long-lived assets for possible
impairment. This review occurs quarterly, or more frequently if
events or changes in circumstances indicate the carrying amount of the asset may
not be recoverable. If there is indication of impairment, then
management prepares an estimate of future cash flows (undiscounted and without
interest charges) expected to result from the use of the asset and its eventual
disposition. If these cash flows are less than the carrying amount of
the asset, an impairment loss is recognized to write down the asset to its
estimated fair value. Management’s assumptions about cash flows and
discount rates require significant judgment. There were no
indications of impairment based on management’s assessment at March 31,
2010. Factors we consider important that could trigger an impairment
review include significant underperformance relative to historical or projected
future operating results, significant changes in the manner of the use of our
assets or the strategy for our overall business, and significant negative
industry or economic trends.
8
Derivative
financial instruments
The
Company evaluates all of its financial instruments to determine if such
instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as
liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value
reported in the condensed consolidated statements of operations. For stock-based
derivative financial instruments, the Company uses the Black-Scholes-Merton
option pricing models to value the derivative instruments at inception and on
subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting
period.
Financial
Assets and Liabilities Measured at Fair Value.
The
Company reports fair value measurements in accordance with
authoritative guidance issued by the FASB. Fair value is defined in the
authoritative guidance as the price that would be received to sell an asset or
paid to transfer a liability in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants at
the measurement date. A fair value hierarchy was established, which prioritizes
the inputs used in measuring fair value into three broad levels as
follows:
Level 1—Quoted
prices in active markets for identical assets or liabilities.
Level 2—Inputs,
other than the quoted prices in active markets, are observable either directly
or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
The
Company is required to use observable market data if such data is available
without undue cost and effort
The
following table presents certain investments and liabilities of the Company’s
financial assets measured and recorded at fair value on the Company’s
consolidated balance sheets on a recurring basis and their level within the fair
value hierarchy as of March 31, 2010:
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Investment
in trading securities
|
$
|
168,785
|
$
|
-
|
$
|
-
|
$
|
168,785
|
||||||||
Fair
value of options and warrants derivative liability
|
200,981
|
200,981
|
||||||||||||||
$
|
168,785
|
$
|
-
|
$
|
200,981
|
$
|
369,766
|
Foreign
Currency Translation
The
accompanying consolidated financial statements are presented in United States
dollars. The functional currency of the Company is the Renminbi (RMB). Capital
accounts of the consolidated financial statements are translated into United
States dollars from RMB at their historical exchange rates when the capital
transactions occurred. Assets and liabilities are translated at the exchange
rates as of balance sheet date. Income and expenditures are translated at the
average exchange rate of the quarter.
2010
|
2009
|
|||||||
Quarter
end RMB : US$ exchange rate
|
6.8263 | 6.8359 | ||||||
Average
quarterly RMB : US$ exchange rate
|
6.8273 | 6.8353 |
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US
dollars at the rates used in translation.
Comprehensive
Income
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. The Company’s current
components of comprehensive income consist of foreign currency translation
adjustments:
March 31,
|
||||||||
2010
|
2009
|
|||||||
Net
loss
|
$
|
(1,767,326
|
)
|
$
|
(189,379
|
)
|
||
Foreign
currency translation gain( loss)
|
1,586
|
(887
|
)
|
|||||
Comprehensive
loss
|
$
|
(1,765,740
|
)
|
$
|
(190,266
|
)
|
9
Research
and Development
Research
and development costs are expensed as incurred. For the quarter ended
March 31, 2010 and 2009, research and development expenses totaled $88,336 and
$32,812, respectively.
Loss per
Share
Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
during the period. The diluted earnings per share calculation gives effect to
all potentially dilutive common shares outstanding during the period using the
treasury stock method. Common equivalent shares consist of shares
issuable upon the exercise of stock options or warrants. As of March
31, 2010, common stock equivalents were composed of options convertible into
3,731,500 shares of the Company's common stock and warrants convertible
into 8,814,943 shares of the Company's common stock. For the
quarters ended March 31, 2010 and 2009, common equivalent shares have been
excluded from the calculation of loss per share as their effect is
anti-dilutive.
Stock-Based
Compensation
The
Company periodically issues stock options and warrants to employees and
non-employees in capital raising transactions, for services and for financing
costs. Stock-based compensation is measured at the grant date, based on
the fair value of the award, and is recognized as expense over the requisite
service period. Options vest and expire according to terms established at
the grant date.
Concentrations
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and unsecured trade accounts
receivable.
For the
periods ended March 31, 2010 and 2009, approximately 33% and 93% of the
Company’s sales were to customers located in China.
For
the quarter ended March 31, 2010, one customer accounted for 33%
of total sales. At March 31, 2010, four customers accounted for
89% of accounts receivable (31%, 28%, 19%, and 11%,
respectively). For the quarter ended March 31, 2010,
three vendors accounted for 66% of total purchases (39%, 17%, and 10%
respectively). At March 31, 2010, these vendors accounted for
47% of accounts payable (22%, 5%, and 20% respectively). For the quarter
ended March 31, 2009, four customers accounted for 100% of total sales (38%,
28%, 22% and 21% respectively). At March 31, 2009, five customers
accounted for 100% of total accounts receivable (35%, 24%, 19%, 11%, and 11%,
respectively). For the quarter ended March 31, 2009,
four vendors accounted for 85% of total purchases (40%, 20%, 15% and
10% respectively). At March 31, 2010, these vendors accounted
for 90% of accounts payable (30%, 30%, 20% and 10%
respectively).
Recent
Accounting Pronouncements
In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective in fiscal years beginning on or after June 15, 2010, with
earlier adoption permitted. Under the new guidance on arrangements that include
software elements, tangible products that have software components that are
essential to the functionality of the tangible product will no longer be within
the scope of the software revenue recognition guidance,
and software-enabled products will now be subject to other relevant revenue
recognition guidance. Additionally, the FASB issued authoritative guidance on
revenue arrangements with multiple deliverables that are outside the scope of
the software revenue recognition guidance. Under the new guidance, when vendor
specific objective evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new disclosure
requirements on how the application of the relative selling price method affects
the timing and amount of revenue recognition. We believe the
adoption of this new guidance will not have a material impact on our financial
statements.
In
January 2010, the FASB issued guidance on improving disclosures about fair value
measurements to add new disclosure requirements for significant transfers in and
out of Level 1 and 2 measurements and to provide a gross presentation of the
activities within the Level 3 rollforward. The guidance also
clarifies existing fair value disclosures about the level of disaggregation and
about inputs and valuation techniques used to measure fair value. The
disclosure requirements are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the requirement to present
the Level 3 rollforward on a gross basis, which is effective for fiscal years
beginning after December 15, 2010. The adoption of this guidance was
limited to the form and content of disclosures, and will not have a material
impact on our consolidated results of operations and financial
condition.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
10
NOTE 4 - INVENTORIES
Inventories
consist of the following at:
March 31,
2010 |
December 31,
2009 |
|||||||
(
unaudited)
|
||||||||
Raw
materials
|
$
|
286,087
|
$ |
205,968
|
||||
Finished
goods
|
586,279
|
383,762
|
||||||
Total
inventories
|
$
|
872,366
|
$ |
589,730
|
NOTE 5
- SHAREHOLDER'S EQUITY
Preferred
Stock
On
December 31, 2006, the Company amended its certificate of incorporation to
provide for 5,000,000 shares of Series A preferred stock. Pursuant to the
Company's certificate of incorporation, its board of directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of undesignated preferred stock, par value $0.001 per share. The
Company's board had the authority, without the approval of the stockholders, to
fix the designations, powers, preferences, privileges and relative,
participating, optional or special rights and the qualifications, limitations or
restrictions of any preferred stock issued, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. Preferred stock could thus be issued with terms that could delay or
prevent a change in control of our company or make removal of management more
difficult.
In 2007,
the Company sold 4,000,000 shares of Series A Convertible Preferred Stock with
warrants to purchase 3,000,000 shares of common for $0.75 per unit, or
$3,000,000 in aggregate. The preferred stock earned dividends at 12%
annually, in common shares of the Company valued at $1.00 per share, payable
semiannually in arrears. The preferred stock dividend was cumulative and
non-participating.
The
3,000,000 warrants issued with the preferred stock in 2007 expired on January
30, 2010.
On
January 30, 2010, the Company notified the preferred shareholders it was
exercising its right to have the 4,000,000 shares of preferred stock issued in
2007 to be converted at the stated conversion price of $0.75 per share into
3,000,000 shares of common stock. As of March 31, 2010, such
preferred are in the process of being converted. The accrual of the
preferred stock dividend was discontinued effective January 30,
2010. The Company has included the 3,000,000 shares of common stock
that will be issued upon conversion in the calculation of weighted average
shares outstanding for earnings per share purposes for the three months ended
March 31, 2010.
At
December 31, 2009, the Company had recorded a derivative liability of $176,032
related to the 3,000,000 warrants and conversion feature of the preferred
stock. Upon expiration of the warrants and notification of conversion
of the preferred shares, the derivative liability related to these instruments
was extinguished and recorded as a contribution to capital.
NOTE 6
- STOCK OPTIONS AND WARRANTS
At March
31, 2010, stock options outstanding were as follows:
Options
Granted
|
Weighted Average
Exercise Price
|
|||||||
Outstanding
at January 1, 2010
|
3,731,500
|
$
|
0.45
|
|||||
Granted
|
-
|
|||||||
Exercised
|
-
|
|||||||
Cancelled
|
-
|
|||||||
Outstanding
at March 31, 2010
|
3,731,500
|
$
|
0.45
|
|||||
Exercisable
at March 31, 2010
|
2,967,875
|
$
|
0.43
|
11
The
following table summarizes information about stock options outstanding as of
March 31, 2010:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||
Range of Exercise
Prices
|
Number of
Shares
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual
Life (in years)
|
Number of
Shares
|
Weighted Average
Exercise Price
|
|||||||||||||
$0.001 to $0.55
|
3,731,500
|
$
|
0.45
|
7.00
|
2,967,875
|
$
|
0.43
|
|||||||||||
3,731,500
|
2,967,875
|
Information
relating to stock options at March 31, 2010 summarized by exercise price is
as follows:
Outstanding
|
Exercisable
|
|||||||||||||||||||
Exercise price per
Share
|
Number of
shares
|
Remaining
Life (years)
|
Exercise
price
|
Number of
Shares
|
Weighted
average
exercise price
|
|||||||||||||||
$
|
0.001
|
400,000
|
5.83
|
$
|
0.001
|
400,000
|
$
|
0.0001
|
||||||||||||
$
|
0.001
|
20,000
|
2.25
|
$
|
0.001
|
20,000
|
$
|
0.0001
|
||||||||||||
$
|
0.001
|
3,000
|
9.30
|
$
|
0.001
|
3,000
|
$
|
0.0001
|
||||||||||||
$
|
0.47
|
840,000
|
9.30
|
$
|
0.47
|
465,000
|
$
|
0.47
|
||||||||||||
$
|
0.50
|
1,277,000
|
5.75
|
$
|
0.50
|
1,277,000
|
$
|
0.50
|
||||||||||||
$
|
0.52
|
240,000
|
9.30
|
$
|
0.52
|
115,000
|
$
|
0.52
|
||||||||||||
$
|
0.55
|
600,000
|
5.83
|
$
|
0.55
|
600,000
|
$
|
0.55
|
||||||||||||
$
|
0.50
|
351,500
|
9.72
|
$
|
0.50
|
87,875
|
$
|
0.50
|
||||||||||||
$
|
0.001 to $0.55
|
3,731,500
|
7.02
|
$
|
0.45
|
2,967,875
|
$
|
0.43
|
The
aggregate intrinsic value of 3,731,500 options outstanding and 2,823,938 options
exercisable as of March 31, 2010 were $325,365 and $293,706, respectively. The
aggregate intrinsic value for the options is calculated as the difference
between the price of the underlying awards and quoted price of the Company’s
common shares for the options that were in-the-money as of March 31,
2010.
Common
stock warrants
On January 30, 2010, the
Company issued warrants to three companies controlled by two directors of the
Company to purchase 3,000,000 shares of common stock at $1.00 per share with a
term of five years. We recorded the fair value of the warrants to purchase
3,000,000 shares of common stock as compensation cost. The fair value of the
warrants was $1,521,805 at the grant date, determined using the
Black-Scholes-Merton valuation method, with the following assumptions: no
expected dividend yield; a risk-free interest rate of 1.62%; an expected life of
5 years; and an estimated volatility of 191 percent based on recent history of
the stock price in the industry. The total of $1,521,805 was charged to
compensation cost at the date the warrants were granted.
At March
31, 2010, warrants outstanding were as follows:
Number of
Shares under
Warrants
|
Weighted Average
Exercise Price
|
|||||||
Warrants outstanding
at January 1, 2009
|
8,814,943
|
$
|
0.95
|
|||||
Warrants
granted
|
3,000,000
|
1.00
|
||||||
Warrants
expired
|
(3,000,000
|
)
|
1.00
|
|||||
Warrants
outstanding at March 31, 2010
|
8,814,943
|
$
|
0.95
|
12
The
following table summarizes information about warrants outstanding at March
31, 2010:
Warrants Outstanding and Exercisable
|
|||||||||
Number
of Shares Under Warrants
|
Exercise
Price
|
Expiration
Date
|
Weighted
Average
Exercise
Price
|
||||||
183,334
|
$
|
0.75
|
June
4, 2011
|
$
|
0.75
|
||||
183,333
|
$
|
1.20
|
June
4, 2013
|
$
|
1.20
|
||||
1,724,138
|
$
|
0.725
|
July
2, 2012
|
$
|
0.725
|
||||
1,724,138
|
$
|
1.10
|
July
2, 2013
|
$
|
1.10
|
||||
1,000,000
|
$
|
0.725
|
July
9, 2012
|
$
|
0.725
|
||||
1,000,000
|
$
|
1.10
|
July
9, 2013
|
$
|
1.10
|
||||
3,000,000
|
$ |
1.00
|
January
30,2015
|
$
|
1.00
|
||||
8,814,943
|
$
|
0.75-$1.20
|
$
|
0.95
|
The
aggregate intrinsic value of 8,814,943 warrants outstanding and exercisable
as of March 31, 2010 was zero.
13
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operation
Some of
the statements made by us in this Quarterly Report on Form 10-Q are
forward-looking in nature, including but not limited to, statements relating to
our future revenue and expenses, product development, future market acceptance,
levels of research and development, our management's plans and objectives for
our current and future operations, and other statements that are not historical
facts. Forward-looking statements include, but are not limited to, statements
that are not historical facts, and statements including forms of the words
"intend", "believe", "will", "may", "could", "expect", "anticipate", "plan",
"possible", and similar terms. Actual results could differ materially from the
results implied by the forward looking statements due to a variety of factors,
many of which are discussed throughout this Quarterly Report and in our SEC
filings. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to publicly release any revisions to these forward-looking
statements that may reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events, unless required by law. Factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by us include, but are not limited
to:
o
|
our
ability to finance our activities and maintain our financial
liquidity;
|
o
|
our
ability to attract and retain qualified, knowledgeable
employees;
|
o
|
our
ability to complete product
development;
|
o
|
our
ability to obtain regulatory approvals to conduct clinical
trails;
|
o
|
our
ability to design and market new products
successfully;
|
o
|
our
failure to acquire new customers in the
future;
|
o
|
deterioration
of business and economic conditions in our markets;
and
|
o
|
intensely
competitive industry
conditions.
|
In this
document, the words "we," "our," "ours," and "us" refers to Bio-Bridge Science,
Inc. and our wholly owned subsidiaries, including Bio-Bridge Science (Beijing)
Co. Ltd., a Wholly-Foreign Owned Enterprise of the People's Republic of China
("Bio-Bridge (Beijing)") , Bio-Bridge Science Corporation, a Cayman Islands
corporation, Bio-Bridge Science Holding Co. Ltd, a Cayman Islands corporation,
Bio-Bridge Science(HK) CO. Ltd, a Hong Kong company, and Xinheng Baide
Biotechnology Co. Ltd.(“Bio-Bridge XBB”), a Chinese company.
OVERVIEW
Bio-Bridge
Science, Inc. is a biotechnology company whose subsidiaries are focused on the
commercial development of HIV-PV Vaccine I, HPV vaccine, colon cancer vaccine,
mucosal adjuvant. Also, we sell bovine serum through our 51% owned subsidiary,
Bio-Bridge XBB. The pre-clinical testing of HIV-PV Vaccine I on laboratory
animals in Beijing, China was completed in June 2006. After the lab equipment is
installed and we are able to produce vaccine candidate samples, we will apply to
China's State Food and Drug Administration for approval to conduct clinical
trials of HIV-PV Vaccine I. As of December 31, 2005, we had completed the
construction of the outside body of our laboratory and bio-manufacturing
facility in Beijing, China. The internal clean room installation project has
been substantially completed as of end of 2006. We expect to pass the local
government inspection and receive the necessary licenses in the second quarter
of 2010, and by then the laboratory facility will be in operations fully. We
acquired a 51% equity interest in Huhhot Xinheng Baide Biotechnology Co. Ltd. at
the end of July in 2008. Bio-Bridge XBB produces and sells bovine
serum, a major material used in the production of vaccines.
On June
9, 2009, Bio-Bridge Science (HK) Co., Ltd., a wholly-owned subsidiary of
Bio-Bridge Science, Inc. entered into an equity joint venture contract with JR
Scientific Inc., a California based manufacturer of classical and custom cell
culture medium and sera products and several other investors, to form a new cell
culture medium joint venture in Beijing, China. The registered
capital of the joint venture is RMB 10,000,000 (approximately
US$ 1,464,000). The company invested RMB 5,100,000 (approximately
US$732,000) in cash in the joint venture for 51% of the equity and JRS
contributed certain technology for 15% of the equity. The balance of
the equity was purchased by other investors. On October 16, 2009,
Bio-Bridge Science Inc. received a business license from the Beijing
Administration for Industry and Commerce of the PRC indicating approval of the
formation of Bio-Bridge JRS Biosciences (Beijing) Co., Ltd. (“Bio-Bridge
JRS”).
Plan
of Operations
Vaccine
Development
Our
primary corporate focus is on the commercial development of our potential
vaccine products through our subsidiaries. Our capital requirements,
particularly as they relate to product research and development, have been and
will continue to be significant. Our future cash requirements and the adequacy
of available funds will depend on many factors, including the pace at which we
are able to obtain regulatory approvals of vaccine candidates, whether or not a
market develops for our products and, if a market develops, the pace at which it
develops, and the pace at which the technology involved in making our products
changes.
14
The
pre-clinical testing of HIV-PV Vaccine I on laboratory animals was completed in
Beijing Institute of Radiation Medicine, and the testing result was issued in
June 2006 and showed encouraging results. After the vaccine samples are produced
in our GMP facility, we will submit application for clinical trials with the
Chinese SFDA. We have purchased and installed the laboratory equipment and it is
operating well. We plan to apply to the Chinese SFDA for the clinical trial in
the third quarter of 2010. The clinical trial for therapeutic vaccine is
expected to last three years. The clinical trial for preventive vaccine
will last longer, most likely five to seven years.
We also
plan to conduct the pre-clinical trials for colon cancer vaccine and HPV
vaccine. We estimate that we will complete the pre-clinical trial of colon
cancer vaccine by late 2010 and that of HPV vaccine by early 2011. We expect to
enter clinical trials of colon cancer vaccine in the second half of 2011. As we
discussed previously, clinical trial for therapeutic vaccine is expected to last
three years. All the technology to make HIV vaccine and colon cancer vaccine is
based on the technology co-developed by our CEO, Dr. Liang Qiao. Because we use
the same technology to develop our potential vaccine products, we expect to use
the same GMP facility in Beijing, China, to produce the HIV vaccine and colon
cancer vaccine for pre-clinical and clinical trials.
To date
we have funded our operations from funds we raised in private offerings. During
the next twelve months, we will need to raise capital through an offering of our
securities or from loans to continue research and development of our various
vaccine product candidates in China as well as conducting potential acquisition
activities in China. We estimate that our capital requirements for the next
twelve months will be as follows:
o
approximately $1.2 million for preparatory work and Phase I clinical study of
HIV-PV Vaccine I;
o
approximately $1.2 million for working capital and general corporate
needs;
o
approximately $1.0 million for pre-clinical trials on colon cancer vaccine and
HPV vaccine; and
o
approximately $0.5 million for pre-clinical trials on adjuvant.
We expect
that the therapeutic vaccine can be brought to market in three years and the
preventive vaccine can be brought to market in five to seven years, if we are
successful in raising funds to complete development of the vaccines. As of March
31, 2010, our cash and cash equivalents and trading securities position was
$919,330. Although we raised capital in 2008 and 2009 in private
placements, we will still need to raise additional funds through the public or
private sales of our securities, loans, or a combination of the foregoing to
meet our planned operations. We cannot guarantee that financing will be
available to us, on acceptable terms or at all. We also may borrow from local
banks in China given that our land use right and laboratory facility could be
used as collateral for borrowing. If we fail to obtain other financing in the
next 12 months, either through an offering of our securities or by obtaining
additional loans, we may be unable to develop our planned projects as
scheduled and may be forced to scale back.
Distribution
of Xinhua surgical instruments
We signed
an exclusive agency agreement with Xinhua Surgical Instruments Co. Ltd. to
distribute its surgical instruments in the United States at the end of
2005. We are currently seeking collaboration with local distributors and
developing markets for Xinhua instruments. We built up a B2C website devoted to
selling Xinhua surgical instruments in 2008. Also, we initiated some marketing
campaigns, such as buying Google keywords.
Acquisitions
of companies complementary to the Company
Another
major corporate focus is for the Company to acquire other profitable vaccine
companies or vaccine production related companies, such as those producing
materials for vaccine production, in China. Such an acquisition may help support
our development of our in-house vaccine candidates by providing us with
operating cash flows, lower cost for material used in our vaccine
production, skillful work force in vaccine production, and a distribution
channel. We believe these companies will be complementary to us and make us more
competitive.
On July
31, 2008, the Company completed the acquisition of Huhhot Xinheng Baide
Biotechnology Co. Ltd., (“XHBD”), in which the Company purchased 51% of the
outstanding capital interests of XHBD for RMB 6 million (approximately US$
881,000). XHBD was incorporated on May 17, 2006 under the laws of the
People’s Republic of China (“PRC”) as a limited company. XHBD is located in the
city of Huhhot in Inner Mongolia, China. The primary operations of the Company
are the manufacture and distribution of bovine serum products, which is used in
research and production of vaccines. We completed the 51% acquisition of
Xinheng Baide on July 31, 2008 and its operations are included in our
consolidated financial statements beginning August 1, 2008. At July 1, 2009, XHBD changed its
name to Bio-Bridge Xinheng Baide( Inner Mongolia) Biotechnology Co. Ltd. (
“Bio-Bridge XBB”).
At August
20, 2009, Bio-Bridge XBB purchased a land at LeSheng Economic Park District,
Helingeer City, Inner Mongolia. The land area is 4.7 acres (approximately
18,933 square meters) and its cost was $166,290. The land will be used
for the future manufacturing facility and headquarters for Bio-Bridge
XBB.
15
Joint
Venture
On June
9, 2009, Bio-Bridge Science (HK) Co., Ltd., a wholly-owned subsidiary of
Bio-Bridge Science, Inc. entered into an equity joint venture contract with JR
Scientific Inc., a California based manufacturer of classical and custom
cell culture medium and sera products and several other investors, to form a new
cell culture medium joint venture in Beijing, China. The registered
capital of the joint venture will be RMB 10,000,000 (approximately
US$1,464,000). The company invested RMB 5,100,000 (approximately
US$732,000) in cash in the joint venture for 51% of the equity and JRS
contributed certain technology for 15% of the equity. The balance of
the equity was purchased by other investors, including 11% by China Diamond, an
entity controlled by Trevor Roy, one of our directors.
On
October 16, 2009, Bio-Bridge Science Inc. received a business license from the
Beijing Administration for Industry and Commerce of the PRC indicating approval
of the formation of Bio-Bridge JRS Biosciences (Beijing) Co., Ltd. (“Bio-Bridge
JRS”). Bio-Bridge JRS was officially established at the end of October
2009.
The plant
was decorated and major equipment has been purchased. The major production
technology is transferred from JRS and the technicians are being trained to
produce the qualified cell culture medium samples. We expect that
Bio-Bridge JRS will formally produce and sell cell culture medium and related
products in China in the third quarter of 2010.
Results
of Operations
Three-month
period ended March 31, 2010 and March 31, 2009
During
the three-month period quarter ended March 31, 2010, we had revenues of $60,257.
The cost of revenue was $37,396, which was 62% of the total revenue. During
the three-month period quarter ended March 31, 2009, we had revenues of
$264,129. The cost of revenue was $162,529, which was 62% of the total revenue.
The decrease of revenues in the first quarter of 2010 was due to the seasonal
factor for selling bovine serum.
For the
quarter ended March 31, 2010, research and development expenses were $88,336, as
compared to $32,812 for the quarter ended March 31, 2009. The increase of
$55,524 is due to the increase of the pre-clinical trial development of our
vaccine candidates.
For the
quarter ended March 31, 2010, selling and distribution expenses were $40,325 as
compared to $29,341 for the quarter ended March 31, 2009. The increase of
$10,984 is due primarily to increases in shipping and selling expense and
selling and distribution of Bio-Bridge XBB.
For the
quarter ended March 31, 2010, general and administrative expenses were
$1,859,491 as compared to $208,533 for the quarter ended March 31, 2009. The
increase of $1,650,958 is mainly due to the compensation cost for issuing common
stock warrants to three companies controlled by our two directors, which was
$1,521,805.
For the
quarter ended March 31, 2010, interest expense was $801 as compared to interest
expense of $274 for the quarter ended March 31, 2008. The increase of $527 is
due primarily to fluctuations in foreign exchange in our subsidiaries in
China.
Net loss
for the quarter ended March 31, 2010 was $1,943,358 as compared to $18,102 for
the quarter ended March 31, 2009. This increase of $1,925,256 in net loss
is primarily due to the compensation cost for issuing common stock warrants to
three companies controlled by two of our directors, which was
$1,521,805.
Liquidity
and Capital Resources
Our
principal sources of liquidity are cash and cash equivalent balances, which were
$750,545 at March 31, 2010. Also, we had marketable securities valued at
$168,785 as of March 31, 2010. These marketable securities were classified
as trading securities.
Net cash
used in operating activities was $698,989 for the three months ended March 31,
2010 and $546,977 for the three months ended March 31, 2009. The increase was
due primarily to that we paid off some accrued expenses and
payables.
Net cash
provided by investing activities was ($38,079) for the three months ended
March 31, 2010 and ($187,567) for the three months ended March 31, 2009.
This change was due to we purchased fewer fixed assets during the three
months ended March 31, 2010 compared with for the three months ended March
31, 2009.
Net cash
provided by financing activities was $4,176 for the three months ended March 31,
2010 compared to $852,493 for the three months ended March 31, 2009. This
decrease was mainly due to more proceeds from the issuance of commons stock
during the first quarter of 2009.
To date,
our operations have been funded through issuances of our common stock and
preferred stock whereby we raised an aggregate $8,365,888 from inception through
March 31, 2010.
16
In the
first quarter of 2009, the Company sold 12,800 shares of common stock to a
hundred twenty-three investors at $1.375 per share for a total consideration of
$17,600.
Based on
our current operating plan, we believe that we have sufficient cash and cash
equivalents until year end. We will need to obtain additional financing in
addition to the funds already raised through the sale of equity securities to
fund our cash needs and continue our operations beyond January 2011. Additional
financing, whether through public or private equity or debt financing,
arrangements with stockholders or other sources to fund operations, may not be
available, or if available, may be on terms unacceptable to us. Our ability to
maintain sufficient liquidity is dependent on our ability to raise additional
capital. If we issue additional equity securities to raise funds, the ownership
percentage of our existing stockholders would be reduced. New investors may
demand rights, preferences or privileges senior to those of existing holders of
our common stock. Debt incurred by us would be senior to equity in the
ability of debt holders to make claims on our assets. The terms of any debt
issued could impose restrictions on our operations. If adequate funds are not
available to satisfy either medium or long-term capital requirements, our
operations and liquidity could be materially adversely affected and we could be
forced to cut back our operations.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses for each period. The following represents a summary of our critical
accounting policies, defined as those policies that we believe are the most
important to the portrayal of our financial condition and results of operations
and that require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of
matters that are inherently uncertain.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Management makes these estimates using the best
information available and the best judgment at the time the estimates are made,
however actual results could differ materially from those
estimates.
Stock-Based
Compensation
The
Company periodically issues stock options and warrants to employees and
non-employees in non-capital raising transactions, for services, and for
financing costs. The Company accounts for stock option and warrant grants issued
and vesting to employees based on the authoritative guidance provided by the
Financial Accounting Standards Board (“FASB”). The Company accounts for stock
option and warrant grants issued and vesting to non-employees in accordance with
the authoritative guidance of the FASB whereas the value of the stock
compensation is based upon the measurement date as determined at either a) the
date at which a performance commitment is reached, or b) at the date at which
the necessary performance to earn the equity instruments is complete.
Non-employee share-based compensation charges generally are amortized over the
vesting period on a straight-line basis. In certain circumstances where there
are no future performance requirements by the non-employee, option grants are
immediately vested and the total share-based compensation charge is recorded in
the period of the measurement date.
The fair
value of Bio-Bridge’s common stock option grants are estimated using the
Black-Scholes-Merton option pricing model, which uses certain assumptions
related to risk-free interest rates, expected volatility, expected life of the
common stock options, and future dividends. Compensation expense is recorded
based upon the value derived from the Black-Scholes option pricing model, and
based on actual experience. The assumptions used in the Black-Scholes-Merton
option pricing model could materially affect compensation expense recorded in
future periods.
Impairment
of Long-Lived Assets, Goodwill and Intangible Assets
We review
long-lived assets whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable in accordance with the
authoritative guidance provided by the FASB. Our long-lived assets, such
as property and equipment, are reviewed for impairment when events and
circumstances indicate that depreciable or amortizable long lived assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. When specific assets
are determined to be unrecoverable, the cost basis of the asset is reduced to
reflect the current value.
We use
various assumptions in determining the current fair value of these assets,
including future expected cash flows and discount rates, as well as other fair
value measurements. Our impairment loss calculations require us to apply
judgment in estimating future cash flows, including forecasting useful lives of
the assets and selecting the discount rate that reflects the risk inherent in
future cash flows. If actual results are not consistent with our
assumptions and judgments used in estimating future cash flows and asset fair
values, we may be exposed to future impairment losses that could be material to
our results.
17
Inventory
Valuation
Inventories
are stated at the lower of cost or market. Market is defined as
current replacement cost, except that market should not exceed the net
realizable value and should not be less than net realizable value reduced by an
allowance for an approximately normal profit margin. The cost of inventories is
determined by using the first-in, first-out method. We perform a monthly
analysis of our inventory balances to determine if the carrying amount of
inventories exceeds their net realizable value. Our determination of estimated
net realizable value is based on customer orders, market trends and historical
pricing. If the carrying amount exceeds the estimated net realizable value, the
carrying amount is reduced to the estimated net realizable value.
Derivative
financial instruments
The
Company evaluates all of its financial instruments to determine if such
instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as
liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value
reported in the condensed consolidated statements of operations. For stock-based
derivative financial instruments, the Company uses both the Black-Scholes-Merton
option pricing models to value the derivative instruments at inception and on
subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period. The Company
does not use derivative instruments to hedge exposures to cash flow, market or
foreign currency risks.
Recent
Accounting Pronouncements
In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective in fiscal years beginning on or after June 15, 2010, with
earlier adoption permitted. Under the new guidance on arrangements that include
software elements, tangible products that have software components that are
essential to the functionality of the tangible product will no longer be within
the scope of the software revenue recognition guidance, and software-enabled
products will now be subject to other relevant revenue recognition guidance.
Additionally, the FASB issued authoritative guidance on revenue arrangements
with multiple deliverables that are outside the scope of the software revenue
recognition guidance. Under the new guidance, when vendor specific objective
evidence or third party evidence for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to separate
deliverables and allocate arrangement consideration using the relative selling
price method. The new guidance includes new disclosure requirements on how the
application of the relative selling price method affects the timing and amount
of revenue recognition. We believe the adoption of this new
guidance will not have a material impact on our financial
statements.
In
January 2010, the FASB issued guidance on improving disclosures about fair value
measurements to add new disclosure requirements for significant transfers in and
out of Level 1 and 2 measurements and to provide a gross presentation of the
activities within the Level 3 rollforward. The guidance also
clarifies existing fair value disclosures about the level of disaggregation and
about inputs and valuation techniques used to measure fair value. The
disclosure requirements are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the requirement to present
the Level 3 rollforward on a gross basis, which is effective for fiscal years
beginning after December 15, 2010. The adoption of this guidance was
limited to the form and content of disclosures, and will not have a material
impact on our consolidated results of operations and financial
condition.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
Commitments
Royalty
and License Arrangements
Liang
Qiao, M.D., our co-founder and chief executive officer, is one of the two
co-inventors of our core technology that was assigned to Loyola University
Chicago in April 2001. Under an agreement with Loyola University Chicago, we
have obtained exclusive rights to this technology for use in its future products
within the United States, Japan and the People's Republic of China, including
mainland China, Hong Kong, Taiwan and Macau. The license continues perpetually
or for the maximum period of time permitted by law, unless terminated earlier
under the terms of the agreement. Pursuant to this agreement, Loyola receives a
royalty of 4% from the net profit for all uses of the licensed technology,
including uses under sublicenses. As of March 31, 2010, we had not generated any
revenues from the sale of any products under development, nor had we received
any revenues from sublicenses.
The
Company is a smaller reporting company and is not required to provide the
information required by this.
18
Item
4. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures. As of the end of the period
covered by this report, we carried out an evaluation, 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 defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of the
applicable period to ensure that the information required to be disclosed by us
in reports that we file or submit under the Exchange Act (i) is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
(b)
Changes in internal controls over financial reporting. There was no change in
our internal control over financial reporting during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
Item 1. Legal
Proceedings
Not
Applicable.
Item
1A. Risk Factors
There
have been no material changes in the risk factors previously disclosed in Form
10-K we filed with the SEC on March 31, 2010.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
Not
applicable.
Item 3. Defaults Upon Senior
Securities
Not
applicable.
Item 4. Submission of Matters to a Vote of
Security Holders
Not
applicable.
Item 5. Other
Information
Not
applicable.
Item 6. Exhibits
The
exhibits listed in the Exhibit Index are filed as part of this
report.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Bio-Bridge
Science, Inc.
|
|||
/s/
Dr. Liang Qiao
|
Dated:
May 17, 2010
|
||
By:
Dr. Liang Qiao
|
|||
Chief
Executive Officer
|
19
EXHIBIT
INDEX
3.1(i)*
|
Certificate
of incorporation of the registrant, as currently in
effect
|
|
3.1(ii)*
|
Bylaws
of the registrant, as currently in effect
|
|
3.1(iii)**
|
Certificate
of Designation of Series A Preferred Stock
|
|
4.1
|
Form
of Common Stock Warrant Agreement dated January 2010
|
|
31.1
|
Certification
of Chief Executive Officer
|
|
31.2
|
Certification
of Chief Financial Officer
|
|
32.1
|
Section
1350 Certifications of Chief Executive Officer and Chief Financial
Officer
|
*
Previously filed with the Securities and Exchange Commission pursuant to
Registration Statement No. 333-121786.
**
Previously filed as an exhibit to the Registrant's Form 10-KSB for its year
ended December 31, 2006.
20