UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____
CHINA VITUP HEALTH CARE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 000-52489 | 45-0552679 | |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification Number) | |
| |||
108-1 Nashan Road Zhongshan District Dalian, P.R.C. | |||
(Address of principal executive offices) | |||
Registrant’s telephone number, including area code:86-411-8265-3668 | |||
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act [ ] Yes [ X ] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
[ ] Yes [ X ] No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X ] Yes [ ]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). Not Applicable.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | 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 [X] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of the last business day of the registrant’s most recently completed second fiscal quarter. $9,118,688.
As of March 29, 2009, the Company had 15,000,000 shares issued and outstanding.
2
PART I
ITEM 1.
BUSINESS.
Overview
China Vitup Health Care Holdings, Inc., a Nevada corporation (hereinafter “China Vitup Nevada” or the “Registrant"), is a holding company which, through its wholly-owned subsidiaries and operating affiliates, is engaged in the business of providing healthcare services to customers in China. Presently, the Registrant has an affiliate relationship with a single medical clinic which is a 24,200 square foot facility located in Dalian, China, through which it offers integrated healthcare services designed specifically to fit the needs of the Chinese population. At the clinic in Dalian, the Registrant’s operating affiliate both monitors the health of its patients through regularly scheduled check-ups, and works to diagnose its patients’ different ailments and establish appropriate treatment procedures for such ailments. Since the facility in Dalian is primarily a preventative care facility, patients who require medical treatment which is more than preventative in nature are referred to hospitals and other health facilities.
Currently, the majority of medical care services throughout the People’s Republic of China (the “PRC”) are provided by government sponsored medical institutions and organizations which are often times overcrowded, under staffed, and under supplied and which are not designed to offer preventative care. There are a limited number of private institutions providing medical care to PRC citizens, particularly citizens within the middle class. The Registrant’s goal is to modernize the current healthcare industry in China by providing Chinese citizens with individualized healthcare services and preventative care tailored specifically to their needs at private medical facilities throughout China. Due to the overcrowding and a high patient to doctor ratio that exists within the state sponsored medical facilities throughout China, the Registrant believes that the rapidly increasing middle class of China is interested in seeking viable alternatives to state sponsored medical facilities. The Registrant aims to provide these individuals with an alternative to state sponsored medical facilities in the form of highly modern and upscale medical facilities where the Registrant’s clients can go to have their health monitored on a regular basis.
PRC laws restrict foreign ownership of medical clinics and hospitals located in China. As a result, the Registrant does not directly carry on any business operations. To comply with PRC laws, the Registrant operates through a corporate structure consisting of subsidiaries, variable interest entities (“VIE”), and contractual arrangements. A VIE is a term used by the U.S. Financial Accounting Standards Board to describe a legal business structure whose financial support comes from another corporation which exerts control over the VIE. As noted above, all of the Registrant’s business operations are structured around subsidiaries, VIEs and contractual agreements. Through these contractual agreements the Registrant is able to exert effective control over its PRC operating affiliates and receive all of the economic benefits derived from the business operations of its PRC operating af filiates. In accordance with the specific contractual agreements, which are discussed below, the consolidated financial statements of the Registrant include all assets and liabilities and all revenues and expenses of our affiliate medical clinic located in Dalian, China. The following diagram, which is discussed in detail below, illustrates the Registrant’s corporate structure and the contractual arrangements that allow the Registrant to exert effective control over its PRC operating affiliates and receive all of the economic benefits derived from the business operations of its PRC operating affiliates.
3
* Information regarding the Officers and Directors of each entity listed above can be found in Item 5, below.
4
Business Development & Corporate Structure
Company
The Registrant was incorporated under the laws of Canada as Second Bavarian Mining Consulting Services, Inc. (“Second Bavarian”) on February 24, 2003. On August 10, 2004, Second Bavarian amended and restated its Articles of Incorporation to change its name to Tubac Holdings, Inc. (“Tubac”) and to change its domicile to the State of Wyoming. On September 15, 2006, Tubac formed a wholly-owned subsidiary in Nevada called China Vitup Health Care Holdings, Inc. On October 2, 2006, through the completion of a merger with its wholly-owned subsidiary, China Vitup Nevada, Tubac changed its domicile to the State of Nevada and changed its name to China Vitup Health Care Holdings, Inc. As a result of the merger, each share of Tubac was exchanged for one share of China Vitup Nevada; Tubac ceased to exist as a separate entity and China Vitup Nevada continued as the surviving company.
Wholly-Owned Subsidiaries
China Vitup Healthcare Holdings, Inc.
On November 15, 2006 the Registrant completed the closing under an Agreement for Share Exchange with China Vitup Healthcare Holdings, Inc., (“China Vitup BVI”) a British Virgin Islands corporation, and the shareholders (the “Shareholders”) of China Vitup BVI. Under the terms of the Agreement for Share Exchange, the Registrant issued a total of 13,460,202 shares of its common stock in exchange for 50,000 shares of China Vitup BVI, representing 100% of the issued and outstanding common stock of China Vitup BVI (the “Share Exchange”). Upon completion of the Share Exchange, China Vitup BVI became a wholly owned subsidiary of the Registrant. China Vitup BVI is a holding company that was established on June 29, 2006 to facilitate the operation of our affiliate medical clinic located in Dalian, China.
Dalian Vitup Management Holdings Co., Ltd.
As a holding company, China Vitup BVI owns 100% of the capital stock of Dalian Vitup Management Holdings Co., Ltd., (“Dalian Vitup Management”) a wholly owned foreign enterprise formed under the laws of the PRC on August 30, 2006. Dalian Vitup Management is a holding company which was established for the purposes of facilitating the Registrant’s business operations in the PRC.
Due to PRC laws governing foreign ownership and investment in medical clinics in the PRC, Dalian Vitup Management does not directly own the entities in China through which the Registrant’s business operations are conducted. Instead, Dalian Vitup Management controls those entities and their business operations through a series of exclusive contractual agreements which are more fully described below. The contractual agreements are with the following variable interest entities and individuals: i) Dalian Vitup Healthcare Management Co., Ltd., (“Dalian Vitup Healthcare”) a limited liability company formed under the laws of the PRC on March 4, 2004; ii) Dalian Zhongshan Vitup Clinic (“Dalian Vitup Clinic”), a business which was registered as a sole-proprietorship under the laws of the PRC on January 10, 2006; and iii) Shubin Wang and Feng Gu, the sole shareholders of Dalian Vitup Healthcare.
Variable Interest Entities
5
Dalian Vitup Healthcare
Dalian Vitup Healthcare is a limited liability company that was formed under the laws of the PRC on March 4, 2004 with a registered capital of Renminbi Yuan (“RMB”) 8,000,000 (approximately US $970,756) provided by ShuBin Wang, one of our directors and our majority shareholder. On March 6, 2004 Dalian Vitup Healthcare began providing medical services to Chinese citizens on an annual basis. On September 1, 2006, Dalian Vitup Healthcare entered into the contractual agreements, all of which are discussed below, which established it as an operating affiliate of Dalian Vitup Management.
Dalian Vitup Clinic
The Dalian Vitup Clinic is a sole proprietorship that was registered under the laws of the PRC on January 10, 2006 with a registered capital of RMB 100,000 (approximately US $12,134), by ShuBin Wang, one of our directors and our majority shareholder; Shubin Wang is the sole proprietor and owner of the Dalian Vitup Clinic. In anticipation of becoming an affiliated entity with a publicly reporting company with the Securities and Exchange Commission, on or around April 1, 2006, Shubin Wang entered into a Shift Contract (the “Shift Contract”), discussed below, with Dalian Vitup Healthcare; the Shift Contract is one of the control agreements established to create our corporate structure. On September 1, 2006, Shubin Wang, as the sole proprietor of the Dalian Vitup Clinic entered into various other contractual agreements, which, together with the Shift Contract, made the Dalian Vitup Clinic an operating affiliat e of Dalian Vitup Management. The Shift Contract, and the other contractual agreements are discussed below.
Contractual Agreements
As noted above, the Registrant does not directly carry on any business operations due to PRC laws and does not have a direct ownership interest in Dalian Vitup Healthcare or the Dalian Vitup Clinic through which business operations are conducted. However, through a series of contractual arrangements entered into by its wholly-owned subsidiary, the Registrant is able to: i) exert effective control over its PRC operating affiliates; ii) receive all the economic benefits derived from the business operations of its PRC operating affiliates, which in turn flow to the Registrant; and iii) have an exclusive option to purchase all or part of the equity interests in Dalian Vitup Healthcare.
The specific contractual agreements that allow the Registrant to exert effective control over its operating affiliates and receive all the economic benefits of the business activities of Dalian Vitup Healthcare and the Dalian Vitup Clinic are as follows: 1) a Loan Agreement; 2) a Share Pledge Contract; 3) an Exclusive Option Contract; 4) a Proxy Agreement; 5) an Amended Consulting Agreement; and 6) a Shift Contract (collectively referred to as the “Control Agreements”). The following is a summary of the Control Agreements:
Loan Agreement
On September 1, 2006 ShuBinWang and Feng Gu entered into the Loan Agreement (“Loan Agreement”) with Dalian Vitup Management for the purpose of implementing the Registrant’s VIE structure.
Pursuant to the terms of the Loan Agreement:
6
·
Dalian Vitup Management loaned ShuBin Wang and Feng Gu RMB 8,000,000 (approximately US $970,756).
·
The loan is a non-interest bearing loan that is payable at will by ShuBin Wang and Feng Gu; the term payable at will means the loan does not have a maturity date; The loan is currently outstanding.
·
The term of the Loan Agreement is from the disbursement date of the loan to the date of full repayment of the loan. Because the loan is payable at will by ShuBin Wang and Feng Gu, the Loan Agreement does not have a specific termination date.
·
Notwithstanding the foregoing, Dalian Vitup Management may demand full payment on the loan if any of the following events occur: i) ShuBin Wang or Feng Gu are fired or dismissed from Dalian Vitup Management or any of Dalian Vitup Management’s affiliates; ii) either ShuBin Wang or Feng Gu die or become incapacitated; iii) either ShuBin Wang or Feng Gu engage in or are involved in criminal conduct; iv) any third party files a claim against ShuBin Wang or Feng Gu in excess of RMB 100,000 (approximately US $13,215); or v) Dalian Vitup Management chooses to exercise its right to purchase the shares of Dalian Vitup Healthcare pursuant to its rights under the Exclusive Option Contract, which is more fully described below. Aside from the foregoing, there are no events that would provide Dalian Vitup Management with the authority to demand immediate full repayment of the loan.
·
The loan is secured by ShuBin Wang and Feng Gu’s shares of stock in Dalian Vitup Healthcare through the Share Pledge Contract discussed below.
·
ShuBin Wang and Feng Gu may not, without the prior written consent of Dalian Vitup Management, sell, transfer, mortgage, pledge, dispose of by any other means or place any other secured rights on its shares and interests in Dalian Vitup Health Care.
·
Upon the full repayment of the balance of the loan, ShuBin Wang and Feng Gu are required to transfer 100% of their shares of stock in Dalian Vitup Healthcare, amounting to 100% of the capital stock of Dalian Vitup Healthcare, to Dalian Vitup Management, or a party designated by Dalian Vitup Management, in accordance with the laws of the PRC.
Share Pledge Contract
The Share Pledge Contract, dated September 1, 2006, is by and among Dalian Vitup Management, ShuBin Wang, Feng Gu, and Dalian Vitup Healthcare. Pursuant to the terms of the Share Pledge Contract:
·
ShuBin Wang and Feng Gu have pledged all of their equity interest in Dalian Vitup Healthcare, which amounts to 100% of Dalian Vitup Healthcare, to Dalian Vitup Management to secure their obligations under the relevant contractual control agreements, including but not limited to, their repayment obligations under the Loan Agreement.
·
ShuBin Wang and Feng Gu have each agreed not to transfer, sell, pledge or otherwise dispose of or create any encumbrance on their equity interest in Dalian Vitup Healthcare without the consent of Dalian Vitup Management.
·
The Share Pledge Contract terminates upon ShuBin Wang and Feng Gu’s fulfillment of their respective obligations under the Loan Agreement. However, as noted above, pursuant to the terms of the Loan Agreement, upon the full repayment of the balance of the loan, ShuBin Wang and Feng Gu are required to transfer 100% of their shares of stock in Dalian Vitup Healthcare, amounting to 100% of the capital stock of Dalian Vitup Healthcare, to
7
Dalian Vitup Management, or a party designated by Dalian Vitup Management, in accordance with the laws of the PRC.
Exclusive Option Contract
The Exclusive Option Contract, dated September 1, 2006, is by and among Dalian Vitup Management, ShuBin Wang, Feng Gu, and Dalian Vitup Healthcare. Pursuant to the terms of the Exclusive Option Contract:
·
Dalian Vitup Management may, in its sole and absolute discretion, elect to purchase 100% of the stock owned by ShuBin Wang and Feng Gu in Dalian Vitup Healthcare, which amounts to 100% of the capital stock of Dalian Vitup Healthcare.
·
The Exclusive Option Contract provides that the price at which Dalian Vitup Management can purchase all of ShuBin Wang’s and Feng Gu’s interest in Dalian Vitup Healthcare shall be equal to the actual capital contributions that ShuBin Wang and Feng Gu paid for the option shares. The aggregate capital contributions that ShuBin Wang and Feng Gu have paid for the option shares is US $1,000,000; therefore, the price at which Dalian Vitup Management can purchase all of Mr. Wang’s and Ms. Gu’s interest is US$1,000,000. There are no current PRC laws in effect that would require any type of appraisal to determine the stock price of the option shares; however, in the event that PRC law were to require an appraisal to determine the stock price of the option shares, the parties agree that the purchase price shall be the lowest price allowed under the applicable laws.
·
Neither ShuBin Wang, Feng Gu, nor Dalian Vitup Healthcare may enter into any transaction that could materially affect Dalian Vitup Healthcare’s assets, liabilities, equity or operations without the prior written consent of Dalian Vitup Management.
·
Neither ShuBin Wang, Feng Gu, nor Dalian Vitup Healthcare will distribute any dividends without the prior written consent of Dalian Vitup Management.
·
Dalian Vitup Management, and/or its designee, has an exclusive option to purchase all of ShuBin Wang and Feng Gu’s interest in Dalian Vitup Healthcare; such interest comprises 100% of the Dalian Vitup Healthcare.
·
The Exclusive Option Contract terminates upon the fulfillment of ShuBin Wang and Feng Gu’s obligations under the Loan Agreement. However, as noted above, pursuant to the terms of the Loan Agreement, upon the full repayment of the balance of the loan, ShuBin Wang and Feng Gu are required to transfer 100% of their shares of stock in Dalian Vitup Healthcare, amounting to 100% of the capital stock of Dalian Vitup Healthcare, to Dalian Vitup Management, or a party designated by Dalian Vitup Management, in accordance with the laws of the PRC.
Proxy Agreement
The Proxy Agreement, dated September 1, 2006, is by and among ShuBin Wang, Feng Gu and Dalian Vitup Management. Pursuant to the terms of the Proxy Agreement:
·
ShuBin Wang and Feng Gu granted Dalian Vitup Management full power and authority regarding any matters that require shareholder action as a result of ShuBin Wang and Feng Gu’s ownership interest in Dalian Vitup Healthcare; ShuBin Wang, the President and
8
Chairman of the Board of Directors of Dalian Vitup Management, has the authority to act on behalf of, and make decisions for, Dalian Vitup Management.
·
The Proxy Agreement terminates upon the repayment of the loan by ShuBin Wang and Feng Gu pursuant to the terms of the Loan Agreement discussed above.
Amended Consulting Agreement
On September 1, 2006, Dalian Vitup Management entered into a Consulting Agreement with Dalian Vitup Healthcare. The Consulting Agreement was subsequently amended to further clarify Dalian Vitup Management’s right to receive substantially all of the economic interest of Dalian Vitup Healthcare. The Amended Consulting Agreement, dated July 7, 2008, is by and among Dalian Vitup Management, and Dalian Vitup Healthcare. Pursuant to the terms of the Amended Consulting Agreement:
·
Dalian Vitup Management will provide exclusive consulting services for Dalian Vitup Healthcare regarding: 1) services relating to health management; 2) services relating to the associate products in health management; 3) staff training; and 4) all other services required by Dalian Vitup Healthcare.
·
Dalian Vitup Healthcare pays Dalian Vitup Management a quarterly consulting fee of RMB 250,000 (approximately US $34,456).
·
Dalian Vitup Healthcare pays Dalian Vitup Management 90% of the net profit generated by Dalian Vitup Healthcare.
·
Dalian Vitup Healthcare pays Dalian Vitup Management technical services fees computed on an hourly basis for services rendered by Dalian Vitup Management, the pricing of which are determined by mutual agreement of the parties.
·
Subject to certain early termination provisions, the Amended Consulting Agreement is for an indefinite term and shall remain in full force and effect for the entire time period that Dalian Vitup Management remains in business. Notwithstanding the foregoing: i) Dalian Vitup Healthcare may terminate the Amended Consulting Agreement if Dalian Vitup Management commits a gross fault, fraudulent or other illegal act, or becomes bankrupt; and ii) Dalian Vitup Management may terminate the Amended Consulting Agreement upon 30 days prior notice to Dalian Vitup Healthcare at any time.
Dalian Vitup Clinic’s Property Rights and Interests Shift Contract (the “Shift Contract”)
The Shift Contract dated April 1, 2006, is by and among ShuBin Wang and Dalian Vitup Healthcare. Pursuant to the terms of the Shift Contract:
·
The parties agree and acknowledge that Dalian Vitup Healthcare is the beneficiary of all of titles of the property, rights and interests of Dalian Zhongshan Vitup Clinic.
·
The parties agree and acknowledge that the Dalian Vitup Clinic shall be managed and controlled by Dalian Vitup Healthcare.
·
The parties agree and acknowledge that Dalian Vitup Clinic is not an independent entity and that its revenue and income shall be consolidated with the financial statements of Dalian Vitup Healthcare.
·
The Shift Contract is for an indefinite term and may only be revised or terminated upon the mutual consent of both parties to the Contract.
9
The Shift contract ensures that Dalian Vitup Healthcare is the beneficiary of all of the property, rights, and interests of the Dalian Vitup Clinic, of which Shubin Wang is the sole owner. Dalian Vitup Healthcare is relying upon the Shift Contract as the mechanism through which it will be entitled to control the operations of Dalian Vitup Clinic and to receive all the economic benefits of the business operations of Dalian Vitup Clinic. We believe no proxy agreement or option agreement is necessary because ShuBin Wang, as sole owner of Dalian Vitup Clinic, has “shifted” all the clinic’s property, rights and interests to Dalian Vitup Healthcare pursuant to the terms of the Shift Contract. We believe no consulting agreement requiring payment of consulting fees is required because, in accordance with the terms of Shift Contract, the parties have acknowledged that Dalian Vitup Clinic is not an independent entity and that its revenue and income are to be considered with Dalian Vitup Healthcare. The other control agreements, discussed above, provide Dalian Vitup Management with control over Dalian Vitup Healthcare.
The foregoing description of the Control Agreements is qualified in its entirety by reference to the Loan Agreement, Share Pledge Contract, Exclusive Option Contract, and Proxy Agreement which were filed as Exhibits 10.1, 10.2, 10.3, and 10.4, respectively, to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and are herein incorporated by reference, and the Amended Consulting Agreement, and Shift Contract, which were filed as Exhibits 10.14 and 10.6, respectively, to the Company’s Amendment No. 1 on Form 10/A with the Securities and Exchange Commission on July 23, 2008 and are herein incorporated by reference.
The Registrant believes that: (i) its corporate structure is in compliance with existing PRC Laws and regulations regarding foreign investment in the PRC medical industry; (ii) the contractual arrangements among Dalian Vitup Management, Dalian Vitup Healthcare, Dalian Vitup Clinic, ShuBin Wang and Feng Gu are valid, binding and enforceable and will not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations described herein are in compliance with existing PRC laws and regulations in all material respects. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities will not in the future take a view that is contrary to the current opinion about the legality of our corporate structure. Furthermore, if the P RC government finds the agreements that establish the structure for operating our medical services business do not comply with PRC government restrictions on foreign investment in medical institutes, we could be subject to penalties.
Business of Issuer
As noted above, the Registrant is not an operating business. All of the business operations of the Registrant are conducted through its wholly-owned subsidiaries and its operating affiliates. As used in this Form 10-K, unless otherwise specifically noted, from this point forward all references to the “Company,” “we,” “our” and “us” refer to the Registrant, and its wholly owned subsidiaries, China Vitup BVI and Dalian Vitup Management. All references to “operating affiliate” unless otherwise specifically noted, collectively refers to Dalian Vitup Healthcare and the Dalian Vitup Clinic.
Currently, the majority of medical care services throughout the PRC are provided by government sponsored medical institutions and organizations which are often times overcrowded, under staffed, and under supplied. Consequently, there are a limited number of private institutions providing medical care to PRC citizens, particularly citizens within the middle class. The Company’s goal is to modernize the current healthcare industry in China by providing Chinese citizens with individualized healthcare services tailored specifically to their needs at private medical facilities throughout China. Due to the overcrowding and high patient to doctor ratio that exists within the state sponsored medical facilities throughout China, we believe
10
that the rapidly increasing middle class of China is interested in seeking viable alternatives to state sponsored medical facilities. Through our operating affiliates, the Company aims to provide these individuals with an alternative to state sponsored medical facilities in the form of highly modern and upscale medical facilities where their clients can go to have their health monitored on a regular basis.
Currently, our operating affiliate offers integrated health management services designed specifically for the PRC population through its preventative care medical facility located in the city of Dalian, China. The Company’s health services offered at its operating affiliate’s medical facility include physical examinations, health management plans, and guidance for medical treatment. Our operating affiliate assists its patients in maintaining a healthy status by comprehensively monitoring, analyzing and evaluating the patients and by predicting various risk factors that affect the health and well being of its patients. In many instances, the Dalian Vitup Clinic, as a primary checkup facility, will refer its patients to specialized hospitals and health facilities throughout the world which are equipped to treat the patient’s specific health problems and needs that the have been identif ied through a comprehensive checkup and monitoring procedures.
Our operating affiliate’s primary technique for evaluating and monitoring the health of its patients is through the implementation of its four-dimensional checkup model (the “Model”). The Model consists of a blend of standard western medical checkup procedures, psychological evaluations, traditional Chinese medical consultations, and life style evaluations. The western aspect of the Model utilizes standard western medical procedures to evaluate and monitor the health of patients, including, but not limited to, the following checkup procedures: tumor screening, blood testing, ultra sound examinations, ophthalmic inspection, and oral cavity checkups. In addition to the western aspect of the Model, our operating affiliate performs comprehensive psychological tests on its patients to assist them in determining life orientation and career choices. The traditional Chinese medical aspect of the M odel focuses on the utilization of standard Chinese medical methods to evaluate a patient’s health. Standard Chinese medical methods focus on a medical approach of monitoring and palpating the patient’s body to diagnose potential health problems that a patient may have, as well as prescribing herbal medications to address any health problems that a patient is experiencing. The final component of the Model is the nutritional evaluation. Our operating affiliate uses various advanced technologies to analyze a patients’ body composition and ultimately establish nutritional programs geared towards the prevention of potential health problems.
Currently, our operating affiliate operates a 24,200 square foot medical clinic and pharmacy in Dalian, China, and a mobile medical clinic which is based out of the medical facility located in Dalian. In conjunction with its medical facilities, our operating affiliate operates a 24 hour emergency medical hotline. Through this service clients may call in for 24 hour assistance regarding any of their medical issues.
Additionally, as noted above, our operating affiliate, Dalian Vitup Clinic, operates a referral program through which it refers our existing patients to domestic hospitals in the event they are in need of medical services which are not provided by the operating affiliate.
The Company has cooperative arrangements with several hospitals located throughout Beijing for the referral of patients who are in need of medical services which are not provided by the Company at its medical clinic. In order to establish a cooperative relationship with a hospital, the Company executes a standard Cooperation Agreement which provides that: i) the hospital will provide high quality medical services to the Company’s clients; ii) the Company will provide all relevant medical information regarding the Company’s client to the hospital, which the hospital will keep confidential; and; iii) the Company will,
11
based upon the fee-charging standard approved by the State, take responsibility for the payment of medical service expenses incurred by its client whom it referred to the hospital. Each Cooperation Agreement is valid for a term of three years and may be extended through negotiation of the parties to the Cooperation Agreement. The foregoing description of the Company’s standard Cooperation Agreement is qualified in its entirety by reference to the Cooperative Agreement which was filed as Exhibit 10.7 to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and is herein incorporated by reference. In addition to the cooperative arrangement with hospitals located in China, the Company has cooperative arrangements with several international hospitals located in Japan for the referral of the Company’s patients. The Company’s international referral program is another s ervice that the Company, through its operating affiliate, Dalian Vitup Clinic, provides to its patients. Through the referral program, the Dalian Vitup Clinic may refer patients to different international medical facilities to ensure that patients receive all necessary medical treatment. The international referral program is not a material part of the Company’s business operations; rather, it is an additional service that the Company is able to provide through its operating affiliates to its patients to ensure that all of their medical needs are satisfied.
Additionally, our operating affiliates plan on developing referral based strategic alliances through close relationships with individuals in Japan, the United Kingdom, and Canada. These strategic alliances will be designed to assist the Company and its operating affiliate with the acquisition and importation of medical equipment and products. The purpose of these alliances will be to facilitate our operating affiliate’s international patient referral program and promote the Company’s brand name to international businesses operating within the PRC. Neither the Company nor its operating affiliates have rendered any referral services over the last two years. We anticipate that the strategic alliances that we plan to enter into will facilitate the Company’s knowledge and understanding regarding current trends and advancements with medical equipment and products. It is anticip ated that the information garnered through these alliances with help influence the Company’s decision on what medical equipment and products it will seek to acquire and have delivered to its offices in China. Furthermore in accessing what medical equipment and products to pursue, the Company will then take into consideration the domestic market and its customers’ needs. Moreover, if the Company’s customers have the need of medical treatment which can not be satisfied by domestic hospitals, or if the Company’s customers are abroad and need medical help, the Company anticipates utilizing strategic alliances to refer the customers to other hospitals located in foreign countries.
As noted above, the private healthcare industry is a small, but expanding, area of business in the PRC. We believe that we will be able to fill an existing void in the PRC healthcare system by offering preventative care and providing the citizens of the PRC with an alternative to state sponsored medical facilities for their regular medical checkups. Furthermore, by establishing relationships with existing health care facilities, we will be able to effectively and efficiently refer our patients to more advanced treatment centers to accommodate all of our patients’ medical needs.
Within the next three years, our objective is to establish additional medical clinics throughout China through which we are able to provide high quality medical care to Chinese citizens. We currently have plans to establish affiliate medical clinics in the following cities, in the following order: 1) Beijing; 2) Shenyang; 3) Dalian Development Zone.At the proper time, we are going to copy our business model quickly and open more new clinics in economically well developed cities all around China.
To facilitate our growth strategy, we have established a corporate headquarters and management team in Beijing to make the necessary preparations for the establishment of the additional affiliate medical
12
facilities throughout China. The management team will work to establish standards for all of our facilities and to create and implement a unified employee orientation and training program. The management team located in Beijing will supervise the development of all additional facilities.
Customers and Marketing
Customers
Due to the overcrowding and high patient to doctor ratios that exist within the state sponsored medical facilities throughout China, we believe that the rapidly increasing middle class of China is interested in seeking viable alternatives to state sponsored medical facilities. We aim to provide these individuals with an alternative to state sponsored medical facilities in the form of highly modern and upscale medical facilities where their clients can go to have their health monitored on a regular basis. Additionally, we aim to establish a venue whereby Chinese citizens can establish and maintain lasting relationships with primary care physicians.
Our operating affiliate’s current customers, all of whom are discussed in detail below, are composed mainly of the following: i) Enterprises; ii) Government Agencies; iii) Financial Agencies & Insurance Companies; iv) Members; and v) Individuals.
Enterprises
Our operating affiliate has established relationships with over thirty different business enterprises in China, both national and international. These enterprises have enlisted the services of our operating affiliate to have it provide health checkups for the enterprises’ employees. As we expand, we intend to solidify existing relationships between our customers and our operating affiliates, as well as establish new relationships, with other business enterprises in an effort to provide for the healthcare needs of business enterprises throughout China.
Government Agencies
A significant percentage of civil servants in China are required to have annual routine health checkups. Our operating affiliate has established relationships with various’ governmental agencies through which the agencies have agreed to designate our operating affiliate as the medical checkup institute to perform the annual exams on the respective agencies’ employees. The government agencies pay an annual fee for this service. Our operating affiliate currently has approximately 40 governmental agencies that it works with.
Financial Agencies & Insurance Companies
Our operating affiliate cooperates with various financial agencies and life insurance companies to provide the standard health checkup the financial agencies’ employees and potential life insurance candidates must undergo. The financial agencies and insurance companies pay all of the checkup expenses. These expenses are paid on a case-by-case basis at the time the checkup is performed.
Members
13
Members are identified as patients who have enlisted the services of our operating affiliate to monitor their health for a prolonged period. The Members pay a flat fee which entitles the Members to access to our operating affiliate’s medical services for a prescribed period, including an annual check-up. Our operating affiliate has identified Members as one of its most lucrative potential client bases. As such, our operating affiliate intends to focus significant efforts in rapidly increasing the number of Members.
As of July 1, 2008 our operating affiliate began to offer the following types of membership packages: (1)The Gold Package – The Gold Package entitles the Member to medical services and health monitoring for a period of one year at an price of 100,000 RMB (approximately US $14,562); this package provides members with annual health check-ups and priority access to our operating affiliate’s facilities and medical staff over members who participate in the Silver Package discussed below; and (2)The Silver Package– The Silver Package entitles the Member to medical services and health monitoring for a period of one year at a price of 20,000 RMB (approximately US $2,912.00); this package provides members with annual health check-ups and access to our operating affiliates’ facilities and medical staff. The major difference between each of the foregoing packages is the amount and frequency of medical services provided to the different types of members. For example, under the Gold Package, a member is entitled to 4 personalized health checkups during the course of the year, while the member who subscribes to the Silver Package is entitled to 1 personalized health checkup during the year. Additional differences are as follows: i) under the Gold Package a member is afforded 24 hour access to our operating affiliate’s consultation service and is entitled to 13 house visits by our operating affiliate’s physicians; ii) under the Silver Package a member is afforded access to our operating affiliate’s consultation service during business hours, and is entitled to 3 house visits by our operating affiliate’s physicians. As noted above, the major difference between the two packages is the amount and frequency of medical services provided to the different types of members.
Individuals
Individuals are classified as patients who have come to the clinic for a one-time health checkup. Our operating affiliates offer a variety of Individual Checkup Packages depending upon the Individual’s age. Currently, approximately 7,424 individuals have participated in a one-time checkup.
Percentage of Revenue Attributable to Each Customer Type for Fiscal Years Ended 2008 and 2009
For the fiscal period that ended December 31, 2008, the foregoing customers accounted for the following percentages of the Company’s revenue from its business operations conducted at its affiliate medical clinic located in Dalian: Individuals and Members – 21%; Enterprises – 72%; Insurance Companies – 2%; and General Treatment – 5%.
For the fiscal period that ended December 31, 2009, the foregoing customers accounted for the following percentages of the Company’s revenue from its business operations conducted at its affiliate medical clinic located in Dalian: Individuals and Members – 38%; Enterprises – 56% and General Treatment – 6%.
The following chart illustrates the changes which occurred regarding the percent and amount of the Company’s revenue attributable to each customer type for the fiscal years ended 2009 and 2008
14
| Fiscal Years Ended 2008 and 2009 | |||||
Customer Type | 2009 ($) | % of Total | 2008 ($) | % of Total | Change | % Change |
Individuals & Members | 907,013 | 38% | 427,742 | 21% | 479,271 | 112% |
Enterprises (including Government Agencies) | 1,364,223 | 56% | 1,458,694 | 72% | -94,471 | -6% |
Insurance Companies | 0 | 0% | 38,504 | 2% | -38,504 | -100% |
General Treatment | 139,807 | 6% | 108,216 | 5% | 31,591 | 29% |
TOTAL | 2,411,043 | 100% | 2,033,156 | 100% | 377,887 | 19% |
Marketing
The Company intends to promote and market its brand name and services offered at its affiliate clinic in Dalian, as well as its future clinics through: 1) billboard advertisements on major arterial roads; 2) television advertisements; 3) newspaper and print advertisements; 4) electronic advertisements on the internet and the Company’s website; 5) large public events promoting the various clinics and services that are offered; 6) distribution of promotional literature promoting and advertising the clinics; and 7) and foreign advertising.
Competition
Currently, the majority of medical care services throughout the PRC are provided by government owned medical institutions and organizations which are often times overcrowded, under staffed, and under supplied. Consequently, there are a limited number of private institutions providing medical care to PRC citizens, particularly citizens within the middle class. The Company’s goal is to modernize the current healthcare industry in China by providing Chinese citizens with individualized healthcare services tailored specifically to their needs at private medical facilities throughout China.
As noted above, the Company’s only affiliated operational medical clinic is located in the city of Dalian. Currently, within the four districts of Dalian there are 12 state sponsored hospitals and one state sponsored medical check-up facility. With the exception of our affiliate clinic in Dalian, there are no other private medical facilities in the city.
Intellectual Property
The Company does not own any trademarks or patents on any of the products that its operating affiliates sell, or methods that these operating affiliates utilize in their medical clinics. There may be patents issued or pending that are held by others and cover significant parts of our business methods or services. We cannot be certain that our products or business methods do not or will not infringe on any valid patents, copyrights or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims, from time to time, relating to the intellectual property of others in the ordinary course of our business.
In addition, we may license products or technology from third parties. The market is evolving and we may need to license additional products or technologies to remain competitive. We may not be able to
15
license these products or technologies on commercially reasonable terms or at all. In addition, we may fail to successfully integrate any licensed technology or products into our services. Our inability to obtain any of these licenses could delay our business development until alternative technologies can be identified, licensed and integrated.
Governmental Regulations
Our operations are subject to and affected by various PRC state and local laws and regulations. These laws and regulations include those related to the areas of healthcare, medicine, and foreign investment in medical institutions within China. In particular, our operations are subject to the provisions and regulations under: i)Regulation On Administration of Medical Institutions (the “Regulation”), established in September 1, 1994; ii)Detailed Rules For Implementation of the Regulation On Administration of Medical Institutions (the “Rules”), established in September 1, 1994; and iii)Interim Measures for the Administration of Sino-Foreign Equity Joint and Cooperative Joint Medical Institutions (the “Interim Measures”), established in July 1, 2000. The following discussion provides an overview of the foregoing regulations and the impact they have on our business. & nbsp;
Regulation On Administration of Medical Institutions & Detailed Rules For Implementation of the Regulation On Administration of Medical Institutions
TheRegulation On Administration of Medical Institutions & theDetailed Rules For Implementation of the Regulation On Administration of Medical Institutionswere collectively established by the PRC government for the purpose of strengthening the administration of medical institutions within China and for promoting the development of medical and public health services in China. Pursuant to the terms of the Regulation, and the accompanying Rules which were promulgated thereunder, prior to engaging in its business operations, Dalian Vitup Healthcare was required to apply for and obtain an “Approval Certificate for the Establishment of Medical Institution,” from the Public Health Administrative Department of Local People’s Government above county level (the “Public Health Department”). Additionally, prior to engaging in the business of providing medical services, Dalian Vitup Healthcare wa s required to obtain from the Public Health Department a “Practice License of Medical Institution.”
Currently, pursuant to the Regulation and the Rules, the business operations of Dalian Vitup Healthcare are subject to the supervision of the Public Health Department. In the event that the Public Health Department determines that Dalian Vitup Healthcare’s business operations are not in compliance with either the Regulations or the Rules, Dalian Vitup Healthcare could be subject to penalties. The penalties include, but are not limited to: i) a penalty if Dalian Vitup Healthcare failed to operate with a valid “Practice License of Medical Institution,” which could result in a fine of up to RMB 3,000 (US $424); ii) a penalty if Dalian Vitup Healthcare were to sell, lend, or transfer its “Practice License of Medical Institution, which could result in a monetary fine of up to RMB 3,000 (US $424); or iii) a penalty if the Dalian Vitup Healthcare were to employ an individual who did not have the requisite qualifica tion certificate of public health technique, which could result in a monetary fine of up to RMB 3,000 (US $424).
Any future medical clinics that we establish will be required to comply with all of the foregoing governmental regulations. Failure to comply with PRC governmental regulations could materially and adversely affect our business and operation and may substantially increase the cost of providing our services.
16
Interim Measures for the Administration of Sino-Foreign Equity Joint and Cooperative Joint Medical Institutions
TheInterim Measures for the Administration of Sino-Foreign Equity Joint and Cooperative Joint Medical Institutions were established by the PRC government in July, 2000, for the express purpose of enhancing the administration of Chinese – foreign joint equity ventures and cooperative medical institutions, and promoting the development of the medical industry within China. The Interim Measures are supervised by the Ministry of Health and the Ministry of Foreign Trade and Economic Cooperation (“MOFTEC”) and are administered by an Administrative Department of Health at the municipal level. The Interim Measures establish the protocols and procedures for the implementation of either a Chinese-foreign joint venture or a cooperative medical institution. Pursuant to the Interim Measures, any party seeking to establish either a Chinese-foreign joint venture or cooperative medical institution must go through the application process set forth in the Interim Measures, and must ultimately obtain approval from the Ministry of Health and MOFTEC for the contemplated joint venture. Once the joint venture is approved, the joint venture is subject to both theRegulation On Administration of Medical Institutions & theDetailed Rules For Implementation of the Regulation On Administration of Medical Institutions, discussed above. Dalian Vitup Healthcare received the approval required under the Interim Measures for the Administration of Sino-Foreign Equity Joint and Cooperative Joint Medical Institutions on April 1, 2004.
Employees
The Company and its operating affiliates currently have one hundred and seven (107) full-time employees. Forty-five (45) of the current employees hold medical degrees from universities throughout China.
Reports to Security Holders
We are subject to the informational requirements of the Securities Exchange Act of 1934 which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at 100 F Street, NE, Room 1580, Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549 at prescribed rates. The public could obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC's Internet website at http://www.sec.gov.
ITEM 1A. RISK FACTORS.
Not Applicable
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable
ITEM 2.
PROPERTIES.
17
Medical Clinic
On January 12, 2004, the Registrant’s operating affiliate, Dalian Vitup Healthcare entered into a House Lease Agreement with Shubin Wang for the lease of a portion of the premises housing its medical clinic. Pursuant to the terms of the House Lease Agreement, Dalian Vitup Healthcare leased a portion of the property located at No. 108-1, 108-2, Nanshan Road, Zhongshan District, Dalian for a period of 15 years at an initial annual rental rate of RMB 100,000 (approximately US$13,835.30). Pursuant to the terms of the House Lease Agreement, the lease is for a term of 15 years, the lease is not cancelable, and the annual rental rate will be adjusted every two years through consultation between the parties. Additionally, under the House Lease Agreement, Dalian Vitup Healthcare is responsible for the payment of all taxes, expenses and other relevant charges arising out their occupation of the leased premises. A c opy of the House Lease Agreement was filed as Exhibit 10.8 to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and is herein incorporated by reference. On March 12, 2006, the parties agreed to adjust the annual rental rate in the House Lease Agreement to RMB 348,000 (approximately US$49,983.40), effective April 2006. A copy of the Supplemental House Lease Agreement with the information relating to the adjustment of the annual rental rate was filed as Exhibit 10.15 to the report on Form 10-K filed with the SEC on April 15, 2009, and is herein incorporated by reference.
On August 15, 2006, Dalian Vitup Management entered into a House Lease Agreement with Shubin Wang for the lease of office space. Pursuant to the terms of the House Lease Agreement, Dalian Vitup Management leased a portion of the property located at No. 108-1, 108-2, Nanshan Road, Zhongshan District, Dalian for a period of 20 years at an annual rental rate of RMB 5,800 (approximately US$833). Pursuant to the terms of the House Lease Agreement, the lease is not cancelable, and the annual rental rate will be adjusted every two years through consultation between the parties. Additionally, under the House Lease Agreement, Dalian Vitup Management is responsible for the payment of all taxes, expenses and other relevant charges arising out their occupation of the leased premises. The foregoing description of the House Lease Agreement is qualified in its entirety by reference to the House Lease Agreement wh ich is filed as Exhibit 10.16 to the report on Form 10-K filed with the SEC on April 15, 2009, and is herein incorporated by reference.
Mobile Medical Check-up Facility
Our operating affiliate operates a mobile medical check-up facility which is based at its facility in Dalian. The mobile medical facility is located in a converted passenger bus and is designed to provide the Company with the ability to offer its medical check-up services on-site at its various customers’ business operations and factories. The mobile clinic contains a variety of modern medical equipment.
Equipment
Within our medical clinic and mobile medical facilities, our operating affiliates own and utilize a variety of modern medical devices for diagnosis and treatment, including, but not limited to: a) a Quantum Resonance Spectrometer; b) an Acuson Aspen Siemens Color Ultrasound System; c) an Osteospace; d) a Body Composition Analyzer; e) a Blood Lead Detector; f) a Remote Control X-Ray System; g) an Automatic Biochemical Analyzer; and h) a Japanese Full Automatic Blood Cell Counter.
ITEM 3.
LEGAL PROCEEDINGS.
18
The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.
ITEM 4.
(REMOVED AND RESERVED)
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
The Registrant's common stock is approved for quotation on the Over the Counter Bulletin Board under the symbol CVPH. However, there is no established or liquid trading market for the Company’s shares because very limited, if any, trading has occurred with the Company’s common stock over the last two fiscal years. The Registrant currently has 15,000,000 shares of common stock issued and outstanding.
The following table sets forth the high and low bid prices of our common stock (USD) for the last two fiscal years and subsequent interim periods, as reported by the National Quotation Bureau and represents inter dealer quotations, without retail mark-up, mark-down or commission and may not be reflective of actual transactions:
| (U.S. $) | |
|
|
|
2008 | HIGH | LOW |
Quarter Ended March 31 | $2.05 | $0.20 |
Quarter Ended June 30 | $1.75 | $0.35 |
Quarter Ended September 30 | $1.25 | $0.10 |
Quarter Ended December 31 | $1.35 | $0.50 |
2009 | HIGH | LOW |
Quarter Ended March 31 | $2.00 | $0.50 |
Quarter Ended June 30 | $2.00 | $2.00 |
Quarter Ended September 30 | $2.00 | $0.015 |
Quarter Ended December 31 | $1.00 | $0.98 |
Holders
The Registrant currently has 15,000,000 shares of common stock issued and outstanding. As of March 30, 2010, the Registrant’s stock was owned by approximately 40 holders of record.
Dividends
The Company has not declared or paid any cash dividends on its common stock during the fiscal years ended December 31, 2009 or 2008. There are no restrictions on the common stock that limit the
19
ability of us to pay dividends if declared by the Board of Directors and the loan agreements and general security agreements covering the Company’s assets do not limit its ability to pay dividends. The holders of common stock are entitled to receive dividends when and if declared by the Board of Directors, out of funds legally available therefore and to share pro-rata in any distribution to the stockholders. Generally, the Company is not able to pay dividends if after payment of the dividends, it would be unable to pay its liabilities as they become due or if the value of the Company’s assets, after payment of the liabilities, is less than the aggregate of the Company’s liabilities and stated capital of all classes.
Equity Compensation Plan
We do not have an equity compensation plan.
ITEM 6.
SELECTED FINANCIAL DATA.
Not Applicable.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJ ECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-K AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.
Overview
China Vitup Health Care Holdings, Inc., a Nevada corporation is a holding company which, through its wholly-owned subsidiaries and operating affiliates, is engaged in the business of providing
20
healthcare services to customers in China. Presently, the Registrant has an affiliate relationship with a single medical clinic which is a 24,200 square foot facility located in Dalian, China, through which it offers integrated healthcare services designed specifically to fit the needs of the Chinese population. At the clinic in Dalian, the Registrant’s operating affiliate both monitors the health of its patients through regularly scheduled check-ups, and works to diagnose its patients’ different ailments and establish appropriate treatment procedures for such ailments. Since the facility in Dalian is primarily a preventative care facility patients who require medical treatment which is more than preventative in nature are referred to hospitals and other health facilities.
Our operating affiliate offers integrated health management services designed specifically for the PRC population through its preventative care medical facility located in the city of Dalian, China. The health services offered at our operating affiliate’s medical facility includes physical examinations, health management plans, and guidance for medical treatment. Our operating affiliate’s assists its patients in maintaining a healthy status by comprehensively monitoring, analyzing and evaluating the patients and by predicting various risk factors that affect the health and well being of its patients. In many instances our operating affiliate, as primary checkup facilities, will refer its patients to specialized hospitals and health facilities throughout the world which are equipped to treat the Company’s patient’s specific health problems and needs that the Company has identified through its comprehensive ch eckup and monitoring procedures.
Within the next three years, it is our objective is to establish an additional three affiliated medical clinics throughout China through which we are able to provide high quality medical care to Chinese citizens. We will model our clinics after the clinic that we currently operate in Dalian. We anticipate establishing medical clinics in the following cities, in the following order: 1) Beijing; and 2) Shenyang. At proper time, we are going to copy our business model quickly and open more new clinics in economic developed cities all around China.
Results of Operations
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operation and financial condition for the fiscal years ended December 31, 2009 and 2008. The following discussion should be read in conjunction with the Financial Statements and related Notes appearing elsewhere in this Form 10-K.
Our financial statements are stated in US Dollars and are prepared in accordance with generally accepted accounting principals of the United States (“GAAP”).
Results of Operations for the Fiscal Year Ended December 31, 2009 Compared to the Fiscal Year Ended December 31, 2008
Revenues
During the fiscal year ended December 31, 2009, the Company had total operating revenue in the amount of $2,411,043. Of this $2,271,236 was directly attributable to revenue generated from the Company’s healthcare management service, and $139,807 was attributable to the Company’s Chinese medical service.
During the fiscal year end December 31, 2008, the Company had total operating revenue in the amount of $2,033,156. Of this $1,918,494 was directly attributable to revenue generated from the Company’s healthcare management service, and $114,662 was attributable to the Company’s Chinese
21
medical service.
The increase in total operating revenue from 2008 to 2009 was primarily due to the increase in the number of individual customers utilizing and paying for our healthcare management service. The increase in individual customers was primarily attributable to promotional efforts from the Company’s marketing department.
There are three major types of customers: Individuals and Members, Enterprises including Government Agencies, and General Treatment. For different type of customers, there is different unit price. Each type’s proportion of the total is 38%, 56%and 6%, respectively.
The following chart illustrates the changes which occurred regarding the percent and amount of the Company’s revenue attributable to each customer type for the fiscal years ended December 31, 2009 and 2008:
| Fiscal Years Ended 2008 and 2009 | |||||
Customer Type | 2009 ($) | % of Total | 2008 ($) | % of Total | Change | % Change |
Individuals & Members | 907,013 | 38% | 427,742 | 21% | 479,271 | 112% |
Enterprises( including Government Agencies) | 1,364,223 | 56% | 1,458,694 | 72% | -94,471 | -6% |
Insurance Companies | 0 | 0% | 38,504 | 2% | -38,504 | -100% |
General Treatment | 139,807 | 6% | 108,216 | 5% | 31,591 | 29% |
TOTAL | 2,411,043 | 100% | 2,033,156 | 100% | 377,887 | 19% |
The Company’s operating revenue from Individuals & Members and General Treatment for the fiscal year ended December 31, 2009 increased by $479,271 and $31,591, or approximately 112% and 29%, respectively as compared to the fiscal year ended December 31, 2008.
The following chart illustrates the changes in our revenue generated by our health management service and Chinese medical service for the fiscal year ended December 31, 2009, as compared to the fiscal year ended December 31, 2008:
|
| Year ended December 31, | ||||
|
| 2009 |
| 2008 |
| % Change |
Health management service revenue: |
|
|
|
|
|
|
- Product sale |
| - |
| - |
| - |
- Service revenue |
| $2,271,236 |
| $1,918,494 |
| 18% |
|
|
|
|
|
|
|
Total Health management service revenue: |
| $2,271,236 |
| $1,918,494 |
| 18% |
|
| Year ended December 31, | ||||
|
| 2009 |
| 2008 |
| % Change |
Chinese medical service revenue: |
|
|
|
|
|
|
- Product sale |
| $58,317 |
| $82,522 |
| -29% |
- Service revenue |
| $81,490 |
| $32,140 |
| 154% |
|
|
|
|
|
|
|
Total Chinese medical service revenue |
| $139,807 |
| $114,662 |
| 22% |
22
Cost of Revenue
The cost of revenue for the fiscal year ended December 31, 2009 was $1,299,275 as compared to $1,150,507 for the fiscal year ended December 31, 2008. The increase in cost of revenue was attributable to several factors including an increase of approximately $38,172 in staff salaries and related employee expenses, an increase of approximately $14,821 in machinery and equipment maintenance, an increase in the cost of medical consumables of approximately $93,300..
Operating Expenses
Our operating expenses for the fiscal year ended December 31, 2009 were $982,763. Of this, $153,773 was allocated to depreciation, $777,272 was used in general and administrative expenses, and $51,718 was used for rental expense.
Our operating expenses for the fiscal year ended December 31, 2008 were $709,620. Of this, $198,937 was allocated to depreciation, $459,867 was used in general and administrative expenses, and $50,816 was used for rental expense.
The increase in our aggregate operating expenses from 2008 to 2009 was mainly due to the increase in general and administrative expenses of $317,405. The increase was primarily attributable to the increase in salary and bonus, business trips and repair and maintenance expense.
The following chart illustrates the changes in our operating expenses for the fiscal year ended December 31, 2009, as compared to the fiscal year ended December 31, 2008:
|
| Year ended December 31, | ||||
|
| 2009 |
| 2008 |
| % Change |
Operating expenses: |
|
|
|
|
|
|
Depreciation |
| $153,773 |
| $198,937 |
| -23% |
Rental expense – related party |
| $51,718 |
| $50,816 |
| 2% |
General and administrative |
| $777,272 |
| $459,867 |
| 69% |
|
|
|
|
|
|
|
Total operating expenses |
| $982,763 |
| $709,620 |
| 38% |
Net Income
Net income for the fiscal year ended December 31, 2009 was $52,274 as compared to net income of $120,618 for the fiscal year ended December 31, 2008, a decrease of $68,344, or approximately 57%. The decrease in net income was attributable to the following reasons: i) operating expenses increased by $273,143, or approximately 38%; ii) income tax expense increased by $24,513, or approximately 46%.
Income Tax Expense
The Company’s income tax expense for the fiscal year ended December 31, 2009 was $77,483, as compared to $52,970 for the fiscal year ended December 31, 2008. The increase was mainly attributable to the increase of revenue in 2009. The following chart illustrates the changes in our Income Tax Expense for the fiscal year ended December 31, 2009, as compared to the fiscal year ended December 31, 2008:
23
|
| Year ended December 31, | ||||
|
| 2009 |
| 2008 |
| % Change |
|
|
|
|
|
|
|
Income tax expense |
| $77,483 |
| $52,970 |
| 46% |
Liquidity and Capital Resources
As noted above, within the next three years, it is our objective to establish an additional three medical clinics in China through which we are able to provide high quality medical care to Chinese citizens. We will model our clinics after the clinic that we currently operate in Dalian. We anticipate establishing affiliate medical clinics in the following cities, in the following order: 1) Beijing; 2) Shenyang; 3) Dalian Development Zone. We estimate that it will cost approximately $5,000,000 to open each new facility. The costs associated with the opening of each clinic will ultimately depend upon the location of the clinic. We anticipate that the funding for the clinics will come from equity sales and private funding from Mr. ShuBin Wang, one of our directors, and Feng Gu, our Chief Executive Officer. The cost of each clin ic will depend on the location of each facility.
Currently, we have limited operating capital. We expect that our current capital and our other existing resources will be sufficient only to provide a limited amount of working capital, and the revenues generated from our business operations alone may not be sufficient to fund our operations or planned growth. We will likely require additional capital to continue to operate our business, and to further expand our business. We may be unable to obtain additional capital required. Our inability to raise additional funds when required may have a negative impact on our operations, business development and financial results.
We plan to pursue sources of additional capital through various financing transactions or arrangements, including equity financing, or in the form of loans from our majority shareholders, ShuBin Wang and Feng Gu. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means.
Total Current Assets & Total Assets
As of December 31, 2009 our audited balance sheet reflects that we have: i) total current assets of $1,204,445, as compared to total current assets of $1,378,785 at December 31, 2008; and ii) total assets of $2,914,993 as of December 31, 2009 compared to total assets of $2,633,921 as of December 31, 2008, an increase of $281,072, or approximately 11%. The increase in the Company’s total assets from December 31, 2008 to December 31, 2009 was primarily attributable to: i) changes in the Company’s cash and cash equivalents; and ii) an increase in plant and equipment.
Cash and Cash Equivalents. As of December 31, 2009, our balance sheet reflects that we have cash and cash equivalents of $504,676 as compared to $395,156 at December 31, 2008, an increase of $109,520, or approximately 28%. The increase in the Company’s cash and cash equivalents from December 31, 2008 to December 31, 2009 was primarily attributable to the repayment from directors.
Plant and Equipment. As of December 31, 2009, our balance sheet reflects that we have plant an equipment of $1,710,548 as compared to $1,255,136 at December 31, 2008, an increase of $455,412, or approximately 36%. The increase in the Company’s plant and equipment from December 31, 2008 to December 31, 2009 was attributable to the fact that the Company purchased additional equipment in 2009 .
24
Total Current Liabilities
As of December 31, 2009, our audited balance sheet reflects that we have total current liabilities of $640,701, compared to total current liabilities of $418,094 at December 31, 2008, an increase of $222,607, or approximately 53%. The increase in the Company’s total current liabilities from December 31, 2008 to December 31, 2009 was primarily attributable to an increase in amounts due to directors. As of December 31, 2009, our audited balance sheet reflects that we have amounts due to directors of $187,103, as compared to $0 as of December 31, 2008. The increase in our amounts due to directors was attributable to the fact that in 2009 we received temporary advances from directors.
Cash Flow
A summary of our cash flows for the fiscal year ended December 31, 2009 and 2008 is as follows:
Year Ended December 31, 2009 and 2008
|
|
| Year Ended December 31, | |||
|
|
| 2009 |
|
| 2008 |
|
|
|
|
|
|
|
Net cash provided by operating activities |
| $ | 605,015 |
| $ | 1,138,364 |
Net cash used in investing activities |
| $ | (1,204,560) |
| $ | (529,815) |
Net cash provided by (used in) financing activities |
| $ | 707,444 |
| $ | (912,712) |
Effect of exchange rate change on cash and cash equivalents |
| $ | 1,621 |
| $ | 47,721 |
Net Change in Cash and Cash equivalents |
| $ | 109,520 |
| $ | (256,442) |
|
|
|
|
| ||
Cash and Cash Equivalents, Beginning of Year |
| $ | 395,156 |
| $ | 651,598 |
|
|
|
|
| ||
Cash and Cash Equivalents End of Year |
| $ | 504,676 |
| $ | 395,156 |
Net cash provided by our operating activities was $605,015 for the year ended December 31, 2009, as compared to net cash provided by our operating activities of $1,138,364 for the year ended December 31, 2008, a decrease of $533,349, or approximately 47%. The primary reason for the decrease in net cash provided by operating activities is due to the increase of trade accounts receivable from $99,188 in 2008 to $277,181 in 2009.
Net cash used in our investing activities was $1,204,560 for the year ended December 31, 2009, as compared to net cash used in investing activities of $529,815 for the year ended December 31, 2008, an increase of $674,745, or approximately 127%. The primary reason for the change in net cash used in investing activities is due to the fact that the Company bought more plant and equipment in 2009 as compared to 2008.
Net cash provided by our financing activities was $704,444 for the year ended December 31, 2009, as compared to net cash used in our financing activities of $912,712 for the year ended December 31, 2008. The primary reason for the change in net cash provided by financing activities is due to the fact that the directors of the Company made a temporary advance to the Company in the amount of $707,444.
25
Changes in Operating Assets and Liabilities
Below are the major changes in operating assets and liabilities under cash flows from operating activities for the fiscal year ended December 31, 2009 and 2008:
Fiscal Years Ended December 31, 2009 and 2008
| Year ended December 31, | |||
| 2009 |
|
| 2008 |
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable | $(177,651) |
|
| $122,099 |
Prepayments, deposits and other receivables | $283,526 |
|
| $ 449,481 |
Accounts payable | $21,475 |
|
| $(33,022) |
Prepayments, deposits and other receivables Our changes in prepayments, deposits and other receivables was $283,526 in 2009. The change was primarily a result of repayment receipt from other receivables.
Accounts Payable During the fiscal year ended December 31, 2009, the changes in accounts payable was $21,475 in 2009. This change was attributable to the fact that there was an increase in accounts payable due to unpaid medical consumables and assets.
Accounts Receivable As reflected on our statements of cash flow, our changes in accounts receivable was $177,651 in 2009. The change in accounts receivable was primarily attributable to the fact that more credit sales were generated during the last quarter of the year and meanwhile we intensified our efforts to collect outstanding accounts receivable during 2009.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company required by Article 8 of Regulation S-X are attached to this report.
26
CHINA VITUP HEALTH CARE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Page |
|
|
|
Report of Independent Registered Public Accounting Firm |
| 28 |
|
|
|
ConsolidatedBalance Sheets |
| 29 |
|
|
|
ConsolidatedStatements of Operations And Comprehensive Income |
| 30 |
|
|
|
Consolidated Statements of Cash Flows |
| 31 |
|
|
|
ConsolidatedStatements of Stockholders’ Equity |
| 32 |
|
|
|
Notes to Consolidated Financial Statements |
| 33 - 48 |
|
|
|
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
China Vitup Health Care Holdings, Inc.
We have audited the accompanying consolidated balance sheets of China Vitup Health Care Holdings, Inc. and its subsidiaries (“the Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive income, cash flows and stockholders’ equity for the years ended December 31, 2009 and 2008. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates mad e by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of operations and cash flows for the years ended December 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.
/s/ ZYCPA Company Limited
ZYCPA Company Limited
Certified Public Accountants
Hong Kong, China
March 31, 2010
28
CHINA VITUP HEALTH CARE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| As of December 31, | ||||
| 2009 |
| 2008 | ||
|
|
|
| ||
ASSETS |
|
|
| ||
Current assets: |
|
|
| ||
Cash and cash equivalents | $ | 504,676 |
| $ | 395,156 |
Accounts receivable, trade |
| 277,181 |
|
| 99,188 |
Amounts due from directors |
| - |
|
| 519,358 |
Inventories |
| 4,332 |
|
| 536 |
Prepayments, deposits and other receivables |
| 418,256 |
|
| 364,547 |
Total current assets |
| 1,204,445 |
|
| 1,378,785 |
|
|
|
| ||
Non-current assets: |
|
|
| ||
Plant and equipment, net |
| 1,710,548 |
|
| 1,255,136 |
|
|
|
| ||
TOTAL ASSETS | $ | 2,914,993 |
| $ | 2,633,921 |
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
| ||
Current liabilities: |
|
|
| ||
Accounts payable | $ | 229,136 |
| $ | 207,135 |
Deferred revenue |
| 13,961 |
|
| 20,558 |
Income tax payable |
| 25,872 |
|
| 19,392 |
Amounts due to directors |
| 187,103 |
|
| - |
Accrued liabilities and other payables |
| 184,629 |
|
| 171,009 |
Total current liabilities |
| 640,701 |
|
| 418,094 |
|
|
|
| ||
Long-term liabilities: |
|
|
| ||
Note payable, related party |
| 1,143,672 |
|
| 1,141,076 |
|
|
|
| ||
Total liabilities |
| 1,784,373 |
|
| 1,559,170 |
|
|
|
| ||
Commitments and contingencies |
|
|
| ||
|
|
|
| ||
Stockholders’ equity: |
|
|
| ||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no share issued and outstanding |
| - |
|
| - |
Common stock, $0.0001 par value, 500,000,000 shares authorized, 15,000,000 and 15,000,000 shares issued and outstanding as of December 31, 2009 and 2008, respectively |
| 1,500 |
|
| 1,500 |
Additional paid-in capital |
| 167,481 |
|
| 167,481 |
Accumulated other comprehensive income |
| 132,495 |
|
| 128,900 |
Statutory reserve |
| 239,261 |
|
| 202,636 |
Equity of VIE |
| (97,012) |
|
| (97,012) |
Retained earnings |
| 686,895 |
|
| 671,246 |
|
|
|
| ||
Total stockholders’ equity |
| 1,130,620 |
|
| 1,074,751 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,914,993 |
| $ | 2,633,921 |
See accompanying notes to consolidated financial statements.
29
CHINA VITUP HEALTH CARE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
|
| Years ended December 31, | ||||
|
| 2009 |
| 2008 | ||
|
|
|
|
| ||
Operating revenues, net |
| $ | 2,411,043 |
| $ | 2,033,156 |
|
|
|
|
| ||
Cost of revenue(inclusive of depreciation) |
|
| (1,299,275) |
|
| (1,150,507) |
|
|
|
|
| ||
Gross profit |
|
| 1,111,768 |
|
| 882,649 |
|
|
|
|
| ||
Operating expenses: |
|
|
|
| ||
Depreciation |
|
| 153,773 |
|
| 198,937 |
Rental expense – related party |
|
| 51,718 |
|
| 50,816 |
General and administrative |
|
| 777,272 |
|
| 459,867 |
Total operating expenses |
|
| 982,763 |
|
| 709,620 |
|
|
|
|
| ||
INCOME FROM OPERATIONS |
|
| 129,005 |
|
| 173,029 |
|
|
|
|
| ||
Other income: |
|
|
|
| ||
Interest income |
|
| 752 |
|
| 559 |
Total other income |
|
| 752 |
|
| 559 |
|
|
|
|
| ||
INCOME BEFORE INCOME TAXES |
|
| 129,757 |
|
| 173,588 |
|
|
|
|
| ||
Income tax expense |
|
| (77,483) |
|
| (52,970) |
|
|
|
|
| ||
NET INCOME |
| $ | 52,274 |
| $ | 120,618 |
|
|
|
|
| ||
Other comprehensive income: |
|
|
|
| ||
- Foreign currency translation gain |
|
| 3,595 |
|
| 81,069 |
|
|
|
|
| ||
COMPREHENSIVE INCOME |
| $ | 55,869 |
| $ | 201,687 |
|
|
|
|
| ||
Net income per share – basic and diluted |
| $ | 0.00 |
| $ | 0.01 |
|
|
|
|
| ||
Weighted average shares outstanding during the year – basic and diluted |
|
| 15,000,000 |
|
| 15,000,000 |
See accompanying notes to consolidated financial statements.
30
CHINA VITUP HEALTH CARE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”))
| Years ended December 31, | ||||
| 2009 |
| 2008 | ||
Cash flows from operating activities: |
|
|
| ||
Net income | $ | 52,274 |
| $ | 120,618 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
| ||
Depreciation |
| 408,862 |
|
| 466,037 |
Loss on disposal of plant and equipment |
| 7,351 |
|
| 5,039 |
Changes in operating assets and liabilities: |
|
|
| ||
Accounts receivable, trade |
| (177,651) |
|
| 122,099 |
Inventories |
| (3,793) |
|
| 3,791 |
Prepayments, deposits and other receivables |
| 283,526 |
|
| 449,481 |
Accounts payable |
| 21,475 |
|
| (33,022) |
Deferred revenue |
| (6,644) |
|
| 14,386 |
Income tax payable |
| 6,428 |
|
| (36,224) |
Accrued liabilities and other payables |
| 13,187 |
|
| 26,159 |
|
|
|
| ||
Net cash provided by operating activities |
| 605,015 |
|
| 1,138,364 |
|
|
|
| ||
Cash flows from investing activities: |
|
|
| ||
Prepayments to equipment vendors |
| (336,300) |
|
| (269,775) |
Purchase of plant and equipment |
| (868,260) |
|
| (260,040) |
|
|
|
| ||
Net cash used in investing activities |
| (1,204,560) |
|
| (529,815) |
|
|
|
| ||
Cash flows from financing activities: |
|
|
| ||
Advances to directors |
| - |
|
| (1,236,506) |
Repayments from directors |
| 707,444 |
|
| 323,794 |
|
|
|
| ||
Net cash provided by (used in) financing activities |
| 707,444 |
|
| (912,712) |
|
|
|
| ||
Effect of exchange rate charge on cash and cash equivalents |
| 1,621 |
|
| 47,721 |
|
|
|
| ||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
| 109,520 |
|
| (256,442) |
|
|
|
| ||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
| 395,156 |
|
| 651,598 |
|
|
|
| ||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 504,676 |
| $ | 395,156 |
|
|
|
| ||
SUPPLEMENTAL DISLCOSURE OF CASH FLOW INFORMATION |
|
| |||
Cash paid for income taxes | $ | 71,055 |
| $ | 66,593 |
Cash paid for interest | $ | - |
| $ | - |
See accompanying notes to consolidated financial statements.
31
CHINA VITUP HEALTH CARE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
|
| Preferred stock |
| Common stock |
| Additional paid-in capital |
| Accumulated other comprehensive income |
| Statutory reserve |
| Equity of VIE |
| Retained earnings |
| Total stockholder’s equity | ||||||||||||
No. of shares |
| Amount | No. of shares |
| Amount | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
As of January 1, 2008 |
| - |
| $ | - |
| 15,000,000 |
| $ | 1,500 |
| $ | 167,481 |
| $ | 47,831 |
| $ | 179,820 |
| $ | (97,012) |
| $ | 573,444 |
| $ | 873,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| 81,069 |
|
| - |
|
| - |
|
| - |
|
| 81,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income for the year |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 120,618 |
|
| 120,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Appropriation to statutory reserve |
| - |
|
| - |
| - |
|
|
|
| - |
|
| - |
|
| 22,816 |
|
| - |
|
| (22,816) |
|
| - | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
As of December 31,2008 |
| - |
| $ | - |
| 15,000,000 |
| $ | 1,500 |
| $ | 167,481 |
| $ | 128,900 |
| $ | 202,636 |
| $ | (97,012) |
| $ | 671,246 |
| $ | 1,074,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| 3,595 |
|
| - |
|
| - |
|
| - |
|
| 3,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income for the year |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 52,274 |
|
| 52,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Appropriation to statutory reserve |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 36,625 |
|
| - |
|
| (36,625) |
|
| - |
As of December 31, 2009 |
| - |
| $ | - |
| 15,000,000 |
| $ | 1,500 |
| $ | 167,481 |
| $ | 132,495 |
| $ | 239,261 |
| $ | (97,012) |
| $ | 686,895 |
| $ | 1,130,620 |
See accompanying notes to consolidated financial statements.
32
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
1.
ORGANIZATION AND BUSINESS BACKGROUND
China Vitup Health Care Holdings, Inc. (“CVPH” or the “Company”) was incorporated under the laws of Canada on February 24, 2003. The Company was originally organized as Second Bavarian Mining Consulting Services, Inc. On August 10, 2004, the Company changed its domicile to the State of Wyoming, United States of America and changed its name to Tubac Holdings, Inc. On October 2, 2006, the Company further changed its domicile to the State of Nevada and changed its current name to China Vitup Health Care Holdings, Inc.
CVPH, through its subsidiaries and variable interest entities (“VIEs”), is principally engaged in the provision of health management service and Chinese medical service in the People’s Republic of China (the “PRC”).
Description of subsidiaries and variable interest entities
Name |
| Place of incorporation and kind of legal entity |
| Principal activities and place of operation | Particulars of issued/ registered share capital | Effective interest held | ||
|
|
|
|
|
|
|
|
|
China Vitup Healthcare Holdings, Inc. (“China Vitup BVI”) |
| British Virgin Island (“BVI”), a limited liability company | Investment holding | 10,000 issued shares of US$1 each |
| 100% | ||
|
|
|
|
|
|
|
|
|
Dalian Vitup Management Holdings Co., Ltd (“Dalian Vitup Management”) |
| The PRC, a limited liability company | Provision of consulting service in the PRC |
| USD 129,000 (equivalent to RMB 1,000,000) |
| 100% | |
|
|
|
|
|
|
|
|
|
Dalian Vitup Healthcare Management Co., Ltd. (“Dalian Vitup Healthcare”)* |
| The PRC, a limited liability company |
| Provision of health management service in the PRC |
| RMB 8,000,000 |
| 100% |
|
|
|
|
|
|
|
|
|
Dalian Zhongshan Vitup Clinic (“Dalian Vitup Clinic”)* |
| The PRC, sole proprietorship | Provision of Chinese medical consultation services in the PRC |
| RMB 100,000 |
| 100% |
*
represents variable interest entity (“VIE”)
CVPH and its subsidiaries and VIEs are hereinafter collectively referred to as (the “Company”).
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated financial
33
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
statements and notes.
l
Basis of presentation
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
l
Use of estimates
In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
l
Principles of consolidation
The accompanying consolidated financial statements include the financial statements of CVPH, its subsidiaries, China Vitup BVI, and Dalian Vitup Management and its variable interest entities, Dalian Vitup Healthcare and Dalian Vitup Clinic. All significant inter-company balances and transactions have been eliminated in consolidation.
The Company has adopted the Accounting Standards Codification ("ASC") ASC Topic 810-10-25“Variable Interest Entities” (“ASC 810-10-25”). ASC 810-10-25 requires a variable interest entity (“VIE”) to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which the Company, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with ownership of the entities, and therefore the company is the primary beneficiary of these entities. The results of variable interest entities are included in the consolidated statements of operations for the years reported.
l
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
l
Accounts receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. For the years ended December 31, 2009 and 2008, the Company did not record an allowance for doubtful accounts, nor have there been any write-offs.
l
Inventories
34
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out (“FIFO”) method for all inventories. Inventories mainly consist of the Chinese herb medicine purchased from third parties.
l
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| Depreciable life |
| Residual value |
Leasehold improvements | 5 years |
| 0% |
Medical equipments | 5 years |
| 5% |
Motor vehicles | 10 years |
| 5% |
Furniture, fixtures and equipments | 5 years |
| 5% |
Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
l
Impairment of long-lived assets
In accordance with ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets,”the Company reviews its long-lived assets, including plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment as of December 31, 2009 and 2008.
l
Revenue recognition
The Company recognizes its revenues, net of business tax, allowances and discounts as the related services are rendered to the customer. In accordance with ASC Topic 605,“Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.
Healthcare consultation and medical consultation services are generally offered to the various groups of customers, including individual, corporations, government agencies and members. Members are enlisted in the healthcare and medical consultation service for a certain period of time by paying a non-refundable fee to the Company in advance under several membership packages. The Company immediately records these advanced payments received from the members as deferred revenue and recognizes such revenue during the contractual service period when services are performed and rendered to the members.
Revenues from healthcare consultation and medical consultation services are recognized in the period that services are rendered, net of business tax. Revenue received in advance for future service is recorded as deferred revenue. Revenues from the sales of Chinese herbal medicine are recognized upon delivery of the related products. The Company records revenue, net of business tax, which is levied at 5% on the invoiced
35
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
value of services. The business tax charged for the years ended December 31, 2009 and 2008 was $73,851 and $121,182 respectively.
For membership package sales that are considered multiple element transactions, the entire fee from the arrangement is bundled with an annual health check-up and free access to the Company’s health club for a prescribed time of period. The Company recognizes revenue in accordance with the provisions of ASC Topic 605-25, “Multiple-Element Arrangement”. As a multiple element arrangement, total fees are allocated to each element based on vendor-specific objective evidence of fair value for each element or using the residual method, when applicable. Vendor specific fair value (“VSOE”) is established based on the sales price charged when the same element is sold separately. Vendor specific fair value of the undelivered elements exists but VSOE of fair value does not exist for one or more delivered elements, revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is def erred and the remaining portion of the arrangement fee is recognized as revenue, assuming collection is probable. Revenue from an annual health check-up is recognized when services are rendered. Revenue allocated to free access to the Company’s health club is recognized ratably over the contractual term, typically one year.
Under all circumstances, the Company records revenues net of any estimated contractual allowances for potential adjustments resulting from a failure to meet performance or staffing related criteria. If necessary, the Company revises its estimates for such adjustments in future periods when the actual amount of the adjustment is determined. For the years ended December 31, 2009 and 2008, the Company has determined no reserve for these potential adjustments.
l
Cost of revenues
Cost of revenue primarily includes purchase of raw materials, direct labor, depreciation on medical equipments and operating overhead that are directly attributable to the provision of health management service and Chinese medical service.
l
Deferred revenue
Deferred revenue consists primarily of payments received in advance from customers.
l
Income tax
The Company adopts the ASC Topic 740,“Income Taxes”,regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, clas sification, penalties and interest, accounting in interim periods and disclosure.
For the years ended December 31, 2009 and 2008, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2009, the Company did not have any significant unrecognized uncertain tax positions.
36
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
The Company conducts its major businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the local and foreign tax authorities.
l
Advertising costs
Advertising costs are expensed as incurred under ASC Topic 720-35, “Advertising Costs”. The Company incurred advertising expense of $4,657 and $11,426 for the years ended December 31, 2009 and 2008, respectively.
l
Retirement plan costs
Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the accompanying consolidated statements of operation and comprehensive income as the related employee service is provided.
l
Comprehensive income
ASC Topic 220,“Reporting Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying consolidated statement of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
l
Net income per share
The Company calculates net income per share in accordance with ASC Topic 260,“Earnings Per Share”. Basic net income per share is computed by dividing the net income by the weighted-average number of common shares outstanding. Diluted net income per share is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive. The Company did not have any potentially dilutive common share equivalents as of December 31, 2009 and 2008.
l
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations.
The reporting currency of the Company is the United States Dollars ("US$") and the accompanying consolidated financial statements have been expressed in US$. The Company's major subsidiaries and VIEs in the PRC maintained their books and records in the local currency, Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which these entities operate.
37
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of stockholders’ equity.
Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective year:
|
|
| 2009 |
| 2008 |
Year-end rates RMB:US$1 exchange rate |
|
| 6.8372 |
| 6.8542 |
Annual average RMB:US$1 exchange rate |
|
| 6.8409 |
| 6.9623 |
l
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
l
Segment reporting
ASC Topic 280,“Segment Reporting”establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in two reportable operating segments: Health Management Service and Chinese Medical Service in the PRC.
l
Fair value measurement
ASC Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10") establishes a new framework for measuring fair value and expands related disclosures. Broadly, ASC 820-10 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820-10 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
For financial assets and liabilities, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
38
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
l
Financial instruments
Cash and cash equivalents, accounts receivable, prepayments, deposits and other receivables, accounts payable, deferred revenue, income tax payable, amounts due to directors, accrued liabilities and other payables and note payable are carried at cost which approximates fair value. Any changes in fair value of assets or liabilities carried at fair value are recognized in other comprehensive income for each period.
l
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In September 2009, Accounting Standards Codification (“ASC”) became the source of authoritative U.S. GAAP recognized by the Financial Accounting Standards Board (“FASB”) for nongovernmental entities, except for certain FASB Statements not yet incorporated into ASC. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative U.S. GAAP for registrants. The discussion below includes the applicable ASC reference.
The Company adopted ASC Topic 810-10, “Consolidation” (formerly SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”) effective January 2, 2009. ASC Topic 810-10 changes the manner of presentation and related disclosures for the non-controlling interest in a subsidiary (formerly referred to as a minority interest) and for the deconsolidation of a subsidiary.
ASC Topic 815-10, “Derivatives and Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”) was adopted by the Company effective January 2, 2009. The guidance under ASC Topic 815-10 changes the manner of presentation and related disclosures of the fair values of derivative instruments and their gains and losses.
In April 2009, the FASB issued an update to ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”) (formerly FASB Staff Position No. SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). The standard provides additional guidance on estimating fair value in accordance with ASC 820-10 when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate if a transaction is not orderly. The Company adopted this pronouncement effective April 1, 2009 with no impact on its financial statements.
In April 2009, the FASB issued FSP SFAS No. 107-1, “Disclosures about Fair Value of Financial Instruments” (“ASC 825-10”). ASC 825-10 requires fair value of financial instruments disclosure for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 825-10 is effective for interim periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. There was no material impact to the Company’s financial statements as a result of the adoption of ASC 825-10.
39
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
In June 2009, the FASB finalized SFAS No. 167, “Amending FASB interpretation No. 46(R)”, which was included in ASC Topic 810-10-05 “Variable Interest Entities”. The provisions of ASC Topic 810-10-05 amend the definition of the primary beneficiary of a variable interest entity and will require the Company to make an assessment each reporting period of its variable interests. The provisions of this pronouncement are effective January 1, 2010. The Company is evaluating the impact of the statement on its financial statements.
In July 2009, the FASB issued SFAS No. 168, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 168 codified all previously issued accounting pronouncements, eliminating the prior hierarchy of accounting literature, in a single source for authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168, now ASC Topic 105-10 “Generally Accepted Accounting Principles”, is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have an effect on the Company’s financial statements.
In August 2009, the FASB issued an update of ASC Topic 820, “Measuring Liabilities at Fair Value”. The new guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using prescribed techniques. The Company adopted the new guidance in the third quarter of 2009 and it did not materially affect the Company’s financial position and results of operations.
In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)” which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will beco me effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. The Company is currently evaluating the application date and the impact of this standard on its financial statements.
3.
PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Prepayments, deposits and other receivables consist of the followings:
|
| As of December 31, | ||||
|
| 2009 |
| 2008 | ||
|
|
|
|
| ||
Prepayments to equipment vendors |
| $ | 347,193 |
| $ | 275,638 |
Deposits |
|
| 46,611 |
|
| 50,188 |
Advances to employees |
|
| 11,828 |
|
| 33,073 |
Other receivables |
|
| 12,624 |
|
| 5,648 |
| $ | 418,256 |
| $ | 364,547 | |
40
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
Prepayments to equipment vendors are expected to be realized by the delivery of medical equipment within the next 12 months.
4.
PLANT AND EQUIPMENT
Plant and equipment consist of the followings:
|
| As of December 31, | ||||
|
| 2009 |
| 2008 | ||
|
|
|
|
| ||
Leasehold improvements |
| $ | 740,699 |
| $ | 419,895 |
Medical equipments |
|
| 1,720,454 |
|
| 1,380,544 |
Motor vehicles |
|
| 358,470 |
|
| 273,686 |
Furniture, fixtures and equipment |
|
| 533,346 |
|
| 422,425 |
Foreign translation difference |
|
| 255,096 |
|
| 247,810 |
|
|
| 3,608,065 |
|
| 2,744,360 |
Less: accumulated depreciation |
|
| (1,772,089) |
|
| (1,367,718) |
Less: foreign translation difference |
|
| (125,428) |
|
| (121,506) |
Net book value |
| $ | 1,710,548 |
| $ | 1,255,136 |
Depreciation expense for the years ended December 31, 2009 and 2008 was $408,862 and $466,037, which included $255,089 and $267,100 in cost of revenue, respectively. All the plant and equipment were attributed from the VIEs and Dalian Vitup Management and measured at historical basis.
5.
ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consist of the followings:
|
| As of December 31, | ||||
|
| 2009 |
| 2008 | ||
|
|
|
|
| ||
|
|
|
|
| ||
Accrued expenses |
| $ | 64,562 |
| $ | 76,741 |
Salaries payable |
|
| 95,068 |
|
| 69,997 |
Other tax payables |
|
| 24,999 |
|
| 24,271 |
|
|
|
|
| ||
|
| $ | 184,629 |
| $ | 171,009 |
6.
INCOME TAXES
For the years ended December 31, 2009 and 2008, the local (“the United States of America”) and foreign components of income before income taxes are comprised of the following:
41
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
|
| Years ended December 31, | ||||
|
| 2009 |
| 2008 | ||
Tax jurisdictions: |
|
|
|
| ||
- Local |
| $ | - |
| $ | - |
- Foreign |
|
| 129,757 |
|
| 173,588 |
Income before income taxes |
| $ | 129,757 |
| $ | 173,588 |
The provision for income taxes consists of the followings:
|
| Years ended December 31, | ||||
|
| 2009 |
| 2008 | ||
Current: |
|
|
|
| ||
- Local |
| $ | - |
| $ | - |
- Foreign |
|
| 77,483 |
|
| 52,970 |
|
|
|
|
| ||
Deferred: |
|
|
|
| ||
- Local |
|
| - |
|
| - |
- Foreign |
|
| - |
|
| - |
Provision for income taxes |
| $ | 77,483 |
| $ | 52,970 |
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company has subsidiaries and VIEs that operate in various countries: the United States of America, British Virgin Island (“BVI”) and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:
United States of America
CVPH is registered in the State of Nevada and is subject to United States tax law. No provision for income taxes have been made as CVPH has generated no taxable income for reporting years.
British Virgin Island
Under the current BVI law, China Vitup BVI is not subject to tax on income.
The PRC
Effect from January 1, 2008, All the Company’s PRC subsidiaries are subject to the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), at a unified income tax rate of 25%.
Under the New CIT Law, Dalian Vitup Management is qualified as a foreign investment enterprise and entitled to tax holidays from a full exemption of income tax for the first two profit making years with a 50% exemption of income tax for the next three years, subject to a transitional policy. However, Dalian Vitup Management is exempted from the PRC Corporate Income Tax due to cumulative operating loss for the years ended December 31, 2009 and 2008.
Dalian Vitup Healthcare is granted with a special tax treatment under the Chinese tax law of the“Law of
42
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
the Administration of Tax Collection” and “Implementation of the Provisional Regulation of the PRC on Corporate Income Tax” whereas CIT is calculated at a statutory rate of 25% based on 10% of its revenue generated from the provision of health management services. Dalian Vitup Healthcare has recorded income tax expense of approximately $58,343 for the year ended December 31, 2009.
Dalian Vitup Clinic is subject to applicable tax rate ranging from 5% to 35% as a sole-proprietorship.
The reconciliation of income tax rate to the effective income tax rate for the years ended December 31, 2009 and 2008 is as follows:
|
| Years ended December 31, | ||||
|
| 2009 |
| 2008 | ||
|
|
|
|
| ||
Income before income taxes |
| $ | 129,757 |
| $ | 173,588 |
Add: operating losses not included |
|
| 324,490 |
|
| 129,130 |
|
|
|
|
| ||
Income subject to PRC income tax |
|
| 454,247 |
|
| 302,718 |
Statutory income tax rate |
|
| 25% |
|
| 25% |
|
|
|
|
| ||
Income tax expense at the statutory rate |
|
| 113,561 |
|
| 75,679 |
|
|
|
|
| ||
Effect from tax holiday and special tax treatment |
|
| (51,128) |
|
| (18,045) |
Prior year adjustment |
|
| 19,140 |
|
| - |
Non-taxable items |
|
| (4,090) |
|
| (4,664) |
Income tax expense |
| $ | 77,483 |
| $ | 52,970 |
The Company files tax returns in the various tax jurisdictions in which its subsidiaries operate in the PRC. The United States tax returns of its tax years 2006 to 2009 remain open to examination by IRS. The PRC 2008 tax returns were filed and finalized by the local tax office with an additional tax payment of $19,140 in May 2009.
The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of December 31, 2009 and 2008:
|
| As of December 31, | ||||
|
| 2009 |
| 2008 | ||
Deferred tax assets: |
|
|
|
| ||
Net operating loss carryforwards |
| $ | 212,352 |
| $ | 130,568 |
Less: valuation allowance |
|
| (212,352) |
|
| (130,568) |
Deferred tax assets |
| $ | - |
| $ | - |
As of December 31, 2009 and 2008, a valuation allowance of $212,352 and $130,568 was provided to the deferred tax assets due to the uncertainty surrounding their realization. For the year ended December 31, 2009, the valuation allowance increased by $81,784, primarily relating to net operating loss carry forwards from the foreign tax regime.
7.
NET INCOME PER SHARE
43
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
Basic net income per share is computed using the weighted average number of the ordinary shares outstanding during the year. Diluted net income per share is computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during the year. The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2009 and 2008:
|
| Years ended December 31, | ||||
|
| 2009 | 2008 | |||
Basic and diluted net income per share calculation |
| |||||
Numerator: |
|
| ||||
Net income in computing basic net income per share |
| $ | 52,274 | $ | 120,618 | |
|
|
|
| |||
Denominator: |
|
|
| |||
Weighted average ordinary shares outstanding |
|
| 15,000,000 |
| 15,000,000 | |
|
|
|
| |||
Basic and diluted net income per share |
| $ | 0.00 |
| $ | 0.01 |
8.
RELATED PARTY TRANSACTIONS
(a)
Related party transaction
For the years ended December 31, 2009 and 2008, the Company paid rent charge of $51,718 and $50,816, to Mr. Shubin Wang, a major shareholder and director of the Company at the current market value in a normal course of business, for the following properties:
(i)
the healthcare facility center with a term of 15 years commencing from 2004 through 2019.
(ii)
the office premise with a term of 20 years commencing from 2006 through 2026.
(b)
Amounts due (to) from directors
As of December 31, 2009, amounts due to directors represented temporary advances of $187,103 made by Mr. Shubin Wang and Ms. Feng Gu, the directors of the Company, which were unsecured and interest-free with no fixed terms of repayment.
As of December 31, 2008, amounts due from directors represented temporary advances of $519,358 made to Mr. Shubin Wang and Ms. Feng Gu, the directors of the Company. The amounts were unsecured, interest-free and receivable in the next twelve months. Subsequently, the directors repaid in full to the Company in March 2009.
(c)
Note payable, related party
On September 1, 2006, Dalian Vitup Management, Mr. Shubin Wang and Ms. Feng Gu entered into a Loan Agreement (the “Agreement”). Under the Agreement, Dalian Vitup Management lent an aggregate amount of $970,756 (equivalent to RMB 8,000,000) to Mr. Shubin Wang and Ms. Feng Gu for the incorporation and business setup of Dalian Vitup Healthcare. The note was non-interest bearing and secured by Mr. Shubin Wang and Ms. Feng Gu’s equity shares in Dalian Vitup Healthcare. Both Mr. Shubin Wang and Ms. Feng Gu have undertaken not to demand repayment in next twelve months. Unless the following situations would occur, the note would become payable at Mr. Shubin Wang and Ms. Feng Gu’s will:
44
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(i)
Mr. Shubin Wang or Ms. Feng Gu are fired or dismissed from Dalian Vitup Management or any of Dalian Vitup Management’s affiliates;
(ii)
Either Mr. Shubin Wang or Ms. Feng Gu become deceased or incapacitated;
(iii)
Either Mr. Shubin Wang or Ms. Feng Gu engage in or are involved in criminal conduct;
(iv)
Any third party files a claim against Mr. Shubin Wang or Ms. Feng Gu in excess of $13,215 (RMB 100,000); or
(v)
Dalian Vitup Management has an option to exercise its right to purchase the shares of Dalian Vitup Healthcare with a written notice pursuant to its rights under the contractual arrangements.
The fund source for Dalian Vitup Management to lend to Mr. Shubin Wang and Ms. Feng Gu was initially loaned by Mr. Shubin Wang, one of the former shareholders of China Vitup (BVI). As of December 31, 2009 and 2008, the Company had a note payable of $1,143,672 and $1,141,076, respectively to Mr. Shubin Wang, the major shareholder and director of the Company.
9.
SEGMENT INFORMATION
The Company’s business units have been aggregated into two reportable segments: Health Management Service and Chinese Medical Service. The Company, through its subsidiaries and VIEs, operates these segments in the PRC. Other than cash and cash equivalents of approximately $1,363 maintained in Hong Kong as of December 31, 2009, all the identifiable assets of the Company are located in the PRC during the years presented.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company has no inter-segment sales for the years ended December 31, 2009 and 2008. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.
Summarized financial information concerning the Company’s reportable segments is shown in the following table for the years ended December 31, 2009 and 2008:
| Year ended December 31, 2009 | ||||||||||||||
| Health management service |
| Chinese medical service |
| Corporate |
| Total | ||||||||
|
|
|
|
|
|
|
| ||||||||
Revenue, net |
|
|
|
|
|
|
| ||||||||
- Product sale | $ | - |
| $ | 58,317 |
| $ | - |
| $ | 58,317 | ||||
- Service revenue |
| 2,271,236 |
|
| 81,490 |
|
| - |
|
| 2,352,726 | ||||
Total revenue, net |
| 2,271,236 |
|
| 139,807 |
|
| - |
|
| 2,411,043 | ||||
Cost of revenue |
| (1,259,466) |
|
| (39,809) |
|
| - |
|
| (1,299,275) | ||||
Gross profit |
| 1,011,770 |
|
| 99,998 |
|
| - |
|
| 1,111,768 | ||||
Depreciation |
| 138,135 |
|
| 498 |
|
| 15,140 |
|
| 153,773 | ||||
Net income (loss) |
| 384,757 |
|
| 5,842 |
|
| (338,325) |
|
| 52,274 | ||||
Total assets |
| 2,657,716 |
|
| 72,309 |
|
| 184,968 |
|
| 2,914,993 | ||||
Expenditure for long-lived assets | $ | 830,456 |
| $ | 34,778 |
| $ | 3,026 |
| $ | 868,260 | ||||
45
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Year ended December 31, 2008 | ||||||||||
| Health management service |
| Chinese medical service |
| Corporate |
| Total | ||||
|
|
|
|
|
|
|
| ||||
Revenue, net |
|
|
|
|
|
|
| ||||
- Product sale | $ | - |
| $ | 82,522 |
| $ | - |
| $ | 82,522 |
- Service revenue |
| 1,918,494 |
|
| 32,140 |
|
| - |
|
| 1,950,634 |
Total revenue, net |
| 1,918,494 |
|
| 114,662 |
|
| - |
|
| 2,033,156 |
Cost of revenue |
| (1,101,141) |
|
| (49,366) |
|
| - |
|
| (1,150,507) |
Gross profit |
| 817,353 |
|
| 65,296 |
|
| - |
|
| 882,649 |
Depreciation |
| 47,512 |
|
| - |
|
| 151,425 |
|
| 198,937 |
Net income (loss) |
| 384,201 |
|
| 1,995 |
|
| (265,578) |
|
| 120,618 |
Total assets |
| 2,411,996 |
|
| 33,080 |
|
| 188,845 |
|
| 2,633,921 |
Expenditure for long-lived assets | $ | 257,665 |
| $ | - |
| $ | 2,375 |
| $ | 260,040 |
All of the Company’s revenues were derived from customers located in the PRC.
10.
CHINA CONTRIBUTION PLAN
Under the PRC Law, full-time employees of the Company’s PRC subsidiaries and VIEs are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Company’s PRC subsidiaries and VIE are required to accrue for these benefits based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were $79,171 and $49,305 for the years ended December 31, 2009 and 2008.
11.
STATUTORY RESERVES
Under the PRC Law, the Company’s subsidiaries and VIEs in the PRC are required to make appropriation to the statutory reserve based on after-tax net earnings and determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation.
For the years ended December 31, 2009 and 2008, the Company made an appropriation of $36,625 and $22,816 to the statutory reserve, respectively.
12.
CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
46
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(a)
Major customers and vendors
For the years ended December 31, 2009 and 2008, there are no customers and vendors who individually accounts for 10% or more of revenues and purchases, respectively.
(b)
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.
(c)
Exchange rate risk
The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
(d)
Economic and political risks
Substantially all of the Company’s services and products are rendered and delivered in the PRC. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in the PRC and not typically associated with companies in North America and Western Europe. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in the PRC.
13.
COMMITMENTS AND CONTINGENCIES
(a)
Operating lease commitments
The Company leases healthcare center and office premise in Dalian City, the PRC under several non-cancelable operating leases from a related party. Costs incurred under operating leases are recorded as rent expense of $51,718 and $50,816 for the years ended December 31, 2009 and 2008.
As of December 31, 2009, future minimum rent payments due under several non-cancelable operating leases in the next five years are as follows:
Years ending December 31: |
| |
2010 | $ | 51,746 |
2011 |
| 51,746 |
2012 |
| 51,746 |
2013 |
| 51,746 |
2014 |
| 51,746 |
Thereafter |
| 214,981 |
Total: | $ | 473,711 |
47
CHINA VITUP HEALTH CARE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(b)
Long-term purchase commitment
In December 2006, the Company entered into a contract with a medical equipment supplier whereby the Company was obliged to purchase a minimum of approximately $64,250 of biochemical reagent in a term of 4 years from 2008 through 2011. For the years ended December 31, 2009 and 2008, the Company incurred $12,060 and $0, respectively.
14.
COMPARATIVE FIGURES
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation.
48
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no changes in or disagreements with our accountants required to be disclosed pursuant to Item 304 of Regulation S-K.
ITEM 9A(T). CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Comp any maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.
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 chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified. Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objecti ves.
Internal Control Over Financial Reporting
The management of the Company is responsible for the preparation of the financial statements and related financial information appearing in this Annual Report on Form 10-K. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The management of the Company also is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company's internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable de tail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
49
Management, including the chief executive officer and chief financial officer, does not expect that the Company's disclosure controls and internal controls will prevent all error and all fraud. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Further, over time control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
With the participation of the chief executive officer and chief financial officer, our management evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2009 based upon the framework in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management has concluded that, as of December 31, 2009, the Company's internal control over financial reporting was effective.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report on Form 10-K.
There was no change in the Company's internal control over financial reporting during the last fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
The directors and executive officers currently serving the Company are as follows:
Name | Age | Position | Director or Officer Since |
|
|
|
|
Mr. ShuBin Wang | 43 | Director | October 2006 |
Ms. Feng Gu | 44 | Director & Chief Executive Officer | October 2006 |
Mr. Xun Yuan | 53 | Director | October 2006 |
Mr. LaiFu Zhong | 67 | Director | October 2006 |
Mr. LiMing Gong | 62 | Director | October 2006 |
Ms. ChunXiang Li | 34 | Chief Financial Officer | January 2010 |
Dr. Huang JuKun | 37 | Chief Medical Director | January 2007 |
Mr. ChaoBo Guo | 49 | Chief Operating Officer | January 2010 |
The directors named above will serve until the next annual meeting of the Company's stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting.
50
Officers will hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated. There is no arrangement or understanding between any of the directors or officers of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current directors to the Company's board. There are also no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of the Company's affairs.
The directors and officers will devote their time to the Company's affairs on an "as needed" basis, which, depending on the circumstances, could amount to as little as two hours per month, or more than forty hours per month, but more than likely will fall within the range of five to ten hours per month. There are no agreements or understandings for any officer or director to resign at the request of another person, and none of the officers or directors are acting on behalf of, or will act at the direction of, any other person.
Biographical Information
Mr. ShuBin Wang. Mr. ShuBin Wang (“Mr. Wang”) has been the Chairman of the Board of Directors (the “Board”) of the Registrant since October 2006. His primary responsibility is the general management of the Board. In addition to serving on the Board, Mr. Wang also serves as: i) the Executive Director of the Registrant’s wholly-owned subsidiary, Dalian Vitup Management; ii) as the President and Director of the Registrant’s operating affiliate, Dalian Vitup Healthcare; and iii) as the Executive Director of the Registrant’s operating affiliate, the Dalian Vitup Clinic. Prior to beginning his tenure as the Chairman of the Board of the Registrant, Mr. Wang co-founded Dalian Vitup Healthcare in 2004. Dalian Vitup Healthcare is the primary business operation of the Registrant. In 1998, Mr. Wang founded a chain of Herbal Pharmacy stores located throughout Chin a, which he actively managed until 2004. From 1994 to 1998, Mr. Wang served as the manager of PACC (Pingan) Insurance, where he oversaw the company’s operations. Mr. Wang holds a Master of Business Administration from the Dalian University of Science and Technology, located in Dalian City in the Liaoning Province of the PRC.
Ms. Feng Gu. Ms. Feng Gu (“Ms. Gu”) has been the Chief Executive Officer (“CEO”) and a Director of the Registrant since October 2006. In addition to serving in her various capacities for the Registrant, Feng Gu also serves as: i) the CEO of the Registrant’s wholly-owned subsidiary, Dalian Vitup Management; ii) as the CEO and Director of the Registrant’s operating affiliate, Dalian Vitup Healthcare; and iii) as the General Manager of the Registrant’s operating affiliate, the Dalian Vitup Clinic. Ms. Gu worked as an Inspector for the Dalian Provincial Government from 1994 to 2004. Prior to holding that position, she served as an Inspector of the Jilin Provincial Government from 1986 to 1994. Ms. Gu holds a Law Degree from the Chang Chun University.
Mr. Xun Yuan. Mr. Xun Yuan (“Mr. Yuan”) has been a Director of the Registrant since October 2006. In addition to serving on the Board, from 1995 to the present, Mr. Yuan has served as the Deputy President of Dalian University located in Dalian, China. Prior to becoming the Deputy President, from 1987 to 1995 Mr. Yuan served as the Section Chief of the Education Administration at the Medical College of Dalian University. Additionally, Mr. Yuan served as a Teacher at the Dalian Hygiene School from 1983 to 1987. He holds a Medical Degree from the China Medical University.
Mr. Laifu Zhong. Mr. Laifu Zhong (“Mr. Zhong”) has been a Director of the Registrant since October 2006. In addition to serving on the Board, from 1974 to the present, Mr. Zhong has been a Professor of Preventative Medicine at the Dalian Medical University located in Dalian, China. He also serves as the Chief of the Sino-Japanese Cooperation Medicament Science Research Institute at the Dalian University.
Mr. Liming Gong. Mr. Liming Gong (“Mr. Gong”) has been the President and a Director of the
51
Registrant since October 2006. In addition to serving on the Board, from 1995 to the present, Mr. Gong has been the President at the Dalian Medical University, located in Dalian, China. Prior to becoming the President at the Dalian Medical University, Mr. Gong served as the Deputy Chief of the Dalian Education Bureau from 1990 to 1995. He holds a Bachelors Degree from the Liaoning Normal University.
Ms. Chunxiang Li, age 34, was appointed as CFO of the Registrant on January 19, 2010. She is a Certified Public Accountant with over 8 years experience with the professional accounting firm, Deloitte Touche Tohmatsu, including more than 3 years working as audit manager in the department of Assurance and Business Advisory Services. Prior work experience also includes financial management experience in the Business Process Outsourcing industry, acting as a service delivery leader supervising a team of 90 people. Ms. Li has knowledge and experience regarding US, Hong Kong, PRC and International Financial Reporting Standards, as well as knowledge and experience regarding internal control design and risk management.
Mr. Jukun Huang.Mr. Huang JuKun (“Mr. Huang”) has been the Chief Medical Officer of the Registrant since January 2007. In addition to serving as the Chief Medical Officer of the Registrant, Mr. Huang also serves as the Chief Medical Officer of the Registrant’s wholly-owned subsidiary, Dalian Vitup Management. Prior to joining the Registrant, Mr. Huang worked as an advisor in the Academic Development Department of Xinyi Corp. from March 31, 2007 to May 21, 2007. As an advisor in the Academic Development Department, Mr. Huang was responsible for the oversight of the medical and development department of Xinyi Corp. From August 21, 2001 to March 31, 2007, Mr. Huang served as the President of The QiGong Institute of Traditional Chinese Medicine. As the President of The Qigong Institute of Traditional Chinese Medicine, Mr. Huang was responsible for the review of tradit ional Chinese medicine of the QiGong Institute of Traditional Chinese medicine.
Mr. Chaobo Guo, age 49, was appointed as COO of the Registrant on January 19, 2010. Before joining the Registrant, he served as a Business Consultant for IBM and as the Clinical Affairs Director of Stryker Greater China. Dr Guo obtained his MD degree from Peking Union Medical College, and graduated from The Johns Hopkins University with a PhD degree. Also, he was trained in business with an MBA degree from the Ohio State University.
Family Relationships
Mr. ShuBin Wang, chairman of the Board, is married to Ms. Feng Gu, director and CEO of the Registrant. Aside from the foregoing, there are no family relationships between any of the current directors or officers of the Registrant.
The Board of Directors and Committees
Our Board of Directors does not maintain a separate audit, nominating or compensation committee. Functions customarily performed by such committees are performed by our Board of Directors as a whole. Our company is not required to maintain such committees under the rules applicable to companies that do not have securities listed or quoted on a national securities exchange or national quotation system. We intend to create board committees, including an independent audit committee, in the near future. If we are successful in listing our common stock on the American Stock Exchange or Nasdaq, we would be required to have, prior to listing, an independent audit committee formed, in compliance with the requirements for such listing and in compliance with Rule 10A-3 of the Securities Exchange Act of 1934.
Directorships
None of the Registrant’s executive officers or directors is a director of any company with a class of equity securities registered pursuant to Section 12 of the Securities exchange Act of 1934 (the “Exchange Act”) or subject to the requirements of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940.
52
Involvement in Certain Legal Proceedings
None of the Registrant’s officers, directors, promoters or control persons has been involved in the past five (5) years in any of the following:
(1)
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2)
Any conviction in a criminal proceedings or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
(4)
Being found by a court of competent jurisdiction (in a civil action), the SEC or the U.S. Commodity Futures Trading Commission to have violated a federal or state securities laws or commodities law, and the judgment has not been reversed, suspended, or vacated.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership of Form 3 and changes in ownership on Form 4 or Form 5 with the Securities and Exchange Commission. Such officers, directors and 10% stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of the forms submitted to the Company with respect to its most recent fiscal year, the Company believes that all Section 16(a) forms have been filed as required.
Code of Ethics
The Company has not yet adopted a code of ethics. The Company intends to adopt a code of ethics in the near future.
Audit Committee Expert
The Company does not have an Audit Committee
ITEM 11.
EXECUTIVE COMPENSATION.
Executive Compensation
The following table sets forth executive compensation for fiscal years ended December 31, 2009 and 2008.
Summary Compensation Table
53
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Award(s) ($) | Option Award(s) ($) | Non-Equity Incentive Plan Compensation (#) | Non-qualified Deferred Compensation Earnings ($) | All other Compensation ($) | Total ($) |
Shubin Wang, Chief Executive Officer | 2008 2009 | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- |
Feng Gu, Chief Executive Officer | 2008 2009 | $13,789 $26,312 | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- | $13,789(1) $26,312(1) |
Zheng Yan , Chief Financial Officer | 2008 2009 | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- |
Huang Jukun , Chief Medical Officer | 2008 2009 | $4,309 $24,030 | -- -- | -- -- | -- -- | -- -- | -- -- | -- -- | $4,309 $24,030 |
(1)
These figures represent funds paid to Feng Gu for her services rendered as the CEO of the Registrant’s subsidiary, Dalian Vitup Management.
Employment Agreements
We have not signed any employment agreements with our officers. We provide our officers with retirement benefits as required under PRC law. We do not have any agreements for compensation of officers after their resignation or retirement.
Subsidiary Employment Agreements
The Company’s subsidiary Dalian Vitup Management. has entered into employment agreements with its executive officers. The following discussion identifies and summarizes the employment agreements that Dalian Vitup Management has entered into with its executive officers:
Senior Management Staff Employment Contract – ShuBin Wang
On September 1, 2006 Dalian Vitup Management entered into a five year employment contract with Mr. Shubin Wang, pursuant to which, Dalian Vitup Management agreed to employ Mr. Wang as thePresident of the Board of Dalian Vitup Management. The foregoing description of the Senior Management Staff Employment Contract with Shubin Wang is qualified in its entirety by reference to the agreement which was filed as Exhibit 10.9 to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and is herein incorporated by reference.
Senior Management Staff Employment Contract – Feng Gu
On September 1, 2006 Dalian Vitup Management entered into a five year employment contract with Ms. Feng Gu, pursuant to which Dalian Vitup Management agreed to employ Ms. Gu as the Chief Executive Officer of Dalian Vitup Management Holdings Co., Ltd The foregoing description of the Senior Management Staff Employment Contract with Feng Gu is qualified in its entirety by reference to the agreement which was filed as Exhibit 10.10 to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and is herein incorporated by reference.
Senior Management Staff Employment Contract –JuKun Huang
54
On September 1, 2006 Dalian Vitup Management entered into a five year employment contract with Mr. Jukun Huang, pursuant to which Dalian Vitup Management agreed to employ Mr. Huang as the Chief Medical Officer of Dalian Vitup Management. The foregoing description of the Senior Management Staff Employment Contract with Jukun Huang is qualified in its entirety by reference to the agreement which was filed as Exhibit 10.12 to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and is herein incorporated by reference.
Senior Management Staff Employment Contract –ChunXiang Li
On January 19, 2010 Dalian Vitup Management entered into a three year employment contract with Ms. Chunxiang Li, pursuant to which Dalian Vitup Management agreed to employ Ms. Li as the Chief Financial Officer of Dalian Vitup Management. The foregoing description of the Senior Management Staff Employment Contract with Ms. Chunxiang Li is qualified in its entirety by reference to the agreement which was filed as Exhibit 10.17 to the Form 8-K filed by the Company with the Securities and Exchange Commission on February 1, 2010, and is herein incorporated by reference.
Senior Management Staff Employment Contract –ChaoBo Guo
On January 19, 2010 Dalian Vitup Management entered into a three year employment contract with Mr. Chaobo Guo, pursuant to which Dalian Vitup Management agreed to employ Mr. Guo as the Chief Operating Officer of Dalian Vitup Management. The foregoing description of the Senior Management Staff Employment Contract with Mr. Guo is qualified in its entirety by reference to the agreement which was filed as Exhibit 10.18 to the Form 8-K filed by the Company with the Securities and Exchange Commission on February 1, 2010, and is herein incorporated by reference.
Stock Option Plans
No member of Registrant’s management has been granted any stock option or stock appreciation right.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to be received from the Registrant, with respect to any person named in the Summary Compensation Table set out above which would in any way result in payments to any such person because of his or her resignation, retirement or other termination of such person's employment with the Registrant or its subsidiaries, or any change in control of the Registrant, or a change in the person's responsibilities following a change in control of the Registrant.
Future compensation of officers will be determined by the board of directors based upon the financial condition and performance of the Registrant, the financial requirements of the Registrant, and individual performance of each officer.
No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Registrant for the benefit of its employees.
Director Compensation
The Registrant’s directors are not paid any salary as compensation for services they provide as directors of the Registrant. Except as identified in the chart below, no additional amounts are payable to the Registrant's directors for committee participation or special assignments.
The following table sets forth the compensation of our directors for the fiscal year ended
55
December 31, 2009:
| Fees Earned |
|
| Non-Equity |
|
|
|
| And |
|
| Incentive | Non-qualified |
|
|
| Paid in | Stock | Option | Plan | Compensation | All other |
|
Name | Cash | Award(s) | Award(s) | Compensation | Earnings | Compensation | Total |
|
|
|
|
|
|
|
|
Shubin Wang | -- | -- | -- | -- | -- | -- | -- |
Feng Gu | $26,312 | -- | -- | -- | -- | -- | $26,312(1) |
Xun Yuan | -- | -- | -- | -- | -- | -- | -- |
Laifu Zhong | -- | -- | -- | -- | -- | -- | -- |
Mr. Liming Gong | -- | -- | -- | -- | -- | -- | -- |
(1)
These figures represent funds paid to Feng Gu for her services rendered as the CEO of the Registrant’s subsidiary, Dalian Vitup Management.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of December 31, 2009, the ownership of each person known by the Registrant to be a beneficial owner of 5% or more of its common stock. Except as otherwise noted, each person listed below is a sole beneficial owner of the shares and has sole investment and voting power as to such shares. No person listed below has any options, warrants or other right to acquire additional securities of the Registrant except as may be otherwise noted.
Title of Class | Name and Address | Number of Shares Beneficially Owned | Percent of Class |
Common | Meng Ying Wang No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 1,880,000 | 12.53% |
Security Ownership of Management
The following table sets forth, as of December 31, 2009, the ownership of each executive officer and director of the Registrant, and of all executive officers and directors of the Registrant as a group. Except as otherwise noted, each person listed below is a sole beneficial owner of the shares and has sole investment and voting power as to such shares. No person listed below has any options, warrants or other right to acquire additional securities of the Registrant except as may be otherwise noted.
Title of Class | Name and Address | Number of Shares Beneficially Owned | Percent of Class |
Common | ShuBin Wang (1) No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 8,560,656 (2) | 57.1% |
56
Common | Feng Gu (1) No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 8,560,656(3) | 57.1% |
Common | Mr. Xun Yuan (1) No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 0 | 0.0% |
Common | Mr. Laifu Zhong (1) No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 0 | 0.0% |
Common | Mr. Liming Gong (1) No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 0 | 0.0% |
Common | Ms. Yan Zheng (1) No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 0 | 0.0% |
Common | Dr. JuKun Huang (1) No. 108-1 South Road, Zhongshan District, Dalian, P.R. China | 0 | 0.0% |
Common | All Directors and Officers as a Group (7 in total) | 8,560,656 | 57.1% |
(1)
Officer or Director of the Registrant
(2)
This figure includes 3,392,865 shares owned directly by Feng Gu, ShuBin Wang’s wife, of which ShuBin Wang may be deemed to be the beneficial owner.
(3)
This figure includes 5,167,791 shares owned directly by ShuBin Wang, of which Feng Gu may be deemed to be the beneficial owner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
As noted above, the Registrant does not directly carry on any business operations due to PRC laws and does not have a direct ownership interest in the Dalian Vitup Clinic through which business operations are conducted. However, through a series of contractual arrangements entered into by its wholly-owned subsidiary, the Registrant is able to: i) exert effective control over its PRC operating affiliates; ii) receive all the economic benefits derived from the business operations of its PRC operating affiliates, which in turn flow to the Registrant; and iii) have an exclusive option to purchase all or part of the equity interests in Dalian Vitup Healthcare.
The specific contractual agreements that allow the Registrant to exert effective control over its operating affiliates and receive all the economic benefits of the business activities of Dalian Vitup Healthcare and the Dalian Vitup Clinic are as follows: 1) a Loan Agreement; 2) a Share Pledge Contract;
57
3) an Exclusive Option Contract; 4) a Proxy Agreement; 5) a Amended Consulting Agreement; and 6) a Shift Contract (collectively referred to as the “Control Agreements”). The following is a summary of the contractual agreements.
Loan Agreement
On September 1, 2006 ShuBinWang and Feng Gu entered into the Loan Agreement (“Loan Agreement”) with Dalian Vitup Management for the purpose of implementing the Registrant’s VIE structure.
Pursuant to the terms of the Loan Agreement:
·
Dalian Vitup Management loaned ShuBin Wang and Feng Gu RMB 8,000,000 (approximately US$970,756).
·
The loan is a non-interest bearing loan that is payable at will by ShuBin Wang and Feng Gu; the term payable at will means the loan does not have a maturity date; The loan is currently outstanding.
·
The term of the Loan Agreement is from the disbursement date of the loan to the date of full repayment of the loan. Because the loan is payable at will by ShuBin Wang and Feng Gu, the Loan Agreement does not have a specific termination date.
·
Notwithstanding the foregoing, Dalian Vitup Management may demand full payment on the loan if any of the following events occur: i) ShuBin Wang or Feng Gu are fired or dismissed from Dalian Vitup Management or any of Dalian Vitup Management’s affiliates; ii) either ShuBin Wang or Feng Gu die or become incapacitated; iii) either ShuBin Wang or Feng Gu engage in or are involved in criminal conduct; iv) any third party files a claim against ShuBin Wang or Feng Gu in excess of RMB 100,000 (approximately US$13,215); or v) Dalian Vitup Management chooses to exercise its right to purchase the shares of Dalian Vitup Healthcare pursuant to its rights under the Exclusive Option Contract, which is more fully described below. Aside from the foregoing, there are no events that would provide Dalian Vitup Management with the authority to demand immediate full repayment of the loan.
·
The loan is secured by ShuBin Wang and Feng Gu’s shares of stock in Dalian Vitup Healthcare through the Share Pledge Contract discussed below.
·
ShuBin Wang and Feng Gu may not, without the prior written consent of Dalian Vitup Management, sell, transfer, mortgage, pledge, dispose of by any other means or place any other secured rights on its shares and interests in Dalian Vitup Health Care.
·
Upon the full repayment of the balance of the loan, ShuBin Wang and Feng Gu are required to transfer 100% of their shares of stock in Dalian Vitup Healthcare, amounting to 100% of the capital stock of Dalian Vitup Healthcare, to Dalian Vitup Management, or a party designated by Dalian Vitup Management, in accordance with the laws of the PRC.
Share Pledge Contract
The Share Pledge Contract, dated September 1, 2006, is by and among Dalian Vitup Management, ShuBin Wang, Feng Gu, and Dalian Vitup Healthcare. Pursuant to the terms of the Share Pledge Contract:
·
ShuBin Wang and Feng Gu have pledged all of their equity interest in Dalian Vitup Healthcare, which amounts to 100% of Dalian Vitup Healthcare, to Dalian Vitup Management to secure their obligations under the relevant contractual control agreements, including but not limited to, their repayment obligations under the Loan Agreement.
·
ShuBin Wang and Feng Gu have each agreed not to transfer, sell, pledge or otherwise dispose of or create any encumbrance on their equity interest in Dalian Vitup Healthcare without the consent of Dalian Vitup Management.
58
·
The Share Pledge Contract terminates upon ShuBin Wang and Feng Gu’s fulfillment of their respective obligations under the Loan Agreement. However, as noted above, pursuant to the terms of the Loan Agreement, upon the full repayment of the balance of the loan, ShuBin Wang and Feng Gu are required to transfer 100% of their shares of stock in Dalian Vitup Healthcare, amounting to 100% of the capital stock of Dalian Vitup Healthcare, to Dalian Vitup Management, or a party designated by Dalian Vitup Management, in accordance with the laws of the PRC.
Exclusive Option Contract
The Exclusive Option Contract, dated September 1, 2006, is by and among Dalian Vitup Management, ShuBin Wang, Feng Gu, and Dalian Vitup Healthcare. Pursuant to the terms of the Exclusive Option Contract:
·
Dalian Vitup Management may, in its sole and absolute discretion, elect to purchase 100% of the stock owned by ShuBin Wang and Feng Gu in Dalian Vitup Healthcare, which amounts to 100% of the capital stock of Dalian Vitup Healthcare.
·
The Exclusive Option Contract provides that the price at which Dalian Vitup Management can purchase all of ShuBin Wang’s and Feng Gu’s interest in Dalian Vitup Healthcare shall be equal to the actual capital contributions that ShuBin Wang and Feng Gu paid for the option shares. The aggregate capital contributions that ShuBin Wang and Feng Gu have paid for the option shares is US$1,000,000; therefore, the price at which Dalian Vitup Management can purchase all of Mr. Wang’s and Ms. Gu’s interest is US$1,000,000. There are no current PRC laws in effect that would require any type of appraisal to determine the stock price of the option shares; however, in the event that PRC law were to require an appraisal to determine the stock price of the option shares, the parties agree that the purchase price shall be the lowest price allowed under the applicable laws.
·
Neither ShuBin Wang, Feng Gu, nor Dalian Vitup Healthcare may enter into any transaction that could materially affect Dalian Vitup Healthcare’s assets, liabilities, equity or operations without the prior written consent of Dalian Vitup Management.
·
Neither ShuBin Wang, Feng Gu, nor Dalian Vitup Healthcare will distribute any dividends without the prior written consent of Dalian Vitup Management.
·
Dalian Vitup Management, and/or its designee, has an exclusive option to purchase all of ShuBin Wang and Feng Gu’s interest in Dalian Vitup Healthcare; such interest comprises 100% of the Dalian Vitup Healthcare.
·
The Exclusive Option Contract terminates upon the fulfillment of ShuBin Wang and Feng Gu’s obligations under the Loan Agreement. However, as noted above, pursuant to the terms of the Loan Agreement, upon the full repayment of the balance of the loan, ShuBin Wang and Feng Gu are required to transfer 100% of their shares of stock in Dalian Vitup Healthcare, amounting to 100% of the capital stock of Dalian Vitup Healthcare, to Dalian Vitup Management, or a party designated by Dalian Vitup Management, in accordance with the laws of the PRC.
Proxy Agreement
The Proxy Agreement, dated September 1, 2006, is by and among ShuBin Wang, Feng Gu and Dalian Vitup Management. Pursuant to the terms of the Proxy Agreement:
·
ShuBin Wang and Feng Gu granted Dalian Vitup Management full power and authority regarding any matters that require shareholder action as a result of ShuBin Wang and Feng Gu’s ownership interest in Dalian Vitup Healthcare; ShuBin Wang, the President
59
and Chairman of the Board of Directors of Dalian Vitup Management, has the authority to act on behalf of, and make decisions for, Dalian Vitup Management.
·
The Proxy Agreement terminates upon the repayment of the loan by ShuBin Wang and Feng Gu pursuant to the terms of the Loan Agreement discussed above.
Amended Consulting Agreement
On September 1, 2006, Dalian Vitup Management entered into a Consulting Agreement with Dalian Vitup Healthcare. The Consulting Agreement was subsequently amended to further clarify Dalian Vitup Management’s right to receive substantially all of the economic interest of Dalian Vitup Healthcare. The Amended Consulting Agreement, dated July 7, 2008, is by and among Dalian Vitup Management, and Dalian Vitup Healthcare. Pursuant to the terms of the Amended Consulting Agreement:
·
Dalian Vitup Management will provide exclusive consulting services for Dalian Vitup Healthcare regarding: 1) services relating to health management; 2) services relating to the associate products in health management; 3) staff training; and 4) all other services required by Dalian Vitup Healthcare.
·
Dalian Vitup Healthcare pays Dalian Vitup Management a quarterly consulting fee of RMB 250,000 (approximately US$34,456).
·
Dalian Vitup Healthcare pays Dalian Vitup Management 90% of the net profit generated by Dalian Vitup Healthcare.
·
Dalian Vitup Healthcare pays Dalian Vitup Management technical services fees computed on an hourly basis for services rendered by Dalian Vitup Management, the pricing of which are determined by mutual agreement of the parties.
·
Subject to certain early termination provisions, the Amended Consulting Agreement is for an indefinite term and shall remain in full force and effect for the entire time period that Dalian Vitup Management remains in business. Notwithstanding the foregoing: i) Dalian Vitup Healthcare may terminate the Amended Consulting Agreement if Dalian Vitup Management commits a gross fault, fraudulent or other illegal act, or becomes bankrupt; and ii) Dalian Vitup Management may terminate the Amended Consulting Agreement upon 30 days prior notice to Dalian Vitup Healthcare at any time.
Dalian Vitup Clinic’s Property Rights and Interests Shift Contract (the “Shift Contract”)
The Shift Contract dated April 1, 2006, is by and among ShuBin Wang and Dalian Vitup Healthcare. Pursuant to the terms of the Shift Contract:
·
The parties agree and acknowledge that Dalian Vitup Healthcare is the beneficiary of all of titles of the property, rights and interests of Dalian Zhongshan Vitup Clinic.
·
The parties agree and acknowledge that the Dalian Vitup Clinic shall be managed and controlled by Dalian Vitup Healthcare.
·
The parties agree and acknowledge that Dalian Vitup Clinic is not an independent entity and that its revenue and income shall be consolidated with the financial statements of Dalian Vitup Healthcare.
·
The Shift Contract is for an indefinite term and may only be revised or terminated upon the mutual consent of both parties to the Contract.
The Shift contract ensures that Dalian Vitup Healthcare is the beneficiary of all of the property, rights, and interests of the Dalian Vitup Clinic, of which Shubin Wang is the sole owner. The other control agreements, discussed above, provide Dalian Vitup Management with control over Dalian Vitup Healthcare.
The foregoing description of the Control Agreements is qualified in its entirety by reference to the
60
Loan Agreement, Share Pledge Contract, Exclusive Option Contract, and Proxy Agreement which were filed as Exhibits 10.1, 10.2, 10.3, and 10.4, respectively, to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and are herein incorporated by reference, and the Amended Consulting Agreement, and Shift Contract, which were filed as Exhibits 10.14 and 10.6, respectively, to the Company’s Amendment No. 1 on Form 10/A filed with the Securities and Exchange Commission on July 23, 2008 and are herein incorporated by reference.
Lease Agreement
On January 12, 2004, the Registrant’s operating affiliate, Dalian Vitup Healthcare entered into a House Lease Agreement with Shubin Wang for the lease of a portion of the premises housing its medical clinic. Pursuant to the terms of the House Lease Agreement, Dalian Vitup Healthcare leased a portion of the property located at No. 108-1, 108-2, Nanshan Road, Zhongshan District, Dalian for a period of 15 years at an initial annual rental rate of RMB 100,000 (approximately US$13,835.30). Pursuant to the terms of the House Lease Agreement, the lease is for a term of 15 years, the lease is not cancelable, and the annual rental rate will be adjusted every two years through consultation between the parties. Additionally, under the House Lease Agreement, Dalian Vitup Healthcare is responsible for the payment of all taxes, expenses and other relevant charges arising out their occupation of the leased premises. A c opy of the House Lease Agreement was filed as Exhibit 10.8 to the Company’s Form 10 filed with the Securities and Exchange Commission on May 1, 2008, and is herein incorporated by reference. On March 12, 2006, the parties agreed to adjust the annual rental rate in the House Lease Agreement to RMB 348,000 (approximately US$49,983.40), effective April 2006. A copy of the Supplemental House Lease Agreement with the information relating to the adjustment of the annual rental rate was filed as Exhibit 10.15 to the report on Form 10-K filed with the SEC on April 15, 2009, and is herein incorporated by reference.
On August 15, 2006, Dalian Vitup Management entered into a House Lease Agreement with Shubin Wang for the lease of office space. Pursuant to the terms of the House Lease Agreement, Dalian Vitup Management leased a portion of the property located at No No. 108-1, 108-2, Nanshan Road, Zhongshan District, Dalian for a period of 20 years at an annual rental rate of RMB 5,800 (approximately US $833). Pursuant to the terms of the House Lease Agreement, the lease is not cancelable, and the annual rental rate will be adjusted every two years through consultation between the parties. Additionally, under the House Lease Agreement, Dalian Vitup Management is responsible for the payment of all taxes, expenses and other relevant charges arising out their occupation of the leased premises. The foregoing description of the House Lease Agreement is qualified in its entirety by reference to the House Lease Agreement which is filed a s Exhibit 10.16 to the report on Form 10-K filed with the SEC on April 15, 2009, and is herein incorporated by reference.
Temporary Advance From Directors For Operating Expenses
As of December 31, 2009, the Company had temporary advances for operating expenses in the aggregate of $187,103 from directors, Mr. ShuBin Wang and Ms. Feng Gu. The amount is unsecured and interest-free with no fixed terms of repayment.
Loan Agreement
Pursuant to the terms of a Loan Agreement on August 6, 2007, (the “August 6 Loan Agreement”) ShuBin Wang, one of our directors agreed to make a loan in the amount of $406,892 to Dalian Vitup Healthcare Management Co., Ltd. to be used for operating cash flow. The loan is a non-interest bearing loan; as of December 31, 2008, the loan had been paid of and there was an outstanding balance of $0. The foregoing description of the August 6 Loan Agreement is qualified in its entirety by reference to the Loan Agreement which was attached as Exhibit 10.13 to the Company’s Form 10/A filed with the Securities and Exchange Commission on July 23, 2008, and is herein incorporated by reference.
61
Initial Working Capital Loan – Dalian Vitup Healthcare
On March 4, 2004, Mr. Shubin Wang, our Chairman and majority shareholder made an interest-free loan of $970,756 (equivalent to RMB 8,000,000) to Dalian Vitup Healthcare as initial working capital (the “Initial Loan”) for Dalian Vitup Healthcare.
Director Independence
The NASDAQ Stock Market has instituted director independence guidelines that have been adopted by the Securities & Exchange Commission. These guidelines provide that a director is deemed “independent” only if the board of directors affirmatively determines that the director has no relationship with the company which, in the board’s opinion, would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities. Significant stock ownership will not, by itself, preclude a board finding of independence.
For NASDAQ Stock Market listed companies, the director independence rules list six types of disqualifying relationships that preclude an independence filing. The Company’s board of directors may not find independent a director who:
1.
is an employee of the company or any parent or subsidiary of the company;
2.
accepts, or who has a family member who accepts, more than $60,000 per year in payments from the company or any parent or subsidiary of the company other than (a) payments from board or committee services; (b) payments arising solely from investments in the company’s securities; (c) compensation paid to a family member who is a non-executive employee of the company’ (d) benefits under a tax qualified retirement plan or non-discretionary compensation; or (e) loans to directors and executive officers permitted under Section 13(k) of the Exchange Act;
3.
is a family member of an individual who is employed as an executive officer by the company or any parent or subsidiary of the company;
4.
is, or has a family member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments for property or services that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than (a) payments arising solely from investments in the company’s securities or (b) payments under non-discretionary charitable contribution matching programs;
5.
is employed, or who has a family member who is employed, as an executive officer of another company whose compensation committee includes any executive officer of the listed company; or
6.
is, or has a family member who is, a current partner of the company’s outside auditor, or was a partner or employee of the company’s outside auditor who worked on the company’s audit.
Based upon the foregoing criteria, our Board of Directors has determined that Feng Gu and Shubin Wang are not an independent directors under these rules as Feng Gu is employed by the Company as its Chief Executive Officer and Shubin Wang is Feng Gu’s husband.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
(1)
The aggregate fees billed by ZYCPA Company Limited (“ZYCPA”) for audit of the Company's financial statements were $48,000 for the fiscal year ended December 31, 2009 and $52,500 for the fiscal year ended December 31, 2008.
62
Audit Related Fees
(2)
ZYCPA did not bill the Company any amounts for assurance and related services that were related to its audit or review of the Company’s financial statements during the fiscal years ended December 31, 2009 and 2008.
Tax Fees
(3)
ZYCPA did not bill the Company any amounts for tax compliance, advice and planning service during the fiscal year ended December 31, 2009, and 2008.
All Other Fees
(4)
ZYCPA did not bill the Company for any products and services other than the foregoing during the fiscal years ended December 31, 2009 and 2008.
Audit Committees Pre-approval Policies and Procedures
(5)
The Company does not have an audit committee per se. The current board of directors functions as the audit committee.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(b)
Exhibits.
3.1 |
| Articles of Incorporation of China Vitup Health Care Holdings, Inc, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
|
|
|
3.2 |
| Bylaws of China Vitup Health Care Holdings, Inc, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
|
|
|
10.1 |
| Loan Agreement dated September 1, 2006, by and among Dalian Vitup Management a corporation formed under the laws of the PRC, ShuBin Wang, and Feng Gu, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
|
|
|
10.2 |
| Share Pledge Contract dated September 1, 2006 by and among Dalian Vitup Management, a corporation formed under the laws of the PRC, ShuBin Wang, Feng Gu, and Dalian Vitup Healthcare, a corporation formed under the laws of the PRC, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
|
|
|
10.3 |
| Exclusive Option Contract dated September 1, 2006, by and among Dalian Vitup Management, a corporation formed under the laws of the PRC, ShuBin Wang, Feng Gu, and Dalian Vitup Healthcare, a corporation formed under the laws of the PRC, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
63
|
|
|
10.4 |
| Proxy Agreement dated September 1, 2006, by and among ShuBin Wang, Feng Gu and Dalian Vitup Management, a corporation formed under the laws of the PRC, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
|
|
|
10.5 |
| Consulting Agreement dated September 1, 2006, by and among Dalian Vitup Management, a corporation formed under the laws of the PRC and Dalian Vitup Healthcare, a corporation formed under the laws of the PRC, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
10.6 |
| Shift Contract by and among Dalian Vitup Healthcare and Shubin Wang, incorporated by reference from exhibit to Form filed the Securities and Exchange Commission on July 23, 2008. |
10.7 |
| Form Cooperation Agreement, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
10.8 |
| House Lease Agreement dated July 12, 2004 by and between ShuBin Wang and Dalian Vitup Healthcare, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
10.9 |
| Senior Management Staff Employment Contract dated September 1, 2006, by and among Dalian Vitup Management and Shubin Wang, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
10.10 |
| Senior Management Staff Employment Contract dated September 1, 2006, by and among Dalian Vitup Management and Feng Gu, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
10.12 |
| Senior Management Staff Employment Contract dated January 1, 2007, by and among Dalian Vitup Management and Huang Jukun, incorporated by reference from exhibit to Form 10 filed with the Securities and Exchange Commission on May 1, 2008. |
10.13 |
| Loan Agreement, dated August 6, 2007 by and among ShuBin Wang and Dalian Vitup Healthcare, incorporated by reference from exhibit to Form 10/A filed with the Securities and Exchange Commission on July 23, 2008. |
10.14 |
| Amended Consulting Agreement dated July 7, 2008, by and among Dalian Vitup Management, a corporation formed under the laws of the PRC and Dalian Vitup Healthcare, a corporation formed under the laws of the PRC, incorporated by reference from exhibit to Form 10/A filed with the Securities and Exchange Commission on July 23, 2008. |
10.15 |
| House Lease Agreement with Supplemental Rent Increase dated March 12, 2006 by and between ShuBin Wang and Dalian Vitup Healthcare, incorporated by reference form exhibit to Form 10-K filed with the Securities and Exchange Commission on April 15, 2009. |
64
10.16 |
| House Lease Agreement dated August 15, 2006, by and between ShuBin Wang and Dalian Vitup Management, incorporated by reference form exhibit to Form 10-K filed with the Securities and Exchange Commission on April 15, 2009. |
10.17 |
| Senior Management Staff Employment Contract dated January 19, 2010, by and among Dalian Vitup Management and Li Chunxiang, incorporated by reference from exhibit to Form 8-K filed with the Securities and Exchange Commission on February 1, 2010. |
10.18 |
| Senior Management Staff Employment Contract dated January 19, 2010, by and among Dalian Vitup Management and Guo Chaobo, incorporated by reference from exhibit to Form 8-K filed with the Securities and Exchange Commission on February 1, 2010. |
31.1 |
| Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
31.2 |
| Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
32.1 |
| Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
32.2 |
| Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
* Filed Herewith
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.
China Vitup Health Care Holdings, Inc.
By: /S/ Feng Gu
Feng Gu, Chief Executive Officer
Date: March 31, 2010
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
By: /S/ Feng Gu
Feng Gu, Chief Executive Officer, Director
Date: March 31, 2010
By: /S/ Chunxiang Li
Chunxiang Li, Chief Financial Officer, Principal Accounting Officer
Date: March 31, 2010
65
By: /S/ Shubin Wang
Shubin Wang, Director
Date: March 31, 2010
By: /S/ Xun Yuan
Xun Yuan, Director
Date: March 31, 2010
By: /S/ Laifu Zhong
Laifu Zhong Director
Date: March 31, 2010
By: /S/ Liming Gong
Liming Gong Director
Date: March 31, 2010
66
