Attached files
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EX-31.1 - Benda Pharmaceutical, Inc. | v203300_ex31-1.htm |
EX-32.1 - Benda Pharmaceutical, Inc. | v203300_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 September 30, 2010
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______to______.
BENDA
PHARMACEUTICAL, INC.
(Exact
name of registrant as specified in Charter
Delaware
|
000-16397
|
41-2185030
|
||
(State
or other jurisdiction of
incorporation
or organization)
|
(Commission
File No.)
|
(IRS
Employee Identification
No.)
|
Taibei
Mingju, 4th
Floor,
6
Taibei Road, Wuhan, Hubei Province, 430015, PRC
(Address
of Principal Executive Offices)
+86
(27) 85494916
(Issuer
Telephone number)
(Former
Name or Former Address if Changed Since Last Report)
Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer 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 whether the registrant has submitted electronically and posted on
its corporate Web site, 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 for 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 filer.
See definition of “accelerated filer” and “large accelerated filer” in
Rule 12b-2 of the Exchange Act (Check one):
Large
Accelerated Filer ¨ Accelerated
Filer ¨ Non-Accelerated
Filer ¨ Smaller
Reporting Company x
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act.
Yes ¨ No x
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of November 19, 2010: 105,155,355 shares of common stock.
BENDA
PHARMACEUTICAL, INC.
FORM
10-Q
September
30, 2010
INDEX
PART
I— FINANCIAL INFORMATION
|
|||
Item
1.
|
Financial
Statements
|
3
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
|
17
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
22
|
|
Item
4T.
|
Control
and Procedures
|
22
|
|
PART
II— OTHER INFORMATION
|
|||
Item
1
|
Legal
Proceedings
|
23
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
26
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
26
|
|
Item
4.
|
(Removed
and Reserved)
|
26
|
|
Item
5.
|
Other
Information
|
26
|
|
Item
6.
|
Exhibits
|
27
|
|
SIGNATURE
|
28
|
2
PART
I—FINANCIAL INFORMATION
Item
1. Financial Information
Benda
Pharmaceutical, Inc.
Consolidated
Balance Sheets
September 30,
2010
|
December 31,
2009
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
1,398,815
|
$
|
191,095
|
||||
Trade
receivables, net of allowance of doubtful accounts of $5,318,313 and
$5,202,311,
respectively
|
13,975,083
|
12,405,018
|
||||||
Advance
for inventory purchase
|
2,149,960
|
2,110,857
|
||||||
Note
receivables
|
-
|
81,426
|
||||||
Inventories
|
4,355,908
|
2,038,987
|
||||||
Due
from related parties, short term
|
305,271
|
30,861
|
||||||
Prepaid
expenses and other current assets
|
1,082,665
|
1,720,237
|
||||||
Total
current assets
|
23,267,702
|
18,578,481
|
||||||
Due
from related parties, long term
|
3,120,477
|
3,032,726
|
||||||
Property
and equipments, net
|
28,645,233
|
28,658,131
|
||||||
Investment
|
119,760
|
-
|
||||||
Intangible
assets, net
|
6,307,780
|
6,629,501
|
||||||
Restricted
cash
|
4,762,897
|
4,409,334
|
||||||
Other
assets
|
2,338,697
|
2,285,581
|
||||||
Total
Assets
|
$
|
68,562,546
|
$
|
63,593,754
|
||||
Liabilities
& Shareholders' Equity
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$
|
1,672,332
|
$
|
902,079
|
||||
Customer
deposit
|
1,341,377
|
1,507,147
|
||||||
Other
payable
|
4,453,474
|
4,547,558
|
||||||
Accrued
liabilities
|
7,681,574
|
6,175,538
|
||||||
Convertible
notes
|
7,260,000
|
7,260,000
|
||||||
Short-term
debt
|
14,132,787
|
11,598,066
|
||||||
Accrued
VAT and other taxes
|
709,132
|
795,013
|
||||||
Acquisition
price payable
|
1,455,807
|
1,422,743
|
||||||
Wages
payable
|
|
432,338
|
1,187,075
|
|||||
Due
to related parties, short term
|
|
2,857,055
|
2,791,447
|
|||||
Redeemable
common stock, 2,049,560 shares at $3.6 per share
|
7,376,366
|
7,376,366
|
||||||
Total
current liabilities
|
49,372,242
|
45,563,032
|
||||||
Government
grant payable
|
1,831,026
|
1,789,439
|
||||||
Due
to related parties, long-term
|
120,949
|
118,202
|
||||||
Deferred
tax liability
|
754,483
|
778,026
|
||||||
Total
liabilities
|
52,078,700
|
48,248,699
|
||||||
Shareholders'
Equity
|
||||||||
Preferred
stock, $0.001 par value; 5,000,000 shares authorized;
|
||||||||
None
issued and outstanding
|
-
|
-
|
||||||
Common
stock, $0.001 par value; 150,000,000 shares authorized; 105,155,355 shares
issued and outstanding
|
105,155
|
105,155
|
||||||
Additional
paid in capital
|
22,108,427
|
22,108,427
|
||||||
Accumulated
deficit
|
(18,346,146
|
)
|
(17,481,559
|
)
|
||||
Statutory
surplus reserve fund
|
2,642,775
|
2,642,775
|
||||||
Accumulative
other comprehensive income
|
8,218,466
|
6,268,111
|
||||||
Shares
issuable for services
|
503,860
|
503,860
|
||||||
Total
Benda Pharmaceutical, Inc.'s Shareholders' Equity
|
15,232,537
|
14,146,769
|
||||||
Noncontrolling
Interest
|
1,251,309
|
1,198,286
|
||||||
Total
Shareholders' Equity
|
16,483,846
|
15,345,055
|
||||||
Total
Liabilities & Shareholders' Equity
|
$
|
68,562,546
|
$
|
63,593,754
|
The
accompany notes are an integral part of these consolidated financial
statements.
3
Benda
Pharmaceutical, Inc.
Consolidated
Statements of Operations
(Unaudited)
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenue
|
$
|
16,857,713
|
$
|
17,345,065
|
$
|
6,697,864
|
$
|
5,904,653
|
||||||||
Cost
of goods sold
|
(9,499,325
|
)
|
(9,770,370
|
)
|
(3,734,008
|
)
|
(3,071,291
|
)
|
||||||||
Gross
profit
|
7,358,388
|
7,574,695
|
2,963,856
|
2,833,362
|
||||||||||||
Selling
expenses
|
(1,786,412
|
)
|
(1,868,482
|
)
|
(421,395
|
)
|
(852,116
|
)
|
||||||||
General
and administrative expenses
|
(2,061,356
|
)
|
(5,230,595
|
)
|
(618,268
|
)
|
(1,208,938
|
)
|
||||||||
Depreciation
and amortization expenses
|
(1,268,299
|
)
|
(724,749
|
)
|
(451,329
|
)
|
(278,967
|
)
|
||||||||
Research
and development expenses
|
(1,154,203
|
)
|
(283,473
|
)
|
(388,921
|
)
|
(165,390
|
)
|
||||||||
Total
operating expenses
|
(6,270,270
|
)
|
(8,107,299
|
)
|
(1,879,913
|
)
|
(2,505,411
|
)
|
||||||||
Operating
income / (loss)
|
1,088,118
|
(532,604
|
)
|
1,083,943
|
327,951
|
|||||||||||
Interest
expense
|
(1,187,545
|
)
|
(2,104,510
|
)
|
(458,777
|
)
|
(471,263
|
)
|
||||||||
Other
income (expense)
|
(14,813
|
)
|
106,161
|
(3,248
|
)
|
60,385
|
||||||||||
Government
subsidies
|
-
|
26,386
|
-
|
3
|
||||||||||||
Net
income (loss) before income taxes
|
(114,240
|
)
|
(2,504,567
|
)
|
621,918
|
(82,924
|
)
|
|||||||||
Income
taxes
|
(654,921
|
)
|
(123,043
|
)
|
(338,326
|
)
|
(65,808
|
)
|
||||||||
Net
Income (Loss)
|
(769,161
|
)
|
(2,627,610
|
)
|
283,592
|
(148,732
|
)
|
|||||||||
Less:
Net income (loss) attributable to the noncontrolling
Interests
|
95,426
|
(166,068
|
)
|
46,004
|
64,824
|
|||||||||||
Net
income (loss) attributable to Benda Pharmaceutical, Inc.
|
$
|
(864,587
|
)
|
$
|
(2,461,542
|
)
|
$
|
237,588
|
$
|
(213,556
|
)
|
|||||
Other
Comprehensive Income (Loss)
|
||||||||||||||||
Foreign
currency translation gain
|
1,907,952
|
-
|
1,750,042
|
461,784
|
||||||||||||
Comprehensive
Income (Loss)
|
1,138,791
|
(2,627,610
|
)
|
2,033,634
|
313,052
|
|||||||||||
Comprehensive
income (loss) attributable to the noncontrolling interest
|
53,023
|
(166,068
|
)
|
183,512
|
64,824
|
|||||||||||
Comprehensive
income (loss) attributable to Benda Pharmaceutical, Inc.
|
$
|
1,085,768
|
$
|
(2,461,542
|
)
|
$
|
1,850,122
|
$
|
248,228
|
|||||||
Net
earnings (loss) per share - basic and diluted
|
||||||||||||||||
Net
earnings (loss) attributable to Benda Pharmaceutical, Inc.
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
0.00
|
$
|
(0.00
|
)
|
|||||
Weighted
average shares outstanding - basic and diluted
|
105,155,355
|
105,155,355
|
105,155,355
|
105,155,355
|
The
accompany notes are an integral part of these consolidated financial
statements.
4
Benda
Pharmaceutical, Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
|
||||||||
2010
|
2009
|
|||||||
(Restated)
|
||||||||
Cash
Flows From Operating Activities
|
||||||||
Net
loss
|
$
|
(769,161
|
)
|
$
|
(2,627,610
|
)
|
||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Loss
on disposals of fixed assets
|
4,551
|
-
|
||||||
Bad
debt provision
|
243,929
|
3,080,334
|
||||||
Inventory
written down to net realizable value
|
-
|
196,628
|
||||||
Depreciation,
including amounts in cost of sales
|
1,737,563
|
1,471,304
|
||||||
Amortization
of intangible assets
|
442,467
|
528,501
|
||||||
Amortization
of debt issuance costs
|
-
|
55,485
|
||||||
Amortization
of convertible notes discount
|
-
|
864,049
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
receivables
|
(1,813,993
|
)
|
(2,435,969
|
)
|
||||
Advance
for inventory purchase
|
(39,103
|
)
|
(2,294,717
|
)
|
||||
Prepaid
expenses and other current assets
|
637,572
|
(1,015,785
|
)
|
|||||
Inventories
|
(2,316,921
|
)
|
(195,850
|
)
|
||||
Accounts
payable
|
2,276,288
|
2,860,986
|
||||||
Customer
deposit
|
(165,770
|
)
|
-
|
|||||
Other
payable
|
(116,029
|
)
|
-
|
|||||
Wages
payable
|
(754,737
|
)
|
-
|
|||||
Accrued
taxes
|
(109,424
|
)
|
396,142
|
|||||
Net
cash provided by (used in) operating activities
|
(742,768
|
)
|
883,498
|
|||||
Cash
Flows From Investing Activities
|
||||||||
Investment
in joint venture
|
(119,760
|
)
|
-
|
|||||
Purchases
of property and equipment and construction-in-progress
|
(688,892
|
)
|
(455,488
|
)
|
||||
Restricted
cash
|
(353,563
|
)
|
-
|
|||||
Collection
of notes receivable
|
81,426
|
154,691
|
||||||
Net
cash used in investing activities
|
(1,080,789
|
)
|
(300,797
|
)
|
||||
|
||||||||
Cash
Flows From Financing Actives
|
||||||||
Proceeds
and repayments of borrowings under related parties, net
|
(293,806
|
)
|
-
|
|||||
Proceeds
and repayments of borrowings under short term debt
|
2,556,666
|
10,807
|
||||||
Net
cash provided by (used in) financing activities
|
2,262,860
|
10,807
|
||||||
Effect
of exchange rate changes on cash
|
768,417
|
303,761
|
||||||
Net
increase in cash and cash equivalents
|
1,207,720
|
897,269
|
||||||
Cash
and cash equivalents, beginning of period
|
191,095
|
584,266
|
||||||
Cash
and cash equivalents, end of period
|
$
|
1,398,815
|
$
|
1,481,535
|
||||
Supplemental
Disclosure of Cash Flow Information
|
||||||||
Cash
paid for interest
|
$
|
99,312
|
$
|
298,139
|
||||
Cash
paid for income taxes
|
$
|
344,214
|
$
|
935,208
|
The
accompany notes are an integral part of these consolidated financial
statements
5
Benda
Pharmaceutical, Inc.
Notes
to Consolidated Financial Statements
1. Organization
Benda
Pharmaceutical, Inc. (“Benda”) is a corporation organized under Delaware Law and
headquartered in Hubei Province, the People’s Republic of China
(“PRC”).
Ever
Leader Holdings Limited (“Ever Leader”), a wholly owned subsidiary of Benda, is
a company incorporated under the laws of Hong Kong SAR.
Ever
Leader owns 95% of the issued and outstanding capital of Hubei Tongji Benda Ebei
Pharmaceutical Co. Ltd. (“Benda Ebei”), a Sino-Foreign Equity Joint Venture
company incorporated under the laws of PRC. Mr. Yiqing Wan owns 5% of the issued
and outstanding capital stock of Benda Ebei. Benda Ebei owns: (i) 95% of the
issued and outstanding capital stock of Jiangling Benda Pharmaceutical Co. Ltd.,
(“Jiangling Benda”) a company formed under the laws of PRC; (ii) 95% of the
issued and outstanding capital stock of Yidu Benda Chemical Co. Ltd., (“Yidu
Benda”) a company incorporated under the laws of PRC; and (iii) 75% of the
issued and outstanding capital stock of Beijing Shusai Pharyngitis Research Co.
Ltd., (“Beijing Shusai”) a company incorporated under the laws of PRC. Mr.
Yiqing Wan owns: (i) 5% of the issued and outstanding capital stock of Jingling
Benda; and (ii) 5% of the issued and outstanding capital stock of Yidu Benda.
Mr. Feng Wang owns 25% of the issued and outstanding capital stock of Beijing
Shusai.
On April
5, 2007, Benda Ebei entered into an Equity Transfer Agreements with Shenzhen
Yuanzheng Investment Development Co., Ltd. and Shenzhen Yuanxing Gene City
Development Co., Ltd., the shareholders of Shenzhen SiBiono GeneTech Co., Ltd
(“SiBiono”), to purchase 27.57% and 30% respectively of the shares of SiBiono’s
common stock for total consideration of RMB 60 million due and payable on or
before April 30, 2007. On June 11, 2007, Benda Ebei entered into an Equity
Transfer Agreement with Huimin Zhang and Yaojin Wang, the individual
shareholders of SiBiono, to purchase 1.6% and 0.96% respectively of the shares
of SiBiono’s common stock for total consideration of RMB 2.56 million due
and payable on or before June 30, 2007. Altogether, the total
consideration for 60.13% shares of SiBiono’s common stock was RMB 62.56
million or $8.58 million. As of Sep 30, 2010 an accumulated amount,
approximately RMB 52.83 million or $7.16 million was paid leaving a balance of
RMB 9.73 million or $1.42 million.
Benda,
Ever Leader, Benda Ebei, Jiangling Benda, Yidu Benda, Beijing Shusai and SiBiono
shall be referred to herein collectively as the “Company”. The Company is
engaged principally in the business of identifying, discovering, developing, and
manufacturing conventional medicines, active pharmaceuticals, bulk chemicals (or
pharmaceutical immediates), and Traditional Chinese Medicines (“TCM”) for the
treatment of some of the most widespread common ailments and diseases (e.g.
common cold, diabetes, and cancer).
The
organization and ownership structure of the Company is as follows:
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As reflected in the accompanying
consolidated financial statements, the Company has recurring losses and has a
working capital deficiency at September 30, 2010. These conditions raise
substantial doubt as to the Company’s ability to continue as a going
concern.
6
While the
Company is attempting to produce sufficient revenues, the Company’s cash
position may not be enough to support the Company’s daily operations. Management
intends to raise additional funds by way of a public or private offering.
Management believes that the actions presently being taking to further implement
its business plan and generate sufficient revenues provide the opportunity for
the Company to continue as a going concern. While the Company believes in the
viability of its strategy to increase revenues and in its ability to raise
additional funds, there can be no assurance to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability
to further implement its business plan and generate sufficient revenues. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
2. Basis
of Preparation
The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America and rules of the Securities and Exchange Commission,
and should be read in conjunction with the audited financial statements and
notes thereto contained in the Company’s annual report on Form 10-K for the
year ended December 31, 2009 filed with the SEC on May 18, 2010. In the opinion
of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the consolidated financial
statements which would substantially duplicate the disclosure contained in the
audited financial statements as reported in the 2009 annual report on Form 10-K
have been omitted.
These
consolidated financial statements include the accounts of Benda, Ever Leader,
Benda Ebei, Jiangling Benda, Yidu Benda, Beijing Shusai and Sibiono. All
significant inter-company balances and transactions have been eliminated in the
consolidation.
Certain
amounts in the consolidated financial statements for the prior year have been
reclassified to conform to the presentation of the current year.
The
preparation of financial statements in conformity with US GAAP 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
revenue and expenses during the reporting period. Actual results when
ultimately realized could differ from those estimates.
3. Earnings per
share
Basic earnings per share is computed by
dividing net income by weighted average number of shares of common stock
outstanding during each period. Diluted earnings per share is
computed by dividing net income by the weighted average number of shares of
common stock, common stock equivalents and potentially diluting securities
outstanding during each period. At September 30, 2010, potential
dilutive securities had an anti-dilutive effect and were not included in the
calculation of diluted earnings per share.
4. Restatement
On May
12, 2010, the Company discovered that its financial statements for the year
ended December 31, 2008 and 2007, and the quarterly periods within the year 2007
to 2009 should not be relied upon due to multiple errors found in the accounting
treatment of a business combination transaction completed in March 2007
resulting in adjustment of assets and liabilities to fair market value. The
Company also adjusted certain other assets and intangible assets due to errors
in the accounting treatment of these assets resulting in additional expenses for
the prior periods. To correct the above noted errors, the Company has restated
the accompanying Consolidated Statements of Operations and Cash Flows for the
three and nine months period ended September 30, 2009, and the notes to the
consolidated financial statements. The impact to the September 30, 2009 Balance
Sheet is not presented here. The following is a summary items affected by the
corrections described above:
7
NINE MONTHS ENDED SEPTEMBER 30, 2009
|
||||||||||||
As previously
reported
|
Adjustments
|
As Restated
|
||||||||||
Revenue
|
$
|
17,345,065
|
$
|
-
|
$
|
17,345,065
|
||||||
Cost
of goods sold
|
(9,770,370
|
)
|
-
|
(9,770,370
|
)
|
|||||||
Gross
profit
|
7,574,695
|
-
|
7,574,695
|
|||||||||
Selling
expenses
|
(1,868,482
|
)
|
-
|
(1,868,482
|
)
|
|||||||
General
and administrative expenses
|
||||||||||||
Bad
debts
|
(3,080,334
|
)
|
-
|
(3,080,334
|
)
|
|||||||
Depreciation
and amortization expense
|
(688,730
|
)
|
(36,019
|
)
|
(724,749
|
)b
|
||||||
Inventory
wirtten down to net realizable value
|
(196,628
|
)
|
-
|
(196,628
|
)
|
|||||||
Other
general and administrative expenses
|
(2,008,979
|
)
|
55,346
|
(1,953,633
|
)a
|
|||||||
Research
and development expenses
|
(283,473
|
)
|
-
|
(283,473
|
)
|
|||||||
Total
operating expenses
|
(8,126,626
|
)
|
19,327
|
(8,107,299
|
)
|
|||||||
Operating
loss
|
(551,931
|
)
|
19,327
|
(532,604
|
)
|
|||||||
Other
income (expenses)
|
||||||||||||
Government
subsidies / grants
|
26,386
|
-
|
26,386
|
|||||||||
Interest
income
|
-
|
-
|
-
|
|||||||||
Interest
expenses
|
(2,104,510
|
)
|
-
|
(2,104,510
|
)
|
|||||||
Other
income
|
106,161
|
-
|
106,161
|
|||||||||
Net
loss before income taxes
|
(2,523,894
|
)
|
19,327
|
(2,504,567
|
)
|
|||||||
Income
taxes
|
(163,803
|
)
|
40,760
|
(123,043
|
)c
|
|||||||
Net
loss
|
(2,687,697
|
)
|
60,087
|
(2,627,610
|
)c
|
|||||||
Less:
Net loss attributable to the noncontrolling interests
|
(123,599
|
)
|
(42,469
|
)
|
(166,068
|
)c
|
||||||
Net
loss attributable to Benda Pharmaceutical, Inc.
|
$
|
(2,564,098
|
)
|
$
|
102,556
|
$
|
(2,461,542
|
)
|
||||
Other
Comprehensive Loss
|
||||||||||||
Foreign
currency translation loss
|
-
|
-
|
-
|
|||||||||
Comprehensive
Loss
|
(2,687,697
|
)
|
60,087
|
(2,627,610
|
)
|
|||||||
Comprehensive
loss attributable to the noncontrolling interest
|
(123,599
|
)
|
(42,469
|
)
|
(166,068
|
)c
|
||||||
Comprehensive
loss attributable to Benda Pharmaceutical, Inc.
|
$
|
(2,564,098
|
)
|
$
|
(102,556
|
)
|
$
|
(2,461,542
|
)
|
|||
Net
loss per share - basic and diluted
|
||||||||||||
Net
loss attributable to Benda Pharmaceutical, Inc.
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
||||||
Weighted
average shares outstanding - basic and diluted
|
105,155,355
|
105,155,355
|
8
Benda
Pharmaceutical, Inc.
Consolidated
Statements of Cash Flows
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2009
|
||||||||||||
As previously
reported
|
Adjustments
|
As Restated
|
||||||||||
Cash
Flows From Operating Activities
|
||||||||||||
Net
loss
|
$
|
(2,687,697
|
)
|
$
|
60,087
|
$
|
(2,627,610
|
)c
|
||||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
-
|
|||||||||||
Bad
debt provision
|
3,080,334
|
-
|
3,080,334
|
|||||||||
Inventory
written down to net realizable value
|
196,628
|
-
|
196,628
|
|||||||||
Depreciation,
including amounts in cost of sales
|
1,471,304
|
-
|
1,471,304
|
|||||||||
Amortization
of intangible assets
|
547,919
|
(19,418
|
)
|
528,501
|
b
|
|||||||
Amortization
of debt issuance costs
|
55,485
|
-
|
55,485
|
|||||||||
Amortization
of convertible notes discount
|
864,049
|
-
|
864,049
|
|||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Trade
receivables
|
(2,427,968
|
)
|
(8,001
|
)
|
(2,435,969
|
)d
|
||||||
Advance
for inventory purchase
|
-
|
(2,294,717
|
)
|
(2,294,717
|
)d
|
|||||||
Inventories
|
(195,850
|
)
|
-
|
(195,850
|
)
|
|||||||
Prepaid
expenses and other current assets
|
(1,578,837
|
)
|
563,052
|
(1,015,785
|
)d
|
|||||||
Accounts
payable
|
2,860,986
|
-
|
2,860,986
|
|
||||||||
Accrued
taxes
|
(991,582
|
)
|
1,387,724
|
396,142
|
d
|
|||||||
Net
cash provided by operating activities
|
1,194,771
|
(311,273
|
)
|
883,498
|
||||||||
Cash
Flows From Investing Activities
|
-
|
|||||||||||
Collection
of notes receivable
|
154,691
|
154,691
|
d
|
|||||||||
Purchases
of property and equipment and construction-in-progress
|
(455,488
|
)
|
-
|
(455,488
|
)
|
|||||||
Net
cash used in investing activities
|
(455,488
|
)
|
154,691
|
(300,797
|
)
|
|||||||
Cash
Flows From Financing Actives
|
||||||||||||
Proceeds
and repayments of borrowings under short term debt
|
69,172
|
(58,365
|
)
|
10,807
|
d
|
|||||||
Net
cash used in financing activities
|
69,172
|
(58,365
|
)
|
10,807
|
||||||||
Effect
of exchange rate changes on cash
|
579
|
303,182
|
303,761
|
c
|
||||||||
Net
increase in cash and cash equivalents
|
809,034
|
88,235
|
897,269
|
|||||||||
Cash
and cash equivalents, beginning of period
|
569,019
|
15,247
|
584,266
|
c
|
||||||||
Cash
and cash equivalents, end of period
|
$
|
1,378,053
|
$
|
103,482
|
$
|
1,481,535
|
a – These
are minor reclassifications between G&A expense items.
b - When
SiBiono was acquired at March 31, 2007, the assets and liabilities of SiBiono
were not fair valued at March 31, 2007. The differences in these items are due
to the difference between the fair value per valuation and book value at March
31, 2007.
c – The
combination of other adjustments above.
d – Due
to minor reclassifications between asset and liability items.
9
5. Inventories
The
Company’s inventories were comprised as follows:
September 30,
2010
|
December 31,
2009
|
|||||||
Raw materials
|
$
|
2,685,169
|
$
|
489,348
|
||||
Packing
materials
|
294,151
|
290,601
|
||||||
Other
materials / supplies
|
69,123
|
83,247
|
||||||
Finished
goods
|
1,258,283
|
588,604
|
||||||
Work-in-process
|
58,659
|
596,449
|
||||||
Total
inventories at cost
|
4,365,385
|
2,048,249
|
||||||
Less:
Reserves on inventories
|
(9,477
|
)
|
(9,262
|
)
|
||||
Total
inventories, net
|
$
|
4,355,908
|
$
|
2,038,987
|
6. Short-term
debt
The
Company’s short term debt was comprised as follows:
September 30,
2010
|
December 31,
2009
|
|||||||
Ebei
- one year bank loan due in October 2010 but paid off in September 2010,
bear interest at 9% per annum, secured by Ebei Benda’s
Machinery.
|
$
|
-
|
$
|
438,900
|
||||
Ebei
- one year bank loan due in September 2011, bear interest at 9% per annum,
secured by Ebei Benda’s Machinery.
|
$
|
299,400
|
$
|
-
|
||||
Ebei-
bank acceptance notes from SHPudong Development Bank with redemption dates
various from one to six months subsequent to period end, secured by
buildings, machinery and equipment of Benda Ebei and Jiangling
Benda.
|
9,112,538
|
8,160,503
|
||||||
Ebei
- Five-month loan from Shenzhen Shourenben Enterprise Consulting (SZ) Co.,
Ltd. matured in May 2010, bearing monthly interest at 1% and unsecured.
Loan is currently in default.
|
394,519
|
-
|
||||||
Sibiono
- Three loans from Shourenben Enterprise Consulting (SZ) Co., Ltd. due in
June 2011, bearing monthly interest at 1.5% and
unsecured.
|
284,430
|
21,945
|
||||||
Sibiono-
three-year bank loan due in April 2008 bearing annual interest at 6.366%.
The loan was paid off in August 2010. See (a) below for more
detail.
|
-
|
2,976,718
|
(a)
|
|||||
Sibiono-
three-month loan from Yichang Shengshitongda Enterprises Ltd. due on
November 20, 2010 bearing annual interest at 60% and
unsecured.
|
3,742,500
|
-
|
||||||
Jiangling- One-year
bank loan from Hubei Province Rural Credit due in April 2011, bearing
annual interest at 7.2% and secured by a third party commercial loan
guarantee company.
|
299,400
|
-
|
||||||
$
|
14,132,787
|
$
|
11,598,066
|
10
(a)
SiBiono – Bank Loan in default
At
December 31, 2009, Sibiono, had an outstanding bank loan for the amount of
$2,976,718, which was used primarily to fund construction in progress projects
and for general working capital purposes. The loan carries annual interest rate
of 6.366% and matured in April 2008. The loan is personally guaranteed by
Zhaohui Peng, the former Chairman and a shareholder of SiBiono and is
collateralized by Sibiono’s land use rights.
The loan
is in default since the maturity date until August 2010 when the Company
borrowed funds from Yichang Shengshitongda Enterprises, Ltd. and paid off the
loan.
7. Related
Party Transactions
Due from
related parties at September 30, 2010 and December 31, 2009 were comprised
as follows:
Relationship
|
September 30,
2010
|
December 31,
2009
|
||||||||
Current
|
||||||||||
Qin
Yu
|
Vice
president
|
|||||||||
Shenzhen
SiBiono
|
$
|
1,517
|
$
|
2,024
|
||||||
Xiaoji
Zhang
|
Minority
shareholder
|
|||||||||
Shenzhen
SiBiono
|
5,550
|
5,423
|
||||||||
Hua
Xu
|
General
Manager's Sister
|
|||||||||
Shenzhen
SiBiono
|
23,254
|
22,726
|
||||||||
Rong
He
|
Manager
|
|||||||||
Shenzhen
SiBiono
|
-
|
688
|
||||||||
Wei
Xu
|
VP,
CEO's Spouse & Director
|
|||||||||
Benda
Ebei
|
274,950
|
-
|
||||||||
$
|
305,271
|
$
|
30,861
|
|||||||
Non
current
|
||||||||||
Yiqing
Wan
|
CEO
& Director
|
|||||||||
Ever
Leader
|
$
|
650,091
|
$
|
646,586
|
||||||
Benda
Ebei
|
565,707
|
520,712
|
||||||||
Hubei
Benda Science and Technology Co. Ltd
|
Controlled
by CEO
|
|||||||||
Yidu
Benda
|
1,640,204
|
1,602,950
|
||||||||
Ever
Leader
|
231,464
|
230,216
|
||||||||
Feng
Wang
|
Minority
shareholder
|
|||||||||
Beijing
Shusai
|
33,011
|
32,262
|
||||||||
$
|
3,120,477
|
$
|
3,032,726
|
The
balance owned by the Yiqing Wan, CEO & Director, and the Company under his
control, totaled $ 3,087,466 and $3,000,464 as of September 30, 2010
and December 31, 2009, respectively. This is a violation of Section 402 of the
Sarbanes-Oxley Act of 2002 which prohibits personal loans to
executives.
11
Due to
related parties at September 30, 2010 and December 31, 2009 were comprised as
follows:
Relationship
|
September 30,
2010
|
December 31,
2009
|
||||||||
Current
|
||||||||||
Wei
Xu
|
VP,
CEO's Spouse & Director
|
|||||||||
Shenzhen
SiBiono
|
$
|
301,596
|
$
|
234,569
|
||||||
Everleader
|
1,434,205
|
1,356,172
|
||||||||
BPMA
|
36,184
|
36,184
|
||||||||
Hubei
Benda Science and Technology Co. Ltd
|
Controlled
by CEO
|
|||||||||
Benda
Ebei
|
29,191
|
28,528
|
||||||||
Jiangliang
Benda
|
795,801
|
793,864
|
||||||||
Beijing
Shusai
|
14,439
|
14,111
|
||||||||
SiBiono
Zhongjia Gene Tech (SZ) Co., Ltd.
|
Associate
company
|
|||||||||
Shenzhen
SiBiono
|
-
|
103,948
|
||||||||
Yiqing,
Wan
|
CEO
& Director
|
|||||||||
Shenzhen
SiBiono
|
240,721
|
224,071
|
||||||||
Pong,
Tsiaohuei
|
Shareholder
& Chairman
|
|||||||||
Shenzhen
SiBiono
|
4,918
|
-
|
||||||||
$
|
2,857, 055
|
$
|
2,791,447
|
|||||||
Non
current
|
||||||||||
Wei
Xu
|
VP,
CEO's Spouse & Director
|
|||||||||
Benda
Ebei
|
$
|
24,450
|
$
|
23,894
|
||||||
Beijing
Shusai
|
66,857
|
65,339
|
||||||||
Yiqing,
Wan
|
CEO
& Director
|
|||||||||
Yidu
Benda
|
572
|
559
|
||||||||
Hui
Xu
|
Manager
|
|||||||||
Benda
Ebei
|
29,070
|
28,410
|
||||||||
$
|
120,949
|
$
|
118,202
|
Except
for the loans from the shareholder Wei Xu by Everleader which bears interest
rate at 12% per annum, unsecure and matures within six months, the above
advances bear no interest and the above loans due to related parties are
unsecured, non-interest bearing and are not convertible into equity. Proceeds
from the above loans were used primarily for general working capital purposes,
among which the current portion does not have definitive terms and for
those portions which are long-term debts in nature, is expected to be repaid by
the Company in over 12-month period.
8. Equity
Investment
Sibiono
and North American Gene Diagnostics and Therapeutics Ltd. (HK) entered into a
business agreement to set up Shenzhen Sibiono Zhongjia Gene Technology Ltd.
(Zhongjia) during June 2009. The business license of the new joint entity was
obtained in January 2010 and Sibiono made the capital contribution of
approximately $119,000 (RMB 800,000) in February 2010. The new entity's legal
representative is Mr. Wan, Yiqing. The registered capital is approximately
$292,500 (RMB 2 million). Sibiono's share of the registered capital is 40% (RMB
800,000), the other party’s share is 60% (RMB 1.2 million).
Zhongjia
did not have significant operations during the nine months period ended
September 30, 2010.
9. Segment
Information
The
Company states the segment information according to the requirement stated in
ASC 280-10-50. The Company produces five different categories of products and
each category of product is produced in different subsidiaries or operation
plants. The details are stated as follows:
|
1.
|
Benda
Ebei produces conventional medicines which including branded and generic
medicines;
|
|
2.
|
Jiangling
Benda produces active pharmaceutical ingredients,
APIs;
|
|
3.
|
Yidu
Benda produces bulk chemicals;
|
|
4.
|
Beijing
Shusai produces pharyngitis killer therapy;
and
|
|
5.
|
SiBiono
produces gene therapy medicines,
Gendicine.
|
Since
each subsidiary produces the corresponding products by using the production
facilities of each subsidiary, therefore according to the requirement stated ASC
280-10-50, the Company reports the segment information according to the
un-identical products that produced in each subsidiary.
12
Selected
financial information for each of these segments for the nine and three
months ended September 30, 2010 and 2009 were as follows:
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
Branded/Generic
medicine segment
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenue
from external customers
|
$
|
13,047,872
|
$
|
13,617,252
|
$
|
5,536,515
|
$
|
4,887,566
|
||||||||
Cost
of sales
|
(8,317,348
|
)
|
(8,600,569
|
)
|
(3,509,332
|
)
|
(3,051,518
|
)
|
||||||||
Gross
profit
|
4,730,524
|
5,016,683
|
2,027,183
|
1,836,047
|
||||||||||||
Gross
margin
|
36
|
%
|
37
|
%
|
37
|
%
|
38
|
%
|
||||||||
Research
and development
|
(1,026,023
|
)
|
-
|
(343,914
|
)
|
2,301
|
||||||||||
Selling
expense
|
(1,028,714
|
)
|
(942,604
|
)
|
(194,692
|
)
|
(529,292
|
)
|
||||||||
General
and administrative expense
|
(727,140
|
)
|
(2,683,831
|
)
|
(210,913
|
)
|
(707,287
|
)
|
||||||||
Segment
contribution
|
$
|
1,948,647
|
$
|
1,390,248
|
$
|
1,277,664
|
$
|
601,770
|
||||||||
Contribution
margin
|
15
|
%
|
10
|
%
|
23
|
%
|
12
|
%
|
||||||||
Total
assets, segment
|
$
|
29,460,319
|
$
|
24,091,492
|
$
|
29,460,319
|
$
|
24,091,492
|
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
Active pharmaceutical ingredients segment
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenue
from external customers
|
$
|
1,109,268
|
$
|
817,137
|
$
|
98,020
|
$
|
27,075
|
||||||||
Cost
of sales
|
(898,934
|
)
|
(901,431
|
)
|
(97,425
|
)
|
66,164
|
|||||||||
Gross
profit
|
210,334
|
(84,294
|
)
|
595
|
93,238
|
|||||||||||
Gross
margin
|
19
|
%
|
-10
|
%
|
1
|
%
|
344
|
%
|
||||||||
Research
and development
|
-
|
(143
|
)
|
-
|
(70
|
)
|
||||||||||
Selling
expense
|
(27,719
|
)
|
(16,576
|
)
|
(7,431
|
)
|
(1,851
|
)
|
||||||||
General
and administrative expense
|
(402,470
|
)
|
(526,094
|
)
|
(143,850
|
)
|
(205,085
|
)
|
||||||||
Segment
contribution
|
$
|
(219,855
|
)
|
$
|
(627,107
|
)
|
$
|
(150,686
|
)
|
$
|
(113,768
|
)
|
||||
Contribution
margin
|
-20
|
%
|
-77
|
%
|
-154
|
%
|
-420
|
%
|
||||||||
Total
assets, segment
|
$
|
13,530,958
|
$
|
12,541,258
|
$
|
13,530,958
|
$
|
12,541,258
|
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
Bulk chemicals segment
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenue
from external customers
|
$
|
3,273
|
$
|
-
|
$
|
999
|
$
|
-
|
||||||||
Cost
of sales
|
-
|
-
|
-
|
-
|
||||||||||||
Gross
profit
|
3,273
|
-
|
999
|
-
|
||||||||||||
Gross
margin
|
100
|
%
|
0
|
%
|
100
|
%
|
0
|
%
|
||||||||
Research
and development
|
-
|
-
|
-
|
-
|
||||||||||||
Selling
expense
|
-
|
-
|
-
|
-
|
||||||||||||
General
and administrative expense
|
(438,336
|
)
|
(313,966
|
)
|
(146,455
|
)
|
(105,518
|
)
|
||||||||
Segment
contribution
|
$
|
(435,063
|
)
|
$
|
(313,966
|
)
|
$
|
(145,456
|
)
|
$
|
(105,518
|
)
|
||||
Contribution
margin
|
0
|
%
|
0
|
%
|
-14560
|
%
|
0
|
%
|
||||||||
Total
assets, segment
|
$
|
8,269,131
|
$
|
8,820,946
|
$
|
8,269,131
|
$
|
8,820,946
|
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
Pharynigitis killer therapy segment
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenue
from external customers
|
$
|
147
|
$
|
-
|
$
|
147
|
$
|
-
|
||||||||
Cost
of sales
|
(8
|
)
|
-
|
(8
|
)
|
-
|
||||||||||
Gross
profit
|
139
|
-
|
139
|
-
|
||||||||||||
Gross
margin
|
95
|
%
|
0
|
%
|
95
|
%
|
0
|
%
|
||||||||
Research
and development
|
-
|
-
|
-
|
-
|
||||||||||||
Selling
expense
|
-
|
(733
|
)
|
-
|
(733
|
)
|
||||||||||
General
and administrative expense
|
(15,156
|
)
|
(19,609
|
)
|
(5,077
|
)
|
(5,134
|
)
|
||||||||
Segment
contribution
|
$
|
(15,017
|
)
|
$
|
(20,342
|
)
|
$
|
(4,938
|
)
|
$
|
(5,867
|
)
|
||||
Contribution
margin
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||||
Total
assets, segment
|
$
|
74,648
|
$
|
92,931
|
$
|
74,648
|
$
|
92,931
|
13
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
Gendicine (Ad-p53) segment
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenue
from external customers
|
$
|
2,697,153
|
$
|
2,910,676
|
$
|
1,062,183
|
$
|
990,013
|
||||||||
Cost
of sales
|
(283,035
|
)
|
(268,370
|
)
|
(127,243
|
)
|
(85,937
|
)
|
||||||||
Gross
profit
|
2,414,118
|
2,642,306
|
934,940
|
904,076
|
||||||||||||
Gross
margin
|
90
|
%
|
91
|
%
|
88
|
%
|
91
|
%
|
||||||||
Research
and development
|
(128,180
|
)
|
(283,330
|
)
|
(45,007
|
)
|
(167,621
|
)
|
||||||||
Selling
expense
|
(729,979
|
)
|
(908,569
|
)
|
(219,272
|
)
|
(320,238
|
)
|
||||||||
General
and administrative expense
|
(926,274
|
)
|
(1,745,240
|
)
|
(329,993
|
)
|
(270,520
|
)
|
||||||||
Segment
contribution
|
$
|
629,685
|
$
|
(294,833
|
)
|
$
|
340,668
|
$
|
145,697
|
|||||||
Contribution
margin
|
23
|
%
|
0
|
%
|
32
|
%
|
15
|
%
|
||||||||
Total
assets, segment
|
$
|
15,751,458
|
$
|
15,193,562
|
$
|
15,751,458
|
$
|
15,193,562
|
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Total
revenue from external customers
|
$
|
16,857,713
|
$
|
17,345,065
|
$
|
6,697,864
|
$
|
5,904,653
|
||||||||
Cost
of sales
|
(9,499,325
|
)
|
(9,770,370
|
)
|
(3,734,008
|
)
|
(3,071,291
|
)
|
||||||||
Gross
profit
|
7,358,388
|
7,574,695
|
2,963,856
|
2,833,362
|
||||||||||||
Gross
margin
|
44
|
%
|
44
|
%
|
44
|
%
|
48
|
%
|
||||||||
Research
and development
|
(1,154,203
|
)
|
(283,473
|
)
|
(388,921
|
)
|
(165,390
|
)
|
||||||||
Selling
expense
|
(1,786,412
|
)
|
(1,868,482
|
)
|
(421,395
|
)
|
(852,114
|
)
|
||||||||
General
and administrative expense
|
(2,509,376
|
)
|
(5,288,740
|
)
|
(836,288
|
)
|
(1,293,544
|
)
|
||||||||
Segment
contribution
|
$
|
1,908,397
|
$
|
134,000
|
$
|
1,317,252
|
$
|
522,314
|
||||||||
Contribution
margin
|
11
|
%
|
1
|
%
|
20
|
%
|
9
|
%
|
||||||||
Total
assets, segment
|
$
|
67,086,204
|
$
|
60,740,188
|
$
|
67,086,204
|
$
|
60,740,188
|
14
The
results of the total consolidated net profit before income taxes for the
reporting periods are as follows:
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER
30,
|
SEPTEMBER
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Total
segment contribution
|
$
|
1,908,397
|
$
|
134,000
|
$
|
1,317,252
|
$
|
522,314
|
||||||||
Unallocated
amounts:
|
||||||||||||||||
Government
subsidies / grants
|
-
|
26,386
|
-
|
4
|
||||||||||||
Other
income/(expenses)
|
(726,769
|
)
|
(230,771
|
)
|
(395,808
|
)
|
(108,601
|
)
|
||||||||
Other
corporate expenses
|
(1,295,868
|
)
|
(2,434,182
|
)
|
(299,526
|
)
|
(496,641
|
)
|
||||||||
Total
net loss before noncontrolling interest and income taxes
|
$
|
(114,240
|
)
|
$
|
(2,504,567
|
)
|
$
|
621,918
|
$
|
(82,924
|
)
|
The other
corporate expenses per the above table for the nine and three months ended
September 30, 2010 and 2009 composed of the following events:
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Wages
and salaries
|
$
|
195,000
|
$
|
283,817
|
$
|
65,000
|
$
|
88,802
|
||||||||
Audit
and accounting
|
62,997
|
74,995
|
27,091
|
24,999
|
||||||||||||
Consulting
fee
|
14,517
|
9,336
|
4,775
|
3,120
|
||||||||||||
Investor
relation, transfer agent and filing fees
|
-
|
2,720
|
-
|
-
|
||||||||||||
Director
renumeration
|
67,500
|
67,500
|
22,500
|
22,500
|
||||||||||||
Legal
fee
|
479,846
|
158,134
|
113,844
|
53,567
|
||||||||||||
Taxes
and levies
|
-
|
-
|
-
|
-
|
||||||||||||
Interest
expense
|
475,589
|
1,767,578
|
66,217
|
302,277
|
||||||||||||
Miscellaneous
|
419
|
70,102
|
99
|
1,376
|
||||||||||||
Total
|
$
|
1,295,868
|
$
|
2,434,182
|
$
|
299,526
|
$
|
496,641
|
For the
details of information of this particular, it should be read in conjunction
with the management discussion and analysis section.
The
following table shows the reconciliation between the segments assets and the
total assets for the nine and three months ended September 30, 2010 and
2009:
NINE MONTHS ENDED
|
THREE MONTHS ENDED
|
|||||||||||||||
SEPTEMBER 30,
|
SEPTEMBER 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Total
assets, segment
|
$
|
67,086,204
|
$
|
60,740,188
|
$
|
67,086,204
|
$
|
60,740,188
|
||||||||
Total
assets of corporate:
|
||||||||||||||||
Cash
and cash equivalent
|
11,662
|
12,168
|
11,662
|
12,168
|
||||||||||||
Prepaid
expense and deposit
|
232
|
-
|
232
|
-
|
||||||||||||
Due
from related parties
|
638,650
|
660,067
|
638,650
|
660,067
|
||||||||||||
Construction-in-progress
capitalized interest
|
825,798
|
-
|
825,798
|
-
|
||||||||||||
Total
assets
|
$
|
68,562,546
|
$
|
61,412,423
|
$
|
68,562,546
|
$
|
61,412,423
|
15
The
following table shows how the non-controlling interest for the
nine months ended September 30, 2010 and 2009 was derived:
Nine Months Ended September 30, 2010
|
|||||||||||||||||||||||
Benda
|
Jiangling
|
Yidu
|
Beijing
|
Shenzhen
|
|||||||||||||||||||
Ebei
|
Benda
|
Benda
|
Shusai
|
SiBiono
|
Total
|
||||||||||||||||||
Segment
operating profit / (loss)
|
$
|
1,948,647
|
(219,855
|
)
|
(435,063
|
)
|
(15,017
|
)
|
629,685
|
$
|
1,908,397
|
||||||||||||
Interest
income/ (expenses)
|
(304,197
|
)
|
(24,781
|
)
|
1
|
-
|
(382,979
|
)
|
(711,956
|
)
|
|||||||||||||
Other
income / (expenses)
|
(73,037
|
)
|
(4,531
|
)
|
-
|
-
|
(9,972
|
)
|
(87,540
|
)
|
|||||||||||||
Income
taxes
|
(695,820
|
)
|
-
|
-
|
(3
|
)
|
40,902
|
(654,921
|
)
|
||||||||||||||
Income
/ (loss) before non-controlling interest
|
$
|
875,593
|
(249,167
|
)
|
(435,062
|
)
|
(15,020
|
)
|
277,636
|
$
|
453,980
|
||||||||||||
Non-controlling
interest percentage
|
5.00
|
%
|
5.00
|
%
|
5.00
|
%
|
25.00
|
%
|
39.87
|
%
|
|||||||||||||
Non-controlling
interest
|
$
|
22,699
|
(12,458
|
)
|
(21,753
|
)
|
(3,755
|
)
|
110,693
|
$
|
95,426
|
Nine Months Ended September 30, 2009
|
|||||||||||||||||||||||
Benda
|
Jiangling
|
Yidu
|
Beijing
|
Shenzhen
|
|||||||||||||||||||
Ebei
|
Benda
|
Benda
|
Shusai
|
SiBiono
|
Total
|
||||||||||||||||||
Segment
operating profit / (loss)
|
$
|
1,390,248
|
(627,107
|
)
|
(313,966
|
)
|
(20,342
|
)
|
(294,833
|
)
|
$
|
134,000
|
|||||||||||
Interest
income/ (expenses)
|
(186,293
|
)
|
(253
|
)
|
4
|
-
|
(150,390
|
)
|
(336,932
|
)
|
|||||||||||||
Other
income / (expenses)
|
149,299
|
(175
|
)
|
2,968
|
-
|
118,697
|
270,789
|
||||||||||||||||
Government
subsidy
|
-
|
26,386
|
-
|
-
|
-
|
26,386
|
|||||||||||||||||
Income
taxes
|
(163,803
|
)
|
-
|
-
|
-
|
40,760
|
(123,043
|
)
|
|||||||||||||||
Income
/ (loss) before non-controlling interest
|
$
|
1,189,451
|
(601,149
|
)
|
(310,994
|
)
|
(20,342
|
)
|
(285,766
|
)
|
$
|
(28,800
|
)
|
||||||||||
Non-controlling
interest percentage
|
5.00
|
%
|
5.00
|
%
|
5.00
|
%
|
25.00
|
%
|
39.87
|
%
|
|||||||||||||
Non-controlling
interest
|
$
|
(1,440
|
)
|
(30,057
|
)
|
(15,550
|
)
|
(5,086
|
)
|
(113,935
|
)
|
$
|
(166,068
|
)
|
16
Item 2. Management’s Discussion and Analysis
or Plan of Operation
The
following discussion and analysis should be read in conjunction with the
information contained in the unaudited condensed consolidated financial
statements of the Company and the related notes thereto, appearing elsewhere
herein, and in conjunction with the Management’s Discussion and Analysis of
Financial Condition and Results of Operations set forth in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009, filed with the
Securities and Exchange Commission (“SEC”).
Forward
Looking Information
This Quarterly Report on Form 10-Q
(the “Report”) contains certain “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, as amended, that are based on management’s exercise of
business judgment as well as assumptions made by, and information currently
available to, management. When used in this document, the words
“may”, " will”, “anticipate”,
“believe”, “estimate”, “expect”, “intend”, and words of similar import, are
intended to identify any forward-looking statements. You should not
place undue reliance on these forward-looking statements. These
statements reflect our current view of future events and are subject to certain
risks and uncertainties, as noted in the Company’s Report on Form 10-K, filed
with the SEC, and as noted below. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
our actual results could differ materially from those anticipated in these
forward-looking statements. We undertake no obligation, and do not
intend, to update, revise or otherwise publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof, or to reflect the occurrence of any unanticipated
events. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our expectations will
materialize.
Critical
Accounting Policies
Accounting
policies discussed in this section are those that we consider to be most
critical to an understanding of our financial statements because they inherently
involve significant judgment and uncertainties. For all of these
estimates, we caution that future events rarely develop exactly as forecast, and
the best estimates routinely require adjustment.
Revenue
Recognition
Among the
most important accounting policies affecting the Group’s consolidated financial
statements is its policy of recognizing revenue. Under this policy, all of the
following criteria must be met in order for us to recognize
revenue:
1. Persuasive
evidence of an arrangement exists;
2. Delivery
has occurred or services have been rendered;
3. The
seller's price to the buyer is fixed or determinable; and
4. Collectibility
is reasonably assured.
The
majority of the Company's revenue results from sales contracts with distributors
and revenue is recorded upon the shipment of goods. Management conducts credit
background checks for new customers as a means to reduce the subjectivity of
assuring collectibility. Sales are presented net of value added tax (VAT). No
return allowance is made as products returns are insignificant based on
historical experience.
Results
of Operations
The Nine
Months and Three Months Ended September 30, 2010 and 2009.
17
Revenue:
The
Company has five core operating segments: Benda Ebei, Jiangling Benda, Yidu
Benda, Beijing Shusai and SiBiono. Benda Ebei manufactures branded/generic
medicines; Jiangling Benda manufactures active pharmaceutical ingredients (API);
Yidu Benda manufactures bulk chemicals; Beijing Shusai operates and distributes
Pharyngitis Killer Therapy; and SiBiono is a gene therapy company dedicated to
the development, manufacturing and commercialization of gene therapy product,
Gedicine.
Revenue
decreased by $0.49 million (or 2.81%) to $16.86 million for the
nine months ended September 30, 2010 from $17.35 million for the
nine months ended September 30, 2009 and increased by $0.80 million
(or 13.43%) to $6.70 million for the three months ended September 30, 2010 from
$5.90 million for the three months ended September 30, 2009. Decrease in
revenue principally attributed to the following factors:
1.
|
One
of Benda’s subsidiaries, Benda Ebei’s revenue decreased $0.57 million (or
4.19%) to $13.05 million for the nine months ended
September 30, 2010 from $13.62 million for the nine months ended
September 30, 2009 and increased by $0.65 million (or 13.29%) to
$5.54 million for the three months ended September 30, 2010 from
$4.89 million for the three months ended September 30, 2009. It was
mainly due to maintenance activity during the three months ended September
30, 2010, no such activity in the same period during
2009.
|
2.
|
One
of Benda’s subsidiaries, Jiangling Benda, achieved $1.11 million and
$0.82 million for the nine months ended September 30, 2010 and 2009,
and $0.098 million and $0.027 million for the three months ended September
30, 2010 and 2009, respectively.
|
Jiangling
Benda plans to produce four types of active pharmaceutical ingredients and they
are Ribavirin, Asarin, Levofloxacin and Ribose whereas the production of Ribose
does not require the GMP certificate, but the production of the other three
products do require the GMP certificate.
On April
9, 2008, Jiangling Benda received the approved GMP Certificate from the Chinese
State Food and Drug Administration ("SFDA") which authorized the production of
Ribavrin. The other two products, Asarin and Levolfozacin, are still
under the stage of GMP certificate approving process. Management could not
estimate the exact timing for obtaining those certificates.
3.
|
One
of Benda’s subsidiaries, Yidu Benda ceased operations due to the plant
closing in mid January 2007 to upgrade its waste water treatment system to
comply with new environmental standards enforced by PRC local
government.
|
Yidu
Benda completed its upgrading of the waste water system and passed the
government’s verification and testing of equipment in October 2007. It is now
permitted for the testing on actual production process. Once the actual products
are produced, then the environmental government bodies will re-test the
production results. Management cannot estimate the exact timing for obtaining
the final approval on the actual production process. Furthermore, management is
searching for new products to be produced in Yidu Benda with higher profit
margins.
4.
|
One
of Benda’s subsidiaries, Beijing Shusai was incorporated on July 15, 2006.
China’s State Food and Drug Administration (SFDA) recently experienced an
overhaul in its policies and regulatory systems in an effort to fight
against corruption in Chinese pharmaceutical industry. Beijing Shusai’s
operation has been adversely affected by this recent policy changes which
prohibits some state-owned hospitals from forming alliances with private
companies. Management cannot estimate that such situation could be
resolved in the coming future.
|
5.
|
One
of Benda’s subsidiaries, SiBiono, net revenue decreased $0.21 million
(or 7.34%) to $2.70 million for the nine months ended September 30,
2010 from $2.91 million the nine months ended September 30, 2009
and increased by $0.07 million (or 7.29%) to $1.06 million for the
three months ended September 30, 2010 from $0.99 million for the three
months ended September 30, 2009. The decrease in net revenue is mainly due
to the fact that SiBiono previously underwent a process of re-engineering
of the production department during the year of
2010.
|
18
SiBiono
GMP - On October 16, 2003, SiBiono successfully obtained a New Drug License from
the State Food & Drug Administration of China (SFDA), and then, in April 4,
2004, SiBiono obtained “Manufacture Certificate” and “Certificate of GMP for
Pharmaceutical Product”, so far being fully qualified for the market launch of
Recombinant Human Ad-p53 Injection, trademarked as Gendicine ®
in China. Gendicine ® is the commercialized
gene therapy product approved in the PRC government agency. On May 19, 2008,
SiBiono received an official notice from the PRC State of SFDA in which it
mentioned that during the random inspection performed by the PRC State of SFDA
on April 8 to April 10, 2008, the PRC State of SFDA discovered there were
several production procedures that did not meet the requirement stated in GMP,
thus it required SiBiono to perform necessary improvements in order to fulfill
the GMP requirements and the PRC State of SFDA collected back the distributed
GMP certificate until the necessary improvements being carried out and passed
the examination that conducted by SFDA. On June 10, 2008, SiBiono
received another official notice from Guangdong Province SFDA and they demanded
the same requirements as stated in the official notice which issued by the PRC
State of SFDA dated on May 19, 2008. On November 24, 2008, SiBiono
received another official notice from Guangdong Province SFDA which mentioned
that after the examination conducted by Shenzhen City SFDA, the Guangdong
Province SFDA consent SiBiono to carry out production on a trial
basis. It further required SiBiono strictly to follow the
requirements of GMP to organize trial production and follow the procedures to
apply for GMP Certificate verification.
On July
14, 2009, SiBiono obtained the final approved GMP Certificate, in order words,
the SFDA allowed SiBiono to resume its production and sales.
19
Cost
of Goods Sold
Cost of
goods sold decreased $0.27 million (or 2.77%) to $9.50 million for the
nine months ended September 30, 2010 from $9.77 million for the
nine months ended September 30, 2009 and increased by $0.66
million (or 21.58%) to $3.73 million for the three months ended September 30,
2010 from $3.07 million for the three months ended September 30, 2009,
primarily due to the decrease in sales volume and increase in raw material costs
in Benda Ebei.
Gross
Profit
Gross
profit decreased $0.22 million (or 2.86%) to $7.36million for the
nine months ended September 30, 2010 from $7.57 million for the
nine months ended September 30, 2009 and increased by $0.13
million (or 4.61%) to $2.96 million for the three months ended September 30,
2010 from $2.83 million for the three months ended September 30, 2009, which was
mainly due to the decrease in sales volume of Gendicine which has a high gross
profit margin.
Selling
Expenses:
Selling
expenses decreased $0.08 million (or 4.39%) to $1.79 million for the
nine months ended September 30, 2010 from $1.87 million the
nine months ended September 30, 2010 and decreased by $0.43 million
(or 50.55%) to $0.42 million for the three months ended September 30, 2010 from
$0.85 million for the three months ended September 30, 2009, primarily due to
the increased promotion efforts made by the management.
General
and Administrative Expenses:
General
and administrative decreased $3.17 million (or 60.59%) to $2.06 million for the
nine months ended September 30, 2010 from $5.23 million for the
nine months ended September 30, 2009 and decreased by $0.59
million (or 48.86%) to $0.62 million for the three months ended September 30,
2010 from $1.21 million for the three months ended September 30, 2009,
primarily due to less bad debt expense incurred in 2010.
Operating
Income / (Loss):
The
Company had an operating income of $1.09 million for the nine months
ended September 30, 2010 and $1.08 million for the three months ended September
30, 2010, while the operating loss from comparative period was
$0.53 million for the nine months ended September 30, 2009 and an
operating income of $0.33 million for the three months ended September
30, 2009.
Interest
Expense:
Interest
expense was $1.19 million and $2.10 million for the nine months ended
September 30, 2010 and 2009 respectively, while interest expense was $0.46
million and $0.47 million for the three months ended September 30, 2010 and
2009 respectively. The decrease is mainly due to the amortization of debt
discount related to the convertible note during the first quarter of 2009 while
there was no such expense in the same period of 2010.
Income
Taxes:
Benda is
subject to Delaware, United State of America tax, but no provision for income
taxes was made for the nine months ended September 30, 2010 and 2009 as
Benda did not have reportable taxable income for the period.
Ever
Leader, a wholly owned subsidiary of Benda, is subject to Hong Kong tax, but no
provisions for income taxes was made for the nine months ended
September 30, 2010 and 2009 as Ever Leader did not have reportable taxable
income for the periods.
Benda
Ebei was registered as a Sino-Foreign Equity Joint Venture on May 26, 2004 and
is subject to the tax laws applicable to Sino-Foreign Equity Joint Ventures in
the PRC. Benda Ebei, starting from 2005, is fully exempt from PRC
enterprise income tax for two years starting from the first profit-making year,
followed by a 50% reduction in the state income taxes, for the following three
years.
Jiangling
Benda and Yidu Benda are cross-municipal investment entities and enjoy the same
tax treatment as Sino-Foreign Joint Ventures, starting from 2005, and were
therefore exempt from PRC enterprise income tax for two years starting from the
first profit-making year, followed by a 50% reduction in the state income taxes,
for the following three years. Cross-municipal investments entities refer to
entities that are incorporated in one municipal region but have investments in
another municipal region.
20
The
exemption periods for Benda Ebei, Jiangling Benda and Yidu Benda expired in the
year of 2006, after which they are subject to a 50% reduction in state income
taxes, at 18%; whereas the full income tax rate is 33%. The remaining tax
holidays will expire in 2010.
However,
starting and effective from January 1, 2008, the full income tax rate changed
from 33% to 25% according to the new PRC taxation regulations. Therefore these
subsidiaries are subject to the regular full income tax rate at 25% after the
tax holidays expire in 2010.
According
to the new taxation regulations starting and effective from January 1, 2008,
Beijing Shusai is subject to
the full
income tax rate of 25%.
According
to the new taxation regulations starting and effective from January 1, 2008,
SiBiono, which is located in Shenzhen, a Special Economic District of PRC, is
subject to the full income tax rate of 25% gradually in five years as
following:
Year
|
Tax rate
|
|||
2008
|
18 | % | ||
2009
|
20 | % | ||
2010
|
22 | % | ||
2011
|
24 | % | ||
2012
and thereafter
|
25 | % |
Benda
Ebei recorded $695,820 income tax for the nine months ended September 30,
2010 and $352,033 income tax for the three months ended September 30,
2010.
LIQUIDITY
AND CAPITAL RESOURCES
Net cash
used by the operating activities was $0.74 million for the nine months
ended September 30, 2010, while for the nine months ended September 30,
2009 was positive $0.88 million.
a)
|
Non-cash
operating activities, reconciliation items to net
loss
|
For the
nine months ended September 30, 2009, an amount about $6.20 million
non-cash operating activities was reconciled back to the net loss and which
mainly included amortization of debt discount and debt issue cost, bad debt
provision, amortization of intangible assets, and depreciation.
However,
for the nine months ended September 30, 2010, about $2.43 million of
non-cash operating activities was reconciled back to the net loss and summarized
as follows: $1.74 million incurred on depreciation; $0.24 million incurred on
bad debt provision; and $0.44 million incurred on amortization of
intangible assets.
b)
|
Trade
receivables
|
The net
amount of trade receivable was increased by $1.81 million for the
nine months ended September 30, 2010. Management acknowledges that the net
balance of the trade receivable, as of September 30, 2010, was a significant
asset to the company. However, management believes that the above situation is
temporarily due to the following reasons:
1)
|
Customers
who have sales relationships with our company are all relatively big
business wholesale enterprises and they have all passed the examination of
GMP Certificate so that collectability from those is out of
question;
|
21
2)
|
Management
realized that it did affect the cash flow situation of the company;
therefore the company will put more efforts to reduce the balance of trade
receivables.
|
For the
nine months ended September 30, 2010 and 2009, the amount spent in
investing activities were $1.08 million and $0.30 million respectively. The
investing activities were relatively small for the reporting
periods.
Financing
cash inflow was $2.26 million for the nine months ended September 30, 2010,
while the financing cash outflow was $0.01 million for the nine months
ended September 30, 2009.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
The
Company is subject to certain market risks, including changes in interest rates
and currency exchange rates. The Company does not undertake any specific
actions to limit those exposures.
Item
4T. Evaluation of Disclosure Controls and Procedures
a)
Evaluation of Disclosure
Controls. Our Chief Executive Officer and Chief Accounting Officer
evaluated the effectiveness of our disclosure controls and procedures as of the
end of our first fiscal quarter 2010 pursuant to Rule 13a-15(b) of the
Securities and Exchange Act. Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
as appropriate to allow timely decisions regarding required disclosure. Based on
his evaluation, our Chief Executive Officer and Chief Accounting Officer
concluded that our disclosure controls and procedures were not effective as of
September 30, 2010 due the following factors:
1. There
is a risk of management override given that our officers have a high degree of
involvement in our day to day operations.
2.
Significant errors were found in our prior years accounting treatments that
require restatements of our prior years filed financial statements.
3. There
is personal loan to executives which is a violation of Section 402 of the
Sarbanes-Oxley Act of 2002
Management
is currently evaluating remediation plans for the above control
deficiencies.
It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions
(b)
Changes in internal
control over financial reporting. There have been no changes in our
internal control over financial reporting that occurred during the first fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. Our management team will
continue to evaluate our internal control over financial reporting in 2010 as we
implement our Sarbanes Oxley Act testing.
22
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
1.
|
On November 23, 2006, Benda Ebei
entered into an Equity Transfer Agreement with Xiaozhi Zhang (“Zhang”), to
purchase approximately 6.24% of SiBiono’s common stock for a total
consideration of Rmb12.48 million (Rmb6.24 million in cash and shares of
our common stock equal to Rmb6.24 million) (or $1.71 million) which was
due and payable on or before March 31,
2007.
|
Due to
the fact that the signed agreement on November 23, 2006 was not practically
executable according to the PRC regulations, Benda Ebei asked Zhang to terminate
the signed agreement and sign a new agreement that was feasible under PRC
regulations with essentially the same terms.
However,
Zhang refused to sign the new agreement and applied to the Shenzhen Arbitration
Commission (the “Commission”) in April 2007 for enforcement of the original
agreement. Zhang requested the Commission to require Benda Ebei to pay for the
total consideration, penalty for late payment and the related legal and
arbitration expenses.
On
November 27, 2007, Shenzhen Arbitration Commission determined that:
|
1.
|
Benda Ebei should pay for the
consideration of Rmb 6.24 million, equal to 50% of the total consideration
set forth in the Equity Transfer Agreement. For the other 50% of the total
consideration which was supposed to be settled in the form of issuing
common stock, since Zhang did not make an arbitration request on how to
execute the arrangement, the Arbitration Commission did not make an award
on this particular part.
|
|
2.
|
Benda Ebei should pay for the
penalty of Rmb 46,800;
|
|
3.
|
Benda Eebi should pay for legal
and arbitration expenses of Rmb
268,971.
|
On May
22, 2008, Benda Ebei applied to Shenzhen People Court to terminate above
mentioned arbitration. The termination is based on the ground that Xiaozhi Zhang
does not own all 6.24% of SiBiono’s common stock. In fact, he only owns 3.28% of
SiBiono’s stock. The application has been accepted by Shenzhen People Court
and is waiting for its further investigation.
2.
|
SiBiono patents - on January 29,
2008, SiBiono entrusted Grandall Legal Group Shenzhen Law Firm to issue a
legal letter to Zhaohui Peng, one of the shareholders of Sibiono and the
inventor of Gendicine, demanding that he transfer all the title of patents
to SiBiono.
|
On June
18, 1999, during the formation of SiBiono, Zhaohui Peng transferred the rights
to the patent “A new method for manufacturing recombinant adenovirus” and
related research results to SiBiono as a payment for the registered capital. In
return, Zhaohui Peng was granted 32.03% of the common stock of
SiBiono.
From 1999
to 2007, SiBiono successfully obtained various technology funds from various
government technology agencies to support the further research and development
activities of Gendicine. Due to this significant funding obtained by SiBiono,
Sibiono developed five additional patents which are summarized as
follows:
23
Countries
/
|
Application
|
Publication
|
Approved
Patent
|
Name of
Patent
|
Name
of
|
Patent
|
|||||||||||
Item
|
Patent
name
|
Date
|
Number
(1)
|
Number
(2)
|
Number
(3)
|
Inventor
(6)
|
Applicant
(6)
|
Assignees
|
|||||||||
1
|
A
new method for manufacturing recombinant adenovirus
|
||||||||||||||||
A
|
China
|
98123346.5
|
CN1228474A
|
ZL98123346.5
|
Peng
|
Peng
|
SiBiono
|
||||||||||
Date
|
1998/12/14
|
1999/9/15
|
2002/7/3
|
||||||||||||||
2
|
A
recombinant constructed by a virus vector and a human tumor suppressor
gene and its use
|
||||||||||||||||
A
|
China
|
02115228.4
|
CN1401778A
|
ZL02115228.4
|
Peng
/ Zhang
|
Peng
/ Zhang
|
Peng
/ Zhang
|
||||||||||
Date
|
2002/5/8
|
2003/3/12
|
2004/11/24
|
||||||||||||||
B
|
PCT
|
(4)
|
5
|
WO2004/078987A1
|
Not
Approved
|
Peng
/ Zhang
|
Peng
/ Zhang
|
N/A
|
|||||||||
Date
|
2004/3/8
|
2004/9/16
|
N/A
|
||||||||||||||
3
|
Recombinant
gene medicine of adenovirus vector and and gene p54 for treating
proloferative diseases
|
||||||||||||||||
A
|
China
|
03125129.3
|
CN1471977A
|
ZL03125129.3
|
Peng
/ Zhang
|
Peng
/ Zhang
|
Peng
/ Zhang
|
||||||||||
Date
|
2003/5/10
|
2004/2/4
|
2007/7/25
|
||||||||||||||
B
|
PCT
|
(4)
|
8
|
WO2004/104204A1
|
Not
Approved
|
Peng
/ Zhang
|
Peng
/ Zhang
|
N/A
|
|||||||||
Date
|
2004/5/9
|
2004/12/2
|
N/A
|
||||||||||||||
4
|
The
application of recombinant adenoviral p53 as cancer vaccine (tentative
title)
|
||||||||||||||||
A
|
China
|
200510002779.1
|
CN1679641A
|
ZL200510002779.1
|
Peng
/ Zhang
|
Peng
/ Zhang
|
Peng
/ Zhang
|
||||||||||
Date
|
2005/1/26
|
2005/10/12
|
2007/8/29
|
||||||||||||||
B
|
PCT
|
(4)
|
1
|
WO2006/079244A1
|
Not
Approved
|
Peng
/ Zhang
|
Peng
/ Zhang
|
N/A
|
|||||||||
Date
|
2005/1/26
|
2006/8/3
|
N/A
|
||||||||||||||
C
|
US
|
(5)
|
11/075035
|
2005/0281785A1
|
Not
Approved
|
Peng
/ Zhang
|
Unidentified
Yet
|
N/A
|
|||||||||
Date
|
2005/3/7
|
2005/12/22
|
N/A
|
||||||||||||||
5
|
Human
Embryonic Kidney (HEK) sub-clone cell line
|
||||||||||||||||
A
|
China
|
03126889.7
|
CN1513985A
|
Not
Approved
|
Peng
/ Zhang
|
Peng
/ Zhang
|
N/A
|
||||||||||
Date
|
2003/6/13
|
2004/7/21
|
N/A
|
||||||||||||||
B
|
PCT
|
(4)
|
7
|
WO2004/111239
|
Not
Approved
|
Peng
/ Zhang
|
Peng
/ Zhang
|
N/A
|
|||||||||
Date
|
2004/5/9
|
2004/12/23
|
N/A
|
||||||||||||||
6
|
The
complex of polypeptide liposome and human VGEF gene, and its use and human
VGEF gene, and its use
|
||||||||||||||||
A
|
China
|
02134321.7
|
CN1389269A
|
Not
Approved
|
Peng
/ Zhang / Zhu
|
Peng
/ Zhang / Zhu
|
N/A
|
||||||||||
|
|
Date
|
|
2002/7/4
|
|
2003/1/8
|
|
N/A
|
|
|
|
Note:
|
(1)
|
Application number is obtained
when application is
submitted;
|
|
(2)
|
Publication number is obtained
after the first phase
examination;
|
|
(3)
|
Approved patent number is
obtained after the final
examination;
|
|
(4)
|
PCT is referred to an
International Patent Organization in
Paris;
|
|
(5)
|
US is referred to the application
is made in United States of America
alone;
|
|
(6)
|
Peng is referred to Zhaohui Peng;
Zhang is referred to Xiaozhi Zhang; Zhu is referred to Jinya
Zhu.
|
24
As
indicated in the above table, Item 1, the patent “A new method for manufacturing
recombinant adenovirus” had been assigned to SiBiono; however, the other
approved patents (item 2 through item 4) in PRC still have not been
assigned to SiBiono. The Group believes that all the above mentioned patents
should be rightfully transferred to SiBiono, a subsidiary of the Group.
Accordingly, the above mentioned legal letter was issued on this
ground.
On August
27, 2008, the Group through its subsidiary, SiBiono filed an application to the
Guongdong Province Shenzhen City (Middle) Peoples’ Court and demand Zhaozhu Peng
to transfer back all the mentioned patents that mentioned in above to SiBiono.
The case has been accepted by the Court and is waiting for its further
investigation.
3.
|
Excalibur Limited Partnership and
Excalibur Limited Partnership II (the "Plaintiffs") filed a motion for
summary judgment in lieu of a complaint pursuant to CPLR § 3213 (the
"Motion") with the Supreme Court of the State of New York (the "Court"),
alleging that the Company has been delinquent on the payment of an
aggregate sum of $600,000 and accrued interest and costs arising from the
Convertible Promissory Notes that were issued to the Plaintiffs in April
2007 in connection with a $7,560,000 private placement. Pursuant to the
motion, the Plaintiffs requested that the Court (1) enter summary judgment
in favor of Excalibur Limited Partnership (“Excalibur Limited”) in the
amount of $390,000 plus all accrued interest and costs, and, (2) enter
summary judgment in favor of Excalibur Small Cap Opportunities LP
(“Excalibur Small Cap”) in the amount of $210,000 and accrued interest and
costs. On July 29, 2009, the Court entered a judgment against the
Company in favor of the Plaintiffs in the amount of $674,251.65 in
connection with the Convertible Promissory Notes issued to the Plaintiffs
in April 2007 in a private
placement.
|
On March
4, 2009, the Company received a Notice and Default and Payment Demand letter
(the "Default Letter") from Pope Investments LLC ("Pope") in connection with its
convertible promissory note in the amount of $5,520,000 (the "Note") purchased
in our April 2007 private placement offering. The Default Letter provided notice
of default based on the Company's failure to make a required interest payment on
the Note by February 20, 2009. The Default Letter further demanded full payment
of all interest, liquidated damages and accrued interest thereon in the amount
of $130,364.37 by March 14, 2009, or Pope will accelerate the maturity date of
the full principal amount of the Note. On April 7, 2009, the Company
received further Default Letters and Payment Demand from Pope, Excalibur Limited
and Excalibur Small Cap demanding payment in full of the balance of the Notes,
which matured on March 28, 2009. The Company was notified on June 15,
2009, that on May 11, 2009 Pope filed a motion for summary judgment in lieu of a
complaint against us pursuant to CPLR § 3213 (the “Motion”) with the Supreme
Court of the State of New York (the “Court”), alleging that the Company has been
delinquent on the payment of an aggregate sum of $5,520,000 and accrued interest
and costs arising from the Note that the Company issued to Pope in April
2007. Pursuant to the motion, the Plaintiffs requested that the Court
enter summary judgment in favor of Plaintiff in the amount of $5,994,617.53
constituting principal and interest, plus costs.
On June
23, 2009, the Company filed an Affidavit in Opposition to Motion for Summary
Judgment in Lieu of Complaint with the Court requesting that Plaintiff’s Motion
be denied. On October 14, 2009, this motion was denied, and the court entered a
judgment in favor of Pope in the amount of $5,520,000 plus
interest.
On July
30, 2009, the Company received a Notice of Default from three additional
investors in the April 2007 private placement offering holding Notes totaling
$90,000.
4.
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On December 30, 2009, the Company
was served with a Summons and Complaint filed by Pope Investments, LLC
(“Pope”) in the Court of Chancery of the State of Delaware (the “Court”)
against the Company and our officers and directors. Pope filed the
Summons and Complaint as a judgment creditor and as a shareholder of the
Company. Pope alleges that the assets and profits of our
subsidiary company have been wrongfully diverted by our officers and
directors and requests the appointment of a receiver to liquidate and wind
down the business affairs of the Company. In connection with the
filing of the Summons and Complaint, Pope has also filed a motion for a
Preliminary Injunction Motion seeking to enjoin the Company and our
officers and directors from taking any further actions to divert the
corporate assets and profits of our subsidiary company and
for expedited discovery proceedings. Pope further requests the
imposition of a constructive trust, an accounting, damages for an alleged
breach of fiduciary duty by the Company’s officers and directors, and
attorney fees.
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25
A hearing
on the application of Pope Investments, LLC ("Pope") seeking the appointment of
a receiver was held on March 29, 2010. The parties filed post-trial briefs on
April 7, 2010. As of this date, the Court has not yet ruled on Pope's
application. Since the hearing, the remaining defendants, including the Benda
directors and officers named as defendants, have filed a motion to dismiss
Pope's complaint against them. No date has yet been set for Pope's response to
the motion or the parties' arguments to the Court on the motion.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults Upon Senior Securities.
Excalibur
Limited Partnership and Excalibur Limited Partnership II (the "Plaintiffs")
filed a motion for summary judgment in lieu of a complaint pursuant to CPLR §
3213 (the "Motion") with the Supreme Court of the State of New York (the
"Court"), alleging that the Company has been delinquent on the payment of an
aggregate sum of $600,000 and accrued interest and costs arising from the
Convertible Promissory Notes that were issued to the Plaintiffs in April 2007 in
connection with a $7,560,000 private placement. Pursuant to the motion, the
Plaintiffs requested that the Court (1) enter summary judgment in favor of
Excalibur Limited Partnership (“Excalibur Limited”) in the amount of $390,000
plus all accrued interest and costs, and, (2) enter summary judgment in favor of
Excalibur Small Cap Opportunities LP (“Excalibur Small Cap”) in the amount of
$210,000 and accrued interest and costs. On July 29, 2009, the Court
entered a judgment against the Company in favor of the Plaintiffs in the amount
of $674,251.65 in connection with the Convertible Promissory Notes issued to the
Plaintiffs in April 2007 in a private placement.
On March
4, 2009, the Company received a Notice and Default and Payment Demand letter
(the "Default Letter") from Pope Investments LLC ("Pope") in connection with its
convertible promissory note in the amount of $5,520,000 (the "Note") purchased
in our April 2007 private placement offering. The Default Letter provided notice
of default based on the Company's failure to make a required interest payment on
the Note by February 20, 2009. The Default Letter further demanded full payment
of all interest, liquidated damages and accrued interest thereon in the amount
of $130,364.37 by March 14, 2009, or Pope will accelerate the maturity date of
the full principal amount of the Note. On April 7, 2009, the Company
received further Default Letters and Payment Demand from Pope, Excalibur Limited
and Excalibur Small Cap demanding payment in full of the balance of the Notes,
which matured on March 28, 2009. We were notified on June 15, 2009,
that on May 11, 2009 Pope filed a motion for summary judgment in lieu of a
complaint against us pursuant to CPLR § 3213 (the “Motion”) with the Supreme
Court of the State of New York (the “Court”), alleging that we have been
delinquent on the payment of an aggregate sum of $5,520,000 and accrued interest
and costs arising from the Note that we issued to the Pope in April
2007. Pursuant to the motion, the Plaintiffs requested that the Court
enter summary judgment in favor of Plaintiff in the amount of $5,994,617.53
constituting principal and interest, plus costs.
On June
23, 2009, we filed an Affidavit in Opposition to Motion for Summary Judgment in
Lieu of Complaint with the Court requesting that Plaintiff’s Motion be
denied. On October 14, 2009, this motion was denied, and the court entered
a judgment in favor of Pope in the amount of $5,520,000 plus
interest.
On July
30, 2009, we received a Notice of Default from three additional investors in the
April 2007 private placement offering holding Notes totaling
$90,000.
Item
4. (Removed and Reserved)
Item
5. Other Information.
On
September 26, 2010, Jun Tang submitted a letter of resignation notifying us that
he resigned from the position of Director of the Company, effective September
26, 2010. We accepted Mr. Tang’s resignation on Thursday, October 28,
2010. Mr. Tang’s resignation was due to personal reasons, and not the
result of any disagreement with the Company or any officers or directors of the
Company. Our Board of Directors has not yet appointed another
individual to fill the position of Director.
26
Item
6. Exhibits
(a)
|
Exhibits
|
|
31.1
|
Certifications
pursuant to Section 302 of Sarbanes Oxley Act of 2002
|
|
32.1
|
|
Certifications
pursuant to Section 906 of Sarbanes Oxley Act of
2002
|
27
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, there unto duly
authorized.
BENDA
PHARMACEUTICAL, INC.
|
||
Registrant
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||
Date:
November 22, 2010
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By:
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/s/ Yiqing Wan
|
Yiqing
Wan
|
||
President,
Chief Executive Officer,
Chief
Financial and Accounting Officer
|
||
Chairman
of Board of
Directors
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28