UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] Registration Statement Pursuant to Section 12(b) or (g) of the Securities
Exchange Act of 1934
or
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-28879
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
(Translation of Registrant's name into English)
BRITISH VIRGIN ISLANDS
(Jurisdiction of incorporation or organization)
UNIT 3611, 36/F, WEST TOWER, SHUN TAK CENTRE
168-200 CONNAUGHT ROAD CENTRAL, HONG KONG
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant
to Section 12(g) of the Act.
COMMON STOCK, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act.
NOT APPLICABLE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
46,160,733 COMMON SHARES AS OF DECEMBER 31, 2004
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 preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ ] Yes [X] No
Indicate by check mark which financial statement item the registrant has elected
to follow.
[ ] Item 17 [X] Item 18
GENERAL INFORMATION:
UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN ARE TO US DOLLARS.
FORWARD LOOKING STATEMENTS
The Company cautions readers regarding forward looking statements found in the
following discussion and elsewhere in this annual report and in any other
statement made by, or on the behalf of the Company, whether or not in future
filings with the Securities Exchange Commission ("SEC"). Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which, with respect to future business decisions, are subject to
change. See "Item 3. Key Information - Risk Factors." These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward looking statements made by or on
behalf of the Company. The Company disclaims any obligation to update forward
looking statements.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
================================================================================
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
================================================================================
Not applicable.
ITEM 3. KEY INFORMATION.
================================================================================
SELECTED FINANCIAL DATA
The selected financial data of the Company for the fifteen months ended December
31, 2004 and year ended September 30, 2003, was derived from the consolidated
financial statements of the Company which have been audited by Bongiovanni &
Associates, as indicated in their report which is included elsewhere in this
report. The selected financial data set forth for the years ended September 30,
2002, 2001 and 2000 is derived from the Company's audited consolidated financial
statements, not included herein.
The information in the following table was extracted from the more detailed
consolidated financial statements and related notes included herein and should
be read in conjunction with such financial statements and with the information
appearing under the heading "Item 5. Operating and Financial Review and
Prospects."
- ----------------------------------------------------------------------------------------------------------------------
FIFTEEN MONTHS YEAR ENDED SEPTEMBER 30,
ENDED ----------------------------------------------------------------
DECEMBER 31, 2003 2002 2001 2000
2004
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ - $ 1,517,822 $ 2,014,696 $ 2,139,804 $ 665,075
- ----------------------------------------------------------------------------------------------------------------------
Loss from operations $ (643,448) $ (460,465) $ (1,115,911) $ (2,211,204) $ (811,156)
- ----------------------------------------------------------------------------------------------------------------------
Loss from continuing
Operations $ (643,448) $ (460,465) $ (1,115,911) $ (2,211,204) $ (811,156)
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (643,448) $ (460,465) $ (1,115,911) $ (2,211,204) $ (811,156)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (651,220) $ (623,056) $ (1,099,915) $ (2,211,204) $ (811,156)
- ----------------------------------------------------------------------------------------------------------------------
Net loss from per share $ (0.02) $ (0.98) $ (4.22) $ (8.94) $ (294.17)
- ----------------------------------------------------------------------------------------------------------------------
2
- ----------------------------------------------------------------------------------------------------------------------
FIFTEEN MONTHS YEAR ENDED SEPTEMBER 30,
ENDED ----------------------------------------------------------------
DECEMBER 31, 2003 2002 2001 2000
2004
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 1,000 $ 318,808 $ 940,408 $ 1,465,659 $ 3,090,476
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity (deficit) $ (710,797) $ (358,389) $ 37,714 $ 954,621 $ 2,814,075
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of
Shares 28,249,500 636,514 260,633 247,279 3,973
- ----------------------------------------------------------------------------------------------------------------------
Dividends per share $ - $ - $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------------
RISK FACTORS
THE COMPANY HAS LIMITED FINANCIAL RESOURCES AND IF THE COMPANY IS UNABLE TO
SECURE ADDITIONAL FUNDING AND/OR A BUSINESS OPPORTUNITY, THE COMPANY MAY FAIL.
As of December 31, 2004, the Company had no cash and a working capital deficit
of $710,797. It currently has no business operations. Without additional funding
and/or a business opportunity, the Company may not continue to exist.
IF THE COMPANY ISSUES SHARES OR OPTIONS TO ITS OFFICERS, DIRECTORS OR KEY
EMPLOYEES, OR IF THE COMPANY OBTAINS FUNDING THROUGH THE SALE OF ADDITIONAL
COMMON SHARES, THE SHAREHOLDERS WILL EXPERIENCE DILUTION.
The Company may in the future grant to some or all of its directors, officers,
insiders and key employees options to purchase the Company's common shares as
non-cash incentives to those employees. Such options may be granted at exercise
prices equal to market prices. To the extent that significant numbers of such
options may be granted and exercised, the interests of then existing
shareholders of the Company will be subject to additional dilution.
The Company is currently without a source of revenue and will most likely be
required to issue additional shares to finance its operations and acquire a
business opportunity. The issuance of additional shares will cause the Company's
existing shareholders to experience dilution of their ownership interests.
THE PRICE OF THE COMPANY'S COMMON SHARES IS SUBJECT TO MARKET FLUCTUATIONS AND
VOLATILITY WHICH MAY NOT BE RELATED TO THE COMPANY'S OPERATIONS AND SUCH
FLUCTUATIONS MAY IMPACT THE COMPANY'S ABILITY TO COMPLETE EQUITY FINANCINGS; IF
THE COMPANY CANNOT COMPLETE ADDITIONAL EQUITY FINANCINGS, IT MAY NOT BE ABLE TO
CONTINUE ITS OPERATIONS.
The trading volume of the Company's stock is low, thereby making the market
price of the stock subject to wide fluctuations in price, which have not
necessarily been related to the operating performance, underlying asset values
or prospects of such companies. In particular, the per share price of the
Company's common shares fluctuated from a low of $0.06 to a high of $3.90 during
the 12-month period ending June 30, 2005. Continued price fluctuations will have
a significant impact on the Company's ability to complete equity financings.
CONFLICTS OF INTEREST MAY ARISE AMONG THE MEMBERS OF THE COMPANY'S BOARD OF
DIRECTORS AND SUCH CONFLICTS MAY CAUSE THE COMPANY TO ENTER INTO TRANSACTIONS ON
TERMS, WHICH ARE NOT BENEFICIAL TO THE COMPANY.
Several of the Company's directors are also directors, officers or shareholders
of other companies. Some of the directors and officers are engaged and will
continue to be engaged in the search for additional business opportunities on
behalf of other corporations, and situations may arise where these directors and
officers will be in direct competition with the Company. Such associations may
give rise to conflicts of interest from time to time. Such a conflict poses the
risk that the Company may enter into a transaction on terms that could place the
Company in a worse position than if no conflict existed. Conflicts, if any, will
be dealt with in accordance with the relevant provisions of the INTERNATIONAL
BUSINESS COMPANIES ACT (British Virgin Islands). The directors of the Company
are required by law to act honestly and in good faith with a view to the best
interests of the Company and to disclose any interest which they many have in
any project or opportunity of the Company. However, each director has a similar
obligation to other companies for which such director serves as an officer or
director.
3
THE COMPANY DOES NOT PAY DIVIDENDS ON ITS COMMON SHARES; THEREFORE, INVESTORS
SEEKING DIVIDEND INCOME SHOULD NOT PURCHASE THE COMMON SHARES.
The Company has never declared or paid cash dividends on its common shares and
does not anticipate doing so in the foreseeable future. Additionally, the
determination as to the declaration of dividends is within the discretion of the
Company's Board of Directors, which may never declare cash dividends on the
Company's common stock. Investors cannot expect to receive a dividend on the
Company's common shares in the foreseeable future, if at all.
THE COMPANY IS DEPENDENT UPON ITS MANAGEMENT AND THE LOSS OF ANY OF ITS
MANAGEMENT AND/OR IF THE COMPANY IS UNABLE TO RECRUIT ADDITIONAL MANAGERS COULD
NEGATIVELY IMPACT THE COMPANY'S ABILITY TO CONTINUE ITS OPERATIONS.
The success of the operations and activities of the Company is dependent to a
significant extent on the efforts and abilities of its key officers, Dr. FAN Di,
a director and the President and Chief Executive Officer of the Company and Mr.
ZHOU Li Yang, a director and Chief Financial Officer of the Company. The loss of
services of either Dr. Fan or Mr. Zhou could have a material adverse effect on
the Company. The Company has not obtained key-man life insurance on any of its
officers or directors. The Company's ability to recruit and retain highly
qualified management personnel is critical to its success; if it is unable to do
so this may materially affect the Company's financial performance.
THE COMPANY'S SHARES ARE SUBJECT TO THE SEC'S PENNY STOCK RULES, WHICH MAY
RESTRICT THE ABILITY OF BROKERS TO SELL THE COMPANY'S COMMON STOCK AND MAY
REDUCE THE SECONDARY MARKET FOR THE COMMON STOCK.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stock." Generally, penny stocks are equity
securities with a price of less than US $5.00 (other than securities registered
on certain national securities exchanges or quoted on the NASDAQ system). If the
Company's shares are traded for less than US $5 per share, as they currently
are, the shares will be subject to the SEC's penny stock rules unless (1) the
Company's net tangible assets exceed US $5,000,000 during the Company's first
three years of continuous operations or US $2,000,000 after the Company's first
three years of continuous operations; or (2) the Company has had average revenue
of at least US $6,000,000 for the last three years. The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document
prescribed by the SEC that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. Since the Company's shares are traded for less
than US $5.00 per share, the Company's common stock is subject to the penny
stock rules. Therefore, the holders of the common stock may find it difficult to
sell the common stock of the Company. These rules may restrict the ability of
brokers to sell the common stock and may reduce the secondary market for the
common stock. A limited secondary market may result in a decrease in the value
of the shares and/or a partial or total loss of an investor's investment.
THIS ANNUAL REPORT CONTAINS STATEMENTS ABOUT FUTURE EVENTS AND RESULTS THAT MAY
NOT BE ACCURATE.
Statements contained in this annual report that are not historical facts are
forward-looking statements that involve risks and uncertainties. Such statements
may not prove to be accurate as actual results and future events could differ
materially from those anticipated in such statements.
INVESTORS IN THE UNITED STATES MAY NOT BE ABLE TO ENFORCE THEIR CIVIL
LIABILITIES AGAINST THE COMPANY OR ITS DIRECTORS AND OFFICERS.
It may be difficult to bring and enforce suits against the Company. The Company
is a corporation domiciled in British Virgin Islands. None of the Company's
directors and officers are residents of the United States, and all or a
substantial portion of their assets are located outside of the United States. As
a result, it may be difficult for U.S. holders of the Company's common shares to
effect service of process on these persons within the United States or to
enforce
4
judgments obtained in the U.S. based on the civil liability provisions of the
U.S. federal securities laws against the Company or its officers and directors.
In addition, a shareholder should not assume that the courts outside the United
States (i) would enforce judgments of U.S. courts obtained in actions against
the Company, its officers or directors predicated upon the civil liability
provisions of the U.S. federal securities laws or other laws of the United
States, or (ii) would enforce, in original actions, liabilities against the
Company, its officers or directors predicated upon the U.S. federal securities
laws or other laws of the United States.
ITEM 4. INFORMATION ON THE COMPANY.
================================================================================
HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was incorporated in the State of Colorado on June 17, 1996, under
the name Minas Novas Gold Corp., to engage in mining operations. From inception
to January 1999, the Company obtained options to acquire various mining
properties. On January 29, 1999, the Company abandoned all mining operations and
proceeded to acquire all of the issued and outstanding capital stock of Cool
Entertainment, Inc., a Washington corporation, in exchange solely for 65% of its
outstanding common stock. The acquisition of the Washington corporation was
completed March 1, 1999, and effective February 22, 1999, the Company changed
its name to Cool Entertainment, Inc.
From March 1, 1999 to November 2000, the Company was able to generate only a
minimal amount of revenues. Realizing that it was undercapitalized and unable to
market its services properly, the Company searched for another business
opportunity. On February 21, 2001, the Company acquired all of the issued and
outstanding capital stock of E-Trend Networks, Inc., a Nevada corporation, in
exchange solely for approximately 92% of its common stock. The Company changed
its name to E-Trend Networks, Inc., changed its domicile to Delaware, and
effected a 1-for-100 reverse split of its issued and outstanding shares of
common stock. On December 26, 2001, an agreement was reached whereby a new
organization and management team led by eAngels Equity, LLC would acquire
controlling interest in E-Trend Networks, Inc. Effective February 19, 2002,the
Company changed its name to Wilmington Rexford, Inc. Prior to the fourth
calendar quarter of 2003, the Company operated an online retail website
www.EntertainMe.com and through its fulfillment and distribution subsidiary,
Langara Entertainment, it offered distribution and fulfillment services to both
traditional retail and online merchants.
In October 2003, the Company entered into agreements to exchange its 100%
ownership in Langara Entertainment, Inc. and EntertainMe.com for a equity stakes
in Langara Group, Inc. and Fly.com, Inc.
On February 13, 2004, the Company entered into an agreement with China Merchants
DiChain Investment Holdings Limited, pursuant to which the Company spun out as a
dividend to the shareholders on a 1 for 1 share basis shares of its
wholly-subsidiary, E-Trend Networks, Inc. The agreement provided for the
acquisition of a company to be identified by China Merchants DiChain Investment
Holdings Limited and a 1-for-20 reverse stock split. The reverse stock split and
the change of the Company's name to China Pharmaceuticals Corporation were
effected March 25, 2004.
On May 24, 2004, the Company closed its acquisition of 87.475% of Zhejiang
University Pharmaceutical Co., Ltd., a Sino-foreign equity joint venture ("Zheda
Pharmacy"), pursuant to the terms of an agreement dated as of May 24, 2004 with
the owners of Sheung Tai Investments Limited. The Company issued 13,848,220
shares of its common stock to the owners of Sheung Tai Investments Limited for
100% ownership of that entity. Sheung Tai Investments Limited owns 87.475% of
Zheda Pharmacy.
Also on May 24, 2004, the Company issued 31,151,780 shares to China Merchants
DiChain Investment Holdings Limited and its designees for approximately $290,000
in debt conversion and assumption of costs of the transaction.
Shortly after the acquisition of Zheda Pharmacy, the Company realized that
management of Sheung Tai Investments refused to turn over day-to-day control of
the operations of Zheda Pharmacy to management of the Company. The disputes
between management of the Company and management of Sheung Tai Investment
resulted in litigation and
5
protracted negotiations. In January 2005, the Company relinquished its ownership
of Sheung Tai Investments (and therefore Zheda Pharmacy) in exchange for the
13,848,220 shares of the Company's common stock that originally had been issued
to the owners of Sheung Tai Investments.
Effective August 26, 2004, the Company changed its domicile to the British
Virgin Islands and its name to China Pharmaceuticals International Corporation.
It is governed by the International Business Companies Act, Cap. 291, of the
Territory of the British Virgin Islands.
The Company's registered agent is Equity Trust (BVI) Limited, Palm Grove House,
P.O. Box 438, Road Town, Tortola, British Virgin Islands. Its principal business
office is located at Unit 3611, 36/F, West Tower, Shun Tak Centre, 168-200
Connaught Road Central, Hong Kong. The telephone number is (852) 2255 0688 and
the facsimile number is (852) 2851 3660. The Company does not have a registered
agent in the United States.
BUSINESS OVERVIEW
For the financial years ended September 30, 2002 and 2003, the Company operated
an online entertainment media retail website www.EntertainMe.com and through its
fulfillment and distribution subsidiary, Langara Entertainment, it offered
distribution and fulfillment services to both traditional retail and online
merchants. The Company has not engaged in business activities since October
2003.
ORGANIZATIONAL STRUCTURE
As of the date of this annual report, the Company has no subsidiaries.
PROPERTY, PLANTS AND EQUIPMENT
The Company's corporate office is located at Unit 3611, 36/F, West Tower, Shun
Tak Centre, 168-200 Connaught Road Central, Hong Kong. The Company shares the
offices of China Merchants DiChain and is allocated HK$10,000 (US$1,287 as of
August 15, 2005) as its pro rata share of the cost of the facility.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
================================================================================
The following discussion of the results of operations of the Company for the
fifteen months ended December 31, 2004 and year ended September 30, 2003 should
be read in conjunction with the consolidated financial statements of the Company
and related notes included therein.
From February 21, 2001 to October 2003, the Company operated an online
entertainment media retail website www.EntertainMe.com and through its
fulfillment and distribution subsidiary, Langara Entertainment, offered
distribution and fulfillment services to both traditional retail and online
merchants. In October 2003, the Company entered into agreements to exchange its
100% ownership in Langara Entertainment, Inc. and EntertainMe.com for a equity
stakes in Langara Group, Inc. and Fly.com, Inc.
On February 13, 2004, the Company entered into an agreement with China Merchants
DiChain Investment Holdings Limited, pursuant to which the Company spun out as a
dividend to the shareholders on a 1 for 1 share basis shares of its
wholly-subsidiary, E-Trend Networks, Inc. The agreement provided for the
acquisition of a company to be identified by China Merchants DiChain Investment
Holdings Limited and a 1-for-20 reverse stock split. The reverse stock split and
the change of the Company's name to China Pharmaceuticals Corporation were
effected March 25, 2004.
On February 20, 2004, the Company changed its fiscal year end to December 31.
6
OPERATING RESULTS
FIFTEEN MONTHS ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED SEPTEMBER 30, 2003
Due to the disposal of Langara Entertainment, Inc. and EntertainMe.com in
October 2003, the Company did not have any business operations during the
fifteen months ended December 31, 2004. Despite the disposition of these
business operations, the Company continued to incur general and administrative
expenses to maintain the Company's existence as a reporting company with the
Securities and Exchange Commission whose stock is traded on the OTC Bulletin
Board. In addition, legal expenses were incurred in connection with the
acquisition and subsequent disposition of Sheung Tai Investments, as described
in "Item 4. Information on the Company - History and Development of the
Company."
YEAR ENDED SEPTEMBER 30, 2003 COMPARED TO YEAR ENDED SEPTEMBER 30, 2002
The Company experienced a nominal decrease in revenues for the year ended
September 30, 2003 as compared to previous fiscal year. The decrease is
primarily due to decreased unit sales of the Company's EntertainMe.com website.
The decrease, both as a percentage of revenues and in absolute dollars, was
primarily attributable to the reduction of the Company's advertising campaign
consistent with cost cutting initiatives implemented during earlier periods.
Sales for the 2003 fiscal year were $1,517,822, compared to $2,014,696 for the
2002 fiscal year.
Gross profit was $345,232 and $364,767 for the twelve months ended September 30,
2003 and 2002, respectively, representing a decrease of 5.3%. Gross margin
increased to 22.7% from 18.1% for the year ended September 30, 2003 as compared
to the previous fiscal year. The decrease in the absolute dollars of gross
profit for the twelve-month period corresponds with the decrease in sales
revenue but the increase in gross margin is due to improvements in
transportation and inventory management, improved product sourcing, suspension
of the Company's discount reward program, as well as increased product sales of
VHS movies and DVD videos, through the EntertainMe.com website, which carry a
higher gross profit margin.
Operating expenses decreased to $757,189 for the 2003 fiscal year from
$1,247,727 for the 2002 fiscal year, representing 49.8% and 61.9% of net sales
for the corresponding periods, respectively. The decline in absolute dollars of
operating expenses for the twelve month period corresponds with the Company's
operational restructuring plan, which reduced the number of headcount positions
in finance and administration within the Company, a reduction in its marketing
budget, website development expenditures, technology and operating
infrastructure expenditures
Net losses were $460,465 and $1,115,911 for the twelve months ended September
30, 2003 and 2002, respectively, a decrease of 58.7%. The improvement in net
loss in comparison with the prior year was primarily due to increases in the
Company's gross profit margin, and decline in marketing, technology, and
administrative-related expenditures. In addition to the net loss of $460,465
there was also a one time write down of Goodwill amounting to additional losses
of $135,638 and a foreign currency translation adjustment of $26,953. The
Company's total comprehensive loss was $623,056 or $0.05 per share.
Although the Company incurred significant losses prior to the Company's
announced strategic shift in business model, the Company initiated a
restructuring plan in December 2001, instigated by the new management team,
which encompassed a series of cost-cutting initiatives. Consistent with its
plan, the Company intended to reduce its marketing budget, its discount program,
web site development activities, and technology and operating infrastructure
development. Furthermore, a series of operating expenses pertaining to the
Company's new business model and associated costs have been accounted for, and
expensed during the current year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, the Company had no cash, as compared to $526 at September
30, 2003. The Company used cash of $359,976 for operating activities. Cash was
provided by advances from related parties in the same amount. In comparison,
operating activities provided cash of $212,250 for the year ended September 30,
2003 and $235,827 was used to repay a note payable owed to a stockholder.
7
The Company also anticipates spending approximately $140,000 during fiscal 2005
for administrative and other operating expenditures. It will depend upon
advances from related parties to fund these expenditures.
The Company does not have any loans or bank debt and there are no restrictions
on the use of its cash resources.
There are no material commitments for capital expenditures during fiscal 2005.
Other than the intercompany advances from China Technology Global Corporation
and China Merchants DiChain (Asia) Limited, which have been made on an
interest-free basis, with no fixed term or repayment date, there is no debt owed
by the Company.
TREND INFORMATION
The Company is not aware of any trends that might affect its financial results
or business.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS
The Company does not have any contractual obligations.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
================================================================================
DIRECTORS AND SENIOR MANAGEMENT
The names, positions held with the Company and terms of office of each director
and officer of the Company as of the date of this annual report, are as follows:
NAME POSITION WITH THE COMPANY TERM OF OFFICE (FOR EACH OFFICE HELD)
- ---- ------------------------- -------------------------------------
FAN Di President, Chief Executive Officer July 2004 to present
Director February 2004 to present
ZHOU Li Yang Chief Financial Officer August 2005 to present
Director October 2004 to present
YU Wai Kit Corporate Secretary November 2004 to present
Each officer's and director's term of office shall expire at the Company's next
annual general meeting. The Company does not have an executive committee, audit
committee, or a compensation committee.
There are no family relationships between any directors or executive officers of
the Company. To the best of the Company's knowledge, there are no arrangements
or understandings with major shareholders or others, pursuant to which any of
the Company's officers or directors was selected as an officer or director of
the Company.
Set forth below are brief descriptions of recent employment and business
experience of the Company's officers and directors, each of whom devote on
average approximately 15 hours per week to the business of the Company.
DR. FAN DI
Since July 2004, Dr. Fan has served as the Company's President, Chief Executive
Officer and a Director. Dr. Fan is
8
responsible for overseeing the Company's strategic development. Since April
2003, Dr. Fan has served as the Chairman, Chief Executive Officer and an
Executive Director of China Technology Global Corporation, a British Virgin
Islands corporation whose stock is traded on the OTC Bulletin Board and
registered under the Securities Exchange Act of 1934. Since April 2002, Dr. Fan
has served as the Chairman and Chief Executive Officer of China Merchants
DiChain (Asia) Limited, a company listed on the Stock Exchange of Hong Kong,
Limited. From December 1999 to April 2002, he served as an Executive Director
and Chief Financial Officer of China Merchants Group. Dr. Fan has substantial
experience in financial management and business management. He holds a Ph.D. in
Business Administration from the Southern University of California.
MR. ZHOU LI YANG
Since October 2004, Mr. Zhou has served as a Director of the Company and Mr.
Zhou was appointed as the Company's Chief Financial Officer in August 2005.
Since February 2002, Mr. Zhou has worked for China Merchants DiChain group,
which is the ultimate controlling shareholder of the Company. Since February
2004, Mr. Zhou has served as an Executive Directors of China Technology Global
Corporation. Since September 2004, Mr. Zhou has served as the Managing Director
of China Merchants DiChain (Asia) Limited, a company listed on the Stock
Exchange of Hong Kong, engaging in the business of logistics. From May 2000 to
August 2001, Mr. Zhou served as the Investment Manager of Tianjin Development
Holdings Ltd., a window company of Tianjin government in Hong Kong listed on the
Stock Exchange of Hong Kong with businesses in manufacturing and selling winery
and beverage products and elevator and investment and operation of container
terminal, highway and gas supply in China. From February 1995 to October 1999,
Mr. Zhou served as an Assistant Manager to Ka Wah Capital Ltd., an investment
banking arm of CITIC Kawah Bank, which is a bank listed on the Stock Exchange of
Hong Kong. Mr. Zhou has substantial experience in management of listed
companies, mergers and acquisitions, direct investment and corporate finance. He
obtained a Bachelor degree in Physics from Central-South University, China and a
Master of Science degree in Business/Finance from the University of Baltimore in
the United States.
MR. YU WAI KIT
Since November 2004, Mr. Yu has served as the Secretary. Mr. Yu has also served
as the secretary of China Technology Global Corporation since November 2004. Mr.
Yu is currently the Secretary of China Merchants DiChain (Asia) Limited, a
holding company listed on the Stock Exchange of Hong Kong, Limited. From July
2002 to August 2004, Mr. Yu served as the Financial Controller and Company
Secretary of Matsunichi Communication Holdings Limited, an investment holding
company listed on the Stock Exchange of Hong Kong, Limited. From April 1997 to
June 2002, Mr. Yu served as the Group Chief Accountant of Continental Jewelry
(MFG.) Limited, a company listed on the Stock Exchange of Hong Kong, Limited.
Mr. Yu is currently a member of Australian Society of Certified Practising
Accountants and a member of Hong Kong Institute of Certified Public Accountants.
COMPENSATION
During the fiscal year ended December 31, 2004, the directors and officers of
the Company, as a group, had received or charged the Company a total of $31,410
for services rendered by the directors and officers or companies owned by the
individuals. No amounts were set aside or accrued by the Company to provide
pension, retirement or similar benefits.
EMPLOYEES
As at December 31, 2004, the Company had no full-time employees in the area of
management and administration.
SHARE OWNERSHIP
The following table sets forth certain information regarding ownership of the
Company's common shares by the Company's officers and directors as of August 15,
2005.
9
SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS NAME AND ADDRESS OF OWNER OWNED OR CONTROLLED (1)<F1> PERCENT OF CLASS (1)<F1>
Common Stock FAN Di (2)<F2> 20,772,330 64.3%
Unit 3611, 36/F, West Tower, Shun Tak
Centre, 168-200 Connaught Road
Central, Hong Kong
Common Stock ZHOU Li Yang 0 0%
Common Stock YU Wai Kit 0 0%
- ----------------------
<FN>
(1)<F1> Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants within 60 days from August 15, 2005, these additional shares
are deemed to be outstanding for the purpose of computing the
percentage of common stock owned by such persons, but are not deemed to
be outstanding for the purpose of computing the percentage owned by any
other person. Based on 32,312,513 shares of common stock outstanding as
of August 15, 2005.
(2)<F2> These shares are held of record by China Merchants DiChain Investment
Holdings Limited. As Dr. FAN is a director of China Merchants DiChain
Investment Holdings Limited and a director of the sole controlling
shareholder of China Merchants DiChain Investment Holdings Limited, he
is deemed to be beneficial owner of these shares.
</FN>
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
================================================================================
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding ownership of the
Company's common shares by the beneficial owners of 5% or more of each class of
the Company's voting securities as of August 15, 2005.
SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS NAME AND ADDRESS OF OWNER OWNED OR CONTROLLED (1)<F1> PERCENT OF CLASS (1)<F1>
Common Stock China Merchants DiChain Investment 20,772,330 64.3%
Holdings Limited (2)<F2>
Unit 3611, 36/F, West Tower, Shun Tak
Centre, 168-200 Connaught Road
Central, Hong Kong
Common Stock Dr. FAN Di (2)<F2> 20,772,330 64.3%
Unit 3611, 36/F, West Tower, Shun Tak
Centre, 168-200 Connaught Road
Central, Hong Kong
Common Stock Gush Intelligence Limited 2,000,000 6.2%
C/o 16/F Chinese Bank Bldg.
61 Des Veoux Road
Central, Hong Kong
Common Stock Poly Crown Limited 1,929,450 6.0%
C/o 16/F Chinese Bank Bldg.
61 Des Veoux Road
Central, Hong Kong
- -------------------
<FN>
(1)<F1> Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants within 60 days from August 15, 2005, these additional shares
are deemed to be outstanding for the purpose of computing the
percentage of common stock owned by such persons, but are not deemed to
be outstanding for
10
the purpose of computing the percentage owned by any other person.
Based on 32,312,513 shares of common stock outstanding as of August 15,
2005.
(2)<F2> These shares are held of record by China Merchants DiChain Investment
Holdings Limited. As Dr. FAN is a director of China Merchants DiChain
Investment Holdings Limited and a director of the sole controlling
shareholder of China Merchants DiChain Investment Holdings Limited, he
is deemed to be beneficial owner of these shares.
</FN>
CONTROL BY FOREIGN GOVERNMENT OR OTHER PERSONS
As of August 15, 2005, the Company was 64.3% indirectly owned by DiChain
Holdings Limited, a investment holding company located in Hong Kong.
None of the Company's common shareholders has different voting rights than any
of the Company's other common shareholders.
CHANGES IN SHAREHOLDINGS
China Merchants DiChain Investment Holdings Limited acquired its shares in May
2004. Prior to that date, it did not own any shares of the Company.
CHANGE OF CONTROL
As of the date of this annual report, there are no arrangements known to the
Company that may at a subsequent date result in a change of control of the
Company.
UNITED STATES SHAREHOLDERS
As of August 15, 2005, there were 75 registered holders of the Company's common
shares in the United States, with combined holdings of 456,857 shares,
representing 1.4% of the issued shares of the Company. In addition, CEDE & Co
held 4,119,346 shares of record, representing 12.7% of the issued shares of the
Company. The Company does not know how many beneficial shareholders it has in
the United States, but management believes there are less than 300 such
shareholders.
RELATED PARTY TRANSACTIONS
Other than as disclosed below, for the period from October 1, 2003 through
December 31, 2004, the Company has not entered into any transactions or loans
between the Company and any (a) enterprises that directly or indirectly through
one or more intermediaries, control or are controlled by, or are under common
control with, the Company; (b) associates; (c) individuals owning, directly or
indirectly, an interest in the voting power of the Company that gives them
significant influence over the Company, and close members of any such
individuals' family; (d) key management personnel and close members of such
individuals' families; or (e) enterprises in which a substantial interest in the
voting power is owned, directly or indirectly, by any person described in (c) or
(d) or over which such a person is able to exercise significant influence.
The Company's corporate office is located at Unit 3611, 36/F, West Tower, Shun
Tak Centre, 168-200 Connaught Road Central, Hong Kong. The Company shares the
offices of China Merchants DiChain and is allocated HK$10,000 (US$1,287 as of
August 15, 2005) as its pro rata share of the cost of the facility. There is no
written agreement regarding this office sharing arrangement.
China Technology Global Corporation, a company indirectly owned by DiChain
Holdings Limited, and China Merchants DiChain (Asia) Limited have advanced
$203,273 and $89,059 to the Company, respectively, since October 1, 2003. These
advances have been made on an interest-free basis, with no fixed term or
repayment date.
INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND OTHER MANAGEMENT
No executive officers, directors, employees or former executive officers and
directors of the Company are indebted to
11
the Company. None of the directors, executive officers or proposed nominees of
the Company, nor any associate or affiliate of these individuals, is or has been
indebted to the Company since October 1, 2003.
ITEM 8. FINANCIAL INFORMATION.
================================================================================
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
DESCRIPTION PAGE
Audited Financial Statements for the Fifteen Months Ended
December 31, 2004, and the Year Ended September 30, 2003 F-1 to F-16
LEGAL PROCEEDINGS
The Company knows of no material, active or pending legal or arbitration
proceedings against it; nor is the Company involved as a plaintiff in any
material proceeding or pending litigation. There are no legal or arbitration
proceedings (including governmental proceedings pending or known to be
contemplated) which may have, or have had in the recent past, significant
effects on the Company's financial position or profitability.
DIVIDEND POLICY
The Company has not paid any dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate future. Any decision to
pay dividends on its common shares in the future will be made by the board of
directors on the Company on the basis of earnings, financial requirements and
other such conditions that may exist at that time.
SIGNIFICANT CHANGES
None.
ITEM 9. THE OFFER AND LISTING.
================================================================================
PRICE HISTORY
The common stock has been trading on the Over-The-Counter Bulletin Board
("OTCBB") since June 9, 1998 under the following symbols:
o MNGD - June 9, 1998 to March 1, 1999;
o CULE - March 1, 1999 to February 22, 2001;
o ETDN - February 22, 2001 to February 19, 2002;
o WREX - February 19, 2002 to March 25, 2004;
o CPCL - March 25, 2004 to August 26, 2004; and
o CPICF - since August 26, 2004.
There have been no trading suspensions imposed by the OTCBB or any other
regulatory authorities in the past three years.
The following table sets forth the market price ranges and the aggregate volume
of trading of the common shares of the Company on the OTCBB, and predecessor
exchanges, for the periods indicated:
12
OTCBB STOCK TRADING ACTIVITY
SALES PRICE
YEAR ENDED VOLUME HIGH LOW
December 31, 2004 4,633,887 $8.95 $0.0265
September 30, 2003* 936,022 $0.149 $0.02
September 30, 2002 3,645,100 $1.02 $0.10
September 30, 2001 6,107,200 $2.50 $0.02
September 30, 2000 40,835,000 $1.8438 $0.08
- ------------------
* Fifteen-months ended September 30, 2003
SALES PRICE
QUARTER ENDED VOLUME HIGH LOW
June 30, 2005 754,155 $0.15 $0.055
March 31, 2005 1,576,396 $0.60 $0.10
December 31, 2004 318,371 $3.90 $0.40
September 30, 2004 57,303 $3.25 $1.27
June 30, 2004 66,522 $6.75 $2.00
March 31, 2004 4,191,691 $8.95 $0.0265
December 31, 2003 36,422 $0.03 $0.025
September 30, 2003 56,100 $0.05 $0.03
June 30, 2003 195,700 $0.11 $0.026
March 31, 2003 159,600 $0.04 $0.03
December 31, 2002 488,200 $0.149 $0.02
September 30, 2002 1,019,300 $0.29 $0.10
SALES PRICE
MONTH ENDED VOLUME HIGH LOW
June 30, 2005 161,202 $0.095 $0.06
May 31, 2005 148,700 $0.09 $0.055
April 30, 2005 444,253 $0.15 $0.06
March 31, 2005 287,294 $0.23 $0.13
February 28, 2005 432,180 $0.25 $0.155
January 31, 2005 856,922 $0.60 $0.10
December 31, 2004 178,523 $1.40 $0.40
November 30, 2004 118,163 $2.25 $1.30
October 31, 2004 21,685 $3.90 $2.25
September 30, 2004 24,850 $2.85 $1.27
August 31, 2004 8,643 $1.95 $1.27
July 31, 2004 23,810 $3.25 $1.90
These above quotations reflect inter-dealer prices without retail mark-up,
markdown, or commissions and may not necessarily represent actual transactions.
ITEM 10. ADDITIONAL INFORMATION.
================================================================================
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company is incorporated in the Territory of the British Virgin Islands under
the International Business Companies Act, Cap. 291, IBC No. 569163. The
Company's objects and purposes, found in paragraph 4 of the Memorandum of
13
Association, are general in nature and permit the Company to engage in any
business, acts, or activities which are not prohibited under any law for the
time being in force in the British Virgin Islands.
There are no provisions in the Company's Articles of Association that limit a
director's power to vote on a matter in which he is materially interested, to
vote compensation to himself or any other director in the absence of an
independent quorum, or to vote on matters regarding borrowings by the Company.
There are no retirement age requirements, and there are no shareholding
requirements to qualify as a director.
The Company has only one class of stock: ordinary (or common) shares. The
holders of ordinary shares do not have dividend rights, are entitled to one vote
for each share held of record on all matters submitted to the stockholders, do
not have rights to share in the Company's profits, have rights to share in any
surplus in the event of liquidation, do not have redemption or sinking fund
provisions, are not liable to further capital calls by the Company, and are not
subject to any provisions discriminating against any existing or prospective
holder of such securities as a result of such shareholder owning a substantial
number of shares.
In order to change the rights of holders of any class of the Company's stock,
the Memorandum of Association must be amended by a majority vote of the
Company's shareholders and of the holders of any class of stock whose rights are
changed.
Annual or special meetings of the Company's shareholders are called by the
directors at any time or place of their choosing and must be called upon the
written request of shareholders holding ten percent (10%) or more of the
outstanding shares of the Company's common stock. At least seven days notice of
a shareholders' meeting must be given. A shareholder may be represented at a
meeting by a proxy who may speak and vote on behalf of the shareholder.
There are no limitations on the rights to own the Company's securities or the
rights of non-residents or foreign shareholders to hold or exercise voting
rights on the securities imposed by foreign law or the Company's constituent
documents.
There are no provisions in the Company's Memorandum or Articles of Association
that would have an effect on delaying, deferring or preventing a change in
control of the Company and that would operate only with respect to a merger,
acquisition or corporate restructuring involving the Company or any of its
subsidiaries.
There are no provisions in the Company's Articles of Association governing an
ownership threshold above which shareholder ownership must be disclosed.
With regard to the foregoing matters, the laws in the British Virgin Islands are
not significantly different than those in the United States.
There are no conditions in the Memorandum and Articles of Association governing
changes in the Company's capital or changes in the rights of holders of any
class of its stock that are more stringent than is required by law.
MATERIAL CONTRACTS
The following are material contracts entered into by the Company during the two
years preceding the date of this annual report:
1. Share Exchange Agreement with Langara Group, Inc. dated October 6,
2003, relating to the sale of Langara Entertainment, Inc. by the
Company for 25% of the then issued and outstanding stock of Langara
Group, Inc.
2. Share Exchange Agreement with Fly.com, Inc. dated October 1, 2003,
relating to the sale of EntertainMe.com, an e-commerce portal by the
Company for 250,000 preferred shares of Fly.com, Inc..
3. Share Exchange Agreement with China Merchants DiChain Investment
Holdings Limited dated February 13, 2004, relating to the acquisition
of 100% of a company to be approved by the Company's board of directors
in exchange for 45,000,000 post-reverse split shares of the Company's
common stock.
14
4. Sale and Purchase Agreement in relation to the entire issued share
capital of Sheung Tai Investments Limited dated May 24, 2004, which
provided for the acquisition of Sheung Tai Investments Limited by the
Company in exchange for 13,848,220 post-reverse split shares of the
Company's common stock.
5. Agreement Dated January 19, 2005 Between Good Achieve Investments
Limited, Profit Spring International Limited, Anmer Capital Limited,
Dunkley International Limited, and Nation Express Limited (As Vendors);
Han Hong Lu, Ma Leung, Alan Li, Chen Ming You, and Guo Jianjun (As
Warrantors); China Pharmaceuticals International Corporation (As
Purchaser); and Dichain Holdings Limited (As Guarantor), which provided
for the sale of Sheung Tai Investments Limited back to the original
owners thereof in exchange for the return of 13,848,220 post-reverse
split shares of the Company's common stock.
EXCHANGE CONTROLS
The Company's business is conducted in and from Hong Kong and the People'
Republic of China (the "PRC") in Hong Kong dollars and the PRC Renminbi.
Periodic reports made to U.S. shareholders are expressed in U.S. dollars using
the then-current exchange rates.
The PRC Government imposes foreign currency control in part through direct
regulation of the conversion of Renminbi into foreign exchange and through
foreign trade restrictions. The conversion of the Renminbi into U.S. dollars
must be based on the People's Bank of China ("PBOC") Rate. The PBOC Rate is set
based on the previous day's PRC interbank foreign exchange market rate and with
reference to current exchange rates on the world financial markets. In line with
the unification of the two exchange rates, the Renminbi was revalued at
HK$1.00=RMB1.12 and US$1.00=RMB8.70 on January 3, 1994. Since revaluation, the
exchange rate has fluctuated between a range of US$1.00 = RMB8.30 and US$1.00 =
RMB8.70.
The Hong Kong dollar is freely convertible into the U.S. dollar. Since October
17, 1983, the Hong Kong dollar has been pegged to the U.S. dollar at HK$7.80 to
US$1.00. The central element in the arrangements for the peg is an agreement
between the Hong Kong government and the three Hong Kong banknote issuing banks,
HSBC, Standard Chartered Bank and the Bank of China. Under the agreement,
certificates of indebtedness, which are issued by the Hong Kong Government
Exchange Fund to the banknote issuing bank to be held as cover for their
banknote issues, are issued and redeemed only against payment in U.S. dollars,
at the fixed exchange rate of US$1.00 = HK$7.80. When the bank notes are
withdrawn from circulation, the banknote issuing banks surrender the
certificates of indebtedness to the Hong Kong Government Exchange Fund and are
paid the equivalent of U.S. dollars at the fixed rate. Exchange rates between
the Hong Kong dollar and other currencies are influenced by the linked rate
between the U.S. dollar and the Hong Kong dollar.
The market exchange rate of the Hong Kong dollar against the U.S. dollar
continues to be determined by the forces of supply and demand in the foreign
exchange market. However, against the background of the fixed rate system which
applies to the issue of Hong Kong currency in the form of bank notes, as
described above, the market exchange rate has not deviated significantly from
HK$7.80 to US$1.00. See "Selected Financial Data" in Item 3 of this annual
report. The Hong Kong government has stated its intention to maintain the link
at that rate. The Hong Kong government has stated that is has no intention of
imposing exchange controls in Hong Kong and that the Hong Kong dollar will
remain freely convertible into other currencies (including the U.S. dollar). The
PRC and the United Kingdom agreed in 1984 pursuant to the Joint Declaration of
the Government of the United Kingdom of Great Britain and Northern Ireland and
the Government of the People's Republic of China on the Question of Hong Kong
("the Joint Declaration") that, after Hong Kong became a special administrative
region of the PRC (the "SAR") on July 1, 1997, the Hong Kong dollar will
continue to circulate and remain freely convertible. However, no assurance can
be given that the SAR government will maintain the peg at HK$7.80 to US$1.00, if
at all.
TAXATION
There are no British Virgin Islands ("BVI") governmental laws, decrees or
regulations affecting the remittance of dividends or other payments to
nonresident holders of the Company's securities. U.S. holders of the Company's
securities are subject to no taxes or withholding provisions under existing BVI
laws and regulations. By reason of the
15
fact that the Company conducts no business within the BVI, there are no
applicable reciprocal tax treaties between the BVI and the U.S. that would
affect the preceding statement that there are no BVI taxes, including
withholding provisions, to which U.S. security holders are subject under
existing laws and regulations of the BVI.
DOCUMENTS ON DISPLAY
The constituent documents concerning the Company may be inspected at the offices
of its U.S. counsel, Dill Dill Carr Stonbraker & Hutchings, P.C., 455 Sherman
Street, Suite 300, Denver, Colorado 80203, Attn.: Fay M. Matsukage, Esq.
The Company's documents publicly filed with the Securities and Exchange
Commission may also be viewed and inspected at the SEC's Public Reference Room
located at 100 F Street, N.E., Room 1580, Washington, DC 20549. Copies may also
be obtained from the SEC at prescribed rates.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
================================================================================
Not applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
================================================================================
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
================================================================================
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
================================================================================
The Company has changed its domicile. See "Item 4. Information on the Company -
History and Development of the Company", "Item 10. Additional Information -
Memorandum and Articles of Association." These actions have affected the rights
of the Company's common shareholders.
ITEM 15. CONTROLS AND PROCEDURES
================================================================================
An evaluation was performed under the supervision and with the participation of
the Company's management, including Dr. FAN Di and ZHOU Li Yang, the Company's
Chief Executive Officer and Chief Financial Officer, respectively, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934
(the "Exchange Act") as of December 31, 2004. Based upon that evaluation, Dr.
Fan and Mr. Zhou concluded that the Company's disclosure controls and procedures
are effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission's rules and forms.
During the fiscal year ended December 31, 2004, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
16
ITEM 16. [RESERVED]
================================================================================
Not applicable.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
================================================================================
The Board of Directors has determined that the Company has at least one member
who is a financial expert, Mr. ZHOU Li Yang. Mr. ZHOU is not considered to be an
"independent director" as that term is defined in Rule 4200(a)(15) of the
National Association of Securities Dealers.
ITEM 16B. CODE OF ETHICS.
================================================================================
The Company has not yet adopted a code of ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer, or controller, or persons performing similar functions. Given the
Company's current operations, management does not believe a code of ethics is
necessary at this stage of the Company's development.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
================================================================================
AUDIT FEES
For the fiscal years ended September 30, 2003 and December 31, 2004, the
Company's principal accountant billed $40,500 and $40,000, respectively, for the
audit of the Company's annual financial statements or services that are normally
provided by the accountant in connection with statutory and regulatory filings
or engagements for those fiscal years.
AUDIT-RELATED FEES
For the fiscal years ended September 30, 2003 and December 31, 2004, the
Company's principal accountant billed $nil and $nil, respectively, for assurance
and related services that were reasonably related to the performance of the
audit or review of the Company's financial statements outside of those fees
disclosed above under "Audit Fees".
TAX FEES
For the fiscal years ended September 30, 2003 and December 31, 2004, the
Company's principal accountant billed $5,000 and $nil, respectively, for tax
compliance, tax advice, and tax planning services.
ALL OTHER FEES
For the fiscal years ended September 30, 2003 and December 31, 2004, the
Company's principal accountant billed $nil and $nil, respectively, for products
and services other than those set forth above.
PRE-APPROVAL POLICIES AND PROCEDURES
Prior to engaging the Company's accountants to perform a particular service, the
Company's board of directors obtains an estimate for the service to be
performed. The Company's board of directors reviews and pre-approves all audit
and audit-related services and the fees and other compensation related thereto,
and any non-audit services provided by the Company's external auditors. The
board of directors in accordance with procedures for the Company approved all of
the services described above.
17
At no time since the commencement of the Company's most recently completed
financial year has the Company relied on the waiver in paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
PRINCIPAL ACCOUNTANT SERVICES
To the best of the Company's knowledge, the percentage of hours expended on the
Company's principal accountant's engagement to audit the Company's financial
statements for the fiscal year ended December 31, 2004, that were attributed to
work performed by persons other than the principal accountant's full-time
permanent employees was less than fifty percent (50%).
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
================================================================================
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
================================================================================
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
================================================================================
Not applicable.
ITEM 18. FINANCIAL STATEMENTS.
================================================================================
See page F-1 to F-16.
ITEM 19. EXHIBITS.
================================================================================
EXHIBIT
NUMBER DESCRIPTION PAGE
1.1 Memorandum and Articles of Association (1) N/A
4.1 Share Exchange Agreement with Langara Group, Inc. (2) N/A
4.2 Share Exchange Agreement with Fly.com, Inc. for
EntertainMe.com e-Commerce portal (2) N/A
4.3 Share Exchange Agreement with China Merchants DiChain
Investment Holdings Limited (2) N/A
4.4 Sale and Purchase Agreement in relation to the entire
issued share capital of Sheung Tai Investments Limited
dated May 24, 2004 (3) N/A
4.5 Agreement Dated January 19, 2005 Between Good Achieve
Investments Limited, Profit Spring International Limited,
Anmer Capital Limited, Dunkley International Limited, and
Nation Express Limited (As Vendors); Han Hong Lu, Ma
Leung, Alan Li, Chen Ming You, and Guo Jianjun (As
Warrantors); China Pharmaceuticals International
Corporation (As
18
EXHIBIT
NUMBER DESCRIPTION PAGE
Purchaser); and Dichain Holdings Limited (As Guarantor)
12.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)
12.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)
13.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
13.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
(1) Incorporated by reference to the exhibits to the registrant's definitive
information statement filed July 20, 2004.
(2) Incorporated by reference to the exhibits to the registrant's annual report
on Form 10-KSB for the fiscal year ended September 30, 2003.
(3) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated May 24, 2004, filed May 27, 2004.
19
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
CHINA PHARMACEUTICALS INTERNATIONAL
CORPORATION
Dated: August 17, 2005 /S/ FAN DI
-----------------------------------------
FAN Di, Chief Executive Officer
20
BONGIOVANNI & ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANTS
17111 Kenton Drive, Suite 100-B
Cornelius, North Carolina 28031
================================================================================
To the Board of Directors and Stockholders:
China Pharmaceuticals International Corporation
Units 3207-8, 32/F.,
West Tower, Shun Tak Centre
168-200 Connaught Road Central, Hong Kong
We have audited the accompanying consolidated balance sheet of China
Pharmaceuticals International Corporation (a British Virgin Islands corporation)
and it's wholly owned subsidiary as of December 31, 2004 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the fifteen months ended December 31, 2004 and the twelve months ended September
30, 2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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
consolidated financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the consolidated financial position of China
Pharmaceuticals International Corporation and it's wholly owned subsidiary as of
December 31, 2004, and the consolidated results of its operations and its cash
flows for the fifteen months ended December 31, 2004 and the twelve months ended
September 30, 2003 in conformity with U.S. generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring losses, has
negative working capital, has a stockholders' deficit, and has yet to generate
an internal cash flow that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ BONGIOVANNI & ASSOCIATES
August 17, 2005
F-1
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSET
Investment $ 1,000
--------------------
TOTAL ASSET $ 1,000
====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Other payables and accrued liabilities $ 419,464
Advances from related parties 292,333
--------------------
TOTAL LIABILITIES 711,797
--------------------
STOCKHOLDERS' DEFICIT
Preferred stock, par value $0.0001 per share,
1,000,000 shares authorized, zero issued and outstanding -
Common stock, par value $0.0001 per share,
50,000,000 shares authorized, 46,160,733 issued and outstanding 4,616
Additional paid-in capital 4,907,673
Retained Deficit (5,623,086)
--------------------
TOTAL STOCKHOLDERS' DEFICIT (710,797)
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,000
====================
See the accompanying notes to the financial statements
F-2
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE FIFTEEN MONTHS ENDED DECEMBER 31, 2004
AND YEAR ENDED SEPTEMBER 30, 2003
2004 2003
SALES $ - 1,517,822
COST OF SALES - 1,172,590
------------------------------------------
GROSS PROFIT - 345,232
------------------------------------------
OPERATING EXPENSES
General and administrative expenses (366,004) (757,189)
Depreciation and amortization (19,717) (98,672)
Loss on disposal of subsidiaries (257,727) -
Interest expense and Other income, net - 50,164
------------------------------------------
TOTAL OPERATING EXPENSES (643,448) (805,697)
------------------------------------------
NET LOSS $ (643,448) (460,465)
==========================================
OTHER COMPREHENSIVE (LOSS)
Write down due to impairment of goodwill $ - (135,638)
------------------------------------------
Foreign currency translation adjustment (7,772) (26,953)
------------------------------------------
COMPREHENSIVE (LOSS) $ (651,220) (623,056)
==========================================
NET LOSS PER SHARE, BASIC AND DILUTED $ (0.023) (0.979)
==========================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, BASIC AND DILUTED 28,249,500 636,514
==========================================
See the accompanying notes to the financial statements
F-3
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE FIFTEEN MONTHS ENDED DECEMBER 31, 2004 AND YEAR ENDED SEPTEMBER 30, 2003
Total
Common Stock Additional Cumulative Stockholders'
Paid-in Retained Translation Equity
Number Amount Capital Deficit Adjustment (Deficit)
BALANCES
- - SEPTEMBER 30, 2002 260,733 $ 26 $ 4,421,223 $(4,348,810) $(34,725) $ 37,714
Issuance of shares for exchange
of note payable to stockholder 500,000 50 199,950 - - 200,000
Net loss for the year - - - (623,056) - (623,056)
Foreign currency
translation adjustment - - - - 26,953 26,953
-------------------------------------------------------------------------------------------
BALANCES
- - SEPTEMBER 30, 2003 760,733 $ 76 $ 4,621,173 $(4,971,866) $ (7,772) $ (358,389)
===========================================================================================
Foreign currency
translation adjustment - - - - 7,772 7,772
Issuance of shares for
an investment 13,848,220 1,385 (385) - - 1,000
Issuance of shares for exchange
of related party payable to stockholder 31,151,780 3,115 286,885 - - 290,000
Issuance of shares 400,000 40 - - - 40
Net loss for the 15 months - - - (651,220) - (651,220)
-------------------------------------------------------------------------------------------
BALANCES
- - DECEMBER 31, 2004 46,160,733 $4,616 $ 4,907,673 $(5,623,086) $ - $ (710,797)
===========================================================================================
NOTE: The effects of a 20 for 1 reverse split in 2004 are retroactively
applied above to all periods.
See the accompanying notes to the financial statements
F-4
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE FIFTEEN MONTHS ENDED DECEMBER 31, 2004 AND YEAR ENDED SEPTEMBER 30, 2003
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (643,448) $ (623,056)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 19,717 98,672
Loss on disposal of subsidiaries 257,727 -
Impairment to goodwill - 135,638
Cumulative translation adjustment 7,772 26,953
Changes in operating assets and liabilities:
Accounts receivable - (7,496)
Due from related parties - 121,890
Inventory - 247,793
Prepaid expenses and other current assets - 1,590
Accounts payable and accrued liabilities (1,044) 210,266
-------------- --------------
Total adjustments 283,472 835,306
-------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (359,976) 212,250
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (2,159)
-------------- --------------
NET CASH (USED IN) INVESTING ACTIVITIES - (2,159)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment on note payable - stockholder - (235,827)
Repayment to related parties (166,134) -
Advances from related parties 525,584 -
-------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 359,450 (235,827)
-------------- --------------
NET DECREASE IN CASH (526) (25,736)
CASH AT BEGINNING OF PERIOD 526 26,262
-------------- --------------
CASH AT END OF PERIOD $ - 526
============== ==============
Supplemental disclosures of non-cash investing and financing activities:
During the quarter ended December 31, 2002, the Company issued 10,000,000
shares of common stock in exchange for a $200,000
reduction to its note payable-stockholder $ - $ 200,000
============== ==============
During the quarter ended June 30, 2004, the Company issued 31,151,780 shares
of common stock in exchange for a $290,000
reduction to its related party payable to stockholder $ 290,000 $ -
============== ==============
See the accompanying notes to the financial statements
F-5
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The consolidated audited financial statements include the accounts of
China Pharmaceuticals International Corporation and its subsidiary
prepared under the accrual basis of accounting. All significant
intercompany balances and transactions have been eliminated in
consolidation.
BUSINESS ACTIVITY
China Pharmaceuticals International Corporation (the "Company") was
incorporated on November 25, 2003 in the British Virgin Islands. On
September 8, 2004, the Company merged with China Pharmaceuticals
Corporation ("CPC") and the Company is the surviving company of the
merger. CPC was incorporated on June 17, 1996 under the laws of the
State of Colorado and changed its domicile in February 2001 to the
State of Delaware. E-Trend Networks, Inc (E-Trend) and its subsidiary
Langara Entertainment, Inc. a former subsidiary was spun off by way of
a dividend distribution to the shareholders of record on April 22, 2004
and now operates independent of the Company. E-Trend was incorporated
on April 29, 1999 under the laws of the State of Nevada and is an
online "entertainment superstore", specializing in the sale of movies,
music, and electronics. The Company at the completion of its recent
reorganization, has changed its fiscal year end from September 30 to
December 31.
REVENUE RECOGNITION
Revenues derived from product sales are recognized on delivery of the
product. Wholesale sales are subject to potential returns by the
customer; however any such returns can be passed back to the Company's
supplier. Sales returns from retail customers are not significant.
Revenue includes shipping charges billed to customers, which charges
are based substantially on third-party shipping costs incurred.
The Company derives revenues from providing consulting services to
entities that are related by virtue of common control. The Company
recognizes revenue from these services at such time the entity
receiving the service has the ability to pay from funds generated from
operations or received from independent sources and collection is
reasonably assured. No revenue has been recognized for any period
presented.
F-6
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts, while
replacements, maintenance and repairs which do not extend the lives of
the respective assets are charged to expense currently.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying value of the asset.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets.
Amortization of leasehold improvements and property under capital
leases is computed on a straight-line basis over the shorter of the
estimated useful lives of the assets or the term of the lease. The
range of useful lives is between 3 and 10 years.
INCOME TAXES
The Company accounts for income taxes according to Statement of
Financial Accounting Standards No. 109, which requires a liability
approach to calculating deferred income taxes. Under this method, the
Company records deferred taxes based on temporary differences between
the tax bases of the Company's assets and liabilities and their
financial reporting bases. A valuation allowance is established when it
is more likely than not that some or all of the deferred tax assets
will not be realized.
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation using the fair value
method of Financial Accounting Standard No. 123. Shares issued for
services rendered by a third party are recorded at the fair value of
the shares issued or services rendered, whichever is more readily
determinable. The Company accounts for options and warrantrs under the
same authoritative guidance using the Black-Scholes Option Pricing
Model
F-7
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires that the Company disclose
estimated fair values for its financial instruments. The following
methods and assumptions were used by the Company in estimating the fair
values of each class of financial instruments disclosed herein:
CASH - The carrying amount approximates fair value because of the
short maturity of those instruments.
ADVANCES FROM RELATED PARTIES - The fair value of advances from
related parties are determined by calculating the present value
of the instruments using a current market rate of interest as
compared to the stated rate of interest and giving effect for the
right to offset with the note payable to stockholder in the event
of non-performance. At December 31, 2004, the fair value
approximates the carrying value.
CONCENTRATION OF REVENUE
No revenues were recorded for the fifteen months ended December 31,
2004 since there was no business activity in 2004. Revenues from VHQ
Entertainment, Inc. ("VHQ"), a former shareholder, accounted for
approximately 28% of total revenue for the year ended September 30,
2003.
NET LOSS PER SHARE
The Company applies Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (FAS 128) which requires dual presentation of
net earnings (loss) per share: Basic and Diluted. Basic earnings (loss)
per share are computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding
during the period adjusted for the effect of dilutive outstanding
options and warrants. Outstanding stock options and warrants were not
considered in the calculation of diluted net loss per share as their
effect was anti-dilutive.
F-8
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
SEGMENT REPORTING
The Company applies Financial Accounting Standards Boards ("FASB")
statement No. 131, "Disclosure about Segments of an Enterprise and
Related Information". Since there was no business activity in 2004, the
Company determined that it did not have any material, separately
reportable operating segments as of December 31, 2004. The Company
considered its operations and determined that it operated in three
operating segments for purposes of presenting financial information and
evaluating performance in 2003. As such, the accompanying financial
statements present information in a format that is consistent with the
financial information used by management for internal use.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the respective
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is the Hong Kong dollar. The
functional currency of the former subsidiaries, E-Trend and Langara is
the Canadian dollar. Accordingly all assets and liabilities are
translated into United States ("US") dollars at the year-end exchange
rate and revenues and expenses are translated at average exchange
rates. Gains and losses arising from the translation of the financial
statements of the Company are recorded in a "Cumulative Translation
Adjustment" account in stockholders' equity.
Transactions denominated in other than US dollars are translated at the
exchange rate on the transaction date. Monetary assets and liabilities
denominated in other than US dollars are translated at the exchange
rate in effect on the balance sheet date. The resulting exchange gains
and losses on these items are included in operations.
CASH AND CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, the Company considers
liquid investments with an original maturity of three months or less to
be cash equivalents.
F-9
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantee,
Including Indirect Guarantees or Indebtedness of Others", which
addresses the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees. FIN
45 also requires the recognition of a liability by a guarantor at the
inception of certain guarantees that are entered into or modified after
December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment to
SFAS No. 123" ("SFAS No. 148"), which provides alternative methods of
transition for companies voluntarily planning on implementing the fair
value recognition provisions of SFAS No. 123. SFAS No. 148 also revises
the disclosure provisions of SFAS No. 123 to require more prominent
disclosure of the method of accounting for stock-based compensation,
and requiring disclosure of pro forma net income and earnings per share
as if the fair value recognition provisions of SFAS No. 123 had been
applied from the original effective date of SFAS No. 123. The Company
adopted the disclosure provisions of SFAS No. 148 for the quarters
ending after December 15, 2002.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities". FIN No. 46 requires the consolidation of entities
that cannot finance their activities without the support of other
parties and that lack certain characteristics of a controlling
interest, such as the ability to make decisions about the entity's
activities via voting rights or similar rights. The entity that
consolidates the variable interest entity is the primary beneficiary of
the entity's activities. FIN No. 46 applies immediately to variable
interest entities created after January 31, 2003, and must be applied
in the first period beginning after June 15, 2003 for entities in which
an enterprise holds a variable interest entity that it acquired before
February 1, 2003. The adoption of this standard did not have any impact
on the Company's financial statements.
In January 2003, the EITF released Issue No. 00-21, ("EITF 00-21"),
"Revenue Arrangements with Multiple Deliveries", which addressed
certain aspects of the accounting by a vendor for arrangement under
which it will perform multiple revenue-generating activities.
Specifically, EITF 00-21 addresses whether an arrangement contains more
than one unit of accounting and the measurement and allocation to the
separate units of accounting in the arrangement. EITF 00-21 is
F-10
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS(CONT.)
effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of this standard did not
have an impact on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of this
standard did not have any impact on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how companies classify
and measure certain financial instruments with characteristics of both
liabilities and equity. It requires companies to classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003. The standard did not
impact the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123(R), "Accounting for
Stock-Based Compensation". SFAS No. 123(R) establishes standards for
the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SGAS 123(R) requires that
the fair value of such equity instruments be recognized as expense in
the historical financial statements as services are performed. Prior to
SFAS 123(R), only certain pro-forma disclosures of fair value were
required. SFAS 123(R) shall be effective for the Company as of the
beginning of the first interim or annual reporting period that begins
after December 15, 2005. The adoption of this new accounting
pronouncement is expected to have a material impact on the financial
statements of the Company commencing with the third quarter of the year
ending September 30, 2006. Small business issuers need not comply with
the new standard until fiscal periods beginning after December 15,
2005. The Company already records the expense of employee stock options
for annual and quarterly periods on fair value calculation according to
SFAS No.123.
F-11
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS(CONT.)
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" (SFAS
151). This Statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material
(spoilage). SFAS 151 requires that those items be recognized as
current-period charges. In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The
provisions of SFAS No. 151 are effective for inventory costs incurred
in fiscal years beginning after June 15, 2005.
In December 2003, the issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition," rescinded the accounting guidance contained in
SAB No. 101, "Revenue Recognition in Financial Statements," and
incorporated the body of previously issued guidance related to
multiple-element revenue arrangements. The Company's adoption of SAB
No. 104 did not have any impact on its consolidated financial
statements.
In March 2004, the FASB ratified EITF Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments" ("EITF 03-1"), but delayed the recognition and measurement
provisions of EITF 03-1 in September 2004. For reporting periods
beginning after June 14, 2004, only the disclosure requirements for
available-for-sale securities and cost method investments are required.
The Company's adoption of the requirements did not have a significant
impact on the Company's consolidated disclosures.
In July 2004, the FASB issued EITF Issue No. 02-14, "Whether an
Investor Should Apply the Equity Method of Accounting to Investments
Other than Common Stock" ("EITF 02-14"). EITF 02-14 requires
application of the equity method of accounting when an investor is able
to exert significant influence over operating and financial policies of
an investee through ownership of common stock or in-substance common
stock. EITF 02-14 is effective for reporting periods beginning after
September 15, 2004. The adoption of EITF 02-14 will not have a
significant impact on the Company's consolidated financial statements.
F-12
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 2. GOING CONCERN (LIQUIDITY AND CAPITAL RESOURCES)
- --------------------------------------------------------------------------------
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, which contemplates continuation of the
Company as a going concern. Going concern assumes that the Company will
continue in operations for the foreseeable future and will be able to
realize its assets and discharge its liabilities in the normal course
of operations.
The Company has incurred substantial losses and negative cash flows
from inception through December 31, 2004. In the absence of achieving
positive cash flows from operations or obtaining additional debt or
equity financing, the Company may have difficulty meeting obligations
as they become due, and may be forced to discontinue operations.
- --------------------------------------------------------------------------------
NOTE 3. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
RELATED PARTIES PAYABLE STOCKHOLDER
China Technology Global Corporation, a company indirectly owned by
DiChain Holdings Limited, and China Merchants DiChain (Asia) Limited
("China Merchants DiChain") have advanced $203,274 and $89,059 to the
Company, respectively, since October 1, 2003. These advances have been
made on an interest-free basis, with no fixed term or repayment date.
On May 24, 2004, the Company issued 31,151,780 shares of common stock
to China Merchants DiChain Investment Holdings Limited and its
designees for approximately $290,000 in debt conversion and assumption
of costs of the transaction.
At September 30, 2003, the Company owed a total of $268,108 to eAngels
EquiDebt Partners V ("eAngels"). The notes bear interest at 10% per
year and are due on July 1, 2004. For the year ended September 30,
2003, interest expense related to these notes totaled $60,563. These
notes are not required to be repaid to the extent that the advances due
from related parties discussed below are not collected.
On December 24, 2002, the Company issued 10,000,000 shares of common
stock to eAngels in exchange for a $200,000 reduction to its note
payable balance.
F-13
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 2. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
ACCOUNTS PAYABLE OFFICERS AND DIRECTORS
At December 31, 2004, no executive officers, directors, employees or
former executive officers and directors of the Company are indebted to
the Company.
SHARE OF BUSINESS OFFICES
The Company shares the offices of China Merchants DiChain and is
allocated HK$10,000 per month (US$1,287 as of August 15, 2005) as its
pro rata share of the cost of the facility. There is no written
agreement regarding this office sharing arrangement.
- --------------------------------------------------------------------------------
NOTE 4. BUSINESS SEGMENT INFORMATION
- --------------------------------------------------------------------------------
No business segment information has been provided for 2004, because
there was no business activity of the Company in 2004.
In 2003, principally all operations of Langara are conducted in Canada.
Information about operating segments is as follows:
September 30, 2003 Parent E-Trend Langara Total
------------------------------------------------------------------------------------------------
Revenues from external
customers $ 5,887 $ 300,772 $ 1,211,173 $ 1,517,832
Intersegment revenues 120,000 - 240,633 360,633
Segment loss ( 146,779) ( 361,157) ( 115,120) ( 623,056)
------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 5. SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
Subsequent to year-end, the Company entered into an agreement dated
January 19, 2005 between Good Achieve Investments Limited, Profit
Spring International Limited, Anmer Capital Limited, Dunkley
International Limited, and Nation Express Limited (As Vendors); Han
Hong Lu, Ma Leung, Alan Li, Chen Ming You, and Guo Jianjun (As
Warrantors); China Pharmaceuticals International Corporation (As
Purchaser); and Dichain Holdings Limited (As Guarantor), which provided
for the sale of Sheung Tai Investments Limited back to the original
owners thereof in exchange for the return of 13,848,220 post-reverse
split shares of the Company's common stock. The transaction from 2004
was officially rescinded and control never actually occurred.
F-14
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 6. LEASE COMMITMENTS
- --------------------------------------------------------------------------------
The Company has no lease commitments at of December 31, 2004.
The Company shares the offices of China Merchants DiChain and is
allocated HK$10,000 per month (US$1,287 as of August 15, 2005) as its
pro rata share of the cost of the facility. Rent expense for the year
ended September 30, 2003 was $33,000.
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES
- --------------------------------------------------------------------------------
The components of income taxes were as follows:
2004 2003
----------------------------------------------------------------------------------------------
Income Tax Benefit
Income tax benefit at combined statutory rate
of 42.62% $ 263,050 $ 246,800
Change in Valuation Allowance ( 263,050) ( 246,800)
----------------------------------------------------------------------------------------------
Income Tax Benefit $ - $ -
==============================================================================================
The income tax benefit for the years ended December 31, 2004 and
September 30, 2003, differed from the combined federal and provincial
statutory rates due principally to the increase in the deferred tax
asset valuation allowance.
Due to mainly operating losses and the inability to recognize an income
tax benefit there from, there is no provision for current federal or
state income taxes for the years ended December 31, 2004 and September
30, 2003.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amount used for federal and state
income tax purposes.
At December 31, 2004, the approximate deferred tax assets were as
follows:
Non-capital loss carryforwards $ 1,928,050
Capital assets 45,000
-----------------------------------------------------------------------
Total deferred tax assets 1,973,050
Less valuation allowance ( 1,973,050)
-----------------------------------------------------------------------
$ -
=======================================================================
F-15
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2003
================================================================================
- --------------------------------------------------------------------------------
NOTE 8. INVESTMENT
- --------------------------------------------------------------------------------
The Company's investment in Sheung Tai Investments Limited was
originally recorded at $1,384, reflecting the 13,848,220 shares issued
to acquire that company at $0.0001 per share. The Company later reduced
this amount to $1,000 to reflect a write down to fair value of the
transaction. See Note 5. Subsequent Events.
- --------------------------------------------------------------------------------
NOTE 9. STOCK OPTIONS
- --------------------------------------------------------------------------------
Upon the disposition of E-Trend Networks, Inc. in February 2004, all of
the stock options that had been granted to its employees, officers, and
directors were terminated. There have been no option grants during the
fifteen months ended December 31, 2004 or year ended September 30,
2003.
- --------------------------------------------------------------------------------
NOTE 10. LOSS ON DISPOSAL OF SUBSIDIARIES
- --------------------------------------------------------------------------------
In October 2003, E-Trend Networks, Inc., then a subsidiary of the
Company, disposed of its operating subsidiary and asset, Langara
Entertainment, Inc. and EntertainMe.com, for equity stakes in Langara
Group, Inc. and Fly.com, Inc. In February 2004, the Company spun out as
a dividend to the shareholders on a 1-for-1 share basis shares of
E-Trend Networks, Inc. As a result of these dispositions, the Company
recognized a loss of $257,727.
F-16