================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
---------------
|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 __________
COMMISSION FILE NO. 09081
CYBRDI INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2461404
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
401 ROSEMONT AVE. FREDERICK, MD 21701
--------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (301) 644-3901
--------------
Certron Corporation
11845 W. Olympic Boulevard, Suite 1080, Los Angeles, California 90064
(Prior year end October 31)
---------------------------------------------------------------------
Former name, former address and former fiscal year,
(if changed since last report)
Indicate by a 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 [ ] No [X]
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes[ ] No[X]
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act Yes[ ] No [X]
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 and Exchange Act 0f 1934
during the preceding 12 months (of 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[ ] No[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-k.
Indicate by a check mark whether the registrant is a large accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate by a check mark whether the registrant is a shell Company (as defined
by Rule 12b-2 of the Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
50,456,567 shares of Common Stock, without par value, as of May 31, 2006
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to, as of May 31, 2006 was $2,805,232 based
on a closing bid price of $0.08 and a total of 35,065,404 shares held by
non-affiliates
APPLICALBE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
(PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES [ ] NO [ ] NOT APPLICABLE [X]
DOCUMENTS INCORPORATED BY REFERENCE:
None
================================================================================
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1 Description of Business 1
ITEM 2 Description of Property 9
ITEM 3 Legal Proceedings 9
ITEM 4 Submission of matters to a vote of security holders 9
PART II
ITEM 5 Market For Common Equity and Related Stockholder Matters 10
ITEM 6 Selected Financial Data 11
ITEM 7 Management Discussion and Analysis 12
ITEM 8 Financial Statements 18
ITEM 9A Changes In And Disagreements With Accountants Accounting
And Financial Disclosures 18
ITEM 9B Controls and Procedures 19
ITEM 9C Other Information 19
PART III
ITEM 10 Directors, Executive Officers, Promoters And Control
Persons, Compliance With Section 16(A) Of The
Exchange Act. 20
ITEM 11 Executive Compensation 22
ITEM 12 Certain Relationships and Related Transaction 24
ITEM 13 Exhibits 24
ITEM 14 Principal Accounting Fees and Services 25
This annual report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which we indicate by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "we believe," "our company believes," "management
believes" and similar language. These forward-looking statements are based on
our current expectations and are subject to certain risks, uncertainties and
assumptions, including those set forth in the discussion under Item 1.
"Description of Business" and Item 7. "Management's Discussion and Analysis",
including under the heading "- Risk Factors" under Item 1. Our actual results
may differ materially from results anticipated in these forward-looking
statements. We base our forward-looking statements on information currently
available to us, and we assume no obligation to update them. In addition, our
historical financial performance is not necessarily indicative of the results
that may be expected in the future and we believe such comparisons cannot be
relied upon as indicators of future performance.
Certain financial information included in this annual report has been
derived from data originally prepared in Renminbi (RMB), the currency of the
People's Republic of China ("China" or "PRC"). For purposes of this annual
report, conversion rates of US$1.00 to RMB 8.0702 and RMB 8.1936 were utilized
to convert 2005 amounts. There is no assurance that RMB amounts could have been
or could be converted into US dollars at that rate.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Our company, Cybrdi, Inc. ("we", "us", "our", "Cybrdi" or "our company"), was
incorporated under the laws of the State of California in 1966. On April 2, 2005
we filed amendments to the articles of incorporation to change our name from
Certron Corporation to Cybrdi, Inc. The amendment was approved by the required
vote of shareholders in accordance with Section 902 and Section 903 of the
California Corporations Code.
Until around June 2004, the Company's business consisted primarily of the
distribution of magnetic media products, primarily blank audio and video
cassettes. Due to continuing intense price competition and technological changes
in the marketplace for its products, the Company lost its remaining significant
customers and disposed of or wrote off its remaining inventory. As a result of
these occurrences, the Company concluded that its audio and videotape businesses
were no longer viable and some of its product lines were obsolete and the
Company placed its emphasis on attempting to find a buyer for the Company.
In November 2004, the Company, through Certron Acquisition Corp., a newly formed
Maryland corporation and wholly-owned subsidiary of the Company ("Acquisition
Sub") acquired all of the issued and outstanding shares of common stock of
Cybrdi, Inc., a privately held company incorporated in the State of Maryland
("Cybrdi Maryland"). The Company acquired all of the issued and outstanding
shares of common stock of Cybrdi Maryland in exchange for 47,328,263 shares of
common stock of the Company. Subsequent to the merger, the former shareholders
of Cybrdi Maryland own approximately 93.8% of the outstanding shares of the
Company's common stock.
With the completion of the merger, all the magnetic media distribution business
activities have ceased and Cybrdi's focus is the field of biogenetics
commercialization, specializing in the rapid introduction of tissue microarray
products and services in both the international and Chinese markets.
Most of our activities are conducted through our 80% equity ownership in China
Shaanxi Chaoying Bio-technology Co., Ltd. ("Chaoying Biotech") a sino-foreign
equity joint venture established in July 2000 in the People's Republic of China.
Our plan is to capitalize China's huge population with our quality tissue
microarray and other products. We have also been exploring business
opportunities that could leverage our existing sales distribution channel and
relationship with our affiliated companies.
Our revenue decreased by 6.9% from $1,533,043 in 2004 to $1,427,799 in 2005, and
our net income decreased from $488,833 in 2004 to $5,128 in 2005. The decrease
in net income was mainly attributable to the increase in other non- operating
expenses associated with the merger with Cybrdi Maryland and further discussion
of the Company operating results should refer to Item 6. "Management's
Discussion and Analysis".
BUSINESS OVERVIEW
With the completion of the merger, our former officers and directors tendered
their resignation and were replaced by officers and directors designated by
Cybrdi, Maryland. Our new officers and directors determined to discontinue
Certron's prior business operations, the sale of magnetic media distribution
tapes and products, and pursue exclusively the development and expansion of
Cybrdi Maryland. Most of Cybrdi's activities are conducted through its 80%
equity ownership in China Shaanxi Chaoying Bio-technology Co., Ltd. ("Chaoying
Biotech") a sino-foreign equity joint venture established in July 2000 in the
People's Republic of China. Cybrdi became affiliated with Chaoying Biotech in
March 2003. The Chaoying Biotech joint venture agreement has a term of 15 years.
The term of joint venture may be extended upon the mutual consent of the
parties.
We focus on biogenetics commercialization and healthcare product applications.
Our primary business includes sales of tissue microarray products and services.
Tissue chips, also called microtissue arrays, represent a newly developed
technology providing high-throughput molecular profiling and parallel analysis
of biological and molecular characteristics for hundreds of pathologically
controlled tissue specimens. Tissue arrays can provide rapid and cost-effective
localization and evaluation of proteins, RNA, or DNA molecules, which is
particularly useful for functioning genomic studies. Cybrdi manufactures both
human and animal tissue microarray for a wide variety of scientific uses,
including drug discovery and development purposes.
Our principal operations are located in Shaanxi China. Our Maryland company
focuses primarily on business development of tissue microarrays in North America
and Europe.
1
THE EMPLOYEES
As of December 31, 2005, we had approximately 51 full-time employees (50
employees in China, and 1 in Maryland).
THE PRODUCTS
TISSUE MICROARRAYS (TMAS)
We manufacture both human and animal tissue microarrays for a wide variety of
scientific uses, including drug discovery and development purposes. TMA
technology can survey hundreds or even thousands of clinical specimens in a
single experiment utilizing common probes, including DNA, RNA, peptide, protein
and antibody probes. This is an efficient, in vivo approach for the validation
of gene discoveries and identification of potential molecules for diagnosis and
therapy.
Chaoying Biotech owns a 18,000 square foot, approximately 2000 m (2), in
Shaanxi, China which includes a manufacturing facility and a pathology and
molecule laboratory. We have established the standard tissue chip production,
processing procedure and quality control system in our facility. We have also
established an electronic management system to effectively manage biologic
information databank.
We currently offer a wide variety of tissue array products and services on the
commercial market, including approximately (at present) 122 different disease
and 84 different organ types of both human and animal varieties. These tissues
are prepared in a variety of array panels of differing formats and tissue
densities to service the full range of scientific research interests. New
products are being added on a monthly basis per customer demands.
TMA chips can be broadly applied in both basic and clinical research conducted
by the academic, medical, pharmaceutical and biogenetic research communities.
Our customers include pharmaceutical companies, biotechnology companies and
research institutes, such as Merck, Genentech, Chiron, Astrozenic, Wyeth, NIH
and Cancer Centers.
TECHNICAL SERVICES
Complementing the production and marketing of tissue chips, we have launched an
in-house technical services platform to perform customized research according to
customer specifications. By outsourcing experimentation to us, international
research labs, (particularly those in high labor and material cost markets) can
incur substantial cost savings. Frequently requested services include the
standard immunohisto chemistry (IHC) and in-situ-hybridization (ISH) services
needed to locate proteins or genes of interest using customer-supplied probes.
These probes are applied to select normal, diseased and marginal tissue from our
tissue array bank. The results are presented as publishable, detailed pathology
reports including high resolution digital photographs. Through virtual
cybernetic bio-services (vCBS), these results can be sent via the Internet to
the customer the day after the probe is received by our labs. Our technical
services currently serves our Chinese customers.
MARKET OPPORTUNITIES AND COMPETITION
CHINA BIOTECH TRENDS
Biotechnology research has been supported by the Chinese government; becoming a
designated key industry in China's scientific development plan in 1986. However,
most biotech investment has been made in the areas of basic research in
government funded laboratories or government linked companies focused on major
scientific discoveries in gene function . Cybrdi has not received any funding
from the Chinese government.
MARKETING STRATEGIES
China Market: By leveraging existing hospital relationships and Shaanxi
Chaoying's, marketing channels, we have been successful in marketing TMA
products, medical care products and other services within the China market. We
have two primary regional focuses in China, the northern provinces which include
the cities of Beijing, Tian Jing and Hebei Province , and the eastern provinces
which include the cities of Shanghai, Zhejiang Province and Shangdong Province.
We market and intend to market our product and services through our own direct
sales efforts and by utilizing independent distributors.
2
International Marking Strategy: By leveraging our know-how and infrastructure of
China operations, we are actively expanding international distribution channels
through out the North American, European and other Asian research markets to
meet untapped demand for TMA products and services. We currently have
distributors in the US, Canada, Germany, Italy, Belgium, Japan and Taiwan.
COMPETITION
We believe that our TMA products have pricing advantages over our competitors.
Because of the high costs and strict patient information protocol associated
with tissue collection in most developed economies, competing products of
similar quality have a higher price than our products. Furthermore, established
genomics firms such as Ambion and Clinomics outsource most TMA production yet
are unable to offer the wide product series variety demanded by the global
research community. This presents growth opportunities for us under either
in-house and/or through OEM programs.
At the other end of the price spectrum, low-priced tissue chips have had either
insufficient quality or inadequate density. The production of qualified TMAs
requires expertise in several scientific areas including pathology, immunology,
molecular and biology. Producers of TMA must also meet in hygienic standards,
quality controls, and special materials processing and shipping procedures not
only in the country of manufacture but for usage in the country of ultimate
destination. Because of the high cost of reliable commercial TMAs, and,
conversely, the low quality of low cost TMAs, many research institutions had
previously established their own production teams for in-house research needs
prior to the introduction of our TMAs.
INTELLECTUAL PROPERTY
We regard our service marks, trademarks, trade secrets, patents and similar
intellectual property as critical to our success. We rely on patent, trademark
and trade secret law, as well as confidentiality and license agreements with
certain of our employees, customers and others to protect our proprietary
rights. Currently we own four invention patents:
- ----------------------------------------------- --------------------------- ------------------------------
Name of Patent Number of Patent Awarded Time
- ----------------------------------------------- --------------------------- ------------------------------
Tissue Microarrays (TMAs) ZL01128783.7 June 1st 2005
- ----------------------------------------------- --------------------------- ------------------------------
A way to test content of special antibody in ZL01131756.6 December 15th 2004
body fluid in a certain part
- ----------------------------------------------- --------------------------- ------------------------------
Diabetes autoimmune antibody test kit ZL02145561.9 November 17th 2004
multiplex Chip, equipment and method
- ----------------------------------------------- --------------------------- ------------------------------
Diabetes immunization antibody testing
protein chips and its own preparation, ZL02145535.X October 27th 2004
detection methods
- ----------------------------------------------- --------------------------- ------------------------------
3
RESEARCH AND DEVELOPMENT
Our strategy is to incrementally advance from our current technological base
into complementary, rapidly commercialized products and services. New product
development can represent an expansion of existing TMA technical knowledge or a
new commercial application of current knowledge.
We currently perform all of our own research and development activities. We have
our own research; development and laboratory facilities located at our Shanxi
facility and retain our own professional research and development team. We may
enter into agreements for research and development activities with third parties
in the future.
We will continue enhancing R&D in TMAs and technical service by expanding our
virtual tissue array data bank (vTMAB) to meet expected growing demand from
various research institutions and medical universities and colleges. Our
strategic focuses in the near future also include the biotechnology cosmetics
and healthcare products, and health diagnosis for obesity and skin disease.
AVAILABLE INFORMATION
Information regarding the Company's annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to these
reports, are available to the public from the SEC's website at
http://www.sec.gov as soon as reasonably practicable after the Company
electronically files such reports with the Securities and Exchange Commission.
Any document that the Company files with the SEC may also be read and copied at
the SEC's public reference room. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. We will also supply this
information to any shareholder requesting copies of any of the foregoing free of
charge. Shareholders should contact our office at (301)644-3901 if they desire
copies of any of our filings with the Securities and Exchange Commission.
RISK FACTORS
You should consider each of the following risk factors and any other information
set forth in this Form 10-K and our other reports that we have filed with the
Securities and Exchange Commission ("SEC"), including the Company's financial
statements and related notes, in evaluating the Company's business and
prospects. The risks and uncertainties described below are not the only ones
that impact on the Company's operations and business. Additional risks and
uncertainties not presently known to the Company, or that the Company currently
considers immaterial, may also impair its business or operations. If any of the
following risks actually occur, our business and financial condition, results or
prospects could be harmed.
RISKS ASSOCIATED WITH THE COMPANY'S PROSPECTIVE BUSINESS AND OPERATIONS
The Company has a limited history with respect to the manufacture, sale and
distribution of TMAs. Medical technology is constantly evolving and there can be
no assurance that our TMAa will keep pace with medical breakthroughs. . The
Company's ability to achieve and maintain profitability and positive cash flow
over time will be dependent upon, among other things, its ability to (i)
continue to develop new TMA products and market these products both in China and
other developing companies and (ii) its ability to evaluate the merits of
pursuing the beauty supply business and its success in developing franchise
opportunities despite no prior experience.
OUR BUSINESS IS HEAVILY DEPENDENT ON THE ECONOMIC GROWTH OF CHINA
At the current time, our business is heavily dependent on the economy and
developing middle and upper class in China. Should the country suffer an
economic downturn or should the government impose restrictions on the growth of
private companies and the ability of a large consumer class to earn money in the
private sector our business will suffer. To the extent that any of the foregoing
should occur, our revenues will decline significantly.
4
WE MAY NOT BE ABLE TO SUPPORT OUR OPERATIONS THROUGH INTERNAL GROWTH
In order to fully implement our business plan, we may require additional
financing. Financing may be in the form of traditional bank financing or through
the sale of our common stock. There can be no assurance that we will be able to
secure adequate bank financing or if available, will be on terms acceptable to
the Company. If we attempt to sell shares of our common stock, existing
shareholders will face dilution and likely a reduction in the price of our
common stock. There are currently no financing arrangements in place.
OUR BUSINESS MAY BE AFFECTED BY UNEXPECTED CHANGES IN REGULATORY REQUIREMENTS IN
THE JURISDICTIONS IN WHICH WE OPERATE.
Development and distribution of our TMA's is subject to regulation both where we
manufacture and where we sell the products. We believe that we are currently in
compliance with applicable governmental rules and procedures. However, there can
be no assurance that changes in the regulatory environment will not make it
difficult for us to comply or result in a substantial increase in our operating
costs and a resulting decline in our margins.
THERE IS UNCERTAINTY AS TO OUR ABILITY TO CONTROL COSTS AND EXPENSES.
If our business grows, costs will increase. Management cannot accurately project
or give any assurance, with respect to its ability to control development and
operating costs and/or expenses in the future. Consequently, even if the Company
is successful in expanding its operations (of which there can be no assurance),
our management still may not be able to control costs and expenses adequately,
and therefore such expansion may result in operating losses.
COMPETITION
Our market is highly competitive and some of our competitors may have greater
resources than us. These competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements and devote greater
resources to develop, promote and sell their services. If this should occur,
revenues may decline and we will likely lose market share. IF WE DO NOT MANAGE
OUR GROWTH, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS EFFECTIVELY.
We expect significant expansion will be required to address potential growth in
our customer base, the breadth of our service offerings, and other
opportunities. This expansion could strain our management, operations, systems
and financial resources. To manage any future growth of our operations and
personnel, we must improve and effectively utilize operational, management,
marketing and financial systems and successfully recruit, hire, train and manage
personnel and maintain close coordination among our technical, finance,
marketing, sales and recruitment staffs. We also will need to manage an
increasing number of complex relationships with customers, strategic partners,
advertisers and other third parties. Our failure to manage growth could disrupt
our operations and ultimately prevent us from generating the revenue we expect.
UNANTICPATED OBSTACLES TO EXECUTION OF OUR BUSINESS PLAN.
The Company's business plans may change significantly. Many of the Company's
potential business endeavors are capital intensive and may be subject to
statutory or regulatory requirements. Management believes that the Company's
chosen activities and strategies are achievable in light of current economic and
legal conditions with the skills, background, and knowledge of the Company's
principals and advisors. Management reserves the right to make significant
modifications to the Company's stated strategies depending on future events.
5
CERTAIN POLITICAL AND ECONOMIC CONSIDERATIONS RELATING TO THE PRC COULD
ADVERSELY AFFECT OUR COMPANY.
The government of the People's Republic of China has welcomed foreign investment
and the expansion of business opportunities in the private sector. There can be
no assurance that this policy will continue or alternatively, that this policy
will not be modified to make it more restrictive to transfer funds from China to
the United States or any other country. Moreover, political instability could
adversely impact our ability to fully implement our business plan as political
instability would likely lead to a downturn in the Chinese economy.
CURRENCY EXCHANGE
Changes in the exchange rate of the Chinese yuan renminbi (CYN) may adversely
impact our profitability. If the CYN declines with respect to the U. S. dollar,
our profitability will be adversely affected.
RESEARCAH AND DEVELOPMENT CAN BE COSTLY
Medical advances are taking place at a rapid pace. In order to stay competitive,
and bring state of the art TMAs to the market at competitive prices will require
us to continue to devote significant resources to research and development.
There can be no assurance that we will have sufficient cash flow to make this
commitment on a going forward basis.
RELIANCE ON CURRENT MANAGEMENT
We are reliant on our current management team to help us fully implement our
business plan. The loss of any of their services could have a material adverse
impact on the implementation of our business plan and our future growth. We do
not carry any type of key man insurance. During this past year, several of our
directors resigned for personal reasons. These directors were not directly
involved with our operations and their loss has not adversely impacted our
operations. We have not yet filled these vacancies on our Board of Directors.
The Company's business may experience periods of rapid growth that will place
significant demands on its managerial, operational and financial resources. In
order to manage this possible growth, the Company must continue to improve and
expand its management, operational and financial systems and controls. The
Company will need to expand, train and manage its employee base. No assurances
can be given that the Company will be able to timely and effectively meet such
demands.
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS.
Our management, either directly or indirectly own a majority of our issued and
outstanding common stock. As a result, they will be able to elect members to our
Board of Directors . This will enable current management to retain control
regardless of their performance. In addition, minority shareholders will have
little input into the direction of the Company.
WE MAY HAVE DIFFICULTY ATTRACTING TALENT IN FOREIGN COUNTRIES.
Our research and development program requires us to recruit highly skilled
personnel. There can be no assurance that we will be able to attract these
personnel for work either in the United States or China. If we cannot attract
skilled personnel, our operations will likely suffer and any competitive edge
that we have in the marketplace will quickly erode.
6
CORPORATE GOVERNANCE MATTERS
We have not voluntarily implemented various corporate governance measures in the
absence of which, shareholders may have more limited protections against
interested director transactions, conflicts of interest and similar matters.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The Nasdaq Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges and Nasdaq are
those that address board of directors' independence, audit committee oversight,
and the adoption of a code of ethics. While our board of directors has adopted a
Code of Ethics and Business Conduct, we have not yet adopted any of these other
corporate governance measures and, since our securities are not yet listed on a
national securities exchange or Nasdaq, we are not required to do so. It is
possible that if we were to adopt some or all of these corporate governance
measures, shareholders would benefit from somewhat greater assurances that
internal corporate decisions were being made by disinterested directors and that
policies had been implemented to define responsible conduct. For example, in the
absence of audit, nominating and compensation committees comprised of at least a
majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.
We may be exposed to potential risks relating to our internal controls over
financial reporting and our ability to have those controls attested to by our
independent auditors.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"), the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the company's internal controls over financial
reporting in their annual reports. In addition, the independent registered
public accounting firm auditing a company's financial statements must also
attest to and report on management's assessment of the effectiveness of the
company's internal controls over financial reporting as well as the operating
effectiveness of the company's internal controls.
7
While we expect to expend significant resources in developing the necessary
documentation and testing procedures required by SOX 404, there is a risk that
we will not comply with all of the requirements imposed thereby. At present,
there is no precedent available with which to measure compliance adequacy.
Accordingly, there can be no positive assurance that we will receive a positive
attestation from our independent auditors. In the event we identify significant
deficiencies or material weaknesses in our internal controls that we cannot
remediate in a timely manner or we are unable to receive a positive attestation
from our independent auditors with respect to our internal controls, investors
and others may lose confidence in the reliability of our financial statements
and our ability to obtain equity or debt financing could suffer.
Risks Related to the Company's Common Stock
The Company does not expect to pay dividends in the foreseeable future.
The Company has never paid cash dividends on its common stock and has no plans
to do so in the foreseeable future. The Company intends to retain earnings, if
any, to develop and expand its business.
"Penny stock" rules may make buying or selling the common stock difficult and
severely limit their market and liquidity.
Trading in the Company's common stock is subject to certain regulations adopted
by the SEC commonly known as the "Penny Stock Rules". The Company's common stock
qualifies as penny stock and is covered by Section 15(g) of the Securities and
Exchange Act of 1934, as amended (the "1934 Act"), which imposes additional
sales practice requirements on broker/dealers who sell the Company's common
stock in the market. The "Penny Stock" rules govern how broker/dealers can deal
with their clients and "penny stock". For sales of the Company's common stock,
the broker/dealer must make a special suitability determination and receive from
clients a written agreement prior to making a sale. The additional burdens
imposed upon broker/dealers by the "penny stock" rules may discourage
broker/dealers from effecting transactions in the Company's common stock, which
could severely limit its market price and liquidity. This could prevent
investors from reselling Echo common stock and may cause the price of the common
stock to decline.
Although publicly traded, the Company's common stock has substantially less
liquidity than the average trading market for a stock quoted on other national
exchanges, and our price may fluctuate dramatically in the future.
Our Common Stock is currently quoted on the Pink Sheets. Our Common Stock was
previously listed for trading on the Over-the-Counter Electronic Bulletin Board.
The trading market in the common stock has substantially less liquidity than the
average trading market for companies quoted on other national stock exchanges. A
public trading market having the desired characteristics of depth, liquidity and
orderliness depends on the presence in the marketplace of willing buyers and
sellers of our common stock at any given time. This presence depends on the
individual decisions of investors and general economic and market conditions
over which we have no control. Due to limited trading volume, the market price
of the Company's common stock may fluctuate significantly in the future, and
these fluctuations may be unrelated to the Company's performance. General market
price declines or overall market volatility in the future could adversely affect
the price of the Company's common stock, and the current market price may not be
indicative of future market prices.
8
ITEM 2. DESCRIPTION OF PROPERTY
Our operations in the United States are located at 401 Rosemont Avenue FITCI
Frederick, MD 21701 where we lease approximately 2,000 square feet of space from
FITC a non-affiliated party. Our annual rental payment is $26,160 payable in
monthly increments of $2,180. The lease is on a month-by-month basis. If we are
unable to extend this lease, we do not anticipate any difficulties in locating
office space to meet our operational needs.
Our operations in the People's Republic of China are located at the Chaoying
Workshop, Third Floor, Changyanbu, Private-owned industrial zone where we use
approximately 18,000 square feet (2,000 square meters) of space. From inception
through December 31, 2005, a related party, Shaanxi Chaoying Beauty & Cosmetics
Group Co, Inc., provided free office space and utilities to the Company's
subsidiary in PRC. During the years ended December 31, 2005, 2004, and 2003, the
Company recognized $8,700 each year as expenses for these contribution items
with an offsetting increase in additional paid-in capital. This arrangement
terminated on December 31, 2005. We believe that this arrangement is comparable
to what we would pay had we leased similar space from a non-affiliated entity.
The facility is sufficient for our current operations. Should our operations
expand and we need to locate additional rental properties, we do not anticipate
any problems in securing additional leased space.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which we are a party. We were
notified by a letter dated June 2, 2000 received June 6, 2000 that we may have a
potential liability from waste disposal in the Casmalia Disposal Site at Santa
Barbara County, California. We were given a choice of either signing an
agreement that would toll the statute of limitations for eighteen (18) months in
order to allow us to resolve any liability with the government without incurring
costs associated with being named a defendant in a lawsuit, or becoming an
immediate defendant in a lawsuit. We signed the tolling agreement. On November
20, 2001, the tolling agreement was extended for an additional 18 months. On May
20, 2003 the tolling agreement was again extended for an additional 18 months
and on November 24, 2004 the tolling agreement was again extended for additional
18 months. On June 29, 2004, we received a proposed settlement from the EPA in
the amount of $21,131. We are waiting for communication from the government
concerning payment of the proposed settlement. As of December 31, 2005, we have
accrued a sufficient amount to cover any potential liabilities from this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report.
9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our current stock symbol is "CYDI.PK". Our common stock was previously quoted on
the Over-the-Counter-Bulletin Board. ("OTCBB"). Prior to our merger with Cybrdi
we traded on the OTCBB under the symbol "CRTN". Following our acquisition of
Cybrdi, Inc., we requested a symbol change and were assigned CYDI.
The following table sets forth, for the periods indicated, the range of high and
low bid quotations for our common stock as quoted on the OTCBB and the Pink
Sheets. The reported bid quotations reflect inter-dealer prices without retail
markup, markdown or commissions, and may not necessarily represent actual
transactions.
YEAR PERIOD HIGH LOW
---- ------ ---- ---
2004 First Quarter 0.450 0.115
Second Quarter 0.145 0.115
Third Quarter 0.300 0.110
Fourth Quarter 0.350 0.170
2005 First Quarter 0.900 0.200
Second Quarter 0.750 0.280
Third Quarter 0.440 0.200
Fourth Quarter 0.285 0.160
2006 First Quarter 0.200 0.120
Second Quarter 0.120 0.070
(a) Transfer Agent
Our transfer agent is American Stock Transfer & Trust Company Inc., whose
address is 6201 15th Ave. Brooklyn, NY 11219 Their telephone number is
(212)936-5100.
(b) Stockholders
As of May 31, 2006, there were approximately 1,333 record holders of our common
stock. As of May 31, 2006, we have not paid any cash dividends on shares of our
common stock and do not plan to do so. We currently plan to retain future
earnings to fund the development and growth of our business.
(c) Dividend Policy.
We have not declared or paid cash dividends or made distributions in the past,
and we do not anticipate that we will pay cash dividends or make distributions
in the foreseeable future. We currently intend to retain and reinvest future
earnings, if any, to finance our operations.
(d) Securities authorized for issuance under equity compensation plans
None
10
ISSUANCE OF UNREGISTERED SHARES
As a result of the reverse merger (see below), the common stock of Cybrdi , Inc.
(a privately held Maryland corporation) has been cancelled and the shareholders
of Cybrdi, Inc. received a total of 47,328,263 shares of Cybrdi, Inc., a
California entity, at an exchange ration of 1.566641609. This resulted in the
issuance of 47,328,263 shares (the "Exchange Shares") of the Company's common
stock. As a result of the issuance of the Exchange Shares, as of December 31,
2005, we had 50,456,569 shares of common stock issued and outstanding. The
issuance of the Exchange Shares were exempt from registration under Section 4(2)
of the Act and/or Regulation D.
Reverse merger:
On February 10, 2005, (the "Closing Date") the Company closed on an Agreement
and Plan of Merger (the "Agreement") among Certron Corporation ("Certron"), a
California corporation, Certron Acquisition Corp., a Maryland corporation and a
wholly-owned subsidiary of Certron ("Acquisition Sub"), and Cybrdi, Inc., a
Maryland corporation ("Cybrdi Maryland") relating to the acquisition by Certron
of all of the issued and outstanding capital stock of Cybrdi Maryland in
exchange for shares of common stock of Certron that will aggregate approximately
93.8% of the issued and outstanding common stock of Certron. Pursuant to the
terms of the Agreement, at the Closing Date (a) Acquisition Sub has been merged
with and into Cybrdi Maryland, with Cybrdi Maryland being the surviving
corporation, (b) the common stock of Cybrdi Maryland has been cancelled and
converted into the right to receive shares of the common stock of Certron at an
exchange ratio of 1.566641609. This resulted in the issuance of 47,328,263
shares of the Certron's common stock , and (c) each share of the common stock of
Acquisition Sub has been converted in to and become one share of the common
stock of Cybrdi Maryland. The share exchange has been accounted for as a reverse
merger under the purchase method of accounting. Accordingly, Cybrdi Inc. will be
treated as the continuing entity for accounting purposes and the historical
financial statements presented will be those of Cybrdi, Inc.
In connection with the Agreement, on February 10, 2005, the Company amended its
articles of incorporation to authorize the issuance of 150 million shares of
common stock no par value and 500,000 shares of preferred stock, $1.00 par value
per share, none of which are issued or outstanding.
On March 31, 2005 the Company's Board of Directors changed its fiscal year end
from October 31 to December 31. Certron's fiscal year end was changed to
correspond with the fiscal year end of Cybrdi Maryland.
ITEM 6. SELECTED FINANCIAL INFORMATION
Following is a summary of our operations and financial condition from 2001
through 2005. You are urged to review the detailed audited financial statements
and accompanying footnotes for a complete understanding of our operations.
2005 2004 2003 2002* 2001*
----------- ----------- ----------- ----------- -----------
Net sales $ 1,427,799 $ 1,533,043 $ 1,227,394 $ 750,000 $ 1,475,000
Net income (loss) from
continuing operations $ 5,128 $ 488,833 $ 260,350 ($ 945,000) ($ 451,000)
Net income (loss) from
discontinued operations -- -- -- -- ($ 30,000)
Net income (loss) $ 5,128 $ 488,833 $ 260,350 ($ 945,000) ($ 481,000)
Net income (loss) per
common share $ 0.00 $ 0.02 $ 0.01 ($ 0.30) ($ 0.15)
Total assets $ 6,103,632 $ 5,737,261 $ 4,745,236 $ 1,203,000 $ 2,220,000
Long-term debt -- -- -- -- --
Working capital $ 4,796,714 $ 4,416,664 $ 2,628,334 $ 911,000 $ 1,831,000
Stockholders' equity $ 4,224,142 $ 4,099,661 $ 3,087,340 $ 1,065,000 $ 2,014,000
- ------------
* As a result of the ownership interests of the former shareholders of Cybrdi
Maryland, for financial statement reporting purposes, the merger was
treated as a reverse acquisition, with Cybrdi Maryland deemed the
accounting acquirer and Certron Corporation deemed the accounting acquiree.
Historical information of the surviving company is that of Cybrdi Maryland.
Financial information for the fiscal year ended 2001 and 2002 is that of
Certron Corporation for information purposes.
No cash dividends have been paid during the five-year period ended December 31,
2005.
11
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS
This annual report contains forward-looking statements within the meaning of the
federal securities laws. These include statements about our expectations,
beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe,"
"Cybrdi believes," "management believes" and similar language. The
forward-looking statements are based on the current expectations of Cybrdi and
are subject to certain risks, uncertainties and assumptions, including those set
forth in the discussion under "Description of Business" and "Management's
Discussion and Analysis," including the discussion under "Risk Factors"
thereunder. The actual results may differ materially from results anticipated in
these forward-looking statements. We base the forward-looking statements on
information currently available to us, and we assume no obligation to update
them.
We focus on biogenetics commercialization and healthcare product applications.
Our primary business includes sales of tissue microarray products and services.
Tissue chips, also called microtissue arrays, provide high-throughput molecular
profiling and parallel analysis of biological and molecular characteristics for
hundreds of pathologically controlled tissue specimens. Tissue arrays can
provide rapid and cost-effective localization and evaluation of proteins, RNA,
or DNA molecules, which is particularly useful for functioning genomic studies.
Cybrdi manufactures both human and animal tissue microarray for a wide variety
of scientific uses, including drug discovery and development purposes.
Our business strategy and focus in the near future include
o Enhancing R&D in TMAs and technical service
o Expanding our product portfolio and virtual tissue array data bank
(vTMAB)
o Launch the health diagnosis kit for obesity and skin disease
With our sophisticated research in genes, we can provide the professional health
diagnostic service for customer. We can check the reasons of obesity and other
skin disease like freckle by our genetic analysis, which offer more accurate and
specialized diagnosis. It can guide customer to set up right health or fitness
program. At present, it is the first and only company can provide genetic test
for the mechanism of obesity or skin disease. It has large market potential.
We will also explore other business development opportunities that can leverage
our sales platform and relationship with affiliated companies
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 reporting period. Actual results could differ
materially from those estimates.
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) 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
reporting period. Actual results may differ from those estimates.
Revenue recognition: Revenue represents the invoiced value of goods sold
recognized upon the delivery of goods to customers and service income is
recognized when services are provided. Deferred revenue represents the
undelivered portion of invoiced value of goods sold to customers. Sales
transactions not meeting all the conditions of the full accrual method are
accounted for using the deposit method of accounting. Under the deposit method,
all costs are capitalized as incurred, and payments received from the buyer are
recorded as customer deposits.
Principles of consolidation: The consolidated financial statements include the
accounts of Cybrdi, Inc. and its wholly-owned subsidiaries and joint ventures.
12
RESULTS OF OPERATIONS
The following table sets forth selected statement of income data as a percentage
of revenues for the years indicated.
December 31, December 31, December 31,
2005 2004 2003
------------ ------------ ------------
Revenue
Products $ 1,173,171 82% $ 1,175,235 77% $ 812,954 66%
Service rendered 254,628 18% 357,808 23% 414,440 34%
------------ ------------ ------------
Total revenue 1,427,799 100% 1,533,043 100% 1,227,394 100%
------------ ------------ ------------
Cost of sales
Products 244,331 294,373 256,354
Service rendered 35,507 38,527 40,522
------------ ------------ ------------
Total cost of sales 279,838 20% 332,900 22% 296,876 24%
------------ ------------ ------------
Gross profit 1,147,961 80% 1,200,143 78% 930,518 76%
------------ ------------ ------------
Operating expenses:
Selling and distribution expenses 100,173 79,887 66,398
General and administrative expenses 581,835 581,596 548,896
------------ ------------ ------------
Total operating expenses 682,008 48% 661,483 43% 615,294 50%
------------ ------------ ------------
Income from operations 465,953 33% 538,660 35% 315,224 26%
------------ ------------ ------------
Other income/(expense)
Interest income 30,408 8,140 7,150
Other (expense)/income, net (317,127) 91,249 36,718
------------ ------------ ------------
Total other (expense)/ income (286,719) -20% 99,389 6% 43,868 4%
------------ ------------ ------------
Income before income taxes 179,234 638,049 359,092
Income taxes (expenses)/benefit (48,097) -- 40,170
------------ ------------ ------------
Income before minority interest 131,137 9% 638,049 42% 399,262 33%
Minority Interest 126,009 9% 149,216 10% 138,912 11%
------------ ------------ ------------
Net income $ 5,128 0% $ 488,833 32% $ 260,350 21%
============ ============ ============
13
The following table sets forth the changes of selected statement of income data
for the years indicated.
2005 Vs 2004 2004 Vs 2003
------------ ------------
Increase/ (decrease) Increase/ (decrease)
Revenue
Products (2,064) -0.2% 362,281 44.6%
Service rendered (103,180) -28.8% (56,632) -13.7%
------------ ------------
Total revenue (105,244) -6.9% 305,649 24.9%
Cost of sales
Products (50,042) -17.0% 38,019 14.8%
Service rendered (3,020) -7.8% (1,995) -4.9%
------------ ------------
Total cost of sales (53,062) -15.9% 36,024 12.1%
------------ ------------
Gross profit (52,182) -4.3% 269,625 29.0%
Operating expenses:
Selling and distribution expenses 20,286 25.4% 13,489 20.3%
General and administrative expenses 239 0.0% 32,700 6.0%
------------ ------------
Total operating expenses 20,525 3.1% 46,189 7.5%
------------ ------------
Income from operations (72,707) -13.5% 223,436 70.9%
Other income/(expense)
Interest income 22,268 273.6% 990 13.8%
Other (expense)/income, net (408,376) -447.5% 54,531 148.5%
------------ ------------
Total other (expense)/ income (386,108) -388.5% 55,521 126.6%
Income before income taxes (458,815) -71.9% 278,957 77.7%
------------ ------------
Income taxes (expenses)/benefit (48,097) (40,170)
------------ ------------
Income before minority interest (506,912) -79.4% 238,787 59.8%
Minority Interest (23,207) -15.6% 10,304 7.4%
------------ ------------
Net income (483,705) -99.0% 228,483 87.8%
============ ============
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
Revenue
Cybrdi generates two categories of revenues: revenues from the sale of our
tissue chip products and from services. The net sales decreased to $1,427,799
for the year ended December 31, 2005 from $1,533,043 for the year ended December
31, 2004.
Tissue Chip Product: sales remains stable in the tissue chip business. The net
sales decreased approximately $2,000, or 0.2%, to $1,173,171 for the year ended
December 31, 2005 as compared to $1,175,235 for the year ended December 31,
2004. The decrease in net sales of our Tissue Chip business is primarily
attributable to the discontinuance in sales of some array slides.
Services: Fewer technical service orders were received during the year of 2005
as compared to 2004 resulting in a decrease in sales of $103,180, or 28.8%;
declining to $254,628 from $357,808 for the year ended December 31, 2005 as
compared to December 31, 2004.
Gross Margin
Gross margin as a percent of sales was 80% and 78% for the year ended December
31, 2005 and 2004, respectively. Our gross margin increased as a result of
increased operating efficiencies and an increase in sales volume of higher gross
margin biological chips products.
14
Operating Expenses
Our operating expenses increased $20,525 to $682,008 for the year ended December
31, 2005 from $661,483 for the year ended December 31, 2004. This is primarily
due an increase in salespersons also contributed to the increase in selling and
distribution to $100,173 for the year ended December 31, 2005 from $79,887 for
the year ended December 31, 2004. The increase in selling expenses was offset by
a decrease in general and administrative expenses to $581,835 for the year ended
December 31, 2005 from $581,596 for the year ended December 31, 2004.
Other Expenses/Income
Other net non operating expenses increased from $99,389 for the year ended
December 31, 2004 to $286,719 for the year ended December 31, 2005, an
increase of $386,108. This increase was mainly attributable to increase in
professional fees and other direct cost related to the merger, and the
settlement fee related to EPA charges. Included in other net income for the year
ended December 31, 2004 was also a grant obtained by the Company from the
government.
Income Taxes
The Company has not recorded a provision for federal income tax for year ended
December 31, 2005 due to utilization of net operating loss carry forward to
offset taxable income in United States. In accordance with the relevant tax laws
and regulations of the People's Republic of China, Chaoying Biotech is entitled
to full exemption from Corporation Income Tax ("CIT") for the first two years
and a 50% reduction in CIT for the next three years, commencing from the first
profitable year after offsetting all tax losses carried forward from the
previous five years. As 2003 was Chaoying Biotech's first profitable year, the
Company begins to record 50% CIT provision from the first quarter of 2005.
Effective tax rate is approximately 7.5% for the year ended December 31, 2005.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
Revenue
Cybrdi generates two categories of revenues: tissue chip product and services.
The net sales increased to $1,533,043 for the year ended December 31, 2004 from
$1,227,394 for the year ended December 31, 2003.
Tissue Chip Product: Sales of tissue chip increased approximately $362,281, or
44.6%, to $1,175,235 for the year ended December 31, 2004 as compared to
$812,954 for the year ended December 31, 2003. The increase in net sales of our
Tissue Chip business was primarily attributable to the introduction of new array
series to the market.
Services: Fewer technical service orders were received during the year of 2004
as compared to 2003 resulting in a decrease in sales of $56,632, or 13.7%;
declining to $357,808 from $414,440 for the year ended December 31, 2004 as
compared to December 31, 2003.
Gross Margin
Gross margin as a percent of sales was 78% and 76% for the year ended December
31, 2004 and 2003, respectively. Our gross margin increased as a result of
increased operating efficiencies and through economy of scales.
Operating Expenses
Our operating expenses increased $46,189 to $661,483 for the year ended December
31, 2004 from $615,294 for the year ended December 31, 2003. This is primarily
due to an increase in salespersons and shipping cost associated with the
increase in sales. These contributed to the increase in selling and distribution
to $79,887 for the year ended December 31, 2004 from $66,398 for the year ended
December 31, 2003. General and administrative expenses also increased $32,700 to
$581,596 for the year ended December 31, 2004 from $548,896 for the year ended
December 31, 2003.
15
Other Expenses/Income
Other income increased $55,521 to $99,389 for the year ended December 31, 2004
from $43,868 for the year ended December 31, 2003. This increase was mainly
attributable to a grant obtained by the Company from the government during
fiscal year 2004.
Income Taxes
The Company has not recorded a provision for federal income tax for the year
ended December 31, 2005 due to utilization of net operating loss carry forward
to offset taxable income in United States. In accordance with the relevant tax
laws and regulations of the People's Republic of China, Chaoying Biotech is
entitled to full exemption from Corporation Income Tax ("CIT") for the first two
years and a 50% reduction in CIT for the next three years, commencing from the
first profitable year after offsetting all tax losses carried forward from the
previous five years.
LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (cash plus accounts receivable plus inventory less
accounts payable and accrued expenses) increased by $380,050 from $4,416,664 as
of December 31, 2004 to $4,796,714 as of December 31, 2005. The increase was
primarily due to an increase in cash of approximately $300,000 and in accounts
receivable of approximately $109,000 from $252,179 at December 31, 2004 to
$360,503 at December 31, 2005. This was partially offset by an increase in
accounts payable of $34,071 from $47 at December 31, 2004 to $34,118 at December
31, 2005. Inventory remains stable with a slight decrease of approximately
$2,000 from $264,827 at December 31, 2004 to $263,634 at December 31, 2005.
Increase in net sales on some Tissue Chip Product line is attributable to the
increase in account receivable.
Cash provided by operating activities was $181,915 for the year ended December
31, 2005 as compared to $1,122,700 provided for the year ended December 31,
2004. The decrease in cash provided by operating activities for the year ended
December 31, 2005 reflected reduction of net income, increased in accounts
receivable and the increase of prepayment for participating in a healthcare
franchise.
The Company has $30,173 capital expenditure for the year ended December 31, 2005
as compared to a capital spending of $20,916 for the year ended December 31,
2004. Financing activities for the year ended December 31, 2005 provided
reflecting a $77,953 advance from shareholders.
With approximately $4,796,714 of net working capital as of December 31, 2005,
the Company believes it will have sufficient resources to finance its operations
for the coming year.
CRITICAL ACCOUNTING POLICIES
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 reporting period. Actual results could differ
materially from those estimates.
Income per share: Basic income per share excludes dilution and is
computed by dividing the income attributable to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that shared in the income of
the Company. Diluted income per share is computed by dividing the income
available to common shareholders by the weighted average number of common shares
outstanding for the period and dilutive potential common shares outstanding
unless consideration of such dilutive potential common shares would result in
anti-dilution. Common stock equivalents were not considered in the calculation
of diluted income per share as their effect would have been anti-dilutive for
the periods ended December 31, 2004 and 2003.
16
Critical Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) 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
reporting period. Actual results may differ from those estimates.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements. We do not
anticipate entering into any off-balance sheet arrangements during the next 12
months.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements:
In May 2005, the FASB issued Statement No. 154, "Accounting Changes and Error
Corrections" ("FAS 154"). FAS 154 generally require that accounting changes and
errors be applied retrospectively. FAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company does not expect FAS 154 to have a material impact on its
financial statements.
In March 2005, the FASB issued Statement of Financial Accounting Standards
Interpretation Number 47, "Accounting for Conditional Asset Retirement
Obligations" ("FIN 47"). FIN 47 provides clarification regarding the meaning of
the term "conditional asset retirement obligation" as used in FASB Statement No.
143, "Accounting for Asset Retirement Obligations." FIN 47 is effective for
fiscal years beginning after December 15, 2005. The Company is currently
evaluating the impact of FIN 47 on its financial statements.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. This standard will be
effective for awards granted, modified or settled in fiscal years beginning
after June 15, 2005. Accordingly, the Company will implement the revised
standard in the first quarter of fiscal year 2006. Management is assessing the
implications of this revised standard, which may materially impact the Company's
results of operations in fiscal year 2006 and thereafter.
ISSUANCE OF COMMON STOCK
See PART II Item 5 for issuance of common stock for the year ended 2005.
INFLATION
Inflation has not had a material impact on our business.
CURRENCY EXCHANGE FLUCTUATIONS
The majority of our net sales, costs and expenses are priced in Chinese
renminbi. Our assets are predominantly located inside China. Since 1994, the
exchange rate for Renminbi against the United States dollar has remained
relatively stable, with an exchange rate approximately RMB8.28 to US$1.00. On
July 21, 2005, China announced a revaluation of RMB and dropped its peg to the
US dollar. China is planning to move to a managed float against a basket of
currencies. The exchange rate has been adjusted to approximately RMB8.11 to
US$1.00, or an appreciation of 2%, and has remained relatively stable since
then. However, there can be no assurance that Renminbi will not be subject to
devaluation. We may not be able to hedge effectively against Renminbi
devaluation, so there can be no assurance that future movements in the exchange
rate of Renminbi and other currencies will not have an adverse effect on our
financial condition.
17
ITEM 8. FINANCIAL STATEMENTS.
The information required by Item 7 appears after the signature page to this
report.
ITEM 9A. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Our prior auditors were Bagell, Josephs, Levine & Company.("BJL") By letter
dated February 22, 2006, BJL tendered their resignation as our independent
accounting firm. We reported this event on Form 8-k which was filed with the
Securities and Exchange Commission on March 6, 2006. Concurrently therewith, we
announced the engagement of our current independent certifying accounting firm,
MS Group CPA., LLC.
We did not have any disagreements with BJL on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to BJL's satisfaction, would have caused BJL
to make reference to the subject matter of the disagreement in connection with
its report.
BJL did not advise the Company that (1) the internal controls necessary to
develop reliable financial statements did not exist, (2) information had come to
Thomas' attention which made it unwilling to rely on management's
representations, or unwilling to be associated with the financial statements
prepared by management, and (3) the scope of the audit needed to be expanded
significantly, and information had come to Thomas' attention that it had
concluded will, or if further investigated might, materially impact the fairness
or reliability of a previously issued audit report or the underlying financial
statements, or the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent audited financial
statements (including information that might preclude the issuance of an
unqualified audit report), and the issue was not resolved to Thomas'
satisfaction prior to its resignation or dismissal.
On April 29, 2005 we reported on Form 8-k as filed with the Securities and
Exchange Commission that Hurley and Associates ("Hurley") has been discharged as
our independent accounting firm. Hurley was the independent auditor for the
Company prior to its acquisition by Cybrdi.
We did not have any disagreements with Hurley on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Hurley's satisfaction, would have caused
Hurley to make reference to the subject matter of the disagreement in connection
with its report.
Weinberg & Company, P.A. ("Weinberg") was the independent certifying accounting
firm for Cybrdi, Maryland and audited Cybrdi Maryland for the year ended
December 31, 2003. We did not have any disagreements with Weinberg on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to Weinberg's satisfaction,
would have caused Weinberg to make reference to the subject matter of the
disagreement in connection with its report.
18
ITEM 9B. CONTROLS AND PROCEDURES
We have no formal audit committee. However, our entire Board of Directors (the
"Board") serves in the capacity of the audit committee. In discharging its
oversight responsibility as to the audit process, the Board obtained from the
independent auditors a formal written statement describing all relationships
between the auditors and us that might bear on the auditors' independence as
required by Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees." The Board discussed with the auditors any
relationships that may impact their objectivity and independence, including fees
for non-audit services, and satisfied itself as to the auditors' independence.
The Board also discussed with management and the independent auditors the
quality and adequacy of its internal controls. The Board reviewed with the
independent auditors their management letter on internal controls.
The Board discussed and reviewed with the independent auditors all matters
required to be discussed by auditing standards generally accepted in the United
States of America, including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees". The Board reviewed
the audited consolidated financial statements of the Company as of and for the
year ended December 31, 2005 with management and the independent auditors.
Management has the responsibility for the preparation of the Company's financial
statements and the independent auditors have the responsibility for the
examination of those statements. Based on the above-mentioned review and
discussions with the independent auditors and management, the Board of Directors
approved the Company's audited consolidated financial statements and recommended
that they be included in its Annual Report on Form 10-K for the year ended
December 31, 2005, for filing with the Securities and Exchange Commission.
As of the end of the period covered by this report (the "Evaluation Date"), we
carried out an evaluation in accordance with the requirements of the Chinese
auditing standards as well as the applicable rules in the United States. The
Company had set up an audit group, which consisted of the Chief Executive
Officer, Chief Financial Officer, one of the members of the board of directors
and two executives (including the manager) from our internal audit department.
..This audit group is under the supervision of our Chief Executive Officer and
Chief Financial Officer. The Company's audit group evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as defined
in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") of our Annual Report on Form 10-K before it was
filed with the Securities and Exchange Commission. The audit group made their
evaluation pursuant to Rule 13a-15 under the Exchange Act to the maximum
possible extent and to the best knowledge of the audit group. Based upon our
evaluation, our Chief Executive Officer and our Chief Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective and basically sound in all material aspects under Rule
13a-15.
However, given the fact that our major operations are located China, the Company
and the audit group consistently make efforts to coordinate the evolving control
and disclosure environment in China with the regulatory environment in the
United States. The Company has identified this aspect as an area for improvement
and is taking measures to train its staff for better performance.
The Company anticipates that it will be fully compliant with Section 404 of the
Sarbanes-Oxley Act of 2002 by the required date for non-accelerated filers and
it is in the process of reviewing its internal control systems in order to be
compliant with Section 404 of the Sarbanes-Oxley Act. However, at this time the
Company makes no representation that its systems of internal control comply with
Section 404 of the Sarbanes-Oxley Act.
ITEM 9C. OTHER INFORMATION.
Not applicable.
19
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names, ages, principal offices and positions
and the date each such person became a director or executive officer. Executive
officers are elected annually by our Board of Directors. Each executive officer
holds his office until he resigns, is removed by the Board or his successor is
elected and qualified. Directors are elected annually by our stockholders at the
annual meeting. Each director holds his office until his successor is elected
and qualified or his earlier resignation or removal.
Date of
Name and Principal Position Age Appointment
- -------------------------------------------------------------------
YanBiao Bai, Chairman, CEO and President 45 2003
Dr. Lei (Larry) Liu, 50 2001
Director and Former CEO
Xue Bu, Director, Treasurer & Chief 42 2005
Operating Officer
Dr. Minmin Qin, Director 48 2005
Below are brief descriptions of the backgrounds and experiences of our current
officers and directors:
Mr. YanBiao Bai, Chairman, CEO and President
YanBiao Bai, graduated from the Second Military Medical University in 1984,
receiving a legal qualification certificate, is an experienced entrepreneur and
corporate executive. Since 1999 he has served as Chairman of Shaanxi Chaoying
Group, a chain of cosmetic and personal care training schools and franchises
located in China. Since 2003, he has served as Chairman of the Board of
Directors of Cybrdi, Inc. In 2006 he assumed the role as CEO . Long interested
in Chinese traditional and modern medicine, Mr. Bai is working to apply his
marketing and management expertise to the emerging biotech field in China,
focusing on rapidly marketable products and services. Mr. Bai has been awarded
one of the Shaanxi Province "Outstanding Young Industrialist Award," among other
titles and honors.
Dr. Lei Liu, Director
Since 2000, Dr. Lei Liu has served as the president and chief executive officer
of Cybrdi, Maryland. He currently serves as a director of Cybrdi, Inc. and
during 2005 served as Cybrdi's chief executive officer until his resignation at
the end of 2005. Dr. Lei Liu enjoys his more than 25 year experiences on medical
research and clinical treatment. He has since 1999 served as president of IOI
USA. He was the visiting Professor of the Lombardi Cancer Center, Georgetown
University, Dr. Liu has held previous research positions at the University of
Virginia School of Medicine (Hematology Division), the National Cancer Institute
(Clinical Pharmacology Department), and the Armed Services University of Health
Sciences (Department of Biometrics). He has published numerous scientific
papers, including articles in Cancer Prevention and Treatment, the Journal of
Oncology, the Practical Journal of Cancer, the International Journal of Cancer,
the Journal of Neurochemistry, Clinical Cancer Research, and Biochemical
Pharmacology. His laboratory and clinical work has spanned the fields of
oncology, immunology, protein biochemistry, cell biology, molecular biology and
experimental therapeutics. Dr. Liu received his medical training and degree at
the Second Military Medical University, Shanghai, China. He also received a
Master's degree in Public Health from the Armed Services University, Bethesda,
MD, USA.
Xue Bu, Director, Treasurer & Chief Operating Officer
Ms. Xue Bu has served as an officer and director of Cybrdi, Inc. since February
2005. She obtained her B.S. in1986 from The Fourth Military Medical University
and an MBA degree from Xi'an Jiaotong University. Ms. Bu was the Vice President
of Beijing Chaoying Real Estate Company from 1999 to 2001. Since 2001, she has
served as the Deputy General Manager of Chaoying. Ms. Bu is the wife of YanBiao
Bai.
20
Dr. Minmin Qin PH.D, Director
Dr. Qin has more than 20 years research and development experience, including
eight years of biopharmaceutical development experience. Currently Dr. Qin is
Senior Director of Process Development at Five Prime Therapeutics, Inc,
California. Prior to Five Prime, Dr. Qin worked at BioMarin Pharmaceutical, Inc
for eight years, once held various positions like Director of Molecular Biology,
Director/Senior Director of Purification Development, and Senior Director of
Process Sciences. Before Biomarine, Dr. Qin worked at University of California
at Berkeley for six years, first as a Postdoctoral Associate and then a Research
Scientist. Dr. Qin received his Ph. D in Genetics from University of
Wisconsin-Madison, majoring in Molecular Biology, Dr. Qin is a PDA member, held
two patents.
Involvement in Certain Legal Proceedings
Except as indicated above, no event listed in Sub-paragraphs of Subparagraph (f)
of Item 401 of Regulation S-K, has occurred with respect to any of our present
executive officers or directors or any nominee for director during the past five
years which is material to an evaluation of the ability or integrity of such
director or officer.
FAMILY RELATIONSHIPS
Ms. Xue Bu, the Treasurer and Chief Operating Officer, is the wife of Yanbiao
Bai the Chairman, CEO and President.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS.
None of the Company's officers or directors timely complied with the e
Commission's requirements to file required reports reflecting beneficial
ownership. Each officer and director's beneficial ownership was however
identified in the Information Statement filed with the Commission on January 14,
2005. There has been no change of ownership since that date.
All officers and directors owning shares of common stock have however recently
filed the required reports under Section 16(A) of the Act.
21
CODE OF ETHICS
The Company has a Code of Business Conduct and Ethics, which is applicable to
all directors, officers and employees of the Company.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or to be paid by
Cybrdi, as well as certain other compensation paid or accrued, for each of the
last three fiscal years of our company to each named executive officer.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
-------------------------- ---------------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary Bonus Award Options Compensation
- -----------------------------------------------------------------------------------------------------------------------------
YanBiao Bai, Chairman, CEO and 2005 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
President 2004 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2003 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Dr. Lei Liu, 2005 $ 60,000 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Director and Former CEO 2004 $ 60,000 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2003 $ 60,000 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Xue Bu, Director, Treasurer & 2005 $ 4,500 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Chief Operating Officer 2004 $ 4,500 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2003 $ 4,500 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Dr. Minmin Qin, PH.D. Director 2005 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2004 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2003 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Lieping Chen, Former Director 2005 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2004 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2003 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
James Pan, Former Director 2005 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2004 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2003 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Marshall Kass, Former Chairman 2005 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
and Former CEO and Director 2004 $ 98,000 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
2003 $ 104,000 $ - 0 - $ - 0 - $ - 0 - $ - 0 -
- -----------------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK OPTION PLAN
None
COMPENSATION OF INDEPENDENT DIRECTORS
None
22
EMPLOYMENT AGREEMENTS
There are no written employment agreements with any of the Company's officers.
Mr. Bai has agreed to serve as the Company's president and chief executive
officer without compensation . There can be no assurance that he will continue
to serve as our president and chief executive officer without receiving any type
of compensation. Any compensation to be paid to Mr. Bai in the future will first
be set by our Board of Directors. Notwithstanding the foregoing, Mr. Bai has
agreed that any request for compensation on a going forward basis will not
exceed $100,000 without the consent of the Company's Board of Directors and the
shareholders.
Lei Liu has received an annual compensation of $ 60,000 for 2004 and 2005. The
Company's Board of Directors has not yet established his compensation for 2006.
Xue Bu receives an annual compensation of $4,500. She will continue to receive
this salary in 2006. However, the Board of Directors reserves the right to
increase this compensation level in their sole and absolute discretion.
No compensation has been paid to any director solely in connection with their
role as a director.
BENEFITICAL OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth, as of April 1, 2006 information with respect to
the beneficial ownership of our common stock by (i) persons known by us to
beneficially own more than five percent of the outstanding shares, (ii) each
director, (iii) each executive officer and (iv) all directors and executive
officers as a group. As of April 1, 2006, there were issued and outstanding
50,456,567 shares of Common Stock. There are no outstanding options or warrants.
Percentage of
Name of Officer or Director Title Title of Class No. of Shares ownership
- --------------------------- ----- -------------- ------------- --------------
YanBiao Bai Chairman/CEO/Pres Common 9,156,397 (1) 18.15%
Lei Liu Director Common 6,234,766 (2) 12.36%
Xue Bu COO/Treasurer/Dir Common 0
- ----------------------------------------------------------------------------------------------------------------------
Minmin Qin Director Common 0(4)
- ----------------------------------------------------------------------------------------------------------------------
All officers and directors as Common 15,391,163 30.50%
a group
- ------------
(1) Represents shares held by Shanxi Chaoying Beauty & Cosmetic Group of which
Mr. Bai is the president.
(2) Includes 4,370,462 shares issued to Immuno-Oncogenomics, Inc., an
affiliated entity of Lei Liu, and 1,864,304 shares which will be owned
individually by Lei Liu.
23
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Not applicable.
ITEM 13. EXHIBITS
(a) Exhibits
Exhibit No. Description
- ----------- -----------------------------------------------------------------
*3.1 Articles of Incorporation of Registrant, as amended (incorporated
by reference to Exhibit 3.1 to Registrant's Annual Report of from
10-K for the year ended October 31, 1981 and Exhibit "A" and
Exhibit "B" to Registrant's Proxy Statement dated February 17,
1988).
*3.2 By-Laws of Registrant, as amended (incorporated by reference to
Exhibit 3.2 to Registrant's Quarterly Report on form 10-Q for the
quarter ended April 30, 1989).
*3.3 Amended Articles of Incorporation as amended increasing the
number of authorized shares filed as an exhibit to Form 8-k filed
February 15, 2005.
*3.4 Articles of Merger filed with the Maryland Secretary of State
filed as an exhibit to Form 8-k filed February 15, 2005.
*3.5 Amendment to Articles of Incorporation changing name to Cybrdi,
Inc. filed as an exhibit to Form 8-k filed April 6, 3005.
*10.1 Registrant's Executive Stock Option Plan (incorporated by
reference to Exhibit "B" to Registrant's Proxy Statement dated
February 21, 1989).
*10.2 Amendment to Registrant's 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Annual Report on Form
10-K for the year ended October 31, 1995).
*10.3 Amendment to Registrant's Executive Stock Option Plan
(incorporated by reference to Exhibit 10.1 to Registrant's
Quarterly Report on Form 10Q for the quarter ended April 30,
2001).
*10.4 Form of Indemnification Agreement between Registrant and its
Directors and selected officers and agents (incorporated by
reference to Exhibit "C" to Registrant's Proxy Statement dated
February 17, 1988).
*10.5 Employment Agreement effective as of November 1, 1993 between
Registrant and Marshall I. Kass (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for
quarter ended January 31, 1994).
*10.6 Amendment to Employment Agreement between Registrant and Marshall
I. Kass dated November 1, 1998 (incorporated by reference to
Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the
year ended October 31, 1998).
*10.7 Agreement and Plan of Merger among Certron Corporation, Certron
Acquisition Corp. and Cybrdi, Inc. filed as an exhibit to the
Company's Form 8-k filed February 15, 2005.
31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification
31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification
32.1 Certification Under Section 906 of the Sarbanes-Oxley Act fof
2002
32.2 Certification Under Section 906 of the Sarbanes-Oxley Act of 2002
- ------------
* Previously filed
(b) There were no reports filed on Form 8-k during the fourth quarter
of the Company's fiscal year.
24
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The aggregate fees billed for each of the last two years for professional
services rendered by the principal accountant for our audits of our annual
financial statements and interim reviews of our financial statements included in
our Form 10-K and 10-Q or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those years were approximately:
2005: $61,500 Bagell, Josephs LLC
2004: $70,000 Weinberg & Company, P.A.
Audit Related Fees
The aggregate fees billed in each of the last two years for the assurance and
related services provided by the principal accountant that are not reasonably
related to the performance of the audit or review of the Company's financial
statements and are not reported in paragraph (1) were approximately:
2005: $0
2004: $15,000 Weinberg & Company, P.A.
We incurred these fees in connection with registration statements and financing
transactions.
Tax Fees
The aggregate fees billed in each of the last two years for the professional
services rendered by the principal accountant for tax compliance, tax advice and
tax planning were approximately:
2005: $3,500
2004: $5,000 Weinberg & Company, P.A.
We incurred these fees due to the preparation of our tax returns.
All Other Fees
The aggregate fees billed in each of the last two years for the products and
services provided by the principal accountant, other than the services reported
in paragraph (1) were approximately:
2005: $0
2004: $0 Weinberg & Company, P.A.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
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, thereunto duly authorized.
Date: July 7, 2006
By: /s/ YanBiao Bai
------------------------------------------
Name: YanBiao Bai
Title: Chief Executive Officer and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following person on behalf of the Registrant
and in the capacities and on the dates indicated.
Name and Principal Position Signature Date
- --------------------------------------------------------------------------------
YanBiao Bai, Chairman, CEO and President /s/YanBaio Bai July 7, 2006
Lei Liu , Director /s/Lei Liu July 7, 2006
Xue Bu, Director, Treasurer & COO /s/Xue Bu July 7, 2006
Minmin Qin, Director /s/Minmin Qin July 7, 2006
- --------------------------------------------------------------------------------
26
CYBRDI INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
CYBRDI INC. AND SUBSIDIARY
CONTENTS
PAGE 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PAGE 2 CONSOLIDATED BALANCE SHEETAS OF DECEMBER 31, 2005 AND 2004
PAGE 3 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
PAGE 4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
PAGE 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2005, 2004 AND 2003
PAGE 6 - 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORET OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Cybrdi, Inc. (f/k/a Certron Corporation)
We have audited the accompanying consolidated balance sheets of Cybrdi, Inc.
(f/k/a Certron Corporation.) as of December 31, 2005 and 2004 and the related
consolidated statements of income and comprehensive income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cybrdi, Inc. (f/k/a
Certron Corporation.) as of December 31, 2005 and 2004 and the results of its
consolidated operations, changes in stockholders' equity, and cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
MS Group CPA LLC
MS Group CPA LLC
New York, NY
March 9, 2006
F-1
CYBRDI, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND 2004
================================================================================
Dec 31, 2005 Dec 31, 2004
----------- -----------
ASSETS
-------
CURRENT ASSETS
Cash and cash equivalents $ 4,206,695 $ 3,899,706
Accounts receivable 360,503 252,179
Inventories 263,634 264,827
Other receivables and prepaid expenses 96,626 7,058
---------- -----------
TOTAL CURRENT ASSETS 4,927,458 4,423,770
PROPERTY, PLANT AND EQUIPMENT, NET 553,382 628,897
INTANGIBLE ASSETS (NET) 581,593 644,423
DEFERRED TAX ASSETS 41,199 40,171
---------- -----------
TOTAL ASSETS $ 6,103,632 $ 5,737,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 34,118 $ 47
Other payables 51,193 59,133
Amount due to stockholders 645,021 555,222
---------- -----------
TOTAL CURRENT LIABILITITES 730,332 614,402
MINORITY INTERESTS 1,149,158 1,023,198
TOTAL LIABILITIES 1,879,490 1,637,600
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 per value, 500,000 shares authorized,
zero shares issued and outstanding -- --
Common Stock, no par value in 2005 and $0.10 par value in 2004, 150,000,000
shares in 2005 and 35,000,000 shares in 2004 authorized,
50,456,569 shares in 2005 and 30,210,000 shares in 2004 issued and outstanding -- 3,021,000
Additional paid-in capital 3,601,932 572,232
Reserve funds 336,885 240,416
Retained earnings 174,416 265,757
Accumulated other comprehensive income 110,909 256
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,224,142 4,099,661
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,103,632 $ 5,737,261
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
CYBRDI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR YEAR ENDED DECEMBER 31, 2005, 2004 AND 2003
================================================================================
Year ended
-----------------------------------------------
December 31, December 31, December 31,
2005 2004 2003
------------- ------------- -------------
Revenue
Products $ 1,173,171 $ 1,175,235 $ 812,954
Service rendered 254,628 357,808 414,440
------------- ------------- -------------
Total revenue 1,427,799 1,533,043 1,227,394
------------- ------------- -------------
Cost of sales
Products 244,331 294,373 256,354
Service rendered 35,507 38,527 40,522
------------- ------------- -------------
Total cost of sales 279,838 332,900 296,876
------------- ------------- -------------
Gross profit 1,147,961 1,200,143 930,518
------------- ------------- -------------
Operating expenses:
Selling and distribution expenses 100,173 79,887 66,398
General and administrative expenses 581,835 581,596 548,896
------------- ------------- -------------
Total operating expenses 682,008 661,483 615,294
------------- ------------- -------------
Income from operations 465,953 538,660 315,224
------------- ------------- -------------
Other income/(expense)
Interest income 30,408 8,140 7,150
Other (expense)/income, net (317,127) 91,249 36,718
------------- ------------- -------------
Total other (expense)/ income (286,719) 99,389 43,868
------------- ------------- -------------
Income before income taxes 179,234 638,049 359,092
Income taxes (expenses)/benefit (48,097) -- 40,170
------------- ------------- -------------
Income before minority interest 131,137 638,049 399,262
Minority Interest 126,009 149,216 138,912
------------- ------------- -------------
Net income $ 5,128 $ 488,833 $ 260,350
------------- ------------- -------------
Other comprehensive loss:
Foreign currency translation gain 110,653 68 188
------------- ------------- -------------
Comprehensive income $ 115,781 $ 488,901 $ 260,538
============= ============= =============
Weighted average number of shares outstanding * 50,456,569 25,954,898 20,247,729
============= ============= =============
Earnings per share, basic and diluted $ 0.00 $ 0.02 $ 0.01
============= ============= =============
- ------------
* As restated to show recapitalization.
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
CYBRDI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
================================================================================
Retained Accumulated
Additional earnings / other
Common Stock paid-in Reserve accumulated comprehensive
Shares Amount capital fund deficit income Total
------------ ----------- ----------- ----------- ----------- ---------- -----------
Balance as of
December 31, 2002 28,959 $ 2,896 $ (896) $ -- $ (115,114) $ -- $ (113,114)
Capital contribution 24,590,396 2,459,040 600,072 -- -- -- 3,059,112
Imputed rent expenses -- -- 8,700 -- -- -- 8,700
Net income -- -- -- -- 260,350 -- 260,350
Appropriation of
reserve funds -- -- -- 118,234 (118,234) -- --
Dividends payable - subsidiary -- -- -- -- (127,896) -- (127,896)
Foreign currency
translation gain -- -- -- -- -- 188 188
------------ ----------- ----------- ----------- ----------- ---------- -----------
Balance as of
December 31, 2003 24,619,355 2,461,936 607,876 118,234 (100,894) 188 3,087,340
Capital contribution 5,590,645 559,064 447,252 -- -- -- 1,006,316
Net income -- -- -- -- 488,833 -- 488,833
Imputed rent expenses -- -- 8,700 -- -- -- 8,700
Write off private placement
cost -- -- (491,596) -- -- -- (491,596)
Appropriation of
Reserve funds -- -- -- 122,182 (122,182) -- --
Foreign currency
translation gain -- -- -- -- -- 68 68
------------ ----------- ----------- ----------- ----------- ---------- -----------
Balance as of
December 31, 2004 30,210,000 3,021,000 572,232 240,416 265,757 256 4,099,661
Recapitalization (30,210,000) (3,021,000) 3,021,000 -- -- -- --
Merged with Cybrdi Maryland 50,456,569 -- -- -- -- -- --
Net income -- -- -- -- 5,128 -- 5,128
Imputed rent expenses -- -- 8,700 -- -- -- 8,700
Appropriation of
Reserve funds -- -- -- 96,469 (96,469) -- --
Foreign currency
translation gain -- -- -- -- -- 110,653 110,653
------------ ----------- ----------- ----------- ----------- ---------- -----------
Balance as of
December 31, 2005 50,456,569 $ -- $ 3,601,932 $ 336,885 $ 174,416 $ 110,909 $ 4,224,142
============ ============ =========== =========== =========== ========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
CYBRDI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,2005, 2004 AND 2003
================================================================================
Year ended
-----------------------------------------
December 31, December 31, December 31,
2005 2004 2003
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,128 $ 488,833 $ 260,350
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 196,809 191,637 191,738
Minority interest's share of net income 126,009 149,239 138,912
Imputed rental income 8,700 8,700 8,700
Changes in operating assets and liabilities:
Deferred tax assets (2) -- (40,171)
Deferred revenue -- (99,315) 99,315
Accounts receivable, net (99,338) 97,851 (88,199)
Inventories 7,764 (49,198) 12,561
Other receivable and prepaid expenses (87,159) 304,055 152,518
Accrued interest receivable -- 7,045 --
Accounts payable and accrued expenses 33,220 (2,852) (139,666)
Other payables and liabilities (9,216) 32,902 (57,472)
Customer Deposit -- (6,197) 1,197
----------- ----------- -----------
Net cash provided by operating activities 181,915 1,122,700 539,783
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from acquisition -- -- 690,816
Purchase of property, plant and equipment (30,173) (20,916) (205,674)
----------- ----------- -----------
Net cash (used in) provided by investing activities (30,173) (20,916) 485,142
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds advanced from shareholders 77,953 63,538 378,284
Payment on short-term loan -- -- (181,223)
Payment on related company loan -- -- (16,673)
Payment of dividend -- (157,651) --
Proceeds from private placement -- 1,006,316 1,000,648
Payment for private placement costs -- (179,933) (158,347)
----------- ----------- -----------
Net cash provided by financing activities 77,953 732,270 1,022,689
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 229,695 1,834,054 2,047,614
Effect of exchange rate changes on cash 77,294 66 190
Cash and cash equivalents, at beginning of period 3,899,706 2,065,586 17,782
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 4,206,695 $ 3,899,706 $ 2,065,586
=========== =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ -- $ 2,500 $ 2,500
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Cybrdi, Inc. (f/k/a Certron Corporation) (the "Company" or "Cybrdi")
was incorporated on August 1, 1966, under the laws of the State of
California. Until around June 2004, the Company's business consisted
primarily of the distribution of magnetic media products, primarily
blank audio and video cassettes. Due to continuing intense price
competition and technological changes in the marketplace for its
products, the Company lost its remaining significant customers and
disposed of or wrote off its remaining inventory. As a result of these
occurrences, the Company concluded that its audio and videotape
businesses were no longer viable and some of its product lines were
obsolete and the Company placed its emphasis on attempting to find a
buyer for the Company.
In November 2004, the Company, through Certron Acquisition Corp., a
newly formed Maryland corporation and wholly-owned subsidiary of the
Company ("Acquisition Sub") acquired all the ownership interest in
Cybrdi, Inc., a privately held company incorporated in the State of
Maryland ("Cybrdi Maryland"). The Company acquired Cybrdi Maryland in
exchange for 47,328,263 shares of common stock of the Company.
Subsequent to the merger, the former shareholders of Cybrdi Maryland
own approximately 93.8% of the outstanding shares of the Company's
common stock. As a result of the ownership interests of the former
shareholders of Cybrdi Maryland, for financial statement reporting
purposes, the merger was treated as a reverse acquisition, with Cybrdi
Maryland deemed the accounting acquirer and Centron Corporation deemed
the accounting acquiree. Historical information of the surviving
company is that of Cybrdi Maryland.
Cybrdi Maryland was established in 2001 to acquire an interest in
biogenetic products commercialization and related services entities in
Asia. On March 5, 2003, Cybrdi Maryland acquired 80% interest of the
Shaanxi Chao Ying Biotechnology Co., Ltd. ("Chaoying Biotech"), a
sino-foreign equity joint venture established in July 2000 in the
People's Republic of China ("PRC"), through the exchange of 99% of the
Company's shares to the existing shareholders of Chaoying Biotech.
Chaoying Biotech is a sino-foreign equity joint venture between Shaanxi
Chao Ying Personal Care Group Ltd. (the "Chinese Partner", a PRC
corporation) and Immuno-OncoGenomics Inc. (the "Foreign Partner", a USA
corporation). The joint venture agreement has a 15 year operating
period starting from its formation in July 2000 and is extendable upon
mutual consent of both partners. The principal activities of Chaoying
Biotech are research, manufacture and sale of various high-quality
tissue arrays and the related services in the PRC.
Most of the Company's activities are conducted through Chaoying
Biotech. Chaoying Biotech, with its principal operations located in
China, aims to take advantage of China's abundant scientific talent,
low wage rates, less stringent biogenetic regulation, and the huge
genetic population as it introduces its growing list of tissue
microarray products.
On February 10, 2005, the Company completed the merger with Cybrdi
Maryland and changed its name to Cybrdi, Inc.
F-6
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. BASIS OF PRESENTATION
The accompanying consolidated 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 Subsidiary, which were
prepared in accordance with the accounting principles and relevant
financial regulations applicable to enterprises with foreign investment
in the PRC ("PRC GAAP"). Necessary adjustments were made to the
Subsidiary's statutory accounts to conform to US GAAP to be included in
these consolidated financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principle of consolidation - The accompanying consolidated
financial statements present the financial position, results
of operations and cash flows of the Company and all entities
in which the Company has a controlling voting interest. The
consolidated financial statements also include the accounts of
any variable interest entities in which the Company is
considered to be the primary beneficiary and such entities are
required to be consolidated in accordance with accounting
principles generally accepted in the United States ("US
GAAP"). The consolidated financial statements include the
financial statements of Cybrdi, Inc. and its subsidiary. All
significant intercompany transactions and balances are
eliminated in consolidation.
(b) Use of estimates - The preparation of financial statements
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 reported period. Actual results could
differ from those estimates.
(c) Cash and cash equivalents- For financial reporting purposes,
the Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
(d) Inventories- Inventories are stated at the lower of cost or
market. Cost of raw materials is determined on the basis of
first in first out method ("FIFO"). Finished goods are
determined on the weighted average basis and are comprised of
direct materials, direct labor and an appropriate proportion
of overhead.
F-7
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(e) Property, plant and equipment - Property, plant and equipment
are stated at cost less accumulated depreciation and
amortization. Depreciation on property, plant and equipment is
calculated on the straight-line basis to write off the cost of
assets over their respective estimated useful lives. Leasehold
improvements are amortized over the estimated useful life of
the improvement or the lease term, whichever is shorter.
Estimated useful lives of the property, plant and equipment
are as follows:
Buildings 20 years
Plant and machinery 10 years
Motor vehicles 10 years
Office equipment 5 years
Leasehold improvements Lower of term of lease or 5 years
Software - website 3 years
The cost and related accumulated depreciation of assets sold
or otherwise retired are eliminated from the accounts and any
gain or loss is included in the statements of operations. The
cost of maintenance and repairs is charged to income as
incurred, whereas significant renewals and betterments are
capitalized.
Long-term assets of the Company are reviewed annually as to
whether their carrying value has become impaired, pursuant to
the guidelines established in Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The Company also
re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates
of useful lives.
(f) Accounts and other receivables - Accounts and other
receivables are recognized and carried at original invoice
amount less allowance for any uncollectible amounts. An
estimate for doubtful accounts is made when collection of the
full amount is no longer probable. As of December 31, 2005 and
2004, the company has not recorded an allowance for
uncollectible accounts.
(g) Research and development costs - Research and development
costs are charged to operations when incurred and are included
in operating expenses. The amounts charged in 2005, 2004 and
2003 were $7,936, $2,067 and $0, respectively.
(h) Advertising costs - Advertising costs are charged to
operations when incurred and are included in operating
expenses. Advertising expenses were $27,082, $11,906 and
$7,179 for the years ended December 31, 2005, 2004 and 2003,
respectively.
F-8
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(i) In-kind contribution - From inception through December 2005, a
related party provided office space and utilities to the
Company's subsidiary in PRC. The Company was not required to
pay for its use of the facilities. Accordingly, the Company
recognized $8,700 of expenses during 2005, 2004 and 2003, for
these contributed items with an offsetting increase in
additional paid-in capital. Management estimated the value of
the contributed items.
(j) Fair value of financial instruments - The carrying amounts of
cash and cash equivalents, accounts receivable, other
receivables, accounts payable, other payables, dividends
payable and amounts due to shareholders approximate fair value
due to the short-term maturities of the assets and
liabilities.
(k) Revenue recognition - Revenue represents the invoiced value of
goods sold recognized upon the delivery of goods to customers
and service income is recognized when services are provided.
Deferred revenue represents the undelivered portion of
invoiced value of goods sold to customers. Sales transactions
not meeting all the conditions of the full accrual method are
accounted for using the deposit method of accounting. Under
the deposit method, all costs are capitalized as incurred, and
payments received from the buyer are recorded as customer
deposits.
(l) Foreign currency translation - The accompanying consolidated
financial statements are presented in United States dollars.
The functional currency of the Company's PRC subsidiary is
Renminbi (RMB). The financial statements are translated into
United States dollars from RMB at year-end exchange rates as
to assets and liabilities and weighted average exchange rates
as to revenues and expenses. Capital accounts are translated
at their historical exchange rates when the capital
transactions occurred.
The RMB is not freely convertible into foreign currency and
all foreign exchange transactions must take place through
authorized institutions. No representation is made that the
RMB amounts could have been, or could be, converted into US$
at the rates used in translation.
(m) Income Taxes -Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist
of taxes currently due plus deferred taxes related primarily
to differences between the basis of assets and liabilities for
financial and income tax reporting. The deferred tax assets
and liabilities represent the future tax return consequences
of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for operating
losses that are available to offset future federal and state
income taxes.
(n) Deferred private placement costs - In connection with the
private placement, the Company incurred certain costs
associated with the private placement amounting to $311,663
during 2003. These costs accumulated to $491,596 in 2004
before placement and had been offset against the proceeds from
the placement, which occurred in 2004.
(o) In-kind contribution - From inception through December 2004, a
related party provided office space and utilities to the
Company. The Company was not required to pay for its use of
the facilities. Accordingly, the Company recognized $8,700 of
expenses during 2004 and 2003, for these contributed items
with an offsetting increase in additional paid-in capital.
Management estimated the value of the contributed items.
F-9
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(p) Comprehensive income (loss) - SFAS No. 130, "Reporting
Comprehensive Income", established standards for the reporting
and display of comprehensive income, its components and
accumulated balances in a full set of general purpose
financial statements. SFAS No. 130 defines comprehensive
income to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among
other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting
standards as components of comprehensive income be reported in
a financial statement that is presented with the same
prominence as other financial statements. The Company's only
current component of comprehensive income is the foreign
currency translation adjustment.
(q) Intangible assets - Intangible assets include a patent.
Effective January 1, 2002, with the adoption of SFAS No. 142,
intangible assets with a definite life are amortized on a
straight-line basis. The patent is being amortized over its
estimated life of 10 years. Intangible assets with a definite
life are tested for impairment whenever events or
circumstances indicate that a carrying amount of an asset
(asset group) may not be recoverable. An impairment loss would
be recognized when the carrying amount of an asset exceeds the
estimated undiscounted cash flows used in determining the fair
value of the asset. The amount of the impairment loss to be
recorded is calculated by the excess of the asset's carrying
value over its fair value. Fair value is generally determined
using a discounted cash flow analysis. Costs related to
internally develop intangible assets are expensed as incurred.
4. TAXATION
(a) Corporation Income Tax
The operations in the United States of America have had
operational losses since inception. The possible future
deferred tax benefit arise from the net operating loss carry
forward has been fully offset by a full valuation allowance.
(b) Corporation Income Tax ("CIT") of the Company's subsidiary in
PRC
In accordance with the relevant tax laws and regulations of
the PRC, the Company's subsidiary is entitled to full
exemption from CIT for the first two years and a 50% reduction
in CIT for the next three years, commencing from the first
profitable year after offsetting all tax losses carried
forward from the previous five years. As 2003 was the
Company's first profitable year, the Company was entitled to a
full exemption from CIT for the year starting 2003.
The Company's tax expense differs from the "expected" tax
expense for the years ended December 31, 2004 and 2003
(computed by applying the CIT rate of 33 percent and 24
percent in 2004 and 2003 to net income) as follows:
2004 2003
----------- ----------
Computed "expected" expense $ 268,663 $ 209,759
Effect of unused net operating
loss carried forward -- (40,810)
CIT exemption (268,663) (168,949)
----------- ----------
Income tax expense $ -- $ --
=========== ==========
F-10
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company begins to record 50% CIT provision from the first
quarter of 2005. Effective tax rate is approximately 7.5% for
the year ended December 31, 2005.
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets are as follows at
December 31:
2005 2004
---------- ----------
Deferred tax assets:
Organization fee $ 43,640 $ 40,377
Provision for bad debts 0 2,209
Others (2,441) (2,416)
---------- ----------
Total gross deferred tax assets 41,199 40,170
Less: Valuation allowance -- --
---------- ----------
Net deferred tax assets $ 41,199 $ 40,170
========== ==========
There was no valuation allowance as of December 31, 2005 and
2004.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of
December 31:
2005 2004
------------ ------------
At cost:-
Buildings $ 64,758 $ 63,144
Plant and machinery 395,741 383,424
Motor vehicles 254,004 234,341
Office equipments 94,598 77,178
Leasehold improvement 226,520 220,873
Software - website 83,963 82,160
------------ ------------
1,119,584 1,061,120
Less: Accumulated depreciation and
amortization: 566,202 432,223
------------ ------------
Net book value $ 553,382 $ 628,897
============ ============
Depreciation and amortization expenses for the years ended December 31,
2005, 2004 and 2003 were $133,979, $114,355 and $140,216, respectively.
F-11
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. INVENTORIES
Inventories consist of the following as of December 31:
2005 2004
----------- -----------
Raw materials $ 11,723 $ 17,168
Finished goods 251,911 247,659
----------- -----------
$ 263,634 $ 264,827
=========== ===========
7. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
2005 2004
----------- -----------
Patent $ 773,227 $ 773,227
Less : Accumulated amortization 191,634 128,804
----------- -----------
$ 581,593 $ 644,423
=========== ===========
Amortization expenses for the years ended December 31, 2005, 2004, and
2003 were $62,830, $77,282 and $51,522, respectively.
Expected amortization expenses in the next five years are as follows:
2006 $ 62,830
2007 62,830
2008 62,830
2009 62,830
2010 62,830
8. AMOUNT DUE TO STOCKHOLDERS
During the years ended December 31, 2005 and 2004, officers of the
Company made advances to the Company to assist with operations. These
advances were non-interest bearing and have no set repayment terms. As
of December 31, 2005 and 2004, the Company owed the officers $ 638,821
and $555,222, respectively.
9. COMMITMENTS, CONTINGENCIES, AND LEGAL PROCEEDINGS
There is no material pending legal proceedings to which the Company is
a party. The Company was notified by a letter dated June 2, 2000
received June 6, 2000 that the Company may has a potential liability
from waste disposal in the Casmalia Disposal Site at Santa Barbara
County, California. The Company was given a choice of either signing an
agreement that would toll the statute of limitations for eighteen (18)
months in order to allow us to resolve any liability with the
government without incurring costs associated with being named a
defendant in a lawsuit, or becoming an immediate defendant in a
lawsuit. The Company signed the tolling agreement. On November 20,
2001, the tolling agreement was extended for an additional 18 months.
F-12
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On May 20, 2003 the tolling agreement was again extended for an
additional 18 months and on November 24, 2004 the tolling agreement was
again extended for additional 18 months. On June 29, 2004, the Company
received a proposed settlement from the EPA in the amount of $21,131.
The Company is waiting for communication from the government concerning
payment of the proposed settlement. As of December 31, 2005, the
Company has accrued a sufficient amount to cover any potential
liabilities from this matter under other payable.
From inception through December 31, 2005, a related party provided free
office space and utilities to the Company's subsidiary in PRC. During
the years ended December 31, 2005, 2004 and 2003, the Company
recognized $8,700 as expenses for these contributed items with an
offsetting increase in additional paid-in capital. This arrangement was
expired on December 31, 2005.
The Company leased an office space in Maryland USA under a
month-to-month term operating lease. The rent payment under this
operating lease was $2,180 per month.
Total rental expense charged to operations amounted to $26,360,
$45,107, and $12,524 for each of the years ended December 31, 2005,
2004, and 2003 respectively.
10. GOVERNMENT GRANT
In 2000, the PRC Government launched the "Western Development Project"
which part of the project included the development of 15 specifically
named technologies and has allocated government grants to encourage the
development of these technologies. In 2005, 2004 and 2003, the Company
has successfully applied and received the government grants under the
Western Development Project amounting to $56,263, $138,507 and $33,324
for the years ended December 31, 2005, 2004 and 2003, respectively. The
government grant has been included in Other Income, net in the
accompanying statements of operations and comprehensive income/ (loss).
11. STOCKHOLDERS' EQUITY
On February 10, 2005, the Company completed the merger with Cybrdi
Maryland and changed its name to Cybrdi, Inc. The Company acquired
Cybrdi Maryland in exchange for 47,328,263 shares of common stock of
the Company. Subsequent to the merger, the former shareholders of
Cybrdi Maryland own approximately 93.8% of the outstanding shares of
the Company's common stock. The Company has 50,456,569 shares of common
stock issued and outstanding after the issuance of new shares. As a
result of the ownership interests of the former shareholders of Cybrdi
Maryland, for financial statement reporting purposes, the merger was
treated as a recapitalization event for Cybrdi Maryland and as a
reverse acquisition, with Cybrdi Maryland deemed the accounting
acquirer and Centron Corporation deemed the accounting acquiree.
Historical information of the surviving company is that of Cybrdi
Maryland.
F-13
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In 2004, the Cybrdi Maryland completed a private placement arrangement
and had issued 5,590,645 ordinary common shares for a net proceed of
approximately $1,006,316. In connection with this private placement,
the company incurred a total of $491,596 legal and professional
expenses, of which $311,113 were deferred through December 31, 2003,
and the full amount were written off against additional paid in capital
upon consummation of the transaction.
12. RESERVE FUNDS
The Company's subsidiary in PRC is required to maintain certain
statutory reserves by appropriating from the profit after taxation in
accordance with the relevant laws and regulations in the PRC and
articles of association of the subsidiary before declaration or payment
of dividends. The reserves form part of the equity of the Company.
The appropriation to the statutory reserve and enterprise development
reserve represent 10 percent and 5 percent of the profits after
taxation, respectively. In accordance with the laws and regulations in
the PRC, the appropriation to statutory reserve ceased when the
balances of the reserve reach 50 percent of the registered capital of
the Company.
The reserve funds consist of the following as of December 31:
2005 2004
----------- -----------
Statutory reserve $ 224,590 $ 160,277
Enterprise development reserve 112,295 80,139
----------- -----------
$ 336,885 $ 240,416
=========== ===========
13. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Financial Risks:
The Company provides credit in the normal course of business. The
Company performs ongoing credit evaluations of its customers and
maintains allowances for doubtful accounts based on factors surrounding
the credit risk of specific customers, historical trends, and other
information.
Major Customers:
The following summarizes sales to major customers (each 10% or more of
sale):
Number of Percentage
Year Ended Customers of Total
---------- --------- ----------
2005 -- --
2004 -- --
2003 2 20%
F-14
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Major Suppliers:
The following summarizes purchases of raw materials from major
suppliers (each 10% or more of purchases):
Number of Percentage
Year Ended Suppliers of Total
---------- --------- ----------
2005 3 69.4%
2004 3 72.2%
2003 - -
At times throughout the year, the Company may maintain certain bank
accounts in excess of FDIC insured limits.
Geographical Risks
Approximately 98% of the Company's assets and approximately 90% of the
Company's operations were in the PRC for the year ended December 31,
2005. Accordingly, the Company's business, financial condition and
results of operations may be influenced by the political, economic and
legal environment in PRC, and by the general state of the PRC's
economy. The Company's operations in PRC are subject to special
considerations and significant risks not typically associated with
companies in the United States. These include risks associated with,
among others, the political, economic and legal environments and
foreign currency exchange. The Company's results may be adversely
affected by, among other things, changes in the political, economic and
social conditions in PRC, and by changes in governmental policies with
respect to laws and regulations, changes in PRC's biotechnology
industry and regulatory rules and policies, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of
taxation.
14. SEGMENT REPORTING
The Company has operations in two geographic areas, China and the
United States. The chief Operating decision makers evaluate
performance, make operating decisions, and allocate resources based on
consolidated financial data. Gross profit, operating income, income
from operation, and income taxes are not allocated to specific
individual departments within the organization. In accordance with SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related
Information" the Company is considered a single reportable segment. The
Company is required to disclose certain information about revenue,
information about geographic areas, information about major customers,
and information about long-lived assets.
Year Ended December 31, 2005
-----------------------------------------------
United States China Total
------------- ------------ ------------
Revenue $ 258,028 $ 1,169,771 $ 1,427,799
Long-lived
assets $ 10,572 $ 1,165,602 $ 1,176,174
Year Ended December 31, 2004
-----------------------------------------------
United States China Total
------------- ------------ ------------
Revenue $ 505,395 $ 1,027,648 $ 1,533,043
Long-lived
assets $ 11,245 $ 1,302,245 $ 1,313,490
F-15
CYBRDI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2003
-----------------------------------------------
United States China Total
------------- ------------ ------------
Revenue $ 261,488 $ 965,906 $1,227,394
Long-lived
assets $ 13,082 $ 1,471,099 $1,484,181
15. SUBSEQUENT EVENT
In January 2006, the Company advanced approximately $2,478,253 or RMB
20,000,000 to Xian Don Yei Security Co., a unrelated PRC registered
company located in Xian. Xian Don Yei Security Co. is engaged in
pawnshop business and their primary business is offering alternative
financing to small local companies. The advances made by the Company
are short term loans and earn interest from 5% to 8% over a term of 3
months to one year. All advances are expected to be repaid by November
2006.
F-16