UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No: 09081
CYBRDI, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2461404
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(State or other jurisdiction of (I.R.S. Employer ID No)
incorporation or organization)
No 29 Chang'An South Road Xi'an Shaanxi P.R. China 710061
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(Address of principal executive office) (Zip Code)
Registrant's telephone number: (011) 86-29-8237-3068
N/A
---
Former name, former address and former fiscal year,
(if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer", "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The number of shares of common stock, no par value per share, outstanding as of
May 14, 2008 was 50,456,569.
CYBRDI, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED March 31, 2008
INDEX
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements 1
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3: Quantitative and Qualitative Disclosures About Market Risk 13
Item 4T: Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 1A: Risk Factors 14
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CYBRDI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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ASSETS
MARCH 31, DECEMBER 31,
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2008 2007
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(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and equivalents $ 852,048 $ 637,056
Accounts receivable 12,324 3,364
Inventories 425,185 390,421
Loan to unaffiliated company 969,766 1,000,740
Other receivables and prepaid expenses 138,592 145,805
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TOTAL CURRENT ASSETS 2,397,915 2,177,386
PROPERTY, PLANT AND EQUIPMENT, NET 498,216 493,273
CONSTRUCTION IN PROGRESS 2,566,812 1,929,002
INTANGIBLE ASSETS, NET 3,826,504 3,700,195
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TOTAL ASSETS 9,289,447 8,299,856
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 4,019 3,917
Accrued expenses 1,248,321 1,700,363
Customers deposits 54,279 74,321
Loan from related company 285,225 274,175
Amount due to stockholders/officers 204,894 432,494
Other payables 37,111 45,826
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TOTAL CURRENT LIABILITIES 1,833,849 2,531,096
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 1,354,820 --
MINORITY INTERESTS 1,532,137 1,499,125
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TOTAL LIABILITIES 4,720,807 4,030,221
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STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 per value, 500,000 shares authorized,
zero shares issued and outstanding -- --
Common Stock, no par value, 150,000,000 shares authorized,
50,456,569 shares issued and outstanding -- --
Additional paid-in capital 3,571,864 3,571,864
Reserve funds 336,885 336,885
Accumulated deficit (262,115) (301,323)
Accumulated other comprehensive income 922,007 662,209
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TOTAL STOCKHOLDERS' EQUITY 4,568,641 4,269,635
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,289,447 $ 8,299,856
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The accompanying notes are an integral part
of these consolidated financial statements.
1
CYBRDI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(UNAUDITED)
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FOR THREE MONTHS ENDED
MARCH 31,
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2008 2007
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(UNAUDITED) (UNAUDITED)
REVENUE
Products $ 118,019 $ 168,096
Service rendered 11,811 9,179
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TOTAL REVENUE 129,830 177,275
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COST OF SALES
Products 52,518 77,439
Service rendered -- 5
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TOTAL COST OF SALES 52,518 77,444
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GROSS PROFIT 77,312 99,831
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OPERATING EXPENSES:
Selling and distribution expenses 7,820 27,055
General and administrative expenses 132,324 164,674
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TOTAL OPERATING EXPENSES 140,144 191,729
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LOSS FROM OPERATIONS (62,832) (91,898)
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OTHER INCOME/(EXPENSE)
Interest income, net 13,363 43,019
Other income, net 121,688 3,587
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TOTAL OTHER INCOME 135,051 46,606
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INCOME (LOSS) BEFORE INCOME TAXES 72,219 (45,292)
Income Taxes Expenses -- --
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INCOME (LOSS) BEFORE MINORITY INTEREST 72,219 (45,292)
Minority Interest 33,011 2,931
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NET INCOME ( LOSS) $ 39,208 $ (48,223)
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Other Comprehensive Income:
Foreign Currency Translation gain 259,798 38,355
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COMPREHENSIVE INCOME (LOSS) $ 299,006 $ (9,868)
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Net Loss Per Common Share
Basic and Diluted $ 0.00 $ (0.00)
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Weighted Average Number of Shares Outstanding
Basic and Diluted 50,456,569 50,456,569
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The accompanying notes are an integral part
of these consolidated financial statements.
2
CYBRDI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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FOR THREE MONTHS ENDED
MARCH 31,
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2008 2007
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME( LOSS) $ 39,208 $ (48,223)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 41,882 42,106
Minority interest 33,011 2,931
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (8,482) 36,133
Inventories (18,292) (4,602)
Other receivable and prepaid expenses 12,582 (29,997)
Accounts payable (53) 1,320
Accrued expenses (500,402) --
Other payables (10,153) 6,917
Customer deposits (22,145) --
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (432,844) 6,585
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,024) (1,641)
Payment for construction in progress (563,919) --
Proceeds from repayment of loan to unaffiliated company 68,544 --
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NET CASH USED IN INVESTING ACTIVITIES (500,399) (1,641)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-term debt 1,354,820 --
Proceeds from loan from related company 137,088 --
Repayment for loan from related company (137,088) --
Proceeds from shareholders/officers 9,445 3,323
Payment to shareholders/officers (229,679) (17,146)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,134,586 (13,823)
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NET DECREASE IN CASH AND EQUIVALENTS
Net Increase (Decrease) in Cash and Equivalents 201,343 (8,879)
Effect of Exchange Rate Changes on Cash and Equivalents 13,649 (14,678)
Cash and Equivalents, at Beginning of Period 637,056 782,899
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CASH AND EQUIVALENTS, AT END OF PERIOD $ 852,048 $ 759,342
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The accompanying notes are an integral part
of these consolidated financial statements.
3
CYBRDI, INC. AND SUBSIDIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
1. INTERIM FINANCIAL STATEMENTS
The unaudited consolidated financial statements of Cybrdi Inc. and subsidiaries
have been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information and pursuant to the requirements
for reporting on Form 10-Q. Accordingly, they do not include all the information
and footnotes required by accounting principles generally accepted in the United
States of America for annual financial statements. However, the information
included in these interim financial statements reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for the fair presentation of the consolidated financial
position and the consolidated results of operations. Results shown for interim
periods are not necessarily indicative of the results to be obtained for a full
year. The consolidated balance sheet information as of December 31, 2007 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB. These interim financial statements
should be read in conjunction with that report.
The consolidated financial statements include the accounts of Cybrdi, Inc. and
its wholly-owned subsidiaries and joint ventures. All material intercompany
balances and transactions have been eliminated.
2. DESCRIPTION OF BUSINESS
Cybrdi, Inc. (f/k/a Certron Corporation) was incorporated on August 1, 1966,
under the laws of the State of California. Until 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. At that time, the Company placed its emphasis on
attempting to find a buyer for the Company.
In November 2004, the Company formed a wholly-owned subsidiary, Certron
Acquisition Corp., a Maryland corporation ("Acquisition Sub") to acquire all of
the ownership interests 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 its common stock in a merger
transaction. As a result of the merger, the former shareholders of Cybrdi
Maryland acquired 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 transaction
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.
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 an 80% interest in 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 (the "PRC"),
through the exchange of 99% of the Company's shares to the existing shareholders
of Chaoying Biotech. For financial statement reporting purposes, the merger was
treated as a reverse acquisition, with Chaoying Biotech deemed the accounting
acquirer and Cybrdi Maryland deemed the accounting acquiree.
4
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 US corporation. The joint
venture agreement has a 15 year operating period starting from its formation in
July 2000 and may be extended upon mutual consent The principal activities of
Chaoying Biotech are the research, manufacture and sale of various high-quality
tissue arrays and 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 micro array products.
On February 10, 2005, the Company completed the merger with Cybrdi Maryland and
changed its name to Cybrdi, Inc.
On July 26, 2007, Chaoying Biotech entered into an acquisition agreement with
Shaanxi Chaoying Personal Care Group Co., Ltd, its Chinese partner, which is a
principal shareholder of the Company, Mr. Bai, the Company's chief executive
officer and a director is also a principal of its Chinese partner, On July 28,
2007, Chaoying Biotech invested RMB15 millions (equivalent to US$1,983,078) to
acquire an 83.33% equity ownership of Shandong Chaoying Culture and
Entertainment Co., Ltd ("SD Chaoying") from its Chinese Partner. SD Chaoying is
a corporation organized in the Shandong province of P.R.China. On September 5,
2007, Shandong Commercial government had approved this acquisition and ownership
title of SD Chaoying had been transferred to Chaoying Biotech from its Chinese
Partner. The future business of SD Chaoying will primarily be focused on culture
and entertainment, including Spa activities, cosmetic and personal care, body
building, gambling, catering, and lodging, SD Chaoying will have a specific
emphasis on casino gambling, which has been approved by Shandong Administration
for Civil Affairs. As of March 31, 2008, SD Chaoying was still in the
development stage and there is no actual business. The development and
construction of facility is anticipated to be completed in December 2008.
3. USE OF ESTIMATES:
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.
4. 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.
5
5. 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 per share. 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.
Concurrent with the filing of the Articles of Merger, all of the Company then
existing officers and directors tendered their resignation and Yanbiao Bai was
appointed as its Chairman of the Board of Directors. Mr. Bai then nominated the
balance of the Board of Directors.
6. GOVERNMENT GRANT
During the first quarter of 2008, SD Chaoying had received $114,210 (equivalent
to RMB 818,000) from Shangdong Government for the Shandong Culture &
Entertainment Square project that SD Chaoying created during year 2007. The
Company included the government grants in the other income, net in the
accompanying statements of operations and comprehensive income/ (loss).
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 160, "Non-controlling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51" which clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This statement also
changes the way the consolidated income statement is presented. It requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the non-controlling interest. In addition,
it requires disclosure, on the face of the consolidated statement of income, of
the amounts of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years beginning on or after December 15,
2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier
adoption is prohibited. The company is currently in the process of evaluating
the effect, if any, the adoption of SFAS No. 160 will have on its consolidated
results of operations, financial position, and financial disclosure.
6
In December 2007, the financial Accounting Standard Board ("FASB") issued SFAS
No. 141R (revised 2007), "Business Combinations" which replaces FASB Statement
No. 141, "Business Combinations". The Statement 141R retains the fundamental
requirements in Statement 141 that the acquisition method of accounting (which
Statement 141 called the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. The
Statement 141R defines the acquirer as the entity that obtains control of one or
more businesses in the business combination and establishes the acquisition date
as date that the acquirer achieves control. Statement 141 did not define the
acquirer, although it included guidance on identifying the acquirer, as does in
Statement 141R. The scope of Statement 141R is broader than that of Statement
141, which applied only to business combinations in which control was obtained
by transferring consideration. By applying the same method accounting-the
acquisition method- to all transactions and other events in which on entity
obtains control over one or more other business, the Statement 141R improves the
comparability of the information about business combinations provided in
financial reports. SFAS No. 141R applies prospectively to business combinations
for which that acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The Company is currently in the process of evaluating
the effect, if any, for the future acquisition and combinations.
In February 2007, the Financial Accounting Standard Board "FASB") issued SFAS
No. 159, " The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115" which permits all
entities to choose to measure eligible items at fair value at specified election
dates. A business entity shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings (or another performance
indicator if the business entity does not report earnings) at each subsequent
reporting date. SFAS No.159 is effective as of the beginning of an entity's
first fiscal year that begins after November 15, 2007. Early adoption is
permitted as of the beginning of fiscal year that begins on or before November
15, 2007, provided the entity also elects to apply the provisions of FASB
Statement No. 157, "Fair Value Measurements". The Company is currently in the
process of evaluating the effect, if any, the adoption of SFAS No 159 and 157
will have on its consolidated results of operations, financial position, and
cash flows
NOTE B - ASSETS
The March 31, 2008 balance sheet included total current assets of $2,397,915 and
non-current assets of $6,891,532. Of these amounts, approximately $852,048 in
cash and $12,324 in accounts receivable are planned for funding current
operations and for future business expansion.
Other current assets also included inventories, loan to unaffiliated company,
and other receivable and prepaid expenses. Inventories are mainly finished goods
and very few raw materials, work in process, packaging material. 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.
The other primary assets included in current assets are loan to unaffiliated
company.
Loan to unaffiliated company consists of loans to QuanYe Security Co., Ltd
("QuanYe"), an unrelated PRC registered company located in Xian, PRC. QuanYe is
engaged in the pawnshop business and their primary business is offering
alternative financing to small local companies. According to the loan agreement,
QuanYe has received loans from Chaoying Biotech of a total amount of RMB
29.3Million (equivalent to $3,849,185) since January 2006. As of March 31, 2008,
the loan balance had been reduced to RMB 6.8 Million (equivalent to $969,766).
The interest rate for these loans initially was 8% per year, and drop down to 5%
since October 9, 2006. The Company anticipates collect most of loan amount back
from QuanYe before the ended of June 2008.
7
Management believes and views QuanYe as an alternative financial institution and
believes it is an efficient way to use its cash on hand. The regular market
interest rate in the PRC is 0.72% per annum. Cybrdi expects to obtain higher
interest income for its unused fund through these types of loan arrangements.
However, these advances are unsecured and have a default risk higher than a bank
deposit.
Included in-non-current assets are property, plant and equipment, construction
in process, and intangible assets. Property, plant and equipment mainly consist
of building, motor vehicles, leasehold improvement, software-website, and
machinery used for product manufacturing located in the People's Republic of
China ("PRC"), and office equipment located in PRC and United States.
Depreciation on property, plant and equipment is computed using the straight
- -line method over the estimated useful life of the assets. The majority of the
assets have estimated useful lives of 10 years. Building and office equipment
have estimated useful lives of 20 and 5 years, respectively. The "construction
in process" amount of $2,566,812 mainly consists of development and construction
of a casino in Shandong Province; which will be transferred to fixed assets in
SD Chaoying when it is finished. Intangible assets include a tissue chip patent
and land use right. 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. As of
March 31, 2008, SD Chaoying is still in the development stage, accordingly, the
land use right will be amortized in the estimated useful life from SD Chaoying
operating.
NOTE C - LIABILITIES
As of March 31, 2008, the balance sheet included total liabilities of
$4,720,807, of which $1,532,137 represents the 20% minority interest in Chaoying
Biotech and 16.67% minority interest in SD Chaoying and which $1,354,820 was due
to long-term debt from Changle Rural Credit Union, which is a bank located in
Shandong Province of the PRC. This long-term debt had been pledged by the
Company's land use right in SD Chaoying which is worth approximately $3.1
million (equivalent to RMB22 million).The terms for this long-term debt were
from January 31, 2008 to May 30, 2009 (total sixteen months). The interest rate
for this debt will be 30% more than the basic financing rate from "The People's
Bank of China" in PRC. At the time of the filing of this Form 10Q, the basic
monthly financing rate in China is 6.3%. Included in the total liabilities
is $204,894 due to stockholders who are also the Company's officers. The
amounts were mainly an advance to assist with its operations in prior years.
This advance is non-interest bearing and has no set repayment terms. And
included in the total liabilities $285,225 was due to loan from an related
company, Shaanxi Chaoying Personal Care Group Ltd, and this loan is also
non-interest bearing and have no set repayment terms.
In accordance with the relevant tax laws and regulations of the PRC, 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 began to record 50% CIT provision for the
first quarter of 2005. Commencing from January 2008, the Chinese government had
adjusted the CIT rate to 25% instead of 33%. The Company enjoys a 50% reduction
in preferential policy of CIT, according to Western Developing Plan of the PRC,
making the company's effective tax rate approximately 12.5% in the first quarter
of 2008. Since there is no taxable income after offsetting all tax losses
carried forward, no income taxes provision is required as of March 31, 2008 and
2007, respectively.
NOTE D - STOCKHOLDERS' EQUITY
As a result of the reverse merger (see Note A item 5), the common stock of
Cybrdi-Maryland has been cancelled and converted into shares of common stock of
Certron at an exchange ratio of 1.566641609 per share. This resulted in the
issuance of 47,328,263 shares of Certron's common stock to the Cybrdi
shareholders. As of March 31, 2008, the Company had 50,456,569 shares of common
stock issued and outstanding. Historical information of the surviving company is
that of Cybrdi - Maryland.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with the
company's Financial Statements and Notes thereto appearing elsewhere in this
Report on Form 10-QSB as well as the company's other SEC filings.
PLAN OF OPERATIONS
The Company focuses on biogenetics commercialization and healthcare product
applications. The Company's 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.
The Company's business strategy and focus in the near future include
o Enhancing R&D in TMAs and technical service
o Expanding its product portfolio and virtual tissue array data
bank (vTMAB)
o Launch the health diagnosis kit for obesity and skin disease
o Participate in the culture and entertainment field
With its sophisticated research in genes, the Company can provide the
professional health diagnostic service for its customers. The Company can check
the reasons for obesity and other skin diseases like freckles by its genetic
analysis, which offers more accurate and specialized diagnosis than other
similar services in the current market. Such information can be utilized to
guide customers to set up the right health or fitness program. At present, the
Company provide genetic test for the mechanism of obesity or skin diseases.
The Company will also explore other business development opportunities that can
leverage its sales platform and relationship with affiliated companies. Until
such time as the Company can identify attractive marketing opportunities, the
Company will loan available cash on a short term unsecured basis to
non-affiliated third parties in order to generate interest income.
Commencing from the third quarter of year 2007, the Company had developed a new
genedetective tissue array, called New Kits, and started to offer them to its
customers.
On July 28, 2007 the Company acquired an 83.33% equity ownership of SD Chaoying
from its Chinese partner, which will be primarily engaged in developing and
operating culture and entertainment business since 2009, which will consist
primarily of a spa activities, cosmetic personal care, hotel and casino. Its
Chinese partner is a principal shareholder of the Company and Mr. Bai, its chief
executive officer and a director is also a principal of its Chinese partner.
Commencing in September 2007, SD Chaoying began constructing the facility, The
total useable land and net building area for the project consists of
approximately 50,000 and 33,000 square meters, respectively of which 52% will
constitute property for business use and 48% for residential use, The
construction is anticipated to be completed in December 2008, SD Chaoying
intends to focus on Spa activities, cosmetic personal care, hotel and casino
gambling, which has been approved by Shandong Administration for Civil Affairs.
9
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED March 31, 2008 COMPARED TO THREE MONTHS ENDED March
31, 2007
FOR THREE MONTHS ENDED MARCH 31, 2008 Vs 2007
-------------------------------- ---------------------
COST COST Increase/(decrease)
2008 % 2007 %
------------ -------------
(Unaudited) (Unaudited)
REVENUE
Products $ 118,019 $ 168,096 $ (50,077) -30%
Service rendered 11,811 9,179 2,632 29%
------------ ------------ ---------
TOTAL REVENUE 129,830 177,275 (47,445) -27%
------------ ------------ ---------
COST OF SALES
Products 52,518 44% 77,439 46% (24,921) -32%
Service rendered -- 0% 5 0.05% (5) -100%
------------ ------------ ---------
TOTAL COST OF SALES 52,518 77,444 (24,926) -32%
------------ ------------ ---------
GROSS PROFIT 77,312 60% 99,831 56% (22,519) -23%
------------ ------------ ---------
OPERATING EXPENSES:
Selling and distribution expenses 7,820 27,055 (19,235) -71%
General and administrative expenses 132,324 164,674 (32,350) -20%
------------ ------------ ---------
TOTAL OPERATING EXPENSES 140,144 191,729 (51,585) -27%
------------ ------------ ---------
LOSS FROM OPERATIONS (62,832) (91,898) 29,066 -32%
------------ ------------ ---------
OTHER INCOME/(EXPENSE)
Interest income 13,363 43,019 (29,656) -69%
Other income, net 121,688 3,587 118,101 3292%
------------ ------------ ---------
TOTAL OTHER INCOME 135,051 46,606 88,445 190%
------------ ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 72,219 (45,292) 117,511 -259%
Income Taxes Expenses -- -- --
------------ ------------ --------
Income (Loss) before Minority Interest 72,219 (45,292) 117,511 -259%
Minority Interest 33,011 2,931 30,080 1026%
------------ ------------ ---------
NET INCOME(LOSS) $ 39,208 $ (48,223) $ 87,431 -181%
10
NET SALES
The Company generated two categories of revenues: tissue chip & kits product and
services. The net sales decreased $47,445 to $129,830 for the three months ended
March 31, 2008 from $177,275 for the three months ended March 31, 2007.
Tissue Chip & Kit Product: The net sales decreased $50,077 to $118,019 for the
three months ended March 31, 2008 as compared to $168,096 for the three months
ended March 31, 2007. The decrease in net sales of tissue chip & kit product was
primarily attributable to the termination of Cybrdi - Maryland's operations on
October 2007. During the first quarter of 2007, the net sales of tissue chip &
chip product had included $51,099 product sales from Cybrdi - Maryland, but
there was none for the first quarter of 2008.
Services: A fewer technical service orders were received during the three months
of 2008 as compared to 2007 resulting in a increase in sales of $2,632 to
$11,811 from $9,179 for the three months ended March 31, 2008 as compared to
March 31, 2007. This increase was primarily attributable to service demand
increased in China.
GROSS MARGIN
Gross margin as a percentage of sales increased to 60% for the three months
ended March 31, 2008 from 56% for three months ended March 31, 2007. Gross
profit for the three months ended March 31, 2008 decreased $22,519 to $77,312
from $99,831 for the three months ended March 31, 2007. The reason for the
increase was primarily due to the increase in sales of tissue chip & kit product
with slightly lower individual cost during the first quarter of 2008 as compared
to the first quarter of 2007.
OPERATING EXPENSES
The Company's operating expenses decreased $51,585 to $140,144 for the three
months ended March 31, 2008 from $191,729 for the three months ended March 31,
2007. This was primarily due to a decrease in general and administrative
expenses of $32,350 to $132,324 for the three months ended March 31, 2008 from
$164,674 for the three months ended March 31, 2007, and a decrease in selling
and distribution expenses of $19,235 to $7,820 for the three months ended March
31, 2008 from $27,055 for the three months ended March 31, 2007. The decrease in
selling, and general and administrative expenses was primary due to the
termination of Cybrdi-Maryland operations in October 2007. For the three months
ended March 31, 2007, the selling, and general and administrative expenses had
included $11,834 and $41,932 expenditures from Cybrdi-Maryland, respectively,
but there were none of them for the three months ended March 31, 2008.
OTHER INCOME
Interest income decreased by $29,656 to $13,363 for the three months ended March
31, 2008 from $43,019 for the three months ended March 31, 2007. Most of the
interest income was earned from the loans to QuanYe. The repayment of the loans
by Quanye during year 2007 had reduced the Company's interest income
significantly.
Other income, net had been increased by $118,101 to $121,688 for the three
months ended March 31, 2008 from $3,587 for the three months ended March 31,
2007. The reason was primarily attributable to SD Chaoying received a government
grant $114,210 (equivalent to RMB 818,000) from Shandong government for the
Shandong Culture & Entertainment Square project that SD Chaoying created during
year 2007.
11
INCOME TAXES
The Company had not recorded a provision for income tax for the first quarter
ended March 31, 2008 and 2007, due to no taxable income after offsetting all
taxes losses carried forward from prior periods. 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 began to record 50% CIT provision from the first quarter of 2005.
Commencing from January 2008, the Chinese government had adjusted the CIT rate
to 25% instead of 33%, and that the Company enjoy a 50% reduction in
preferential policy of CIT, according to Western Developing Plan of PRC , and
that The company's effective tax rate is approximately 12.5% in the first
quarter of 2008.
LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (total current asset deduct total current liabilities)
increased by $917,776 from $(353,710) as of December 31, 2007 to $564,066 as of
March 31, 2008. The increase was primarily due to accrued expenses and amount
due to stockholders/officers decreased $452,042 and $227,600 respectively.
Contrarily, cash and equivalents increased $214,992 as of March 31, 2008 as
compared to the amount on March 31, 2007.
For operating activities during the first quarter of 2008, since the Company had
paid out $500,402 for accrued expenses, the Company had negative balance for
cash used in operating activities.
For investing activities, the Company had negative balance for cash used in
investing activities. The primarily reason was due to the payment in amount of
$563,919 had used for construction in progress in SD Chaoying project during the
three months ended March 31, 2008.
For financing activities, the Company had got a long-term debt in amount of
$1,354,820 (equivalent to RMB9.5 million) during the first quarter of 2008 from
Changle Rural Credit Union, which is a bank located in Shandong province of PRC.
Accordingly, the Company had positive cash provided by financing activities for
the three months ended March 31, 2008.
With approximately $560,000 of net working capital (total current assets deduct
total current liabilities) as of March 31, 2008 and net increase in cash and
equivalents during the first quarter of 2008, the Company believes it will have
sufficient resources to finance its operations for the coming year.
Since the Company has a construction project in Shandong for SD Chaoying and
anticipate to be completed it at the end of year 2008. In order to financing
this project, the Company anticipate borrowing more money from related parties,
other banks, and utilize repayment of loan proceeds from Quan Ye. There can be
no assurance that the Company will be able to obtain the necessary financing for
the construction of the project.
12
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause its actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors. Most of these factors are
difficult to predict accurately and are generally beyond its control. You should
consider the areas of risk described in connection with any forward-looking
statements that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Readers should carefully review this quarterly report in its
entirety, including but not limited to its financial statements and the notes
thereto. Except for its ongoing obligations to disclose material information
under the Federal securities laws, the Company undertakes no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. For any
forward-looking statements contained in any document, the Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required
by this Item.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the supervision and with
the participation of our management, including our Chief Executive Officer,
Yanbiao Bai, and Principal Financial Officer, Xue Bu, we 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 (the "Exchange Act") as of the end of the period covered by
this report. Based upon that evaluation, our Chief Executive Officer and
Principal Financial Officer concluded that our disclosure controls and
procedures as of the end of the period covered by this report were effective
such that the information required to be disclosed by us in reports filed under
the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and (ii)
accumulated and communicated to our management to allow timely decisions
regarding disclosure. A controls system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting. During the most recent
quarter ended March 31, 2008, there has been no change in our internal control
over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act) ) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
13
PART II. OTHER INFORMATION
ITEM 1. 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 that the Company may
have 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 the company 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. 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 March 31, 2008, The Company has accrued a
sufficient amount to cover any potential liabilities from this matter.
ITEM 1A. RISK FACTORS
A smaller reporting company is not required to provide the information required
by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
14
SIGNATURE
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.
CYBRDI, INC.
DATE: May 14, 2008 By /s/ Yanbiao Bai
--------------------------------------------------
Yanbiao Bai, Chief Executive Officer and president
15