NOTE 1 ORGANIZATION
China Pediatric Pharmaceuticals, Inc.
("the Company") was incorporated on April 20, 2005 in the state of Nevada. The Company was originally incorporated
under the name Belford Enterprises, Inc. and changed its name to Lid Hair Studios International Inc. on August 15, 2005. Asia-Pharm
Holding Inc. ("Asia-Pharm") was incorporated in British Virgin Islands on June 20, 2008. China Children Pharmaceuticals
Co. Limited ("China Children") a wholly owned subsidiary of Asia-Pharm Holdings Inc. was formed on June 27, 2008 under
the laws of Hong Kong. Xi'an Coova Children Pharmaceuticals Co., Ltd. ("Xi'an Coova" or "WOFE")
is a "wholly owned foreign enterprise" incorporated in People's Republic of China ("PRC"). Xi'an
Coova is a wholly owned subsidiary of China Children.
On September 30, 2009 the Company completed
its merger with China Children; a Hong Kong based pharmaceutical manufacturer company in accordance with the Share Exchange Agreement. The
Share Exchange Transaction is being accounted for as a reverse acquisition. In accordance with the Accounting and Financial
Reporting Interpretations and Guidance prepared by the staff of the U.S. Securities and Exchange Commission, the Company (the legal
acquirer) is considered the accounting acquiree and China Children (the legal acquiree) is considered the accounting acquirer for
accounting purposes. Subsequent to the Share Exchange Transaction, the financial statements of the combined entity will
in substance be those of China Children. The assets, liabilities and historical operations prior to the share exchange
transaction will be those of China Children. Subsequent to the date of Share Exchange Transaction, China Children is
deemed to be a continuation of the business of the Company. Therefore post-exchange financial statements will include
the combined balance sheet of the Company and China Children, the historical operations of China Children and the operations of
the Company and China Children from the closing date of the Share Exchange Transaction forward.
On August 4, 2008, an Entrustment Management
Agreement was entered into between Xi'an Coova and Shaanxi Jiali Pharmaceuticals Co., Ltd. ("Shaanxi Jiali") to which
China Children exercises control over the operations and business of Shaanxi Jiali through Xi'an Coova. Pursuant to
the Entrustment Management Agreement, China Children shall receive all net profits and assume all operational losses of Shaanxi
Jiali through Xi'an Coova.
Xi'an Coova entered into a Management
Entrustment Agreement with Shaanxi Jiali and the shareholders of Shaanxi Jiali (the "Management Entrustment Agreement"),
in which Shaanxi Jiali and its shareholders agreed to transfer control, or entrust, the operations and management of its business
to Xi'an Coova. Under the agreement, Xi'an Coova manages the operations and assets of Shaanxi Jiali, controls all of
the cash flows of Shaanxi Jiali through a bank account controlled by Xi'an Coova, is entitled to 100% of earnings before tax of
Shaanxi Jiali, a management fee, and is obligated to pay all payables and loan payments of Shaanxi Jiali. In addition,
under the terms of the Management Entrustment Agreement, Xi'an Coova has been granted certain rights which include, in part, the
right to appoint and terminate members of Shaanxi Jiali's Board of Directors, hire management and administrative personnel and
control decisions relating to entering and performing customer contracts and other instruments. We anticipate that Shaanxi
Jiali will continue to be the contracting party under its customer contracts, bank loans and certain other instruments unless Xi'an
Coova exercises its option. The agreement does not terminate unless the business of Shaanxi Jiali is terminated or Xi'an
Coova exercises its option to acquire all of the assets or equity of Shaanxi Jiali under the terms of the Exclusive Option Agreement.
The contractual arrangements completed
in August 4, 2008 provide Xi'an Coova with controlling interest in Shaanxi Jiali as defined by Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 810, Consolidation, Section 10-15, Variable
Interest Entities, which requires the Company to consolidate the financial statements of Shaanxi Jiali. The Company, as
an entity that consolidates a Variable Interest Entity is called the primary beneficiary of the VIE. Accordingly, the Company is
the primary beneficiary of Shaanxi Jiali.
The outstanding stock of the Company
prior to the Share Exchange Transaction was accounted for at their net book value and no goodwill was recognized.
The Company, through its subsidiary,
and exclusive contractual arrangement with Shaanxi Jiali, is engaged in the business of manufacturing and marketing over-the-counter
("OTC") and prescription pharmaceutical products for the Chinese marketplace as treatment for a variety of diseases and