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, 2005
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
or
[ ] Shell Company Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of event requiring this shell company report . . . . . . . . .
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)
ROOM A, 22/F, NOBLE CENTER, 3RD FU ZHONG ROAD, FU TIAN DISTRICT
518026, SHEN ZHEN, GUANG DONG PROVINCE, CHINA
(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.
79,758,837 COMMON SHARES AS OF DECEMBER 31, 2005
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. [ ] Yes [X] No
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark which financial statement item the registrant has elected
to follow. [ ] Item 17 [X] Item 18
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
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 and 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 year ended December 31, 2005
and the fifteen months ended December 31, 2004, 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, 2003, 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."
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FIFTEEN
DECEMBER 31, MONTHS ENDED 2003 2002 2001 2000
2005 2004
- ------------------------------------------------------------------------------------------------------------------------------
Revenues $ - $ - $ 1,517,822 $ 2,014,696 $ 2,139,804 $ 665,075
- ------------------------------------------------------------------------------------------------------------------------------
Loss from operations $ (714,335) $ (715,438) $ (699,856) $(1,115,911) $(2,211,204) $ (811,156)
- ------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations $ (714,335) $ (715,438) $ (699,856) $(1,115,911) $(2,211,204) $ (811,156)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $ (714,335) $ (715,438) $ (699,856) $(1,115,911) $(2,211,204) $ (811,156)
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (714,335) $ (723,210) $ (726,809) $(1,099,915) $(2,211,204) $ (811,156)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ (0.015) $ (0.026) $ (1.142) $ (4.22) $ (8.94) $ (294.17)
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ - $ 1,000 $ 318,808 $ 940,408 $ 1,465,659 $ 3,090,476
- ------------------------------------------------------------------------------------------------------------------------------
3
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FIFTEEN
DECEMBER 31, MONTHS ENDED 2003 2002 2001 2000
2005 2004
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (deficit) $(1,082,485) $ (886,540) $ (358,389) $ 37,714 $ 954,621 $ 2,814,075
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
Shares 47,973,021 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, 2005, the Company had no cash and a working capital deficit
of $1,082,485. It currently has no business operations. Without additional
funding and/or a business opportunity, the Company may not continue to exist. As
a result, for the year ended December 31, 2005, the Company's auditors, in Note
2 of the Financial Statements, have noted that there is substantial doubt about
the Company's ability to continue as a going concern. The Company's existence is
dependent upon management funding operations and raising sufficient capital. At
this point in time, it is impossible to state an amount of additional funding
which the Company believes would remove the going concern opinion.
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 the company. In particular, the per share price of the Company's
common shares fluctuated from a low of $0.02 to a high of $0.28 during the
12-month period ending June 30, 2006. 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
4
and in good faith with a view to the best interests of the Company and to
disclose any interest which they may 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.
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 officer, Dr. FAN Di,
a director, and President, Chief Executive Officer and acting Chief Financial
Officer of the Company. The loss of services of Dr. Fan 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 stocks." 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 $5.00 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.
5
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 is a resident 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 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 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
shares of its wholly owned subsidiary, E-Trend Networks, Inc. as a dividend to
the shareholders on a 1 for 1 share basis. 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. The distribution of Langara Entertainment, Inc.,
E-Trend Networks, Inc. and the discontinued operations of Wilmington Rexford,
Inc. qualified for treatment as discontinued operations in accordance with FASB
Statement No. 144 ("SFAS No. 144"), Accounting for the Impairment or Disposal of
Long-Lived Assets. Because the operating results of Langara Entertainment, Inc.,
E-Trend Networks, Inc. and the discontinued operations of Wilmington Rexford,
Inc. represent 100% of operations of the Company, they were included in results
from continuing operations.
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 owned 87.475% of
Zheda Pharmacy.
6
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 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) Ltd, Palm Grove House, P.O.
Box 438, Road Town, Tortola, British Virgin Islands. Its principal business
office has been located at Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu
Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China since October
1, 2005. The telephone number is 86.755. 3398 3366 and the facsimile number is
86.755.3398 3368. The Company does not have a registered agent in the United
States.
On September 21, 2005, the Company issued a total of 45,200,000 shares of its
common stock to six buyers. As of the date of this filing, the buyers have not
settled the subscription money and $452,000 is still owed to the Company. It is
uncertain whether the Company will be able to collect the subscription money. As
a result, management has recorded an allowance for doubtful stock subscriptions
receivable of $452,000 to reflect this uncertainty. Pursuant to its Articles of
Association, the Company may, upon written notice to the six buyers, treat the
unpaid for shares as cancelled shares, but has not opted to do so as of the date
of this filing. Furthermore, pursuant to the subscription agreements, the
Company accrued interest on the Subscription Receivable at the rate of Hong Kong
Prime plus 2% from September 28, 2005 through December 31, 2005, for a total of
$11,350. However, in estimating uncollectible accounts, management recorded an
allowance for doubtful accounts of $11,350.
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. Since October 2003, the Company has not engaged in business
activities. As of the time of this filing, the Company has not created a plan
for future operations.
ORGANIZATIONAL STRUCTURE
As of the date of this annual report, the Company has no subsidiaries.
PROPERTY, PLANTS AND EQUIPMENT
The Company's corporate office was located at Unit 3611, 36/F, West Tower, Shun
Tak Centre, 168-200 Connaught Road Central, Hong Kong from January 1, 2005 to
September 30, 2005. The Company shared this office space with China Merchants
DiChain and its portion of the monthly lease costs was HK$10,0000 (US$1,282 at
August 15, 2005). There was no written agreement regarding this office sharing
arrangement.
Since October 1, 2005, the Company has maintained a corporate office located at
Room A, F/22, Noble Center, 3rd Fu Zhong Road, Fu Tian District, Shen Zhen,
518026, Guang Dong Province, P. R. China. The Company shares the offices of DC
Capital Management, Inc. and is allocated HK$13,400 (US$1,718 as of October 1,
2005) as its pro rata share of the cost of the facility.
7
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
================================================================================
The following discussion of the results of operations of the Company for the
year ended December 31, 2005 and the fifteen months ended December 31, 2004
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 an 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
shares of its wholly owned subsidiary, E-Trend Networks, Inc. as a dividend to
the shareholders on a 1 for 1 share basis. 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.
For the year ended December 31, 2005, the Company's auditors, in Note 2 of the
Financial Statements, have noted that there is substantial doubt about the
Company's ability to continue as a going concern. The Company's existence is
dependent upon management funding operations and raising sufficient capital. At
this point in time it is impossible to state an amount of additional funding
which the Company believes would remove the going concern opinion.
OPERATING RESULTS
Retained deficit at October 1, 2003 has been restated to reflect an unrecorded
note payable of $100,000 and interest expense of $3,753. Had the errors not been
made, net loss for the year ended September 30, 2003 would have increased by
$103,753. Basic and diluted net loss per share would have increased by ($0.003)
to ($0.026).
Retained deficit at January 1, 2004 has been restated to reflect the aggregate
of the unrecorded note payable and interest expense from the year ended
September 30, 2003, of interest expense of $50,045, legal expenses of $17,511,
consulting expenses of $2,000, and promotion expenses of $1,046, foreign
currency exchange adjustments of $1,010, other expenses of $279 and travel
expenses of $99. Had the errors not been made, a net loss for the fifteen months
ended December 31, 2004 would have increased by $71,990. Basic and fully diluted
net loss per share for the same period would have increased by ($0.163) to
($1.142).
YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE FIFTEEN MONTHS ENDED DECEMBER 31,
2004
The Company did not have any business operations during the twelve months ended
December 31, 2005. 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 issuance to shares to six
independent companies on September 21, 2005. Total operating expenses and net
loss were each $714,335 for the year ended December 31, 2005 versus $715,438 for
the fifteen months ended December 31, 2004.
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
8
Sheung Tai Investments, as described in "Item 4. Information on the Company -
History and Development of the Company."
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2005 and December 2004, respectively, the Company had no cash.
The Company used cash of $126,347 for operating activities. Cash was provided by
advances from related parties in the same amount. In comparison, operating
activities used cash of $382,196 for the year ended December 31, 2004.
The Company anticipates spending approximately $150,000 during fiscal 2006 for
administrative and other operating expenditures. The Company intends to obtain
advances from related parties to fund these expenditures; however, it is
uncertain that the Company will be able to obtain sufficient financing to cover
its administrative and operating expenditures.
As of December 31, 2005, the Company owed a total of $100,000 on a note payable.
The note bears interest at 10% per year and is in default. For the year ended
December 31, 2005 and fifteen months ended December 31, 2004, accrued interest
was $26,274 and $16,274, respectively. The Company has disputed their liability
for this debt.
There are no material commitments for capital expenditures during fiscal 2006.
Other than the inter company advances from China Technology Global Corporation,
China Merchants DiChain (Asia) Limited, DiChain Holdings Ltd and DC Capital
Management, Inc. 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 Chief Executive Officer July 2004 to present
President
Acting Chief Financial Officer August 2006 to present
Director February 2004 to present
- --------------------------------------------------------------------------------------------------------------------
LI Xinggui Director August 2005 to present
- --------------------------------------------------------------------------------------------------------------------
TAI Ching Nam Executive Vice President August 2005 to present
- --------------------------------------------------------------------------------------------------------------------
FU Li Assistant President August 2005 to present
Corporate Secretary July 2006 to present
- --------------------------------------------------------------------------------------------------------------------
9
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 devotes 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 and Chief
Executive Officer. He has been a Director since February 2004. Dr. Fan assumed
the role of acting Chief Financial Officer in August 2006. Dr. Fan is
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 University of Southern California.
MR. LI XINGGUI
Since August 2005, Mr. Li has served as a Director of the Company. Since
December 2000, Mr. Li has worked for China Merchants DiChain Group, which is the
ultimate controlling shareholder of the Company, as the Executive Director and
President. Prior to joining DICHAIN, Mr. Li was executive vice president of S-T
Anda, the first modern logistics company in China serving Fortune Global 500
companies in China. He also served as Director of Enterprise Management at China
Merchants Group. He has extensive operation management experience in China. Mr.
Li has a Master's Degree in Economics from Sichuan University of China.
TAI CHING NAM
Since August 2005, Mr. Tai has served as Executive Vice President of the
Company. Since August 2001, Mr. Tai has worked in China Merchants DiChain Group,
which is the ultimate controlling shareholder of the Company. His previously
experiences include: Senior Manager of China Merchants Group Research Department
& Reform Center, Project Manager of China Merchants Group joint project with
McKinsey & Company in corporate strategy development and transformation. Mr. Tai
has a Master Degree of Business Economics from Chinese University of Hong Kong.
FU LI
Since August 2005, Ms. Fu has served as Assistant President of the Company. Ms.
Fu has worked for China Merchants DiChain Group, which is the ultimate
controlling shareholder of the Company since October, 2002. Since July 2006, she
has served as the secretary of the Company, and she also served as the secretary
of China Technology Global Corporation since July 2006. She obtained a Bachelors
Degree and Masters Degree from the Foreign Language Institute of Newport
University.
COMPENSATION
During the fiscal year ended December 31, 2005, the directors and officers of
the Company, as a group, had received or charged the Company a total of $44,229
for services rendered by the directors and officers or companies owned by
10
the individuals. No amounts were set aside or accrued by the Company to provide
pension, retirement or similar benefits.
EMPLOYEES
The Company shared the office staff of China Merchants DiChain (Asia) Ltd. from
January 2005 to September 2005, and allocated HK$35,000 per month (US$4,478 as
of August 15, 2005) as its pro rata share of the cost. There was no written
agreement regarding this staff sharing arrangement.
The Company shared the office staff of DC Capital Management, Inc. from October
2005 to December 2005, and allocated HK$10,000 per month (US$1,282 as of October
1, 2005) as its pro rata share of the cost. There was no written agreement
regarding this office sharing arrangement.
As at December 31, 2005, 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 July 31,
2006.
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 26.04%
Room A, F/22, Noble Center, 3 rd Fu
Zhong Road, Fu Tian District, Shen
Zhen, 518026, Guang Dong Province, P.
R. China
Common Stock LI Xinggui -0- 0%
Room A, F/22, Noble Center, 3 rd Fu
Zhong Road, Fu Tian District, Shen
Zhen, 518026, Guang Dong Province, P.
R. China
Common Stock TAI Ching Nam -0- 0%
Room A, F/22, Noble Center, 3 rd Fu
Zhong Road, Fu Tian District, Shen
Zhen, 518026, Guang Dong Province, P.
R. China
Common Stock FU Li -0- 0%
Room A, F/22, Noble Center, 3 rd Fu
Zhong Road, Fu Tian District, Shen
Zhen, 518026, Guang Dong Province, P.
R. China
- -------------------------
<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 July 31, 2006, 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
11
the purpose of computing the percentage owned by any other person.
Based on 79,758,837 shares of common stock outstanding as of July 31,
2006.
(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 the 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 July 31, 2006.
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 26.04%
Holdings Limited (2)<F2>
Room A, F/22, Noble Center, 3 rd Fu
Zhong Road, Fu Tian District, Shen
Zhen, 518026, Guang Dong Province, P.
R. China
Common Stock Dr. FAN Di (2)<F2> 20,772,330 26.04%
Room A, F/22, Noble Center, 3 rd Fu
Zhong Road, Fu Tian District, Shen
Zhen, 518026, Guang Dong Province, P.
R. China
Common Stock Sino Castle Holdings Ltd 7,500,000 9.40%
R2908, 29/F, Guo Ji Ming Yuan, You Yi
Road, Luo Hu District, Shen Zhen
Province, 518000, Guang Dong
Province, P. R. China
Common Stock Mart Burkit Limited 7,500,000 9.40%
R2908, 29/F, Guo Ji Ming Yuan, You Yi
Road, Luo Hu District, Shen Zhen
Province, 518000, Guang Dong
Province, P. R. China
Common Stock Rich Gush Limited 7,500,000 9.40%
R2908, 29/F, Guo Ji Ming Yuan, You Yi
Road, Luo Hu District, Shen Zhen
Province, 518000, Guang Dong
Province, P. R. China
Common Stock Mart Express Limited 7,500,000 9.40%
R2908, 29/F, Guo Ji Ming Yuan, You Yi
Road, Luo Hu District, Shen Zhen
Province, 518000, Guang Dong
Province, P. R. China
12
SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS NAME AND ADDRESS OF OWNER OWNED OR CONTROLLED (1)<F1> PERCENT OF CLASS (1)<F1>
Common Stock Fivestar International Limited 7,700,000 9.65%
R2908, 29/F, Guo Ji Ming Yuan, You Yi
Road, Luo Hu District, Shen Zhen
Province, 518000, Guang Dong
Province, P. R. China
Common Stock Global China Enterprises Limited 7,500,000 9.40%
R2908, 29/F, Guo Ji Ming Yuan, You Yi
Road, Luo Hu District, Shen Zhen
Province, 518000, Guang Dong
Province, P. R. China
- ---------------------
<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 July 31, 2006, 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 79,758,837 shares of common stock outstanding as
of July 31, 2006.
(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 the beneficial owner of these shares.
</FN>
CONTROL BY FOREIGN GOVERNMENT OR OTHER PERSONS
As of July 31, 2006, the Company was 26.04% indirectly owned by DiChain Holdings
Limited, an 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
On September 21, 2005, the Company issued a total of 45,200,000 shares of its
common stock at US$0.01 to six companies. As a result, China Merchants DiChain
Investment Holdings Limited's shareholding has been diluted to 26.04% from
64.3%.
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 July 31, 2006, there were 79 registered holders of the Company's common
shares in the United States, with combined holdings of 6,823,109 shares,
representing 8.55% of the issued shares of the Company. In addition, CEDE & Co
held 4,119,919 shares of record, representing 5.17% 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 January 1, 2005 through
December 31, 2005, 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
13
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 Room A, F/22, Noble Center, 3rd Fu
Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R.
China. The Company shared the offices of China Merchants DiChain (Asia) Ltd from
January 2005 to September 2005, and was allocated HK$10,000 per month (US$1,282
as of August 15, 2005) as its pro rata share of the cost of the facility. There
was no written agreement regarding this office sharing arrangement.
The Company shared the offices of DC Capital Management, Inc. from October 2005
to December 2005, and was allocated HK$13,400 per month (US$1,718 as of October
1, 2005) as its pro rata share of the cost of the facility. There was no written
agreement regarding this office sharing arrangement.
The Company shared the office staff of China Merchants DiChain (Asia) Ltd. from
January 2005 to September 2005, and allocated HK$35,000 per month (US$4,478 as
of August 15, 2005) as its pro rata share of the cost. There was no written
agreement regarding this staff sharing arrangement.
The Company shared the office staff of DC Capital Management, Inc. from October
2005 to December 2005, and allocated HK$10,000 per month (US$1,282 as of October
1, 2005) as its pro rata share of the cost. There was no written agreement
regarding this staff sharing arrangement.
China Technology Global Corporation, a company indirectly owned by DiChain
Holdings Limited, and China Merchants DiChain (Asia) Limited ("China Merchants
DiChain") have advanced $205,708 and $87,059 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.
DiChain Holdings Limited and DC Capital Management, Inc., companies sharing
mutual ownership with the Company, have advanced $26,790 and $9,000 to the
Company, respectively, since January 1, 2005. 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.
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 the Company. No directors, executive
officer or proposed nominee of neither the Company, nor any associate or
affiliate of these individuals, is or has been indebted to the Company since
January 1, 2005.
ITEM 8. FINANCIAL INFORMATION.
================================================================================
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
DESCRIPTION PAGE
Audited Financial Statements for the Year Ended
December 31, 2005, and the Fifteen Months Ended December 31, 2004 F-1 to F-19
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
14
(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:
OTCBB STOCK TRADING ACTIVITY
SALES PRICE
YEAR ENDED VOLUME HIGH LOW
December 31, 2005 7,157,335 $0.60 $0.02
December 31, 2004 4,633,887 $8.95 $0.03
September 30, 2003* 936,022 $0.15 $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 $1.84 $0.08
- ------------------
* Fifteen-months ended September 30, 2003
SALES PRICE
QUARTER ENDED VOLUME HIGH LOW
June 30, 2006 554,245 $0.17 $0.08
March 31, 2006 3,493,082 $0.28 $0.02
December 31, 2005 767,783 $0.05 $0.02
September 30, 2005 4,059,001 $0.15 $0.02
15
SALES PRICE
QUARTER ENDED VOLUME HIGH LOW
June 30, 2005 754,155 $0.15 $0.06
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 $0.03
December 31, 2003 36,422 $0.03 $0.03
September 30, 2003 56,100 $0.05 $0.03
June 30, 2003 195,700 $0.11 $0.03
March 31, 2003 159,600 $0.04 $0.03
December 31, 2002 488,200 $0.15 $0.02
September 30, 2002 1,019,300 $0.29 $0.10
SALES PRICE
MONTH ENDED VOLUME HIGH LOW
July 31, 2006 26,750 $0.11 $0.06
June 30, 2006 61,385 $0.11 $0.08
May 31, 2006 301,086 $0.16 $0.11
April 30, 2006 191,774 $0.17 $0.12
March 31, 2006 3,206,101 $0.28 $0.03
February 28, 2006 98,829 $0.04 $0.03
January 31, 2006 188,152 $0.04 $0.02
December 31, 2005 121,775 $0.05 $0.02
November 30, 2005 382,235 $0.04 $0.02
October 31, 2005 263,773 $0.04 $0.02
September 30, 2005 3,520,496 $0.08 $0.02
August 31, 2005 524,905 $0.15 $0.03
July 31, 2005 13,600 $0.10 $0.05
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
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
16
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 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.
2. 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.
3. 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.
4. Subscription Agreement dated September 21, 2005 between the Company and
Global China Enterprises Limited for 7,500,000 shares of the Company.
5. Subscription Agreement dated September 21, 2005 between the Company and
Fivestar International Limited for 7,700,000 shares of the Company.
17
6. Subscription Agreement dated September 21, 2005 between the Company and
Mart Express Limited for 7,500,000 shares of the Company.
7. Subscription Agreement dated September 21, 2005 between the Company and
Rich Gush Limited for 7,500,000 shares of the Company.
8. Subscription Agreement dated September 21, 2005 between the Company and
Mart Burkit Limited for 7,500,000 shares of the Company.
9. Subscription Agreement dated September 21, 2005 between the Company and
Sino Castle Holdings Limited for 7,500,000 shares of the Company.
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 = RMB7.90 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
18
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 changed its domicile effective August 26, 2004. See "Item 4.
Information on the Company - History and Development of the Company", and "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, the Company's Chief Executive
Officer and acting Chief Financial Officer, 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, 2005. Based upon that evaluation, Dr. Fan 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, 2005, 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.
19
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, Dr. Fan Di. Dr. Fan 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 December 31, 2004 and December 31, 2005, the
Company's principal accountant billed $40,000 and $23,500, 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 December 31, 2004 and December 31, 2005, 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 December 31, 2004 and December 31, 2005, the
Company's principal accountant billed $nil and $nil, respectively, for tax
compliance, tax advice, and tax planning services.
ALL OTHER FEES
For the fiscal years ended December 31, 2004 and December 31, 2005, 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.
20
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, 2005, 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 pages F-1 to F-19.
ITEM 19. EXHIBITS.
================================================================================
EXHIBIT NUMBER DESCRIPTION
1.1 Memorandum and Articles of Association (1)
4.1 Share Exchange Agreement with Langara Group, Inc. (2)
4.2 Share Exchange Agreement with Fly.com, Inc. for EntertainMe.com
e-Commerce portal (2)
4.3 Share Exchange Agreement with China Merchants DiChain
Investment Holdings Limited (2)
4.4 Sale and Purchase Agreement in relation to the entire issued
share capital of Sheung Tai Investments Limited dated May 24,
2004 (3)
4.5 Form of Subscription Agreements dated September 21, 2005
between the Company and each of Global China Enterprises
Limited, Fivestar International Limited, Mart Express Limited,
Rich Gush Limited, Mart Burkit Limited and Sino Castle
Holdings Limited.
12.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(a)
21
EXHIBIT NUMBER DESCRIPTION
13.1 Certification of Chief Executive Officer and 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.
22
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, 2006 /s/ FAN DI
---------------------------------------------
FAN Di
Chief Executive Officer and Acting Chief
Financial Officer
23
BONGIOVANNI & ASSOCIATES, P.A.
17111 KENTON DRIVE - SUITE 100-B
CORNELIUS, NORTH CAROLINA 28031
================================================================================
PHONE (704) 892-8733
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 sheets of China
Pharmaceuticals International Corporation (a British Virgin Islands corporation)
as of December 31, 2004 and December 31, 2005 and the related consolidated
statements of operations and comprehensive loss, changes in stockholders'
deficit, and cash flows for the year ended September 30, 2003, the fifteen
months ended December 31, 2004 and the year ended December 31, 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of China Pharmaceuticals
International Corporation as of December 31, 2004 and December 31, 2005, and the
results of its operations and its cash flows for the year ended September 30,
2003, the fifteen months ended December 31, 2004 and the year ended December 31,
2005, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring losses 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, P.A.
Cornelius, NC
July 7, 2006
F-1
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
BALANCE SHEETS
ASSETS
December 31,
--------------------------------------
2004 2005
------------------ ------------------
CURRENT ASSETS $ - $ -
------------------ ------------------
Investment 1,000 -
------------------ ------------------
TOTAL ASSETS $ 1,000 $ -
================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Other payables and accrued liabilities $ 475,262 $ 543,860
Advances from related parties 312,278 438,625
Note payable 100,000 100,000
------------------ ------------------
TOTAL LIABILITIES 887,540 1,082,485
------------------ ------------------
STOCKHOLDERS' DEFICIT
Paid-in Capital, no par value, 500,000,000 shares authorized
46,160,733 and 79,758,837 shares issued and outstanding 4,912,289 5,430,679
Stock subscriptions receivable - (452,000)
Allowance for doubtful stock subscriptions receivable - 452,000
Retained deficit (5,798,829) (6,513,164)
------------------ ------------------
TOTAL STOCKHOLDERS' DEFICIT (886,540) (1,082,485)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,000 $ -
================== ==================
See accompanying notes to the financial statements.
F-2
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED SEPTEMBER 30, 2003, FIFTEEN MONTHS ENDED DECEMBER 31, 2004
AND THE YEAR ENDED DECEMBER 31, 2005
2003 2004 2005
-----------------------------------------------------
SALES $ 1,517,822 $ - $ -
COST OF SALES 1,172,590 - -
--------------- --------------- ---------------
GROSS PROFIT 345,232 - -
--------------- --------------- ---------------
OPERATING EXPENSES
General and administrative expenses (857,189) (387,949) (214,804)
Bad debts - - (463,350)
Depreciation and amortization (98,672) (19,717) -
Impairment of goodwill (135,638) - -
Loss on disposal of subsidiaries - (257,727) -
--------------- --------------- ---------------
TOTAL OPERATING EXPENSES (1,091,499) (665,393) (678,154)
--------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS (746,267) (665,393) (678,154)
Interest and other (expense) income, net 46,411 (50,045) (36,181)
--------------- --------------- ---------------
NET LOSS $ (699,856) $ (715,438) $ (714,335)
=============== =============== ===============
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment $ (26,953) $ (7,772) $ -
--------------- --------------- ---------------
COMPREHENSIVE LOSS $ (726,809) $ (723,210) $ (714,335)
=============== =============== ===============
NET LOSS PER SHARE, BASIC AND DILUTED $ (1.142) $ (0.026) $ (0.015)
=============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, BASIC AND DILUTED 636,514 28,249,500 47,973,021
=============== =============== ===============
See accompanying notes to the financial statements.
F-3
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
FOR THE YEAR ENDED SEPTEMBER 30, 2003, FIFTEEN MONTHS ENDED DECEMBER 31, 2004
AND THE YEAR ENDED DECEMBER 31, 2005
Allowance
for Total
Doubtful Stock-
Stock Stock Sub- Cumulative holders'
Common Stock Paid-in Supscriptions scriptions Retained Translation Equity
Number Capital Receivable Receivable Deficit Adjustment (Deficit)
BALANCES
- - SEPTEMBER 30, 2002 260,733 $ 4,421,249 $ - $ - $(4,348,810) $ (34,725) $ 37,714
Issuance of shares for exchange 500,000 200,000 - - - - 200,000
of note payable to stockholder
Net loss for the year - - - - (726,809) - (726,809)
Foreign currency translation
adjustment - - - - - 26,953 26,953
-------------------------------------------------------------------------------------------------
- - SEPTEMBER 30, 2003 760,733 $ 4,621,249 $ - $ - $(5,075,619) $ (7,772) $ (462,142)
=================================================================================================
Foreign currency translation
adjustment - - - 7,772 7,772
Issuance of shares for an
investment 13,848,220 1,000 - - - - 1,000
Issuance of shares for exchange
of related party payable to
stockholder 31,151,780 290,000 - - - - 290,000
Issuance of shares 400,000 40 - - 40
Net loss for the fifteen months - - - - (723,210) - (723,210)
-------------------------------------------------------------------------------------------------
BALANCES
- - DECEMBER 31, 2004 46,160,733 $ 4,912,289 $ - $ - $(5,798,829) $ - $ (886,540)
=================================================================================================
Cancellation of shares on March
4, 2005 (13,848,220) (1,000) - - - - (1,000)
Issuance of shares for payment
of consulting services 2,246,324 67,390 - - - - 67,390
Common stock issued for stock 45,200,000 452,000 (452,000) 452,000 - - 452,000
Net loss for the year - - - - (714,335) - (714,335)
BALANCES
-------------------------------------------------------------------------------------------------
- - DECEMBER 31, 2005 79,758,837 $ 5,430,679 $ (452,000) $ 452,000 $(6,513,164) $ - $(1,082,485)
=================================================================================================
See accompanying notes to the financial statements.
F-4
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003, FIFTEEN MONTHS ENDED DECEMBER 31, 2004
AND THE YEAR ENDED DECEMBER 31, 2005
2003 2004 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (726,809) $ (723,210) $ (714,335)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 98,672 19,717 -
Bad debt - - 463,350
Interest income - - (11,350)
Loss on disposal of subsidiaries - 257,727 -
Issuance of common shares for consulting services rendered - - 67,390
Impairment to goodwill 135,638 - -
Cumulative translation adjustment 26,953 7,772 -
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 214,019 55,798 68,598
---------------- ------------------ -----------------
Total adjustments 839,059 341,014 587,988
---------------- ------------------ -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 112,250 (382,196) (126,347)
---------------- ------------------ -----------------
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:
Proceeds from notes payable 100,000 - -
Repayment on note payable - stockholder (235,827) - -
Repayment to related parties - (163,859) -
Advances from related parties - 545,529 126,347
---------------- ------------------ -----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (135,827) 381,670 126,347
---------------- ------------------ -----------------
NET DECREASE IN CASH (25,736) (526) -
CASH AT BEGINNING OF PERIOD 26,262 526 -
---------------- ------------------ -----------------
CASH AT END OF PERIOD $ 526 $ - $ -
================ ================== =================
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING ACTIVITIES:
Common stock issued for note payable-stockholder $ 200,000 $ - $ -
================ ================== =================
Common stock issued for related party payable $ - $ 290,000 $ -
================ ================== =================
Common stock issued for stock subscriptions receivable $ - $ - $ 452,000
================ ================== =================
Common stock cancelled for reversal of investment $ - $ - $ 1,000
================ ================== =================
See accompanying notes to the financial statements.
F-5
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The 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. This distribution has been
accounted for as Discontinued Operations. (See NOTE 10. DISCONTINUED
OPERATIONS.) 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.
F-6
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
ACCOUNT RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for doubtful accounts equal to the
estimated uncollectible amounts. The Company's estimate is based on
historical collection experience and a review of the current status of
trade accounts receivable. It is reasonably possible the Company's
estimate of the allowance for doubtful accounts will change. For the
period ended December 31, 2005 and 2004, accounts receivable of $11,350
and $0 are presented net of an allowance for doubtful accounts of
$11,350 and $0, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. For the periods ended
December 31, 2005 and 2004, all property and equipment has been fully
depreciated. 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.
F-7
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation using the fair value
method of Financial Accounting Standard No. 123R. 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 warrants under the
same authoritative guidance using the Black-Scholes Option Pricing
Model. The Company issued 2,246,324 shares of Common Stock, valued at
$67,390, to a consultant in payment for consulting services performed
during the period ended December 31, 2005. See NOTE 3. RELATED PARTY
TRANSACTIONS and NOTE 4. INVESTMENT for a discussion of shares issued
for the conversion of debt and for investment.
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 DUE 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, 2005, the fair value approximates
the carrying value.
CONCENTRATION OF REVENUE
No revenues were recorded for the year ended December 31, 2005 since
there was no business activity in 2005. No revenues were recorded for
fifteen months ended December 31, 2004 since there was no business
activity in 2004.
F-8
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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.
The Company made adjustments to two prior reporting periods in this
report (See NOTE 9. PRIOR PERIOD ADJUSTMENT for more information). The
effect of these changes was to increase net loss by $103,753 and
$71,990 for the periods ended September 30, 2003 and December 31, 2004,
respectively. As a result of this adjustment, basic and diluted loss
per share increased to ($1.142) and ($0.026) for the periods ended
September 30, 2003 and December 31, 2004, respectively. The financial
statements for these periods have been retroactively restated for the
change, which resulted in the increased net loss per share. Retained
deficit has been adjusted for the effect of retroactive application of
the prior period adjustment.
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 2005 and
2004, the Company determined that it did not have any material,
separately reportable operating segments as of December 31, 2005 and
December 31, 2004. 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.
F-9
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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.
NEW ACCOUNTING PRONOUNCEMENTS
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-10
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
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. The adoption of SFAS No.
151 is not expected to have a significant impact on its financial
statements.
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 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 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 financial statements.
F-11
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS (CONT.)
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments." SFAS No. 155 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and
SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 155 permits fair
value remeasurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are not
subject to the requirements of SFAS No. 133, establishes a requirement
to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring
bifurcation, clarifies that concentrations of credit risk in the form
of subordination are not embedded derivatives, and amends SFAS No. 140
to eliminate the prohibition on the qualifying special-purpose entity
from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument.
This statement is effective for all financial instruments acquired or
issued after the beginning of the Company's first fiscal year that
begins after September 15, 2006. Management believes that this
statement will not have a significant impact on the Company's financial
statements.
In March 2006 FASB issued SFAS No. 156 "Accounting for Servicing of
Financial Assets" this Statement amends SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," with respect to the accounting for separately recognized
servicing assets and servicing liabilities. This Statement:
1. Requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial
asset by entering into a servicing contract.
2. Requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable.
3. Permits an entity to choose `Amortization method' or Fair value
measurement method' for each class of separately recognized servicing
assets and servicing liabilities.
4. At its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under SFAS No. 115,
provided that the
F-12
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS (CONT.)
available-for-sale securities are identified in some manner as
offsetting the entity's exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
5. Requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of
financial position and additional disclosures for all separately
recognized servicing assets and servicing liabilities.
This Statement is effective as of the beginning of the Company's first
fiscal year that begins after September 15, 2006. Management believes
that this statement will not have a significant impact on the Company's
financial statements.
- --------------------------------------------------------------------------------
NOTE 2. GOING CONCERN (LIQUIDITY AND CAPITAL RESOURCES)
- --------------------------------------------------------------------------------
The accompanying 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, 2005. 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 $205,708 and $87,059 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.
DiChain Holdings Limited and DC Capital Management, Inc., companies
sharing mutual ownership with the Company, have advanced $26,790 and
$9,000 to the
F-13
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED)
- --------------------------------------------------------------------------------
RELATED PARTIES PAYABLE STOCKHOLDER (CONT.)
Company, respectively, since January 1, 2005. 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.
ACCOUNTS PAYABLE OFFICERS AND DIRECTORS
At December 31, 2005 and 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 shared the offices of China Merchants DiChain (Asia) Ltd.
from January 2005 to September 2005, and was allocated HK$10,000 per
month (US$1,282 as of August 15, 2005) as its pro rata share of the
cost of the facility. There was no written agreement regarding this
office sharing arrangement.
The Company shared the offices of DC Capital Management, Inc. from
October 2005 to December 2005, and was allocated HK$13,400 per month
(US$1,718 as of October 1, 2005) as its pro rata share of the cost of
the facility. There was no written agreement regarding this office
sharing arrangement.
SHARE OF OFFICE STAFF
The Company shared the office staff of China Merchants DiChain (Asia)
Ltd. from January 2005 to September 2005, and was allocated HK$35,000
per month (US$4,478 as of August 15, 2005) as its pro rata share of the
cost. There was no written agreement regarding this staff sharing
arrangement.
The Company shared the offices staff of DC Capital Management, Inc.
from October 2005 to December 2005, and was allocated HK$10,000 per
month (US$1,282 as of October 1, 2005) as its pro rata share of the
cost. There was no written agreement regarding this office sharing
arrangement.
F-14
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 4. INVESTMENT
- --------------------------------------------------------------------------------
The Company's investment in Sheung Tai Investments Limited was
originally recorded at $1,385, 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.
On January 19, 2005, the Company entered into an agreement 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.
- --------------------------------------------------------------------------------
NOTE 5. CONTINGENCIES
- --------------------------------------------------------------------------------
As of December 31, 2005, the Company owed a total of $375,244 to
eAngels EquiDebt Partners ("eAngels"). The balance due bears interest
at 10% per year. For the year ended December 31, 2005 and fifteen
months ended December 31, 2004, accrued interest was $75,049 and the
$37,524, respectively. The Company has disputed their liability for
this debt.
As of December 31, 2005, the Company owed a total of $100,000 on a note
payable. The note bears interest at 10% per year and is in default. For
the year ended December 31, 2005 and fifteen months ended December 31,
2004, accrued interest was $26,274 and $16,274, respectively. The
Company has disputed their liability for this debt.
As of December 31, 2005, the Company owed a total of $2,000 for
consulting services provided by FutureVest, Inc. The Company has
disputed their liability for this amount.
As of December 31, 2005, the Company owed a total of $24,000 for
consulting services provided by Alexis Global, Inc. The Company has
disputed their liability for this amount.
- --------------------------------------------------------------------------------
NOTE 6. NOTES PAYABLE
- --------------------------------------------------------------------------------
The Company has issued an unsecured note payable in the amount of
$100,000 which bears interest of 10% with a maturity date of May 16,
2004. As of December 31, 2005 and 2004, the outstanding balance on the
note is $100,000 with accrued interest of $26,274 and $16,274,
respectively.
F-15
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 7. STOCK SUBSCRIPTIONS RECEIVABLE
- --------------------------------------------------------------------------------
The Company issued 45,200,000 shares on September 21, 2005 at $0.01 per
share as follows:
COMPANY SHARES US$
--------------------------------- ----------- ---------
Global China Enterprises Limited 7,500,000 75,000
Fivestar International Limited 7,700,000 77,000
Mart Express Limited 7,500,000 75,000
Rich Gush Limited 7,500,000 75,000
Mart Burkit Limited 7,500,000 75,000
Sino Castle Holdings Limited 7,500,000 75,000
----------- ----------
TOTAL 45,200,000 452,000
As of December 31, 2005, the investing companies have not paid the
subscription amount of $452,000. Pursuant to its Articles of
Incorporation, the Company may, upon written notice to these investing
companies, treat the unpaid shares as canceled shares, but has opted
not to do so as of December 31, 2005. Furthermore, pursuant to the
subscription agreements the Company accrued interest on the
Subscription Receivable at the rate of Hong Kong Prime plus 2% from
September 28, 2005 through December 31, 2005, or a total of $11,350.
However, in estimating uncollectible accounts, management recorded an
allowance for doubtful accounts of $11,350.
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
- --------------------------------------------------------------------------------
The components of income taxes were as follows:
2005 2004
=======================================================================
Income Tax Benefit
Income tax benefit at combined statutory
rate of 42.62% $ 111,807 $ 263,050
Change in Valuation Allowance ( 111,807) ( 263,050)
-----------------------------------------------------------------------
Income Tax Benefit $ - $ -
=======================================================================
The income tax benefit for the year ended December 31, 2005 and fifteen
months ended December 31, 2004, differed from the combined federal and
provincial statutory rates due principally to the decrease in the
deferred tax asset valuation allowance.
F-16
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (CONTINUED)
- --------------------------------------------------------------------------------
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 year ended December 31, 2005 and fifteen
months ended December 31, 2004.
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, 2005, the approximate deferred tax assets were as
follows:
Non-capital loss carryforwards $ 2,215,601
Capital assets 45,000
-----------------------------------------------------------------------
Total deferred tax assets 2,260,601
Less valuation allowance (2,260,601)
-----------------------------------------------------------------------
$ -
=======================================================================
- --------------------------------------------------------------------------------
NOTE 9. PRIOR PERIOD ADJUSTMENTS
- --------------------------------------------------------------------------------
Retained deficit at October 1, 2003 has been restated to reflect an
unrecorded note payable of $100,000 and interest expense of $3,753. Had
the errors not been made, net loss for the year ended September 30,
2003 would have increased by $103,753. Basic and diluted net loss per
share would have increased by ($0.003) to ($0.026).
Retained deficit at January 1, 2004 has been restated to reflect the
aggregate of the unrecorded note payable and interest expense from the
year ended September 30, 2003, of interest expense of $50,045, legal
expenses of $17,511, consulting expenses of $2,000, and promotion
expenses of $1,046, foreign currency exchange adjustments of $1,010,
other expenses of $279 and travel expenses of $99. Had the errors not
been made, a net loss for the fifteen months ended December 31, 2004
would have increased by $71,990. Basic and fully diluted net loss per
share for the same period would have increased by ($0.163) to ($1.142).
F-17
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 10. DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
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 1-for-1 share basis shares of E-Trend
Networks, Inc. On February 5, 2004, the Company entered into an
agreement for the exchange of common stock whereby the Company would
issue 45,000,000 new post reverse split common shares thus transferring
majority control of the Company to the purchaser. The distribution of
Langara Entertainment, Inc., E-Trend Networks, Inc. and the
discontinued operations of Wilmington Rexford, Inc. qualified for
treatment as discontinued operations in accordance with FASB Statement
No. 144 ("SFAS No. 144"), Accounting for the Impairment or Disposal of
Long-Lived Assets. Because the operating results of Langara
Entertainment, Inc., E-Trend Networks, Inc. and the discontinued
operations of Wilmington Rexford, Inc. represent 100% of operations of
the Company, they were included in results from continuing operations.
The following is a summary of the net liabilities distributed as of the
end of the period immediately prior to the effective date of the
Distribution Agreement:
September December December
30, 2003 31, 2004 31, 2005
------------- ------------- ------------
Assets Distributed
Cash and cash equivalents $ 526 $ - $ -
Accounts receivable 24,926 - -
Property and equipment, net 165,246 - -
Advances due from related parties 128,110 - -
------------- ------------- ------------
Total assets of discontinued operations 318,808 - -
------------- ------------- ------------
Liabilities Distributed
Accounts payable and accrued liabilities 440,754 - -
Notes payable - related parties 236,443 - -
------------- ------------- ------------
Total liabilities of discontinued operations 677,197 - -
------------- ------------- ------------
Net liabilities of discontinued operations distributed $ (358,389) $ - $ -
============= ============= ============
F-18
CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
================================================================================
- --------------------------------------------------------------------------------
NOTE 10. DISCONTINUED OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Net (loss) from discontinued operations as reported on the statements
of operations, including the (loss) on the distribution of discontinued
operations, consists of the following:
For the year For the fifteen For the year
ended months ended ended
September 30, December 31, December 31,
2003 2004 2005
-------------------- ------------------ ------------------
Summary of (Loss)
Revenues $ 1,517,822 $ - $ -
Cost of revenues (1,172,590) - -
-------------------- ------------------ ------------------
Gross profit 345,232 - -
Total operating expenses (1,091,499) - -
Total other (income) expenses 46,411 - -
Foreign currency translation adjustment (26,953) - -
Provision for income tax - - -
Comprehensive loss, net of tax $ (729,809) $ - $ -
==================== ================== ==================
Summary of (Loss) on Distribution
Net liabilities distributed 358,389 - -
Costs and expenses of distribution - - -
-------------------- ------------------ ------------------
Gain on distribution of liabilities, net of tax $ 358,389 $ - $ -
==================== ================== ==================
Net (loss) from discontinued operations $ (371,420) $ - $ -
==================== ================== ==================
As a result of the foregoing distribution of Langara Entertainment,
Inc., E-Trend Networks, Inc. and the discontinued operations of
Wilmington Rexford, Inc., the Company recognized a loss from
discontinued operations for the fiscal year ended September 30, 2003 of
$1,058,245. There were no sales from Langara Entertainment, Inc.,
E-Trend Networks, Inc. and Wilmington Rexford, Inc., included in the
periods from October 1, 2003 to December 31, 2005.
F-19