UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 14, 2005
CHINA BIOPHARMACEUTICALS HOLDINGS, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Delaware 814-00063 13-2949462
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
Suite 1601, Buliding A, Jinshan Tower
No. 8, Shan Xi Road Nanjing, Jiangsu, China
--------------------------
(Address of principal executive offices)
(86) 25 8320 5758
-------------------------------------
(Registrant's telephone number, including area code)
(former name or former address, if changed since last report)
China Biopharmaceuticals Holdings, Inc.
Form 8-K/A
SECTION 2 -- FINANCIAL INFORMATION
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
As used in this report, "we", "us", "our" or "the Company" refer to
China Biopharmaceuticals Holdings, Inc..
As disclosed on our current reports on Form 8-K filed with the
Commission on October 5, 2004, we signed a share purchase agreement on September
29, 2004 to acquire 51% of Suzhou Hengyi Pharmaceuticals of Feedstock Co., Ltd,
a Chinese company specialized in research and development, production and sales
of pharmaceutical products as well as chemicals used in pharmaceutical products
("Hengyi"). On December 31, 2004 we signed an amendment to the share purchase
agreement, and which was later restated, under which our ownership interest of
Hengyi has increased from 51% to 75.7606% for no additional consideration
according to the relevant Chinese laws and rules. All the required legal
procedures with relevant Chinese Government regulatory and audit procedures have
been completed and the title ownership of 75.7606% of Hengyi has been passed to
the Company. Total consideration paid by the Company to acquire 75.7606%
ownership interest in Hengyi is and 1.2 million shares of the common stock of
the Company and $1,600,000 as additional contribution into the acquired Hengyi
for working capital and/or expansion purposes. The cash contribution is to be
made in installments.
The Company hereby files financial statements and exhibits as
incorporated in Item 9.01 as the amendment to our filing of Form 8-K current
report dated October 5, 2004.
SECTION 9 -- FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Audited financial statements of Suzhou Hengyi Pharmaceuticals of
Feedstock Co., Ltd as of and for the years ended December 31, 2004 and 2003.
(c) Exhibits.
2. Restated Amendment to a Share Purchase Agreement by and among the
Zhu Gang, Zhou Fuying and China Biopharmaceuticals Holdings, Inc.dated as of
December 31, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
China Biopharmaceuticals Holdings, Inc.
By: /s/ Peng Mao
---------------------------
Name: Peng Mao
Title: Chairman and
Chief Executive Officer
Dated: May 15, 2005
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
FINANCIAL STATEMENTS
For the years ended December 31, 2004 and 2003
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
INDEX
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PAGE
INDEPENDENT AUDITOR'S REPORT 2
BALANCE SHEETS 3
STATEMENTS OF INCOME 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-13
1
KEMPISTY & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS, P.C.
- --------------------------------------------------------------------------------
15 MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 -
FAX (212) 513-1930
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Suzhou Hengyi Pharmarceuticals of Feedstock Co., Ltd.
We have audited the accompanying balance sheets of Suzhou Hengyi
Pharmarceuticals of Feedback Co., Ltd. as of December 31, 2004 and 2003 and the
related statements of income and retained earnings and cash flows for each of
the years then ended. 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 audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of 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 audit provides 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 Suzhou Hengyi Pharmarceuticals
of Feedstock Co., Ltd.at December 31, 2004 and 2003 and the results of its'
operations and cash flows for each of the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Kempisty & Company
Certified Public Accountants PC
New York, New York
April 27, 2005
2
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
BALANCE SHEETS
December 31, December 31,
2004 2003
------------ ------------
ASSETS
Current Assets:
Cash $ 259,997 $ 1,333,805
Accounts receivable trade-net (Note 3) 4,098,512 1,059,714
Inventory (Note 4) 1,377,279 1,121,834
Other receivable 336,207 121,820
Advance to suppliers 468,985 805,880
Due from affiliates (Note 5) -- 1,272,361
Subsidy receivable -- 181,307
------------ ------------
Total current assets 6,540,980 5,896,721
Plant and equipment, net (Note 7) 1,641,428 1,427,204
Land use right (Note 6) 1,412,549 1,442,028
Software 3,876 --
------------ ------------
Total Assets 9,598,833 $ 8,765,953
============ ============
LIABILITIES AND OWNERS' EQUITY
Current Liabilities:
Bank loans (Note 9) $ 1,655,189 $ 2,801,740
Accounts payable and accrued expenses 3,121,228 3,539,432
Other payable -- 35,461
Customer deposits 695,120 485,298
Taxes payable 50,136 --
Payroll and welfare payables 95,157 120,481
Due to affiliate 1,674,898 --
------------ ------------
Total Current Liabilities 7,291,728 6,982,412
Total Liabilities 7,291,728 6,982,412
Commitment and Contingencies (Note 10)
Minority Interest 813,852 760,756
Owners' Equity:
Paid in capital 362,450 362,450
Retained earnings 1,130,803 660,335
------------ ------------
Total Owners' Equity 2,307,105 1,783,541
------------ ------------
Total Liabilities and Owners' Equity $ 9,598,833 $ 8,765,953
============ ============
See Notes to Financial Statements
3
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Year For the Year
Ended Ended
December 31, December 31,
2004 2003
------------ ------------
Revenues
Sales $ 7,241,654 $ 8,386,962
Other 8,391 2,306
------------ ------------
7,250,045 8,389,268
Less: Cost of sales 6,293,568 7,188,481
------------ ------------
Gross profit 956,477 1,200,787
Operating Expenses
Selling, general and administrative 378,850 495,014
Sales taxes 20,869 19,893
------------ ------------
Total Operating Expenses 399,719 514,907
Income before Income Taxes 556,758 685,880
Income taxes 33,195 26,807
------------ ------------
Net income including minority interest 523,563 659,073
Minority interest 53,096 320,011
------------ ------------
Net income 470,467 339,062
Retained earnings, beginning of period 660,335 321,273
------------ ------------
Retained earnings, end of period $ 1,130,802 $ 660,335
============ ============
See Notes to Financial Statements.
4
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the Year Ended
December 31,
2004 2003
------------ ------------
Operating Activities
Net income $ 470,467 $ 339,062
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 137,361 139,669
Changes in operating assets and liabilities:
Accounts receivable (3,038,798) (419,196)
Prepaid expense
Loan to officers
Due from affiliates 1,272,362 (763,903)
Other assets 73,973 (15,673)
Accounts payable and accrued expenses (418,204) 1,022,568
Due to affiliates 1,855,574 (692,171)
Customer deposits 209,822 (85,035)
Taxes payable 50,136 --
Other payables (241,461) 1,319
Due to officers -- --
------------ ------------
Net cash provided (used) by operating activities 371,232 (473,360)
Investing Activities
Purchase of fixed assets (351,585) (308,437)
------------ ------------
Net cash (used) by investing activities (351,585) (308,437)
Financing Activities
Increase in capital 241,633
Increase in bank loans (current) (1,146,551) 598,043
------------ ------------
Net cash (used) provided by financing activities (1,146,551) 839,676
------------ ------------
Increase (decrease) in cash (1,126,904) 57,879
Effect of change in minority's interest 53,096 319,945
Cash at beginning of period 1,333,805 955,981
------------ ------------
Cash at end of period $ 259,997 $ 1,333,805
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during year for:
Interest $ 144,303 $ 172,322
============ ============
Income taxes $ 33,196 $ 26,807
============ ============
See Notes to Financial Statements.
5
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 1- ORGANIZATION AND OPERATIONS
Suzhou Hengyi Pharmarceuticals of Feedstock Co., Ltd. (the "Company")
was established in the People's Republic of China (the "PRC") pursuant
to the Corporate Law in PRC on August 28, 1998.
The principal activities of the Company are sales and manufacturing of
pharmarceutical intermediates, such as carbamazephine, flumequine and
iminostilbene carbonyl chloride in Mainland China.
Note 2- SIGNIFICANT ACCOUNTING POLICIES
Economic and Political Risks
The Company faces a number of risks and challenges since its assets are
located in China and its revenues are derived from its operations in
China. China is a developing country with a young market economic
system overshadowed by the state. Its political and economic systems
are very different from the more developed countries and are still in
the stage of change. China also faces many social, economic and
political challenges that may produce major shocks and instabilities
and even crises, in both its domestic arena and its relationship with
other countries, including but not limited to the United States. Such
shocks, instabilities and crises may in turn significantly and
negatively affect the Company's performance.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its 50% owned subsidiary Sintopharm. Inter-company
transactions have been eliminated in consolidation.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles in the United States of
America ("US GAAP"). This basis of accounting differs from that used in
the statutory accounts of the Company, which are prepared in accordance
with the "Accounting Standards for Business Enterprises" and
"Accounting System for Business Enterprises" in the PRC ("PRC GAAP").
Certain accounting principles, which are stipulated by US GAAP, are not
applicable in the PRC. The difference between PRC GAAP accounts of the
Company and its US GAAP financial statements was immaterial.
Revenue Recognition
Revenue is recognized at the time of shipment.
6
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 2- SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months
or less are considered cash equivalents. Substantially all of the
Company's cash and cash equivalents are held by two financial
institutions.
Inventory
Inventory, which consists primarily of finished goods, are stated at
the lower of average cost or market, with average cost being determined
by the first-in, first-out (FIFO) method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue
and expenses during the reporting period. Actual results when
ultimately realized could differ from those estimates.
Employees' Benefits
Mandatory contributions are made to the Government's health, retirement
benefit and unemployment schemes at the statutory rates in force during
the period, based on gross salary payments. The cost of these payments
is charged to the statement of income in the same period as the related
salary cost.
Fair Value of Financial Instruments
The carrying value of financial instruments including cash and cash
equivalents, receivables, accounts payable and accrued expenses,
approximates their fair value at December 31, 2004 due to the
relatively short-term nature of these instruments.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in the US and the PRC expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
7
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 2- SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
The Company maintains its books and accounting records in Renminb
("RMB"), thePRC's currency. Transcontracts.amounts from RMB in United
States dollars ("US$") has been made at the single rate of exchange of
US$1.00:RMB8.277. No representation is made that RMB amounts could have
been or could be, converted into US dollar at that rate. On January 1,
1994, the PRC government introduced a single rate of exchange as quoted
daily by the People's Bank of China (the "Unified Exchange Rate"). The
quotation of the exchange rates does not imply free convertibility of
RMB to other foreign currencies. All foreign exchange transactions
continue to take place either through the Bank of China or other banks
authorized to buy and sell foreign currencies at the exchange rates
quoted by the People's Bank of China. Approval of foreign currency
payments by the Bank of China or other institutions requires submitting
a payment application form together with supplier's invoices, shipping
documents and signed
Property, Plant and Equipment
Property, plant and equipment are carried at cost. The cost of repairs
and maintenance is expensed as incurred; major replacements and
improvements are capitalized.
When assets are retired or disposed of, the cost and accumulated
depreciation ae removed from the accounts, and any resulting gains or
losses are included in income in the year of disposition.
Depreciation is calculated on a straight-line basis over the estimated
useful life of the assets. Estimated useful lives of the property,
plant amd equipment are as follows:
Buildings 40 years
Machines and equipment 10 years
Vehicles 5 years
Furniture and fixture 5 years
Land Use Right
The land use right is being amortized using straight-line method over
the lease term of fifty years from December 2002.
8
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 2- SIGNIFICANT ACCOUNTING POLICIES (continued)
Valuation of Long-Lived assets
The Company periodically analyzes its long-lived assets for potential
impairment, assessing the appropriateness of lives and recoverability
of unamortized balances through measurement of undiscounted operating
cash flows on a basis consistent with accounting principles generally
accepted in the United States of America.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. In December 2003, the FASB issued FIN No. 46
(Revised) ("FIN 46-R") to address certain FIN 46 implementation issues.
This interpretation requires that the assets, liabilities, and results
of activities of a Variable Interest Entity ("VIE") be consolidated
into the financial statements of the enterprise that has a controlling
interest in the VIE. FIN 46R also requires additional disclosures by
primary beneficiaries and other significant variable interest holders.
For entities acquired or created before February 1, 2003, this
interpretation is effective no later than the end of the first interim
or reporting period ending after March 15, 2004, except for those VIE's
that are considered to be special purpose entities, for which the
effective date is no later than the end of the first interim or annual
reporting period ending after December 15, 2003. For all entities that
were acquired subsequent to January 31, 2003, this interpretation is
effective as of the first interim or annual period ending after
December 31, 2003. The adoption of FIN 46 did not have a material
impact on the Company's results of operations or financial position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." This
statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. Management believes that this statement did not
have a material impact on the Company's results of operations or
financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS No. 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity and
requires that those instruments be classified as liabilities in
statements of financial position. Previously, many of those financial
instruments were classified as equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of the provisions of SFAS
No. 150 did not have a material effect on the Company's financial
position.
9
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 3- ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31, December 31,
2004 2003
------------ ------------
Accounts receivable $ 4,314,223 $ 1,115,488
Less: allowance for bad debt 215,711 55,774
------------ ------------
Accounts receivable, net $ 4,098,512 $ 1,059,714
============ ============
Note 4- INVENTORY
Inventory consists of the following:
December 31, December 31,
2004 2003
------------ ------------
Raw materials and supplies $ 154,588 $ 123,263
Work in progress 25,424 62,473
Finished goods 1,197,267 936,098
------------ ------------
$ 1,377,279 $ 1,121,834
============ ============
Note 5- DUE FROM AFFILIATES
Due from affiliates consists of the following:
December 31, December 31,
2004 2003
------------ ------------
Xingda Pharmarceutical Ltd. $ -- $ 1,272,361
============ ============
Note 6- LAND USE RIGHT
Land use right consists of the following:
December 31, December 31,
2004 2003
------------ ------------
Cost of land use right $ 1,473,964 $ 1,473,964
Less: Accumulated amortization 61,415 31,936
------------ ------------
$ 1,412,549 $ 1,442,028
============ ============
10
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 7- PROPERTY AND EQUIPMENT
The following is a summary of property, plant and equipment-at cost,
less accumulated depreciation:
December 31, December 31,
2004 2003
------------ ------------
Plant $ 1,177,749 $ 1,132,689
Machinery and equipment 679,542 513,936
Office equipment and furniture 123,841 78,955
Vehicle 55,454 10,874
------------ ------------
2,036,586 1,736,454
Less: Accumulated depreciation:
Plant 287,337 213,787
Machinery and equipment 133,789 113,029
Office equipment and furniture 62,237 21,181
Vehicle 11,617 9,622
------------ ------------
494,980 357,619
Construction in progress 99,822 48,369
------------ ------------
Total $ 1,641,428 $ 1,427,204
============ ============
Depreciation expense charged to operations was $137,361 and $139,669 in
2004 and 2003, respectively.
11
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 8- INCOME TAXES
Corporation Income Tax ("CIT")
In accordance with the relevant tax laws and regulations, the
corporation income tax rate is 33%. Income tax expense for the years
ended December 31, 2004 and 2003 is summarized as following:
PRC only: 2004 2003
---------- ----------
Current $ 33,195 $ 26,807
Deferred -- --
---------- ----------
$ 33,195 $ 26,807
========== ==========
The Company's tax expense differs from the "expected" tax expense for
the years ended December 31 31, 2004 and 2003 (computed by applying the
CIT rate of 33 percent to net profit) as follows:
2004 2003
---------- ----------
Computed "expected" expense $ 183,730 $ 226,340
Benefit of lower tax brackets 150,175 199,533
---------- ----------
Income tax expense $ 33,555 $ 26,807
========== ==========
The tax effects of temporary differences that give rise to significant
portions of deferred tax liabilities(assets) are as follows at December
31, 2004 and 2003:
Business Tax ("BT")
The Company is subject to Business Tax, which is charged on the selling
price at a general rate of 5% in accordance with the tax law
applicable.
12
SUZHOU HENGYI PHARMARCEUTICALS OF FEEDSTOCK CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Note 9- BANK LOANS
Bank loans payable at December 31, 2004 consist of the following:
Loan Annual
Finnacial Institutions Amount Duration Interest Rate
---------------------- ---------- -------- -------------
Taicang Chengxiang Credit Cooperative $ 567,838 07/28/04-01/27/05 6.3000%
Kunshan Xinzhen Credit Cooperative 302,042 04/20/04-04/19/05 5.7525%
Kunshan Xinzhen Credit Cooperative 362,450 04/23/04-04/22/05 6.6375%
Kunshan Xinzhen Credit Cooperative 422,859 11/17/04-11/16/05 6.0450%
----------
$1,655,189
==========
The bank loans are secured by a general security agreement covering all
assets of the Company.
At December 31, 2003 the bank loans payable were $2,801,740.
Note 10- COMMITMENTS AND CONTINGENCIES
The Company's operations are conducted in the PRC. Accordingly, the
Company's business, financial condition and results of operations may
be influenced by the political, economic and legal environments in the
PRC, and by the general state of the PRC economy.
The Company's operations in the PRC are subject to special
considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks
associated with, among others, the political, economic and legal
environments legal environments and foreign currency exchange.
The Company's results may be adversely affected by changes in the
political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad,
and rates and methods of taxation, among other things.
13