UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of
Report (Date of earliest event reported): April 15, 2008
Commission
file number: 000-51911
Aamaxan
Transport Group, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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000-51911
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20-5772205
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(State
or other jurisdiction of
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(Commission
File Number)
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(I.R.S.
Employer Identification No.)
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Incorporation
or organization)
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Suite
6B,
1440 Hongqiao Road
Changning
District
Shanghai
People's
Republic of China 200336
(Address
of Principal Executive Offices)(Zip Code)
011-86-215-080-5789
(Registrant's
telephone number, including area code)
31
Walmer
Road, Suite 6
Toronto,
Ontario, M5R 2W7, Canada
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act
(17CFR230.425)
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Soliciting
material pursuant to Rule14a-12 under the Exchange Act
(17CFR240.14a-2)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17CFR240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17CFR240.13e-4(c))
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TABLE
OF CONTENTS
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Item
No.
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Description
of Item
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Page
No.
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Item
1.01
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Entry
Into a Material Definitive Agreement
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5
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Item
2.01
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Completion
of Acquisition or Disposition of Assets
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16
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Item
3.02
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Unregistered
Sales of Equity Securities
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59
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Item
3.03
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Material
Modification of Rights of Security holders
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59
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Item
5.01
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Change
in Control of Registrant
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59
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Item
5.02
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Departure
of Directors or Principal Officers; Election of Directors; Appointment
of
Principal Officers
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Item
5.06
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Change
in Shell Company Status
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63
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Item
8.01
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Other
Events
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Item
9.01
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Financial
Statements and Exhibits
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63
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CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements, which are included in our discussion
of our operations, cash flows, financial position, economic performance and
financial condition, including, in particular, future sales, product demand,
the
market for our products in the People’s Republic of China, competition,
exchange-rate fluctuations and the effect of economic conditions on
us.
Statements
that are predictive in nature, that depend on or refer to future events or
conditions or that include words like "expect," "anticipate," "intend," "plan,"
"believe," "estimate" and similar expressions are forward-looking statements.
Although we believe that these statements are based on reasonable assumptions,
including projections of orders, sales, operating margins, earnings, cash flow,
research and development costs, working capital, capital expenditures and other
projections, they are subject to risks and uncertainties, and therefore, we
can
give no assurance that the conditions described in these statements will be
achieved. Our forward-looking statements are not guarantees of future
performance, and actual results or developments may differ materially from
the
expectations expressed in the forward-looking statements.
As
for
forward-looking statements that relate to future financial results and other
projections, actual results may be different due to the inherent uncertainty
of
estimates, forecasts and projections, and may be better or worse than projected.
Given these uncertainties, you should not place any undue reliance on
forward-looking statements in this report.
These
forward-looking statements also represent our estimates and assumptions only
as
of the date that they were made. Except as required by law,
we undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any additional disclosures we make in
our
reports on Form 10-KSB, Form 10-QSB, Form 8-K, or their successors, which will
contain updated disclosures required by law.
Information
regarding market and industry statistics contained in this report is included
based on information available to us which we believe is accurate. We have
not
reviewed or included data from all sources, and cannot assure shareholders
of
the accuracy or completeness of this data. Forecasts and other forward-looking
information obtained from these sources are subject to the same qualifications
and the additional uncertainties accompanying any estimates of future market
size, revenue and market acceptance of products and services.
Explanatory
Note
This
Current Report on Form 8-K is being filed by Aamaxan Transport Group, Inc.
Aamaxan Transport Group, Inc. (the "Company") in connection with: (i) a reverse
merger transaction which closed on April 15, 2008 in which the Company acquired
all of the issued and outstanding capital stock of Asia Business Management
Group Limited, a British Virgin Islands corporation (“ABM”) and (ii) a private
placement financing transaction which closed on April 15, 2008 pursuant to
Rule
506 of Regulation D promulgated under the Securities Act of 1933, as amended
(the “Act”), in which the Company sold 4,008,188
shares
of its Series A Senior Convertible Preferred Stock (“Preferred Stock”) and
2,004,094
Class A
Warrants (“Warrants”) to accredited investors.
ABM
owns
all of the stock of Anhante (Beijing) Medical Technology Co., Ltd., a company
organized under the laws of the People’s Republic of China (the “PRC”)(“ABMT”)
which has a series of contracts with Shanghai Medical Technology Co. Ltd.,
a
company organized under the laws of the PRC (“Shanghai Medical”), which give it
control over Shanghai Medical’s business, personnel and finances as if it were a
wholly owned subsidiary of ABMT. Shanghai Medical cannot be a wholly owned
subsidiary of ABMT at this time (i) because of substantial uncertainty with
respect to new PRC laws which became effective on September 8, 2006 governing
share exchanges with a foreign entity and (ii) because other than by share
exchange, PRC law requires that Shanghai Medical be acquired for cash and ABM
was not able to raise sufficient financing at a valuation acceptable to it
to
pay the full value for Shanghai Medical’s shares or assets. A full description
of the contracts between Shanghai Medical and ABMT is set forth below in Item
2.01 under the heading “Contractual Arrangements between ABMT and Shanghai
Medical.”
Shanghai
Medical is in the business of distributing and selling hemodialysis equipment
(“HDE”) and related products and services, including disposable products used in
hemodialysis (“Disposables”). Its principal product is HDE, which is mainly used
by hospitals and other medical facilities. Shanghai Medical is the distributor
of HDE manufactured by Fresenius Medical Care AG (“Fresenius”) in Shanghai and
other parts of Eastern China. Fresenius is the largest manufacturer of HDE
in
the world and its products enjoy the largest share of the PRC market, as well
as
the U.S. market. We believe that Shanghai Medical has the largest share of
the
HDE distribution market in the PRC. Shanghai Medical also provides consulting
services regarding product registration and clinical trials, hardware and
facility operations for its customers and logistics regarding Pharmaceuticals,
Disposables and other supplies and has a minority interest in a PRC manufacturer
of Disposables. We plan to expand Shanghai Medical’s business both
geographically and vertically, expanding its distribution territory, widening
its products and developing its own kidney treatment centers in the PRC. See
"Business" in Item 2.01 of this Current Report below for a complete description
of Shanghai Medical’s business.
As
a
result of the above transactions, the Company ceased being a shell company
as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as
amended (the "Exchange Act"). See Item 5.06 of this Current Report
below.
Throughout
this Current Report, and unless the context otherwise requires, “we," "our" and
"us" refers collectively to the Company and its subsidiaries, ABM and ABMT,
as
well as Shanghai Medical.
Unless
otherwise noted, all currency figures in this filing are in U.S.dollars.
References to "Yuan" or "RMB" are to the Chinese Yuan (also known as the
Renminbi). According to Xe.com, as of April 17, 2008 $1.00=6.98480
Yuan.
ITEM
1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Background
Prior
to
April 152008 we were a shell company, or a company with only nominal operations
and assets. On April 15, 2008, we consummated (i) a reverse merger transaction,
in which we acquired control (through a series of contractual arrangements)
over
an operating company in the People’s Republic of China (“PRC”) and (ii) a
private sale of our restricted stock, in which we received an aggregate of
$12.5
million of financing provided by accredited investors (the “Investors”). Through
these transactions, we ceased to be a shell company and, through our
subsidiaries, entered into the business of distributing and selling HDE and
Disposables in the PRC. The details of the transactions, and the agreements
through which they were carried out, are described below. Each of the
descriptions of the agreements below is qualified, in its entirety, by the
text
of the agreements which are annexed as exhibits to this report.
Share
Exchange Agreement
On
April
15, 2008, we acquired ABM through a share exchange transaction with ABM and
Kamick Assets Limited, a company incorporated under the laws of the British
Virgin Islands (“KAL”) and the owner of 100% of the outstanding voting stock of
ABM (such shares, the “ABM Shares”; such transaction, the “Share Exchange”). In
the Share Exchange, we received the ABM Shares from KAL, and in exchange we
issued and delivered to KAL 14,991,812 shares of our common stock. The Share
Exchange was effected pursuant to the terms of an agreement among the Company,
ABM and KAL executed on the date of the Share Exchange (the “Share Exchange
Agreement”). KAL is also sometimes referred to herein as the “Asia Business
Management Group Limited Stockholder.” Our Chief Executive Officer, Mr. Chen
Zhong, may acquire all of the stock of KAL in the future pursuant to a call
option held by Mr. Chen. A copy of the Share Exchange Agreement is attached
as
Exhibit 10.1 to this Current Report.
As
a
result of the consummation of the Share Exchange Agreement, (i) the Company
ceased to be a shell company as that term is defined in Rule 12b-2 under the
Exchange Act, (ii) ABM is now a wholly-owned subsidiary of the Company, and
(iii) through its newly-acquired subsidiary, ABM, the Company now indirectly
controls the business of Shanghai Medical by virtue of contractual arrangements
between ABM’s wholly owned subsidiary, ABMT and Shanghai Medical.
In
connection with the Share Exchange Agreement, KAL delivered
4,008,188
shares
(“Make Good Shares”) of the 14,991,812 shares of our common stock received in
the Share Exchange to Tri-State Title & Escrow, LLC, as Escrow Agent (the
“Escrow Agent”). The Escrow Agent has been instructed to deliver to the
Investors, pro rata to their respective holdings of our newly-designated Series
A Senior Convertible Preferred Stock (our “Series A Preferred”), shares of
Common Stock as a purchase price adjustment in the event that the
Company fails to meet certain earnings targets, as follows.
(a)
In
2007,
earnings per share, as computed in accordance with US GAAP and reported by
the
Company in its audited financial statements for 2007 (the “2007 financial
statements”) equal or exceed $0.31, such “Earnings Per Share” to be calculated
by dividing
the
lesser
of
Net
Income and Cash from Operations, as reported in the 2007 financial statements
plus any amounts that may have been recorded as charges or liabilities on the
2007 financial statements due to the application of EITF No. 00-19 that are
associated with (1) any outstanding Warrants of the Company issued in connection
with the Purchase Agreement or (2) any liabilities created as a result of the
Escrow Shares being released to any officers or directors of the Company (“2007
Net Income”) by the aggregate number of shares of then outstanding Common Stock
on a fully-diluted basis, which number shall include, without limitation, the
number of shares of Common Stock issuable upon conversion of the Company’s then
outstanding shares of Series A Preferred and the number of shares of Common
Stock issuable upon the exercise of any then outstanding preferred stock,
warrants or options of the Company (“Outstanding Shares”) (the performance
threshold set forth above shall be collectively referred to herein as the “2007
Performance Threshold”).
(b)
In
2008,
earnings per share equal or exceed $0.45, such “Earnings Per Share” to be
calculated by dividing the
lesser
of
Net
Income and Cash from Operations, as reported by the Company in the 2008
financial statements plus any amounts that may have been recorded as charges
or
liabilities on the 2008 financial statements due to the application of EITF
No.
00-19 that are associated with (1) any outstanding Warrants of the Company
issued in connection with the Purchase Agreement or (2) any liabilities created
as a result of the Escrow Shares being released to any officers or directors
of
the Company (“2008 Net Income”) by the then Outstanding Shares (the performance
threshold set forth above shall be collectively referred to herein as the “2008
Performance Threshold”)
(i)
If
the Company does not achieve at least 92% of the 2007 Performance Threshold,
then all of the Escrow Shares (the “2007 Escrow Shares”)(or, in
the
event
that any Purchaser(s) have exercised a Redemption Right, such number of 2007
Escrow s
hares
as
may remain after a pro-rata reduction in the number of such Escrow Shares based
on
the
number of shares of Series A Preferred redeemed (the “2007 Remaining Shares”))
shall be
distributed
on a pro rata basis to the Purchasers which have not exercised a Redemption
Right
based
on
the number of shares of Series A Preferred owned by such Purchasers as of the
date
thereof.
(ii) If the Company achieves between 92% and 99% of the 2007 Performance
Threshold, the Escrow Agent shall deliver to the Purchasers which have not
exercised a Redemption Right, on a pro rata basis based on the number of shares
of Series A Preferred owned by such Purchasers as of the date thereof, the
number of 2007 Remaining Shares multiplied by the percentage by which the 2007
Performance Threshold was not achieved and multiplied by 200%. Any remaining
Escrow Shares shall continue to be held in escrow hereunder. (iii) If the
Company achieves at least 100% of the 2007 Performance Threshold, then the
Escrow Shares shall continue to be held in escrow hereunder.
(i)
If
the Company does not achieve at least 80% of each of the 2008 Performance
Threshold, then all of the Escrow Shares (the “2008 Escrow Shares”) (or, in the
event that any Purchaser(s) have exercised a Redemption Right, such number
of
2008 Escrow Shares as may remain after a pro-rata reduction in the number of
such Escrow Shares based on the number of shares of Series A Preferred redeemed
(the “2008 Remaining Shares”)), shall be distributed on a pro rata basis to the
Purchasers which have not exercised a Redemption Right based on the number
of
shares of Series A Preferred owned by such Purchasers as of the date thereof.
(ii) If the Company achieves between 80% and 99% of the 2008 Performance
Threshold, (a) the Escrow Agent shall deliver to the Purchasers, on a pro rata
basis based on the number of shares of Series A Preferred owned by such
Purchasers as of the date thereof, the number of 2008 Remaining Shares equal
to
the number of 2008 Remaining Shares multiplied by the percentage by which the
2008 Performance Threshold was not achieved and multiplied by 200% and (b)
the
remaining 2008 Escrow Shares shall be returned to KAL. (iii) In the event the
Company achieves at least 100% of the 2008 Performance Threshold, all of the
2008 Remaining Shares shall be returned to KAL.
Securities
Purchase Agreement and Series A Preferred Convertible
Stock
Under
the
Securities Purchase Agreement among the Company and the Investors
(
the
“
Securities
Purchase Agreement
”),
on
April
15, 2008, for a total purchase price of $12,532,000, we sold to the Investors
listed in Exhibit A to the Securities Purchase Agreement. a total of 4,008,188
shares of our Series A Preferred. Subject to certain restrictions, each share
of
Series A Preferred is initially convertible, at the option of the holder, into
one share of our common stock at any time. In total, the Series A Preferred
are
convertible into 4,008,188
shares
of our common stock and will represent, when fully converted, approximately
20%
of the Company's outstanding common stock immediately after the conversion
of
all such shares.
The
holders of Series A Preferred are entitled to
vote
together with the holders of the Common Stock as a single class, upon all
matters submitted to holders of Common Stock for a vote, with
each
share of Series A Preferred carrying a number of votes equal to the number
of shares of Common Stock issuable upon conversion of one share of Series A
Preferred based upon the then applicable Conversion Rate, as well as any voting
rights required under Delaware law. However, the approval of the holders of
at
least 75% of the then outstanding shares of Series A Preferred, voting as a
separate class, is required for us to (a) authorize, issue or create any new
class or series of shares having rights, preferences or privileges equal or
senior to the Series A Preferred, (b) adversely alter or change the rights,
preferences, designations or privileges of the Series A Preferred, (c) amend
the
Company’s Certificate of Incorporation or By-laws in a manner that adversely
affects the rights, preferences, designations or privileges of the holders
of
the Series A Preferred; (d) increase or decrease the authorized number of shares
of preferred stock of the Company or otherwise reclassify the Company's
outstanding securities; (e) except for certain de minimus repurchases, redeem,
purchase or otherwise acquire (or pay into or set funds aside for a sinking
fund
for such purpose) any share or shares of preferred stock or Common Stock; or
(f)
voluntarily file for bankruptcy, liquidate the Company’s assets or make an
assignment for the benefit of the Company’s creditors.
In
addition, so long as at least 25% of the initial shares of Series A Preferred
are held by the original holders of the Series A Preferred, we shall not,
without first obtaining the approval of at least 75% of the then outstanding
shares of Series A Preferred, voting as a separate class,
(a)
on or
prior to April 15, 2008 (the “
2008
Period
”),
issue
any shares of
Common
Stock, stock appreciation rights, stock options or other equity securities
(“
New
Equity
”)
to
officers, directors or employees of, or consultants (that are affiliates of
the
Company)(“
Affiliates
”),
provided, however, that (subject to an overall limitation of 10% of the
outstanding capital stock, other than shares issued upon exercise of options
issued under a stock option plan, and a requirement that any options vest over
at least three years and no more than 35% be granted to any one persion (the
“Overall Limitation”)) the Company may issue New Equity during the one hundred
eighty days following 2008 Period up to a maximum of 2% of the number of shares
of Common Stock outstanding plus the number of shares of Common Stock issuable
upon conversion of all outstanding preferred stock (the “Outstanding Amount”),
if the Company meets between 100% and 149% of the “2007 Threshold” as defined
above and, provided further, that, subject to such limitation, the Company
may
issue New Equity during the 2008 Period up to a maximum of 3% of the Outstanding
Account, if the Company achieves at least 150% of the “2007 Threshold.”
(b)
between April 16, 2008 and April 15, 2009 (the “
2009
Period
”),
issue
any New Equity to Affiliates, provided, however, that, subject to the Overall
Limitation, the Company may issue New Equity during the one hundred eighty
days
following the 2009 Period up to a maximum of 2% of the Outstanding Amount,
if
the Company achieves at least 100% and 149% of the “2008 Threshold,” as defined
above; and provided further that, subject to such limitation, the Company may
issue New Equity during 2009 up to a maximum of 3% of the Outstanding Amount,
if
the Company achieves at least 150% of the “2008 Threshold.”
The
Series A Preferred have liquidation rights senior to those of our common stock
and future series of preferred stock which may be issued. In the event of a
liquidation of the Company, holders of Series A Preferred are entitled to
receive a distribution equal to $3.13 per share of Series A before holders
of
our common stock and any of our future series of preferred receive any
distribution. The rights, limitations, and other terms of the Series A Preferred
are set forth in an Amended Certificate of Designations, which we filed with
the
Delaware Secretary of State on April 11, 2008 and which forms part of our
Certificate of Incorporation. The Amended Certificate of Designations for the
Series A Preferred is attached to this Current Report as Exhibit 3.4.
Warrants
Also
under the Securities Purchase Agreement, the Company issued to the
Investors, for no additional consideration, Series A Warrants, to
purchase an aggregate of 2,004,094 shares of the Company's common stock. The
Series A warrants will expire on October 13, 2013. The Series A warrant exercise
price is $3.91 per share.
Under
the
Securities Purchase Agreement, we also entered into a Registration Rights
Agreement, which is described below.
Shell
Purchase Agreement
On
April
4, 2008, we entered into a stock purchase agreement (the “Shell Purchase
Agreement”) with KAL and our then-current director, Marc Juliar, under which KAL
paid to Mr. Juliar a total of $585,000 in cash, and in exchange KAL acquired
65,428 shares of our common stock and the right to nominate all members of
our
Board of Directors (the “Shell Purchase”). The Shell Purchase closed on April
15, 2008. A copy of the Shell Purchase Agreement is attached as Exhibit 10.12
to
this Current Report.
Prior
to
April 15, 2008, we had one officer and director, Marc Juliar, who served as
Director, Chief Executive Officer and Chief Financial Officer. Under the terms
of the Shell Purchase Agreement, we agreed to appoint KAL’s appointees to our
board of directors, and our then-current director agreed to resign his position
as director and officer. On April 15, 2008, Marc Juliar resigned from (i) all
officer positions with the Company effective immediately and (ii) our board
of
directors effective ten days after the filing and dissemination of an
information statement on Schedule 14f-1 regarding the change of directors,
which
we filed with the SEC on April 11, 2008 and disseminated to our shareholders
on
April 15, 2008. At the same time as those resignations, (i) Mr. Chen Zhong,
an
appointee of KAL, was appointed to our board of directors and elected President
and Chief Executive Officer of the Company effective immediately and (ii) Ms.
Michelle Zhao, an appointee of KAL, was elected Chief Financial Officer of
the
Company effective immediately.
KAL’s
appointees to our board of directors and to officer positions, Chen Zhong and
Michelle Zhao, serve as officers and directors of KAL, as well as of ABM and
Shanghai Medical.
Securities
Escrow Agreement
Under
the
terms of a securities escrow agreement that we entered into with the Investors,
KAL, and Tri-State Title & Escrow, LLC, as escrow agent, simultaneously with
the closing of the Share Exchange Agreement, KAL agreed to have 4,008,188 of
the
14,991,812 shares of our common stock issued to it under the Share Exchange
Agreement initially held in escrow, which shares it will either receive
back or forfeit to the holders of the Series A Preferred depending on the
financial performance of the Company in 2007 and 2008, as set forth above.
The
earnings thresholds are, for 2007, fully-diluted earnings per share as defined
above of $.31 and for 2008, fully-diluted earningsper share, as defined above,
of $.45.
If
the
Company’s earnings per share for 2007 are less than 92% of the 2007 performance
threshold, then all of the escrow shares (the “2007 Escrow Shares”) will be
forfeited to the holders of the Series A Preferred. If the Company’s earnings
per share for 2007 are at least 92%, but less than 99% of the 2007 threshold,
then KAL will forfeit to the holders of Series A Preferred the number of 2007
Escrow Shares multiplied by the percentage by which the 2007 performance
threshold was not achieved and multiplied by 200%.
If
the
Company’s earnings per share for 2008 are less than 80% of the 2008 threshold,
then all of any remaining escrow shares (the “2008 Escrow
Shares”) will be forfeited to the holders of the Series A Preferred. If the
Company’s earnings per share for 2008 are at least 80% but less than 99% of the
2008 threshold, then KAL will forfeit to the holders of Series A Preferred
the
number of 2008 Escrow Shares multiplied by the percentage by which the 2008
performance threshold was not achieved and multiplied by 200%.
Any
remaining escrow shares will then be delivered to KAL.
General
Escrow Agreement
On
April
14, 2008, we entered into a General Escrow Agreement with
Pope
Asset Management, LLC, as representative of the Purchasers under the Securities
Purchase Agreement, KAL and Tri-State Title & Escrow, LLC, as escrow agent.
Pursuant to the agreement, $300,000 of the proceeds of the private placement
was
deposited into an escrow account with Tri-State Title & Escrow, LLC for use
in investor and public relations.
The
General Escrow Agreement is attached to this Current Report as Exhibit 10.
3.3.
Registration
Rights Agreement
On
April
14, 2008, pursuant to the Securities Purchase Agreement, we entered into a
Registration Rights Agreement with the Investors (the “Registration Rights
Agreement”), under which we agreed to file with the SEC and maintain the
effectiveness of a registration statement on Form S-1, relating to the resale
of
our common stock issued upon conversion of our Series A Preferred. The deadline
for filing the registration statement is 45 days after the closing of the
private financing, or approximately May 29, 2008. The deadline for obtaining
the
effectiveness of the registration statement is either (i) 150 days after the
filing deadline, or (ii) if the SEC performs a full review of the registration
statement, 180 days after the filing deadline. The Registration Rights Agreement
calls for us to maintain the effectiveness of the registration statement until
either all shares registered under it have been sold or all shares registered
under it may be sold without restrictions under Rule 144 under the Securities
Act.
The
Registration Rights Agreement also calls for us to file with the SEC and
maintain the effectiveness of registration statements on Form S-1 relating
to the resale of our common stock to be issued upon exercise of our Series
A
warrants. If we are unable to register all of the agreed number of shares of
common stock under registration statements based on the limitations of Rule
415
under the Securities Act, the Registration Rights Agreement provides that we
will use our best efforts to obtain the registration of the additional shares
when we are able to do so. If we do not file the registration statement or
obtain and maintain the effectiveness of the registration statements for reasons
other than the limitations of Rule 415, or if our common stock is de-listed
from
the National Association of Securities Dealers’ Over-the-Counter Bulletin Board,
then under the terms of the Registration Rights Agreement we are required to
pay
to the holders of Series A Preferred an amount equal to one percent of
their initial investment in the Series A Preferred, or approximately $125,000,
each month until effectiveness is obtained or listing is restored, with a cap
of
ten percent of their initial investment, or approximately
$1,250,000.
These
and
all the other details of the registration obligations of the Company are set
forth in the Registration Rights Agreement, which is attached to this Current
Report as Exhibit 4.2.
Lock-Up
Agreements
On
April
14, 2008, we entered into agreements with KAL, with Shao Ganghua and Chen Zhong
and with Belmont Partners LLC (“Belmont”) (the “New Shareholders”) under which
the New Shareholders each agreed that it will not sell or transfer any shares
of
our common stock or Series A Preferred until at least 12 months after the
effective date of the initial registration statement to be filed to register
shares of our common stock issuable upon conversion of the Series A Preferred.
The lock-up agreements are attached to this report as Exhibits 4.3.1, 4.3.2
and
4.3.3.
Placement
Agent Engagement Agreement
On
October 16, 2007 Shanghai Medical entered into an agreement with Rosewood
Securities, LLC, a division of Capital Investment Services, Inc. (“CIS”), under
which, in exchange for compensation described below, CIS agreed to provide
financial advisory and other services to Shanghai Medical, including assistance
in identifying a shell company that was an appropriate target for a reverse
merger transaction through which Shanghai Medical could become a public company.
Pursuant to that agreement, CIS worked to to facilitate the reverse merger
and
private financing transactions described in this Current Report. The
compensation to CIS under the terms of the agreement consists a financing fee,
payable upon the closing of the private financing, equal to 10% of the amount
of
the financing (less $85,000, the amount by which the cost of the shell exceeds
$500,000), or $1,168,200 plus warrants to purchase 10% of the securities of
the
Company sold to investors in the private financing at 125% of the effective
purchase price per common share of the private financing. In addition to these
fees, Shanghai Medical is subject to penalties in the event that during the
first two years after the closing of the private financing, it uses the services
of any private placement agent or similar entity other than CIS to complete
additional financing.
Aside
from the relationship described above and in “Shell Brokerage Fee” below, there
is no relationship between CIS and its affiliates, on the one hand, and the
Company and its affiliates on the other.
The
placement agent agreement is attached to this Current Report as Exhibit
10.4.
Shell
Brokerage Fee
On
April
14, 2008 Shanghai Medical and Belmont an affiliate of Rosewood Securities,
LLC
Division of CIS, entered into an agreement pursuant to which Shanghai Medical
agreed to pay Belmont for identifying the Company as an appropriate shell
company target for a reverse merger for Shanghai Medical and assisting Shanghai
Medical in the negotiation of the reverse merger transaction, a number of shares
of common stock of the Company equal to the difference between (a) 5% of the
fully diluted shares of common stock of the Company giving effect to the reverse
merger and related financing and (b) the number of shares of common stock held
by non-affiliates of the Company immediately after the consummation of the
reverse merger transaction. Pursuant to such agreement, the Company issued
to
Belmont 821,429 shares of common stock on April 15, 2008.
The
shell
brokerage agreement is attached to this Current Report as Exhibit 10.
5.
PRC
Restructuring Arrangements
Immediately
following, and on the same date as, the above transactions, ABMT executed a
series of agreements with Shanghai Medical, as a result of which ABMT acquired
control over Shanghai Medical’s business, personnel and finances as if it were a
wholly owned subsidiary of ABMT (collectively, the "Entrustment Agreements").
The reasons that ABMT used the Entrustment Agreements to acquire control of
Shanghai Medical, instead of using a complete acquisition of Shanghai Medical's
assets or equity to make Shanghai Medical a wholly-owned subsidiary of ABMT,
are
that (i) new PRC laws governing share exchanges with foreign entities, which
became effective on September 8, 2006, make the consequences of such
acquisitions uncertain and (ii) other than by share exchange, PRC law requires
that Shanghai Medical be acquired for cash and ABM was not able to raise
sufficient financing at a valuation acceptable to it to pay the full appraised
value for Shanghai Medical’s assets or shares as required under PRC law.
Certain
of the transactions contemplated by the Entrustment Agreements
are
in
the process of being completed: (i) ABMT must complete the contribution of
its
registered
capital and obtain a new business license from Beijing Branch of the PRC State
Administration for Industry and Commerce to reflect the contributed capital;
and
(ii) after such contribution of the registered capital, ABMT must transmit
to
Shanghai Medical the full principal amount of a loan made under the Entrustment
Agreements.
According
to relevant PRC regulations and the articles of association of ABMT, 15% of
the
registered capital of ABMT (the
“
First
Installment
”
)
shall
be contributed within ninety (90) days after the issuance of its business
license, and the remainder shall be paid within two years after such issuance.
ABMT currently has a temporary business license, issued on January 23, 2008
by
Beijing Branch of the PRC State Administration for Industry and Commerce. If
the
First Installment is not contributed by ABM on time, ABMT’s business license
will be canceled. We anticipate that the first installment will be contributed
on April 22, 2008, the day after the date of this Current Report.
PRC
Entrustment Agreements
The
following is a summary of the material terms of each of the Entrustment
Agreements, the English translation of each of which is annexed as an exhibit
to
this report.
Consigned
Management Agreement
The
Consigned Management Agreement, among ABMT, Shanghai Medical, and all of the
individual shareholders of Shanghai Medical, holding 98.15% of the outstanding
equity interests in Shanghai Medical (the “Majority Shareholders”), provides
that ABMT will provide financial, technical and human resources management
services to Shanghai Medical that will enable ABMT to control Shanghai Medical’s
operations, assets and cash flow, and in exchange, Shanghai Medical will pay
a
management fee to ABMT equal to 12% of Shanghai Medical’s annual revenue. The
management fee for each year is due by January 31
of
the
following year. The term of the agreement is until ABMT acquires all of the
equity or assets of Shanghai Medical; therefore, the agreement essentially
provides for ABMT to control Shanghai Medical indefinitely.
The
Consigned Management Agreement is attached to this Current Report as Exhibit
10.9.
Technology
Service Agreement
The
Technology Service Agreement, among ABMT, Shanghai Medical, and the Majority
Shareholders provides that ABMT will provide technology services, including
the
selection and maintenance of Shanghai Medical’s computer hardware and software
systems and training of Shanghai Medical employees in the use of those systems,
and in exchange, Shanghai Medical will pay a technology service fee to ABMT
equal to 3% of Shanghai Medical’s annual revenue. The technology service fee for
each year is due by January 31
of
the
following year. The term of the agreement is until ABMT acquires all of the
equity or assets of Shanghai Medical.
The
Technology Service Agreement is attached to this report as Exhibit
10.11.
Loan
Agreement
The
Loan
Agreement, among ABMT, Shanghai Medical and the Majority Shareholders, provides
that ABMT shall, at its own discretion, entrust a bank (“Loan Bank”) to grant
loan to Shanghai Medical, and they agree to execute the Entrusting Loan
Agreement with the Loan Bank under the condition that it will abide by this
Agreement and perform the obligations thereunder. The aggregate principal amount
of the loan (“Total Principal”) shall be RMB 56 million (approximately $8
million), and to secure the performance of the obligations assumed by the
Majority Shareholders and ABMT, the Majority Shareholders agreed to pledge
its
equity to ABMT under the Equity Pledge Agreement described below. Furthermore,
in accordance with the Loan Agreement, ABMT shall be entitled, at its own
discretion, to provide the loan to each of the Majority Shareholders by
delivering a three (3)-day’s prior written notice to the parties thereunder, and
in exchange, such Majority Shareholders agreed that the loan would then be
used
to increase the registered capital of Shanghai Medical.
The
loan
is repayable upon the written notice send by ABMT to Shanghai Medical (the
“Repayment Notice”) and at the option of ABMT either in cash or by transfer of
Shanghai Medical’s equity or all of its assets to ABMT.
The
loan
does not bear interest, except that if (1) ABMT is able to purchase the equity
or assets of Shanghai Medical, and (2) the consideration for equity transfer
or
for assets transfer, is higher than the Total Principal as a result of the
requirements of the then applicable law or any other reasons, the excess shall
be deemed to be the loan interest and /or utilizing fees of the loan to the
largest extent being permitted by PRC Laws, and be repaid to ABMT by Shanghai
Medical together with the Total Principal.
The
effect of this interest provision is that, if and when permitted under PRC
law,
ABMT may acquire all of the equity or assets of Shanghai Medical by forgiving
the loan, without making any further payment.
However,
if the consideration for equity transfer or assets transfer is lower than the
Total Principal thereunder, Shanghai Medical shall be exempted from the
shortfall repayment obligation. The effect of this provision is that (insofar
as
allowable under PRC law) Shanghai Medical may satisfy its repayment obligations
under the loan by transferring all of its equity or assets to ABMT, without
making any further payment.
The
Loan
Agreement also contains promises from Shanghai Medical that during the term
of
the agreement, Shanghai Medical does not take certain actions without the prior
written consent of ABMT, including (i) supplementing or amending its articles
of
association or bylaws, (ii) changing its registered capital or shareholding
structure, (iii) transferring, mortgaging or disposing of any interests in
its
assets or income, or encumbering its assets or income in a way that would affect
ABMT’s security interest, (iv) incurring or guaranteeing any debts not incurred
in its normal business operations, (v) entering into any material contract
(exceeding RMB 5,000,000, or approximately $700,000, in value), unless it is
necessary for the company’s normal business operations; (vi) providing any loan
or guarantee to any third party; (vii) acquiring or consolidating with any
third
party, or investing in any third party; and (viii) distributing any dividends
to
the shareholders in any manner. In addition, the Loan Agreement provides that
at
ABMT’s request, Shanghai Medical will promptly distribute all distributable
dividends to the shareholders of Shanghai Medical.
The
funds
that ABMT used to make the loan came from the proceeds received by us, its
indirect parent company, in the private placement transaction described in
Section 1.01 of this Current Report.
The
Loan
Agreement is attached to this Current Report as Exhibit 10.10.
Exclusive
Purchase Option Agreement
The
Exclusive Purchase Option Agreement, among ABMT, Shanghai Medical, Majority
Shareholders and Shanghai Health Industry Development Center, holding 1.85%
of
equity interests of Shanghai Medical ( “Industry Center” thereunder), provides
that Shanghai Medical will grant ABMT an irrevocable and exclusive right to
purchase all or part of Shanghai Medical’s assets, and the Majority Shareholders
will grant ABMT an irrevocable and exclusive right to purchase all or part
of
their equity interests in Shanghai Medical,
and
Industry Center agreed to waive its pre-emptive right on the equity sold by
Majority Shareholders irrespective of the condition and price of
purchase
.
Either
right may be exercised by ABMT in its sole discretion at any time that the
exercise would be permissible under PRC law, and the purchase price for ABMT’s
acquisition of equity or assets will be the lowest price permissible under
PRC
law. Shanghai Medical and the Majority Shareholders are required to execute
purchase agreements and related documentation within 30 days of receiving notice
from ABMT that it intends to exercise its right to purchase.
The
Exclusive Purchase Option Agreement contains promises from Shanghai Medical
and
the Majority Shareholders, including promises that they will only
appoint
candidates nominated by ABMT as the directors of Shanghai Medical, and shall
not
replace such candidates without ABMT’s prior written consent,
voting
to
dissolve or declaring dividends, that could impair ABMT’s security interest in
the equity of Shanghai Medical or reduce its value. These promises are
substantially the same as those contained in the Loan Agreement described
above.
The
agreement will remain effective until ABMT or its designees have acquired 100%
of the equity interests of Shanghai Medical or substantially all of the assets
of Shanghai Medical. The exclusive purchase options were granted under the
agreement on April 15, 2008.
The
Exclusive Purchase Option Agreement is attached to this Current Report as
Exhibit 10.6.
Equity
Pledge Agreement
The
Equity Pledge Agreement, among ABMT, Shanghai Medical, and the Majority
Shareholders, provides that the Majority Shareholders will pledge all of their
equity interests in Shanghai Medical to ABMT as a guarantee of the performance
of the Majority Shareholders’ obligations and Shanghai Medical’s obligations
under each of the other PRC Entrustment Agreements. Under the Equity Pledge
Agreement, the Majority Shareholders have also agreed (i) to cause Shanghai
Medical to have the pledge recorded at competent PRC Bureau for Industry and
Commerce, (ii) to deliver any dividends received from Shanghai Medical during
the term of the agreement into an escrow account under the supervision of ABMT,
and (iii) to deliver Shanghai Medical’s official shareholder registry and
certificate of equity contribution to ABMT.
The
Equity Pledge Agreement contains promises from Shanghai Medical and the Majority
Shareholders that they will refrain from taking actions, such as voting to
dissolve or declaring dividends, that could impair ABMT’s security interest in
the equity of Shanghai Medical or reduce its value. These promises are
substantially the same as those contained in the Loan Agreement described
above.
The
Equity Pledge Agreement is attached to this Current Report as Exhibit
10.7.
ITEM
2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
As
a
result of the share exchange and reverse merger transactions described above,
we
ceased being a shell company as that term is defined in Rule 12b-2 and, through
our newly-acquired subsidiary ABM and the companies it controls, entered into
the business of distributing and selling HDE and Disposables and providing
diagnostic services and consulting services in the PRC. That business and the
nature of our control over it are described in this section.
Our
Corporate Structure
Our
current corporate structure is set forth below:
Contractual
Arrangement
Organizational
History of
Aamaxan
Transport Group, Inc.
We
were
incorporated on June 3, 1998 under the laws of the State of Delaware as
Worthington Venture Fund Inc. ("Worthington Delaware"). On August 14, 1998,
Worthington Delaware's name was changed to Admax Technology, Inc. ("Admax").
On
August 28, 1998, Admax merged with Worthington Venture Fund, Inc. ("Worthington
Utah"), a non-operating Utah shell corporation, and changed its name to Aamaxan
Transport Group, Inc.
Prior
to
the reverse merger transaction discussed in this Current Report, the Company
was
considered a "shell company" as it had no or nominal operations.
During
the years ended January 31, 1999 and 2000, the Company attempted to
acquire
certain companies and assets. Although acquisition agreements were
executed,
shares of common stock were issued and only partially cancelled and
funds
advanced, these acquisitions did not close and the acquisitions were
written
off. The Company was dormant from mid-2000 until recently. On or about May
11,
2006, the Company's registration statement filed with the SEC on Form 10-SB
became effective. Accordingly, at that time the Company resumed the filing
of
periodic reports with the Securities Exchange Commission.
On
April
4, 2008 we entered into a stock purchase agreement with Kamick Assets Limited
(“KAL”), a British Virgin Island company, and our then-current director Marc
Juliar, pursuant to which, for a purchase price of $585,000 in cash, KAL
acquired from Mr. Juliar 65,428 shares of our Common Stock and the right to
nominate all members of our board. Pursuant to this agreement, our former sole
director and officer resigned from his executive positions effective April
15,
2008, and resigned as a director effective ten days after a Form 14F-1 is filed
with the SEC and distributed to our shareholders. Since April 15, 2008 Mr.
Chen
Zhong has been serving as our Chairman and Chief Executive Officer and Ms.
Michelle Zhao has been serving as our Chief Financial Officer. Mr. Chen Zhong
holds an option to buy a 100% ownership interest in KAL. Messrs. Chen Zhong
and
Ms. Zhao each hold similar management positions at KAL, ABMT and Shanghai
Medical. The Stock Purchase Agreement is attached to this Current Report as
Exhibit 10.11.
On
April
15, 2008, we consummated a share exchange transaction with KAL, in which we
exchanged 14,991,812 shares of our common stock, par value $0.0001 per share,
for all of the issued and outstanding stock of ABM held by KAL. As a result
of
the share exchange transaction, ABM became our wholly-owned subsidiary, and
ABMT
became our indirectly wholly-owned subsidiary.
In
connection with the share exchange transaction, on April 15, 2008, we
consummated a private financing transaction, in which we issued an aggregate
of
4,008,812 shares of our Series A Preferred and warrants (including a warrant
issued to the placement agent of the private financing transaction) to purchase
an aggregate of2,404,913 shares of our common stock, in exchange for $12,532,000
in gross cash proceeds. The share exchange transaction and the private financing
transaction are collectively referred to hereafter as the “reverse merger
transaction.”
Concurrent
with the reverse merger transaction, ABMT entered into a series of contractual
arrangements with Shanghai Medical, which give ABMT control over Shanghai
Medical’s business, personnel and finances as if it were a wholly owned
subsidiary of ABMT. Shanghai Medical cannot be a wholly owned subsidiary of
ABMT
at this time (i) because of substantial uncertainty with respect to new PRC
laws
which became effective on September 8, 2006 governing share exchanges with
a
foreign entity and (ii) because other than by share exchange, PRC law requires
that Shanghai Medical be acquired for cash and ABM was not able to raise
sufficient financing at a valuation acceptable to it to pay the full value
for
Shanghai Medical’s assets. The transactions contemplated by these contractual
arrangements are collectively referred to hereinafter as the “PRC restructuring
transaction.”
Shanghai
Medical is in the business of distributing and selling HDE and Disposables
and
providing diagnostic services and supplies and providing consulting services.
Our principal products are hemodialysis machines manufactured by Fresenius
Medical Corp., the world leading manufacturer of such equipment. In diagnostics
we are a representative of Roche Pharmaceuticals, the world leader in
diagnostics. As a result of the reverse merger transaction and the PRC
restructuring transaction, we ceased being a shell company as such term is
defined in Rule 12b-2 under the Exchange Act and are now engaged in distributing
and selling HDE, Disposables and providing diagnostic services and supplies
and
consulting services in the PRC.
Organizational
History of Kamick Assets Limited, Asia Business Management Group Limited,
Anhante (Beijing) Medical Technology Co., Ltd. and Shanghai Medical Technology
Co., Ltd.
KAL
was
incorporated on September 30, 1999 in the Territory of the British Virgin
Islands. ABM, a wholly-owned subsidiary of KAL, was incorporated as Kunsite
Assets Limited in the Territory of the British Virgin Islands on August 12,
1999. On February 21, 2000 its name was changed to Asia Business Management
Group Limited. On January 23, 2008, ABMT was incorporated by ABMT under the
PRC
law. Prior to the reverse merger, none of KAL, ABM or ABMT had any business
operations, assets or liabilities, apart from fundraising activities for
Shanghai Medical and serving as Shanghai Medical’s holding
companies.
Shanghai
Medical was initially formed as a limited liability company in the PRC on June
28, 2005 under the name of Shanghai Atrip Medical Technology Co., Ltd. by Chen
Zhong, Yang Fang, Zhang Zhongquing, Wang Xueyou and Shanghai Health
Industry Development Center, holding 28.4%, 28.3%, 10%, 28.3% and 5% of the
equity interests in Shanghai Medical, respectively. Shanghai Medical was
initially formed to engage through subsidiaries in the business of distributing
and selling HDEand Disposables.The registered capital of Shanghai Medical was
RMB 1,000,000. Pursuant to an Agreement of Transfer of Equity Interests, on
December 5, 2006 Chen Zhong transferred his 28.4% interest to Xu Min. Pursuant
to an Agreement of Transfer of Equity Interests, on March 27, 2007 Xu Min and
Zhangqing transferred, respectively, 28.4% and 10% of the equity interests
in
Shanghai Medical to Chen Zhong and Wang Xueyou transferred 14.1% of the equity
interests to Chen Zhong and 14.2% to Yang Fang. On June 5, 2007, Shanghai
Medical’s registered capital was increased to RMB 10,000,000 and Vantage
Pharmaceutical Technology Co., Ltd. (“Vantage”) subscribed for capital of RMB
6,300,000 through a contribution of intellectual property. On August 29, 2007
pursuant to an Equity Interests Transfer Agreement, Yang Fang and Vantage
transferred 11.475% and 63%, respectively, of the equity interests to Chen
Zhong. At present the shares of capital stock of Shanghai Medical are held
as
follows: Chen Zhong 93.9%, Yang Fang 4.25% and Industry Center 1.85%. Shanghai
Medical currently has four subsidiaries. . As stated above, shareholders holding
an aggregate of 98.15% of Shanghai Medical’s equity, which, has been pledged to
ABMT along with irrevocable proxies.
Set
forth
below is the percentage of ownership interest in Shanghai Medical owned by
each
of the members of the board of directors and executive officers of the Company
as of April 15, 2008:
|
Name
|
|
Position
|
|
Ownership
Percentage
|
|
|
Chen
Zhong
|
|
|
CEO,
Director, Chairman of the Board
|
|
|
93.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
93.9
|
%
|
OVERVIEW
OF OUR BUSINESS
As
a
result of the consummation of the reverse merger, and the PRC restructuring
transaction, we are now engaged in the business of distributing and selling
HDE and Disposables. We also provide consulting services regarding product
registration and clinical trials, hardware and facility operations of our
customers and logistics regarding pharmaceuticals, Disposables and other
supplies. Our principal product is HDE, which is mainly used by hospitals and
other medical facilities. We have recently entered a contract to act as
exclusive PRC representative of Roche for certain new diagnostic products and
to
provide diagnostic services and supplies, representing Roche. We also own 20%
of
Ningbo Tianyi Medical Device Co. Ltd., a domestic manufacturer of hemodialysis
disposables.
Our
customers are primarily hospitals and healthcare clinics treating kidney disease
in the PRC. As the market for HDE and related products is still an emerging
market, official data about the industry in general and competition in
particular have not been readily available. We estimate that we sold more HDE
than any other distributor in the PRC in 2006 and 2007. In 2006, we recognized
revenue of $21,690,000 from sales of HDE. In 2007, we recognized revenue of
$30,710,000 from sales of HDE. We sell our products both directly, through
our
sales employees, and indirectly, through 20 independent subdistributors. Our
sales network covers greater Shanghai and other provinces in the highly
populated East coast of the PRC.
Our
service customers, addition to our dialysis customers, include Chinese and
foreign developers of pharmaceuticals and medical devices wishing to obtain
approval for sale in the PRC.
We
generate our revenues from primarily from sales of HDE and related products
also
involved in the treatment of kidney disease, Disposables. Having a broad array
of equipment, supplies and medicines used in the treatment of kidney disease,
and especially with the addition of diagnostics, enables us to leverage our
relationships with decision makers in medical facilities and allows our
customers more options and flexibility to accommodate their special
requirements, preferences and ongoing requirements.
Over
time
we plan to diversify our product offering, expand our geographic market coverage
and expand our diagnostics, service centers and products, and ultimately to
establish and manage hemodialysis treatment clinics. We have recently signed
a
two-year contract with Roche under which we will be the exclusive representative
of Roche in certain of its diagnostic products throughout the PRC. These sales
will require individual approval of pricing in each city or other
locality.
Renal
Industry Overview
We
offer
life-maintaining and life-saving dialysis products in a market which is
characterized by a favorable demographic, economic and social development.
In
the PRC there are approximately 6,800 hospitals and clinics where patients
can
go to receive hemodialysis treatment, or one for every 192,000 people in the
population (compared to 4,500 locations, or one for every 67,000 people in
the
US). Considering the vast distances which separate many people in the PRC,
there
is an urgent and growing need for more treatment locations and equipment. As
the
PRC economy grows and strengthens, there is a strong motivation to spread the
treatment centers from the heavily populated Eastern cities to a far wider
area
of the country to make treatment available more widely throughout the country.
The national government has recognized this by adopting a national health
insurance program similar to Medicare and Medicaid in the U.S. This program,
being implemented over the 2007-2010 period, is substantially increasing the
people who can afford hemodialysis treatment.
End-Stage
Renal Disease
End-stage
renal disease (“ESRD”) is the stage of advanced chronic kidney disease that is
characterized by the irreversible loss of kidney function and requires regular
dialysis treatment or kidney transplantation to sustain life. A normally
functioning human kidney removes waste products and excess water from the blood,
which prevents toxin buildup, water overload and the eventual poisoning of
the
body. Most patients suffering from ESRD must rely on dialysis, which is the
removal of toxic waste products and excess fluids from the body by artificial
means. A number of conditions — diabetes, hypertension, glomerulonephritis
and inherited diseases — can cause chronic kidney disease. The majority of
all people with ESRD acquire the disease as a complication of one or more of
these primary conditions.
There
are
currently only two methods for treating ESRD: dialysis and kidney
transplantation. Scarcity of compatible kidneys limits transplants. Therefore,
most patients suffering from ESRD rely on dialysis.
There
are
two major dialysis methods commonly used today, hemodialysis (“HD”) and
peritoneal dialysis (“PD”). These are described below under “Dialysis Treatment
Options for ESRD.” Based upon industry sources, we estimate the worldwide ESRD
patient population was approximately 2.15 million at the end of 2007. Of
these patients, we estimate that around 1.65 million were undergoing
dialysis treatment, and approximately 500,000 people were living with kidney
transplants. Of the estimated 1.65 million dialysis patients treated in
2007 approximately 90% million received HD and about 10% received PD. Generally,
an ESRD patient’s physician, in consultation with the patient, chooses the
patient treatment method, which is based on the patient’s medical conditions and
needs.
Fresenius
has estimated that the total number of patients who received dialysis for
chronic ESRD was 1,400,000 at the end of 2007. Only approximately 80,000 of
these patients were in the PRC. We expect this number to more than double over
the next three years. In contrast to the growth rate of 3-5% in the developed
countries in North America, Europe and Japan, where relatively easy access
to
modern treatment facilities is established, we expect a growth rate in the
range
of 15-30% in the PRC as the number of facilities and insurance coverage
increases in a wider geographic area.
We
believe that the continuing growth in the number of dialysis patients is
principally attributable to:
|
|
|
|
|
|
|
increased
general life expectancy,
|
|
|
|
|
|
|
|
shortage
of donor organs for kidney transplants;
|
|
|
|
|
|
|
|
improved
dialysis technology that makes life-prolonging dialysis available
to a
larger patient population;
|
|
|
|
|
|
|
|
greater
access to treatment as more treatment centers open; and
|
|
|
|
|
|
|
|
better
treatment and survival of patients with hypertension, diabetes and
other
illnesses that lead to ESRD.
|
Dialysis
Treatment Options for ESRD
Hemodialysis. Hemodialysis
removes toxins and excess fluids from the blood in a process in which the blood
flows outside the body through plastic tubes known as bloodlines into a
specially designed filter, called a dialyzer. The dialyzer separates waste
products and excess water from the blood. Dialysis solution flowing through
the
dialyzer carries away the waste products and excess water, and supplements
the
blood with solutes which must be added due to renal failure. The treated blood
is returned to the patient. The hemodialysis machine pumps blood, adds
anti-coagulants, regulates the purification process and controls the mixing
of
dialysis solution and the rate of its flow through the system. This machine
can
also monitor and record the patient’s vital signs.
Hemodialysis
patients generally receive treatment three times per week, typically for three
to five hours per treatment. The majority of hemodialysis patients receive
treatment at outpatient dialysis clinics, where hemodialysis treatments are
performed with the assistance of a nurse or dialysis technician under the
general supervision of a physician.
According
to government and industry reports, hemodialysis patients represented
approximately 91-96% of all dialysis patients in the U.S., Europe and Japan,
and
84% in the rest of the world, probably reflecting in part the more limited
access to treatment centers and equipment in the developing world, including
the
PRC. Thus, hemodialysis is the dominant therapy method worldwide.
Peritoneal
Dialysis. Peritoneal dialysis removes toxins from the blood using the
peritoneum, the membrane lining covering the internal organs located in the
abdominal area, as a filter. Most peritoneal dialysis patients administer their
own treatments in their own homes and workplaces, either by a treatment known
as
continuous ambulatory peritoneal dialysis or CAPD, or by a treatment known
as
continuous cycling peritoneal dialysis or CCPD. In both of these treatments,
a
surgically implanted catheter provides access to the peritoneal cavity. Using
this catheter, the patient introduces a sterile dialysis solution from a
solution bag through a tube into the peritoneal cavity. The peritoneum operates
as the filtering membrane and, after a specified dwell time, the solution is
drained and disposed. A typical CAPD peritoneal dialysis program involves the
introduction and disposal of dialysis solution four times a day. With CCPD,
a
machine pumps or “cycles” solution to and from the patient’s peritoneal cavity
while the patient sleeps. During the day, one and a half to two liters of
dialysis solution remain in the abdominal cavity of the patient.
Description
of Our Products and Services
Distribution:
Hemodialysis
Equipment
Our
principal products have been the Fresenius line of dialyzers (HD 4008B, CRRT,
HD
4008S Basic, HD 4008S, HD 4008S-ONLINE, and HD 4008S-Online Plus and disposables
(tubes, filters, catheters, etc.) used once in hemodialysis and then discarded,
all used in hospitals and medical facilities.
Hemodialysis
Disposables
Each
hemodialysis treatment requires a number of sterile medical devices and
supplies, such as catheters, clamps, filters, needles, tubes and containers,
which are used once and then discarded. These Disposables, some of which are
manufactured by our strategic 20%-owned manufacturing affiliate, Ningbo Tianyi,
are a major product in our distribution. The medical facilities and healthcare
providers need to coordinate inventories and delivery schedules of disposables
with precision and reliability to assure quality patient care and to avoid
disruption or adverse results. We assist our customers in fulfilling this need
with our logistics and consulting services.
Hemodialysis
Diagnostics
Treatment
centers use diagnostic equipment and testing in connection with hemodialysis
treatments to evaluate the elimination of certain components of the blood and
to
supplement others. We provide diagnostic services to hemodialysis treatment
centers.
Services:
Our
knowledge of the healthcare and regulatory system in the PRC enables us to
provide valuable consulting services to both Chinese and international
developers of pharmaceuticals and medical devices in connection with clinical
testing, government review and registration and approval for distribution in
the
PRC. Out consulting clients include Roche (Roche Diagnostics and Roche
Pharmaceuticals), the largest manufacturer of hemodialysis diagnostics products,
Fresenius AG (Fresenius Medical Care), the largest manufacturer of hemodialysis
machines in the world, and Nippon Mitsubisish Pharmaceuticals, one of the
largest providers of hemodialysis pharmaceuticals.
Working
with our partner, Fresenius, we provide hemodialysis hardware and facilities
consulting and maintenance service.
With
our
partner Roche Diagnostics we have begun to offer diagnostics services to our
hemodialysis customers. We believe that this business will expand as we further
leverage our good relationships with healthcare facilities and providers and
our
working relationship with the world’s leading hemodialysis diagnostics
company.
With
support from our manufacturing partner, Ningbo Tianyi, we provide logistics
(warehousing and distribution) services to our healthcare customers regarding
hemodialysis Disposables.
Our
Product/Marketing Strategy
Our
current business, in alliance with world and Chinese leading companies, has
made
us the largest distributor in the hemodialysis market in China. Our
product/marketing strategy focuses on using our relationships with our customers
and subdistributors, strategic investors, stategic joint venture partners and
suppliers and government regulatory officials. We believe that our management’s
experience and reputation helps us to identify and assure high quality in the
products and services which we offer, relevance and needs in our customer base
and a practical knowledge of new medical devices and pharmaceuticals which
can
be approved in the PRC. Currently, we are focused on distribution of
hemodialysis equipment and supplies in Eastern China, but believe that we can
expand into other geographic markets and expand our products and services to
our
existing and future customers.
Implementing
our product/marketing strategy involves the following:
Expanding
and Strengthening Our Product Lines.
We
hope
to leverage our relationships and technical expertise to expand our product
offerings by adding new pharmaceutical and medical devices to our
products.
Expanding
and Strengthening Our Distribution Network in the PRC and then outside of the
PRC.
Our
success so far has been in part because our focus has been on the richest and
largest city in the PRC in an era when much healthcare, including hemodialysis,
has been on a pay as you go basis, with limited health insurance resources.
Over
the next few years, as the new governmental national health insurance program
spreads to cover many more people, distributing hemodialysis equipment and
Disposables will become economically feasible in vast new areas of China and
will become available to millions more people. We plan to expand our
distribution of our current products to other strategic regions of the PRC
both
through directly and through possible acquisitions. We believe that our
experience and size will permit us to achieve economies of scale in this
process.
Sales
and Marketing
We
sell
our products directly through our sales employees and indirectly through
independent subdistributors. As of the date of this Current Report, we have
20
of our 45 employees engaged in sales. In addition we have 20 outside sales
representatives covering Shanghai, and parts of Eastern China. Our
representatives develop relationships on our behalf and generate purchase
orders, which we fill directly, paying a performance-based commission to the
representatives.
Suppliers
We
purchase hemodialysis equipment at wholesale prices from Fresenius and resell
it
at higher prices. For threeyears we have had a distribution agreement with
Fresenius which makes us the exclusive distributor of their products in greater
Shanghai. Of Fresenius’ five PRC distributors we are by far the largest and we
believe that we have a good long-term relationship with Fresenius, which has
seconded one of their employees to work at our company.
Under
our
agreement effective January 1, 2008 with Roche, we are the exclusive distributor
of Roche’s Coaguchek XS and PT Test diagnostics products in the PRC from January
1, 2008 until March 31, 2010.
We
purchase Disposables from our affiliated manufacturer, Ningbo Tianyi, and
others. We purchase Pharmaceuticals from our joint venture partners, Roche
and
Nippon Mitusbishi Pharmaceutical, and others. We generally have long-term
relationships with our suppliers, but no written contracts with them as the
materials we need are generally available in the market.
Customers
Our
current customers number over 200 medical facilities in metropolitan Shanghai
and Eastern China. They include 60 hospitals, including the five largest
hospitals in Shanghai, and 30 public health. The following table presents,
for
the periods indicated, our largest customers by revenue:
|
customer
|
|
Amount
purchased (in RMB)
|
|
Amount
purchased ($)
|
|
Percentage
of Total Purchases (%)
|
|
|
Heilongjiang
Changji Medical Equipment Co. Ltd.
|
|
|
17,196,581.19
|
|
|
2,199,754.55
|
|
|
9.61
|
%
|
|
Changchun
Jinli Medical Equipment Co. Ltd.
|
|
|
16,512,820.53
|
|
|
2,112,289.16
|
|
|
9.23
|
%
|
|
Shanghai
Zhenwei Medical Equipment Co. Ltd.
|
|
|
10,098,600.02
|
|
|
1,291,794.05
|
|
|
5.64
|
%
|
|
Shanghai
Guangci Medical High technology Co. Ltd.
|
|
|
8,529,098.29
|
|
|
1,091,026.32
|
|
|
4.77
|
%
|
|
Nanjing
Dakang Medical Equipment Co. Ltd.
|
|
|
8,201,751.29
|
|
|
1,049,152.71
|
|
|
4.58
|
%
|
|
Shanghai
Beiyi Commercial & Trade Co. Ltd.
|
|
|
7760,860.92
|
|
|
992,754.83
|
|
|
4.34
|
%
|
|
Suzhou
Songhe Economic & Trade Co. Ltd.
|
|
|
7,049,706.42
|
|
|
901,785.28
|
|
|
3.94
|
%
|
|
Shenyang
Yiliao Commercial & Trade Co. Ltd.
|
|
|
6,871,794.87
|
|
|
879,027.17
|
|
|
3.84
|
%
|
|
Beijing
Hongxinhua Science & Trade Co. Ltd.
|
|
|
6,769,230.78
|
|
|
865,907.36
|
|
|
3.78
|
%
|
|
Shanghai
Jingan Center Hospital
|
|
|
6,721,591.47
|
|
|
859,813.43
|
|
|
3.76
|
%
|
Technology
and Research and Development
We
are
doing research and development on diagnostics with Roche Diagnostic, the world
leader in this field.
For
the
fiscal year ended December 31, 2007 and 2006, respectively, we expended
approximately $4,000,000 and $3,000,000 on R&D activities.
Competition
Hemodialysis
Equipment
Our
main
competitors in the distribution of HDE and their estimated share of the PRC
market are Nanjing Darui (8%), Chengdu Feiya (8%) and Guangdong Dipong (7%).
We
believe that we are the leading HDE distributor in the PRC, with approximately
10% of the national market. We are by far the largest Fresenius distributor
in
China. Our supplier, Fresenius, is the leading manufacturer exporting to the
PRC, with about 45% market share. Its main competitors and their estimated
shares of the PRC market are Nippon Manufacture (25%), Gambro’s (15%) and Baxter
International (5%) . So far, no Chinese manufacturers have become competitive
with the global market leaders who compete in China.
Intellectual
Property
Patents
We
hold
the following patents:
|
Application
No.
|
|
Bulletin
No.
|
|
Applicant
|
|
Name
of the Patent
|
|
Author
|
|
Publication
Date
|
|
Issuance
Date
|
|
200510028341.0
|
|
1903206A
|
|
Shanghai
Medical
|
|
Alprostadil
Lyophilize Emulsion and Its Producing Means
|
|
Xiang
Wei
|
|
July
29, 2005
|
|
January
31, 2007
|
Utility
Model of Platelet Collection and Storage System:
|
Certificate
No.
|
|
Patent
No.
|
|
Patentee
|
|
Author
|
|
Application
Date
|
|
Issuance
Date
|
|
625562
|
|
ZL
03229879.X
|
|
SPHIC
|
|
Bao
Ping
|
|
March
28
th
,
2003
|
|
July
7
th
,
2004
|
On
October 10th, 2005, Shanghai Medical entered into the Patent Transfer Agreement
with Shanghai Pharmaceutical & Hemo -Tech International Co., Ltd. (“SPHIC”),
which provided that SPHIC should transfer the above patent for utility model
to
Shanghai Medical. Shanghai Medical is processing such transfer
procedures.
|
Certificate
No.
|
|
Patent
No.
|
|
Patentee
|
|
Author
|
|
Application
Date
|
|
Issuance
Date
|
|
624113
|
|
ZL
03229880.3
|
|
SPHIC
|
|
Bao
Ping
|
|
March
28
th
,
2003
|
|
July
7
th
,
2004
|
On
October 15
th
,
2005,
Vantage entered into the Patent Transfer Agreement with SPHIC, which provided
that SPHIC should assign its above patent for utility model to Vantage. Pursuant
to the confirmation of SPHIC, Vantage has paid up the fees for such patent
transfer. According to the explanation of Vantage, it is processing such
transfer procedures.
Other
Intellectual Property Rights Protections in the PRC.
In
addition to patent and trade secret protection law in the PRC, we also rely
on
contractual confidentiality provisions to protect our intellectual property
rights. Our R&D personnel and executive officers are subject to
confidentiality agreements to keep our proprietary information confidential.
In
addition, they are subject to a one-year covenant not to compete following
the
termination of employment with our company. Further, they agree that any work
product belongs to our company.
Insurance
We
currently do not carry any product liability or other similar insurance, nor
do
we have property insurance covering our plant, manufacturing equipment and
office building. While product liability lawsuits in the PRC are rare and
Shanghai Medical has never experienced significant failures or accidents, there
can be no assurance that Shanghai Medical would not face liability in the event
of any failure or accident.
Shanghai
Medical maintains social insurance for their staff and employees in accordance
with relevant compulsory requirements under the PRC laws and have compulsory
insurance and fixed-sum insurance for cars and other vehicles.
Employees
Presently,
we have 45 full-time employees. 60% of our employees have college or higher
degrees.
Government
Regulation
On
January 4, 2000, PRC National Congress promulgated the Regulations for the
Supervision and Administration of Medical Appliance in effect on April 1, 2000,
which provided the regulations regarding the production, operation and usage
of
medical appliance. On August 9, 2004, State Food and Drug Administration (former
State Drug Supervision and Administration Bureau) promulgated Measures for
the
Administration of Licenses for Medical Appliance Operation Enterprises in effect
on the promulgation date, which provided the conditions, procedures and
modification of application for licenses of Medical Appliance Operation
Enterprise.
Shanghai
Medical holds the License for Medical Appliance Operation Enterprises (Hu Yao
Guan Xie Jing Ying Xu No. 05305202) issued by Shanghai Food and Drug
Administration on the date of June 7
th
,
2005.
The licensed scope shall be the third class: extracorporeal circulation and
blood purification/disposal system and puncture needle, the validity term of
which shall be five years. SPHIC holds the License for Medical Appliance
Operation Enterprises (No.Hu 141411) issued by Shanghai Food and Drug
Administration on August 27
th
,
2007,
the valid term of which is from September 26
th
,
2007 to
September 25
th
,
2012.
The
PRC
State Administration of Foreign Exchange, or SAFE, issued a public notice (the
"October Notice"), effective as of November 1, 2005, and implementation rules
in
May 2007, which require registration with SAFE by the PRC-resident shareholders
of any foreign holding company of a PRC entity. In the event that Mr. Chen
Zhong, a PRC resident, acquires all the shares of KAL pursuant to the Call
Option Agreement dated as of April 14, 2008 between Mr. Chen and Shao Ganghua,
these regulations will apply to Mr. Chen Zhong. In the absence of such
registration, the PRC entity (in our case both ABMT and Shanghai Medical) cannot
remit any of its profits out of the PRC as dividends or otherwise. At present,
ABMT has obtained a SAFE certificate from SAFE’s Beijing office on March 17,
2007. Our PRC counsel advised us that the SAFE certificate will allow ABMT
to
distribute dividends and profits out of the PRC.
Pursuant
to the new PRC enterprise income tax law effective on January 1, 2008,
general enterprises are subject to income tax at an effective rate of 25%.
ABMT
is attempting to apply to be treated as a high-technology company, but there
can
be no assurance that this will bring us any tax preference.
Other
than the foregoing, Shanghai Medical is not subject to any other significant
government regulation of its business or production, or any other government
permits or approval requirements, except for the laws and regulations of general
applicability for corporations formed under the laws of the PRC.
As
of the
date of this Current Report, we believe we are in compliance with all relevant
PRC rules and regulations with regards to our facilities, supply and overall
operation as a distributor of our products.
FINANCIAL
INFORMATION
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS
OF OPERATION
DISCLAIMER
REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in this report, including statements in the following discussion,
which are not statements of historical fact, may be deemed to be
"forward-looking statements" which are basically statements about the future.
For that reason, these statements involve risk and uncertainty since no one
can
accurately predict the future. Words such as "plans," "intends," "will,"
"hopes," "seeks," "believes," "anticipates," "expects," and the like, often
identify such forward-looking statements, but are not the only indication that
a
statement is a forward-looking statement. Such forward-looking statements
include statements concerning our plans and objectives with respect to the
present and future operations of Shanghai Medical Technology Co., Ltd. (the
"Company," and statements which express or imply that such present and future
operations will or may produce revenues, income or profits. Numerous factors
and
future events could cause the Company to change such plans and objectives,
or
fail to successfully implement such plans or achieve such objectives, or cause
such present and future operations to fail to produce revenues, income or
profits. Therefore, the reader is advised that the following discussion should
be considered in light of the discussion of risks and other factors contained
in
this report on Form 8-Kand in the Company's other filings with the Securities
and Exchange Commission. No statements contained in the following discussion
should be construed as a guarantee or assurance of future performance or future
results. These forward-looking statements are made as of April 21, 2008; the
date of the filing of this Form 8-K, and the Company undertakes no
responsibility to update these forward-looking statements.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes for the fiscal years ended December 31, 2007 and December
31,
2006 annexed to this Current Report.
OVERVIEW
We
are a
medical equipment and supply distribution company established in 2004. We are
a
leading distributor of supplies and equipment in the hemodialysis industry
in
Eastern China with our principal clients based in Shanghai. Our products are
produced by two large foreign multinationals, Roche (
Roche
Diagnostics and Roche Pharmaceuticals)
and
Fresenius, AG. (“Fresenius”) and by a China based OEM, of which we own
20%.
Our
strategy is two-fold:
First,
we
are planning to expand our geographic reach within the PRC by expanding our
distribution channels through a traditional Western-style marketing plan into
the main commercial markets in China, including, but not limited to, the Pearl
River Delta, Beijing and other first tier markets in Eastern China. We believe
that this development will be enhanced by recent National Medical Reform within
the PRC creating a national healthcare system which we anticipate can allow
for
a substantial increase in hemodialysis treatments within the PRC over the next
decade.
Second,
we are planning to expand our business vertically in the hemodialysis field.
Currently, we own 20% of a domestic manufacturer of disposable supplies for
hemodialysis and plan to expand our presence within production of both equipment
and supplies. Disposable supplies are the tubing filters and other disposable
items necessary with each hemodialysis treatment. In addition to our current
channels, we are intend to launch a chain of diagnostic and treatment centers
in
the PRC similar to those found in America and other Western
nations.
We
believe that this vertical integration coupled with geographic expansion against
the background of the rapid expansion of China’s middle class and the new
National Healthcare program can provide a solid foundation for the expansion
of
our business.
Our
long-term objective is to become a fully integrated medical company in the
world’s fastest growing economy; expanding our lead in the hemodialysis and
related industries and creating value for patients and their service
providers.
RESULTS
OF OPERATIONS
The
following table shows our operating results for the fiscal years ended December
31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
2007
|
|
2006
|
|
Increase/
Decrease
|
|
Increase/
Decrease
|
|
|
Net
revenues
|
|
$
|
34,966,210
|
|
$
|
24,092,500
|
|
$
|
10,873,710
|
|
|
45.13
|
%
|
|
Cost
of sales
|
|
|
($21,521,706
|
)
|
|
($13,886,632
|
)
|
|
($7,635,074
|
)
|
|
54.98
|
%
|
|
Gross
profit
|
|
$
|
13,444,504
|
|
$
|
10,205,868
|
|
$
|
3,238,636
|
|
|
.
31.73
|
%
|
|
Selling
|
|
|
($899,668
|
)
|
|
($507,272
|
)
|
|
($392,396
|
)
|
|
77
.
35
|
%
|
|
General
and administrative
|
|
|
($1,654,103
|
)
|
|
($610,664
|
)
|
|
($1,043,439
|
)
|
|
170.87
|
%
|
|
Operating
income
|
|
$
|
10,890,733
|
|
$
|
9,087,932
|
|
$
|
1,802,801
|
|
|
19.84%
|
%
|
|
Interest
income, net
|
|
$
|
17,092
|
|
$
|
10,773
|
|
$
|
6,319
|
|
|
58.66
|
%
|
|
Income
before income taxes
|
|
$
|
10,951,995
|
|
$
|
9,098,705
|
|
$
|
1,853,290
|
|
|
20.37
|
%
|
|
Net
income
|
|
$
|
7,227,560
|
|
$
|
6,083,188
|
|
$
|
1,144,372
|
|
|
18.81
|
%
|
|
Comprehensive
income
|
|
$
|
7,851,255
|
|
$
|
6,289,526
|
|
$
|
1,561,729
|
|
|
24.83
|
%
|
Net
Revenues
Net
revenues were $34,966,210 for the fiscal year ended December 31, 2007, an
increase of $10,873,710 or 45.13% from $24,092,500 for the fiscal year ended
December 31, 2006. Our revenues increased primarily as a result of increase
in
sales volume in Shanghai and the surrounding district. The increase in sales
was
primarily due to more sales representatives and marketing work in 2007,
additional hospitals and clinics added as customers in 2007, also more patients
covered by government payment (insurance).
Hemodialysis
equipment and related disposables have been our principal products since
inception, generating almost all of our sales. During the nine months ended
December 31, 2007, hemodialysis and disposable sales accounted for 99.5% of
our
net sales.
Cost
of Sales
Cost
of
sales rose to $21,521,706 for the fiscal year ended December 31, 2007, an
increase of $7,635,074 or 54.98% from $13,886,632 for the fiscal year ended
December 31, 2006. Cost of sales measured as a percentage of net revenues was
61.55%, an increase from 57.63% in 2006. The increase in cost of sales was
principally driven by the increase in marketing and sales volume.
Our
largest supplier is Fresenus. We purchase all disposable goods from suppliers
in
the PRC, and have established and maintained good relationships with them.
The
following charts show the list of our main suppliers in fiscal 2007 and
2006.
Fiscal
Year Ended December 31, 2007
|
Supplier
|
|
Amount
purchased (in RMB)
|
|
Amount
purchased ($)
|
|
Percentage
of Total Purchases (%)
|
|
|
Anhui
Xiante Medical Equipment Co. Ltd.
|
|
|
1,386,130.18
|
|
|
177,311.18
|
|
|
1.13
|
%
|
|
FreseniusMedical
Products (Shanghai) Co. Ltd
|
|
|
115,035,130.70
|
|
|
14,715,079.08
|
|
|
94.06
|
%
|
|
NiboTianyi
Medical Equipment Co. Ltd.
|
|
|
5,776,623.54
|
|
|
738,934.89
|
|
|
4.72
|
%
|
|
China
Medical Equipment Co. Ltd.
|
|
|
103,694.00
|
|
|
13,264.34
|
|
|
0.09
|
%
|
Fiscal
Year Ended December 31, 2006
|
Supplier
|
|
Amount
purchased (in RMB)
|
|
Amount
purchased ($)
|
|
Percentage
of Total Purchases (%)
|
|
|
Anhui
Xiante Medical Equipment Co. Ltd.
|
|
|
841,023.12
|
|
|
107,582.11
|
|
|
0.82
|
%
|
|
FreseniusMedical
Products (Shanghai) Co. Ltd
|
|
|
99,100,107.25
|
|
|
12,676,700.64
|
|
|
96.69
|
%
|
|
NiboTianyi
Medical Equipment Co. Ltd.
|
|
|
2,042,516.62
|
|
|
261,274.91
|
|
|
1.99
|
%
|
|
China
Medical Equipment Co. Ltd.
|
|
|
513,465.5
|
|
|
65,681.55
|
|
|
0.50
|
%
|
Gross
Profit
Gross
profit for the fiscal year ended December 31, 2007 was $13,444,504 up 31.73%
from gross profit of approximately $10,205,868 for 2006. Gross profit margin
was
38.45%
for the fiscal year ended December 31, 2007 compared to 42.36% for 2006. This
decrease of gross margin was due to increasing competition, especially at the
larger Level 3 hospitals, which put pressure on the prices we could charge
.
Selling,
General and Administrative Expenses
Selling
expenses were $899,668 for the fiscal year ended December 31, 2007, an increase
of $392,396 or 77.35% from $507,272 for the fiscal year ended December 31,
2006.
We have incurred more expenses in launching our addition sales volume, together
with more marketing activities, including the sustainable training and education
programs in doctors and sales representatives. General and administrative
expenses were $1,654,103 for the fiscal year ended December 31, 2007, an
increase of $1,043,439 or 170.87% from $610,664 for the fiscal year ended
December 31, 2006. The increase was due to our efforts in restructuring
management to meet the requirements of an expanding enterprise and the financing
activities. We have a total of more than 45 people in Shanghai Medical
Technology. We have a sales & marketing team of 20 people and have a
logistic support team of 10 people. In addition, we have 8 employees in Shanghai
and Beijing, working in R&D and registration. Nevertheless, selling expenses
and general and administrative expenses remained low during the fiscal year
ended December 31, 2007, at 7.30% of net revenues, compared to 4.64% of net
revenues for 2006. As we prepare to increase sales and more aggressively address
market opportunities, we anticipate an expansion of our sales force to better
respond to the market. In addition, we expect that general and administrative
expenses will increase for the foreseeable future as a result of our expected
continued growth and geographical expansion as well as the costs of fund raising
and reporting requirements once we become a public company.
Operating
Income
Operating
Income was $10,890,733 for the fiscal year ended December 31, 2007, an increase
of $1,802,801 or 19.84% from $9,087,932 for the fiscal year ended December
31,
2006. Our operating margins
de
creased
from 37.72
%
for the
fiscal year ended December 31, 2006 to 31.15% for the fiscal year
ended
December
31, 2007. This operating margin decrease was principally due to decrease of
gross margin and increase of selling expenses and administrative expenses There
is an increasing number of competitive bids required by purchasing policies
of
hospitals and medical institutions in the China market, stimulated by additional
government regulations presently.
Income
taxes
Although
we are subject to United States taxation, we do not anticipate incurring
significant United States income tax liability for the foreseeable future
because:
|
|
|
we
do not conduct any material business or maintain any branch office
in the
United States
|
|
|
|
the
earnings generated from our non-U.S. operating companies are generally
eligible for a deferral from United States taxation until such earnings
are repatriated to the United States,
and
|
|
|
|
we
believe that we will not generate any significant amount of income
inclusions under the income imputation rules applicable to a United
States
company that owns "controlled foreign corporations" for United States
federal income tax purposes.
|
Provision
for income tax was $3,709,818 for the fiscal year ended December 31, 2007,
an
increase of $707,247 or 23.55% from $3,002,572 for the fiscal year ended
December 31, 2006. We conduct all our operations through our PRC operating
companies and we are governed by the PRC Enterprise Income Tax Laws. PRC
enterprise income tax is calculated based on taxable income determined under
PRC
GAAP. In accordance with the Income Tax Laws, a PRC domestic company is subject
to enterprise income tax at the rate of 33%, value added tax at the rate of
17%
for most of the goods sold, and business tax on services at a rate ranging
from
3% to 5% annually. A PRC domestic company is also subject to local taxes. We
were fully taxed at the rate of 33% for the fiscal years ended December 31,
2007
and 2006 respectively.
Minority
interests
Minority
interests were $14,617 for the fiscal year ended December 31, 2007, an increase
of $1,672 or 41.05% from $,12,945 for the fiscal year ended December 31, 2006.
The increase is due to an increase in net income before minority
interests.
Net
Income
Net
income was $7,227,560 for the fiscal year ended December 31, 2007, an increase
of $1,144,372 or 18.81% from $6,083,188 for the fiscal year ended December
31,
2006. Net profit margin was 20.67 % for the fiscal year ended December 31,
2007
compared to 25.25 % for the same period in 2006 because the increase in
our
expenses in expanding our sales, and in restructuring management to meet the
requirements of an expanding enterprise, was larger than the increase in
sales.
Foreign
Currency Translation Adjustments
During
the fiscal years ended December 31, 2007 and 2006, the Renminbi rose steadily
against the U.S. dollar. As a result of the appreciation of the Renminbi, we
recognized a foreign currency translation gain of $623,695 and $206,338,
respectively. Given the uncertainty of exchange rate fluctuations, we cannot
estimate the effect of these fluctuations on our future business, product
pricing, results of operations or financial conditions, but the fluctuation
of
the Renminbi may materially and adversely affect your investment if the current
trend of appreciation of Renminbi is reversed.
All
of
our revenue and expenses in fiscal 2007 and 2006 were denominated in Renminbi.
The income statement accounts were translated at the yearly average exchange
rate of $1 to
RMB
7.98189
and the
balance sheet items, except the equity accounts were translated at the year
end
rate of $1 to RMB 7.81750.
The
equity accounts were stated at their historical rate when corresponding
transactions happened. The exchange rate on April 3, 2008 was $1 to
RMB
7.01600.
Inventory
Inventory
was $1,206,676 for the fiscal year ended December 31, 2007, an decrease of
$92,458 or 7.6% from $1,299,134 for the fiscal year ended December 31, 2006.
The
decrease is due to better control over the balance of purchase and sales volume
of the products
Accounts
Receivable
The
following table provides information, as of December 31, 2007, as to our
accounts receivable from our five largest customers.
|
Customers
|
|
Receivable
amounts RMB
|
|
Receivable
amounts US$
|
|
Percentage
of Total receivables (%)
|
|
|
Shanghai
Heyi
Co.Ltd.
|
|
|
1,132,000
|
|
|
154,770
|
|
|
6
|
%
|
|
Nanjing
Dakang Medical Equipment Co.Ltd.
|
|
|
1,275,944
|
|
|
174,450
|
|
|
7
|
%
|
|
Heilongjiang
Jichang Medical Equipment Co.Ltd.
|
|
|
1,416,400
|
|
|
193,653
|
|
|
8
|
%
|
|
Changchun
Jinli Medical Equipment Co.Ltd.
|
|
|
1,665,000
|
|
|
227,643
|
|
|
9
|
%
|
|
Shanghai
Zhongshan Hospital
|
|
|
1,864,616
|
|
|
254,934
|
|
|
11
|
%
|
|
Total
|
|
|
7,353,960
|
|
|
1,005,450
|
|
|
41
|
%
|
|
Total
Accounts Receivable
|
|
|
17,613,982
|
|
|
2,408,223
|
|
|
100
|
%
|
1.1
Alprostadil Lyophilize Emulsion and Its Producing Means
|
Application
No.
|
|
Bulletin
No.
|
|
Applicant
|
|
Author
|
|
Publication
Date
|
|
Issuance
Date
|
|
200510028341.0
|
|
CN
1903206A
|
|
Shanghai
Medical
|
|
Xiang
Wei
|
|
July
29
th
,
2005
|
|
January
31
st
,
2007
|
2
Platelet Collection and Storage System
|
Certificate
No.
|
|
Patent
No.
|
|
Patentee
|
|
Author
|
|
Application
Date
|
|
Issuance
Date
|
|
625562
|
|
ZL
03229879.X
|
|
SPHIC
|
|
Bao
Ping
|
|
March
28
th
,
2003
|
|
July
7
th
,
2004
|
On
October 10, 2005, Shanghai Medical entered into the Patent Transfer Agreement
with SPHIC, which provided that SPHIC should transfer the above patent for
utility model to SMT. Pursuant to the confirmation of SPHIC, SMT has paid up
the
fees for such patent transfer, such transfer procedure is in the
process.
2.
Intellectual Property of Vantage
2.1
Endoscopic Bi-chamber Drug Delivery System
|
Certificate
No.
|
|
Patent
No.
|
|
Patentee
|
|
Author
|
|
Application
Date
|
|
Issuance
Date
|
|
624113
|
|
ZL
03229880.3
|
|
SPHIC
|
|
Bao
Ping
|
|
March
28
th
,
2003
|
|
July
7
th
,
2004
|
On
October 15, 2005, Vantage entered into the Patent Transfer Agreement with SPHIC,
which provided that SPHIC should assign its above patent for utility model
to
Vantage. Pursuant to the confirmation of SPHIC, Vantage has paid up the fees
for
such patent transfer. According to the explanation of Vantage, it is processing
such transfer procedures.
Liquidity
and Capital Resources
Historically,
we have financed our business with cash flow from operations and used
shareholders’ equity investment and retained earnings to cover capital
expenditures.
Working
capital mainly consists of inventory, salaries, operation overhead (auxiliary
materials, utilities, etc.) and finance expenses. Inventory purchases comprise
the majority of our working capital.
Our
working capital requirements may be influenced by quite a few factors, including
cash flow, competition, our relationships with suppliers, logistic and inventory
management, the availability of credit facilities and financing alternatives,
none of which can be predicted with high level of certainty.During the last
two
years the availability of credit facilities in the PRC has become tighter,
as
the government has been taking steps to moderate inflation. So far these
measures have not materially affected our operations. We believe that, following
our recent private placement financing, we have sufficient working capital
to
proceed with our business plans.
The
following is a table of our contractual obligations and the periods during
which
payments are due.
|
|
|
Payments
due by
period
|
|
|
|
|
|
|
Contractual
obligations
|
|
Total
RMB
|
|
Less
than 1 year
RMB
|
|
1-3
years
|
|
3-5
years
|
|
More
than 5 years
|
|
|
[Long-Term
Debt Obligations] none
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Capital
Lease Obligations] none
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Operating
Lease Obligations] none
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Purchase
Obligations]
|
|
|
4,680,597.38
|
|
|
4,680,597.38
|
|
|
|
|
|
|
|
|
|
|
|
[Other
Long-Term Liabilities Reflected on the Registrant's Balance Sheet
under
GAAP] none
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,680,597.38
|
|
|
4,680,597.38
|
|
|
|
|
|
|
|
|
|
|
(ii)
Definitions:
The
following definitions apply to this table:
(A)
Long-Term
Debt Obligation
means
a
payment obligation under long-term borrowings referenced in FASB Statement
of
Financial Accounting Standards No. 47
Disclosure
of Long-Term Obligations
(March
1981), as may be modified or supplemented.
(B)
Capital
Lease Obligation
means
a
payment obligation under a lease classified as a capital lease pursuant to
FASB
Statement of Financial Accounting Standards No. 13
Accounting
for Leases
(November
1976), as may be modified or supplemented.
(C)
Operating
Lease Obligation
means
a
payment obligation under a lease classified as an operating lease and disclosed
pursuant to FASB Statement of Financial Accounting Standards No. 13
Accounting
for Leases
(November
1976), as may be modified or supplemented.
(D)
Purchase
Obligation
means
an
agreement to purchase goods or services that is enforceable and legally binding
on the registrant that specifies all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum or variable price provisions;
and the approximate timing of the transaction
Operating
Activities
Net
cash
provided by operating activities for the fiscal year ended December 31, 2007
was
$2,175,899
,
a
decrease of $5,995,186 or 73% from $8,171,085 for the fiscal year ended December
31, 2006.
This
decrease was principally attributable to long-term prepayments of $5,218,231
during 2007 compared to no such payments in 2006.
Investing
Activities
Net
cash
used in investing activities for the fiscal year ended December 31, 2007
was
$358,682, a decrease of $5,754,867 from $6,113,549 for the fiscal year ended
December 31, 2006. This decrease was due primarily to $53,607 generated from
intangible assets in 2007 compared to an expenditure of $6,113,549 on intangible
assets in 2006. Also the decrease of $751,702 in cash deposited for investments
in 2007 compared to 2006 more than offset the $357,670 spent on the acquisition
of a subsidiary in 2007.
We
funded
these cash expenditures in 2007 with cash reserves brought forward from fiscal
2006 and cash generated from fiscal 2007 operations.
Financing
Activities
Loans
There
were no short-term bank loans outstanding at the end of fiscal years 2007 and
2006.
Future
Cash Commitments
We
have
made capital investment plans for geographical expansion, possible acquisitions,
setting up hemodialysis service centers and expansion of production capabilities
in fiscal 2008, estimated at a total value of approximately $23 million. This
demand for investment capital will be mainly met with the proceeds from the
sale
of our Series A Senior Preferred Stock described above, and partly with cash
inflow from operations.
Critical
Accounting Policies and Estimates
Management's
discussion and analysis of its financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with United States generally accepted accounting principles. Our
financial statements reflect the selection and application of accounting
policies which require management to make significant estimates and judgments.
See note 1 to our consolidated financial statements, "Summary of Significant
Accounting Policies and Organization". We believe that the following reflect
the
more critical accounting policies that currently affect our financial condition
and results of operations:
Method
of Accounting
We
maintain our general ledger and journals with the accrual method accounting
for
financial reporting purposes. Accounting policies adopted by us conform to
generally accepted accounting principles in the United States of America and
have been consistently applied in the presentation of financial statements,
which are compiled on the accrual basis of accounting.
Use
of estimates
The
preparation of the financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Management makes these estimates using the best
information available at the time the estimates are made; however actual results
could differ materially from those estimates.
DESCRIPTION
OF PROPERTIES
Shanghai
Medical does not own any real estate. Our offices are housed in a rented
building located in Hongqian Road, Changning District, Shanghai, PRC. We believe
that our offices are adequate for our current business activities. The details
for the lease refer to the following:
|
No.
|
|
Lessor
|
|
Location
of House
|
|
Area
|
|
Term
|
|
Rent
Yuan
|
|
Certificate
of Real Estate Ownership No.
|
|
1
|
|
Shanghai
Shenkang Hotel
|
|
6B,
1440 Hongqiao Road, shanghai
|
|
55
|
|
June
1
st
,
2005 to May 31
st
,
2008
|
|
30,000/six
months
|
|
|
|
2
|
|
Shanghai
Kejing Estate Development Co., Ltd.
|
|
Floor
2, Tower A, Building 8, Niudun Road, shanghai
|
|
86.15
|
|
January
1
st
,
2008 to December 31
st
,
2008
|
|
50,000/
month
|
|
Hu
Fang Di Pu Zi (2004) 017244
|
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this report before deciding to invest in our common stock.
Risks
Related to Our Business
Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.
We
commenced our current line of business operations in recent years. Our limited
operating history may not provide a meaningful basis on which to evaluate our
business. Although our revenues have grown rapidly since inception, we cannot
assure you that we will maintain our profitability or that we will not incur
net
losses in the future. We expect that our operating expenses will increase as
we
expand. Any significant failure to realize anticipated revenue growth could
result in significant operating losses. We will continue to encounter risks
and
difficulties frequently experienced by companies at a similar stage of
development, including our potential failure to:
|
|
|
raise
adequate capital for expansion and
operations;
|
|
|
|
implement
our business model and strategy and adapt and modify them as needed;
|
|
|
|
increase
awareness of our brands, protect our reputation and develop customer
loyalty;
|
|
|
|
manage
our expanding operations and service offerings, including the integration
of any future acquisitions;
|
|
|
|
maintain
adequate control of our expenses;
|
|
|
|
anticipate
and adapt to changing conditions in the hemodialysis market in which
we
operate as well as the impact of any changes in government regulations,
mergers and acquisitions involving our competitors, technological
developments and other significant competitive and market
dynamics.
|
If
we are
not successful in addressing any or all of these risks, our business may be
materially and adversely affected.
Our
failure to compete effectively may adversely affect our ability to generate
revenue
.
We
compete primarily on the basis of high product quality, technology and a broad
array of related products, our extensive ongoing service coverage and good
relationships with our clients. These competitive advantages are in part based
on our suppliers’ design and engineering quality and in part on our employees
and representatives’ personal relationships and consistent reliable service.
There can be no assurance that we will maintain these advantages in the future.
Although most hemodialysis equipment is now manufactured overseas, some
competitors may establish manufacturing capabilities in the PRC to lower their
costs and improve accessibility of after-sales services. Our local competitors
may gain larger market share and reduce their costs by taking advantage of
economies of scale. Developments of this kind could have a material adverse
effect on our business, results of operations and financial condition. Further,
our business requires large amounts of working capital to fund our operations.
Our competitors may have better resources and better strategies to raise capital
which could also have a material adverse effect on our business, results of
operations or financial condition.
We
rely on sales primarily to a single kind of customer in a single industry.
Our
long-term growth may be impaired if we are unable to expand our customer base
beyond the hospital industry.
Nearly
all of our sales are made to hospitals and medical facilities in the PRC and
our
products are in a specialized niche area of healthcare. If the medical industry
in the PRC shrinks, our customer base and potential customers will have fewer
resources for the purchase of our products, and our business, results of
operations and financial condition could be adversely affected. Also if we
are
unable to broaden our product and service mix, our results may be adversely
affected if demand for our product category diminishes.
If
we are unable to fund our capital requirements for research and development,
our
growth and profitability may be adversely affected
.
In
order
to diversify our product and service mix, we may need to make substantial and
long-term investments in research and development to develop new products or
new
features for our existing products. If we are unable to fund such research
and
development efforts, our long-term market potential, income and financial
condition could be impaired.
We
do not have written contracts with all of our
suppliers
and
rely heavily on a few suppliers, so we could be hurt by a change in the market
for our supplies.
We
rely
heavily on Fresenius and Roche for our product supplies and are identified
with
them. If our relationship with either of them deteriorates or ends, it would
likely have a negative impact on our business. Some of our suppliers are PRC
companies with whom we have relationships, but no contracts. Although we believe
that our supplies are generally available in the market and that we are not
at
great risk of disruption to these supply chains, there can be no guarantee
that
the markets for these supplies will not be disrupted, for business or economic
reasons relating to a particular manufacturing sector, or for economic or
political reasons affecting the PRC more generally.
We
are responsible for the indemnification of our officers and
directors
.
Our
bylaws provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against costs and expenses incurred
by
them in any litigation to which they become a party arising from their
association with or activities on behalf of us.
We
may not have adequate internal accounting controls. While we have certain
internal procedures in our budgeting, forecasting and in the management and
allocation of funds, our internal controls may not be
adequate.
We
are
working to improve our internal accounting controls. We hope to develop an
adequate internal accounting control to budget, forecast, manage and allocate
our funds and account for them. There is no guarantee that such improvements
will be adequate or successful or that such improvements will be carried out
on
a timely basis. If we do not have adequate internal accounting controls, we
may
not be able to appropriately budget, forecast and manage our funds, we may
also
be unable to prepare accurate accounts on a timely basis to meet our continuing
financial reporting obligations and we may not be able to satisfy our
obligations under US securities laws.
Standards
for compliance with Section 404 of the Sarbanes-Oxley Act Of 2002 are uncertain,
and if we fail to comply in a timely manner, our business could be harmed and
our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting,
and
attestation of this assessment by our company's independent registered public
accountants. The SEC extended the compliance dates for non-accelerated filers,
as defined by the SEC. Accordingly, we believe that the annual assessment of
our
internal controls requirement will first apply to our annual report for the
2008
fiscal year and the attestation requirement of management's assessment by our
independent registered public accountants will first apply to our annual report
for the 2009 fiscal year. The standards that must be met for management to
assess the internal control over financial reporting as effective are new and
complex, and require significant documentation, testing and possible remediation
to meet the detailed standards. We may encounter problems or delays in
completing activities necessary to make an assessment of our internal control
over financial reporting. In addition, the attestation process by our
independent registered public accountants is new and we may encounter problems
or delays in completing the implementation of any requested improvements and
receiving an attestation of our assessment by our independent registered public
accountants. If we cannot assess our internal control over financial reporting
as effective, or our independent registered public accountants are unable to
provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted.
We
do not have key man insurance on our Chairman and CEO, Mr. Chen, on whom we
rely
for the management of our business.
We
depend, to a large extent, on the abilities and participation of our current
management team, but have a particular reliance upon Chen Zhong, our Chairman
and CEO. The loss of the services of Mr. Chen, for any reason, may have a
material adverse effect on our business and prospects. We cannot assure you
that
the services of Mr. Chen will continue to be available to us, or that we will
be
able to find a suitable replacement for Mr. Chen. We do not carry key man life
insurance for any key personnel.
We
may not be able to hire and retain qualified personnel to support our growth
and
if we are unable to retain or hire such personnel in the future, our ability
to
improve our products and implement our business objectives could be adversely
affected.
Our
future success depends heavily upon the continuing services of the members
of
our senior management team, in particular our President and Chief Executive
Officer, Mr. Zheng Chen; our Chief Financial Officer, Ms. Michelle Zhao; and
our
director Dr. Xiang Wei. If one or more of our senior executives or other key
personnel are unable or unwilling to continue in their present positions, we
may
not be able to replace them easily or at all, and our business may be disrupted
and our financial condition and results of operations may be materially and
adversely affected. Competition for senior management and senior technology
personnel is intense, the pool of qualified candidates is very limited, and
we
may not be able to retain the services of our senior executives or senior
technology personnel, or attract and retain high-quality senior executives
or
senior technology personnel in the future. Such failure could materially and
adversely affect our future growth and financial condition.
We
do not presently maintain product liability insurance, and our property
equipment insurance does not cover their full value, which leaves us with
exposure in the event of loss or damage to our properties or claims filed
against us.
We
currently do not carry any product liability or other similar insurance. While
product liability lawsuits in the PRC are rare and we have never experienced
significant failures of our products, we cannot assure you that we would not
face liability in the event of the failure of any of our products. We do not
carry any property insurance to cover our real property or manufacturing
equipment, nor do we have other insurance such as business liability or
disruption insurance coverage for our operations in the PRC.
Risks
Related to Doing Business in the PRC
.
We
face the risk that changes in the policies of the PRC government could have
a
significant impact upon the business we may be able to conduct in the PRC and
the profitability of such business.
The
PRC’s
economy is in a transition from a planned economy to a market oriented economy
subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government can have
significant effects on the economic conditions of the PRC. The PRC government
has confirmed that economic development will follow the model of a market
economy. Under this direction, we believe that the PRC will continue to
strengthen its economic and trading relationships with foreign countries and
business development in the PRC will follow market forces. While we believe
that
this trend will continue, we cannot assure you that this will be the case.
A
change in policies by the PRC government could adversely affect our interests
by, among other factors: changes in laws, regulations or the interpretation
thereof, confiscatory taxation, restrictions on currency conversion, imports
or
sources of supplies, or the expropriation or nationalization of private
enterprises. Although the PRC government has been pursuing economic reform
policies for more than two decades, we cannot assure you that the government
will continue to pursue such policies or that such policies may not be
significantly altered, especially in the event of a change in leadership, social
or political disruption, or other circumstances affecting the PRC's political,
economic and social life.
The
PRC laws and regulations governing our current business operations are sometimes
vague and uncertain. Any changes in such PRC laws and regulations may have
a
material and adverse effect on our business.
There
are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including, but not limited to, the laws and regulations
governing our business, or the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and criminal proceedings. We and any future subsidiaries are
considered foreign persons or foreign funded enterprises under PRC laws, and
as
a result, we are required to comply with PRC laws and regulations. These laws
and regulations are sometimes vague and may be subject to future changes, and
their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance by foreign investors. New
laws
and regulations that affect existing and proposed future businesses may also
be
applied retroactively. We cannot predict what effect the interpretation of
existing or new PRC laws or regulations may have on our businesses.
A
slowdown or other adverse developments in the PRC economy may materially and
adversely affect our customers, demand for our services and our
business
.
We
are a
holding company. All of our operations are conducted in the PRC and all of
our
revenues are generated from sales in the PRC. Although the PRC economy has
grown
significantly in recent years, we cannot assure you that such growth will
continue. The hemodialysis industry in the PRC is relatively new and growing,
but we do not know how sensitive we are to a slowdown in economic growth or
other adverse changes in the PRC economy which may affect demand for
hemodialysis equipment. A slowdown in overall economic growth, an economic
downturn or recession or other adverse economic developments in the PRC may
materially reduce the demand for our products and materially and adversely
affect our business.
Inflation
in the PRC could negatively affect our profitability and
growth.
While
the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. If prices for our products rise at a rate that is insufficient to
compensate for the rise in the costs of supplies, it may have an adverse effect
on profitability. In order to control inflation in the past, the PRC government
has imposed controls on bank credits, limits on loans for fixed assets and
restrictions on state bank lending. Such an austerity policy can lead to a
slowing of economic growth. In October 2004, the People’s Bank of China, the
PRC’s central bank, raised interest rates for the first time in nearly a decade
and indicated in a statement that the measure was prompted by inflationary
concerns in the Chinese economy. In 2007 the PRC central bank raised interest
rates five times. Repeated rises in interest rates by the central bank would
likely slow economic activity in China which could, in turn, materially increase
our costs and also reduce demand for our products.
ABMT
is subject to restrictions on paying dividends and making other payments to
us.
We
are a
holding company incorporated in the State of Delaware and do not have any assets
or conduct any business operations other than our investments in our
subsidiaries. As a result of our holding company structure, we rely primarily
on
dividends payments from our subsidiary in China. However, PRC regulations
currently permit payment of dividends only out of accumulated profits, as
determined in accordance with PRC accounting standards and regulations. Our
subsidiary and affiliated entity in China are also required to set aside a
portion of their after-tax profits according to PRC accounting standards and
regulations to fund certain reserve funds. The PRC government also imposes
controls on the conversion of RMB into foreign currencies and the remittance
of
currencies out of China. We may experience difficulties in completing the
administrative procedures necessary to obtain and remit foreign currency. See
“
Governmental
control of currency conversion may affect the value of your
investment
.”
Furthermore, if our subsidiary or affiliated entity in China incurs debt on
their own in the future, the instruments governing the debt may restrict their
ability to pay dividends or make other payments. If we are unable to receive
all
of the revenues from our operations through contractual or dividend
arrangements, we may be unable to pay dividends on our common stock even if
we
wish to pay dividends.
Governmental
control of currency conversion may affect the value of your
investment.
The
PRC
government imposes controls on the convertibility of Renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the PRC.
We
receive substantially all of our revenues in Renminbi, which is currently not
a
freely convertible currency. Shortages in the availability of foreign currency
may restrict our ability to remit sufficient foreign currency to pay dividends
or otherwise satisfy foreign currency dominated obligations. Under existing
PRC
foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from the transaction,
can be made in foreign currencies without prior approval from the PRC State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, approval from appropriate governmental authorities is
required where Renminbi is to be converted into foreign currency and remitted
out of China to pay capital expenses such as the repayment of bank loans
denominated in foreign currencies.
The
PRC
government may also at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents us from obtaining sufficient foreign currency to satisfy our
currency demands, we may not be able to pay certain of our expenses as they
come
due.
The
fluctuation of the Renminbi may materially and adversely affect your
investment.
The
value
of the Renminbi against the U.S. dollar and other currencies may fluctuate
and
is affected by, among other things, changes in the PRC's political and economic
conditions. As we rely entirely on revenues earned in the PRC, any significant
revaluation of the Renminbi may materially and adversely affect our cash flows,
revenues and financial condition. For example, to the extent that we need to
convert U.S. dollars we receive from an offering of our securities into Renminbi
for our operations, appreciation of the Renminbi against the U.S. dollar could
have a material adverse effect on our business, financial condition and results
of operations. Conversely, if we decide to convert our Renminbi into U.S.
dollars for the purpose of making payments for dividends on our common shares
or
for other business purposes and the U.S. dollar appreciates against the
Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be
reduced. In addition, the depreciation of significant U.S. dollar denominated
assets could result in a charge to our income statement and a reduction in
the
value of these assets.
On
July
21, 2005, the PRC government changed its decade-old policy pegging the value
of
the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in an approximately 12%
appreciation of the RMB against the U.S. dollar. While the international
reaction to the RMB revaluation has generally been positive, there remains
significant international pressure on the PRC government to adopt an even more
flexible currency policy, which could result in a further and more significant
appreciation of the RMB against the U.S. dollar.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect our
operations.
A
renewed
outbreak of SARS or another widespread public health problem in the PRC, where
all of the Company’s revenue is derived, could have an adverse effect on our
operations. Our operations may be impacted by a number of health-related
factors, including quarantines or closures of some of our offices that would
adversely disrupt our operations.
Any
of the foregoing events or other unforeseen consequences of public health
problems could adversely affect our operations.
Because
our principal assets are located outside of the United States and all of our
directors and all our officers reside outside of the United States, it may
be
difficult for you to enforce your rights based on U.S. Federal Securities Laws
against us and our officers and some directors in the U.S. or to enforce a
U.S.
court judgment against us or them in the PRC.
Both
of
our directors (as of ten days after the mailing of an information statement
on
Schedule 14f-1) and all of our officers reside outside of the United States.
In
addition, Shanghai Medical, which effectively functions as our operating
subsidiary, is located in the PRC and substantially all of its assets are
located outside of the United States. It may therefore be difficult for
investors in the United States to enforce their legal rights based on the civil
liability provisions of the U.S. Federal securities laws against us in the
courts of either the U.S. or the PRC and, even if civil judgments are obtained
in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear
if extradition treaties now in effect between the United States and the PRC
would permit effective enforcement against us or our officers and directors
of
criminal penalties, under the U.S. Federal securities laws or
otherwise.
We
may face
obstacles
from the communist system in the PRC.
Foreign
companies conducting operations in PRC face significant political, economic
and
legal risks. The Communist regime in the PRC, including a cumbersome
bureaucracy, may hinder Western investment.
We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.
The
PRC
historically has not adopted a Western style of management and financial
reporting concepts and practices, as well as in modern banking, computer and
other control systems. We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in the PRC. 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.
Risks
Related to Our Common Stock
.
Our
officers, directors and affiliates control us through their positions and stock
ownership and their interests may differ from other
shareholders.
Our
officers, directors and affiliates beneficially own approximately 66.4% of
our
Common Stock through Mr. Shao’s 100% holding of KAL. Chen Zhong, our Chairman
and Chief Executive Officer, beneficially owns approximately and 93.9% of our
operating company, Shanghai Medical. As a result, Mr. Shao is able to influence
the outcome of stockholder votes on various matters, including the election
of
directors and extraordinary corporation transactions including business
combinations. Yet Mr. Shao’s interests may differ from other shareholders.
Furthermore, the current ratios of ownership of our common stock reduce the
public float and liquidity of our common stock which can in turn affect the
market price of our common stock. See “Security Ownership of Certain Beneficial
Owners and Management” under Item 2.01 of this Current Report for more
information regarding beneficial ownership of securities of our
management.
We
are not likely to pay cash dividends in the foreseeable
future.
We
currently intend to retain any future earnings for use in the operation and
expansion of our business. We do not expect to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate. Should
we decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends
or
other payments from our operating subsidiary. In addition, our operating
subsidiary, from time to time, may be subject to restrictions on its ability
to
make distributions to us, including as a result of restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions.
There
is currently a limited trading market for our common
stock
.
Our
common stock is quoted on the Over-the-Counter Bulletin Board (“OTC Bulletin
Board”). However, our bid and asked quotations have not regularly appeared on
the OTC Bulletin Board for any consistent period of time. There is no
established trading market for our common stock and our common stock may never
be included for trading on any stock exchange or through any other quotation
system (including, without limitation, the NASDQ Stock Market). You may not
be
able to sell your shares due to the absence of a trading market.
Our
common stock may be also subject to the "penny stock" rules to the extent that
the price is below $5.00, which require delivery of a schedule explaining the
penny stock market and the associated risks before any sale. See "Market for
our
Common Stock" in this Current Report. These requirements may further limit
your
ability to sell your shares.
Our
common stock is illiquid and subject to price volatility unrelated to our
operation
s.
The
market price of our common stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our common stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or
us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.
A
large number of shares will be eligible for future sale and may depress our
stock price.
We
are
required, under the Registration Rights Agreement described in Section 1.01
of
this Current Report, to register for sale by the Investors and certain other
parties all of the shares of Common Stock issuable upon conversion of Series
A
Preferred and exercise of warrants issued in the private financing, and shares
of Common Stock issuable upon conversion of Series A Preferred issued to KAL
in
the Share Exchange.
Sales
of
substantial amounts of common stock, or a perception that such sales could
occur, and the existence of options or warrants to purchase shares of common
stock at prices that may be below the then current market price of the common
stock, could adversely affect the market price of our common stock and could
impair our ability to raise capital through the sale of our equity
securities.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth certain information with respect to the beneficial
ownership of our voting securities following the completion of the Share
Exchange and the closing of the Securities Purchase Agreement by (i) any person
or group owning more than 5% of each class of voting securities, (ii) each
director, (iii) our chief executive officer and each other executive officer
whose cash compensation for the most recent fiscal year exceeded $100,000 and
(iv) all executive officers and directors as a group as of April 15,
2008.
|
|
|
Amount
and Nature of Beneficial Ownership (1)
|
|
Percentage
of Class (1)(6)
|
|
|
Name
and Address of Beneficial Owner
|
|
Common
Stock
|
|
Series
A
Preferred
(2)(3)
|
|
Series
A Warrants
|
|
Common
Stock
|
|
Series
A
Preferred
(2)(3)
|
|
Series
A Warrants
|
|
|
Owner
of More than 5% of Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pope
Investments II LLC
5100
Poplar Avenue
Suite
805
Memphis,
TN 38117
|
|
|
|
|
|
1,919,017
|
|
|
959,509
|
|
|
15
|
%
|
|
48
|
%
|
|
40
|
%
|
|
Jayhawk
Capital Management, LLC
5410
W. 61st Place, Suite 100
Mission,
KS 66205
|
|
|
|
|
|
799,591
|
|
|
399,795
|
|
|
7
|
%
|
|
20
|
%
|
|
17
|
%
|
|
Alder
Capital, LLC
12750
High Bluff Drive, Suite 120
San
Diego, CA 92130
|
|
|
|
|
|
319,836
|
|
|
159,918
|
|
|
3
|
%
|
|
8
|
%
|
|
7
|
%
|
|
Ancora
Greater China Fund, LP
One
Chagrin Highlands,
2000
Auburn Dr #300
Cleveland,
OH 44122
|
|
|
|
|
|
207,894
|
|
|
103,947
|
|
|
2
|
%
|
|
5
|
%
|
|
4
|
%
|
|
Heller
Capital Investments
700
E. Palisade Ave.
Englewood
Cliffs, NJ 07632
|
|
|
|
|
|
201,497
|
|
|
100,748
|
|
|
2
|
%
|
|
5
|
%
|
|
4
|
%
|
|
Belmont
Partners, LLC
360
Main Street
PO
Box 393
Washington,
Virginia 22747
|
|
|
821,429
|
|
|
|
|
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
Kamick
Assets Limited
(4)(5)
Suite
6B, 1440 Hongqiao Road
Changning
District
Shanghai,
PRC
|
|
|
14,991,812
|
|
|
|
|
|
|
|
|
94
|
%
|
|
|
|
|
|
|
|
Shao
Ganghua(4)(5)
[
Suite
6B, 1440 Hongqiao Road
Changning
District
Shanghai,
PRC [BVI address?]
|
|
|
14,991,812
|
|
|
|
|
|
|
|
|
94
|
%
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chen
Zhong (Chairman, CEO and Director) (4) (5)
Suite
6B, 1440 Hongqiao Road
Changning
District
Shanghai,
PRC
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
Michelle
Zhao (Chief Financial Officer)
Suite
6B, 1440 Hongqiao Road
Changning
District
Shanghai,
PRC
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
All
Directors and Executive Officers (2 persons)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(1)
|
In
determining beneficial ownership of our common stock as of a given
date,
the number of shares shown includes shares of common stock which
may be
acquired on exercise of warrants or options or conversion of convertible
securities within 60 days of that date. In determining the percent
of
common stock owned by a person or entity on April 15, 2008, (a) the
numerator is the number of shares of the class beneficially owned
by such
person or entity, including shares which may be acquired within 60
days on
exercise of warrants or options and conversion of convertible securities,
and (b) the denominator is the sum of (i) the total shares of common
stock
outstanding on April 15, 2008 (15,991,811), and (ii) the total number
of
shares that the beneficial owner may acquire upon conversion of the
preferred and on exercise of the warrants and options. Unless otherwise
stated, each beneficial owner has sole power to vote and dispose
of its
shares.
|
|
(2)
|
On
April 15, 2008, we entered and consummated a Securities Purchase
Agreement
for the sale of a total of 4,008,189
shares
of our Series A Preferred.
|
|
(3)
|
Each
share of Series A Preferred is initially convertible, at the option
of the
holder, into one share of our common stock.
Accordingly, in total, as of April 15, 2008, the outstanding Series
A
Preferred is convertible into
4,008,189
shares of our common stock. Pursuant to the Securities Purchase Agreement,
the purchasers have been issued Series A Warrants to purchase an
aggregate
of 2,404,913 shares of our common stock.
|
|
|
|
|
(4)
|
On
April 15, 2008, we acquired ABM in a share exchange transaction with
KAL.
In the Share Exchange, we received the ABM shares from KAL and in
exchange
we issued and delivered 15,813,241 newly-issued shares of our common
stock. KAL received 14,991,812 of those shares.
|
|
|
|
|
(5)
|
KAL
is wholly owned by Mr. Shao Ganghua. Accordingly shares of our stock
issued to KAL at the closing are beneficially attributed to Mr. Shao.
Mr.
Chen Zhong was appointed our director and Chief Executive Officer
on April
15, 2008.
|
|
|
|
|
(6)
|
As
of April 15, 2008, we had outstanding (i) 15,991,811 shares of common
stock, (ii) 4,008,189 shares of Series A Preferred, which were issued
in a
private placement to the purchasers under the Securities Purchase
Agreement, and (iii) Series A Warrants to purchase an aggregate of
2,404,,913 shares of common stock at $3.91 per share. The Series
A
Warrants expire on October 13, 2013.
|
|
|
|
|
(7)
|
Mr.
Chen, our new chairman and CEO and the longstanding chairman and
CEO of
Shanghai Medical, did not receive any shares of stock or other securities
at the closing, and does not own any of our securities. However,
on the
closing date, Mr. Chen executed an agreement that gives him the right
to
become the beneficial owner of the majority of our common stock.
That
agreement is a call option agreement between Mr. Chen and Mr. Shao
Ganghua, the holder of all of the stock of our controlling stockholder,
KAL. Under the agreement, Mr. Chen was granted an option to purchase
all
of the outstanding stock of KAL over the course of approximately
two
years, for a total purchase price of less than thirty dollars, provided
that Shanghai Medical, ABMT and KAL meet the following performance
targets:
|
|
|
·
|
|
During
the year ending December 31, 2008, the companies must have gross
revenue
of at least 24.5 million RMB;
|
|
|
·
|
|
During
the year ending December 31, 2009, the companies must have gross
revenue
of at least 35 million RMB; and
|
The
table
does not include our officer and director prior to the transactions of April
15,
2008, who resigned and was replaced by our new officers and directors on that
date. That prior officer and director is Mr. Marc Juliar, who at the time of
his
resignations was our sole director, CEO and CFO and also was the beneficial
owner of 153,370 shares, or approximately 63%, of our common stock prior to
the
closing of the Share Exchange.
For
a
description of the voting and other rights of the Series A Preferred, and our
common stock and Series A Warrants, please see the discussion in
“Description
of Securities” below.
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS
AND
CONTROL PERSONS
Our
Directors and Executive Officers
In
connection with our change of control described in Item 5.01 of this Current
Report, effective April 15, 2008 we appointed (i) Mr. Chen Zhong as our Chairman
and Chief Executive Officer, (ii) Ms. Michelle Zhao as our Chief Financial
Officer and (iii) Mr. Chen Zhong as a director. On April 15, 2008 Marc Juliar
resigned as an executive officer effective immediately and as a director,
effective 10 days after our Form 14F-1 is filed with the SEC and distributed
to
our shareholders.
All
of
our officers and directors, except Mr. Juliar and Michelle Zhao are residents
of
the PRC. As a result, it may be difficult for investors to effect service
of process within the United States upon any of them or to enforce court
judgments obtained against them in the United States courts.
The
following tables sets forth certain information as of April 15, 2008 concerning
our directors and executive officers:
|
Directors
and Executive Officers
|
|
Position/Title
|
|
Age
|
|
Chen
Zhong
|
|
Chief
Executive Officer, Director
|
|
40
|
|
|
|
|
|
|
|
Michelle
Zhao
|
|
Chief
Financial Officer
|
|
43
|
|
|
|
|
|
|
|
Marc
Juliar
|
|
Former
Chief Executive and Chief Financial Officer, Director
(resigning)
|
|
30
|
The
following is a summary of the biographical information of our
directors and officers:
Chen
Zhong
,
our
Chairman, Chief Executive Officer and a director since April 15, 2008 has been
Chairman of the Board, CEO and a director of Shanghai Medical Company Limited
(“Shanghai Medical”) since 2005. Shanghai Medical is an affiliate of Kamick and
ABM. Mr. Chen was President of Shanghai Pharm & Hemo-Tech International Co.,
Ltd. from 2002 to 2007. Mr. Chen has 16 years’ experience in the management of
international pharmaceutical companies. He earned a Bachelors degree from East
China Industrial University in Shanghai in 1989. He also was awarded a graduate
degree in Economics from the Shanghai Fudan University in 2005.
Michelle
Zhao
,
our
Chief Financial Officer since April 14 , 2008, has been Chief Financial Officer
of Shanghai Medical since January 2008. Ms. Zhao was Managing Director at
Dragonrise Capital Group, an investment banking firm, from 2004 to 2007. She
was
Chief Financial Officer of Intrinsic Technology Co. from 2002-2003. She had
earlier positions in New York at Bear Stearns & Co., Inc. and Coopers &
Lybrand. . Ms. Zhao received a Master of Business Administration degree with
a
major in accounting, from St. John’s University in New York, NY, a Masters
Degree in Sociology from Bowling Green University in Bowling Green, Ohio and
a
Bachelors degree in Journalism from Beijing College of Broadcasting in Beijing,
China.
Marc
Juliar
,
our
retiring director, has served as the Company's President, Chief Executive
Officer, Chief Financial Officer and Chairman of the Board since August 2005.
Mr. Juliar has been the President of Paradigm Oil and Gas since November 9,
2006. From April 2004 to January 2006, Mr. Juliar was an officer and director
of
Kodiak Energy, Inc. Mr. Juliar is an independent contractor to the Film, Music
Video and T.V. Commercial production business. From 2001 until 2002, Mr. Juliar
was a student at the University of Toronto. Mr. Juliar attended the University
of Toronto
located
in Toronto, Ontario.
All
of
our directors hold offices until our next annual meeting of the shareholders
and
until their successors have been qualified after being elected or
appointed. Officers serve at the discretion of the board of directors.
There
are
no family relationships among our directors and executive officers. There is
no
arrangement or understanding between or among our executive officers and
directors pursuant to which any director or officer was or is to be selected
as
a director or officer, and there is no arrangement, plan or understanding as
to
whether non-management shareholders will exercise their voting rights to
continue to elect the current board of directors.
Our
directors and executive officers have not, during the past five
years:
|
|
·
|
had
any bankruptcy petition filed by or against any business of which
was a
general partner or executive officer, either at the time of the bankruptcy
or within two years prior to that
time,
|
|
|
·
|
been
convicted in a criminal proceeding and is not subject to a pending
criminal proceeding,
|
|
|
|
|
|
|
·
|
been
subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting
his
involvement in any type of business, securities, futures, commodities
or
banking activities; or
|
|
|
|
|
|
|
·
|
been
found by a court of competent jurisdiction (in a civil action), the
Securities Exchange Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law,
and the
judgment has not been reversed, suspended or
vacate
|
Audit
Committee Financial Expert
Our
board
of directors currently acts as our audit committee. Because we only recently
consummated the Reverse Merger and appointed the current members of our board
of
directors, our board of directors has not yet determined whether we have a
member who qualifies as an "audit committee financial expert" as defined in
Item
407(d) of Regulation S-K, and is "independent" as the term is used in Rule
10A-3(b) under the Exchange Act. Our board of directors is in the process of
searching for a suitable candidate for this position.
Audit
Committee
We
have
not yet appointed an audit committee, and our board of directors currently
acts
as our audit committee. At the present time, we believe that the members of
board of directors are collectively capable of analyzing and evaluating our
financial statements and understanding internal controls and procedures for
financial reporting. Our company, however, recognizes the importance of good
corporate governance and intends to appoint an audit committee comprised
entirely of independent directors, including at least one financial expert,
during our 2008 fiscal year.
Compensation
Committee
We
do not presently have a Compensation Committee. Our board of directors
presently performs that function.
Nominating
Committee
We
do not presently have a Nominating Committee. Our board of directors
presently performs that function.
EXECUTIVE
COMPENSATION
The
following is a summary of the compensation paid by us to the individuals who
have served as our CEO or CFO for the three years ended December 31, 2007 and
2006. No other executive officer received compensation in excess of $100,000.
The Company does not have any stock, option, non-equity incentive compensation
or deferred compensation plans. Therefore the following table is limited to
Salary.
|
|
|
|
|
Salary
(cash
or non-cash)
|
|
Bonus
(cash
or non-cash)
|
|
|
Name
and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
Chen
Zhong
|
|
|
2007
|
|
|
500,000
|
|
|
-0
|
|
|
|
|
|
2006
|
|
|
500,000
|
|
|
-0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michelle
Zhao, CFO (current)
|
|
|
2007
|
|
|
0
|
|
|
0
|
|
|
|
|
|
2006
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc
Juliar
|
|
|
2007
|
|
|
0
|
|
|
-0
|
|
|
|
|
|
2006
|
|
|
0
|
|
|
-0
|
|
Outstanding
Equity Awards at Fiscal Year-End
As
of
December 31, 2007 and 2006, we did not have any stock option plan or stock
incentive plan and there were no outstanding equity awards.
Director
Compensation
Compensation
of Directors.
We
have
no formal or informal arrangements or agreements to compensate our directors
for
services they provide as directors. We plan to implement a compensation program
for our independent directors, as and when they are appointed, which we
anticipate will include such elements as an annual retainer, meeting attendance
fees and stock options. The details of such compensation program will be
negotiated with each such director.
None
of
our officers and directors received any option grants or exercised any options
during the last fiscal year.
Compensation
Discussion and Analysis
Shanghai
Medical strives to provide its named executive officers (as defined in Item
402
of Regulation S-K) with a competitive base salary that is in line with their
roles and responsibilities when compared to peer companies of
comparable
size in
the same or similar locality.
It
is not
uncommon for PRC private corporations in that locality to have base salaries
as
the sole and only form of compensation. The base salary level is established
and
reviewed based on the level of responsibilities, the experience and tenure
of
the individual and the current and potential contributions of the individual.
The base salary is compared to the list of similar positions within comparable
peer companies and with consideration of the executive’s relative experience in
his or her position. Base salaries are reviewed periodically and at the
time of promotion or other changes in responsibilities.
We
plan
to implement a more comprehensive compensation program, which takes into account
other elements of compensation, including without limitation, short and long
term compensation, cash and non-cash, and other equity-based compensation such
as stock options. Such compensation program shall be comparative to our peers
in
the industry and aimed to retain and attract talented individuals.
We
will
also consider forming a Compensation Committee comprising predominantly of
independent directors to oversee the compensation of our named executive
officers.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Except
for the ownership of the Company’s securities, and except as set forth below,
none of the directors, executive officers, holders of more than five percent
of
the Company’s outstanding common stock, or any member of the immediate family of
any such person have, to the knowledge of the Company, had a material interest,
direct or indirect, in any transaction or proposed transaction which may
materially affect the Company.
The
transactions described in Section 1.01 of this report involve parties related
to
us, including our officers and directors and our direct and indirect
subsidiaries and companies affiliated with them. To understand these
relationships and these transactions, you should review the discussion in
Section 1.01 in addition to the information presented below.
Procedures
for Approval of Related Party Transactions
Our
board
of directors is charged with reviewing and approving all potential related
party
transactions. All such related party transactions must then be
reported under applicable SEC rules. We have not adopted other procedures for
review, or standards for approval, of such transactions, but instead review
them
on a case-by-case basis.
Director
Independence
We
are
not subject to listing requirements of any national securities exchange or
national securities association and, as a result, we are not at this time
required to have our board comprised of a majority of independent directors.
We
believe that none of our directors currently meets the definition of
“independent” set forth in the rules and regulations of the American Stock
Exchange. We plan to recruit and elect qualified independent directors within
the next 12 months.
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of (i) 200,000,000 shares of common stock,
par
value $0.0001 per share, of which there are 15,991,811 shares issued and
outstanding, and (ii) 10,000,000 shares of Preferred Stock, par value $0.001
per
share (“Preferred Stock”) . Our Preferred Stock consists of (i) Series A
Preferred, of which 7,500,000 shares have been authorized and 4,008,189 shares
are issued and outstanding; and (ii) 2,500,000 shares of undesignated and
unissued Preferred Stock.
The
following is a summary of the material terms of our capital stock. This summary
is subject to and qualified in its entirety by our Certificate of Incorporation,
the Amended Certificate of Designations for our Series A Preferred, our By-laws
and by the applicable provisions of Delaware law.
Common
Stock
All
shares of common stock have one vote per share on all matters including election
of directors, without provision for cumulative voting. The Common Stock is
not
redeemable and has no conversion or preemptive rights. The common stock
currently outstanding is validly issued, fully paid and non-assessable. In
the
event of liquidation of the Company, the holders of common stock will share
equally in any balance of the Company's assets available for distribution to
them after satisfaction of creditors and preferred shareholders, if any. The
holders of common stock are entitled to equal dividends and distributions per
share with respect to the common stock when, as and if, declared by the board
of
directors from funds legally available.
Preferred
Stock and Warrants
For
a
more detailed description of our preferred stock and warrants, please see the
discussion in Section 1.01 of this Current Report. In addition to the
200,000,000 shares of common stock, we are authorized to issue 10,000,000 shares
of Preferred Stock, par value $0.001 per share. Shares of the Preferred Stock
may be issued from time to time in one or more classes or series, each of which
class or series shall have such distinctive designation or title as shall be
fixed by the board of directors prior to the issuance any shares
thereof.
The
issuance of shares of Preferred Stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal.
For instance, the issuance of a series of preferred stock might impede a
business combination by including class voting rights that would enable the
holder to block such a transaction, or facilitate a business combination by
including voting rights that would provide a required percentage vote of the
shareholders. In addition, under certain circumstances, the issuance of
Preferred Stock could adversely affect the voting power of the holders of the
common stock. Although the board of directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of our shareholders, the board of directors could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of the shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then market price
of such stock. The board of directors does not at present intend to seek
stockholder approval prior to any issuance of currently authorized preferred
stock, unless otherwise required by law.
MARKET
FOR OUR COMMON STOCK
Bid
and
ask quotations for our common stock appear on the OTC Bulletin Board under
the
symbol “AAXT”. The high and low bid prices for our common stock as reported by
Yahoo Finance on April 16, 2008 were: $3.25 and $3.25, and the quarterly high
and low bid prices for our common stock over the last two years are given
below. These over-the-counter market high ask and low bid quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions. As of April 14, 2008, our common
stock was held by approximately 163 holders of record.
Closing
Bid Prices
|
|
|
High
|
|
Low
|
|
|
Fiscal
2008
|
|
|
|
|
|
|
Quarter
Ended January 31, 2008
|
|
|
2.20
|
|
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended October 31, 2007
|
|
|
4.00
|
|
|
2.20
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended July 31, 2007
|
|
|
4.20
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended April 30, 2007
|
|
|
4.00
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended January 31, 2007
|
|
$
|
1.50
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended October 31, 2006
|
|
$
|
2.00
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended July 31, 2006
|
|
$
|
2.00
|
|
$
|
.90
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended April 30, 2006
|
|
$
|
2.00
|
|
|
.05
|
|
No
cash
dividends on outstanding common stock have been paid within the last two fiscal
years and interim periods. The Company does not anticipate or intend upon paying
cash dividends for the foreseeable future.
Penny
Stock Regulations
The
SEC
has adopted regulations which generally define "penny stock" to be an equity
security that has a market price of less than $5.00 per share. Our common stock,
falls within the definition of penny stock and subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000, or annual incomes
exceeding $200,000 or $300,000, together with their spouse).
For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's prior written consent to the transaction. Additionally, for
any
transaction, other than exempt transactions, involving a penny stock, the rules
require the delivery, prior to the transaction, of a risk disclosure document
mandated by the SEC relating to the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell the Common Stock and may affect the ability of investors to sell their
Common Stock in the secondary market.
Dividends
Our
board
of directors has not declared a dividend on our common stock during the last
two
fiscal years or the subsequent interim period and we do not anticipate the
payments of dividends in the near future as we intend to reinvest our profits
to
grow operations. We rely on dividends from Shanghai Medical for our funds and
PRC regulations may limit the amount of funds distributed to us from Shanghai
Medical, which will affect our ability to declare any dividends. See
"Description of Securities - Common Stock."
Securities
authorized for issuance under equity compensation plans
As
of the
date of this Current Report, we do not have any securities authorized for
issuance under any equity compensation plans and we do not have any equity
compensation plans.
LEGAL
PROCEEDINGS
To
our
knowledge, there is no material litigation pending or threatened against us.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Delaware
law allows us to indemnify our directors, officers, employees, and agents,
under
certain circumstances, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in
connection with the action, suit or proceeding to which he becomes a party
by
reason of the fact that he is or was a director, officer, employee or agent
of
the corporation, or is or was serving at the request of the corporation as
a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. In addition, Delaware law provides that
to
the
extent that any of our director, officer, employee or agent has been successful
on the merits or otherwise in defense of any of the foregoing referenced action,
suit or proceeding, or in defense of any claim, issue or matter therein, we
shall indemnify him against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense.
Our
by-laws provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against attorney's fees and other
expenses incurred by them in any litigation to which they become a party arising
from their association with or activities on our behalf. We will also bear
the
expenses of such litigation for any of our directors, officers, employees,
or
agents, upon such persons promise to repay us therefore if it is ultimately
determined that any such person shall not have been entitled to indemnification.
This indemnification policy could result in substantial expenditures by us,
which it may be unable to recoup.
ITEM
3.02 UNREGISTERED SALES OF EQUITY SECURITIES
Please
refer to Item 1.01 - “Entry into a Material Definitive Agreement” for a
description of the unregistered sales of equity securities pursuant to the
Share
Exchange Agreement and the Securities Purchase Agreement, which is incorporated
in its entirety into this Item 3.02 of this Current Report.
Except
as
stated in Item 1.01 above, the Company has not sold any securities within the
past three years without registering the securities under the Securities
Act:
ITEM
3.03 MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS
The
rights of our common shareholders have been affected by the issuance of our
Series A Preferred. Specifically, holders of our Series A Preferred have rights
to receive a distribution upon a liquidation of the Company that are senior
to
the rights of our common shareholders and any subsequently issued Preferred
Stock. In case of a liquidation of the Company, holders of our Series A
Preferred are entitled to receive a liquidation distribution of $3.13 per share
before our common shareholders or any other preferred shareholders receive
any
distribution at all. Our Series A Preferred was initially sold on April 15,
2008. For more information about our Series A Preferred, please see Section
1.01
of this Current Report.
ITEM
5.01 CHANGE IN CONTROL OF REGISTRANT
On
April
15, 2008, we consummated the Share Exchange, whereby we obtained all of the
shares of ABM and issued to KAL, the sole shareholder of ABM, 14,991,812 newly
issued shares of our common stock. KAL thus became our majority shareholder.
Mr.
Shao Ganhua is the sole shareholder of KAL. Under a call option agreement
executed on the closing date, our Chairman and CEOChen Zhong has an option
to
purchase all of the stock in KAL over a period of almost two years for nominal
consideration, if Shanghai Medical achieves certain financial goals. In
connection with the Share Exchange our former CEO and CFO and director, Marc
Juliar, resigned as an officer effective April 15 and as a director, effective
ten days after our Form 14F-1 has been filed with the SEC and distributed to
our
shareholders. Our current officers are Chen Zhong, who serves as Chairman and
Chief Executive Officer, and Michelle Zhao, who serves as Chief Financial
Officer. Upon the effectiveness of Mr. Juliar’s resignation as a director, our
only director will be Chen Zhong.
For
more
information about the change of control of the Company, see the discussion
of
the Securities Purchase Agreement in Section 1.01 above. For more information
about the nature of the Company after the change of control, see Section 2.01
above.
ITEM
5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS
For
a
description of the resignation of our officer and director, and the appointment
of entirely new officers and directors, as part of the Share Exchange, please
see the discussion of the Securities Purchase Agreement in Section 1.01 above,
which is incorporated by reference herein. For a discussion of the business
experience of our officers, please see the segment of Section 2.01 above
entitled “Directors and Executive Officers, Promoters and Control Persons,”
which is incorporated by reference herein. For a discussion of transactions
involving the Company and our directors, particularly the Share Exchange
Agreement and the Shell Purchase Agreement, see Section 1.01 of this report,
which is incorporated by reference herein.
Mr.
Chen
is not a director of any other reporting company. There are no family
relationships among any of our current officers or directors.
ITEM
5.06 CHANGE IN SHELL COMPANY STATUS
As
a
result of the Share Exchange described in Items 1.01 and 2.01 of this Current
Report, on April 15, 2008, we ceased being a shell company as such term is
defined in Rule 12b-2 under the Exchange Act. See the discussion of the Share
Exchange in Section 1.01 of this Current Report.
ITEM
9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial statements of business acquired.
See
financial statements appended to this Current Report.
(d)
Exhibits
INDEX
TO
EXHIBITS
|
Exhibit
No.
|
|
Description
of Exhibit
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation, and amendments thereto.(1)
|
|
|
|
|
|
3.2
|
|
Bylaws.
(2)
|
|
|
|
|
|
3.3
|
|
Specimen
Common Stock Certificate *
|
|
|
|
|
|
3.4
|
|
Amended
Certificate of Designations, Preferences and Rights of Series A Senior
Convertible Preferred Stock.*
|
|
|
|
|
|
4.1
|
|
Form
of Class A Warrant*
|
|
|
|
|
|
4.2
|
|
Registration
Rights Agreement dated April 14, 2008 among the Company
|
|
|
|
and
the Purchasers*
|
|
|
|
|
|
4.3.1
|
|
Lock-up
Agreement dated April 14, 2008 between the Company and
KAL*
|
|
|
|
|
|
4.3.2
|
|
Lock-up
Agreement dated April 14, 2008 between the Company and Shao Ganghua
and
Chen Zhong*
|
|
|
|
|
|
4.3.3
|
|
Lock-up
Agreement dated April 14, 2008 between the Company and
Belmont*
|
|
|
|
|
|
10.1
|
|
Share
Exchange Agreement, dated as of April 14, 2008, by and between the
Company, KAL and ABM.*
|
|
|
|
|
|
10.2
|
|
Securities
Purchase Agreement, dated as of April 14, 2008, by and between the
Company, KAL, Pope Investments II LLC and each of the other investors
party thereto.*
|
|
|
|
|
|
10.3.1
|
|
Form
of Closing Escrow Agreement, dated April 14, 2008, by and between
the
Company, KAL, the Investors and Tri-State Title & Escrow, LLC, as
Escrowee.*
|
|
|
|
|
|
10.3.2
|
|
Form
of Securities Escrow Agreement, dated April 14, 2008, by and between
the
Company, Pope Investments II LLC and each of the other investors
party
thereto, KAL and Tri-State Title & Escrow, LLC, as
Escrowee.*
|
|
10.3.3
|
|
Form
of General Escrow Agreement, dated April 14, 2008, by and
between
The
Company, Pope Investments II LLC, KAL and Tri-State Title & Escrow,
LLC, as Escrowee.*
|
|
|
|
|
|
10.4
|
|
Engagement
Letter Agreement, dated October 16, 2007, by and between Shanghai
Medical and Rosewood Securities, LLC, a division of Capital
Investment Services, Inc.*
|
|
|
|
|
|
10.5
|
|
Shell
Brokerage Agreement dated April 14, 2008, between Belmont and Shanghai
Medical.*
|
|
|
|
|
|
10.6
|
|
Exclusive
Purchase Option Agreement, dated as of April 14, 2008, among Shanghai
Medical, all shareholders of Shanghai Medical and
ABMT.*
|
|
|
|
|
|
10.7
|
|
Equity
Pledge Agreement, dated as of April 14, 2008, among Shanghai Medical,
the
Majority Shareholders and ABMT.*
|
|
|
|
|
|
10.8
|
|
Consigned
Management Agreement, dated as of April 14, 2008, among ABMT, Shanghai
Medical, and the Majority Shareholders *
|
|
|
|
|
|
10.9
|
|
Loan
Agreement, dated as of April 14, 2008, among Shanghai Medical, the
Majority Shareholders and ABMT.*
|
|
|
|
|
|
10.10
|
|
Technology
Service Agreement, dated as of April 14, 2008, among Shanghai Medical
ABMT
and the Majority Shareholders.*
|
|
|
|
|
|
10.11
|
|
Stock
Purchase Agreement between
Kamick
Assets Limited
and
Marc
Juliar
.*
|
|
|
|
|
|
10.12
|
|
Call
Option Agreement dated April 14, 2008, between Shao Ganghua and Chen
Zhong.*
|
|
|
|
|
|
21.1
|
|
List
of Subsidiaries*
|
(1)
Incorporated by reference to Exhibit 3.1 to the Company’s Annual report on Form
10-KSB for the fiscal year ended January 31, 2008.
(2)
Incorporated by reference to Exhibit 3.2 to the Company’s Annual report on Form
10-KSB for the fiscal year ended January 31, 2008.
*
Filed
herewith.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Current Report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date:
April 21, 2008
|
|
|
|
|
|
Aamaxan
Transport Group, Inc. Aamaxan Transport Group, Inc.
|
|
|
|
|
|
|
/s/ Chen
Zhong
|
|
|
Chairman
and Chief Executive Officer
|
Financial
Statements
Table
of Contents
|
Financial
Statements of Shanghai Medical as of, and for the years ended
December
31, 2007 and 2006
|
|
|
F-1
|
|
|
|
|
|
|
|
|
Financial
Statements of the Company as of, and for the fiscal years ended,
January
31, 2007 and 2006
|
|
|
F-33
|
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US dollars)
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
|
CONTENTS
|
|
PAGES
|
|
|
INDEPENDENT
AUDITOR’S REPORT
|
|
|
F-1
|
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
F-2-F-3
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND
|
|
|
|
|
|
COMPREHENSIVE
INCOME
|
|
|
F-4
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
F-5
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
F-6
-F-7
|
|
|
|
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
F-8
- F-22
|
|
|
ALBERT
WONG & CO.
CERTIFIED
PUBLIC ACCOUNTANTS
7th
Floor, Nan Dao Commercial Building
359-361
Queen’s Road Central
Hong
Kong
Tel
: 2851 7954
Fax:
2545 4086
ALBERT
WONG
B.Soc.,
Sc., LL.B., P.C.LL., Barrister-at-law, C.P.A.(Practising).
|
|
The
Board
of Directors and Stockholders of
Shanghai
Atrip Medical Technology Co., Ltd
Independent
Auditor’s Report
We
have
audited the accompanying balance sheets of Shanghai Atrip Medical Technology
Co., Ltd and its subsidiaries (the Company) as of December 31, 2007 and 2006
and
the related statements of income, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the 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 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 the Company
as
of December 31, 2007 and 2006 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
|
Hong
Kong, China
|
|
|
Albert
Wong & Co
|
|
April
9, 2008
|
|
|
Certified
Public Accountants
|
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
AS
AT DECEMBER 31, 2007 AND 2006
|
|
(Stated
in US Dollars)
|
|
|
|
Note
|
|
2007
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
2,299,772
|
|
$
|
1,896,853
|
|
|
Accounts
receivable, net
|
|
|
4
|
|
|
2,408,223
|
|
|
2,251,138
|
|
|
Subscription
receivables
|
|
|
5
|
|
|
371,035
|
|
|
-
|
|
|
Other
receivables
|
|
|
6
|
|
|
197,435
|
|
|
90,863
|
|
|
Inventories
|
|
|
7
|
|
|
1,206,676
|
|
|
1,299,134
|
|
|
Advances
to suppliers
|
|
|
|
|
|
1,125,088
|
|
|
-
|
|
|
Prepayments
|
|
|
|
|
|
1,368
|
|
|
-
|
|
|
Current
portion of long term
|
|
|
|
|
|
|
|
|
|
|
|
prepayments
|
|
|
10
|
|
|
1,367,222
|
|
|
-
|
|
|
Total
current assets
|
|
|
|
|
$
|
8,976,819
|
|
$
|
5,537,988
|
|
|
Due
from directors
|
|
|
8
|
|
|
7,206
|
|
|
-
|
|
|
Goodwill
arising from acquisition
|
|
|
|
|
|
40,643
|
|
|
-
|
|
|
Deposit
for an unlisted investment
|
|
|
9
|
|
|
820,333
|
|
|
767,509
|
|
|
Long
term prepayments
|
|
|
10
|
|
|
3,851,009
|
|
|
-
|
|
|
Plant
and equipment, net
|
|
|
11
|
|
|
184,330
|
|
|
62,496
|
|
|
Intangible
assets, net
|
|
|
12
|
|
|
5,023,174
|
|
|
5,281,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
$
|
18,903,514
|
|
$
|
11,649,093
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
$
|
2,538,964
|
|
$
|
1,026,256
|
|
|
Due
to a shareholder
|
|
|
13
|
|
|
54,689
|
|
|
-
|
|
|
Customers’
deposits
|
|
|
|
|
|
49,325
|
|
|
370,476
|
|
|
Accruals
|
|
|
|
|
|
316,545
|
|
|
64,798
|
|
|
Other
payables
|
|
|
14
|
|
|
719,172
|
|
|
1,323,749
|
|
|
Income
tax payable
|
|
|
|
|
|
909,579
|
|
|
936,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
$
|
4,588,274
|
|
$
|
3,722,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
|
|
$
|
4,588,274
|
|
$
|
3,722,109
|
|
See
accompanying notes to consolidated financial statements
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
|
|
|
|
CONSOLIDATED
BALANCE SHEETS (Continued)
|
|
AS
AT DECEMBER 31, 2007 AND 2006
|
|
(Stated
in US Dollars)
|
|
|
|
Note
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
19
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
|
|
$
|
217,715
|
|
$
|
65,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Registered
capital
|
|
|
15
|
|
$
|
589,764
|
|
$
|
235,303
|
|
|
Statutory
reserves
|
|
|
|
|
|
2,529,527
|
|
|
1,394,556
|
|
|
Retained
earnings
|
|
|
|
|
|
10,085,066
|
|
|
5,961,705
|
|
|
Accumulated
other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
|
|
|
893,168
|
|
|
269,473
|
|
|
|
|
|
|
|
$
|
14,097,525
|
|
$
|
7,861,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
$
|
18,903,514
|
|
$
|
11,649,093
|
|
See
accompanying notes to consolidated financial
statements
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
|
|
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
(Stated
in US Dollars)
|
|
|
|
Note
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
16
|
|
$
|
34,966,210
|
|
$
|
24,092,500
|
|
|
Cost
of sales
|
|
|
|
|
|
(21,521,706
|
)
|
|
(13,886,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
$
|
13,444,504
|
|
$
|
10,205,868
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
|
|
|
(899,668
|
)
|
|
(507,272
|
)
|
|
General
and administrative
|
|
|
|
|
|
(1,654,103
|
)
|
|
(610,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
$
|
10,890,733
|
|
$
|
9,087,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on disposal of fixed assets
|
|
|
|
|
|
(978
|
)
|
|
-
|
|
|
Forfeiture
of share capital by an exit
|
|
|
|
|
|
|
|
|
|
|
|
shareholder
|
|
|
|
|
|
45,148
|
|
|
-
|
|
|
Interest
income, net
|
|
|
17
|
|
|
17,092
|
|
|
10,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
$
|
10,951,995
|
|
$
|
9,098,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
18
|
|
|
(3,709,818
|
)
|
|
(3,002,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before minority interests
|
|
|
|
|
$
|
7,242,177
|
|
$
|
6,096,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
|
|
|
(14,617
|
)
|
|
(12,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
$
|
7,227,560
|
|
$
|
6,083,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
|
|
|
623,695
|
|
|
206,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
$
|
7,851,255
|
|
$
|
6,289,526
|
|
See
accompanying notes to consolidated financial statements
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS
’
EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
(Stated
in US Dollars)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
Registered
|
|
Statutory
|
|
Retained
|
|
comprehensive
|
|
|
|
|
|
|
capital
|
|
reserves
|
|
earnings
|
|
income
|
|
Total
|
|
|
Balance,
January 1, 2006
|
|
$
|
235,303
|
|
$
|
480,136
|
|
$
|
2,672,191
|
|
$
|
63,135
|
|
$
|
3,450,765
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
6,083,188
|
|
|
-
|
|
|
6,083,188
|
|
|
Appropriations
to statutory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reserves
|
|
|
-
|
|
|
914,420
|
|
|
(914,420
|
)
|
|
-
|
|
|
-
|
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
(1,879,254
|
)
|
|
-
|
|
|
(1,879,254
|
)
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
206,338
|
|
|
206,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$
|
235,303
|
|
$
|
1,394,556
|
|
$
|
5,961,705
|
|
$
|
269,473
|
|
$
|
7,861,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
$
|
235,303
|
|
$
|
1,394,556
|
|
$
|
5,961,705
|
|
$
|
269,473
|
|
$
|
7,861,037
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
7,227,560
|
|
|
-
|
|
|
7,227,560
|
|
|
Contribution
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
354,461
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
354,461
|
|
|
Appropriations
to statutory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reserves
|
|
|
-
|
|
|
1,134,971
|
|
|
(1,134,971
|
)
|
|
-
|
|
|
-
|
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
(1,969,228
|
)
|
|
-
|
|
|
(1,969,228
|
)
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
623,695
|
|
|
623,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$
|
589,764
|
|
$
|
2,529,527
|
|
$
|
10,085,066
|
|
$
|
893,168
|
|
$
|
14,097,525
|
|
See
accompanying notes to consolidated financial statements
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
|
|
|
|
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
(Stated
in US Dollars)
|
|
|
|
2007
|
|
2006
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,227,560
|
|
$
|
6,083,188
|
|
|
Depreciation
|
|
|
28,735
|
|
|
6,429
|
|
|
Amortization
|
|
|
543,069
|
|
|
127,163
|
|
|
Allowance
for bad debts
|
|
|
61,426
|
|
|
-
|
|
|
Loss
on disposal of fixed assets
|
|
|
(978
|
)
|
|
-
|
|
|
Minority
interests
|
|
|
14,617
|
|
|
12,945
|
|
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
|
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
427,240
|
|
|
384,833
|
|
|
Subscription
receivables
|
|
|
(356,271
|
)
|
|
-
|
|
|
Other
receivables
|
|
|
71,663
|
|
|
(15,851
|
)
|
|
Inventories
|
|
|
1,309,301
|
|
|
149,811
|
|
|
Advances
to suppliers
|
|
|
(1,059,839
|
)
|
|
1,482,732
|
|
|
Prepayments
|
|
|
(1,313
|
)
|
|
19,544
|
|
|
Current
portion of long term
|
|
|
|
|
|
|
|
|
prepayments
|
|
|
(1,310,086
|
)
|
|
-
|
|
|
Long
term prepayments
|
|
|
(3,697,772
|
)
|
|
-
|
|
|
Accounts
payable
|
|
|
(24,940
|
)
|
|
(799,388
|
)
|
|
Customers’
deposits
|
|
|
(345,984
|
)
|
|
143,787
|
|
|
Accruals
|
|
|
233,461
|
|
|
19,216
|
|
|
Other
payables
|
|
|
(855,910
|
)
|
|
305,079
|
|
|
Income
tax payable
|
|
|
(88,080
|
)
|
|
251,597
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$
|
2,175,899
|
|
$
|
8,171,085
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition
of a subsidiary
|
|
$
|
(357,670
|
)
|
$
|
-
|
|
|
Deposit
fund for an investment
|
|
|
-
|
|
|
(751,702
|
)
|
|
Sale
of plant and equipment
|
|
|
16,213
|
|
|
-
|
|
|
Purchase
of equipment and motor vehicle
|
|
|
(63,913
|
)
|
|
(62,350
|
)
|
|
Payment
of intangible assets
|
|
|
53,607
|
|
|
(5,299,497
|
)
|
|
Lending
to a director
|
|
|
(6,919
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
$
|
(358,682
|
)
|
$
|
(6,113,549
|
)
|
See
accompanying notes to consolidated financial statements
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
|
|
|
|
CONSOLIDATED
STATEMENTS
OF CASH FLOWS (Continued)
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
(Stated
in US Dollars)
|
|
|
|
2007
|
|
2006
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
Issue
of capital
|
|
$
|
361,025
|
|
$
|
-
|
|
|
Amount
due to a shareholder
|
|
|
52,513
|
|
|
-
|
|
|
Dividend
paid
|
|
|
(1,969,228
|
)
|
|
(1,879,254
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in by financing activities
|
|
$
|
(1,555,690
|
)
|
$
|
(1,879,254
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash and cash equivalents sourced
|
|
$
|
261,527
|
|
$
|
178,282
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency translation on cash
|
|
|
|
|
|
|
|
|
and
cash equivalents
|
|
|
141,392
|
|
|
58,103
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents-beginning of year
|
|
|
1,896,853
|
|
|
1,660,468
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents-end of year
|
|
$
|
2,299,772
|
|
$
|
1,896,853
|
|
|
Supplementary
cash flow information:
|
|
|
|
|
|
|
|
|
Interest
received
|
|
$
|
18,263
|
|
$
|
10,897
|
|
|
Tax
paid
|
|
|
3,979,146
|
|
|
2,808,824
|
|
See
accompanying notes to consolidated financial statements
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
1.
|
ORGANIZATION
AND
PRINCIPAL
ACTIVITIES
|
Shanghai
Atrip Medical Technology Co., Ltd (the Company) was established in Shanghai
of
the People’s Republic of China (the PRC) as a limited company on June 28, 2005.
The Company currently operates through itself and two subsidiaries located
in
Mainland China: Shanghai Vantage Pharmaceutical Technology Co., Ltd (Vantage)
and Shanghai Pharmaceutical & Hemo-tech International Co., Ltd
(Hemo).
Vantage
was established in Shanghai of the People’s Republic of China (the PRC) as a
limited company on May 28, 2004.
In
May,
2004, Chen Zhong entered into the trust agreements with Sun Guang and Che
Yingqian, which provided that Chen Zhong should consign Sun Guang and Che
Yingqian as the registered shareholders to respectively holding 33% and 28%
equity interests of Vantage on behalf of him, and Sun Guang and Che Yingqian
would not enjoy the corresponding shareholders’ rights unless with the written
authorization from Chen Zhong.
The
Company and Chen Zhong signed the Consignment Agreement which stipulated that
Chen Zhong should consign all its 95% equity interests in Vantage to the
Company, and the Company should have the right to receive dividends and dispose
of such consigned equity interests.
Chen
Zhong executed the Equity Transfer Agreement with Sun Guang and Chen Yingqian
on
November 26, 2007, in which Sun Guang and Chen Yingqian should respectively
transfer 33% and 28% equity in Vantage to Chen Zhong.
On
the
same day, the Shareholders’ General Meeting made a resolution for approval of
the aforesaid equity transfer, and the Articles of Association of Vantage were
revised accordingly.
Vantage
had registered and filed the equity transfer and its revised Articles of
Association with the relevant industry and commerce authority. On December
3rd,
2007, Shanghai Administration Bureau of Industry and Commerce, Changning Branch
issued new Business License to the Company.
Hemo
was
established in Shanghai of the People’s Republic of China (the PRC) as a limited
company on August 7, 2001.
On
January 23, 2007, the Shareholders’ Meeting of Hemo passed the resolution that
China National Medical Equipment Corporation (the “China Equipment”) could duly
transfer its 81.6% of the equity interests in Hemo to the Company.
On
February 5, 2007, China National Medical Equipment Corporation and the Company
signed the Equity Transfer Agreement for the aforesaid equity interest transfer.
On
February 13th, 2007, China Beijing Equity Exchange issued the equity exchange
voucher to execute the aforementioned transfer.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (C
ontinued
)
|
The
Articles of Association of Hemo were revised with respect to the aforesaid
equity transfer, and Hemo registered and filed the revised Articles of
Association with the relevant industry and commerce authority. Accordingly,
the
Company became the holding company of Hemo.
The
Company is the holding company of, Vantage and Hemo through the aforesaid group
restructuring.
On
June
11, 2007, there was a reduction of registered capital by Shanghai Xinhui Science
& Technology Investment Co., Ltd. of RMB 500,000, and the Company’s
effective holding percentage of equity interests of Hemo jumped from 81.6%
to
84.84%.
The
Company and its subsidiary (hereinafter, collectively referred to as “the
Group”) are engaged in the technical development, transfer, consulting and
servicing of pharmaceutical and medical appliance, and the selling of diagnosis
products.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
The
Company maintains its general ledger and journals with the accrual method
accounting for financial reporting purposes. The financial statements and notes
are representations of management. Accounting policies adopted by the Company
conform to generally accepted accounting principles in the United States of
America and have been consistently applied in the presentation of financial
statements.
The
preparation of the financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Management makes these estimates using the best
information available at the time the estimates are made; however actual results
could differ materially from those estimates.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
c)
|
Principles
of consolidation
|
The
consolidated financial statements are presented in US Dollars and include the
accounts of the Company and its 95% subsidiary Vantage and 84.84% subsidiary,
Hemo. All significant inter-company balances and transactions are eliminated
in
combination.
The
Company acquired its subsidiaries on November 26, 2007 through a re-organization
among entities under a single common control. Accordingly, the transaction
was
accounted for in a way similar to a pooling of interests in accordance with
SFAS
141 Appendix D and is presented as if it had occurred at the beginning of the
first period presented. The following table depicts the identity of the
subsidiaries
|
Name
of Company
|
|
Place
& date of Incorporation
|
|
Attributable
Equity Interest %
|
|
Registered
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai
Vantage Pharmaceutical Technology Co., Ltd
|
|
|
PRC/
May
28, 2004
|
|
|
95
|
%
|
|
RMB1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai
Pharmaceutical & Hemo-tech International Co., Ltd
|
|
|
PRC/
Aug
7, 2001
|
|
|
84.84
|
%
|
|
RMB12,600,000
|
|
|
d)
|
Economic
and political risks
|
The
Group’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by
the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
The
Group’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America
and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Group’s results may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in governmental policies with respect
to
laws and regulations, anti-inflationary measures, currency conversion,
remittances abroad, and rates and methods of taxation, among other
things.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
Plant
and
equipment are carried at cost less accumulated depreciation. Depreciation is
provided over their estimated useful lives, using the straight-line method.
Estimated useful lives of the plant and equipment are as follows:
|
Machinery
and equipment
|
|
|
5-10
years
|
|
|
Office
equipment
|
|
|
5
years
|
|
|
Motor
vehicles
|
|
|
8
years
|
|
The
cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income as incurred,
whereas significant renewals and betterments are capitalized.
f)
Intangible
assets
Intangible
assets represent patent rights in the PRC. Patent rights are carried at cost
and
amortized on a straight-line basis over the period of rights of 10 years
commencing from the date of acquisition of equitable interest.
g)
Accounting
for the impairment of long-lived assets
The
long-lived assets held and used by the Group are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of
assets may not be recoverable. It is reasonably possible that these assets
could
become impaired as a result of technology or other industry changes.
Determination of recoverability of assets to be held and used is by comparing
the carrying amount of an asset to future net undiscounted cash flows to be
generated by the assets.
If
such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower
of
the carrying amount or fair value less costs to sell. During the reporting
years, there was no impairment loss incurred.
h)
Inventories
Inventories
comprise merchandise purchased for resale and are stated at lower of cost and
net realizable value. Cost of merchandise, representing the purchase cost,
is
calculated on the weighted average basis. Net realizable value is the estimated
selling price in the ordinary course of business less any applicable selling
expenses.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
Trade
receivables are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. An allowance for doubtful accounts
is
maintained for all customers in considering with a variety of factors, including
the length of past due, significant one-time events and the company’s historical
experience. Bad debts are written off as incurred.
|
j)
|
Cash
and cash equivalents
|
The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company maintains
bank accounts only in the PRC. The Company does not maintain any bank accounts
in the United States of America.
|
k)
|
Foreign
currency translation
|
The
accompanying financial statements are presented in United States dollars. The
functional currency of the Company is the Renminbi (RMB). The financial
statements are translated into United States dollars from RMB at year-end
exchange rates as to assets and liabilities and average exchange rates as to
revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.
|
December
31, 2007
|
|
|
|
Balance
sheet
|
|
RMB
7.31410 to USD1.00
|
|
Statement
of income and comprehensive income
|
|
RMB
7.61720 to USD1.00
|
|
|
|
|
|
December
31, 2006
|
|
|
|
Balance
sheet
|
|
RMB
7.81750 to USD1.00
|
|
Statement
of income and comprehensive income
|
|
RMB
7.98189 to USD1.00
|
The
RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD
at
the rates used in translation.
Net
revenue is recognized when customer takes delivery and acceptance of products,
the price is fixed or determinable as stated on sales contract, and the
collectibility is reasonably assured.
Customers
do not have a general right of return on products delivered.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
The
Group
did not have lease which met the criteria of capital lease. Leases which do
not
qualify as capital lease are classified as operating lease. Operating lease
rental payment included in the general and administrative expenses for the
years
ended December 31, 2007 and 2006 were $137,792 and $82,447
respectively.
The
Group
expensed all advertising costs as incurred. Advertising expenses included in
the
selling expenses for the years ended December 31, 2007 and 2006 were $18,511
and
$191,559 respectively.
|
o)
|
Retirement
benefit plans
|
The
employees of the Group are members of a state-managed retirement benefit plan
operated by the government of the PRC. The Group is required to contribute
a
specified percentage of payroll costs to the retirement benefit scheme to fund
the benefits. The only obligation of the Group with respect to the retirement
benefit plan is to make the specified contributions.
Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statements of income as
incurred. The retirement benefit funding included in the general and
administrative expenses for the years ended December 31, 2007 and 2006 were
$69,175 and $108,212 respectively.
The
Group
accounts for income taxes using an asset and liability approach and allows
for
recognition of deferred tax benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for
financial reporting purposes and the amounts used for income tax purposes.
A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Group is able to realize
their benefits, or that future realization is uncertain.
The
Group
is operating in the PRC, and in accordance with the relevant tax laws and
regulations of PRC, the enterprise income tax rate is 33%.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
q)
|
Cash
and concentration of risk
|
Cash
includes cash on hand and demand deposits in accounts maintained within PRC.
Total cash in these banks at December 31, 2007 and 2006 amounted to $2,299,772
and $1,896,853 respectively, of which no deposits are covered by Federal
Depository Insured Commission. The Company has not experienced any losses in
such accounts and believes the risk on its cash in bank accounts is very low.
Statutory
reserves are referred to the amount appropriated from the net income in
accordance with laws or regulations, which can be used to recover losses and
increase capital, as approved, and are to be used to expand production or
operations.
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
all
items that are required to be recognized under current accounting standards
as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements. The Group’s current component of other comprehensive income is the
foreign currency translation adjustment.
|
t)
|
Recent
accounting pronouncements
|
In
September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements, where fair value is the relevant
measurement attribute. The standard does not require any new fair value
measurements. SFAS 157 is effective for financial statements issued for fiscal
year beginning after November 15, 2006, and interim periods within that fiscal
year.
In
September 2006, the SEC issued SAB No. 108, which provides guidance on the
process of quantifying financial statement misstatements. In SAB No. 108, the
SEC staff establishes an approach that requires quantification of financial
statement errors, under both the iron-curtain and the roll-over methods, based
on the effects of the error on each of the Company’s financial statements and
the related financial statement disclosures. SAB No.108 is generally effective
for annual financial statements in the first fiscal year ending after November
15, 2006. The transition provisions of SAB No. 108 permits existing public
companies to record the cumulative effect in the first year ending after
November 15, 2006 by recording correcting adjustments to the carrying values
of
assets and liabilities as of the beginning of that year with the offsetting
adjustment recorded to the opening balance of retained earnings. The Group
does
not anticipate that the adoption of this standard will have a material impact
on
these consolidated financial statements.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
(t)
|
Recent
accounting pronouncements
(continued)
|
In
February 2007, FASB issued Statement of Financial Accounting Standards No.
(“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”).
SFAS 159 permits entities to choose to measure many financial instruments and
certain other items at fair value. Entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option may be elected on an instrument-by-instrument basis,
with a few exceptions. SFAS 159 also establishes presentation and disclosure
requirements to facilitate comparisons between entities that choose different
measurement attributes for similar assets and liabilities. The requirements
of
SFAS 159 are effective for our fiscal year beginning on January 1, 2008. The
Group does not anticipate that the adoption of this standard will have a
material impact on these consolidated financial statements.
In
December 2007, the SEC issued Staff Accounting Bulletin No. 110(“SAB 110”). SAB
110 permits companies to continue to use the simplified method, under certain
circumstances, in estimating the expected term of “plain vanilla” options beyond
December 31, 2007. SAB 110 updates guidance provided in SAB 107 that previously
stated that the Staff would not expect a company to use the simplified method
for share grants after December 31, 2007. Adoption of SAB 110 is not expected
to
have a material impact on the Group’s consolidated financial
statements.
In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (“SFAS”) No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. As such, the Group is required to
adopt
these provisions at the beginning of the fiscal year ended December 31, 2009.
The Group is currently evaluating the impact of SFAS 160 on its consolidated
financial statements but does not expect it to have a material
effect.
In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (“SFAS”) No. 141(R), "Business Combinations”. SFAS
141(R) establishes principles and requirements for how the acquirer recognizes
and measures in its financial statements the identifiable assets acquired,
the
liabilities assumed, an any noncontrolling interest in the acquiree, recognizes
and measures the goodwill acquired in the business combination or a gain from
a
bargain purchase, and determines what information to disclose to enable users
of
the financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
As
such, the Group is required to adopt these provisions at the beginning of the
fiscal year ended December 31, 2009. The Group is currently evaluating the
impact of SFAS 141(R) on its consolidated financial statements but does not
expect it to have a material effect.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
3.
|
CONCENTRATIONS
OF CREDIT RISK AND MAJOR
CUSTOMERS
|
Financial
instruments which potentially expose the Group to concentrations of credit
risk,
consists of cash and accounts receivable as of December 31, 2007 and 2006.
The
Group performs ongoing evaluations of its cash position and credit evaluations
to ensure sound collections and minimize credit losses exposure.
As
of
December 31, 2007 and 2006, the Group’s bank deposits were all conducted with
banks in the PRC where there is currently no rule or regulation mandated on
obligatory insurance of bank accounts.
For
the
years ended December 31, 2007 and 2006, all of the Group’s sales were generated
from the PRC. In addition, all accounts receivable as of December 31, 2007
and
2006 also arose in the PRC.
The
maximum amount of loss exposure due to credit risk that the Group would bear
if
the counter parties of the financial instruments failed to perform represents
the carrying amount of each financial asset in the balance sheet.
Normally
the Group does not require collateral from customers or debtors.
Details
of the customer account for 10% or more of the Group’s revenue are as
follows:
|
|
|
2007
|
|
2006
|
|
|
Customer
A
|
|
$
|
5,332,062
|
|
$
|
2,154,450
|
|
Details
of customer account for 10% or more of the Group’s accounts receivable are as
follows:
|
|
|
2007
|
|
2006
|
|
|
Customer
B
|
|
$
|
254,934
|
|
$
|
-
|
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
4.
|
ACCOUNTS
RECEIVABLES, NET
|
|
|
|
2007
|
|
2006
|
|
|
Trade
receivable, gross
|
|
$
|
2,474,947
|
|
$
|
2,251,138
|
|
|
Provision
for doubtful debts
|
|
|
(66,724
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,408,223
|
|
|
2,251,138
|
|
|
|
|
|
|
|
|
|
|
All
of
the above accounts receivable are due within 12 months of aging.
An
analysis of the allowance for doubtful accounts for the years ended December
31,
2007 and 2006 is as follows:
|
|
|
2007
|
|
2006
|
|
|
Balance
at beginning of year
|
|
$
|
-
|
|
$
|
-
|
|
|
Addition
of bad debt expense
|
|
|
66,724
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of year
|
|
$
|
66,724
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Allowance
was made when collection of the full amount is no longer probable. Management
reviews and adjusts this allowance periodically based on historical experience,
current economic climate as well as its evaluation of the collectibility of
outstanding accounts. The Group evaluates the credit risks of its customers
utilizing historical data and estimates of future performance.
|
5.
|
SUBSCRIPTION
RECEIVABLES
|
Subscription
receivables are commitments from the shareholders for the payment in the
registered capital. They are due on June 2008. Details are as follows:
|
|
|
2007
|
|
2006
|
|
|
Chen
Zhong
|
|
$
|
195,688
|
|
$
|
-
|
|
|
Yang
Fong
|
|
|
156,889
|
|
|
-
|
|
|
Shanghai
City Hygiene Industry
|
|
|
|
|
|
-
|
|
|
Development
Centre
|
|
|
18,458
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
371,035
|
|
$
|
-
|
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
Details
of other receivables are as follows:
|
|
|
2007
|
|
2006
|
|
|
Rental
deposits
|
|
$
|
12,715
|
|
$
|
11,896
|
|
|
Loans
to an unrelated company
|
|
|
171,338
|
|
|
78,960
|
|
|
Advances
to employee
|
|
|
1,383
|
|
|
-
|
|
|
Others
|
|
|
11,999
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
197,435
|
|
$
|
90,863
|
|
Loan
to
an unrelated company is unsecured, interest free, and has no fixed repayment
date.
Details
of inventories are as follows:
|
|
|
2007
|
|
2006
|
|
|
Raw
materials
|
|
$
|
22,510
|
|
$
|
-
|
|
|
Materials
in consignment
|
|
|
12,992
|
|
|
-
|
|
|
Finished
goods
|
|
|
1,258,914
|
|
|
1,299,134
|
|
|
|
|
$
|
1,294,416
|
|
$
|
1,299,134
|
|
|
Provision
for inventory write-down
|
|
|
(87,740
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,206,676
|
|
$
|
1,299,134
|
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
Details
of due from directors are as follows:
|
|
|
2007
|
|
2006
|
|
|
Chen
Zhong
|
|
$
|
6,796
|
|
$
|
-
|
|
|
Xu
Yifei
|
|
|
410
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,206
|
|
$
|
-
|
|
Due
from
directors is unsecured, interested free and repayable on
demand.
|
9.
|
DEPOSITS
FOR AN UNLISTED INVESTMENT
|
Deposit
for an unlisted investment was made for the investments in Ningbo China Tianyi
Medical Appliance Co., Ltd. (“Tianyi”). The Company is in the progress of
investing in the Tianyi. Details of the proposed investment are as
follow:
|
|
|
|
|
Portion
of
|
|
|
|
|
|
|
|
nominal
|
|
|
|
Place
|
|
Form
of
|
|
value
of
|
|
|
|
of
|
|
business
|
|
registered
|
|
Principal
|
|
registration
|
|
structure
|
|
capital
|
|
activities
|
|
PRC
|
|
Limited
company
|
|
20%
|
|
Production
of disposable medical polymer material and
products
|
|
10.
|
LONG
TERM PREPAYMENTS
|
Details
of long term prepayments are as follows:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Dealership
of products in China
|
|
$
|
5,218,231
|
|
$
|
-
|
|
|
Current
portion
|
|
|
(1,367,222
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,851,009
|
|
$
|
-
|
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
|
11.
|
PLANT
AND EQUIPMENT, NET
|
Details
of plant and equipment, net are as follows:
|
|
|
2007
|
|
2006
|
|
|
At
cost
|
|
|
|
|
|
|
Machinery
and equipment
|
|
$
|
36,094
|
|
$
|
-
|
|
|
Office
equipment
|
|
|
54,020
|
|
|
10,009
|
|
|
Motor
vehicles
|
|
|
212,546
|
|
|
59,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
302,660
|
|
$
|
69,882
|
|
|
Less:
accumulated depreciation
|
|
|
(99,445
|
)
|
|
(7,386
|
)
|
|
Less:
provision for impairment
|
|
|
(18,885
|
)
|
|
-
|
|
|
|
|
$
|
184,330
|
|
$
|
62,496
|
|
Depreciation
expenses included in the selling expenses were $10,737 and nil respectively,
and
included in the general and administrative expenses for the years ended December
31, 2007 and 2006 were $17,998 and $6,429 respectively.
|
12.
|
INTANGIBLE
ASSETS, NET
|
Details
of intangible assets are as follows:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Patent
rights, at cost
|
|
$
|
5,687,644
|
|
$
|
5,410,937
|
|
|
Less:
accumulated amortization
|
|
|
(664,470
|
)
|
|
(129,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,023,174
|
|
$
|
5,281,100
|
|
Amortization
expenses included in the general and administrative expenses for the years
ended
December 31, 2007 and 2006 were, $543,069 and $127,163
respectively.
Details
of due to a shareholder are as follows:
|
|
|
2007
|
|
2006
|
|
|
Shanghai
City Hygiene Industry
|
|
|
|
|
|
|
|
|
Development
Centre
|
|
$
|
54,689
|
|
$
|
-
|
|
Due
to a
shareholder is unsecured, interested free and repayable on demand.
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
Details
of other payables are as follows:
|
|
|
2007
|
|
2006
|
|
|
Sales
rebates
|
|
$
|
247,499
|
|
$
|
803,346
|
|
|
Sundry
PRC taxes payables
|
|
|
455,070
|
|
|
520,403
|
|
|
Sundry
|
|
|
16,603
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
719,172
|
|
$
|
1,323,749
|
|
As
of
December 31, 2007 and 2006, capital contributions paid-up amounted to $589,764
(RMB 4,700,000) and $235,303 (RMB 2,000,000).
The
Company had two shareholders as at December 31, 2007 amongst whom Mr. Chen
Zhong
was the majority shareholder, holding 98.15%.
Details
of net revenues are as follows:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Diagnosis
product revenues
|
|
$
|
34,401,698
|
|
$
|
23,313,863
|
|
|
Consultancy
income
|
|
|
564,512
|
|
|
545,046
|
|
|
Promotion
income
|
|
|
-
|
|
|
233,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,966,210
|
|
$
|
24,092,500
|
|
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO., LTD
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US Dollars)
Details
of interest income, net are as follows:
|
|
|
2007
|
|
2006
|
|
|
Interest
income
|
|
$
|
18,263
|
|
$
|
10,897
|
|
|
Bank
charges
|
|
|
(424
|
)
|
|
(124
|
)
|
|
Net
exchange losses
|
|
|
(747
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,092
|
|
$
|
10,773
|
|
The
Group
is operating in the PRC, and in accordance with the relevant tax laws and
regulations of PRC, the corporation income tax rate is 33%.
No
deferred tax has been provided as there are no material temporary differences
arising during the years ended December 31, 2007 and 2006.
|
19.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Group
has entered into a tenancy agreement for office premise expiring through 2007.
Total rental expenses for the years ended December 31, 2007 and 2006 amounted
to
$137,792 and $82,447 respectively.
The
Group’s commitments for minimum lease payments under the lease for 2008 and 2009
are as follows:
|
Year
ending December 31,
|
|
|
|
|
|
2008
|
|
$
|
210,451
|
|
|
2009
|
|
|
20,782
|
|
|
|
|
$
|
231,233
|
|
|
20.
|
FAIR
VALUE OF FINANCIAL
INSTRUMENTS
|
The
fair
value of financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. The carrying amounts
of financial assets and liabilities, such as cash and cash equivalents, accounts
receivable, other receivables, accounts payable, and other payables, approximate
their fair values because of the short maturity of these instruments and market
rates of interest available to the Group.
Aamaxan
Transport Group, Inc.
(A
Development Stage Company)
Financial
Statements
and
Report
of
Independent Registered Public Accounting Firm
For
the
Years Ended January 31, 2008 and 2007
CONTENTS
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
F-23
|
|
|
|
|
|
BALANCE
SHEET
|
|
F-24
|
|
|
|
|
|
STATEMENTS
OF OPERATIONS
|
|
F-25
|
|
|
|
|
|
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT)
|
|
F-26
- F-28
|
|
|
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
F-29-F-30
|
|
|
|
|
|
NOTES
TO FINANCIAL STATEMENTS
|
|
F-31-F-40
|
Report
of
Independent Registered Public Accounting Firm
Board
of
Directors and Stockholders
Aamaxan
Transport Group, Inc.
Toronto,
Ontario
We
have
audited the accompanying balance sheet of Aamaxan Transport Group, Inc., (a
development stage company) (the "Company") as of January 31, 2008 and the
related statements of operations, stockholders' equity (deficit) and cash flows
for each of the years in the two year period ended January 31, 2008 and for
the
period June 3, 1998 (inception) through January 31, 2008. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with 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 financial statements referred to above present fairly, in all
material respects, the financial position of Aamaxan Transport Group, Inc.
at
January 31, 2008, and the results of its operations and cash flows for each
of
the years in the two year period ended January 31, 2008 and for the period
June
3, 1998 (inception) through January 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has no significant assets or working capital as of
January 31, 2008, a significant deficit accumulated during the development
stage
and has no business operations. These conditions, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
Turner,
Stone & Company, L.L.P.
Certified
Public Accountants
Dallas,
Texas
March
14,
2008
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEET
JANUARY
31, 2008
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
Prepaid
expenses
|
|
|
282
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
$
|
282
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
12,129
|
|
|
Advances
from stockholder
|
|
|
61,856
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
73,985
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 10,000,000
|
|
|
|
|
|
shares
authorized, no shares issued or outstanding
|
|
|
-
|
|
|
Common
stock, $.0001 par value, 200,000,000
|
|
|
|
|
|
shares
authorized, 244,000 shares
|
|
|
|
|
|
issued
and outstanding
|
|
|
24
|
|
|
Additional
paid-in capital
|
|
|
7,352,748
|
|
|
Deficit
accumulated during the development stage
|
|
|
(7,426,475
|
)
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficit)
|
|
|
(73,703
|
)
|
|
|
|
|
|
|
|
|
|
$
|
282
|
|
The
accompanying notes are an integral part of the financial
statements.
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF OPERATIONS
|
|
|
Year
Ended
|
|
Year
Ended
|
|
Cumulative
From
Inception
Through
|
|
|
|
|
January
31,
|
|
January
31,
|
|
January
31,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
31,418
|
|
|
30,433
|
|
|
7,426,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(31,418
|
)
|
|
(30,433
|
)
|
|
(7,426,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(31,418
|
)
|
$
|
(30,433
|
)
|
$
|
(7,426,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss
|
|
|
|
|
|
|
|
|
|
|
|
per
weighted average
|
|
|
|
|
|
|
|
|
|
|
|
common
share
|
|
$
|
(.13
|
)
|
$
|
(.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
244,000
|
|
|
244,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR
THE
PERIOD JUNE 3, 1998 (INCEPTION) THROUGH JANUARY 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
organizational
services
|
|
|
-
|
|
$
|
-
|
|
|
833
|
|
$
|
-
|
|
$
|
480
|
|
$
|
-
|
|
$
|
480
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
attempted merger with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESI
|
|
|
-
|
|
|
-
|
|
|
3,079
|
|
|
-
|
|
|
620,727
|
|
|
-
|
|
|
620,727
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
services at $3,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
|
-
|
|
|
-
|
|
|
18
|
|
|
-
|
|
|
61,312
|
|
|
-
|
|
|
61,312
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
cash
|
|
|
-
|
|
|
-
|
|
|
103
|
|
|
-
|
|
|
349,226
|
|
|
-
|
|
|
349,226
|
|
|
Issuance
of convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
in private
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
placement
transaction
|
|
|
500
|
|
|
50
|
|
|
-
|
|
|
-
|
|
|
498,190
|
|
|
-
|
|
|
498,240
|
|
|
Conversion
of preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
for common stock
|
|
|
(150
|
)
|
|
(15
|
)
|
|
211
|
|
|
-
|
|
|
15
|
|
|
-
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
accrued rent at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3000
per share
|
|
|
-
|
|
|
-
|
|
|
19
|
|
|
-
|
|
|
57,856
|
|
|
-
|
|
|
57,856
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(129,775
|
)
|
|
(129,775
|
)
|
|
Balance
at January 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999
|
|
|
350
|
|
|
35
|
|
|
4,263
|
|
|
-
|
|
|
1,587,806
|
|
|
(129,775
|
)
|
|
1,458,066
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS'EQUITY (DEFICIT)
FOR
THE
PERIOD JUNE 3, 1998 (INCEPTION) THROUGH JANUARY 31, 2008
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
Total
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
at $2,591 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
|
-
|
|
|
-
|
|
|
37
|
|
|
-
|
|
|
95,000
|
|
|
-
|
|
95,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$1,140 per share
|
|
|
-
|
|
|
-
|
|
|
16
|
|
|
-
|
|
|
17,972
|
|
|
-
|
|
17,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
for common stock
|
|
|
(200
|
)
|
|
(20
|
)
|
|
539
|
|
|
-
|
|
|
20
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
at $3,000 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
10,000
|
|
|
-
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as an
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
of prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
shares issued in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for services
|
|
|
-
|
|
|
-
|
|
|
31
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(131,000
|
)
|
(131,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
|
150
|
|
|
15
|
|
|
4,889
|
|
|
-
|
|
|
1,710,798
|
|
|
(260,775
|
)
|
1,450,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
for common stock
|
|
|
(150
|
)
|
|
(15
|
)
|
|
2,500
|
|
|
-
|
|
|
15
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
at $45 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
|
-
|
|
|
-
|
|
|
1,170
|
|
|
-
|
|
|
52,500
|
|
|
-
|
|
52,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS'EQUITY (DEFICIT)
FOR
THE
PERIOD JUNE 3, 1998 (INCEPTION) THROUGH JANUARY 31, 2008
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-In
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
at $118 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
|
-
|
|
|
-
|
|
|
47,000
|
|
|
|
|
|
5
5,545,995
|
|
|
-
|
|
|
5,546,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(7,048,538
|
)
|
|
(7,048,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at each of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years
ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31, 2001, 2002,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003,
2004 and 2005
|
|
|
-
|
|
|
-
|
|
|
55,559
|
|
|
|
|
|
5
7,309,308
|
|
|
(7,309,313
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
upon
conversion of note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable
and accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
|
|
|
-
|
|
|
-
|
|
|
188,441
|
|
|
|
|
|
19
43,440
|
|
|
-
|
|
|
43,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,311
|
)
|
|
(55,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 31, 2006
|
|
|
-
|
|
|
-
|
|
|
244,000
|
|
|
|
|
|
24
7,352,748
|
|
|
(7,364,624
|
)
|
|
(11,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,433
|
)
|
|
(30,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 31, 2007
|
|
|
-
|
|
|
-
|
|
|
244,000
|
|
|
|
|
|
24
7,352,748
|
|
|
(7,395,057
|
)
|
|
(42,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,418
|
)
|
|
(31,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 31, 2008
|
|
|
-
|
|
|
-
|
|
$
|
244,000
|
|
|
|
|
$
|
24
7,352,748
|
|
$
|
(7,426,475
|
)
|
$
|
(73,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
Through
|
|
|
|
|
January
31,
|
|
January
31,
|
|
January
31,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
Cash
flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(31,418
|
)
|
$
|
(30,433
|
)
|
$
|
(7,426,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net
|
|
|
|
|
|
|
|
|
|
|
|
loss
to net cash used in
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable issued in
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for services
|
|
|
-
|
|
|
-
|
|
|
43,210
|
|
|
Common
stock issued for
|
|
|
|
|
|
|
|
|
|
|
|
services
|
|
|
-
|
|
|
-
|
|
|
5,841,369
|
|
|
Merger
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
-
|
|
|
-
|
|
|
1,468,193
|
|
|
Changes
in assets and
|
|
|
|
|
|
|
|
|
|
|
|
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
31
|
|
|
(313
|
)
|
|
(282
|
)
|
|
Account
payable
|
|
|
8,020
|
|
|
(1,612
|
)
|
|
12,129
|
|
|
Net
cash used in
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
(23,367
|
)
|
|
(32,358
|
)
|
|
(61,856
|
)
|
|
Cash
flows from investing
|
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in ESI
|
|
|
-
|
|
|
-
|
|
|
(847,466
|
)
|
|
Net
cash used in
|
|
|
|
|
|
|
|
|
|
|
|
investing
activities
|
|
|
-
|
|
|
-
|
|
|
(847,466
|
)
|
|
Cash
flows from financing
|
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred
|
|
|
|
|
|
|
|
|
|
|
|
stock
for cash
|
|
|
-
|
|
|
-
|
|
|
498,240
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
for
cash
|
|
|
-
|
|
|
-
|
|
|
349,226
|
|
|
Advances
from stockholder
|
|
|
23,367
|
|
|
32,358
|
|
|
61,856
|
|
|
Net
cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
|
23,367
|
|
|
32,358
|
|
|
909,322
|
|
|
Net
change in cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at the beginning of period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Cash
at the end of period
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
Supplemental
Schedule of Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Through
|
|
|
|
|
|
January
31,
|
|
|
January
31,
|
|
|
January
31,
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Issuance
of 18,787 common stock shares upon conversion of convertible note
payable
and accrued interest payable
|
|
$
|
-
|
|
$
|
-
|
|
$
|
43,459
|
|
The
accompanying notes are an integral part of the financial
statements.
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and business
Aamaxan
Transport Group, Inc. (the Company) was incorporated on June 3, 1998
under
the
laws of the State of Delaware under the name Worthington Venture
Fund,
Inc.
(WD). On August 14, 1998, WD changed its name to Admax Technology,
Inc.
(Admax).
On August 28, 1998, Admax merged with Worthington Venture Fund, Inc.,
a
non-operating
Utah shell corporation, and changed its name to Aamaxan Transport
Group,
Inc. Its primary activities through January 31, 2008 have been the
attempted
acquisition of interests in the trucking industry (Note 2). The
Company
was completely dormant from mid-2000 to mid-2005 although there were
two
changes
in control of the Company's outstanding common stock shares (Note 2).
Basis
of presentation and going concern uncertainty
The
financial statements of the Company have been prepared assuming that the
Company
will continue as a going concern. However, the Company has no assets or
working
capital and has no business operations. These conditions, among others,
give
rise
to substantial doubt about the Company's ability to continue as a
going
concern. Management is continuing to seek additional equity capital to
fund
a
merger or acquisition or to purchase an ongoing business. Until such
time,
the
Company anticipates its working capital needs to be funded through
advances
from its stockholders. Management believes that these steps will
provide
the Company with adequate funds to sustain its continued existence.
There
is,
however, no assurance that the steps taken by management will meet all
of
the
Company's needs or that it will continue as a going concern. The
accompanying
financial statements do not include any adjustments that might
result
from the outcome of this uncertainty.
Development
stage activities
The
Company has not conducted any significant business operations since its
inception.
Accordingly, all of the Company's operating results and cash flows
are
considered to be those related to development stage activities and represent
the
`cumulative from inception' amounts from its development stage activities
reported
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 7,
Development
Stage Enterprises.
Management
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 flows
For
purposes of the statements of cash flows, cash includes demand deposits and
time
deposits and other highly liquid investments with original maturities of
less
than
three months. The Company had no cash at the end of January 31, 2008
and
2007.
Also, for the years ended January 31, 2008 and 2007 and for the period
June
3,
1998 (inception) through January 31, 2008, no payments of interest or
taxes
were made.
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
Net
loss per share
Basic
loss per share amounts are computed by dividing the net loss (numerator)
by the
weighted average number of common shares outstanding during the periods
(denominator). Diluted loss per common share amounts reflect the maximum
dilution that would result from potentially dilutive securities. Diluted
loss
per share amounts are not presented because there are no potentially dilutive
securities, options or warrants outstanding.
Reverse
stock split
On
July
28, 2000, the Company completed a reverse split of its common stock at a
ratio
of 1 share of common stock for every 30 shares of common stock issued and
outstanding. On September 17, 2007, the Company completed a reverse split
of its
common stock at a ratio of 1 share of common stock for every 100 shares of
common stock issued and outstanding. All per share amounts referenced in
the
accompanying financial statements have been retroactively adjusted for the
reverse stock split.
Fair
value of financial instruments
In
accordance with the reporting requirements of SFAS No. 107, Disclosures About
Fair Value of Financial Instruments, the Company calculates the fair value
of
its assets and liabilities which qualify as financial instruments under this
statement and includes this additional information in the notes to the financial
statements when the fair value is different than the carrying value of those
financial instruments.
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
2.
CAPITAL STRUCTURE DISCLOSURES
The
Company's capital structure is complex and consists of preferred stock and
a
general
class of common stock. The Company is authorized to issue 210,000,000
shares
of
stock, 10,000,000 of which have been designated as preferred shares
with
a
par value per share of $.001 and 200,000,000 of which have been
designated
as common shares with a par value per share of $.0001.
Attempted
merger with ESI
On
August
1, 1998, the Company issued 307,873 shares of common stock in exchange for
the
various assets and liabilities of Eaglewings Systems, Inc. (ESI), an Arkansas
corporation wholly owned and controlled by the Company's sole director, officer
and controlling stockholder, effecting a change of control of the Company.
However, because the Company could not comply with several terms of the merger,
the assets and liabilities of ESI were never formally transferred to the
Company. On July 9, 2000, the Company's board of directors affirmed the
unconsummated merger and the fact that the shares originally issued in the
attempted merger were to be retained by the holder as consideration for efforts
expended. In March 2006, the Company entered into an agreement with the former
officer, sole director and controlling stockholder of the Company formally
acknowledging the rescission of the attempted merger.
Changes
in control
On
August
10, 2000, the Company issued 47,000 common stock shares in exchange
for
services effecting a change of control of the Company. On July 5, 2005, the
Company
issued 188,441 common stock shares upon conversion of a note payable
effecting
another change of control of the Company.
Preferred
stock
The
Company is authorized to issue 10,000,000 shares of $.001 par value preferred
stock. In December 1998, the Company raised $498,240 of equity capital, net
of
related costs, through the issuance of 500 shares of preferred stock. In
connection with this issuance, the Company designated 1,000 of these shares
as
Series A Convertible Preferred Stock. Each share had a stated value of $1,000
and was convertible at the holder's option anytime after issuance into shares
of
the Company's common stock based on a conversion price equal to the lesser
of
(a) $70 or (b) 65% of the average market price per common share for the five
trading days immediately preceding the date of conversion. The preferred
shares
also paid an annual 2.0% cumulative dividend payable quarterly and upon
conversion. In addition, attached to each share was one warrant to purchase
one
share of common stock at the above conversion price. The warrants expired
on
December 31, 2001.
During
the years ended January 31, 2001, 2000 and 1999, 150, 200 and 150,
respectively,
of these shares were converted into 2,500, 539 and 211,
respectively,
common stock shares. As of January 31, 2008, there were no shares
of
preferred stock issued and outstanding and no other series, rights or
privileges
had been designated with respect to the Company's preferred stock.
Common
stock
The
Company is authorized to issue 200,000,000 shares of $.0001 par value common
stock.
Each share contains one voting right and the right to dividends if and
when
declared by the Board of Directors.
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
On
September 17, 2007, the Company announced a 1-for-100 reverse stock split
which
was authorized at its annual meeting of stockholders held on September 17,
2007.
The Company began trading on a split adjusted basis on October 9, 2007 under
the
new symbol "AAXT.OB." Common share amounts have been retroactively restated
to
reflect the reverse stock split. Total common shares issued and outstanding
upon
completion of the reverse stock split are 244,000.
3.
RELATED PARTY TRANSACTIONS
Since
September 2, 2005, Marc Juliar is the sole director and president of the
Company
and he currently owns 141,870 shares of common stock or 58.1% of the
Company's
outstanding shares.
At
January 31, 2008, another stockholder had advanced $61,856 (2007 - $38,489)
to
the
Company by directly paying certain operating expenses. These funds are
non-interest
bearing, unsecured and payable upon demand as funds become
available.
4.
COMMITMENTS AND CONTINGENCIES
As
of
January 31, 2008, the Company is not subject to any significant
commitments
or contingencies or obligated under any lease commitments.
5.
INCOME
TAXES
The
Company recognizes deferred tax assets and liabilities based on the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. In addition, future tax benefits, such as those from
net
operating loss carry forwards, are recognized to the extent that realization
of
such benefits is more likely than not. Deferred tax assets and liabilities
are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax
rates is recognized in income in the period that includes the enactment date.
At
January 31, 2008, the Company had a deferred tax asset totaling approximately
$2,525,000 (2007 - $2,515,000), which relates to the Company's cumulative
net
start-up costs totaling approximately $7,426,000 (2007 - $7,395,000), which
will
expire through 2028. This deferred tax asset has been fully offset by a
valuation allowance. The Company does not have any other deferred tax assets
or
liabilities.
The
Tax
Reform Act of 1986 imposed substantial restrictions of the utilization
of
net
operating loss carry forwards in the event of an "ownership change" as
defined
by the Section 382 of the Internal Revenue Code of 1986. If the Company
has
an
"ownership change," the Company's ability to utilize the net operating
losses
could be reduced.
A
reconciliation of income tax expense at the statutory federal rate of 34% to
income
tax expense at the Company's effective tax rate for the years ended
January
31, 2008 and 2007 and for the period June 3, 1998 (inception) through
January
31, 2008 is as follows:
AAMAXAN
TRANSPORT GROUP, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
From
Inception
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
Through
|
|
|
|
|
January
31,
|
|
January
31,
|
|
January
31,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
|
Tax
benefit computed at statutory rate
|
|
$
|
(10,682
|
)
|
$
|
(10,347
|
)
|
$
|
(2,525,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in valuation
allowance
|
|
|
10,682
|
|
|
10,347
|
|
|
2,525,002
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
The
Company uses the accrual method of accounting for income tax reporting
purposes.
At January 31, 2008 and 2007, the significant components of the
Company's
deferred tax assets (benefits) and liabilities are summarized.
|
|
|
January
31, 2008
|
|
January
31, 2007
|
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
Net
operating loss carry forward
|
|
$
|
2,525,002
|
|
$
|
2,514,320
|
|
|
Less
valuation allowance
|
|
|
(2,525,002
|
)
|
|
(2,514,320
|
)
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
ITEM
8.
Changes in and Disagreements with Accountants on Accounting and
Financial
Disclosure
None.
ITEM
8A.
Controls and Procedures
As
required by Rule 13a-15 under the Exchange Act, as of the end of the fiscal
year
covered by this report, Marc Juliar, the Company's CEO and CFO, has carried
out
an evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon that evaluation, Marc Juliar
concluded that the Company's disclosure controls and procedures are effective
at
January 31, 2008. There have been no changes in the Company's internal controls
over financial reporting in connection with this evaluation that occurred
during
the fourth quarter of fiscal 2008 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Disclosure
controls and procedures are controls and other procedures that are designed
to
ensure that information required to be disclosed in the Company's reports
filed
or submitted under the Exchange Act is (1) recorded, processed, summarized
and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms and (2) accumulated and communicated to management,
including the Company's CEO, as appropriate, to allow timely decisions regarding
required disclosure.
Management
has evaluated the effectiveness of its internal control over
financial
reporting for financial presentations in conformity with GAAP as of
January
31, 2008 based on the control criteria established in a report entitled
Internal
Control—Integrated Framework, issued by the Committee of Sponsoring
Organizations
of the Treadway Commission. Based on such evaluation, the Company
has
concluded that the Company's internal control over financial reporting is
effective
as of January 31, 2008.
ITEM
8B.
Other Information
None.
PART
III
ITEM
9.
Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance;
Compliance with Section 16(a) of the Exchange Act
Executive
Officers and Directors
The
executive officers and directors of the Company are as follows:
|
Name
|
|
Age
|
|
Position
|
|
Marc
Juliar
|
|
30
|
|
President
and Director
|
As
set
forth in the Company's Certificate of Incorporation and Bylaws, copies of
which
are incorporated by reference, all directors hold office until the next annual
meeting of stockholders and until their successors have been duly elected
and
qualified. There are no agreements with respect to the election of directors.
Though the Company has not compensated Mr. Juliar for his service on the
Board
of Directors or any committee thereof, directors are entitled to be reimbursed
for expenses incurred for attendance at meetings of the Board of Directors
and
any committee of the Board of Directors. However, due to the Company's lack
of
funds, Mr. Juliar and any future director will likely defer his or her expenses
and any compensation until such time as the Company can consummate a successful
acquisition or merger. As of the date hereof, Mr. Juliar has not accrued
any
expenses or compensation. As further set forth in Exs. 3.1 and 3.2 incorporated
by reference, officers are appointed annually by the Board of Directors and
each
executive officer serves at the discretion of the Board of Directors. The
Company does not have any standing committees.
Mr.
Juliar has served as the Company's President, Chief Executive Officer, Chief
Financial
Officer and Chairman of the Board since August 2005. Mr. Juliar has
been
the
President of Paradigm Oil and Gas since November 9, 2006. From April
2004
to
January 2006, Mr. Juliar was an officer and director of Kodiak Energy,
Inc.
Mr.
Juliar is an independent contractor to the Film, Music Video and T.V.
Commercial
production business. From 2001 until 2002, Mr. Juliar was a student
at
the
University of Toronto. Mr. Juliar attended the University of Toronto
located
in Toronto, Ontario.
During
the last five years, no officers or directors have been involved in any
legal
proceedings, bankruptcy proceedings, criminal proceedings or violated any
federal
or state securities or commodities laws or engaged in any activity that
would
limit their involvement in any type of business, securities or banking
activities.
Prior
Blank Check Experience of Officers and Directors
None
Corporate
Governance
The
Company's board of directors has not adopted a code of ethics that applies
to
members of its board of directors, its officers including its Chief Executive
Officer
(being its principal executive officer and principal financial and
accounting
officer). Because the Company currently has only one executive
officer
(who is also the sole director of the Company), it is not considered
necessary
for the Company to adopt a Code of Business Conduct and Ethics. Once
the
Company's operations expand and it has additional employees, the
Company
intends
to adopt a Code of Business Conduct and Ethics.
Aamaxan
does not have any committees of the board of directors at this time. The
board
of
directors does not have a nominations committee because there is one
director
and shareholder suggestions would be known to the entire board. As
such,
the
board of directors believes there will be sufficient communication by
shareholders
with the board about matters and nominees to be brought to its
attention.
Aamaxan's
sole director functions as an audit committee and performs some of the same
functions as an audit committee including: (1) selection and oversight of
the
Company's independent accountant; (2) establishing procedures for the receipt,
retention and treatment of complaints regarding accounting, internal controls
and auditing matters; and (3) engaging outside advisors. Aamaxan is not a
"listed company" under SEC rules and is therefore not required to have an
audit
committee comprised of independent directors. Aamaxan's board of directors
has
determined that its director is not an "audit committee financial expert"
within
the meaning of the rules and regulations of the SEC. Aamaxan's board of
directors has determined, however, that its director is able to read and
understand fundamental financial statements and has business experience that
results in that member's financial sophistication. Accordingly, the board
of
directors believes that its director has the sufficient knowledge and experience
necessary to fulfill the duties and obligations that an audit committee would
have.
Compliance
With Section 16(a) Of The Exchange Act
Based
on
information provided to the Company, it is believed that all of the
Company's
directors, executive officers and persons who own more than 10% of the
Company's
common stock were in compliance with Section 16(a) of the Exchange Act
of
1934
during the last fiscal year.
ITEM
10.
Executive Compensation
The
Company has not adopted a bonus, profit sharing, or deferred compensation
plan
of
any sort for the benefit of its employees, officers or directors.
Further,
the Company has not entered into an employment agreement with Mr.
Juliar
or
any other persons and no such agreements are anticipated in the
immediate
future. Because there is nothing further to disclose under this Item,
the
Company has not prepared compensation tables as would otherwise be
required.
ITEM
11.
Security Ownership of Certain Beneficial Owners and Management and
Related
Stockholder Matters
The
following table sets forth information, to the best of the Company's
knowledge,
as of January 31, 2008, with respect to each person known to own
directly
and/or beneficially more than 5% of the Common Capital Stock of the
Company,
each director and officer and all directors and officers as a group. As
of
January 31, 2008, there were a total of 244,000 common shares issued and
outstanding.
|
|
|
Name
and Address
|
|
Amount
and Nature
|
|
|
|
|
|
|
of
|
|
of
|
|
|
|
|
|
|
Beneficial
Owner
|
|
Beneficial
Ownership
|
|
|
|
|
Common
Capital Shares
|
|
|
Marc
Juliar (1
|
)
|
|
141,870
|
|
|
58.1
|
%
|
|
All
directors, officers and persons owning
more
than 5% as a group (2)
|
|
|
|
|
|
141,870
|
|
|
58.1
|
%
|
(1)
Mr.
Marc Juliar, the Company's only officer and director of the Company. Mr.
Juliar
directly owns his shares. There are no options, warrants or convertible
instruments
of any kind outstanding.
(2)
Mr.
Juliar is currently the only director and officer of the Company. Mr.
Juliar
directly owns his shares.
ITEM
12.
Certain Relationships and Related Transactions, and Director
Independence
During
the past two fiscal years there have been no transactions between the
Company
and Mr. Juliar or any member of his immediate family.
During
the past two fiscal years, a stockholder of the Company advanced $61,856
to
the
Company by paying directly certain operating expenses. These funds are
non-interest
bearing, unsecured and payable upon demand as funds become
available.
Mr.
Juliar, like any other corporate officer or director, is subject to the doctrine
of usurpation of corporate opportunities only insofar as it applies to business
opportunities in which the Company has indicated an interest, either through
its
proposed business plan or by way of an express statement of interest contained
in the Company's minutes. If Mr. Juliar or any other directors or officers
are
presented in the future with business opportunities that may conflict with
business interests identified by the Company, such opportunities must be
promptly disclosed to the Board of Directors and made available to the Company.
In the event that the Board rejects an opportunity so presented and only
in that
event, any of the Company's officers and directors may avail themselves of
such
an opportunity. In spite of these eventualities, every effort will be made
to
resolve any conflicts that may arise in favor of the Company. There can be
no
assurance, however, that these efforts will be successful.
ITEM
13.
Exhibits
|
|
3.1
|
Certificate
of Incorporation of the Company, as amended, filed
September
25, 2007
|
|
|
3.2
|
Amended
and Restated Bylaws of the Company, filed April 12,
2005,
incorporated by reference from the Company's Registration
Statement
on Form 10-SB
|
|
|
31.1
|
Certification
of the Chief Executive Officer and Chief Financial
Officer
pursuant to Rule 13a- 14(a) or Rule 15d-14(a) of the
Securities
Exchange Act of 1934, as amended.
|
|
|
32.1
|
Certification
of the Chief Executive Officer and Chief Financial
Officer
pursuant to U.S.C. Section 1350, as adopted, pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002
|
ITEM
14.
Principal Accountant Fees and Services
The
following table presents fees for professional services rendered by Turner,
Stone
& Company, L.L.P. for the audit of the Company's financial statements as
of
and
for the years ended January 31, 2008 and 2007 and fees billed for other
services
rendered by Turner, Stone & Company, L.L.P. during those
periods.
|
|
|
Years
Ended
|
|
|
|
|
2008
|
|
2007
|
|
|
Audit
Fees
|
|
$
|
7,500
|
|
$
|
7,767
|
|
|
Audit
related fees (1)
|
|
$
|
5,630
|
|
$
|
9,355
|
|
|
Tax
Fees (2)
|
|
$
|
2,100
|
|
$
|
4,775
|
|
(1)
Audit
related fees are for assurance related services. In 2008, these fees
related
primarily to quarterly reviews.
(2)
Tax
fees in 2008 related primarily to advice and assistance with respect to
tax
compliance matters on the Company's tax returns for the 2007 and 2008 tax
year
ends.
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