Form SB-2/A for Bodisen Biotech February 2, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment
No. 2)
BODISEN
BIOTECH, INC.
(Name
of
small business issuer in its charter)
Delaware
|
5191
|
98-0381367
|
(State
or other jurisdiction
|
(Primary
Standard Industrial
|
(I.R.S.
Employer
|
of
incorporation)
|
Classification
Code Number)
|
Identification
No.)
|
North
Part of Xinquia Road, Yang Ling AG, High-Tech Industries
Demonstration
Zone,
Yang Ling, China 712100 Telephone 86-29-870749
(Address
and telephone number of principal executive offices)
North
Part of Xinquia Road, Yang Ling AG, High-Tech Industries
Demonstration
Zone,
Yang Ling, China 712100
(Address
of principal place of business or intended principal
place
of
business)
Copies
of
all communications to:
Robert
M.
Smith
Reed
Smith LLP
Two
Embarcadero Center, Suite 2000
San
Francisco, California 94111
Telephone
415-543-8700
Approximate
date of proposed sale to the public: As soon as practicable after the effective
date of this Registration Statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box [X]
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If
this
form is a post-effective amendment filed pursuant to Rule 462© under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION
OF REGISTRATION FEE
Title of each class
of securities to be to be
registered
|
Amount of shares
to be registered
unit
|
Proposed maximum
offering price per
price
|
Proposed maximum
aggregate offering (1)
|
Amount of registration
fee
|
|
|
|
|
|
Common Stock |
|
|
$ 22,000,000 |
$2,544.15
(2) |
(1)
Fee
calculated pursuant to Rule 457(o) and Section 6(b) of the Securities Act
of
1933.
(2)
Of
this amount, 2,458.55 was previously paid.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
The
information contained in this U.S. Prospectus/U.K. Admission Document is not
complete and may be changed. We may not sell these securities until the
registration statement filed with the U.S. Securities and Exchange Commission
(the “SEC”) is effective. This U.S. Prospectus/U.K. Admission Document is not an
offer to sell these securities and it is not an offer to buy these securities
in
any state where the offer or sale is not permitted.
THIS
DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any
doubt about the contents of this document you should consult a person authorised
under the Financial Services and Markets Act 2000 of the United Kingdom who
specialises in advising on the acquisition of shares and other securities.
The
whole of the text of this document should be read.
You
should be aware that an investment in the Company involves a high degree of
risk
and prospective investors should also carefully consider the section entitled
“Risk Factors” in Part I of this document before taking any
action.
This
document is an Admission Document which has been produced in accordance with
the
AIM Rules. This document also constitutes a prospectus for the purposes of
the
SEC which is part of a registration statement that has been filed with the
SEC.
This document is not a prospectus for the purposes of the Prospectus Rules
of
the United Kingdom.
The
Directors of Bodisen Biotech, Inc., whose names appear on page 16 of this
document, accept responsibility for the information contained in this document
and compliance with the AIM Rules. To the best of the knowledge and belief
of
our Directors (who have taken all reasonable care to ensure that such is the
case), the information contained in this document is in accordance with the
facts and does not omit anything likely to affect the import of such
information.
Application
will be made for our issued and to be issued Common Stock to be admitted to
trading on AIM. It is expected that Admission will take place and that trading
will commence on •• 2006.
AIM
is a market designed primarily for emerging or smaller companies to which a
higher investment risk tends to be attached than to larger or more established
companies. AIM securities are not admitted to the Official List of the U.K.
Listing Authority. A prospective investor should be aware of the risks of
investing in such companies and should make the decision to invest only after
careful consideration and, if appropriate, consultation with an independent
financial adviser. The AIM Rules are less demanding than those of the Official
List of the U.K. Listing Authority. Further, London Stock Exchange plc has
not
itself examined or approved the contents of this document.
The
Existing Common Stock is listed and traded on the American Stock Exchange
(“AMEX”) under the symbol “BBC”. On •• 2006, the closing sales price of the
common stock was • per share. The Common Stock is not dealt in on any other
recognised investment exchange.
Subject
to completion, dated February 2, 2006
Bodisen
Biotech, Inc.
(Incorporated
in the State of Delaware, U.S.A.)
Placing
of • Common Stock of $0.0001 each at •p per share
and
Admission
to trading on AIM of the London Stock Exchange
This
Admission Document is dated •• 2006
Nominated
Adviser and Broker
Charles
Stanley Securities
Authorised
|
Share
capital immediately following Admission
|
Issued
|
Number
|
$
|
|
Number
|
$
|
•
|
•
|
Common
Stock of $0.0001 each
|
•
|
•
|
All
of
the shares of our common stock, $0.0001 par value, (the “Common Stock”) offered
hereby (the “Offering”) are being issued and sold by us, Bodisen Biotech, Inc.
(the “Company”).
The
Placing Shares will, on Admission, rank pari
passu
in all
respects with our existing Common Stock then in issue and will rank in full
for
all dividends and other distributions declared, paid or made in respect of
our
Common Stock after Admission.
In
accordance with the AIM Rules, Charles Stanley Securities has confirmed to
the
London Stock Exchange that it has satisfied itself that the Directors have
received independent advice and guidance as to the nature of their
responsibilities and obligations to ensure compliance by the Company with the
AIM Rules and that, to the best of its information and belief (having made
due
and careful enquiry), all relevant requirements of the AIM Rules have been
complied with. In giving its confirmation to the London Stock Exchange, no
liability whatsoever is accepted by Charles Stanley Securities for the accuracy
of any information or opinions contained in this document or for the omission
of
any material information.
Charles
Stanley Securities, which is regulated by the Financial Services Authority,
is
acting as Nominated Adviser and Broker for the Company, and no one else, in
relation to the Placing and will not be responsible to any person other than
the
Company for providing the protections afforded to its customers or for advising
on the contents of this document or any transaction or arrangement referred
to
herein. Charles Stanley Securities has not approved this document for the
purposes of section 21 of the Financial Services and Markets Act 2000. No action
has been taken nor will be taken in any jurisdiction outside the United Kingdom
by either the Company or Charles Stanley Securities that would permit a public
offer of Common Stock in any such jurisdiction where action for that purpose
is
required, nor has any such action been taken with respect to the possession
or
distribution of this document. Persons into whose possession this document
comes
are required by the Company and Charles Stanley Securities to inform themselves
about and to observe any restriction as to the Placing and the distribution
of
this document.
The
Placing Shares have been placed by Charles Stanley Securities on a reasonable
endeavours basis. Charles Stanley Securities is not required to sell any minimum
number or dollar amount of Placing Shares and is not obligated to purchase
the
Placing Shares if they are not sold. Funds received by Charles Stanley
Securities from investors under the Placing will be deposited in a non-interest
bearing account until the closing of the offering.
The
distribution of this document in jurisdictions, other than the United Kingdom,
may be restricted by law and therefore persons into whose possession this
document comes should inform themselves about and observe any such restriction.
Any failure to comply with these restrictions may constitute a violation of
the
securities law of any such jurisdictions.
Copies
of
this document are available free of charge during business hours from Charles
Stanley Securities at 25 Luke Street, London EC2A 4AR for a period of one month
from the date of this document.
This
document does not constitute an offer to sell, or the solicitation of an offer
to buy, shares in any jurisdiction in which such offer or solicitations is
unlawful and, in particular, is not for distribution in or into Canada,
Australia, the Republic of Ireland or Japan or to any national, resident or
citizen of Canada, Australia, the Republic of Ireland or Japan. The issue of
the
Placing Shares has not been and will not be registered under the applicable
securities laws of Canada, Australia, the Republic of Ireland or
Japan.
This
document does not constitute an offer, nor the solicitation of an offer, to
subscribe or buy any of the Common Stock to any person in any jurisdiction
to
whom it is unlawful to make such offer or solicitation in such
jurisdiction.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE
OF CONTENTS
|
Page
|
Directors,
Secretary and Advisers
|
3
|
Definitions
|
4
|
Placing
Statistics
|
6
|
Expected
Timetable
|
6
|
Summary
and Key Information
|
7
|
Part
I
|
Risk
Factors
|
8
|
Part
II
|
Information
on Bodisen
|
12
|
Part
III
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
22
|
Part
IV
|
Financial
Information on Bodisen Biotech, Inc.
|
26
|
Part
V
|
Unaudited
Pro Forma Statement of Net Assets of the Group
|
65
|
Part
VI
|
Additional
Information
|
66
|
Directors:
|
Qiong
Wang, Chairman
and Chief Executive Officer
|
|
Bo
Chen, Executive
Director and President
Patrick
McManus, Non
Executive Director
David
Gatton, Non
Executive Director
Weirui
Wan, Non
Executive Director
|
|
|
Registered
Office:
|
The
Corporation Trust Company
|
|
Corporation
Trust Center
1209
Orange Street
Wilmington
DE
19801
Telephone
number: +1 (302) 658-7581
|
|
|
Principal
Place of Business:
|
North
Part of Xinquia Road
|
|
Yang
Ling AG
High-Tech
Industries Demonstration Zone
Yang
Ling, China 712100
|
|
|
Nominated
Adviser & Broker:
|
Charles
Stanley Securities
|
|
25
Luke Street
London
EC2A 4AR
|
|
|
Auditor:
|
Kabani
& Company, Inc.
|
|
6033
West Century Blvd. Suite 810
Los
Angeles
CA
90045, U.S.A.
|
|
|
Reporting
Accountant:
|
Deloitte
& Touche LLP
|
|
Stonecutter
Court
1
Stonecutter Street
London
EC4A 4TR
|
|
|
U.K.
and U.S. Legal Advisers to
the Company:
|
Reed
Smith Rambaud
Charot LLP
|
|
Minerva
House
5
Montague Close
London
SE1 9BB
|
|
|
|
Reed
Smith LLP
Two
Embarcadero Center
Suite
2000
San
Francisco
CA
94111, U.S.A.
|
|
|
PRC
Legal Advisers to the Company
|
Jingtian
& Gongcheng
|
|
Attorneys
at Law
15th
Floor
The
Union Plaza
20
Chaoyangmenwai Dajie
Beijing
100020
P.R.
China
|
|
|
U.K.
and U.S. Legal Advisers to
the Broker:
|
Jones
Day
|
|
21
Tudor Street
London
EC4Y 0DJ
|
The
following definitions apply throughout this document unless the context
otherwise requires:
“Act”
|
the
Companies Act 1985, as amended
|
“Admission”
|
admission
of the issued Common Stock (including the Placing Shares) to trading
on
AIM becoming effective in accordance with the AIM Rules
|
“AIM”
|
the
AIM market of the London Stock Exchange
|
“AIM
Rules”
|
the
rules for AIM companies and their nominated advisers as issued by
the
London Stock Exchange, as amended from time to time
|
“AMEX”
|
the
American Stock Exchange
|
“Board”
or “Directors”
|
the
directors of the Company whose names are set out on pages 3 and 16
of this
document
|
“Broker”
|
has
the meaning given to the expression “broker” in the AIM
Rules
|
“CDI”
|
a
CREST depositary interest representing underlying Common
Stock
|
“Certificate
of Incorporation and By-Laws”
|
the
amended and restated certificate of incorporation and by-laws of
the
Company filed with the State of Delaware
|
“Charles
Stanley”
|
Charles
Stanley Securities, which is regulated for the conduct of investment
business in the U.K. by the Financial Services Authority and is a
member
of the London Stock Exchange, the Company’s Nominated Adviser and
Broker
|
“Common
Stock”
|
shares
of common stock with nominal value of $0.0001 each in the capital
of the
Company
|
“Company”
|
Bodisen
Biotech, Inc.
|
“CREST”
|
the
relevant system (as defined in the CREST Regulations) in respect
of which
CRESTCo is the Operator (as defined in the CREST
Regulations)
|
“CRESTCo”
|
CRESTCo
Limited
|
“CREST
Regulations”
|
the
Uncertificated Securities Regulations 2001 (SI 2001/3755), as
amended
|
“Enlarged
Issued Share Capital”
|
the
issued share capital of the Company following Admission, comprising
the
Existing Common Stock and the Placing Shares
|
“Existing
Common Stock”
|
the
Common Stock in issue at the date of this document
|
“Group”
or “Bodisen”
|
the
Company and its subsidiaries
|
“Internal
Revenue Code”
|
the
U.S. Internal Revenue Code of 1986, as amended
|
“London
Stock Exchange”
|
London
Stock Exchange plc
|
“Nominated
Adviser”
|
has
the meaning given to the expression “nominated adviser” in the AIM
Rules
|
“Official
List”
|
the
Official List of the U.K. Listing Authority
|
“Placing”
|
the
conditional placing by Charles Stanley of the Placing Shares at the
Placing Price pursuant to the Placing Agreement as described in paragraph
16 of Part VI of this document
|
“Placing
Agreement”
|
the
conditional agreement relating to the Placing between (1) the Company
(2)
the Directors and certain of the senior managers and (3) Charles
Stanley,
further details of which are set out in paragraph 16 of Part VI of
this
document
|
“Placing
Price”
|
•
pence per Common Stock
|
“Placing
Shares”
|
•
new Common Stock to be issued pursuant to the Placing
|
“Plan”
|
the
2004 Stock Option Plan described in paragraph 7 of Part VI of this
document
|
“RMB”
|
Renminbi,
the currency of the People’s Republic of China
|
“SEC”
|
U.S.
Securities and Exchange Commission
|
“Stockholders”
|
holders
of Common Stock
|
“United
Kingdom” or “U.K.
|
the
United Kingdom of Great Britain and Northern Ireland
|
“U.K.
Listing Authority”
|
the
Financial Services Authority acting in its capacity as the competent
authority for the purposes of Part VI of the Financial Services and
Markets Act 2000
|
“United
States” or “U.S.”
|
The
United States of America, its territories and possessions, any state
of
the United States and the District of Columbia
|
“U.S.
Securities Act”
|
The
United States Securities Act of 1933, as amended
|
“Yang
Ling”
|
Yang
Ling Bodisen Biology Science and Technology Development Company
Limited
|
“$”
|
the
lawful currency of the U.S.
|
“£”
and “p”
|
the
lawful currency of the United
Kingdom
|
All
references to times in this document are to Greenwich Mean Time, unless stated
otherwise. References to the singular shall include references to the plural
where applicable, and vice versa.
Placing
Price
|
*pence
|
Number
of Common Stock in issue prior to the Placing
|
*
|
Number
of Placing Shares to be issued
|
*
|
Number
of Common Stock in issue immediately following Admission
|
*
|
Percentage
of Enlarged Share Capital the subject of the Placing
|
*%
|
Market
capitalisation of the Company following the Placing at the Placing
Price
|
*
|
Gross
proceeds of the Placing
|
*
|
Net
proceeds of the Placing
|
*
|
EXPECTED
TIMETABLE
Admission
and dealings commence in Common Stock on AIM
|
8.00
a.m. on* *,
2006
|
CREST
accounts credited by
|
*
*,2006
|
Definitive
share certificates despatched
|
*
*,2006
|
The
following is a summary of what our Directors believe to be the most important
information regarding us and our securities being offered under the Placing.
Since this is a summary, it may not contain all of the information that is
important to you. To understand our business and the Placing fully, you are
urged to read this entire document, the financial statements and related notes
carefully. Attention is drawn, in particular, to the section headed “Risk
Factors” set out in Part I below.
Our
Company
We
were
incorporated on January 14, 2000 in Delaware and our principal place of business
is based in The People’s Republic of China. We are located at: Bodisen Biotech,
Inc., North Part of Xinquia Road, Yang Ling AG, High-Tech Industries
Demonstration Zone, Yang Ling, China 712100, Telephone: +862987074957. We file
periodic reports with the SEC and our Common Stock trades on the AMEX in the
United States under the symbol BBC. We are primarily engaged in developing,
manufacturing and selling organic fertilizers and pesticides in The People’s
Republic of China.
Our
Business
Our
sole
operating subsidiary, Yang Ling, was founded in The People’s Republic of China
on August 31, 2001 and is headquartered in the Shaanxi Province, People’s
Republic of China. Yang Ling primarily manufactures and markets organic
fertilizers and pesticides to 20 agricultural provinces of China. We produce
numerous proprietary product lines, from pesticides to crop specific fertilizer,
which are then marketed and sold to farmers. We conduct research and development
to further improve existing products and to develop new formulas and
products.
Background
of the Company
Prior
to
March 1, 2004, we were called Stratabid.com, Inc. (the “Company”). The Company
was a startup stage Internet-based commercial mortgage origination business.
The
Company operated primarily through its wholly-owned subsidiary, Stratabid.com
Online (B.C.) Ltd. (“Stratabid.com Online”), which provided services throughout
Canada. On January 14, 2004, the Company created a wholly-owned subsidiary
corporation Bodisen Holdings, Inc., a Delaware corporation (“BHI”), to pursue a
merger with Bodisen International, Inc., a Delaware corporation (“BII”) and the
parent company of Yang Ling. On February 11, 2004, the Company and BHI entered
into an Agreement and Plan of Merger with BII and the shareholders of BII,
providing for the merger of BII into BHI, with BHI being the surviving entity
in
the merger. The transactions provided for in the Agreement and Plan of Merger
closed on February 24, 2004. In the merger, the Company acquired 100% of BII’s
outstanding stock in exchange for the issuance by the Company of three million
shares of Common Stock to the holders of BII shares. The Common Stock issued
in
the merger constituted approximately 66% of the outstanding Common Stock after
the merger. After the merger, we paid a 3 for 1 stock dividend and then, by
prior agreement, redeemed 3.0 million post dividend shares held by the former
CEO. After these transactions, the shareholders of BII held approximately 79%
of
the Common Stock outstanding. On February 25, 2004, Stratabid sold Stratabid.com
Online to Derrek Wasson, Stratabid’s former Chief Executive Officer. On March 1,
2004, the Company changed its name from Stratabid.com, Inc. to our current
name
Bodisen Biotech, Inc.
The
Placing by the Company
We
have
placed • Common Stock of $0.0001 each at •p per share.
Our
shares will be marketed and sold by Charles Stanley, who will offer the Placing
Shares on a reasonable endeavours basis. We intend to use the net proceeds
of
the Placing for the construction of two new manufacturing facilities in Xinjian
and Helongjiang (North West and North East China), to increase the Group’s
general sales and marketing activities, as well as adding to the available
working capital.
RISK
FACTORS
You
should carefully consider the risks described below before making an investment
in Bodisen. All of these risks may impair its business operations. If any of
the
following risks actually occur, its business, financial condition or results
of
operations could be materially adversely affected. In such case, the trading
price of the Common Stock could decline, and you may lose all or part of your
investment.
1.
Risks relating to our business
Our
management own a significant amount of the Common Stock, giving them influence
or control in corporate transactions and other matters, and their interests
could differ from those of other stockholders.
Our
principal executive officers, Wang Qiong and Chen Bo, own approximately 45.48%
of the Existing Common Stock. As a result, they are in a position to
significantly influence or control the outcome of matters requiring a
stockholder vote, including the election of directors, the adoption of any
amendment to the Certificate of Incorporation and By-Laws, and the approval
of
significant corporate transactions. Their control may delay or prevent a change
of control on terms favourable to our other stockholders and may adversely
affect your voting and other stockholders rights.
We
may require additional financing in the future and a failure to obtain such
required financing will inhibit our ability to grow.
The
continued growth of our business may require additional funding from time to
time. Funding would be used for general corporate purposes, which may include
acquisitions, investments, repayment of debt, capital expenditures, repurchase
of our capital stock and any other purposes that we may specify in any
supplement to this admission document. Obtaining additional funding would be
subject to a number of factors, including market conditions, operational
performance and investor sentiment. These factors may make the timing, amount,
terms and conditions of additional funding unattractive, or unavailable, to
us.
The
terms of any future financing may adversely affect your interest as
stockholders.
If
we
require additional financing in the future, we may be required to incur
indebtedness or issue equity securities, the terms of which may adversely affect
your interests in us. For example, the issuance of additional indebtedness
may
be senior in right of payment to your shares upon our liquidation. In addition,
indebtedness may be under terms that make the operation of its business more
difficult because the lender’s consent will be required before we can take
certain actions. Similarly, the terms of any equity securities we issue may
be
senior in right of payment of dividends to your Common Stock and may contain
superior rights and other rights as compared to your Common Stock. Further,
any
such issuance of equity securities may dilute your interest in us.
Our
corporate structure may subject our stockholders to two levels of taxation
on
the payment of dividends or the disposition of its operating subsidiary, thereby
substantially reducing the return on its stockholders’
investment.
If
Yang
Ling pays a dividend to us, its parent company, for distribution to the
stockholders as a dividend, or if Yang Ling (rather than us, its parent company)
is ultimately sold, the dividend or the proceeds of that transaction would
be
subject to two levels of tax - one at the parent corporate level and one at
the
parent stockholder level. Because our operations are conducted through Yang
Ling
in China, any dividends payable by us must come from Yang Ling and it is more
likely that Yang Ling, rather than the parent company, will ultimately be sold.
Thus, if Yang Ling pays a dividend to us in the future or if Yang Ling is sold
in the future, those proceeds may be subject to two levels of taxation: (i)
we
will pay tax on the dividend or sale proceeds received from Yang Ling, and
(ii)
our stockholders will pay tax on the distribution of the dividend or the
proceeds of the sale. These two levels of taxation will effectively reduce
the
financial return on your investment in us.
We
do not anticipate paying dividends on the Common Stock.
We
have
never paid dividends on our Common Stock and do not anticipate paying dividends
in the foreseeable future. Our Directors intend to follow a policy of retaining
all of our earnings, if any, to finance the development and expansion of our
business.
We
may not be able to adequately protect and maintain our intellectual
property.
Our
success will depend on our ability to continue to develop and market fertilizer
and pesticide products. We protect our proprietary technology and formulae
by
keeping such technology or formulae confidential. If such technology or formulae
are disclosed to a third party that is not under an obligation to keep the
technology confidential or are accidentally disclosed, we may not be able to
protect our technology or formulae against being exploited by third parties.
We
currently have not applied for patents for our technology products or formulae
as our Directors believe an application for such patents would result in public
knowledge of our proprietary technology and formulae.
Our
success depends on our management team and other key personnel, the loss of
any
of whom could disrupt our business operations.
Our
future success will depend in substantial part on the continued service of
our
senior management, including Mrs. Wang Qiong, our Chairman and Chief Executive
Officer, Chen Bo, our President, and Wang Chunsheng, our Chief Operational
Officer. The loss of the services of one or more of our key personnel could
impede implementation of our business plan and result in reduced profitability.
We do not carry key person life or other insurance in respect of any of our
officers or employees. Our future success will also depend on the continued
ability to attract, retain and motivate highly qualified technical sales and
marketing customer support. Because of the rapid growth of the economy in The
People’s Republic of China, competition for qualified personnel is intense. We
cannot guarantee that we will be able to retain our key personnel or that we
will be able to attract, assimilate or retain qualified personnel in the
future.
Restrictions
on making distributions
The
Company is a legal entity separate and distinct from its operating subsidiary,
Yang Ling, which is an indirect subsidiary of the Company. The Company’s
revenues (on a parent company only basis) would be derived entirely from
dividends paid to the Company by Yang Ling. The Chinese government exerts
significant influence over the economy of The People’s Republic of China, and
there may be regulatory restrictions on Yang Ling’s ability to make
distributions of cash to the Company.
2.
Risks relating to the agricultural industry in The People’s Republic of
China
Our
success depends upon the development of The People’s Republic of China’s
agricultural industry.
The
People’s Republic of China is currently the world’s most populous country and
one of the largest producers and consumers of agricultural products. Roughly
half of The People’s Republic of China’s labour force is engaged in agriculture,
even though only about 10% of the land is suitable for cultivation. Although
The
People’s Republic of China hopes to further increase agricultural production,
incomes for Chinese farmers are stagnating. Despite the Chinese government’s
continued emphasis on agricultural self-sufficiency, inadequate port facilities
and a lack of warehousing and cold storage facilities impedes the domestic
agricultural trade. Where we rely on the local farmer to purchase our products,
which are generally purchased under a “Cash on Delivery” or on 9-12 months
credit, a farmer’s inability to sell his agricultural goods could therefore
hinder his ability to timely pay his credit obligations to us.
We
do not have supplier contracts with all of our trade
vendors.
Typically
for the agricultural industry in The People’s Republic of China, we do not have
supplier contracts with all of our trade vendors. Where we do not have contracts
in place, business is conducted on an order-by-order basis. Despite our not
having supplier contracts in place in every case, the Directors believe that
we
have very good relations with the agricultural vendor community.
3.
Risks relating to The People’s Republic of China
The
People’s Republic of China’s Economic Policies could affect our
Business.
Substantially
all of our assets are located in The People’s Republic of China and
substantially all of our revenue is derived from our operations in The People’s
Republic of China. Accordingly, our results of operations and prospects are
subject, to a significant extent, to the economic, political and legal
developments in The People’s Republic of China.
While
The
People’s Republic of China’s economy has experienced significant growth in the
past twenty years, such growth has been uneven, both geographically and among
various sectors of the economy. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall economy of The People’s Republic of
China,
but they may also have a negative effect on us. For example, operating results
and financial condition may be adversely affected by the government control
over
capital investments or changes in tax regulations.
The
economy of The People’s Republic of China has been changing from a planned
economy to a more market-oriented economy. In recent years the Chinese
government has implemented measures emphasizing the utilization of market forces
for economic reform and the reduction of state ownership of productive assets,
and the establishment of corporate governance in business enterprises; however,
a substantial portion of productive assets in The People’s Republic of China are
still owned by the Chinese government. In addition, the Chinese government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over The
People’s Republic of China’s economic growth through the allocation of
resources, the control of payment of foreign currency- denominated obligations,
the setting of monetary policy and the provision of preferential treatment
to
particular industries or companies.
Capital
outflow policies in The People’s Republic of China may hamper our ability to
remit income to the United Kingdom.
The
People’s Republic of China has adopted currency and capital transfer
regulations. These regulations may require us to comply with complex regulations
for the movement of capital. Although our Directors believe that we are
currently in compliance with these regulations, should these regulations or
the
interpretation of them by courts or regulatory agencies change; we may not
be
able to remit all income earned and proceeds received in connection with its
operations or from the sale of its operating subsidiary to our
stockholders.
Although
the Group does not import goods into or export goods out of The People’s
Republic of China, fluctuation of the Renminbi may indirectly affect our
financial condition by affecting the volume of cross- border money
flow.
The
value
of the Renminbi fluctuates and is subject to changes in The People’s Republic of
China’s political and economic conditions. Since 1994, the conversion of
Renminbi into foreign currencies, including United States dollars, has been
based on rates set by the People’s Bank of China which are set based upon the
interbank foreign exchange market rates and current exchange rates of a basket
of currencies on the world financial markets. As of January 9, 2006, the
exchange rate between the Renminbi and the United States dollar was 8.07
Renminbi to every one United States dollar.
We
may face obstacles from the communist system in The People’s Republic of
China.
Foreign
companies conducting operations in The People’s Republic of China face
significant political, economic and legal risks. The Communist regime in The
People’s Republic of China, including a cumbersome bureaucracy, may hinder
Western investment.
We
may have difficulty establishing adequate management, legal and financial
controls in The People’s Republic of China.
The
People’s Republic of China historically has not adopted a Western style of
management and financial reporting concepts and practices, modern banking,
computer or other control systems. We may have difficulty in hiring and
retaining a sufficient number of qualified employees to work in The People’s
Republic of China. As a result of these factors, we may experience difficulty
in
establishing management, legal and financial controls, collecting financial
data
and preparing financial statements, books of account and corporate records
and
instituting business practices that meet Western standards.
It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in The People’s Republic of
China.
Because
our Executive Officers and several of our Directors, including, the chairman
of
our Board of Directors, are Chinese citizens it may be difficult, if not
impossible, to acquire jurisdiction over these persons in the event a lawsuit
is
initiated against us and/or our officers and directors by a stockholder or
group
of stockholders in the United Kingdom. Also, because the majority of our assets
are located in The People’s Republic of China it would also be extremely
difficult to access those assets to satisfy an award entered against us in
an
English court.
We
may face judicial corruption in The People’s Republic of
China.
Another
obstacle to foreign investment in The People’s Republic of China is corruption.
There is no assurance that we will be able to obtain recourse, if desired,
through The People’s Republic of China’s poorly developed and sometimes corrupt
judicial systems.
The
admission of The People’s Republic of China into the World Trade Organization
could lead to increased foreign competition for us.
Domestic
competition in the compound fertilizer industry is largely fragmented and
foreign competition is minimal. However, as a result of The People’s Republic of
China becoming a member of the World Trade Organization (“WTO”), import
restrictions on agricultural products are expected to be reduced. With the
lowering of import restrictions and the WTO’s requirement for a reduction of
import tariffs as condition of membership, such reduced import restrictions
and
tariffs for us may result in an increase of foreign products and could in turn
lead to increased competition in the domestic agricultural market.
The
Group may not be able to obtain regulatory approvals for its
products.
The
manufacture and sale of agricultural products in The People’s Republic of China
is regulated by the People’s Republic of China and the Shaanxi Provincial
Government. Although our licenses and regulatory filings are current, the
uncertain legal environment of The People’s Republic of China and its industry
may be vulnerable to local government agencies or other parties who wish to
renegotiate the terms and conditions of, or terminate their agreements or other
understandings with us.
4.
Risks relating to the Placing
There
may not be sufficient liquidity in the market for our securities in order for
investors to sell their securities.
Our
Common Stock is traded on AMEX and has a limited public market. There is also
a
limited public market for AIM securities, which are not admitted to the Official
List of the U.K. Listing Authority. Since there is a limited public market
for
our securities, there can be no assurance that a trading market will develop
further or be maintained in the future.
5.
Special note regarding forward-looking statements
Included
in this Admission Document, are “forward-looking” statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as well as historical information. These forward looking
statements include statements regarding profitability, liquidity, market risk
and financial and other goals. Forward-looking statements include those that
use
forward-looking terminology, such as the words "anticipate," "believe,"
"estimate," "expect," "intend," "may," "project," "plan," "will," "shall,"
"should," and
similar expressions, including when used in the negative. Although the Directors
believe that the expectations reflected in these forward-looking statements
are
reasonable and achievable, these statements involve risks and uncertainties
and
no assurance can be given that actual results will be consistent with these
forward-looking statements. Important factors that could cause actual results,
performance or achievements to differ from these forward- looking statements
include the factors described in the “Risk Factors” section and elsewhere in
this Admission Document.
All
forward-looking statements attributable to Bodisen are expressly qualified
in
their entirety by these factors. Because of these and other uncertainties,
our
actual results and performance may be materially different from results
indicated by these forward looking statements. In addition, our past results
of
operations are not necessarily indicative of our future performance. The forward
looking statements contained in this Admission Document are made as of the
date
of this Admission Document. The Company undertakes no obligation to update
or
revise these forward-looking statements, whether to reflect events or
circumstances after the date initially.
INFORMATION
ON BODISEN
1.
Introduction
The
Company is incorporated in the State of Delaware in the U.S. with its principal
place of business based in the Shaanxi Province of The People’s Republic of
China. There is also a liaison office in Beijing. Bodisen files periodic reports
with the SEC and its Common Stock trades on AMEX under the symbol BBC. The
Company is engaged in the research, manufacturing and marketing of proprietary
technology-based environmentally friendly fertilizers and pesticides. Bodisen
sells over 60 packaged products in 3 categories directly to over 150 wholesalers
throughout The People’s Republic of China.
2.
Industry overview
The
organic fertilizer business in The People’s Republic of China is still in its
infancy. Organic fertilizer is composed of natural nutritional elements that
enhance soil quality to increase crop yields. In contrast to traditional
compound chemical fertilizers which actually harm soil fertility, organic
compound fertilizers accelerate the reproduction of soil microbes to improve
soil quality through the decomposition of organic material. This enhancement
of
soil microbes by organic fertilizer improves the soil’s retention of nitrogen.
Moreover, unlike traditional chemical fertilizers, organic fertilizers can
activate dormant soil by increasing soil nitrite or nitrate levels and moisture
content that otherwise is not enhanced by traditional chemical fertilizers.
This
process controls the release of nutritional elements that enhances the quality,
quantity and health of crops. As a result of years of intensive farming, The
People’s Republic of China’s soil quality is low compared to international
standards. Accordingly, the use of organic fertilizer, which can stabilize
and
enhance soil quality, is preferable to the use of traditional chemical
fertilizer. Because of this, and the fact that organic fertilizer can be widely
utilized, the market for organic fertilizer is rapidly growing and the use
of
organic fertilizer has become popular throughout The People’s Republic of
China.
3.
Business
3.1
History
Prior
to
March 1, 2004, the Company was called Stratabid.com, Inc. The Company was a
startup stage Internet-based commercial mortgage origination business. The
Company operated primarily through its wholly-owned subsidiary, Stratabid.com
Online (B.C.) Ltd. (“Stratabid.com Online”), which provided services throughout
Canada.
Yang
Ling
was founded in the People’s Republic of China on August 31, 2001. Yang Ling,
located in Yang Ling Agricultural High-Tech Industries Demonstration Zone,
was
primarily engaged in developing, manufacturing and selling pesticides and
compound organic fertilizers in the People’s Republic of China. On November 19,
2003, Yang Ling incorporated Bodisen International, Inc. (“BII”), a Delaware
corporation, as a non-operative holding company.
On
January 14, 2004, the Company created a wholly-owned subsidiary corporation
known as Bodisen Holdings, Inc., a Delaware corporation, (“BHI”), to pursue a
merger with BII the parent of Yang Ling. On February 11, 2004, the Company
and
BHI entered into an Agreement and Plan of Merger with BII and the shareholders
of BII, providing for the merger of BII into BHI, with BHI being the surviving
entity in the merger. The transactions provided for in the Agreement and Plan
of
Merger closed on February 24, 2004. In the merger, the Company acquired 100%
of
BII’s outstanding stock in exchange for the issuance by the Company of 3 million
shares of its Common Stock to the holders of BII shares. The Common Stock issued
in the merger constituted approximately 66% of the outstanding shares of the
Company after the merger. After the merger, the Company paid a 3 for 1 stock
dividend and then, by prior agreement, redeemed 3 million post dividend shares
held by the Company’s former CEO. After these transactions, the shareholders of
BII held approximately 79% of the Common Stock outstanding. On February 25,
2004, the Company sold Stratabid.com Online to Derrek Wasson, the Company’s
former CEO. On March 1, 2004, the Company changed its name from Stratabid.com,
Inc. to Bodisen Biotech, Inc.
The
Group
has developed the product line to over 60 items, and, the Directors believe,
been successful in building the Bodisen brand name. The mandate of the
government of The People’s Republic of China that farmers increase crop yields
to decrease the nation’s dependence on food imports, together with the growing
emphasis on the need to use “environmentally friendly” fertilizers, has also
been a factor in the growth of the business of the Group.
3.2
Products
The
Group
manufactures over 60 package products, which are broken down into 3 product
line
categories:
3.2.1
Organic compound fertilizer
These
products are the Group’s leading product category, accounting for approximately
67% of Group turnover. Plants tend to easily absorb organic fertilizer without
the side effects found in synthetic chemical fertilizer products, and this
organic process strengthens photosynthesis, which improves the overall health
of
a plant in resisting drought and disease. The International Organization for
Standardization (ISO 9001: 2000) has qualified Bodisen’s organic compound
fertilizer products.
Organic
fertilizers improve the cation exchange capacity, or “CEC” of soil which is its
ability to hold positively charged ions (cations), making them available for
uptake by the plant roots. This not only allows for improved uptake of nutrients
by the plant but can also reduce leaching, which is of particular concern in
sandy soil. Leaching moves nutrients away from the plant roots and into the
subsurface water. Principal functions include:
•
to
preserve nitrogen and improve the soil fertility;
•
allowing phosphorous and potash fertilizer to gradually dissolve in the moisture
from the air;
•
resist
plant diseases; and
•
activate and keep soil moisture content.
3.2.2
Liquid fertilizers
These
products account for approximately 19% of Group turnover. The early application
of liquid fertilizers aids absorption of the key elements and nutrients of
the
fertilizer which may increase the rate of photosynthesis and improves the health
of the plant making it more resistant to disease. The liquid fertilizer
increases the plant’s yield and shortens the time to harvest whilst heightening
the colour and lustre of fruit and vegetables.
The
liquid fertilizer is sold to the farmer in a concentrated form and needs to
be
mixed by the farmer with water before spraying onto the plant. Since the liquid
fertilizer is applied directly to the plant it is more easily absorbed by the
plant.
3.2.3
Pesticides
These
products account for approximately 14% of Group turnover. Bodisen’s pesticide
products can be applied to all fruit trees and vegetable crops; it will also
reduce the numbers of harmful insects that reduce overall crop
yields.
4.
Market information
Organic
fertilizers are composed of natural nutritional elements that not only improve
the quality and yield of the crops but also improve the soil quality; this
in
turn improves the yield. Organic compound fertilizer accelerates reproduction
of
soil microbes to improve soil quality through the decomposition of organic
material and the improvement of the soil’s retention of nitrogen. Moreover, this
application can activate dormant soil by increasing soil nitrates and moisture
content that otherwise is not enhanced by traditional chemical fertilizers.
This
process controls the release of nutritional elements that enhances the quality,
quantity and health of crops. To encourage farmers, of which there are 800
million in The People’s Republic of China, to remain on their land, the
government recently eliminated an agriculture tax, which effectively increased
their disposable income by 20%. Although organic compound fertilizers are more
expensive than chemical fertilizers, the Directors believe that the extra cost
is justified by the increase of quality and yield and, consequently, the
increased margin attained at the market.
5.
Sales and marketing
The
Group’s products are sold directly to over 150 wholesalers in The People’s
Republic of China, through written sales contracts.
The
Bodisen brand has been marketed and promoted through trade fairs, conventions
and the print media, and through television and radio advertising in The
People’s Republic of China. Since the end-user for its products is the local
farmer, educational seminars to promote products and organic fertilizers
directly to farmers
are extensively used. To capture a share of the market, free samples of the
products are distributed to allow a trial period to take place, the results
of
which are made know to the surrounding area. The cost of this is not material
and is often offset by new sales in that test zone.
The
primary tasks in respect of sales and marketing are to strengthen the home
market in the Shaanxi province and to expand the market outside the Shaanxi
province into new districts where the Group’s products are not well
established.
It
is our
intention to increase marketing in regions where our products are not well
known. In addition, promotion of the products through national newspapers in
China explaining the advantages of the high-tech nature of its environmentally
friendly product lines will be undertaken. In order to enter the untapped
markets of western China, the Company will explore selling exclusive franchise
opportunities to new wholesale agents.
6.
Raw materials
There
are
numerous suppliers of raw materials in the Shaanxi Province of China. To
manufacture the organic compound fertilizer Bodisen uses carbamide, ammonium,
potassium chloride and zeolite powder. Carbamide, potassium chloride, bluestone,
zinc sulfate, borax, citric acid and bitter salt, together with other materials
are used to manufacture liquid fertilizer. Pesticides are manufactured using
Mieduowie, zinc sulphur phosphor, emulsification agents, Dimethylbenzene, sulfur
powder and Fumeishuang.
The
Company has short-term material supplier contracts with its 19 major suppliers.
Business with other suppliers is conducted on an order-by-order basis, a
practice that is typical throughout the agrochemical industry in The People’s
Republic of China. The Directors believe that the Group has very good relations
with the agricultural supplier community.
7.
Research and development
The
research and development team consists of four professionals, who perform
administrative and ministerial functions. Much of the research is done in close
cooperation with universities and research laboratories in the Yang Ling and
Xian Metropolitan areas with related costs incurred by such universities and
research laboratories and not by the Company. In 2005, the Company budgeted
to
spend U.S.$130,000 on research and development, the majority of which was
dedicated to existing research programs. The following projects were commenced
in 2004 and are currently scheduled for completion in 2006:
7.1
Pesticides
projects
Project
Ion is the study of copper, zinc and manganese ions in combination with silver
ions to control and remove crop disease brought about by fungi. The objective
is
to determine whether the combination of these metal ions will prohibit the
release of an intrusive enzyme from fungi that kills crops in
China.
Project
Fly is the development of a protein abstract from a common fly to develop
bacteria-based pesticides, which may have a better effect on a plant’s
resistance to insects. This project seeks to isolate a series of anti- bacteria
peptides from the proteins of a common fly. This kind of anti-bacteria peptide
could effectively control many pathogens which may prove more effective than
the
pesticides which are currently available.
7.2
Fertilizer
projects
Project
Amino Acid is a program that was developed to build a new compound fertilizer
product, based on a proactive amino acid enzyme.
Project
Build utilizes a technique for the manufacturing of organic compound fertilizer,
which could enhance the quality of organic fertilizer products.
8.
Intellectual property
The
Group
owns trademarks in the “Bodisen” name, which is used on all products. Bodisen is
also a recognized trade name in the provinces in The People’s Republic of China
in which the Group conducts business. Bodisen protects its proprietary
technology and formulae by keeping such technology and formulae confidential.
If
such technology or formulae are disclosed to a third party that is not under
an
obligation of confidentiality or are accidentally disclosed, Bodisen may not
be
able to protect its technology against being exploited by third parties. The
Directors believe this is adequate protection. The Company acquired rights
for
fluid and compound fertilizer technology from a third party. Most intellectual
property was developed in-house or with various universities and research
laboratories (which may not be owned by Bodisen). Only certain key executives
of
the Company have knowledge of such proprietary technology and formulae. The
Directors
believe that there are adequate systems in place to prevent disclosure of the
proprietary technology and formulae. Since the Company does not hold patents
for
its products, the Company may not be in a position to adequately protect its
intellectual property rights. See “Risk Factors” in Part I.
9.
Government and environmental regulation
Bodisen’s
products and services are subject to material regulation by governmental
agencies in The People’s Republic of China and Shaanxi Province responsible for
the agricultural industry. Business and company registrations, along with the
products, are certified on a regular basis and must be in compliance with the
laws and regulations of the state, local governments and industry agencies,
which are controlled and monitored through the issuance of licenses. To date,
the Group has been compliant with all registrations and requirements for the
issuance and maintenance of all licenses required by the governing bodies.
As of
the date of this document, all license fees and filings are current. These
licenses obtained by the Group include:
9.1
National
Certificate for Production of Industrial Products
The
National Certificate for Production of Industrial Products for compounded
fertilisers was issued by the National Industrial Products Production License
Office on February 27, 2004. The National Certificate for Production of
Industrial Products will be valid until February 26, 2009.
9.2
Certificate
for pesticide registration
Pesticide
registration is required for the production of liquid fertilizer and issued
by
Ministry of Agriculture, People’s Republic of China.
9.3
Production
standard
The
Company is registered with Bureau of Quality Controls and Technology, Shaanxi
Provincial Government, Xi’an.
The
cost
of obtaining and maintaining these licenses is not prohibitive, and it is
illegal to do business without these licenses. If the Group were to lose any
of
these licenses, it would only have a limited time to reapply for such licenses
and would face possible regulatory fines. The Group is subject to relevant
environmental laws and regulations that require the outlay of capital and the
obtaining of relevant permits in order to engage in business
operations.
10.
Competition
The
Directors consider that in The People’s Republic of China the compound
fertilizer industry is largely fragmented with most competitors operating small
regional factories, serving local requirements. Most companies in this industry
in The People’s Republic of China do not promote their products through brand
name recognition. Bodisen has not yet identified any competition in the Shaanxi
province that operates in all three segments (compound, liquid and pesticide)
of
the organic fertilizer business. The Directors believe that the Company’s most
significant Chinese competitor is Tian Bang Shaanxi and that the only
international competing company is DuPont.
11.
Future prospects and current trading
The
Group
posted sales of $23,635,270 for the three calendar quarters ended September
30,
2005 (unaudited). Net income for the period was $6,359,787 compared to
$3,841,821 for the same quarter a year earlier. The net income includes a one
time charge of $416,703 associated with the aggregate fair value of the warrants
which were issued in connection with a $3 million convertible financing which
was completed on March 16, 2005. The net income would have been $6,776,490
in
the absence of this one-time charge, reflecting the substantial increase in
the
demand for the Group’s products in the markets in which it has operated and the
new markets that it has entered.
The
signing of the new distributors to the distribution network of the Company
is
expected to allow the Group to expand its reach geographically and more easily
develop the brand name of the Group.
It
is
also proposed that the Group seek licensed manufacturing facilities in other
provinces so that the Group can expand its distribution without incurring the
high cost of transporting its products long distances. Although no agreements
are in place, the management is searching for targets, possible facilities
have
been identified and the Group is holding informal talks to assess feasibility.
One concern the Group has to expansion would be the Group’s ability to protect
their proprietary technology and formulae.
The
Group
continues to work in close cooperation with local universities and research
laboratories in the Yang Ling and Xian Metropolitan areas to improve existing
products and develop new products to drive the Group’s sales in the future. The
pace of discovery can never be predicted as such the ability to forecast the
impact of these improvements and discoveries cannot be predicted.
On
4th
October 2005, the Company made an investment of U.S.$2.85m for a 12.9% equity
stake in the China based Xi Lan Natural Gas Co Ltd. Natural gas is used for
the
production of urea, an ingredient necessary for the manufacture of the Group’s
compound fertilizer.
12.
Reasons for the Placing and use of proceeds
The
Group
relies on an experienced management team and skilled workforce, many of whom
have significant experience in the agrochemical industry. The Directors believe
that Admission will help the Group attract and retain key employees whom the
Group will be able to incentivise through the grant of share
options.
The
net
proceeds of the Placing available to the Group after the expenses of the
Placing, Admission and corporate finance fee payable to New York Global Capital,
Inc. discussed in Part VI, paragraph 8(e) of this document will be £• million.
These proceeds will be used for the construction of two new manufacturing
facilities in Xinjian and Helongjiang (North West and North East China), to
increase the Group’s general sales and marketing activities, as well as adding
to the available working capital.
13.
Directors and Executive Officers
Directors
and Officers
Wang
Qiong,
(aged
41) Chairman and Chief Executive Officer of Bodisen and Yang Ling
Mrs.
Wang
Qiong has served as the Chairman of the Board of Bodisen since the merger of
BHI
and BII and she has been on the board of Yang Ling since Yang Ling was founded
in August 2001. Mrs. Wang Qiong has over 10 years experience in the fertilizer
and chemical industry. From 1997 to May 2001, she was the Chief Executive
Officer and President of Shaanxi Bodisen Chemical Co., Ltd., which changed
its
name to Bodisen International, Inc. on August 31, 2001. From May 1996 to
December 1997, she was the President of Yang Ling Kangyuan Agricultural Chemical
Company, a company dedicated to the research and development of agricultural
products. Mrs. Wang Qiong graduated from North-West Agronomy College, with
a
Bachelor of Science degree in 1986.
Bo
Chen,
(aged
48) Director and President of Bodisen and Yang Ling
Mr.
Chen,
the President of Bodisen, is one of its original founders and stockholders.
From
August 1997 to August 2001, Mr. Bo Chen was Chief Operations Officer and Chief
Technology Officer of Shaanxi Bodisen Chemical Co., Ltd. From July 1994 to
December 1997, he was the Chief Executive Officer and President of Yang Ling
Shikanglu Chemurgical Technology Development Co., Ltd. Mr. Chen received his
Bachelor of Science degree from Shaanxi Normal College in July
1984.
Patrick
McManus,
(aged
51) Non-Executive Director of Bodisen
Mr.
Patrick McManus, CPA, J.D joined Bodisen’s Board of Directors on May 1, 2004 as
an independent board member. Mr. McManus brings over 25 years of experience
in
business, finance and law to Bodisen. He was elected Mayor of the City of Lynn,
Massachusetts in 1992 and served in this position until his retirement to the
private practice of law and accounting in 2002. While serving the City of Lynn
as its Mayor, he was elected a member and trustee of the Executive Committee
of
the U.S. Conference of Mayors (USCM) with responsibility for developing policy
for the USCM. He also served as the Chairman of the USCM Science and Technology
Subcommittee, the Urban Water Council, and the USCM Audit Committee. Mayor
McManus started his career in business with the General Electric Company in
1979, and was a Professor of Business and Finance at Salem State College in
Massachusetts. Mayor McManus is an expert on China. He was instrumental in
establishing a close alliance as well as coordinating a regular exchange of
visits by members of the U.S. Conference of Mayors and the China Association
of
Mayors. Mr. McManus has been a Certified Public Accountant since 1985. Mr.
McManus received his Juris Doctorate from Boston College Law School and an
MBA
from Suffolk University
David
Gatton,
(aged
52) Non-Executive Director of Bodisen
Mr.
Gatton joined Bodisen’s Board of Directors on May 1, 2004 as an independent
board member. Since 1985 Mr. Gatton has served as the Chairman and President
of
Development Initiatives, Inc, a Washington, DC-based government relations firm
specializing in urban affairs, business development and marketing, serving
a
variety of public and private clients. Mr. Gatton advises cities, organizations,
and companies on business development strategies, public/private partnerships
and marketing initiatives. He has advised various organizations on tax reform,
economic development initiatives and a variety of environmental laws, including
the reauthorization of the following Acts of the United States: the Clean Water
Act, the Safe Drinking Water Act, the Resource Conservation and Recovery Act,
Superfund and the Clean Air Act. Some of Mr. Gatton’s major accomplishments
include: development of U.S. Sino Memorandum of Cooperation between U.S. and
China Association of Mayors, development of a national brownfield redevelopment
initiative, development of several multifamily low- and moderate-income housing
developments, business development strategies for various private firms, and
assistance in development of economic development projects for numerous cities.
Mr. Gatton holds a B.A. from Cornell College, and a Master’s degree from Harvard
University.
Weirui
Wan,
(aged
64) Non-Executive Director of Bodisen
Mr.
Weirui Wan joined Bodisen’s Board of Directors on May 1, 2004 as an independent
board member. Mr. Wan has over 40 years of experience in management and
leadership positions in the agricultural sector in China. He started his career
in 1967 as an agricultural scientist at the Chinese Academy of Water and Soil
Preservation, China’s leading government agency on soil and agricultural
studies. In 1984, Mr. Wan was appointed the position of Deputy Director of
the
Chinese Academy of Water and Soil Preservation. In 1997, Mr. Wan moved to the
city of Yang Ling and was appointed Deputy Governor of the Yang Ling
Agricultural High-Tech Industries Demonstration Zone and was in charge of
building the zone into the agricultural hub of China. Mr. Wan retired as Deputy
Governor in 2001 and is currently on the Advisory Board of Yang Ling
Agricultural High-Tech Industries Demonstration Zone. Mr. Wan graduated from
Beijing University of Agriculture in 1967 with a Bachelor’s degree in
Agriculture.
Wang
Chunsheng,
(aged
42) COO of Bodisen, Executive Vice President and COO of Yang Ling
Mr.
Wang
Chunsheng, joined Bodisen in September 2001 as Chief Operations Officer. From
September 1999 to August 2001, Mr. Wang Chunsheng was Vice General Manager
of
the Shaanxi Bodisen Chemical Co. Ltd. responsible for sales and marketing.
From
January 1997 to July 1999, he held a position as Senior Sales Manager with
the
Yang Ling Kangyuan Agricultural Chemical Company. Mr. Wang Chunsheng holds
agronomist certification.
Yiliang
Lai,
(aged
40) CFO of Bodisen and Yang Ling
On
November 1, 2005, the Company promoted Yiliang Lai to the position of Chief
Financial Officer. Mr Lai joined the Company as a financial controller in March
2005. Mr Lai has extensive experience in accounting and auditing matters. He
started his career as an accountant at China Shipping in 1986 and in 1999 he
joined the CPA firm ShenZhen CaiXin as an auditor. In 2001, Mr Lai joined
Shaanxi Kaida Limited as head of accounting and in 2002 he joined Xi’an
Hongsheng Biotech as Chief Financial Officer. Mr Lai is a Certified Public
Accountant in China as well as a Certified Auditor.
On
October 31, 2005, Shuiwang Wei, the Company’s former Chief Financial Officer
resigned with immediate effect for personal reasons and without conflict or
disagreement.
14.
Employees
The
only
officers of the Company are its four executive staff, each of whom is also
an
employee of Yang Ling. Yang Ling has over 450 staff, of which approximately
20
are executive and senior managers, 30 are business and accounting staff, 10
are
warehouse and purchasing staff, 15 are drivers or secretaries and the balance
being production workers. The average number of staff employed by the Company
for each of the years 2002 to 2004 is:
As
at December 31, 2002: |
90
employees
|
As
at March 15, 2004:
|
349
employees
|
As
at December 31, 2004:
|
487
employees
|
As
at December 31, 2005:
|
536
employees
|
15.
Debt/banking facilities
The
Company has entered into a pledged short term loan with the Yangling Xinonglu
branch of the Xianyang City Commercial Bank. The loan is for 3.5 million RMB.
The loan is to provide working capital. The interest rate of the loan is 6.05%
per annum, payable quarterly and matured on October 28, 2005. The pledge
relating to the loan expires two years after this date. As of September 30,
2005
$434,000 remained outstanding. This is repayable on demand.
The
Company also entered into a second pledged short term loan with the Yangling
Xinonglu Branch of Xianyang City Commercial Bank. The loan is for 5.0 million
RMB. The loan is to provide working capital. The interest rate is 6.51% per
annum, payable quarterly. As of September 30, 2005, $434,000 remained
outstanding and is due on June 29, 2006.
The
Company also entered into a long term support loan from the Shanxi Technology
Bureau of the Shanxi Province Government of People’s Republic of China. The loan
is interest free and secured by assets of the Company, at the amount of RMB
0.1
million.
On
December 8, 2005, the Company issued a $5,000,000 promissory note (the “Note”)
to Amaranth Partners L.L.C. (the “Payee”) in consideration of a $5,000,000 loan
from the Payee to the Company. The Note bears interest at 9.00% per annum.
The
principal amount of the Note, together with all accrued and unpaid interest,
is
due and payable on March 8, 2006. The Note contains customary default provisions
and is unsecured. Proceeds from the loan are to be used for prepayments for
certain raw materials. In connection with the issuance of the Note, the Company
agreed to issue to the Payee on or before March 1, 2006 a warrant (the
“Warrant”) to purchase 133,333 shares of the Company’s common stock at $7.50 per
share (subject to adjustment). At the time the Warrant is issued, the Company
will grant to the Payee certain registration rights.
16.
The Placing
The
Company is proposing to raise approximately £10 million by issuing • Placing
Shares at the Placing Price. The Placing Shares represent approximately •% of
the Enlarged Issued Share Capital. The Placing Shares will be authorised under
Title 8 of Delaware’s General Corporation Law.
Pursuant
to its obligations under the Placing Agreement, Charles Stanley has
conditionally placed the Placing Shares at the Placing Price with institutional
and other investors. The Placing has not been underwritten by Charles Stanley
or
any other person.
The
Placing Agreement is conditional, inter
alia,
upon
Admission having taken place by not later than 8.00 a.m. on •• 2006 or such
later time and date, being not later than 3.00 p.m. on •• 2006, as the Company
and Charles Stanley may agree. The Placing Agreement contains provisions
entitling Charles Stanley to terminate the Placing Agreement at any time prior
to Admission in certain circumstances. If this right is exercised the Placing
will lapse. Further details of the Placing Agreement are set out in paragraph
16
of Part VI of this document.
The
Placing Shares will rank pari
passu
with the
Existing Common Stock in all respects including the right to receive all
dividends declared or paid (after the date of allotment of the Placing Shares)
on the Common Stock of the Company. The Company, being traded in the U.S. does
not have an ISIN but does have a CUSIP number of 096892104.
Application
has been made to the London Stock Exchange for the Enlarged Issued Share Capital
to be admitted to trading on AIM. It is expected that Admission will become
effective and that dealings will commence on ••, 2006.
17.
Advance to officers
During
the 6 month period ended 30th June 2005, the Company advanced U.S.$2,383,217
to
four officers, some of whom were directors or shareholders of the Company,
as a
short term loan. This loan was repaid to the Company during the quarter ended
September 30, 2005. Such loan was made for the purposes of registering a new
subsidiary of the Company, Yang Ling Bodisen Agricultural Technology Co., Ltd.
The officers were named in a registration document in connection with the
registration of such new subsidiary. The loan was applied solely for this
purpose and none of the four officers obtained any benefit from the
loan.
18.
Settlement and CREST
Application
has been made to the London Stock Exchange for the Existing Common Stock and
the
Placing Shares to be admitted to trading on AIM. It is expected that Admission
will become effective and that dealings in the issued ordinary share capital
of
the Company will commence on ••, 2006.
Securities
issued by non-U.K. registered companies, such as the Company, cannot be held
or
transferred in the CREST system. However, to enable investors to settle such
securities through the CREST system, a depository or custodian can hold the
relevant securities and issue dematerialised CREST depository interests
(“CDI”)
which are held on trust for their holders. The Company’s Certificate of
Incorporation and By-Laws permit it to issue CDIs in uncertified form.
With
effect from Admission, it will be possible for CREST members to hold and
transfer interests in the Common Stock within CREST pursuant to a CDI
arrangement with CREST Depository Limited (a wholly- owned subsidiary of
CRESTCo). CREST is a voluntary system and holders of Common Stock who wish
to
receive and retain share certificates will also be able to do so. Further
details of CREST and the arrangements in respect of CDIs is set out in paragraph
17 of Part VI of this document.
19.
Lock-in arrangements
Immediately
following Admission, the Directors will be interested, in aggregate, in • Common
Stock, representing approximately •% of the issued share capital of the Company.
Under the terms of the Placing Agreement, the Directors have undertaken that,
subject to certain exceptions, they will not sell or otherwise dispose of,
or
agree to sell or dispose of, any of their respective interests in the Common
Stock held immediately following Admission at any time prior to the first
anniversary of Admission, and, at any time between the first and second
anniversary of Admission, without the consent of the Company and the Company’s
nominated adviser and broker.
20.
Dividend policy
The
Board
intends to adopt a dividend policy appropriate to the Group’s financial
performance. This will take into account its ability to operate and grow and
the
need to retain a prudent level of cash resources. The Company does not expect
to
pay a dividend in the short term.
21.
Stock Option Plan and management incentive arrangements
Executive
turnover is relatively low with the majority of key management having been
employed by the Company for more than six years. The Board believes that the
retention of senior management will be a key driver to the success of the Group.
Consequently, the Company intends to implement the Plan conditional upon
Admission.
22.
Corporate governance
The
Board
intends to comply with the principles of good governance and the recommendations
of best practice as set out in the Combined Code so far as is practicable and
appropriate for an AIM company of its size, and in this connection the Board
shall take into account the guidance issued by the Quoted Companies
Alliance.
The
Board
intends to hold board meetings regularly throughout the year. The Board will
be
responsible for formulating, reviewing and approving strategy, budgets,
acquisitions, capital expenditure and senior personnel appointments. The
executive directors and senior management will meet regularly to consider
operational matters.
An
audit
committee (consisting of Patrick McManus, as Chairman and David Gatton) and
a
compensation committee (consisting of David Gatton, as Chairman, and Patrick
McManus) have been established with effect from Admission. The audit committee
will meet at least twice a year and will be responsible for ensuring that the
financial performance, position and prospects of the Company are properly
monitored and reported on, and for meeting the auditors and reviewing their
reports relating to accounts and internal controls. The compensation committee
will review the performance of executive directors and set the scale and
structure of their remuneration and the basis of their service agreements with
due regard to the interests of shareholders. The compensation committee will
also determine the payment of bonuses to executive directors and the allocation
of share options to employees.
The
Company has adopted a dealing code for all directors and employees in terms
no
less exacting than the Model Code for Directors’ dealings as set out in the
Listing Rules of the U.K. Listing Authority and will take all reasonable steps
to ensure compliance by the Board and any relevant employees.
The
Company is compliant with all U.S. corporate governance rules applicable to
small business issuers.
23.
Taxation
Your
attention is drawn to the taxation information set out in paragraph 13 of Part
VI of this document.
24.
Effects of a U.S. domicile and SEC filing
Bodisen
files periodic reports with the SEC pursuant to Section 15(d) of the Securities
Exchange Act of 1934, as amended. After admission on AIM, it will also have
an
obligation to notify both the SEC and the London Stock Exchange of relevant
information.
25.
Plan of distribution
The
following information uses U.S. terminology and is inserted to comply with
SEC
disclosure requirements (Item 508 of Regulation SB) and may occur elsewhere
in
this document. In particular, similar information for U.K. investors using
U.K.
terminology is provided at paragraph 16 of Part II of this document with respect
to the Placing.
Charles
Stanley Securities, 25 Luke Street, London EC2A 4AR, has agreed, subject to
the
terms and conditions contained in the Placing Agreement with the Company, to
sell, as placing agent for it on a reasonable endeavours basis, • shares of
Common Stock. Because this offering is on a reasonable endeavours basis and
there is no minimum number of dollar amount of shares to be sold, Charles
Stanley is not obligated to purchase any shares if they are not sold to the
public.
Charles
Stanley has informed the Company that it proposes to place the Common Stock
as
placing agent for it to certain selected institutions not resident in the United
States. Charles Stanley reserves the right to reject any order for the purchase
of Common Stock through it in whole or in part.
Funds
received by Charles Stanley from investors in the Placing will be deposited
with
Charles Stanley until the closing of the Placing. Closing is expected to occur
on or about •, 2006.
The
public offering price has been determined through negotiations between Bodisen
and Charles Stanley. A variety of factors were considered in determining the
price, including the trading history of the Common Stock (including the
frequency and volume of trades and actual trading prices), its history and
prospects, its past and present earnings and its prospects for future earnings,
the current performance and prospects of the banking industry in general and
the
market in which the Company competes, and the general condition of the
securities market and the prices of equity securities of comparable
companies.
Bodisen
will pay its own and Charles Stanley’s expenses of the offering, including its
legal, accounting, printing and other expenses. The Directors expect that the
total amount of offering expenses that the Company will pay will be
approximately £•.
The
Placing Agreement also provides that Bodisen will indemnify Charles Stanley
against certain liabilities, or contribute to payments Charles Stanley may
be
required to make in respect thereof.
Charles
Stanley has advised the Company that it may make a market in the Common Stock.
Charles Stanley, however, is not obligated to make a market in the Common Stock.
It also may discontinue any market making at any time without
notice.
26.
Interest of named experts and counsel
Each
of
Charles Stanley, the Company’s legal counsel and the Company’s reporting
accountant will receive fees as a result of the work done by them for the
Admission. Charles Stanley will also receive a commission based on the value
of
the shares placed prior to the Admission. None of Charles Stanley, the Company’s
legal counsel or the reporting accountant receive any interest in the Company’s
equity as a result of Admission.
27.
Legal matters
The
validity of the issuance of the Common Stock offered by the Company and certain
other legal matters have been passed upon by the law firm of Reed Smith
LLP.
28.
Experts
Kabani
& Company, Inc., an independent certified public accounting firm (a member
firm of the AICPA SEC practice section) located at 6033 West Century Blvd,
Suite
810, Los Angeles, CA 90045, U.S.A., audited the financial statements of the
Company for the years ended December 31, 2002, 2003 and 2004 and reviewed those
for the three quarters ended September 30, 2005, included in this Admission
Document.
29.
Limitation on liability and commission position of indemnification for U.S.
Securities Act liabilities
The
Certificate of Incorporation and By-Laws provide that our directors and officers
and former directors and officers shall be indemnified by us to the fullest
extent authorised by Delaware law, against liability to the Corporation or
to
its stockholders or to other security holders for monetary damages for (i)
any
breach of the director’s duty of loyalty to the Corporation or to its
stockholders or other security holders; (ii) acts or omissions of the director
not in good faith or which involve intentional misconduct or a knowing violation
of the law by such director; (iii) acts by such director as specified by the
Delaware Corporation Law; or (iv) any transaction from which such director
derived an improper personal benefit. Insofar as indemnification for liabilities
arising under the U.S. Securities Act may be permitted to our directors and
officers pursuant to the foregoing provision, we have been advised that in
the
opinion of the SEC such indemnification is against public policy as expressed
in
the U.S. Securities Act and is, therefore, unenforceable.
30.
Where you can find more information
Bodisen
Biotech, Inc. is subject to the informational requirements of the U.S. Exchange
Act of 1934 and, accordingly, files registration statements and other
information with the SEC. You may obtain these documents electronically through
the SEC’s website at http://www.sec.gov.
You may
also obtain copies of this information by mail from the Public Reference Branch
at: U.S. Securities and Exchange Commission 450 5th Street, NW, Room 1300
Washington, D.C. 20549-0102 Telephone: +1 (202) 942-8090 Fax: +1 (202) 628-9001.
The Company filings with the SEC are also available from commercial document
retrieval services. Information contained on the Company’s web site should not
be considered part of this Admission Document. You may also request a copy
of
its filings at no cost, by writing, telephoning or emailing the Company at:
North Part of Xinquia Road, Yang Ling AG, High-Tech Industries Demonstration
Zone, Yang Ling, China 712100, Telephone + 86-29-870749.
31.
Further information
Your
attention is drawn to the further information set out in other Parts of this
document. You are advised to read the whole of this document rather than relying
on the summary information set out in this Part II.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
1.
Overview
The
Company is incorporated under the laws of the state of Delaware and its
operating subsidiary, Yang Ling, is headquartered in the Shaanxi Province,
The
People’s Republic of China. The Group engages in the business of manufacturing
and marketing organic fertilizers and pesticides in The People’s Republic of
China. It produces numerous product lines, from pesticides to crop specific
fertilizers. These products are then marketed and sold to over 150 wholesalers
throughout the 20 provinces of The People’s Republic of China. The Group
conducts research and development to further improve existing products and
develop new formulae and products.
2.
Significant accounting policies
2.1
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires the Group 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 from those estimates.
2.2
Accounts
receivable
The
Group
maintains reserves for potential credit losses on accounts receivable. It
reviews the composition of accounts receivable and analyze historical bad debts,
customer concentrations, customer credit worthiness, current economic trends
and
changes in customer payment patterns to evaluate the adequacy of these reserves.
Reserves are recorded primarily on a specific identification basis.
2.3
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Group compares the cost of inventories with the market value and
allowance is made for writing down the inventories to their market value, if
lower.
2.4
Property
and equipment
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed
of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of: 30 years for building, 10
years for machinery, 5 years for office equipment and 8 years for
vehicles.
2.5
Intangible
assets
Intangible
assets consist of rights to use land and proprietary technology rights to
fertilizers. The Company evaluates intangible assets for impairment, at least
on
an annual basis and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill
is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test
is
performed to measure the amount of impairment loss. Potential impairment of
goodwill after July 1, 2002 is being evaluated in accordance with SFAS No.
142.
The SFAS No. 142 is applicable to the financial statements of the Group
beginning July 1, 2002.
2.6
Revenue
recognition
The
Group’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations by the Group exist
and
collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
2.7
Stock-based
compensation
In
October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No.
123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Group adopted the new fair value method.
The
Group uses the intrinsic value method prescribed by APB 25 and have opted for
the disclosure provisions of SFAS No. 123.
2.8
Income
taxes
The
Group
utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
According
to the Provisional Regulations of the People’s Republic of China on Income Tax,
the Document of Reductions and Exemptions of Income Tax for the Group have
been
approved by the local tax bureau and the Management Regulation of Yang Ling
Agricultural High-Tech Industries Demonstration Zone. The Group is exempted
from
income tax in its first two years of operations.
2.9
Foreign
currency transactions and comprehensive income (loss)
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain statements, however, require entities to
report specific changes in assets and liabilities, such as gain or loss on
foreign currency translation, as a separate component of the equity section
of
the balance sheet. Such items, along with net income, are components of
comprehensive income. Transactions occur in Chinese Renminbi. The unit of
Renminbi is in Yuan.
2.10
Recent
accounting pronouncements
In
November 2004, the FASB has issued FASB Statement No. 151, “Inventory Costs, an
Amendment of ARB No. 43, Chapter 4” (“FAS No. 151”). The amendments made by FAS
No. 151 are intended to improve financial reporting by clarifying that abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges and by requiring
the
allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities.
The
guidance is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 23, 2004. The provisions
of FAS No. 151 will be applied prospectively. The Company does not expect the
adoption of FAS No. 151 to have a material impact on its consolidated financial
position, results of operations or cash flows.
In
December 2004, the FASB issued FASB Statement No. 123R, “Share-Based Payment, an
Amendment of FASB Statement No. 123” (“FAS No. 123R”). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair
value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company’s second quarter of fiscal 2005.
The Company is in process of evaluating the impact of this pronouncements on
its
consolidated financial position, results of operations or cash
flows.
In
December 2004, the FASB issued SFAS Statement No. 153, “Exchanges of
Non-monetary Assets.” The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non- monetary
assets that do not have commercial substance. The Company believes that the
adoption of this standard will have no material impact on its financial
statements.
In
March
2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No.
03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments.” The EITF reached a consensus about the criteria that
should be used to determine when an investment is considered impaired, whether
that impairment is other-than-temporary, and the measurement of an impairment
loss and how that criteria should be applied to investments accounted for under
SFAS No. 115, “Accounting In Certain Investments In Debt And Equity Securities.”
EITF 03-01 also included accounting considerations subsequent to the recognition
of an other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. Additionally, EITF 03-01 includes new disclosure requirements
for
investments that are deemed to be temporarily impaired. In September 2004,
the
Financial Accounting Standards Board (FASB) delayed the accounting provisions
of
EITF 03-01; however the disclosure requirements remain effective for annual
reports ending after June 15, 2004. The Company will evaluate the impact of
EITF
03-01 once final guidance is issued.
3.
Results of operations comparison of 2004 with 2003
Twelve
months ended December 31, 2004 compared to twelve months ended December 31,
2003.
3.1
Revenue
The
Company generated revenues of $16,225,896 for the twelve months ended December
31, 2004, an increase of $6,442,112 or 65.84%, compared to $9,783,784 for the
twelve months ended December 31, 2003. The growth in revenue was primarily
attributable to the increase in customer base through the implementation of
the
strategy to franchise wholesale distribution to provinces outside of Shaanxi
and
the building of the Bodisen brand name.
3.2
Gross
profit
The
Company achieved a gross profit of $6,571,931 for the twelve months ended
December 31, 2004, an increase of $3,494,229 or 113.5%, compared to $3,077,702
for the twelve months ended December 31, 2003. Gross margin, as a percentage
of
revenues, increased from 31.46% for the twelve months ended December 31, 2003,
to 40.5% for the twelve months ended December 31, 2004. The increase in gross
margin was attributable to the average 10% price increase for the compound
fertilizer line of products which constitute 60% of total sales.
3.3
Operating
expenses
The
Company incurred operating expenses of $1,523,350, an increase of $319,143
or
27%, compared to $1,204,207 for the twelve months ended December 31, 2003.
These
operating expenses are related to increased sales and marketing costs related
to
the 65.84% increase in sales for 2004, as well as the hiring of 138 additional
employees by the Company.
3.4
Net
income
Net
income increased by 155% to $5,027,403, an increase of $3,057,042, from
$1,970,361. Earnings per share (EPS) rose to $0.33 in 2004 from $0.13 in 2003.
The increase was attributable to the substantial growth in demand for the
Company’s products throughout China, increased sales of products with a higher
profit margin and the relatively low operating expenses resultant from doing
business in China.
4.
Liquidity and capital resources
As
of
December 31, 2004 the Company had $2,121,811 cash and cash equivalents on hand,
compared to $2,974,773 cash and cash equivalents on hand as of December 31,
2003.
For
December 31, 2004 accounts payable was $112,344 and short term loans was
$980,100. Cash outflows for investing activities increased from $1,608,837
to
$2,778,136 as a result of additions made to work in progress and acquisitions
of
property and equipment. The Company’s accounts receivable for the year ended
December 31, 2004, were $4,988,984. Based on past performance and current
expectations, the Directors believe its cash and cash equivalents, cash
generated from operations, as well as future possible cash investments, will
satisfy its working capital needs, capital expenditures and other liquidity
requirements associated with its operations. On March 16, 2005, the Company
completed a $3.0 million financing. The proceeds of the financing are intended
for acquisition of other businesses, purchase of raw materials, increased
marketing and working capital. On December 8, 2005, the Company entered into
a
$5.0 million loan with Amaranth Partners L.L.C., proceeds from which are to
be
used for prepayments for certain raw materials. This loan is more fully
described in paragraph 8 of Part VI of this document.
The
majority of the Company revenues and majority of the expenses in 2004 were
denominated primarily in Renminbi (“RMB”), the currency of The People’s Republic
of China. There is no assurance that exchange rates between the RMB and the
U.S.
dollar will remain stable. A devaluation of the RMB relative to the U.S. dollar
could adversely affect the Company’s business, financial condition and results
of operations. Bodisen does not engage in currency hedging. Inflation has not
had a material impact on its business.
FINANCIAL
INFORMATION ON BODISEN BIOTECH, INC.
Summary
financial information
for
the three years ended December 31, 2004
The
financial information contained in this Part IV in respect of the three
financial years ended December 31, 2004 has been extracted without material
adjustment from Bodisen’s published audited financial statements for the three
years ended December 31, 2004. The statements for calendar years 2002 and 2003
relate to the period before the reverse merger and so refer to Bodisen
International, Inc. and its subsidiaries. The statements for calendar year
2004
and any part of 2005 refer to the merged entity Bodisen Biotech, Inc. and its
subsidiaries.
Consolidated
statements of operations
The
consolidated statements of operations of Bodisen Biotech, Inc. (formerly
Stratabid.com, Inc.) for the three years ended December 31, 2004 are as
follows:
|
|
Year
ended
December
31,
2002
U.S.$
|
|
Year
ended
December
31,
2003
U.S.$
|
|
Year
ended
December
31,
2004
U.S.$
|
|
|
|
|
|
|
|
|
|
NET
REVENUES
|
|
|
4,881,350
|
|
|
9,783,784
|
|
|
16,255,896
|
|
COST
OF REVENUES
|
|
|
3,582,176
|
|
|
6,706,082
|
|
|
9,653,965
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,299,174
|
|
|
3,077,702
|
|
|
6,571,931
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
235,077
|
|
|
573,807
|
|
|
615,549
|
|
General
and administrative expenses
|
|
|
384,067
|
|
|
630,401
|
|
|
907,801
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
SELLING, GENERAL AND ADMINISTRATIVE COSTS
|
|
|
619,144
|
|
|
1,204,207
|
|
|
1,523,350
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS
|
|
|
680,030
|
|
|
1,873,495
|
|
|
5,048,581
|
|
Net
interest income (expense)
|
|
|
(20,565
|
)
|
|
41,359
|
|
|
(28,801
|
)
|
Finance
charge
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
income
|
|
|
8,119
|
|
|
55,507
|
|
|
7,623
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
667,583
|
|
|
1,970,361
|
|
|
5,027,403
|
|
Other
comprehensive income
|
|
|
—
|
|
|
—
|
|
|
68,855
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
NET INCOME
|
|
|
667,583
|
|
|
1,970,361
|
|
|
5,096,258
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET EARNINGS PER SHARE
|
|
|
U.S.$0.04(1
|
)
|
|
U.S.$0.13(1
|
)
|
|
U.S.$0.33(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note:
(1)
The
earnings per share for year end December 31, 2002 and 2003 represent pro forma
unaudited amounts to reflect the 15,268,000 shares issued and outstanding as
of
December 31, 2004, to present consistent presentation of the earnings per share
for the period.
Consolidated
balance sheets
The
consolidated balance sheets of Bodisen Biotech, Inc. (formerly Stratabid.com,
Inc.) as at the three years ended December 31, 2004 are as follows:
|
|
December
31,
2002
U.S.$
|
|
December
31,
2003
U.S.$
|
|
December
31,
2004
U.S.$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currents
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
233,182
|
|
|
2,974,773
|
|
|
2,121,811
|
|
Accounts
receivable, net
|
|
|
2,071,927
|
|
|
1,822,841
|
|
|
4,988,984
|
|
Advances
to suppliers
|
|
|
1,662,872
|
|
|
1,933,516
|
|
|
755,210
|
|
Inventory
|
|
|
797,270
|
|
|
715,732
|
|
|
767,344
|
|
Loan
receivable
|
|
|
—
|
|
|
—
|
|
|
968,000
|
|
Other
assets
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
4,765,250
|
|
|
7,446,862
|
|
|
9,601,349
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment,
|
|
|
1,225,490
|
|
|
1,220,587
|
|
|
1,353,598
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
work in progress
|
|
|
217,206
|
|
|
222,083
|
|
|
1,596,405
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets,
|
|
|
949,242
|
|
|
2,310,148
|
|
|
2,199,639
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
—
|
|
|
—
|
|
|
48,736
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
7,157,188
|
|
|
11,199,680
|
|
|
14,799,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
1,098,978
|
|
|
1,634,163
|
|
|
112,344
|
|
Accrued
expenses
|
|
|
—
|
|
|
75,755
|
|
|
264,502
|
|
Unearned
revenue
|
|
|
601,975
|
|
|
15,888
|
|
|
—
|
|
Short
term loans
|
|
|
12,000
|
|
|
1,092,000
|
|
|
980,100
|
|
Dividend
payable
|
|
|
180,000
|
|
|
—
|
|
|
—
|
|
Other
payables
|
|
|
81,423
|
|
|
14,300
|
|
|
—
|
|
Convertible
debenture, net discount due to beneficial conversion
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,974,376
|
|
|
2,832,106
|
|
|
1,356,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term liabilities
|
|
|
|
|
|
|
|
|
|
|
Long
term loans
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 per share, authorized 5,000,000 shares; none
issued
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common
stock, $0.001 per share authorized 50,000,000 shares; issued and
outstanding 1,500 shares as of December 31, 2002 and 2003
|
|
|
1
|
|
|
1
|
|
|
—
|
|
Common
stock, $0.0001 per share authorized 30,000,000 shares; issued and
outstanding 15,268,000 shares as of December 31, 2004 and March 31,
2005
|
|
|
—
|
|
|
—
|
|
|
1,527
|
|
Additional
paid-in capital
|
|
|
4,799,999
|
|
|
6,014,399
|
|
|
5,991,823
|
|
Accumulated
other comprehensive gain
|
|
|
—
|
|
|
—
|
|
|
68,855
|
|
Statutory
reserve
|
|
|
66,758
|
|
|
263,795
|
|
|
1,017,905
|
|
Retained
earnings
|
|
|
316,054
|
|
|
2,089,379
|
|
|
6,362,671
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
5,182,813
|
|
|
8,367,574
|
|
|
13,442,781
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
|
7,157,188
|
|
|
11,199,680
|
|
|
14,799,727
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
statements of cash flows
The
consolidated statements of cash flows of Bodisen Biotech, Inc. (formerly
Stratabid.com, Inc.) for the three years ended December 31, 2004 are as
follows:
|
|
Year
ended
December
31,
2002
U.S.$
|
|
Year
ended
December
31,
2003
U.S.$
|
|
Year
ended
December
31,
2004
U.S.$
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
|
667,583
|
|
|
1,970,361
|
|
|
5,027,403
|
|
Adjustments
to reconcile net loss to the net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortisation
|
|
|
149,699
|
|
|
247,958
|
|
|
302,803
|
|
Changes
in working capital:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
288,218
|
|
|
249,086
|
|
|
(3,166,143
|
)
|
Advances
to suppliers
|
|
|
(893,393
|
)
|
|
(270,645
|
)
|
|
1,178,306
|
|
Inventory
|
|
|
300,312
|
|
|
81,538
|
|
|
51,612
|
|
Other
assets
|
|
|
—
|
|
|
—
|
|
|
(48,736
|
)
|
Accounts
payable
|
|
|
(38,379
|
)
|
|
535,186
|
|
|
(1,521,819
|
)
|
Unearned
revenue
|
|
|
589,812
|
|
|
(586,087
|
)
|
|
(15,888
|
)
|
Accrued
expenses
|
|
|
(130,252
|
)
|
|
75,753
|
|
|
196,031
|
|
Other
payables
|
|
|
3,423
|
|
|
(67,122
|
)
|
|
(35,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
937,023
|
|
|
2,236,028
|
|
|
1,968,219
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash
|
|
|
—
|
|
|
—
|
|
|
68,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
Payment
on loan receivable
|
|
|
—
|
|
|
—
|
|
|
(968,000
|
)
|
Acquisition
of property & equipment
|
|
|
(600,666
|
)
|
|
(133,653
|
)
|
|
(435,814
|
)
|
Additions
to intangible assets
|
|
|
—
|
|
|
(1,470,307
|
)
|
|
—
|
|
Additions
to work in progress
|
|
|
(217,206
|
)
|
|
(4,877
|
)
|
|
(1,374,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(817,872
|
)
|
|
(1,608,837
|
)
|
|
(2,778,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Payments
on loan from officers/shareholders
|
|
|
(217,338
|
)
|
|
—
|
|
|
—
|
|
Proceeds
from convertible debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Proceeds
from (payments on) loan
|
|
|
12,000
|
|
|
1,080,000
|
|
|
(111,900
|
)
|
Issuance
of stock by subsidiary
|
|
|
—
|
|
|
1,214,400
|
|
|
—
|
|
Dividend
paid
|
|
|
—
|
|
|
(180,000
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(205,338
|
)
|
|
2,114,400
|
|
|
(111,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(86,187
|
)
|
|
2,741,591
|
|
|
(852,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
319,369
|
|
|
233,182
|
|
|
2,974,773
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
|
233,182
|
|
|
2,974,773
|
|
|
2,121,811
|
|
|
|
|
|
|
|
|
|
|
|
|
BODISEN
BIOTECH, INC. AND SUBSIDIARIES
FINANCIAL
STATEMENTS
SEPTEMBER
30, 2005 (UNAUDITED)
Consolidated
statements of income (unaudited)
|
|
For
the three month
periods
ended
|
|
For
the nine month
periods
ended
|
|
|
|
|
|
|
|
|
|
September
30,
2005
$
|
|
September
30,
2004
$
|
|
September
30,
2005
$
|
|
September
30,
2004
$
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
10,516,790
|
|
|
5,407,841
|
|
|
23,635,270
|
|
|
11,824,135
|
|
Cost
of revenue
|
|
|
6,561,181
|
|
|
3,388,736
|
|
|
14,769,820
|
|
|
6,944,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,955,609
|
|
|
2,019,105
|
|
|
8,865,450
|
|
|
4,879,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
294,860
|
|
|
228,624
|
|
|
674,768
|
|
|
459,579
|
|
General
and administrative expenses
|
|
|
299,557
|
|
|
177,695
|
|
|
1,009,439
|
|
|
531,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
594,417
|
|
|
406,319
|
|
|
1,684,207
|
|
|
990,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
3,361,192
|
|
|
1,612,786
|
|
|
7,181,243
|
|
|
3,888,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income/(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
(5,461
|
)
|
|
|
|
|
42,594
|
|
|
|
|
Other
income
|
|
|
|
|
|
3,816
|
|
|
|
|
|
11,568
|
|
Interest
expense
|
|
|
(484,690
|
)
|
|
(19,770
|
)
|
|
(864,050
|
)
|
|
(58,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-operating income/(expenses)
|
|
|
(490,151
|
)
|
|
(15,954
|
)
|
|
(821,456
|
)
|
|
(46,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2,871,041
|
|
|
1,596,832
|
|
|
6,359,787
|
|
|
3,841,822
|
|
Other
comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
524,838
|
|
|
30,524
|
|
|
524,838
|
|
|
69,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
3,395,879
|
|
|
1,627,356
|
|
|
6,884,625
|
|
|
3,911,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
15,326,344
|
|
|
15,268,000
|
|
|
15,289,569
|
|
|
15,268,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.19
|
|
$
|
0.10
|
|
$
|
0.42
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
15,619,663
|
|
|
15,324,318
|
|
|
15,982,006
|
|
|
15,292,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.19
|
|
$
|
0.10
|
|
$
|
0.41
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
Consolidated
balance sheet
September
30, 2005 (unaudited)
|
|
As
of
September
30,
2005
$
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
& cash equivalents
|
|
|
3,841,228
|
|
Accounts
receivable, net
|
|
|
7,628,933
|
|
Advances
to suppliers
|
|
|
664,524
|
|
Prepaid
expenses
|
|
|
284,142
|
|
Inventory
|
|
|
1,037,343
|
|
Loan
receivable
|
|
|
997,274
|
|
Investment
|
|
|
2,869,360
|
|
Other
assets
|
|
|
74,823
|
|
|
|
|
|
|
Total
current assets
|
|
|
17,397,627
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
5,005,832
|
|
|
|
|
|
|
Construction
in progress
|
|
|
1,240,000
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
2,154,350
|
|
|
|
|
|
|
Total
assets
|
|
|
25,797,809
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
|
405,130
|
|
Other
payable
|
|
|
378,699
|
|
Accrued
expenses
|
|
|
167,480
|
|
Notes
payable
|
|
|
880,400
|
|
Convertible
debenture, net discount due to beneficial conversion
|
|
|
1,515,023
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,346,732
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
Preferred
stock, $0.0001 per share; authorized 5,000,000 shares;
none
issued
|
|
|
|
|
Common
stock, $0.0001 per share; authorized 30,000,000 shares;
issued
and outstanding 15,474,220 shares
|
|
|
1,547
|
|
Additional
paid in capital
|
|
|
8,184,329
|
|
Statutory
reserve
|
|
|
2,061,054
|
|
Accumulated
other comprehensive income
|
|
|
524,838
|
|
Retained
earnings
|
|
|
11,679,309
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
22,451,077
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
|
25,797,809
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
Consolidated
statements of cash flows
For
the nine month periods ended September 30, 2005 and 2004
(unaudited)
|
|
For
the nine month
periods
ended
|
|
|
|
|
|
|
|
September
30,
2005
$
|
|
September
30,
2004
$
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
|
6,359,787
|
|
|
3,841,821
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
498,950
|
|
|
204,511
|
|
Amortization
of beneficial conversion feature
|
|
|
634,285
|
|
|
|
|
(Increase)/decrease
in current assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,639,949
|
)
|
|
(2,849,233
|
)
|
Advances
to suppliers
|
|
|
90,686
|
|
|
933,986
|
|
Inventory
|
|
|
(269,999
|
)
|
|
208,287
|
|
Other
assets
|
|
|
(26,087
|
)
|
|
(201,652
|
)
|
Increase/(decrease)
in current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
292,786
|
|
|
(1,238,063
|
)
|
Unearned
revenue
|
|
|
|
|
|
(15,888
|
)
|
Other
payable
|
|
|
378,699
|
|
|
206,191
|
|
Accrued
expenses
|
|
|
(307,900
|
)
|
|
37,838
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
5,011,258
|
|
|
1,127,798
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash
|
|
|
455,983
|
|
|
69,625
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Acquisition
of property & equipment
|
|
|
(3,393,085
|
)
|
|
(305,633
|
)
|
Work
in progress
|
|
|
(356,405
|
)
|
|
(1,278,543
|
)
|
Loan
receivable
|
|
|
(29,274
|
)
|
|
|
|
Investments
|
|
|
(2,869,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(6,648,124
|
)
|
|
(1,584,176
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Loan
repayment
|
|
|
(99,700
|
)
|
|
(3,000
|
)
|
Proceeds
from convertible debenture
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by/(used in) financing activities
|
|
|
2,900,300
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
1,719,417
|
|
|
(389,753
|
)
|
Cash
and cash equivalents, beginning balance
|
|
|
2,121,811
|
|
|
2,974,773
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, ending balance
|
|
|
3,841,228
|
|
|
2,585,020
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
Notes
to the consolidated financial statements
September
30, 2005 (unaudited)
1.
Organization and description of business
Yang
Ling
Bodisen Biology Science and Technology Development Company Limited (“BBST”) was
founded in the People’s Republic of China on August 31, 2001. BBST, located in
Yang Ling Agricultural High-Tech Industries Demonstration Zone, is primarily
engaged in developing, manufacturing and selling pesticides and compound organic
fertilizers in the People’s Republic of China. Bodisen International, Inc.
(“BII”) is a Delaware Corporation, incorporated on November 19, 2003. BII was a
non-operative holding company of BBST. On December 15, 2003, BII entered in
to
an agreement with all the shareholders of BBST to exchange all of the
outstanding stock of BII for all the issued and outstanding stock of BBST.
After
the consummation of the agreement, the former shareholders of BBST owned 1500
shares of common stock of BII, which represents 100% of BII’s issued and
outstanding shares. For U.S. Federal income tax purpose, the transaction was
intended to be qualified as a tax-free transaction under section 351 of the
Internal Revenue Code of 1986, as amended.
The
exchange of shares with BBST has been accounted for as a reverse acquisition
under the purchase method of accounting since the shareholders of the BBST
obtained control of the consolidated entity. Accordingly, the merger of the
two
companies has been recorded as a recapitalization of BBST, with BBST being
treated as the continuing entity. The historical financial statements presented
are those of BBST. The continuing company has retained December 31 as its fiscal
year end. The financial statements of the legal acquirer are not significant;
therefore, no pro forma financial information is submitted.
On
February 24, 2004, BII consummated a merger agreement with Stratabid.com, Inc.
(“Stratabid”), a Delaware corporation, to exchange 12,000,000 shares of
Stratabid to the shareholders of BII, in which BII merged into Bodisen Holdings,
Inc. (“BHI”), an acquisition subsidiary of Stratabid, with BHI being the
surviving entity. As a part of the merger, Stratabid cancelled 3,000,000 shares
of its issued and outstanding stock owned by its former president and declared
a
stock dividend of three shares on each share of its common stock outstanding
for
all stockholders on record as of February 27, 2004.
Stratabid
was incorporated in the State of Delaware on January 14, 2000 and before the
merger, was a start- up stage Internet based commercial mortgage origination
business based in Vancouver, BC, Canada.
The
exchange of shares with Stratabid has been accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders
of
BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed
Bodisen Biotech, Inc. (the “Company”). Accordingly, the merger of the two
companies has been recorded as a recapitalization of the Company, with the
Company being treated as the continuing entity. The financial statements of
legal acquiree are not significant; therefore, no pro forma financial
information is submitted.
In
March
2005, Bodisen Biotech Inc. completed a $3 million convertible debenture private
placement through an institutional investor. Approximately $651,000 in expenses
relating to this private placement has been amortized over the term of the
convertible debenture. The net proceeds from this offering were sent to China
towards capital contribution of the registration of a wholly-owned Bodisen
subsidiary by the name of “Yang Ling Bodisen Agricultural Technology Co., Ltd.
(“Agricultural”). In June 2005, Agricultural completed a transaction with Yang
Ling Bodisen Biology Science and Technology Development Company Limited (“Yang
Ling”), Bodisen Biotech, Inc.’s operating subsidiary in China, which resulted in
Agricultural owning 100% of Yang Ling.
2.
Basis of preparation
The
accompanying unaudited financial statements of the Company have been prepared
in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information required
by
generally accepted accounting principles for complete financial statements.
In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of
the
results for any future period. These statements should be read in conjunction
with the Company’s audited financial statements and notes thereto for the fiscal
year ended December 31, 2004.
Accounts
receivable
The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the
adequacy of these reserves. Terms of the sales vary from COD through a credit
term up to 9 to 12 months. Reserves are recorded primarily on a specific
identification basis. Allowance for doubtful debts amounted to $189,896 at
September 30, 2005.
Advances
to suppliers
The
Company advances to certain vendors for purchase of its material. The advances
to suppliers are interest free and unsecured. The advances amounted to $664,524
at September 30, 2005.
Income
taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. According to the Provisional Regulations of the
People’s Republic of China on Income Tax, the Document of Reductions and
Exemptions of Income Tax for the Company had been approved by the local tax
bureau and the Yang Ling Agricultural High-Tech Industries Demonstration Zone.
The Company is exempted from income tax through 2007.
In
March
2005, Bodisen Biotech Inc. formed a new 100% wholly-owned subsidiary named
Yang
Ling Bodisen Agricultural Technology Co., Ltd. (“Agricultural”) in China. Under
Chinese law, a newly formed wholly owned subsidiary of a foreign company enjoys
an income tax exemption for the first two years and a 50% reduction of normal
income tax rates for the following 3 years. In order to extend such tax
benefits, in June 2005, Agricultural completed a transaction with Yang Ling
Bodisen Biology Science and Technology Development Company Limited (“Yang Ling”,
Bodisen Biotech, Inc.’s operating subsidiary in China), which resulted in
Agricultural owning 100% of Yang Ling.
Fair
value of financial instruments
Statement
of financial accounting standard No. 107, Disclosures about fair value of
financial instruments, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Foreign
currency transactions and comprehensive income (loss)
Assets
and liabilities in foreign currency are recorded at the balance sheet date
at
the rate prevailing on that date. Items entered on the income statement are
recorded at the average exchange rate. Gains or losses on foreign currency
transactions are reflected on the income statement. Gains or losses on financial
statement translation from foreign currency are recorded as separate components
in the equity section of the balance sheet, under comprehensive income. The
functional currency of the Company is the Chinese Renminbi. As of September
30,
2005, comprehensive income in the consolidated statements of operation included
$524,838 translation gain.
Segment
reporting
The
Company consists of one reportable business segment. All revenue is from
customers in People’s Republic of China. All of the Company’s assets are located
in People’s Republic of China.
Recent
pronouncements
On
May
15, 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity.” SFAS 150 changes the
accounting for certain financial instruments that, under previous guidance,
could be classified as equity or “mezzanine” equity, by now requiring those
instruments to be classified as liabilities (or assets in some circumstances)
in
the statement of financial position. Further, SFAS 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. SFAS
150
affects an entity’s classification of the following freestanding instruments: a)
Mandatorily redeemable instruments b) Financial instruments to repurchase an
entity’s own equity
instruments
c) Financial instruments embodying obligations that the issuer must or could
choose to settle by issuing a variable number of its shares or other equity
instruments based solely on (i) a fixed monetary amount known at inception
or
(ii) something other than changes in its own equity instruments d) SFAS 150
does
not apply to features embedded in a financial instrument that is not a
derivative in its entirety. The guidance in SFAS 150 is generally effective
for
all financial instruments entered into or modified after May 31, 2003, and
is
otherwise effective at the beginning of the first interim period beginning
after
June 15, 2003. For private companies, mandatorily redeemable financial
instruments are subject to the provisions of SFAS 150 for the fiscal period
beginning after December 15, 2003. The Company does not expect the adoption
of
SFAS No. 150 to have a material impact on its financial position or results
of
operations or cash flows.
In
December 2003, FASB issued a revised Interpretation No. 46, “Consolidation of
Variable Interest Entities” (“FIN 46R”). FIN 46R addresses consolidation by
business enterprises of variable interest entities and significantly changes
the
consolidation application of consolidation policies to variable interest
entities and, thus improves comparability between enterprises engaged in similar
activities when those activities are conducted through variable interest
entities. The Company does not hold any variable interest entities.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement applies to all voluntary changes in accounting principles and
requires retrospective application to prior periods’ financial statements of
changes in accounting principle, unless such would be impracticable. This
statement also makes a distinction between “retrospective application” of an
accounting principle and the “restatement” of financial statements to reflect
the correction of an error. This statement is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. We are evaluating the effect the adoption of this interpretation will
have
on the Company’s financial position, cash flows and results of
operations.
In
June
2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
Period for Leasehold Improvements (“EITF 05-6”) EITF 05-6 provides guidance on
determining the amortization period for leasehold improvements acquired in
a
business combination or acquired subsequent to lease inception. The guidance
in
EITF 05-6 will be applied prospectively and is effective for periods beginning
after June 29, 2005. EITF 05-6 is not expected to have a material effect on
its
consolidated financial position or results of operations.
3.
Principles of consolidation
The
accompanying consolidated financial statements include the accounts of Bodisen
Biotech, Inc. (from the merger date), its 100% wholly-owned subsidiary Bodisen
Holdings, Inc. (“BHI”), BHI’s 100% wholly- owned subsidiary Yang Ling Bodisen
Biology Science and Technology Development Company Limited, and a 100%
wholly-owned subsidiary, incorporated in March 2005, named Yang Ling Bodisen
Agricultural Technology Co., Ltd. All significant inter-company accounts and
transactions have been eliminated in consolidation.
4.
Major vendors
Five
vendors provided 81% of the Company’s raw materials for the nine month periods
ended September 30, 2005. The payable balance for these parties amounted to
$225,780.
5.
Advance to officer
During
the six month period ending June 30, 2005, the Company advanced $2,383,217
to 4
officers as a short term loan. Said loan was interest free, unsecured, and
payable upon demand. This loan was repaid during the quarter ended September
30,
2005.
6.
Loan receivable
The
company has a loan receivable from an unrelated party amounting $997,294 as
of
September 30, 2005. This loan is unsecured, bears 9% interest per annum and
matures on December 7, 2005.
7.
Investment
During
the nine month period ended September 30, 2005, the company has invested
$2,869,360 for a 13% interest of an investee company. The Company accounts
for
this investment under the cost method.
8.
Intangible assets
Net
intangible assets at September 30, 2005 were as follows:
|
|
$
|
|
|
|
|
|
Rights
to use land
|
|
|
1,710,423
|
|
Fertilizers
proprietary technology rights
|
|
|
992,000
|
|
|
|
|
|
|
|
|
|
2,702,423
|
|
Less
Accumulated amortization
|
|
|
(548,073
|
)
|
|
|
|
|
|
|
|
|
2,154,350
|
|
|
|
|
|
|
The
Company’s office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shanxi, People’s
Republic of China. The Company leases land per a real estate contract with
the
government of People’s Republic of China for a period from November 2001 through
November 2051. Per the People’s Republic of China’s governmental regulations,
the Government owns all land.
During
July 2003, the Company leased another parcel of land per a real estate contract
with the government of the People’s Republic of China for a period from July
2003 through June 2053.
The
Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty
years.
The
Company acquired Fluid and Compound Fertilizers proprietary technology rights
with a life ending December 31, 2011. The Company is amortizing Fertilizers
proprietary technology rights over a period of ten years, the contractual life,
which is shorter than the estimated useful life of the rights.
Amortization
expense for the Company’s intangible assets for the nine month periods ending
September 30, 2005 and 2004 amounted to $64,940 each period.
Amortization
expense for the Company’s intangible assets over the next five fiscal years is
estimated to be: 2006-$130,000, 2007-$130,000, 2008-$130,000, 2009-$130,000
and
2010-$100,000.
9.
Notes payable
As
of
September 30, 2005, the Company has notes payable in the amount of $880,400,
of
which, $868,000 is from the local bank with the Company’s building and “right to
use land” as collateral. $434,000 of the $868,000 is due on October 28, 2005
with 0.605% monthly interest. The remaining $434,000 of the $868,000 is due
on
June 29, 2006 with 0.651% monthly interest.
10.
Shareholders’ equity
On
February 24, 2004, BII entered into a merger agreement with Stratabid.com,
Inc.
(“Stratabid”) to exchange 12,000,000 shares of Stratabid to the shareholders of
BII. As a part of the merger, Stratabid cancelled 3,000,000 shares of its issued
and outstanding stock owned by a majority shareholder and declared a stock
dividend of three shares on each share of its common stock outstanding for
all
stockholders on record as of February 27, 2004, after the merger agreement.
The
Company has a total of 15,474,220 shares of common stock outstanding as of
September 30, 2005.
11.
Convertible debenture
On
March
16, 2005, the Company completed a private placement offering. The Company
received the sum of $3 million and issued a one year 9% debenture convertible
into shares of common stock by dividing the aggregate principal and accrued
interest by a conversion price of $4.80; and three year warrants to purchase
187,500 shares of common stock at $4.80 per share and three year warrants to
purchase 40,000 shares of common stock at $6.88 per share.
This
debenture was considered to have an embedded beneficial conversion feature
because the conversion price was less than the quoted market price at the time
of the issuance. The Company allocated the proceeds of the debt between the
warrant and the debt based on relative fair values. Accordingly, the beneficial
conversion feature of $803,381 was recorded separately based on the intrinsic
value method per EITF 00-27. The debenture is recorded in the balance sheet
at
face value less the unamortized beneficial conversion feature and unamortized
interest on warrants of $367,574 and $167,403, respectively.
During
the year, $950,000 of debentures was converted into 206,220 shares of common
stock.
12.
Stock options
In
December 2002, the FASB issued SFAS No. 148 “Accounting for Stock Based
Compensation- Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123,
“Accounting for Stock Based Compensation,” to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Company’s interim reporting period
ending January 31, 2003.
In
compliance with SFAS No. 148, the Company has elected to continue to follow
the
intrinsic value method in accounting for its stock-based employee compensation
plan as defined by APB No. 25 and has made the applicable disclosures
below.
Had
the
Company determined employee stock based compensation cost based on a fair value
model at the grant date for its stock options under SFAS 123, the Company’s net
earnings per share would have been adjusted to the pro forma amounts for the
nine month periods ended September 30, 2005 as follows ($ in thousands, except
per share amounts):
|
|
Nine
month periods ended
|
|
|
|
|
|
|
|
September
30,
2005
$
|
|
September
30,
2004
$
|
|
|
|
|
|
|
|
Net
income — as reported
|
|
$
|
6,359
|
|
$
|
3,841
|
|
Stock-based
employee compensation expense included in reported net income, net
of
tax
|
|
|
|
|
|
|
|
Total
stock-based employee compensation under fair-value-based method for
all
rewards, net of tax
|
|
|
(12
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
Pro
forma net income
|
|
$
|
6,347
|
|
$
|
3,841
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
Nine
month periods ended
|
|
|
|
|
|
|
|
September
30,
2005
|
|
September
30,
2004
|
|
|
|
|
|
|
|
Basic,
as reported
|
|
$
|
0.42
|
|
$
|
0.25
|
|
Diluted,
as reported
|
|
$
|
0.41
|
|
$
|
0.25
|
|
Basic,
pro forma
|
|
$
|
0.42
|
|
$
|
0.25
|
|
Diluted,
pro forma
|
|
$
|
0.41
|
|
$
|
0.25
|
|
In
2004,
the board of directors approved the creation of the 2004 Stock Option Plan.
This
plan provides for the grant of incentive stock options to employees, directors
and consultants. Options issued under this plan will expire over a maximum
term
of five years from the date of grant.
Pursuant
to the Stock Option Plan, the Company granted 110,000 stock options to two
Directors (55,000 options each) in the year ended December 31, 2004, of which
100,000 stock options was granted on June 4, 2004 and the balance of 10,000
was
granted on Dec. 28, 2004.
On
the
first 100,000 stock options granted, 50,000 stock options vested immediately
and
50,000 stock options became vested over 8 equal quarterly installments, with
the
first installment vesting at the end of the second quarter of 2004. The 10,000
stock options granted on Dec. 28, 2004 vested on Dec. 31, 2004.
The
option exercise price was $5 for the first 100,000 stock options which was
the
same as fair value of the shares at the time of granting of the options. The
option exercise price was $5.80 for the second 10,000 stock options which was
the same as fair value of the shares at the time of granting of the options.
Accordingly, no compensation expenses were recorded.
The
Company did not grant any option during the nine month period ended September
30, 2005.
13.
Supplemental disclosure of cash flows
The
Company prepares its statements of cash flows using the indirect method as
defined under the Statement of Financial Accounting Standard No.
95.
The
Company paid $78,143 and $58,281 for interest and $0 for income tax during
the
nine month periods ended September 30, 2005 and 2004, respectively.
Cash
from
financing activities excludes the effect on conversion of $950,000 of debentures
into 206,220 shares of common stock.
14.
Statutory common welfare fund and reserve
As
stipulated by the Company Law of the People’s Republic of China (“PRC”), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
(i)
making up cumulative prior years’ losses, if any;
(ii)
allocations to the “Statutory surplus reserve” of at least 10% of income after
tax, as determined under PRC accounting rules and regulations, until the fund
amounts to 50% of the Company’s registered capital;
(iii)
allocations of 5-10% of income after tax, as determined under PRC accounting
rules and regulations, to the Company’s “Statutory common welfare fund,” which
is established for the purpose of providing employee facilities and other
collective benefits to the Company’s employees; and
(iv)
allocations to the discretionary surplus reserve, if approved in the
shareholders’ general meeting.
In
accordance with the Chinese Company Law, the company has allocated 15% of its
annual net income, amounting $2,061,054 and $647,977 as statutory reserve
including Statutory common welfare fund for the nine month periods ended
September 30, 2005 and 2004, respectively.
The
Company makes annual contributions of 14% of all employees’ salaries to employee
welfare plan. The total expense for the above plan $50,795 and $49,642 for
the
nine month period ended September 30, 2005 and 2004, respectively.
15.
Factory location and lease commitments
BBST’s
principal executive offices are located at North Part of Xinquia Road, Yang
Ling
Agricultural High-Tech Industries Demonstration Zone Yang Ling, Shanxi province,
People’s Republic of China. BBST owns two factories, which includes three
production lines, an office building, one warehouse, and two research labs
located on 10,900 square meters of land. BBST leases a branch office in Xian
City with monthly rents of $478 from January 6, 2005 through February 5, 2006.
BBST also leases a warehouse in Yang Ling near the site of Bodisen’s factories.
Total lease commitment through September 30, 2005 amounted to
$1,276.
16.
Earnings per share
Earnings
per share for nine month periods ended September 30, 2005 and 2004 were
determined by dividing net income for the periods by the weighted average number
of basic shares of common stock and common stock equivalents outstanding; and
dividing net income plus the interest expense charged for convertible debenture
by weighted average number of diluted shares of common stock and common stock
equivalents outstanding.
The
following is an analysis of the differences between basic and diluted earnings
per common share in accordance with Statement of Financial Accounting Standards
No. 128, “Earnings Per Share.”
|
|
Nine
month periods ended
|
|
|
|
|
|
|
|
September
30,
2005
|
|
September
30,
2004
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
15,289,569
|
|
|
15,268,000
|
|
Effect
of dilutive securities: stock options
|
|
|
692,437
|
|
|
24,453
|
|
Weighted
average common shares outstanding and common share
equivalents
|
|
|
15,982,006
|
|
|
15,292,453
|
|
17.
Merger agreements
On
February 11, 2004, Stratabid entered into an Agreement and Plan of Merger with
Bodisen Acquisition Corp., a Delaware corporation (“BAC”) wholly-owned by
Stratabid, Bodisen International, Inc., a Delaware corporation (“BII”) and the
shareholders of BII. BII has one 100% wholly-owned subsidiary in Shanxi, China,
Yang Ling Bodisen Biology Science and Technology Development Company Limited
(“BBST”). Under the terms of the agreement, BAC acquired 100 percent of BII’s
stock in exchange for the issuance by Stratabid of three million shares of
its
common stock to the holders of BII. The new shares constitute approximately
79
percent of the outstanding shares of Stratabid, which changed its name to
Bodisen Biotech, Inc. (the “Company”). The Agreement and Plan of Merger was
closed on February 24, 2004.
BII’s
Chairman of the Board was appointed the Company’s Chief Executive
Officer.
At
the
Effective Time, by virtue of the Merger and without any action on the part
of
the BAC, BII or the BII Shareholders, the shares of capital stock of each of
BII
and the BAC were converted as follows:
(a)
Capital Stock of the BAC. Each issued and outstanding share of the BAC’s capital
stock continued to be issued and outstanding and was converted into one share
of
validly issued, fully paid, and non- assessable common stock of the Surviving
Company (Bodisen Holdings, Inc.). Each stock certificate of the BAC evidencing
ownership of any such shares continued to evidence ownership of such shares
of
capital stock of the Surviving Company.
(b)
Conversion of BII Shares. Each BII Share that was issued and outstanding at
the
Effective Time was automatically cancelled and extinguished and converted,
without any action on the part of the holder thereof, into the right to receive
at the time and in the amounts described in the Agreement an amount of
Acquisition Shares equal to the number of Acquisition Shares divided by the
number of BII Shares outstanding immediately prior to Closing. All such BII
Shares, so converted, were no longer outstanding and were automatically
cancelled and retired and ceased to exist, and each holder of a certificate
representing any such shares ceased to have any rights with respect thereto,
except the right to receive the Acquisition Shares paid in consideration
therefore upon the surrender of such certificate in accordance with the
Agreement.
(c)
Within thirty (30) days from the Closing Date, Stratabid was required to sell
its business operations, as they exist immediately prior to the Closing, to
Derek Wasson, former president. In consideration of the sale, Mr. Wasson
returned 750,000 Company Common Shares to Stratabid for cancellation. In
addition, Mr. Wasson forgave all indebtedness owed by Stratabid to Mr. Wasson.
Other than indebtedness of BII, Stratabid had no indebtedness or other liability
of any kind or nature after the sale of the business to Mr. Wasson, save and
except for liabilities incurred in connection with the Merger.
18.
Current vulnerability due to certain concentrations
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by
the
political, economic and legal environments in the PRC, by the general state
of
the PRC’s economy. The Company’s business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods
of
taxation, among other things.
19.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the period ended
September 30, 2005 presentation.
BODISEN
BIOTECH, INC.
(FORMERLY
STRATABID.COM, INC.)
FINANCIAL
STATEMENTS DECEMBER
31, 2004 AND 2003
Report
of independent registered public accounting firm
To
the
Board of Directors and Stockholders
Bodisen
Biotech, Inc.
We
have
audited the accompanying consolidated balance sheet of Bodisen Biotech, Inc.
(a
Delaware corporation) and subsidiaries as of December 31, 2004 and the related
consolidated statements of income, stockholders’ equity, and cash flows for the
years ended December 31, 2004 and 2003. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audits of these statements in accordance with the 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 financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well
as evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bodisen
Biotech, Inc. and subsidiaries as of December 31, 2004, and the results of
its
consolidated operations and its cash flows for the years ended December 31,
2004
and 2003 in conformity with accounting principles generally accepted in the
United States of America.
/S/
KABANI & COMPANY, INC.
CERTIFIED
PUBLIC ACCOUNTANTS
Huntington
Beach, California
March
1,
2005
Consolidated
balance sheet
|
|
December
31, 2004
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
& cash equivalents
|
|
$
|
2,121,811
|
|
Accounts
Receivable, net
|
|
|
4,988,984
|
|
Advances
to Suppliers
|
|
|
755,210
|
|
Inventory
|
|
|
767,344
|
|
Loan
Receivables
|
|
|
968,000
|
|
|
|
|
|
|
Total
current assets
|
|
|
9,601,349
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,353,598
|
|
|
|
|
|
|
Capital
work in progress
|
|
|
1,596,405
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
2,199,639
|
|
|
|
|
|
|
Other
assets
|
|
|
48,736
|
|
|
|
|
|
|
Total
assets
|
|
$
|
14,799,727
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
112,344
|
|
Accrued
expenses
|
|
|
264,502
|
|
Short
term loans
|
|
|
980,100
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,356,946
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
Preferred
stock, $0.0001 per share; authorized 5,000,000 shares; none
issued
|
|
|
—
|
|
Common
stock, $0.0001 per share; authorized 30,000,000 shares; issued and
outstanding 15,268,000 shares
|
|
|
1,527
|
|
Additional
paid in capital
|
|
|
5,991,823
|
|
Accumulated
other comprehensive gain
|
|
|
68,855
|
|
Statutory
reserve
|
|
|
1,017,905
|
|
Retained
earnings
|
|
|
6,362,671
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
13,442,781
|
|
|
|
|
|
|
Total
liabilities and stockholders equity
|
|
|
14,799,727
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Consolidated
statements of income
For
the years ended December 31, 2004 and 2003
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
16,225,896
|
|
$
|
9,783,784
|
|
Cost
of revenue
|
|
|
9,653,965
|
|
|
6,706,082
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
6,571,931
|
|
|
3,077,702
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
615,549
|
|
|
573,807
|
|
General
and administrative expenses
|
|
|
907,801
|
|
|
630,401
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,523,350
|
|
|
1,204,207
|
|
Income
from operations
|
|
|
5,048,581
|
|
|
1,873,495
|
|
|
|
|
|
|
|
|
|
Non-operating
Income (expense):
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
7,623
|
|
|
—
|
|
Interest
income
|
|
|
45,338
|
|
|
138,225
|
|
Interest
expense
|
|
|
(74,139
|
)
|
|
(41,359
|
)
|
Total
non-operating income (expense)
|
|
|
(21,178
|
)
|
|
96,866
|
|
Net
Income
|
|
|
5,027,403
|
|
|
1,970,361
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income/(loss)
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
68,855
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
5,096,258
|
|
$
|
1,970,361
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
15,268,000
|
|
|
15,268,000
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.33
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
15,328,356
|
|
|
15,268,000
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.33
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Consolidated
statements of stockholders equity
For
the years ended December 31, 2004 and 2003
Common
Stock
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Additional
paid in capital
|
|
|
Accumu-
lated
Other Compre-
hensive
Gain
|
|
|
Statutory
reserve
|
|
|
Retained
earnings (deficit)
|
|
|
Total
stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2003
|
|
|
1,500
|
|
$
|
1
|
|
$
|
6,014,399
|
|
$
|
—
|
|
$
|
66,758
|
|
$
|
316,054
|
|
$
|
6,397,212
|
|
Recapitalization
on reverse acquisition
|
|
|
15,266,500
|
|
|
1,526
|
|
|
(22,576
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
after recapitalization
|
|
|
15,268,000
|
|
|
1,527
|
|
|
5,991,823
|
|
|
—
|
|
|
66,758
|
|
|
316,054
|
|
|
6,376,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31, 2003
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
1,970,361
|
|
|
1,970,361
|
|
Allocation
to statutory reserve Foreign Translation gain/(loss)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
197,036
|
|
|
(197,036
|
)
|
|
—
|
|
Balance,
December 31, 2003
|
|
|
15,268,000
|
|
|
1,527
|
|
|
5,991,823
|
|
|
—
|
|
|
263,794
|
|
|
2,089,379
|
|
|
8,346,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
68,855
|
|
|
—
|
|
|
—
|
|
|
68,855
|
|
Net
income for the year ended December 31, 2004
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,027,403
|
|
|
5,027,403
|
|
Allocation
to statutory reserve
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
754,110
|
|
|
(754,110
|
)
|
|
—
|
|
Balance,
December 31, 2004
|
|
|
15,268,000
|
|
$
|
1,527
|
|
$
|
5,991,823
|
|
$
|
68,855
|
|
$
|
1,017,905
|
|
$
|
6,362,671
|
|
$
|
13,442,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Consolidated
statements of cash flow
For
the years ended December 31, 2004 and 2003
|
|
2004
|
|
2003
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
Income
|
|
$
|
5,027,403
|
|
$
|
1,970,361
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
302,803
|
|
|
247,958
|
|
(Increase)/decrease
in current assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(3,166,143
|
)
|
|
249,086
|
|
Advances
to suppliers
|
|
|
1,178,306
|
|
|
(270,645
|
)
|
Inventory
|
|
|
51,612
|
|
|
81,538
|
|
Other
Assets
|
|
|
(48,736
|
)
|
|
—
|
|
Increase/(decrease)
in current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(1,521,819
|
)
|
|
535,186
|
|
Unearned
revenue
|
|
|
(15,888
|
)
|
|
(586,087
|
)
|
Other
payables
|
|
|
(35,350
|
)
|
|
(67,122
|
)
|
Accrued
expenses
|
|
|
196,031
|
|
|
75,753
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
1,968,219
|
|
|
2,236,028
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash
|
|
|
68,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Payment
on loan receivable
|
|
|
(968,000
|
)
|
|
—
|
|
Acquisition
of property & equipment
|
|
|
(435,814
|
)
|
|
(133,653
|
)
|
Additions
to intangible assets
|
|
|
—
|
|
|
(1,470,307
|
)
|
Additions
to work in progress
|
|
|
(1,374,322
|
)
|
|
(4,877
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(2,778,136
|
)
|
|
(1,608,837
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Payments
of loan from officers/shareholder
|
|
|
|
|
|
—
|
|
Proceeds
from (payments on) loan
|
|
|
(111,900
|
)
|
|
1,080,000
|
|
Issuance
of subsidiary stock
|
|
|
—
|
|
|
1,214,400
|
|
Dividend
paid
|
|
|
—
|
|
|
(180,000
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(111,900
|
)
|
|
2,114,400
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(852,962
|
)
|
|
2,741,591
|
|
Cash
and cash equivalents, beginning balance
|
|
|
2,974,773
|
|
|
233,182
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, ending balance
|
|
$
|
2,121,811
|
|
$
|
2,974,773
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Notes
to the consolidated financial statements
December
31, 2004 and 2003
1.
Organization and description of business
Yang
Ling
Bodisen Biology Science and Technology Development Company Limited (“BBST”) was
founded in the People’s Republic of China on August 31, 2001. BBST, located in
Yang Ling Agricultural High-Tech Industries Demonstration Zone, is primarily
engaged in developing, manufacturing and selling pesticides and compound organic
fertilizers in the People’s Republic of China. Bodisen International, Inc.
(“BII”) is a Delaware Corporation, incorporated on November 19, 2003. BII was a
non-operative holding company of BBST. On December 15, 2003, BII entered in
to
an agreement with all the shareholders of BBST to exchange all of the
outstanding stock of BII for all the issued and outstanding stock of BBST.
After
the consummation of the agreement, the former shareholders of BBST own 1500
shares of common stock of BII, which represent 100% of BII’s issued and
outstanding shares. For U.S. Federal income tax purpose, the transaction is
intended to be qualified as a tax-free transaction under section 351 of the
Internal Revenue Code of 1986, as amended.
The
exchange of shares with BBST has been accounted for as a reverse acquisition
under the purchase method of accounting since the shareholders of the BBST
obtained control of the consolidated entity. Accordingly, the merger of the
two
companies has been recorded as a recapitalization of BBST, with BBST being
treated as the continuing entity. The historical financial statements presented
are those of BBST. The continuing company has retained December 31 as its fiscal
year end. The financial statements of the legal acquirer are not significant;
therefore, no pro forma financial information is submitted.
On
February 24, 2004, BII consummated a merger agreement with Stratabid.com, Inc.
(“Stratabid”), a Delaware corporation, to exchange 12,000,000 shares of
Stratabid to the shareholders of BII, in which BII merged into Bodisen Holdings,
Inc. (BHI), an acquisition subsidiary of Stratabid, with BHI being the surviving
entity. As a part of the merger, Stratabid cancelled 3,000,000 shares of its
issued and outstanding stock owned by its former president and declared a stock
dividend of three shares on each share of its common stock outstanding for
all
stockholders on record as of February 27, 2004.
Stratabid
was incorporated in the State of Delaware on January 14, 2000 and before the
merger, was a start- up stage Internet based commercial mortgage origination
business based in Vancouver, BC, Canada.
The
exchange of shares with Stratabid has been accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders
of
BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed
Bodisen Biotech, Inc. (the “Company”). Accordingly, the merger of the two
companies has been recorded as a recapitalization of the Company, with the
Company being treated as the continuing entity. The financial statements of
legal acquiree are not significant; therefore, no pro forma financial
information is submitted.
2.
Summary of significant accounting policies
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and cash equivalents
Cash
and
cash equivalents include cash in hand and cash in time deposits, certificates
of
deposit and all highly liquid debt instruments with original maturities of
three
months or less.
Accounts
Receivable
The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the
adequacy of these reserves. Terms of the sales vary from COD through a credit
term up to 9 to 12 months. Reserves are recorded primarily on a specific
identification basis. Allowance for doubtful debts amounted to $185,301 as
at
December 31, 2004.
Advances
to suppliers
The
Company advances to certain vendors for purchase of its material. The advances
to suppliers are interest free and unsecured. The advances to suppliers amounted
to $755,210 at December 31, 2004.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down the inventories to there market value,
if
lower.
Loan
receivable
On
December 8, 2004, the Company entered in to an agreement to loan $968,000 to
an
unrelated party. The loan is unsecured, payable by December 7, 2005 and carries
an interest rate of 8.7% per annum.
Property
& Equipment & Capital work in progress
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed
of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of: 30 years for building, 10
years for machinery, 5 years for office equipment and 8 years for
vehicles.
On
December 31, 2004, the Company has “Capital Work in Progress” representing the
construction in progress of the Company’s manufacturing plant amounting
$1,596,405.
Long-lived
assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business.” The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds
the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of December 31, 2004 there were no significant impairments of its
long-lived assets.
Intangible
Assets
Intangible
assets consist of Rights to use land and Fertilizers proprietary technology
rights. The Company evaluates intangible assets for impairment, at least on
an
annual basis and whenever events or changes in circumstances indicate that
the
carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill
is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test
is
performed to measure the amount of impairment loss.
Fair
value of financial instruments
Statement
of financial accounting standard No. 107, Disclosures about fair value of
financial instruments, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Revenue
Recognition
The
Company’s revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company
exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
Advertising
Costs
The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the years ended
December 31, 2004 and 2003 were insignificant.
Stock-based
compensation
In
October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No.
123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value method.
The
Company uses the intrinsic value method prescribed by APB 25 and has opted
for
the disclosure provisions of SFAS No.123.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
According
to the Provisional Regulations of the People’s Republic of China on Income Tax,
the Document of Reductions and Exemptions of Income Tax for the Company had
been
approved by the local tax bureau and the Yang Ling Agricultural High-Tech
Industries Demonstration Zone. The Company is exempted from income tax through
December 31, 2004.
Foreign
currency transactions and comprehensive income (loss)
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain statements, however, require entities to
report specific changes in assets and liabilities, such as gain or loss on
foreign currency translation, as a separate component of the equity section
of
the balance sheet. Such items, along with net income, are components of
comprehensive income. The functional currency of the Company is Chinese
Renminbi. The unit of Renminbi is in Yuan. Translation gains of $68,855 at
December 31, 2004 are classified as an item of other comprehensive income in
the
stockholders’ equity section of the consolidated balance sheet. During the year
ended December 31, 2004, comprehensive income in the consolidated statements
of
operation included translation gains of $68,855. The Company had insignificant
translation gain in the year ended December 31, 2003.
Basic
and diluted net loss per share
Net
loss
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
all
periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the
period.
Statement
of Cash Flows:
In
accordance with Statement of Financial Accounting Standards No. 95, “Statement
of Cash Flows,” cash flows from the Company’s operations are calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheet.
Segment
Reporting
Statement
of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
is based on the way a company’s management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company.
SFAS
131 has no effect on the Company’s consolidated financial statements as the
Company consists of one reportable business segment. All revenue is from
customers in People’s Republic of China. All of the Company’s assets are located
in People’s Republic of China.
Recent
Pronouncements
In
November 2004, the FASB has issued FASB Statement No. 151, “Inventory Costs, an
Amendment of ARB No. 43, Chapter 4” (“FAS No. 151”). The amendments made by FAS
No. 151 are intended to improve financial reporting by clarifying that abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges and by requiring
the
allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities.
The
guidance is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 23, 2004. The provisions
of FAS No. 151 will be applied prospectively. The Company does not expect the
adoption of FAS No. 151 to have a material impact on its consolidated financial
position, results of operations or cash flows.
In
December 2004, the FASB issued FASB Statement No. 123R, “Share-Based Payment, an
Amendment of FASB Statement No. 123” (“FAS No. 123R”). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair
value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company’s second quarter of fiscal 2006.
The Company is in process of evaluating the impact of this pronouncements on
its
consolidated financial position, results of operations or cash
flows.
In
December 2004, the FASB issued SFAS Statement No. 153, “Exchanges of Nonmonetary
Assets.” The Statement is an amendment of APB Opinion No. 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces
it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. The Company believes that the adoption of this standard
will have no material impact on its financial statements.
In
March
2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No.
03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments.” The EITF reached a consensus about the criteria that
should be used to determine when an investment is considered impaired, whether
that impairment is other-than-temporary, and the measurement of an impairment
loss and how that criteria should be applied to investments accounted for under
SFAS No. 115, “ACCOUNTING IN CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES.”
EITF 03-01 also included accounting considerations subsequent to the recognition
of an other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other- than-temporary
impairments. Additionally, EITF 03-01 includes new disclosure requirements
for
investments that are deemed to be temporarily impaired. In September 2004,
the
Financial Accounting Standards Board (FASB) delayed the accounting provisions
of
EITF 03-01; however the disclosure requirements remain effective for annual
reports ending after June 15, 2004. The Company will evaluate the impact of
EITF
03-01 once final guidance is issued.
3.
Principles of consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, BII and its wholly owned subsidiary,
BBST. All significant inter-company accounts and transactions have been
eliminated in consolidation. The acquisition of BII on February 24, 2004, has
been accounted for as a purchase and treated as a reverse acquisition (note
1).
The historical results for the year ended December 31, 2004 include both the
Company (from the acquisition date) and BII and BBST (for full year) while
the
historical results for the year ended December 31, 2003 includes only BBST
and
BII.
4.
Intangible assets
Net
intangible assets at December 31, 2004 were as follows:
Rights
to use land
|
|
$
|
1,666,920
|
|
Fertilizers
proprietary technology rights
|
|
|
968,000
|
|
|
|
|
|
|
|
|
|
2,634,920
|
|
Less
Accumulated amortization
|
|
|
(435,281
|
)
|
|
|
|
|
|
|
|
$
|
2,199,639
|
|
|
|
|
|
|
The
Company’s office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shanxi, People’s
Republic of China. The Company leases land per a real estate contract with
the
government of People’s Republic of China for a period from November 2001 through
November 2051. Per the People’s Republic of China’s governmental regulations,
the Government owns all land.
During
July 2003, the Company leased another parcel of land per a real estate contract
with the government of the People’s Republic of China for a period from July
2003 through June 2053.
The
Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty years. The
“Rights to use land” is being amortized over 50 years period.
The
Company acquired Fluid and Compound Fertilizers proprietary technology rights
with a life ending December 31, 2011. The Company is amortizing Fertilizers
proprietary technology rights over a period of ten years.
Amortization
expense for the Company’s intangible assets for the year ended December 31, 2004
and 2003 amounted to $130,181 and $109,401, respectively.
Amortization
expense for the Company’s intangible assets over the next five fiscal years is
estimated to be: 2005-$130,000, 2006-$130,000, 2007-$130,000, 2008-$130,000
and
2009-$130,000.
5.
Short term loans
Short
term loans consisted of the following at December 31, 2004:
Note
payable to bank, interest rate; 6.51% per annum, payable quarterly,
maturity date;
5/30/05,
secured by assets of the Company.
|
|
$
|
544,500
|
|
|
|
|
|
|
Note
payable to bank, interest rate; 6.05% per annum, payable quarterly,
maturity date;
10/28/05,
secured by assets of the Company.
|
|
|
423,500
|
|
|
|
|
|
|
Short
term support loan from the Shanxi Technology Bureau of the Government
of
People’s Republic of China, interest free; secured by assets of the
Company, due on demand.
|
|
|
12,100
|
|
|
|
|
|
|
|
|
$
|
980,100
|
|
|
|
|
|
|
6.
Shareholders’ equity
On
February 24, 2004, BII entered into a merger agreement with Stratabid.com,
Inc.
(Stratabid) to exchange 12,000,000 shares of Stratabid to the shareholders
of
BII (note 14). As a part of the merger, Stratabid cancelled 3,000,000 shares
of
its issued and outstanding stock owned by a majority shareholder and declared
a
stock dividend of three shares on each share of its common stock outstanding
for
all stockholders on record as of February 27, 2004, after the merger agreement.
The Company has a total of 15,268,000 shares of common stock outstanding as
of
December 31, 2004.
7.
Stock options
In
December 2002, the FASB issued SFAS No. 148 “Accounting for Stock Based
Compensation- Transition and Disclosure”. SFAS No. 148 amends SFAS No. 123,
“Accounting for Stock Based Compensation”, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies’ interim reporting period
ending January 31, 2003.
In
compliance with FAS No. 148, the Company has elected to continue to follow
the
intrinsic value method in accounting for its stock-based employee compensation
plan as defined by APB No. 25 and has made the applicable disclosures
below.
In
2004
the board of directors approved the creation of the 2004 Stock Option Plan.
This
plan provides for the grant of incentive stock options to employees, directors
and consultants. Options issued under this plan will expire over a maximum
term
of five years from the date of grant.
Pursuant
to the Stock Option Plan, the Company granted 110,000 stock options to two
directors (55,000 options each) during the year ended December 31, 2004, of
which 100,000 stock options was granted on June 4, 2004 and the balance of
the
10,000 was granted on Dec. 28, 2004.
On
the
first 100,000 stock options granted, 50,000 stock options vested immediately
and
50,000 stock options became vested over 8 equal quarterly installments, with
the
first installment vesting at the end of the second quarter of 2004. The 10,000
stock options granted on Dec. 28, 2004 vested on Dec. 31, 2004.
The
option exercise price was $5 for the first 100,000 stock options which was
the
same as fair value of the shares at the time of granting of the options. The
option exercise price was $5.80 for the second 10,000 stock options which was
the same as fair value of the shares at the time of granting of the
options.
Following
is a summary of the stock option activity:
Outstanding
at December 31, 2003
|
Granted
|
110,000
|
Forfeited
|
0
|
Exercised
|
0
|
|
|
Outstanding
at December 31, 2004
|
110,000
|
|
|
Following
is a summary of the status of options outstanding at December 31,
2004:
Outstanding
Options
|
Average
Remaining Contractual Life
|
Exercisable
Options
|
|
|
Exercise
Price
|
Number
|
Average
Exercise Price
|
Number
|
Average
Exercise Price
|
|
|
|
|
|
|
$5.00
|
100,000
|
4.42
|
$5.00
|
68,750
|
$5.00
|
$5.80
|
10,000
|
4.99
|
$5.80
|
10,000
|
$5.80
|
For
options granted during the year ended December 31, 2004, the weighted-average
fair value of such options was $1.92.
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:
First
100,000 stock options granted on June 4, 2004
Risk-free
interest rate
|
4.0%
|
Expected
life of the options
|
5.00
years
|
Expected
volatility
|
35%
|
Expected
dividend yield
|
0
|
Second
10,000 stock options granted on December 28, 2004
Risk-free
interest rate
|
4.0%
|
Expected
life of the options
|
5.00
years
|
Expected
volatility
|
40%
|
Expected
dividend yield
|
0
|
Had
the
Company determined employee stock based compensation cost based on a fair value
model at the grant date for its stock options under SFAS 123, the Company’s net
earnings per share would have been adjusted to the pro forma amounts for the
year ended December 31, 2004 as follow ($ in thousands, except per share
amounts):
Net
Income — as reported
|
|
$
|
5,027
|
|
Stock-Based
employee compensation expense included in reported net income, net
of
tax
|
|
|
—
|
|
Total
stock-based employee compensation expense determined under
fair-value-based method for all rewards, net of tax
|
|
|
(153
|
)
|
|
|
|
|
|
Pro
forma net income
|
|
$
|
4,874
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
December
31, 2004
|
|
Earnings
per share:
|
|
|
|
Basic,
as reported
|
|
$
|
0.33
|
|
Diluted,
as reported
|
|
$
|
0.33
|
|
Basic,
pro forma
|
|
$
|
0.32
|
|
Diluted,
pro forma
|
|
$
|
0.32
|
|
The
Company did not grant any options during year ended December 31,
2003.
8.
Supplemental disclosure of cash flows
The
Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The
Company paid $60,231 and $41,359 for interest and $0 for income tax during
the
year ended December 31, 2004 and 2003, respectively.
9.
Employee welfare plans
The
Company has established its own employee welfare plan in accordance with Chinese
law and regulations. The Company makes annual contributions of 14% of all
employees’ salaries to employee welfare plan. The total expense for the above
plan $80,761 and $55,813 for the year ended December 31, 2004 and 2003,
respectively. The Company has recorded welfare payable of $175,758 at December
31, 2004.
10.
Statutory common welfare fund
As
stipulated by the Company Law of the People’s Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:
(i)
Making up cumulative prior years’ losses, if any;
(ii)
Allocations to the “Statutory surplus reserve” of at least 10% of income after
tax, as determined under PRC accounting rules and regulations, until the fund
amounts to 50% of the Company’s registered capital;
(iii)
Allocations of 5-10% of income after tax, as determined under PRC accounting
rules and regulations, to the Company’s “Statutory common welfare fund”, which
is established for the purpose of providing employee facilities and other
collective benefits to the Company’s employees; and
(iv)
Allocations to the discretionary surplus reserve, if approved in the
shareholders’ general meeting.
The
Company established a reserve for the annual contribution of 5% of net income
to
the welfare fund in 2004. The amount included in the statutory reserve for
the
year ended December 31, 2004 amounted to $251,370.
11.
Statutory Reserve
In
accordance with the Chinese Company Law, the company has allocated 10% of its
annual net income, amounting $502,740 and $197,036 as statutory reserve for
the
year ended December 31, 2004 and 2003, respectively.
12.
Factory location and lease commitments
BBST’s
principal executive offices are located at North Part of Xinquia Road, Yang
Ling
Agricultural High-Tech Industries Demonstration Zone Yang Ling, Shaanzi
province, People’s Republic of China. BBST owns two factories, which includes
three production lines, an office building, one warehouse, and two research
labs
and, is located on 10,900 square meters of land. The rent of the office building
is $121 a month from May 20, 2004 through May 20, 2005. BBST also leases
warehouses in Yang Ling near the site of Bodisen’s factories. The rent of the
warehouses is $194 a month from January 2005 through May 2005. Total future
commitment through June 30, 2005 amounts to $1,573.
The
Company has committed to pay $18,150 to an advertising agency for an advertising
campaign, by October 2006.
13.
Earnings per share
Earnings
per share for year ended December 31, 2004 and 2003 were determined by dividing
net income for the periods by the weighted average number of both basic and
diluted shares of common stock and common stock equivalents
outstanding.
The
following is an analysis of the differences between basic and diluted earnings
per common share in accordance with Statement of Financial Accounting Standards
No. 128, “Earnings Per Share”.
|
|
For
the year ended December 31,
|
|
|
|
2004
|
|
2003
|
|
Weighted
average common shares outstanding
|
|
|
15,268,000
|
|
|
15,268,000
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Stock
options
|
|
|
60,356
|
|
|
—
|
|
Weighted
average common shares outstanding and common share
equivalents
|
|
|
15,328,356
|
|
|
15,268,000
|
|
14.
Merger agreement
On
February 11, 2004, Stratabid entered into an Agreement and Plan of Merger with
Bodisen Acquisition Corp., a Delaware corporation (“BAC”) wholly-owned by
Stratabid, Bodisen International, Inc., a Delaware corporation (“BII”) and the
shareholders of BII. BII has one 100% wholly-owned subsidiary in Shaanxi, China,
Yang Ling Bodisen Biology Science and Technology Development Company Limited
(“BBST”). Under the terms of the agreement, BAC acquired 100% of BII’s stock in
exchange for the issuance by Stratabid of three million shares of its common
stock to the holders of BII. The new shares constitute approximately 79% of
the
outstanding shares of Stratabid, which changed its name to Bodisen Biotech,
Inc.
(the “Company”). The Agreement and Plan of Merger was closed on February 24,
2004.
BII’s
Chairman of the Board was appointed the Company’s Chief Executive
Officer.
At
the
Effective Time, by virtue of the Merger and without any action on the part
of
the BAC, BII or the BII Shareholders, the shares of capital stock of each of
BII
and the BAC were converted as follows:
(a)
Capital Stock of the BAC. Each issued and outstanding share of the BAC’s capital
stock continued to be issued and outstanding and was converted into one share
of
validly issued, fully paid, and non- assessable common stock of the Surviving
Company (Bodisen Holdings, Inc.). Each stock certificate of the BAC evidencing
ownership of any such shares continued to evidence ownership of such shares
of
capital stock of the Surviving Company.
(b)
Conversion of BII Shares. Each BII Share that was issued and outstanding at
the
Effective Time was automatically cancelled and extinguished and converted,
without any action on the part of the holder thereof, into the right to receive
at the time and in the amounts described in the Agreement an amount of
Acquisition Shares equal to the number of Acquisition Shares divided by the
number of BII Shares outstanding immediately prior to Closing. All such BII
Shares, so converted, were no longer outstanding and were automatically
cancelled and retired and ceased to exist, and each holder of a certificate
representing any such shares ceased to have any rights with respect thereto,
except the right to receive the Acquisition Shares paid in consideration
therefore upon the surrender of such certificate in accordance with the
Agreement.
(c)
Within thirty (30) days from the Closing Date, Stratabid was required to sell
its business operations, as they exist immediately prior to the Closing, to
Derek Wasson, former president. In consideration of the
sale,
Mr.
Wasson returned 750,000 Common Shares to Stratabid for cancellation. In
addition, Mr. Wasson forgave all indebtedness owed by Stratabid to Mr. Wasson.
Other than indebtedness of BII, Stratabid had no indebtedness or other liability
of any kind or nature after the sale of the business to Mr. Wasson, save and
except for liabilities incurred in connection with the Merger.
15.
Current vulnerability due to certain concentrations
Four
vendors provided 70% of the Company’s raw materials for the year ended December
31, 2004 and three vendors provided 51% of the Company’s raw materials for the
year ended December 31, 2003. The payable balance for these parties amounted
to
$53,098 and $241,078 at December 31, 2004 and 2003, respectively.
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by
the
political, economic and legal environments in the PRC, by the general state
of
the PRC’s economy. The Company’s business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods
of
taxation, among other things.
16.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the year ended
December 31, 2004 presentation.
BODISEN
INTERNATIONAL INC.
AND
SUBSIDIARY
FINANCIAL
STATEMENTS DECEMBER
31, 2003 AND 2002
Independent
auditors’ reports
Board
of
Directors and Shareholders
Bodisen
International, Inc.,
We
have
audited the accompanying consolidated balance sheets of Bodisen International
Inc, and subsidiary as of December 31, 2003 and 2002, and the related
consolidated statements of income, shareholders’ equity, and cash flows for the
years ended December 31, 2003 and 2002. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bodisen
International Inc, and subsidiary as of December 31, 2003 and 2002, and the
consolidated results of their operations and cash flows for the years ended
December 31, 2003 and 2002 in conformity with accounting principles generally
accepted in the United States of America.
/s/
Kabani & Company, Inc.
Kabani
& Company, Inc.
CERTIFIED
PUBLIC ACCOUNTANTS
Fountain
Valley, California
February
5, 2004
Consolidated
balance sheets
December
31, 2003 and 2002
|
|
2003
|
|
2002
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
2,974,773
|
|
$
|
233,182
|
|
Accounts
receivable, net
|
|
|
1,822,841
|
|
|
2,071,927
|
|
Advances
to Suppliers
|
|
|
1,933,516
|
|
|
1,662,872
|
|
Inventory
|
|
|
715,732
|
|
|
797,270
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
7,446,862
|
|
|
4,765,250
|
|
Property
and equipment, net
|
|
|
1,220,587
|
|
|
1,225,490
|
|
Capital
work in progress
|
|
|
222,083
|
|
|
217,206
|
|
Intangible
assets, net
|
|
|
2,310,148
|
|
|
949,242
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,199,680
|
|
$
|
7,157,188
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,634,163
|
|
$
|
1,098,978
|
|
Accrued
expenses
|
|
|
75,755
|
|
|
|
|
Unearned
revenue
|
|
|
15,888
|
|
|
601,975
|
|
Short
term loan
|
|
|
1,092,000
|
|
|
12,000
|
|
Dividend
payable
|
|
|
|
|
|
180,000
|
|
Other
payables
|
|
|
14,300
|
|
|
81,423
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,832,106
|
|
|
1,974,376
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
Common
stock, $0.12 per share; authorized shares 80,000,000; issued and
outstanding 40,000,000 shares
|
|
|
1
|
|
|
1
|
|
Additional
paid in capital
|
|
|
6,014,399
|
|
|
4,799,999
|
|
Statutory
reserve
|
|
|
263,795
|
|
|
66,758
|
|
Retained
earnings
|
|
|
2,089,379
|
|
|
316,054
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
8,367,574
|
|
|
5,182,813
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,199,680
|
|
$
|
7,157,188
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Consolidated
Statements of Income
For
the year ended December 31, 2003 and 2002
|
|
2003
|
|
2002
|
|
Net
revenue
|
|
$
|
9,783,784
|
|
$
|
4,881,350
|
|
Cost
of revenue
|
|
|
6,706.082
|
|
|
3,582,176
|
|
Gross
profit
|
|
|
3,077,702
|
|
|
1,299,174
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
573,807
|
|
|
235,077
|
|
General
and administrative expense
|
|
|
630,401
|
|
|
384,067
|
|
Total
operating expense
|
|
|
1,204,207
|
|
|
619,144
|
|
Income
from operations
|
|
|
1,873,495
|
|
|
680,030
|
|
Non-operating
income (expense)
|
|
|
|
|
|
|
|
Other
income
|
|
|
55,507
|
|
|
8,119
|
|
Interest
income expense
|
|
|
41,359
|
|
|
(20,565
|
)
|
Total
non-operating income (expense)
|
|
|
96,867
|
|
|
(12,446
|
)
|
Net
income
|
|
|
1,970,361
|
|
|
667,583
|
|
Basic
and diluted weighted average shares outstanding
|
|
|
1,500
|
|
|
1,500
|
|
Basic
and diluted net earning per share
|
|
$
|
1,313.57
|
|
$
|
445.06
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Consolidated
statements of stockholders equity
For
the years ended December 31, 2003 and 2002
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Additional
Amount
paid in capital
|
|
|
Summary
reserve
|
|
|
Retained
earnings
(deficit)
|
|
|
Total
stockholders’
equity
|
|
Balance,December
31,2001
|
|
|
1,500
|
|
$
|
4,800,000
|
|
|
-
|
|
$
|
(104,771
|
)
|
$
|
4,695,229
|
|
Recapitalization
on reverse
acquisition
|
|
|
-
|
|
|
(4,799,999)4,799,999
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Balance
after recapitalization
|
|
|
1,500
|
|
|
14,799,999
|
|
|
-
|
|
|
(104,771
|
)
|
|
4,695,229
|
|
Net
income for the year
ended
December 31,2002
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
667,583
|
|
|
667,583
|
|
Allocation
to statutory
reserve
|
|
|
-
|
|
|
-
|
|
|
66,758
|
|
|
(66,758
|
)
|
|
-
|
|
Dividends
declared
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(180,000
|
)
|
|
(180,000
|
)
|
Balance,December
31,2002
|
|
|
1,500
|
|
|
14,799,999
|
|
|
66,758
|
|
|
316,054
|
|
|
5,182,813
|
|
Issuance
of subsidiary’s
stock
|
|
|
-
|
|
|
1,214,400
|
|
|
-
|
|
|
-
|
|
|
1,214,400
|
|
Net
income for the year
ended
December 31,2003
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,970,361
|
|
|
1,970,361
|
|
Allocation
to statutory
reserve
|
|
|
-
|
|
|
-
|
|
|
197,036
|
|
|
(197,036
|
)
|
|
-
|
|
Balance,December
31,2003
|
|
|
1,500
|
|
$$
|
16,014,399
|
|
$
|
263,794
|
|
$
|
2,089,379
|
|
$
|
8,367,574
|
|
The
accompanying notes are an integral part of these consolidated nancial
statements.
Consolidated
statements of cash flows
For
the years ended December 31, 2003 and 2002
|
|
2003
|
|
2002
|
|
Cash
flows operating activities:
|
|
|
|
|
|
Net
Income
|
|
$
|
1,970,361
|
|
$
|
667,583
|
|
Adjustments
to reconcile net income to net cash provided in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
247,958
|
|
|
149,699
|
|
(Increase)/decrease
in current assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
249,086
|
|
|
288,218
|
|
Advances
to suppliers
|
|
|
(270,645
|
)
|
|
(893,393
|
)
|
Inventory
|
|
|
81,538
|
|
|
300,312
|
|
Increase/(decrease)
in current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
535,186
|
|
|
(38,379
|
)
|
Unearned
revenue
|
|
|
(586,087
|
)
|
|
589,812
|
|
Other
payables
|
|
|
(67,122
|
)
|
|
3,423
|
|
Accrued
expenses
|
|
|
75,754
|
|
|
(130,252
|
)
|
Net
cash provided by operating activities
|
|
|
2,236,028
|
|
|
937,023
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Acquisition
of property & equipment
|
|
|
(133,653
|
)
|
|
(600,666
|
)
|
Acquisition
of rights to use land
|
|
|
(1,470,307
|
)
|
|
|
|
Capital
work in process
|
|
|
(4,877
|
)
|
|
(217,206
|
)
|
Net
cash used in investing activities
|
|
|
(1,608,837
|
)
|
|
(817,872
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Payments
of loan from officers/shareholders
|
|
|
|
|
|
(217,338
|
)
|
Proceeds
from loan
|
|
|
1,080,000
|
|
|
12,000
|
|
Issuance
of stock by subsidiary
|
|
|
1,214,400
|
|
|
|
|
Dividend
paid
|
|
|
(180,000
|
)
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
2,114,400
|
|
|
(205,338
|
)
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
2,741,591
|
|
|
(86,187
|
)
|
Cash
and cash equivalents, beginning balance
|
|
|
233,182
|
|
|
319,369
|
|
Cash
and cash equivalents, ending balance
|
|
$
|
2,974,773
|
|
$
|
233,182
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes
to the consolidated financial statements
December
31, 2003 and 2002
1.
Organization and description of business
Bodisen
International, Inc. (the “Company”) is a Delaware Corporation, incorporated on
November 19, 2003. The Company is authorized to issue of 50,000,000 shares
of
common stock of $0.001 par value and 10,000,000 shares of preferred stock of
$0.001 par value. The Company is a non-operative holding company of Yang Ling
Bodisen Biology Science and Technology Development Company Limited (“BBST”).
BBST was founded in the People’s Republic of China on August 31, 2001. BBST,
located in Yang Ling Agricultural High-Tech Industries Demonstration Zone,
is
primarily engaged in developing, manufacturing and selling pesticides and
compound organic fertilizers in the People’s Republic of China.
On
December 15, 2003, the Company entered in to an agreement with all the
shareholders of BBST to exchange all of the outstanding stock of the Company
for
all the issued and outstanding stock of BBST. After the consummation of the
agreement, the former shareholders of BBST own 1500 shares of common stock
of
the Company, which represent 100% of the Company’s issued and outstanding
shares. For U.S. Federal income tax purpose, the transaction is intended to
be
qualified as a tax-free transaction under section 351 of the Internal Revenue
Code of 1986, as amended.
The
exchange of shares with BBST has been accounted for as a reverse acquisition
under the purchase method of accounting since the shareholders of the BBST
obtained control of the consolidated entity. Accordingly, the merger of the
two
companies has been recorded as a recapitalization of BBST, with BBST being
treated as the continuing entity. The historical financial statements presented
are those of BBST. The continuing company has retained December 31 as its fiscal
year end. The financial statements of the legal acquirer are not significant;
therefore, no pro forma financial information is submitted.
2.
Summary of significant accounting policies
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles
of consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, BBST. All significant inter-company
accounts and transactions have been eliminated in consolidation. The acquisition
of BBST on December 15, 2003, has been accounted for as a purchase and treated
as a reverse acquisition (note 1). The historical results for the year ended
December 31, 2003 include both the Company (from the acquisition date) and
BBST
(for full year) while the historical results for the year ended December 31,
2002 includes only BBST.
Cash
and cash equivalents
Cash
and
cash equivalents include cash in hand and cash in time deposits, certificates
of
deposit and all highly liquid debt instruments with original maturities of
three
months or less.
Accounts
Receivable
The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the
adequacy of these reserves. Reserves are recorded primarily on a specific
identification basis. Allowance for doubtful debts amounted to $64,080 as at
December 31, 2003 and 2002.
Advances
to suppliers
The
Company advances to certain vendors for purchase of its material. The advances
to suppliers amounted to $1,933,516 and $1,662,872 at December 31, 2003 and
2002.
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down the inventories to there market value,
if
lower.
Property
& Equipment
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed
of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of: 30 years for building, 10
years for machinery, 5 years for office equipment and 8 years for
vehicles.
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business.” The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds
the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of December 31, 2003 and 2002, there were no significant impairments
of
its long- lived assets.
Intangible
Assets
Intangible
assets consist of Rights to use land and Fertilizers proprietary technology
rights. The Company evaluates intangible assets for impairment, at least on
an
annual basis and whenever events or changes in circumstances indicate that
the
carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill
is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test
is
performed to measure the amount of impairment loss. Potential impairment of
goodwill after July 1, 2002 is being evaluated in accordance with SFAS No.
142.
The SFAS No. 142 is applicable to the financial statements of the Company
beginning July 1, 2002.
Unearned
revenue
Unearned
revenue represents amounts received from the customers against future sales
of
goods since the Company recognizes revenue on the shipment of goods (see revenue
recognition policy).
2.1
Fair value of financial instruments
Statement
of financial accounting standard No. 107, Disclosures about fair value of
financial instruments, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Revenue
Recognition
The
Company’s revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 101. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company
exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
Advertising
Costs
The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the years ended
December 31, 2003 and 2002 were insignificant.
Stock-based
compensation
In
October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No.
123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value method.
The
Company uses the intrinsic value method prescribed by APB 25 and has opted
for
the disclosure provisions of SFAS No.123. Through December 31, 2003, the Company
has not granted any stock options.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
According
to the Provisional Regulations of the People’s Republic of China on Income Tax,
the Document of Reductions and Exemptions of Income Tax for BBST has been
approved by the local tax bureau and the Management Regulation of Yang Ling
Agricultural High-Tech Industries Demonstration Zone. BBST is exempted from
income tax in its first two years of operations.
Foreign
currency transactions and comprehensive income (loss)
Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain statements, however, require entities to
report specific changes in assets and liabilities, such as gain or loss on
foreign currency translation, as a separate component of the equity section
of
the balance sheet. Such items, along with net income, are components of
comprehensive income. The functional currency of BBST is Chinese Renminbi.
The
unit of Renminbi is in Yuan. Cumulative translation adjustment amount and
translation adjustment gain were insignificant at and for the year ended
December 31, 2003 and 2002.
Basic
and diluted net loss per share
Net
loss
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
all
periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the
period.
Statement
of Cash Flows
In
accordance with Statement of Financial Accounting Standards No. 95, “Statement
of Cash Flows,” cash flows from the Company’s operations are calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheet.
Segment
Reporting
Statement
of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
is based on the way a company’s management
organizes
segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure, or any other manner in which management
disaggregates a company. SFAS 131 has no effect on the Company’s consolidated
financial statements as substantially all of the Company’s operations are
conducted in one industry segment.
Recent
Pronouncements
In
May
2002, the Board issued SFAS No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS
145”). SFAS 145 rescinds the automatic treatment of gains or losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB Opinion No. 30, Reporting the Results
of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
SFAS
145 also requires sale-leaseback accounting for certain lease modifications
that
have economic effects that are similar to sale-leaseback transactions and makes
various technical corrections to existing pronouncements. The provisions of
SFAS
145 related to the rescission of FASB Statement 4 are effective for fiscal
years
beginning after May 15, 2002, with early adoption encouraged. All other
provisions of SFAS 145 are effective for transactions occurring after May 15,
2002, with early adoption encouraged. The adoption of SFAS 145 did not have
a
material effect on the earnings or financial position of the
Company.
In
June
2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with exit or
Disposal Activities.” This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).” This Statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under Issue 94-3 a liability for
an
exit cost as defined, was recognized at the date of an entity’s commitment to an
exit plan. The adoption of SFAS 146 did not have a material effect on the
earnings or financial position of the Company.
In
October 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial
Institutions.” SFAS No. 147 removes the requirement in SFAS No. 72 and
Interpretation 9 thereto, to recognize and amortize any excess of the fair
value
of liabilities assumed over the fair value of tangible and identifiable
intangible assets acquired as an unidentifiable intangible asset. This statement
requires that those transactions be accounted for in accordance with SFAS No.
141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible
Assets.” In addition, this statement amends SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” to include certain financial
institution-related intangible assets. The adoption of SFAS 147 did not have
a
material effect on the earnings or financial position of the
Company.
In
November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective
for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of this pronouncement did not have a material effect on
the
earnings or financial position of the Company.
In
December 2002, the FASB issued SFAS No. 148 “Accounting for Stock Based
Compensation- Transition and Disclosure”. SFAS No. 148 amends SFAS No. 123,
“Accounting for Stock Based Compensation”, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies’ interim reporting period
ending January 31, 2003. The Company does not expect the adoption of SFAS No.
148 would have a material impact on its financial position or results of
operations or cash flows.
On
April
30, 2003, the FASB issued FASB Statement No. 149 (“SFAS 149”), “Amendment of
Statement 133 on Derivative Instruments and Hedging Activities”. FAS 149 amends
and clarifies the accounting guidance on (1) derivative instruments (including
certain derivative instruments embedded in other
contracts) and (2) hedging activities that fall within the scope of FASB
Statement No. 133 (“SFAS 133”), Accounting for Derivative Instruments and
Hedging Activities. SFAS 149 also amends certain other existing pronouncements,
which will result in more consistent reporting of contracts that are derivatives
in their entirety or that contain embedded derivatives that warrant separate
accounting. SFAS 149 is effective (1) for contracts entered into or modified
after June 30, 2003, with certain exceptions, and (2) for hedging relationships
designated after June 30, 2003. The guidance is to be applied prospectively.
The
Company does not expect the adoption of SFAS No. 149 to have a material impact
on its financial position or results of operations or cash flows.
On
May 15
2003, the FASB issued FASB Statement No. 150 (“SFAS 150”), Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS 150 changes the accounting for certain financial instruments that,
under previous guidance, could be classified as equity or “mezzanine” equity, by
now requiring those instruments to be classified as liabilities (or assets
in
some circumstances) in the statement of financial position. Further, SFAS 150
requires disclosure regarding the terms of those instruments and settlement
alternatives. SFAS 150 affects an entity’s classification of the following
freestanding instruments: a) Mandatorily redeemable instruments b) Financial
instruments to repurchase an entity’s own equity instruments c) Financial
instruments embodying obligations that the issuer must or could choose to settle
by issuing a variable number of its shares or other equity instruments based
solely on (i) a fixed monetary amount known at inception or (ii) something
other
than changes in its own equity instruments d) SFAS 150 does not apply to
features embedded in a financial instrument that is not a derivative in its
entirety. The guidance in SFAS 150 is generally effective for all financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective at the beginning of the first interim period beginning after June
15,
2003. For private companies, mandatorily redeemable financial instruments are
subject to the provisions of SFAS 150 for the fiscal period beginning after
December 15, 2003. The Company does not expect the adoption of SFAS No. 150
to
have a material impact on its financial position or results of operations or
cash flows.
3.
Inventories
Inventories
at December 31, 2003 and 2002 were as follows:
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
Raw
and packing materials
|
|
$
|
450,967
|
|
$
|
269,353
|
|
Finished
goods
|
|
|
429,487
|
|
|
678,742
|
|
|
|
|
|
|
|
|
|
|
|
|
880,454
|
|
|
948,095
|
|
|
|
|
|
|
|
|
|
Less
allowance for obsolescence
|
|
|
(164,722
|
)
|
|
(150,825
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
715,732
|
|
$
|
797,270
|
|
|
|
|
|
|
|
|
|
4.
Property and Equipment
Net
property and equipment at December 31, 2003 and 2002 were as
follows:
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
Building
|
|
$
|
946,888
|
|
$
|
942,480
|
|
Machinery
|
|
|
328,280
|
|
|
233,000
|
|
Furniture
and office equipment
|
|
|
21,265
|
|
|
16,828
|
|
Vehicles
|
|
|
147,651
|
|
|
118,122
|
|
|
|
|
|
|
|
|
|
|
|
|
1,444,084
|
|
|
1,310,430
|
|
|
|
|
|
|
|
|
|
Less
Accumulated depreciation
|
|
|
(223,497
|
)
|
|
(84,940
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
1,220,587
|
|
$
|
1,225,490
|
|
|
|
|
|
|
|
|
|
Depreciation
expense for the years ended December 31, 2003 and December 31, 2002 was $138,557
and $50,000.
The
Company depreciated its production related assets at a rate double than the
straight line rate due to its excessive usage in the year ended December 31,
2003. This factor contributed towards the increase in depreciation by $61,919.
The change in estimate resulted in decrease in net income by $61,919 or $41.27
per share for the year ended December 31, 2003.
5.
Intangible assets
Net
intangible assets at December 31, 2003 and 2002 were as follows:
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
Rights
to use land
|
|
$
|
1,655,248
|
|
$
|
184,941
|
|
Fertilizers
proprietary technology rights
|
|
|
960,000
|
|
|
960,000
|
|
|
|
|
|
|
|
|
|
|
|
|
2,615,248
|
|
|
1,144,941
|
|
|
|
|
|
|
|
|
|
Less
Accumulated amortization
|
|
|
(305,100
|
)
|
|
(195,699
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
2,310,148
|
|
$
|
949,242
|
|
|
|
|
|
|
|
|
|
The
Company’s office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shanxi, People’s
Republic of China. The Company leases land per a real estate contract with
the
government of People’s Republic of China for a period from November 2001 through
November 2051. Per the People’s Republic of China’s governmental regulations,
the Government owns all land.
During
July 2003, the Company leased another parcel of land per a real estate contract
with the government of the People’s Republic of China for a period from July
2003 through June 2053.
The
Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty years. The
amortization expense of “Rights to use land” for the year ended December 31,
2003 and 2002 amounted to $13,401 and $3,699 respectively. The accumulated
amortization as at December 31, 2003 was $17,100.
The
Company acquired Fluid and Compound Fertilizers proprietary technology rights
with a life ending December 31, 2011. The Company is amortizing Fertilizers
proprietary technology rights over a period of ten years. The amortization
expense of “Fertilizers proprietary technology rights” for the years ended
December 31, 2003 and 2002 amounted to $96,000 and $96,000. The Accumulated
amortization as on December 31, 2003 and 2002 amounted to $288,000 and
$192,000.
Amortization
expense for the Company’s current amortizable intangible assets over the next
five fiscal years is estimated to be: 2004 — $130,000, 2005 — $130,000, 2006
-$130,000, 2007 — $130,000 and 2008 — $130,000.
6.
Dividend payable
The
Shareholders of the company in their meeting dated May 9, 2003 approved a
dividend of $180,000 for the year ended December 31, 2002.
7.
Short term loan
Short
term loans consisted of the following at December 31, 2003 and
2002:
|
|
2003
|
|
2002
|
|
Note
payable to bank, interest rate; 6.84% per annum, payable quarterly,
original note; $480,000, maturity date; 1/27/04, secured by assets
of the
Company.
|
|
$
|
480,000
|
|
$
|
—
|
|
Note
payable to bank, interest rate; 6.84% per annum, payable quarterly,
original note; $600,000, maturity date; 9/28/04, secured by assets
of the
Company.
|
|
|
600,000
|
|
|
—
|
|
Short
term support loan from the Shanxi Technology Bureau of the Government
of
People’s Republic of China, interest free; secured by assets of the
Company
|
|
|
12,000
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,092,000
|
|
$
|
12,000
|
|
|
|
|
|
|
|
|
|
8.
Shareholders’ equity
On
December 15, 2003, the Company entered in to an agreement to exchange 1500
shares of its common stock for all the issued and outstanding stock of BBST.
After the consummation of the agreement, the former shareholders of BBST own
1500 shares of common stock of the Company, which represent 100% of the
Company’s issued and outstanding shares.
From
its
inception through its acquisition on December 15, 2003 (see note 1), BBST had
issued 49,200,000 shares of its common stock for $6,014,400 including issuance
of 9,200,000 shares to various parties for $1,214,400 in the year ended December
31, 2003.
9.
Related party transactions
A
loan of
$217,338 from various shareholders of the Company outstanding as at December
31,
2001 was fully repaid during the year ended December 31, 2002 along with an
interest expense of $20,249.
10.
Supplemental disclosure of cash flows
The
Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The
Company paid interest of $41,359 and $20,249 during the year ended December
31,
2003 and 2002. The Company did not pay income tax during the years ended
December 31, 2003 and 2002.
11.
Employee welfare plan
The
Company has established its own employee welfare plan in accordance with Chinese
law and regulations. The Company makes annual pre-tax contributions of 14%
of
all employees’ salaries. The total expense for the above plan amounted to
$55,813 and $21,000 for the years ended December 31, 2003 and 2002.
12.
Statutory reserve
In
accordance with the Chinese Company Law, the company has allocated 10% of its
annual net income, amounting $197,036 and $66,758, as statutory reserve on
December 31, 2003 and 2002.
UNAUDITED
PRO FORMA STATEMENT OF NET ASSETS OF THE GROUP
Set
out
below is an unaudited pro forma statement of consolidated net assets of the
Group, which has been prepared for the purpose of illustrating the effects
of
the Placing as if it had taken place on September 30, 2005. This statement
has
been prepared on the basis set out in the notes below for illustrative purposes
only and, because of its nature, cannot give a true picture of the financial
position of the Group.
|
|
Per
Part
IV
(note
1)
$’000
|
|
Adjustment
(note
2)
$’000
|
|
Pro
forma
$’000
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
3,841
|
|
|
18,900
|
|
|
22,741
|
|
Accounts
receivable, net
|
|
|
7,629
|
|
|
—
|
|
|
7,629
|
|
Advances
to suppliers
|
|
|
665
|
|
|
—
|
|
|
665
|
|
Prepaid
expenses
|
|
|
284
|
|
|
—
|
|
|
284
|
|
Inventory
|
|
|
1,037
|
|
|
—
|
|
|
1,037
|
|
Loan
Receivable
|
|
|
997
|
|
|
—
|
|
|
997
|
|
Investment
|
|
|
2,869
|
|
|
—
|
|
|
2,869
|
|
Other
assets
|
|
|
75
|
|
|
—
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
17,397
|
|
|
18,900
|
|
|
36,297
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment,
Net of accumulated depreciation
|
|
|
5,006
|
|
|
—
|
|
|
5,006
|
|
Construction
in progress
|
|
|
1,240
|
|
|
—
|
|
|
1,240
|
|
Intangible
assets,
Net of accumulated amortization
|
|
|
2,154
|
|
|
—
|
|
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
25,797
|
|
|
18,900
|
|
|
44,697
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(405
|
)
|
|
—
|
|
|
(405
|
)
|
Other
payable
|
|
|
(379
|
|
|
—
|
|
|
(379
|
)
|
Accrued
expenses
|
|
|
(167
|
)
|
|
—
|
|
|
(167
|
)
|
Notes
payable
|
|
|
(880
|
)
|
|
—
|
|
|
(880
|
)
|
Convertible
debenture, net discount due to beneficial conversion
|
|
|
(1,515
|
)
|
|
—
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
(3,346
|
)
|
|
—
|
|
|
(3,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
(3,346
|
)
|
|
—
|
|
|
(3,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets
|
|
|
22,451
|
|
|
18,900
|
|
|
41,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
(1)
The
net assets of the Group as at September 30, 2005 have been extracted without
material adjustment from the financial statements in Part IV of this
document.
(2)
The
adjustment represents the estimated net proceeds of the Placing receivable
by
the Company of approximately £10.63 million (after deducting estimated expenses
of £1.37 million).
(3)
Assumes a conversion rate of 1.7781 U.S. Dollars to 1 British
Pound.
(4)
No
adjustments have been made to reflect the effect of trading or any other
transactions since September 30, 2005.
ADDITIONAL
INFORMATION
1.
Responsibility Statement
The
Directors, whose names appear on page 3 of this document, accept responsibility
for all the information in this document including individual and collective
responsibility for compliance with the AIM Rules. To the best of the knowledge
and belief of the Directors (who have taken all reasonable care to ensure that
such is the case) the information contained in this document is in accordance
with the facts and does not omit anything likely to affect the import of such
information.
2.
Incorporation and principal activities
(a)
The
Company was incorporated in the State of Delaware, United States, on January
14,
2000, with number 0001178552 and with the name Stratabid.com, Inc. On February
24, 2004, Bodisen Holdings, Inc., a wholly-owned subsidiary of the Company,
merged with Bodisen International, Inc, the parent of Yang Ling. The Company’s
and its principal office is at North Part of Xinquia Road, Yang Ling AG,
High-Tech Industries Demonstration Zone, Yang Ling, China 712100. On 1 March
2004 the Company changed its name to Bodisen Biotech, Inc.
(b)
The
registered office of the Company is The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, DE 19801 Telephone number: +1
(302) 658-7581.
(c)
The
liability of the members of the Company is limited.
(d)
The
main activity of the Company is to act as a holding company for Bodisen Holdings
Inc. and Yang Ling Bodisen Biology Science and Technology Development Company
Limited.
(e)
The
principal legislation under which the Company operates is the law of the State
of Delaware, United States. Yang Ling, the operating company, operates under
the
law of The People’s Republic of China.
(f)
The
Company has three subsidiaries. The first is registered in the United States
under the name Bodisen Holdings Inc., and is wholly owned by the Company. The
second is registered in The People’s Republic of China under the name Yang Ling
Bodisen Agricultural Technology Co. Ltd, and is also wholly owned by the
Company. The third is registered in The People’s Republic of China under the
name Yang Ling Bodisen Biology Science and Technology Development Company
Limited (‘Yang Ling’, the sole operating subsidiary), and is 90% owned by Yang
Ling Bodisen Agricultural Technology Co. Ltd. The remaining 10% is owned by
four
private individuals, some of whom are directors or shareholders of the Company
and each of whom have executed a share trust agreement with Yang Ling Bodisen
Agricultural Technology Co. Ltd for that company to hold their shares on trust
and thus to hold and manage 100% of the shares of Yang Ling.
3.
Share Capital
(a)
The
Company’s authorized capital stock consists of 30,000,000 shares of Common
Stock, $0.0001 par value, and 5,000,000 shares of preferred stock, $0.0001
par
value. As of 31 December 2005, there were 16,120,902 shares of Common Stock
outstanding and no preferred stock outstanding.
(b)
The
authorized and issued share capital of the Company at the date of this document
is as follows:
|
Authorised
Number
|
Issued
(fully paid) Number
|
Common
Stock
|
30,000,000
|
As
of 31 December the number of outstanding shares was
16,120,902.
|
preferred
stock of $0.0001
|
5,000,000
|
0
|
(c)
Immediately following Admission, the authorized and issued share capital of
the
Company will be as follows:
|
Authorised
Number
|
$
|
Issued
(fully paid) Number
|
£
|
Common
Stock
|
30,000,000
|
3,000
|
•
|
•
|
preferred
stock of
$0.000 15,000,000
|
500
|
•
|
•
|
(d)
The
By-Laws do not impose any conditions governing changes in share capital which
are more stringent than is required by law.
(e)
The
Placing Shares will rank equally in all respects with the Existing Common Stock,
including the right to receive all dividends and other distributions declared,
made or paid after Admission in respect of the Company’s ordinary share
capital.
(f)
Holders of Common Stock are each entitled to cast one vote for each share held
of record on all matters presented to the Company’s Stockholders. Cumulative
voting is not allowed; therefore, the holders of a majority of the outstanding
(or issued) Common Stock can elect all directors.
(g)
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board out of funds legally available for dividends and, in
the
event of liquidation, to share pro
rata
in any
distribution of its assets after payment of liabilities. The Company’s board of
directors is not obligated to declare a dividend. It is not anticipated that
dividends will be paid in the foreseeable future.
(h)
Holders of Common Stock do not have pre-emptive rights to subscribe to
additional shares if issued by the Company. There are no conversion, redemption,
sinking fund or similar provisions regarding the Common Stock.
(i)
To
change the rights of Stockholders, as set forth in the Company’s Certificate of
Incorporation, the approval of the Company’s Stockholders is
required.
(j)
The
Company’s Certificate of Incorporation and the laws of the State of Delaware
provide that the board of directors has the authority to divide the preferred
stock into series and to fix by resolution the voting power, designations,
preferences, and relative participation, special rights, and the qualifications,
limitations or restrictions of the shares of any series so established. The
relative rights and privileges of holders of Common Stock may be adversely
affected by the rights of holders of any series of preferred stock which Bodisen
may issue and designate in the future. [The Company has undertaken to Charles
Stanley that it will not issue such preferred stock without the consent of
at
least 75% of the holders of Common Stock and that it will endeavour to procure
a
resolution at the next annual general meeting of the Company to either (i)
cancel all authorized preferred stock, or (ii) require a Stockholders’
resolution with not less than 75% of the holders of Common Stock voting on
that
resolution before the Company can issue any preferred stock.]
(k)
The
By-Laws provide that the Company may restrict either the transfer, or the
allotment or issue, of shares by giving the Directors the discretion to provide
any stockholder the “first right of refusal to purchase” provided, however, that
such restriction is legended on the stock certificate.
(l)
Since
August 29, 2005, the Common Stock trades on AMEX under the symbol “BBC”. Prior
to the AMEX listing, the Common Stock traded on the NASD Over-The-Counter
Bulletin Board under the symbol “BBOI”. The Over-The-Counter Bulletin Board is
sponsored by the National Association of Securities Dealers (NASD) and is a
network of security dealers who buy and sell stocks.
For
the
periods indicated, the following table sets forth the high and low bid prices
per share of Common Stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
Period
|
Low($)
|
High($)
|
2005
First
Quarter
|
5.05
|
6.30
|
2004
Fourth
Quarter
|
5.60
|
7.31
|
2004
Third
Quarter
|
6.10
|
8.60
|
2004
Second
Quarter
|
4.40
|
7.62
|
2004
First
Quarter (1)
|
.25
|
13.90
|
(1)
The
Company effected a 4:1 forward split on March 3, 2004.
As
of 8
June, 2005, management believes there to be approximately 476 holders of record
of the Company’s Common Stock.
The
Company is a legal entity separate and distinct from its operating subsidiary,
Yang Ling, which is an indirect subsidiary of the Company. The Company’s
revenues (on a parent company only basis) would be derived entirely from
dividends paid to the Company by Yang Ling. The Chinese government exerts
significant influence over the economy of The People’s Republic of China, and
there may be regulatory restrictions on Yang Ling’s ability to make
distributions of cash to the Company. Further, the right of the Company, and
consequently the right of creditors and stockholders of the Company, to
participate in any distribution of the assets or earnings of Yang Ling through
the payment of such dividends or otherwise is necessarily subject to the prior
claims of creditors of Yang Ling, except to the extent that claims of the
Company in its capacity as a creditor may be recognized. The Company has not
paid any dividends on its common stock, nor do the Directors currently intend
to
pay dividends in the future.
4.
Directors
(a)
The
Directors are listed below, together with their respective
positions:
Qiong
Wang
|
Chairman
|
Bo
Chen
|
Executive
Director
|
David
Gatton
|
Non-Executive
Director
|
Patrick
McManus
|
Non-Executive
Director
|
Weirui
Wan
|
Non-Executive
Director
|
The
business address of the Directors is North Part of Xinquia Road, Yang Ling
AG,
High-Tech Industries Demonstration Zone, Yang Ling, China 712100.
(b)
Brief
biographical details of each of the Directors are set out at paragraph 13 of
Part II of this Admission Document.
(c)
The
companies and partnerships outside the Group of which the Directors are
directors or partners or have been at any time during the five years prior
to
the date of this document are as follows:
Name
of Director
|
Current
directorships and partnerships outside the Bodisen
Group
|
Previous
directorships
and
partnerships
|
Qiong
Wang
|
None
|
None
|
|
|
|
Bo
Chen
|
China
Natural Gas Inc
|
None
|
|
|
|
David
Gatton
|
Development
Initiatives, Inc.;
44th
& King Drive Partnership;
Harbor
Meadows Apts Lmtd Partnership;
Harbin
Electric, Inc.;
IMT
Development Corporation
China
Natural Gas Inc
|
None
|
|
|
|
Patrick
McManus
|
Harbin
Electric, Inc.
|
None
|
|
|
|
Weirui
Wan
|
Advisory
Bd of Yang Ling Agricultural Hi-Tech Ind. Demo. Zone
|
None
|
(d)
As at
the date of this document no Director:
(i)
has
any unspent convictions in relation to indictable offences;
(ii)
has
been bankrupt or entered into any individual or voluntary
arrangements;
(iii)
was
a director with an executive function at any company at the time of or within
12
months preceding any receivership, compulsory liquidation, creditors’ voluntary
liquidation, administration, company voluntary arrangements or any composition
or arrangement with that company’s creditors generally or with any class of its
creditors;
(iv)
has
been a partner in a partnership at the time or within 12 months preceding any
compulsory liquidation, administration or partnership voluntary arrangement
of
such partnership;
(v)
has
had his assets the subject of any receivership or has been a partner in a
partnership at the time of or within 12 months preceding any assets thereof
being the subject of a receivership; or
(vi)
has
been subject to any public criticism by any statutory or regulatory authority
(including any designated professional bodies) or has ever been disqualified
by
a court from acting as a director of a company or from acting in the management
or conduct of the affairs of a company.
(e)
Terms
of employment / engagement
Executive
Directors’ Service Contracts
The
Company has implemented terms and conditions that apply to each employee and
officer (including senior executives and executive directors). These terms
provide for a 6 day week with 14 days holiday per annum and permit the Company
to terminate the employment on 10 days notice. There are strict confidentiality
and trade secret provisions. The annual salaries in U.S.$ of the executive
directors are:
Qiong
Wang
|
Chairman
|
$23,220
|
Bo
Chen
|
President
|
$20,310
|
Paid
by
Yang Ling as salary for their executive role with Yang Ling
Non-executive
Directors’ Service Contracts
The
Company does not have any service contracts with its non-executive
Directors.
(f)
Remuneration
During
the fiscal year 2004, Messrs. Gatton and McManus each received $4,500 as a
cash
fee for 3 months’ (May, June, July) service as Directors. On December 28, 2004
they received 5,000 stock options each for five months service as Directors
(August through December), which vested on December 31, 2004. On October 4,
2005
they received 13,000 stock options each in lieu of salary, 10,000 of which
vested immediately and 1,000 of which vested each month thereafter. The option
exercise price in relation to these 26,000 options was $6.72. Directors are
not
entitled to additional fees for serving on committees of the Board of Directors.
Pursuant to the Company’s Stock Option Plan, the Company granted 110,000 stock
options to David Gatton and Patrick McManus in 2004, each a Director of the
Company. Messrs. Gatton and McManus were each granted 50,000 stock options
on
June 4, 2004. 25,000 vested immediately and the remaining 25,000 vest over
8
equal quarterly instalments; the first such instalment vested at the end of
the
second quarter of 2004. The option exercise price was $5.00 for the first
100,000 stock options, which was the same as the market price of the shares
at
the time of granting of the options. The option exercise price was $5.80 for
the
second 10,000 stock options, which was the same as the market price of the
shares at the time of granting of the options.
The
aggregate of the remuneration paid and benefits in kind (including pension
contributions) granted to the non-executive Directors in their role as directors
by the Group during the financial year ended December 31, 2004 was $9,000 plus
$1.92 per option granted (for an aggregate payment in kind for options of
$211,200). In addition, the executive directors of the Company were paid an
aggregate salary of $43,530 by Group companies. The aggregate of the
remuneration payable and benefits in kind (including pension contributions)
to
be granted by the Group to the executive Directors in their role as directors
for the financial period ending December 31, 2005 under the arrangements in
force at the date of this document is estimated to be nil. The executive
directors of the Company will, however, receive an aggregate salary of
approximately $43,530 for that period from Group companies for their role as
executives of Yang Ling.
The
following table contains information concerning the compensation of Bodisen’s
present and previous chief executive officer for the period 2002 to
2004.
|
|
|
|
Annual
|
Other
Restricted
|
|
Securities
|
|
All
Other
|
Name
and Principal
|
|
Salary
|
Bonus
|
Compensation
|
Stock
Awards
|
Restricted
|
underlying
|
LTIP
payouts
|
Compensation
|
Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
Stock
Awards
|
options
|
($)
|
($)
|
Qiong
Wang, CEO
|
2004
|
23,220
|
0
|
23,220
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
2003
|
4,400
|
0
|
4,400
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
2002
|
$11,600
|
0
|
$11,600
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
Derek
Wasson, CEO
|
2004
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
2003
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
32,694(1)
|
|
2002
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
19,047(1)
|
(1) Represents
consulting fees paid.
5.
Interests in Share Capital
(a)
As at
31 December 2005, being the latest practicable date prior to the publication
of
this document, the interests of (i) management and (ii) the Directors (and
persons connected with them within the meaning of section 346 of the Act) in
the
share capital of the Company which (a) have been notified to the Company
pursuant to sections 324 or 328 of the Act; or (b) are required to be entered
in
the register maintained pursuant to section 325 of the Act; or (c) are interests
of a person connected with a Director (within the meaning of section 346 of
the
Act) which would, if the connected person were a director of the Company, be
required to be disclosed under (a) or (b) above, and the existence of which
is
known or which could with reasonable diligence be ascertained by that Director,
were, and, on the assumptions referred to below, immediately following the
Admission are expected to be, as set out below (all interests specified are
beneficial unless otherwise stated):
|
As
of 31 December 2005
|
Number
of shares of Common Stock immediately following
Admission
|
|
|
|
|
|
Name
|
Number
of shares of Common Stock
|
%
of issued Share Capital (1)
|
Number
of shares of Common Stock
|
%
of issued Share Capital
|
Qiong
Wang
|
3,748,780
|
23.25%
|
[•]
|
[•]
|
Bo
Chen
|
3,584,096
|
22.73%
|
[•]
|
[•]
|
David
Gatton
|
64,875
(2)
|
0%
|
[•]
|
[•]
|
Patrick
McManus
|
64,875
(2)
|
0%
|
[•]
|
[•]
|
Weirui
Wan
|
None
|
None
|
[•]
|
[•]
|
McManus
and Gatton reflect options vested but not exercised. Percentage is less than
1%
(1) Based
on
16,120,902 shares of Common Stock currently outstanding.
(2) Reflects
stock options vested but unexercised.
In
aggregate, the Directors’ interests in the Common Stock set out above, all of
which are beneficial interests unless otherwise stated, amount to 45.48% of
the
Company’s current issued share capital and [•]%. of the Company’s Enlarged
Issued Share Capital immediately following the Placing (assuming that no
additional Ordinary Shares are issued pursuant to any of the Company’s Stock
Option Plans or otherwise).
(b)
As at
31 December 2005, being the latest practicable date prior to the publication
of
this document, the Directors had been granted, and had outstanding, options
as
follows:
Name
|
Number
|
|
Date
of Grant
|
Expiry
date
|
Exercise
Price (£)
|
Qiong
Wang
|
None
|
|
None
|
None
|
None
|
Bo
Chen
|
None
|
|
None
|
None
|
None
|
David
Gatton
|
50,000
|
|
4
June 2004
|
4
June 2009
|
U.S.$5.00
|
|
5,000
|
|
28
December 2004
|
28
December 2009
|
U.S.$5.80
|
|
13,000
|
|
4
October 2005
|
4
October 2010
|
U.S.$6.72
|
Patrick
McManus
|
50,000
|
|
4
June 2004
|
4
June 2009
|
U.S.$5.00
|
|
5,000
|
|
28
December 2004
|
28
December 2009
|
U.S.$5.80
|
|
13,000
|
|
4
October 2005
|
4
October 2010
|
U.S.$6.72
|
Weirui
Wan
|
None
|
|
None
|
None
|
None
|
The
exercise dates of share options granted under the Plan are explained in
paragraph 7 of this Part VI.
(c)
Other
than the holdings of the Directors set out above, as at 31 December 2005, being
the latest practicable date prior to the publication of this document, the
Directors were aware of the following persons who, directly or indirectly,
are,
and, based on the assumptions set out below, immediately following Admission
will be interested in 3% pursuant to Section 199 of the Act (or 5% pursuant
to
Section 13 of the U.S. Securities Exchange Act of 1934) or more of the issued
share capital of the Company.
Name
|
|
Number
of shares of Common Stock as at the date of this
document
|
|
Percentage
of issued Share Capital as at the date of this
document
|
|
Number
of
shares
of
Common
Stock
immediately
following
Admission
|
|
Percentage
of issued Share Capital immediately following
Admission
|
Amulet
Limited
|
|
868,750(1)
|
|
4.99%(2)
|
|
[•]
|
|
[•]
|
(1) assumes
the conversion of all of the convertible debenture and exercise of all of the
warrants they are entitled to, provided, however, that the number of shares
which could be obtained pursuant to the convertible debenture and the warrants
are subject to adjustment in certain circumstances.
(2) pursuant
to the terms of the convertible debenture and warrant agreements, Amulet Limited
agreed to limit its right to convert the debenture and exercise the warrants
so
that it can acquire only up to 4.99% of the Company’s outstanding common stock
unless Amulet Limited gives 60 days’ notice to the Company, in which case,
Amulet Limited could acquire up to 9.99% of the Company’s outstanding Common
Stock (through the conversion of the debentures and exercise of the warrants
and
open market purchases).
(d)
All
Stockholders, including the Company’s major Stockholders, have the same voting
rights.
(e)
Save
as disclosed above, the Directors are not aware of any person who is, or who
will be immediately following Admission, directly or indirectly interested
in 3%
or more of the Enlarged Issued Share Capital of the Company.
(f)
Save
as disclosed herein, no Director has, or has had, any interest in any
transaction which is or was unusual in its nature or conditions or significant
to the business of the Group and which was effected by the Group in the current
or immediately preceding financial year or during an earlier financial year
and
which remains in any respect outstanding or unperformed.
(g)
There
are no outstanding loans granted by any member of the Group to any Directors,
nor were any guarantees provided by any member of the Group for the benefit
of
any Director.
(h)
Save
as referred to in this paragraph 5, the Directors are not aware of any person
who directly or indirectly, jointly or severally, exercises or could exercise
control over the Company.
6.
Certificate of Incorporation and By-Laws
The
By-Laws contain, inter
alia,
provisions to the following effect:
(i)
Board
of Directors
The
Board
of Directors shall manage the affairs, property, and business of the
Corporation, which shall consist of not less than one and not more than ten
directors, who shall be elected at the annual meeting of stockholders by a
plurality vote for a term of one (1) year, and shall hold office until their
successors are elected and qualify.
(ii)
Director
Compensation
Director
salaries, if any, shall be fixed by resolution of the Board of Directors. Such
compensation may include a fixed sum and expenses of attendance at each regular
or special meeting of the Board. Members of any special or standing committees
may receive similar compensation for attending meetings.
(iii)
Stock
Restrictions
The
Board
of Directors may restrict any stock issued by giving the Corporation or any
stockholder “first right of refusal to purchase” the stock, by making the stock
redeemable or by restricting the transfer of the stock, under such terms and
in
such manner as the directors may deem necessary and as are not inconsistent
with
the Certificate of Incorporation or by statute. Any stock so restricted must
carry a stamped legend setting out the restriction or conspicuously noting
the
restriction and stating where it may be found in the records of the
Corporation.
(iv)
Dividends
Dividends
may be declared by the directors and paid out of any funds legally available
therefore under the laws of Delaware, as may be deemed advisable from time
to
time by the Board of Directors of the Corporation.
(v)
Indemnification
The
Corporation shall indemnify any and all of its directors or officers, or former
directors or officers, or any person who may have served at its request as
a
director or officer of another corporation in which this Corporation owns shares
of capital stock or of which it is a creditor and the personal representatives
of all such persons, against expenses actually and necessarily incurred in
connection with the defense of any action, suit, or proceeding in which they,
or
any of them, were made parties, or a party, by reason of being or having been
directors or officers or a director or officer of the Corporation, or of such
other corporation, except in relation to matters as to which any such director
or officer or person shall have been adjudged in such action, suit, or
proceeding to be liable for negligence or misconduct in the performance of
any
duty owed to the Corporation.
(vi)
Shareholder
Meetings
Annual
Meeting
The
annual meeting of the stockholders of the Corporation for the election of
directors and for the transaction of other business shall be held each year
on a
date to be determined by the Board of Directors.
Special
Meeting
Special
meetings of the stockholders for any purpose or purposes may be called by the
President, the Board of Directors, or the holders of ten per cent (10%) or
more
of all the shares entitled to vote at such meeting, by the giving of notice
in
writing.
Notice
A
written
notice of the meeting must state the place, if any, date and hour of the
meeting, the means of remote communications, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
The
written notice of any meeting must be given not less than 10 nor more than
60
days before the date of the meeting to each stockholder entitled to vote at
such
meeting. If mailed, the notice is deemed given when deposited in the United
States mail, postage prepaid, directed to the stockholder at the address as
it
appears on the records of the corporation.
7.
The Stock Option Plan
The
Company’s long term incentives are in the form of stock options granted to
directors, executives, employees and consultants under the 2004 Stock Option
Plan (the “Plan”). The objective of these awards is to advance the longer term
interests of the Company and its stockholders and complement incentives tied
to
annual performance. These awards provide rewards to directors, executives and
other key employees and consultants upon the creation of incremental stockholder
value and attainment of long-term earnings goals. Stock option awards under
the
Plan produce value to participants only if the price of the Company’s stock
appreciates, thereby directly linking the interests of the participants with
those of the Stockholders. No stock options were granted to executive officers
in 2004.
The
Plan
was filed with the SEC on March 31, 2005. The main features of the Plan (which
is not approved by the U.K. Inland Revenue) are summarised below:
(i)
Eligibility
Directors,
officers, employees or consultants to the Company are eligible to receive the
Options. An Optionee may hold more than one Option. Any issuance of a Grant
to
an officer or director of the Company subsequent to the first registration
of
any of the securities of the Company under the Exchange Act will comply with
the
requirements of Rule 16b-3.
Incentive
Stock Options will only be issued to employees of the Company. Incentive Stock
Options may be granted to officers or directors, provided they are also
employees of the Company.
Incentive
Stock Options will not be granted to any
employee if such Grant would, for all Incentive Stock Options granted, result
in
such employee, for the first time in any one calendar year, holding the right
to
exercise options in excess of $100,000. If an Incentive Stock Option exceeds
such maximum for any reason other than a failure in good faith to value the
Stock subject to such option, the excess portion of such option shall be
considered a Nonstatutory Option.
(ii)
Exercise
Price
The
exercise price will be determined by the Board, subject to the following
limitations:
(a)
Any
Incentive Stock Option granted to a person who at the time the Option is granted
owns (or is deemed to own pursuant to Section 424(d) of the U.S. Internal
Revenue Code) stock possessing more than ten percent (10%) of the total combined
voting power or value of all classes of stock of the Company (“Ten Percent
Holder”) shall have an exercise price of no less than 110% of the Fair Market
Value of the Stock as of the date of grant; and
(b)
Incentive Stock Options granted to a person who at the time the Option is
granted is not a Ten Percent Holder shall have an exercise price of no less
than
100% of the Fair Market Value of the Stock as of the date of grant.
(iii)
Performance
conditions
The
performance standards are determined by the sole discretion of the compensation
committee of the Board.
(iv)
Issue
or transfer of shares on exercise of options
No
Option
shall be transferable by the Optionee, except by will or by the laws of descent
and distribution of the United States. Notwithstanding anything else in this
subsection (h), the Board may in its discretion grant Nonstatutory Stock Options
that may be transferred by instrument to an inter
vivos
or
testamentary trust in which the Options are to be passed to beneficiaries upon
the death of the trustor (settlor) or by gift to “Immediate Family” (as defined
below), on such terms and conditions as the Board deems appropriate. The Board
may in its discretion grant transferable Nonstatutory Stock Options pursuant
to
Option Agreements specifying the manner in which such Nonstatutory Stock Options
are transferable. “Immediate Family” means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
(v)
Scheme
Limits
Subject
to adjustments, the Plan, the total number of shares of Stock which may be
purchased or granted directly by Options, Stock Awards or Restricted Stock
Purchase Offers, or purchased indirectly through exercise of Options granted
under the Plan shall not exceed One Million (1,000,000).
The
Company will not grant an Incentive Stock Option under the Plan to any employee
if such Grant would result in such employee holding the right to exercise for
the first time in any one calendar year, under all Incentive Stock Options
granted under the Plan or any other plan maintained by the Company, with respect
to shares of Stock having an aggregate fair market value, determined as of
the
date of the Option is granted, in excess of $100,000. If it is determined that
an Incentive Stock Option granted under the Plan exceeds such maximum for any
reason other than a failure in good faith to value the Stock subject to such
option, the excess portion of such option will be considered a Nonstatutory
Option. To the extent the employee holds two (2) or more such Options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such Option as Incentive Stock Options
under
the Federal tax laws will be applied on the basis of the order in which such
Options are granted. If, for any reason, an entire Option does not qualify
as an
Incentive Stock Option by reason of exceeding such maximum, such Option shall
be
considered a Nonstatutory Option.
(vi)
Adjustments
In
the
event of any change in the outstanding Stock by reason of a stock split, stock
dividend, combination or reclassification of shares, recapitalization, merger,
or similar event, the Board or the Committee may adjust proportionally (a)
the
number of shares of Stock (i) reserved under the Plan, (ii) available for
Incentive Stock Options and Nonstatutory Options and (iii) covered by
outstanding Stock Awards or Restricted Stock Purchase Offers; (b) the Stock
prices related to outstanding Grants; and (c) the appropriate Fair Market Value
and other price determinations
for
such
Grants. In the event of any other change affecting the Stock or any distribution
(other than normal cash dividends) to holders of Stock, such adjustments as
may
be deemed equitable by the Board or the Committee, including adjustments to
avoid fractional shares, shall be made to give proper effect to such event.
In
the event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Board or the Committee
shall be authorized to issue or assume stock options, whether or not in a
transaction to which Section 424(a) of the Code applies, and other Grants by
means of substitution of new Grant Agreements for previously issued Grants
or an
assumption of previously issued Grants.
(vii)
Amendments
The
Board
may, insofar as permitted by law, from time to time, with respect to any shares
at the time not subject to outstanding Grants, suspend or terminate the Plan
or
revise or amend it in any respect whatsoever, except that without the approval
of the shareholders of the Company. No revision or amendment will (i) increase
the number of shares subject to the Plan, (ii) decrease the price at which
Grants may be granted, (iii) materially increase the benefits to Participants,
or (iv) change the class of persons eligible to receive Grants under the Plan;
provided, however, no such action shall alter or impair the rights and
obligations under any Option, or Stock Award, or Restricted Stock Purchase
Offer
outstanding as of the date thereof without the written consent of the
Participant thereunder.
(viii)
Benefits
non-pensionable
If
Optionee’s status as an employee terminates for any reason other than disability
or death, then the Optionee’s personal representative or the person entitled to
succeed to the Option will have the right to exercise the portions of any of
Optionee’s Incentive Stock Options which were exercisable as of the date of such
termination, in whole or in part, not less than 30 days nor more than three
(3)
months after such termination (or, in the event of “termination for good cause”
or by the terms of the Plan or the Option Agreement or an employment agreement,
the Option shall automatically terminate as of the termination of employment
as
to all shares covered by the Option).
With
respect to Nonstatutory Options granted to employees, directors or consultants,
the Board may specify such period for exercise, not less than 30 days (except
that in the case of “termination for cause” or removal of a director), the
Options will automatically terminate as of the termination of employment or
services as to shares covered by the Option, following termination of employment
or services as the Board deems reasonable and appropriate. The Option may be
exercised only with respect to installments that the Optionee could have
exercised at the date of termination of employment or services. Nothing
contained herein or in any Option granted pursuant hereto shall be construed
to
affect or restrict in any way the right of the Company to terminate the
employment or services of an Optionee with or without cause.
8.
Material Contracts
The
following contracts, not being contracts entered into in the ordinary course
of
business, have been entered into by the Company or its subsidiaries within
the
period of two years immediately preceding the date of this document and are
or
may be material:
(a)
The
Placing Agreement and the Nominated Adviser Agreement, details of which are
set
out at paragraph 16 below.
(b)
The
Group has an oral agreement with a PRC consultancy firm, Tianjin NYGG Investing
Consulting Co. Ltd, for the provision of services to assist in improved global
brand recognition, fund raising and stock liquidity. The agreement provides
for
a fixed fee payable quarterly and a success fee on Admission.
(c)
The
Group has short term supply agreements with 19 different suppliers, each on
the
Group’s standard terms and conditions. The Company does not consider any of
these to be material. The Group has short term Product Sale Agreements with
157
wholesalers of its product. Again these are each on the Group’s standard terms
and conditions and none of them are considered material (the largest
representing 2% of Group sales by value).
(d)
On
December 8, 2005, the Company issued a $5,000,000 promissory note (the “Note”)
to Amaranth Partners L.L.C. (the “Payee”) in consideration of a $5,000,000 loan
from the Payee to the
Company.
The Note bears interest at 9.00% per annum. The principal amount of the Note,
together with all accrued and unpaid interest, is due and payable on March
8,
2006. The Note contains customary default provisions and is unsecured. Proceeds
from the loan are to be used for prepayments for certain raw materials. In
connection with the issuance of the Note, the Company agreed to issue to the
Payee on or before March 1, 2006 a warrant (the “Warrant”) to purchase 133,333
shares of the Company’s common stock at $7.50 per share (subject to adjustment).
At the time the Warrant is issued, the Company will grant to the Payee certain
registration rights.
(e)
The
Group has an oral agreement with the Beijing office on New York Global Capital,
Inc. for the payment by the Group of a corporate finance fee of $300,000. The
fee is conditional on Admission taking place.
9.
Related Party Transactions
The
Group
has no agreements or transactions with any related party.
10.
Working capital
The
Directors are of the opinion, having made due and careful enquiry, and taking
into account the net proceeds of the Placing receivable by the Company that
the
working capital available to the Group is sufficient for its present
requirements, that is for at least the twelve months from the date of
Admission.
11.
Litigation
There
are
no governmental, legal or arbitration proceedings active, pending or threatened
against, or being brought by, the Company or any member of the Group which
are
having or may have a significant effect on the financial position of the Group,
nor have there been any such proceedings in the last 12 months.
12.
Property
The
Group’s principal executive offices are located at North Part of Xinquia Road,
Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling,
Shaanxi province, People’s Republic of China, 712100 and the telephone number is
+86-29-87074957. The Company owns two factories, which include three production
lines, an office building, one warehouse, and two research laboratories which
are located on 10,900 square meters of land. The rent for the office building
is
$121 a month from May 20, 2004 through May 20, 2005. The Group also leases
a
warehouse in Yang Ling near the site of its factories. This warehouse is 300
square meters in area. The rent of the warehouse is $194 a month from January
2005 through May 2005. The Group completed a new 609,840 square foot
manufacturing facility on March 15, 2005 and the Directors believe that its
owned and leased property is sufficient for its current and immediately
foreseeable operating needs.
13.
Taxation of dividends
The
following paragraphs are intended as a general guide only for stockholders
of
the Company who are resident or ordinarily resident individuals or companies
in
the United Kingdom for tax purposes who hold their common stock as investments
and not in the course of a trade and are based on current legislation. Owners
of
Common Stock who are in any doubt about their tax position, or who are subject
to taxation in a jurisdiction outside of the United Kingdom, should consult
their own professional independent advisor immediately.
(a)
Dividends
(i)
Subject to certain limited exceptions, U.S. withholding tax at the rate of
15%
is imposed on dividends paid by the Company to Stockholders who are resident
(for tax purposes) in the United Kingdom. The rate of withholding tax on
dividends paid to a Stockholder who is not resident (for tax purposes) in the
United Kingdom will depend on the existence and terms of any double taxation
convention between the United States and the country in which the Stockholder
is
resident.
(ii)
Subject to certain limited exceptions, Stockholders who are resident (for tax
purposes) in the United Kingdom and who receive a dividend paid by the Company
will be entitled to have any U.S. withholding tax imposed on that dividend
allowed as a credit against any United Kingdom tax that is chargeable by
reference to that same dividend.
(iii)
An
individual Stockholder who is resident (for tax purposes) in the United Kingdom
and who receives a dividend paid by the Company will be taxed upon the gross
amount of the dividend (i.e., before deduction of the U.S. withholding tax)
in
the United Kingdom. For that purpose, the dividend will be regarded as the
top
slice of the individual’s income. An individual Stockholder who is liable to tax
at the U.K. basic rate (currently 22%) will pay tax at the dividend income
ordinary rate (currently 10%). Accordingly, United Kingdom tax charge will
not
usually be suffered in practice as U.S. withholding tax at the rate of 15%
will
normally be allowed as a credit against the United Kingdom tax charge. It is
not
possible, however, to reclaim any difference between the United Kingdom tax
charge and the U.S. withholding tax from HM Revenue & Customs. The total tax
imposed on the dividend therefore remains a minimum of 15%. To the extent that
the individual pays tax at the higher rate (currently 40%) the individual will
be taxable at the dividend income upper rate (currently 32.5%) in respect of
the
gross amount (i.e. the amount of the dividends before deduction of the U.S.
withholding tax). Again U.S. withholding tax at the rate of 15% will normally
be
allowed as a credit against the United Kingdom tax charge. Accordingly, a
Stockholder who is a higher rate taxpayer in the UK will suffer a total tax
charge of 32.5% of the dividend. U.S. withholding tax generally cannot be
reclaimed from HM Revenue & Customs by Stockholders with no tax
liability.
(iv)
Subject to certain limited exceptions a Stockholder which is a company resident
(for tax purposes) in the United Kingdom and which receives a dividend paid
by
the Company will be liable to U.K. corporation tax on that dividend. U.S.
withholding tax at the rate of 15% will normally be allowed as a credit against
the United Kingdom tax charge. Where the corporation tax payable on the dividend
is less than 15%, U.S. withholding tax cannot be reclaimed from HM Revenue
&
Customs.
(v)
For
the purpose of calculating the amount of the tax credit to be allowed against
the United Kingdom tax charge on dividends, U.S. withholding tax is converted
into sterling at the rate of exchange ruling on the date that the tax is
withheld.
(vi)
The
right of a Stockholder who is not resident (for tax purposes) in the United
Kingdom to a tax credit in respect of a dividend received will depend on the
existence and terms of any double taxation convention between the United States
and the country in which the Stockholder is resident. Stockholders who are
not
resident in the United Kingdom for tax purposes should consult their own tax
advisers concerning their tax liabilities on dividends received, whether they
are entitled to claim any part of the tax credit and, if so, the procedure
for
doing so.
(b)
Capital
gains
If
a
Stockholder disposes of all or any Common Stock, he, she or it may, depending
on
the Stockholder’s particular circumstances, incur a liability to Capital Gains
Tax or, if the Stockholder is a company, Corporation Tax on chargeable
gains.
(c)
Stamp
duty and stamp duty reserve tax (“SDRT”)
No
stamp
duty or SDRT is payable on the issue of Common Stock by the Company to the
Stockholders.
The
general rate of SDRT applicable to a transfer of U.K. securities is 0.5% of
the
amount or value of the consideration paid. However, no SDRT should be payable
on
an agreement to transfer CDI within CREST provided that: (a) the Common Stock
underlying the CDI are not registered in a register kept in the U.K.; (b) the
Company’s central control and management is not exercised in the U.K.; (c) no
branch register of the Common Stock is maintained in the U.K.; (d) the Common
Stock underlying the CDI are of the same class in the body corporate as
securities which are listed in a U.S. stock exchange registered with the SEC
as
a national securities exchange; (e) due notice of all CDI issued will be given
by CRESTCo to the Board of Her Majesty’s Revenue and Customs in accordance with
the requirements of regulation 4, Stamp Duty Reserve Tax (U.K. Depositary
Interests in Foreign Securities) Regulations 1999 (SI 1999/2383); and (f)
CRESTCo intends to treat each CDI as one to which regulation 3(1) of the Foreign
Securities Regulations applies.
The
Company currently expects that each of these conditions will be satisfied and
also that no instrument subject to stamp duty will be created in respect of
such
transfer.
(d)
Material
U.S. Federal Income Tax Consequences
Summarised
below are the material U.S. federal income tax consequences to our stockholders.
This summary is based on existing U.S. federal income tax law, which may change,
even retroactively. This summary
also assumes that the stockholders have held and, if applicable, will continue
to hold their shares as capital assets under the Internal Revenue Code of 1986,
as amended. This summary does not discuss all aspects of federal income
taxation, including certain aspects that may be important to stockholders in
light of their individual circumstances. Many stockholders, such as banks,
financial institutions, insurance companies, broker-dealers, tax-exempt
organizations, and securities traders that elect mark-to-market tax accounting
treatment, may be subject to special tax rules. Other stockholders may also
be
subject to special tax rules, including but not limited to: stockholders who
received our Common Stock as compensation for services or pursuant to the
exercise of an employee stock option, or stockholders who have held, or will
hold, stock as part of a straddle, hedging, or conversion transaction for
federal income tax purposes. In addition, this summary does not discuss any
state, local, foreign, or other tax considerations.
For
purposes of this discussion, “U.S. person” means any of the
following:
(1)
a
citizen or resident of the U.S.;
(2)
a
corporation or other entity taxable as a corporation created or organized under
U.S. law (federal or state);
(3)
an
estate the income of which is subject to U.S. federal income taxation regardless
of its sources;
(4)
a
trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust, or if the trust has a valid
election in effect under applicable U.S. Treasury regulations to be treated
as a
U.S. person; or
(5)
any
other person whose worldwide income and gain is otherwise subject to U.S.
federal income taxation on a net basis.
As
used
in this discussion, the term “U.S. Holder” means a beneficial owner of our
Common Stock that is a U.S. person, and the term “non-U.S. Holder” means a
beneficial owner of our Common Stock that is not a U.S. person.
We
urge
stockholders to consult with their own tax advisor as to the particular federal,
state, local, foreign and other tax consequences, in light of their specific
circumstances. If a partnership holds our Common Stock, the tax treatment of
a
partner generally will depend upon the status of the partner and upon the
activities of the partnership. If the stockholder is a partner of a partnership
holding our Common Stock, we suggest that such stockholder consult his or her
tax advisor.
(i)
Dividend
Income, Capital Gain and Capital Loss
The
U.S.
federal income tax rate currently applicable to dividends received from domestic
corporations by an individual taxpayer is a maximum of 15%, subject to the
requirements the individual must have held the stock with respect to which
a
dividend is distributed for a minimum of 61 days during the 120-day period
beginning 60 days before the stock becomes ex-dividend. A taxpayer’s holding
period for these purposes is reduced by periods during which the taxpayer’s risk
of loss with respect to the stock is considered diminished by reason of the
existence of options, contracts to sell and similar transactions. The reduced
rate of tax applies to the taxable years between 2003 and 2008. Individual
stockholders should consult their own advisors as to their eligibility for
the
reduced rate of tax in relation to dividends on our Common Stock.
Federal
legislation also reduced the maximum U.S. federal income tax rate applicable
to
net capital gain (defined generally as the total capital gains in excess of
capital losses for the year) recognized upon the sale of capital assets that
have been held for more than 12 months to 15%. The reduced rate of tax applies
to the taxable years between 2003 and 2008. Net capital gain recognized from
the
sale of capital assets that have been held for 12 months or less will continue
to be subject to tax at ordinary income tax rates. Capital gain recognized
by a
corporate taxpayer will also continue to be subject to tax at the ordinary
income tax rates applicable to corporations. For both individual and corporate
taxpayers, there are significant limitations on the deductibility of capital
losses.
(ii)
Information
Reporting and Backup Withholding
In
general, payments of dividends with respect to our Common Stock are subject
to
information reporting. Each paying agent will be required to provide the IRS
with information, including the name, address, and taxpayer identification
number of each U.S. Holder receiving payments, and the aggregate amount of
dividends paid to such beneficial owner during the calendar year. These
reporting requirements,
however, do not apply to all beneficial owners. Specifically, corporations,
securities broker-dealers, other financial institutions, tax-exempt
organizations, qualified pension and profit sharing trusts and individual
retirement accounts, and non-U.S. persons satisfying certain requirements are
all excluded from reporting requirements.
Backup
withholding will apply if a U.S. Holder fails to establish its exemption from
the information reporting requirements, is subject to the reporting requirements
and fails to supply its correct taxpayer identification number in the manner
required by applicable law, or underreports its tax liability, or if the paying
agent has been otherwise notified by the IRS to backup withhold. The backup
withholding tax rate is currently 28%. This backup withholding tax is not an
additional tax and may be credited against a U.S. Holder’s federal income tax
liability if the required information is furnished to the IRS.
(iii)
(Special
Rules for Non-U.S. Holders)
Except
as
described below under the heading “Income or Gain Effectively Connected with the
Conduct of a U.S. Trade or Business,” dividends paid on our Common Stock held by
a non-U.S. holder will be subject to U.S. federal withholding tax (but not
the
federal income tax) at a rate of 30% or lower treaty rate, if applicable. In
order to claim a reduction of withholding under a tax treaty, a non-U.S. holder
generally will be required to file IRS Form W-8BEN upon which the non-U.S.
holder certifies, under penalty of perjury, its status as a non-U.S. person
and
its entitlement to the lower treaty rate with respect to such payments. Further,
a non-U.S. holder will generally not be subject to U.S. federal income or
withholding tax on gain realized on the taxable disposition of our Common Stock.
Non-U.S. Holders resident in the United Kingdom who may benefit from the
U.S./United Kingdom Double Tax Convention (the “Treaty”) should, on the making
of a successful claim under the Treaty, suffer a reduced federal withholding
tax
of 15% and may in certain cases depending on the precise circumstances of the
non-U.S. Holder concerned, suffer a further reduced federal withholding of
5% or
0%.
(iv)
Income
or Gain Effectively Connected with the Conduct of a U.S. Trade or
Business
If
dividends paid to a non-U.S. Holder are effectively connected with the conduct
of a U.S. trade or business by the non-U.S. Holder or, if required by a tax
treaty, the dividends are attributable to a permanent establishment maintained
in the United States by the non-U.S. Holder, us and other payors generally
are
not required to withhold tax from the dividends, provided that the non-U.S.
Holder furnishes a valid IRS Form W-8ECI certifying, under penalty of perjury,
that the holder is a non-U.S. person, and the dividends are effectively
connected with the holder’s conduct of a U.S. trade or business and are
includible in the holder’s gross income. Effectively connected dividends will be
subject to U.S. federal income tax on net income that applies to U.S. persons
generally (and, with respect to corporate holders under certain circumstances,
the branch profits tax).
In
the
case of any gain that is effectively connected with the conduct of a U.S. trade
or business by a non-U.S. Holder (and, if required by a tax treaty, any gain
that is attributable to a permanent establishment maintained in the United
States), the non-U.S. Holder will generally be taxed on its net gain derived
from the disposition at the regular rates and in the manner applicable to U.S.
persons and, if the non-U.S. Holder is a foreign corporation, the branch profits
tax may also apply.
(v)
Backup
Withholding and Information Reporting
We
must
report annually to the IRS and to each non-U.S. holder the amount of dividends
paid to that holder and the tax withheld from such dividend payments. These
reporting requirements apply regardless of whether withholding was reduced
or
eliminated by any applicable tax treaty. Copies of the information returns
reporting dividend payments and any withholding thereof may also be made
available to the tax authorities in the country in which the non-U.S. holder
is
a resident under the provisions of an applicable income tax treaty or
agreement.
A
non-U.S. holder will generally not be subject to additional information
reporting or to backup withholding with respect to dividend payments on our
Common Stock, or to information reporting or backup withholding with respect
to
payments of proceeds from the disposition of our Common Stock to or through
a
U.S. office of any broker, as long as the holder has furnished to the payor
or
broker: (i) a valid IRS Form W-8BEN certifying, under penalties of perjury,
its
status as a non-U.S. person; (ii) other documentation upon which it may rely
to
treat the payments as made to a non-U.S. person in accordance with Treasury
regulations; or (iii) otherwise establishes an exemption.
Any
amounts withheld under the backup withholding rules from a payment to a non-U.S.
holder will be allowed as a credit against such holder’s U.S. federal income tax
liability, if any, or will otherwise be refundable, provided that the requisite
procedures are followed and the proper information is filed with the IRS on
a
timely basis. Non-U.S. holders should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedure
for
obtaining such an exemption, if applicable.
14.
Reliance on Intellectual Property
Save
as
described elsewhere in this document, there are no patents or other intellectual
property rights, licenses, new manufacturing processes or particular contracts
which are or may be of fundamental importance to the Group’s
business.
15.
Minimum Amount Required To Be Raised
The
minimum amount which, in the opinion of the Directors, must be raised under
the
Placing to provide sums required in respect of the matters set out below is
£•:
Of
that
amount, approximately £• million will be used to fund the expenses of the
Placing and Admission and the remainder will be used for the construction of
two
new manufacturing facilities in Xinjian and Helongjiang (North West and North
East China), to increase the Group’s general sales and marketing activities, as
well as adding to the available working capital.
16.
The Placing Agreement and Nominated Adviser Agreement
Under
the
Placing Agreement made between (1) Charles Stanley, (2) the Company and (3)
the
Directors and dated ••, 2006, Charles Stanley has agreed to use reasonable
endeavours to procure subscribers for the Placing Shares at the Placing Price.
Pursuant to this obligation Charles Stanley has placed all the Placing Shares
with institutions and other investors under the terms of placing letters entered
into with them. The Placing is not being underwritten.
The
obligations of the parties under the Placing Agreement are conditional,
inter
alia,
upon
Admission occurring not later than 8.00 a.m. on ••, 2006 or such later time and
date (not being later than 3.00 p.m. on ••, 2006) as may be agreed by Charles
Stanley and the Company and the obligations of the placees under the placing
letters are conditional on the Placing Agreement being unconditional. The
Placing Agreement contains certain warranties by the Company and the Directors
as to the accuracy of the information contained in this document and other
matters relating to the Group and its business. The liability of the Company
and
the Directors under the warranties is limited in amount. Charles Stanley has
the
right to terminate the Placing Agreement in certain circumstances prior to
Admission, in particular in the event of a breach of the warranties contained
therein. The Placing Agreement also contains an indemnity in favour of Charles
Stanley from the Company against all losses, damages, costs, charges and
expenses which Charles Stanley may suffer or incur as a result of the carrying
out of its duties under the Placing Agreement.
Under
the
Placing Agreement, the Company will bear all proper and reasonable expenses
(including all legal costs) in connection with the Placing and application
for
Admission. In addition, subject to the Placing Agreement becoming unconditional
and not being terminated in accordance with its terms, the Company is to pay
Charles Stanley a corporate finance fee of £150,000 and a commission of 3.5% of
the aggregate value of the Placing Shares at the Placing Price.
In
addition to the Placing Agreement, the Company has entered into a Nominated
Adviser Agreement with Charles Stanley on or around ••, 2006, pursuant to which
the Company has appointed Charles Stanley to act as nominated adviser and as
broker for the purposes of the AIM Rules. The Company has agreed to pay Charles
Stanley a fee of £• per annum for its services as nominated adviser and broker
under this agreement. The agreement will commence on Admission and, subject
to
earlier termination by Charles Stanley in certain limited circumstances, will
continue for an initial period of twelve (12) months and thereafter unless
the
appointment of Charles Stanley as either nominated adviser or broker or both
is
terminated by either party on three months’ notice. In the event that one of
Charles Stanley’s appointments shall terminate, the agreement shall remain in
full force and effect as regards the continuing appointment.
17.
CREST and CDI
CREST
is
a paperless settlement system allowing securities to be transferred from one
person’s CREST account to another without the need to use share certificates or
written instruments of transfer. Securities issued
by
non-U.K. registered companies, such as the Company, cannot be held or
transferred in the CREST system. However, to enable investors to settle such
securities through CREST, a depository or custodian can hold the relevant
securities and issue dematerialised CDIs representing the underlying securities
which are held on trust for the holders of the CDIs.
With
effect from Admission, it will be possible for CREST members to hold and
transfer interests in Common Stock within CREST pursuant to a CDI arrangement
with CREST Depositary Limited (a wholly owned subsidiary of CRESTCo). CREST
is a
voluntary system and holders of Common Stock who wish to receive and retain
share certificates will also be able to do so. No temporary documents of title
will be issued. Whether the securities are held in certificated form or not,
the
securities will be in registered form.
The
Common Stock will not be admitted to CREST. Instead CDIs will be issued in
respect of the underlying Ordinary Shares. Each CDI will be treated as one
share
of Common Stock for the purposes of determining, for example, eligibility for
any dividends. CREST Depositary Limited will pass on to holders of CDIs any
stock or cash benefits received by it as holder of Common Stock on trust for
such CDI holder. CDI holders will also be able to receive notices of meetings
of
holders of Common Stock and other information to make choices and elections
issued by the Company to its shareholders.
It
should
also be noted that holders of CDIs may not have the opportunity to exercise
all
of the rights and entitlements available to holders of the Common Stock
including, for example, the ability to vote on a show of hands. In relation
to
voting, it will be important for holders of CDIs to give prompt instructions
to
the Company’s U.S. transfer agent to vote the underlying shares on their
behalf.
Application
will be made for the CDIs in respect of the underlying Common Stock to be
admitted to CREST with effect from Admission.
18.
Other information
(a)
The
expenses of the Placing are estimated at approximately £•, excluding VAT, of
which £• (excluding VAT) is payable by the Company.
(b)
The
Common Stock is not currently admitted to dealings on a recognised investment
exchange and, other than the Company’s application for the Common Stock, both
issued and to be issued under the Placing, to be admitted to trading on AIM,
no
applications for such admission have been made.
(c)
The
financial information concerning the Group set out in this document does not
constitute statutory accounts within the meaning of Section 240 of the Act.
Kabani & Company, Inc., an independent certified public accounting firm (a
member firm of the AICPA SEC practice section) located at 6033 West Century
Blvd, Suite 810, Los Angeles, CA 90045, U.S.A. have audited the financial
statements of Bodisen Biotech, Inc. for the years ended December 31, 2002,
2003
and 2004 and have given unqualified audit reports on the accounts of the group
for those periods.
(d)
Save
as disclosed in the paragraph headed “Current trading and prospects” in Part II
of this document and in the financial information set out in Part IV of this
document, there has been no significant change in the financial or trading
position of the Group since September 30, 2005, the date on which the most
recent interim financial information of the Company was published.
(e)
Definitive share certificates (where appropriate) for the Placing Shares are
expected to be despatched by [•] and CREST member accounts are expected to be
credited by [•].
Part
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under
Delaware law, we may indemnify our directors or officers or other persons
who
were or are threatened to be made a party to an action, suit or proceeding
because the person is or was our director, officer, employee or agent,
against
expenses, including attorneys’ fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with
the
action, suit or proceeding if the person:
(i) |
acted
in good faith and in a manner the person reasonably believed
to be in or
not opposed to the best interests of the corporation,
and
|
(ii) |
with
respect to any criminal action or proceeding, had no reasonable
cause to
believe the person’s conduct was
unlawful.
|
Our
bylaws include indemnification provisions under which we have agreed to
indemnify our directors and officers from and against certain claims arising
from or related to future acts or omissions as our directors or officers,
except
in relation to matters as to which any such director or officer was personally
involved in the situation giving rise to the injury or unless such officer
or
director committed a criminal offense.
Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may
be permitted to directors, officers, and controlling persons pursuant to
the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission such indemnification is against
public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of ours in
the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being
registered, the small business issuer will, unless in the opinion of its
counsel
the matter has been settled by controlling precedent, submit to a court
of
appropriate jurisdiction the question whether such indemnification by it
is
against public policy as expressed in the Securities Act of 1933 and will
be
governed by the final adjudication of such issue.
ITEM
25.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following is a list of the estimated expenses to be incurred, all of which
will
be paid by the Registrant, in connection with the preparation and filing
of this
Registration Statement.
ITEM |
|
|
AMOUNT |
|
SEC
Registration Fee |
|
$ |
2,544.15 |
|
Legal
Fees |
|
|
650,000 |
|
Printing
and Engraving Costs |
|
|
30,000 |
|
Miscellaneous |
|
|
17,455 |
|
Total |
|
$ |
700,000 |
|
ITEM
26.
RECENT SALES OF UNREGISTERED SECURITIES
The
Company has sold the following securities within the past three years that
were
not registered under the Securities Act of 1933:
On
February 24, 2004, the Company issued 3.0 million shares of its Common
Stock to
the stockholders of Bodisen International, Inc., in connection with the
acquisition of the Company’s current sole operating subsidiary, Yang Ling
Bodisen Biology Science and Technology Development Company Limited. See
Item 1,
“Description of Business, Introduction and Background,” above. The sale was
effective pursuant to a private placement under Section 4(2) and/or Regulation
D
of the Securities Act of 1933, as amended.
Pursuant
to the Company’s Stock Option Plan, the Company granted 110,000 stock options to
David Gatton and Patrick McManus in 2004, each a director of the Company.
Messrs. Gatton and McManus were each granted 50,000 stock options on June
4,
2004, 25,000 vested immediately and the remaining 25,000 vest over 8 equal
quarterly installments, where the first instalment vested at the end of
the
second quarter 2004. In addition to the 50,000 options, Messrs. Gatton
and
McManus were each granted 5,000 options on December 28, 2004 which vested
on
December 31, 2004. The option exercise price was $5.00 for the first 100,000
stock options, which was the same as the market price of the shares at
the time
of granting of the options. The option exercise price was $5.80 for the
second
10,000 stock options, which was the same as the market price of the shares
at
the time of granting of the options.
Equity
Compensation Plan Information
Plan
category
|
Number
of securities to be
issued
upon exercise of
outstanding
options,
warrants
and rights
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available
for future issuance
under
equity compensation plans
(excluding
securities reflected in column
(a)
|
|
(a)
|
(b)
|
(c)
|
|
|
|
|
Equity compensation
plans |
N/A
|
N/A
|
N/A
|
Equity compensation plans not
approved
by security holders
|
110,000
|
$5.07
|
890,000
|
Total |
110,000
|
|
890,000
|
Pursuant to the Company’s Stock Option Plan, the Company granted 13,000 stock
options to each of David Gatton and Patrick McManus in October 2005. The
option
exercise price was $6.72, the same as the market price of the shares at
the time
of the granting of the options. The options vested over a period ending
December
1, 2005.
ITEM
27. EXHIBITS
Exhibit
Number
|
Description
|
3.1* |
Certificate of Incorporation of
the
Company |
3.2* |
Amendment to Certificate of Incorporation
of
the Company, changing name
to Bodisen Biotech, Inc. |
3.3* |
By-Laws of the of the
Company |
4.1* |
Form of Debenture issued March 16,
2005 |
5.1* |
Opinion of Reed Smith LLP |
10.1* |
Loan Agreement, dated as of September
28,
2003, between the Company and
Xianyang City Commercial Bank |
10.2* |
Bodisen Biotech, Inc. 2004 Stock
Option
Plan |
10.3* |
Form of Bodisen Biotech, Inc. Nonstatutory
Stock Option Agreement |
10.4* |
Securities Subscription Agreement
dated March
16, 2005 between the Company
and Amulet Limited |
10.5* |
Registration Rights Agreement dated
March 16,
2005 between the Company and
Amulet Limited |
10.6* |
Form of Common Stock Warrant issued
March 16,
2005 |
10.7* |
Promissory Note dated December 8,
2005 issued
by to Amaranth Partners L.L.C. |
21.1* |
Schedule of Subsidiaries |
23.1** |
Consent of Karbani & Company,
Inc. |
23.2* |
Consent of Reed Smith LLP (included
in
Exhibit 5.1) |
ITEM
28.
UNDERTAKINGS
(a) We
hereby
undertake:
|
(1)
|
To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration
statement:
|
|
(i)
|
To
include any prospectus required by section 10(a)(3) of the
Securities Act
of 1933;
|
|
(ii)
|
To reflect in the prospectus
any facts or
events arising after the effective date of the registration
statement (or
the most recent post-effective amendment thereof) which, individually
orin
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered
(if the total dollar value of securities offered would not
exceed that
which was registered) and any deviation from the low or high
end of the
estimated maximum offering range may be reflected in the form
of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the
aggregate, the changes in volume and price represent no more
than 20
percent change in the maximum aggregate offering price set
forth in the
“Calculation of Registration Fee” table in the effective registration
statement.
|
|
(iii) |
To include any material information with respect
to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement. |
In
addition, we hereby undertake:
|
(2)
|
That,
for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed
to be a
new registration statement relating to the securities offered
therein, and
the offering of such securities at that time shall be deemed
to be the
initial bona fide offering
thereof.
|
|
(3)
|
To
remove from registration by means of a post-effective amendment
any of the
securities being registered which remain unsold at the termination
of the
offering.
|
(b) Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against
such liabilities (other than the payment by the registrant of expenses
incurred
or paid by a director, officer or controlling person of the registrant
in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being
registered, the registrant will, unless in the opinion of its counsel the
matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all
of the
requirements of filing on Form SB-2 and authorized this amendment to
registration statement to be signed on its behalf by the undersigned,
in the
North Part of Xinquia Road, Yang Ling AG, High-Tech Industries Demonstration
Zone, Yang Ling, China on February 1, 2006.
Bodisen
Biotech, Inc.
|
|
By: /s/ Wang Qiong
Name:
Wang Qiong
|
Title:
Chief Executive Officer
|
|
By: /s/ Shuiwang Wei
Name:
Shuiwang Wei
|
Title:
Chief Financial Officer
|
|
In
accordance with the requirements of the Securities Act of 1933, this amendment
to registration statement was signed by the following persons in the capacities
and on the dates stated:
Wang Qiong |
Title:
Chief Executive Officer
|
and
Chairman of the Board
|
|
|
Name:
Chen Bo
Chen
Bo
|
Title:
President and Director
|
Date: February
1, 2006
|
|
Name:
/s/ Shuiwang Wei
Shuiwang
Wei
|
Title
Chief Financial Officer
|
(Principal
Accounting Officer)
|
Date: February
1, 2006 |
|
Name:
/s/ Patrick McManus
Patrick McManus |
Title
Director
|
Date: February
1, 2006
|
|
Name:
/s/ David Gatton
David
Gatton
|
Title Director |
Date: February
1, 2006
|
|
Name:
/s/ Weirui Wan
Weirui
Wan
|
Title
Director
|
Date: February
1, 2006
|
EXHIBIT
INDEX
Exhibit Number |
Description
|
|
Method
of Filing
|
|
|
|
|
3.1 |
Certificate of Incorporation of
the Company |
|
Filed
as Exhibit 3.1 to the registration the
Company statement on Form SB-2 filed with the
Commission on September 3, 2002 and incorporated
herein by reference.
|
|
|
|
|
3.2 |
Amendment
to Certificate of Incorporation
of the Company, changing
name to Bodisen Biotech,
Inc.
|
|
Filed
as Exhibit 3.2 to the annual report on
Form 10-KSB filed with the Commission
on March 30, 2004 and incorporated herein
by reference.
|
|
|
|
|
3.3 |
By-Laws of the of the
Company |
|
Filed as Exhibit 3.2 to the registration statement
on Form SB-2 filed with the
Commission
on September 3, 2002 and incorporated
herein by reference.
|
|
|
|
|
4.1 |
Form of Debenture issued March 16,
2005 |
|
Filed as Exhibit 4.1 to the registration statement
on Form SB-2, filed with the
Commission
on May 4, 2005 and incorporated herein
by reference.
|
|
|
|
|
5.1 |
Opinion of Reed Smith
LLP |
|
Filed as Exhibit 5.1 to the registration
the
Company statement on Form SB-2 filed with the
Commission on August 12, 2005 and incorporated
herein by reference |
|
|
|
|
10.1 |
Loan Agreement, dated as
of September 28, 2003, between the Company
and Xianyang City Commercial
Bank |
|
Filed as Exhibit 10.2 to the annual
report on
Form 10-KSB filed with the Commission on March 30, 2004. |
|
|
|
|
10.2 |
Bodisen Biotech, Inc. 2004
Stock |
|
Filed as Exhibit 10.2 to the annual
report on Form 10-KSB filed with the Commission on March
31, 2005. |
|
|
|
|
10.3 |
Form of Bodisen Biotech, Inc. Nonstatutory Stock
Option Agreement
|
|
Filed as Exhibit 10.3 to the annual
report on Form 10-KSB filed with the Commission on March 31, 2005.
|
|
|
|
|
10.4 |
Securities Subscription Agreement dated
March 16, 2005 between the Company and
Amulet Limited |
|
Securities Subscription Filed as
Exhibit 10.4 to the registration statement
on Form SB-2, filed with the Commission
on May 4, 2005 and incorporated
herein
by reference.
|
|
|
|
|
10.5 |
Registration Rights Agreement dated
March 16, 2005 between the Company and Amulet
Limited |
|
Filed as Exhibit 10.5 to the registration
statement
on Form SB-2, filed with the Commission
on May 4, 2005 and incorporated herein
by reference. |
|
|
|
|
10.6 |
Form of Common Stock Warrant issued
March 16, 2005 |
|
Filed
as Exhibit 10.6 to the registration statement
on Form SB-2, filed with the Commission
on May 4, 2005 and incorporated herein by reference.
|
|
|
|
|
10.7 |
Promissory Note dated
December 8, 2005 issued to Amaranth
Partners L.L.C. |
|
Filed
as Exhibit 10.1 to the current report on
Form 8-K filed with the Commission on December
14, 2005 and incorporated herein by reference.
|
|
|
|
|
21.1 |
Schedule of
Subsidiaries |
|
Filed as Exhibit 21.1 to the annual
report
on
Form 10-KSB filed with the Commission on March 31,
2005. |
|
|
|
|
23.1 |
Consent of Karbani & Company,
Inc. |
|
Filed herewith as Exhibit
23.1 |
|
|
|
|
23.2 |
Consent of Reed Smith
LLP |
|
Filed as
part of Exhibit 5.1
|