As
filed
with the Securities and Exchange Commission on May 23,
2008
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
AAMAXAN
TRANSPORT GROUP, INC
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of incorporation or organization)
8090
(Primary
Standard Industrial Classification Code Number)
20-5772205
(IRS
Employer Identification No.)
Suite
6B,
1440 Hongqiao Road
Changning
District
Shanghai
People's
Republic of China 200336
011-(86)-215-080-5789
(
Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices
)
United
Corporate Services, Inc.
874
Walker Road, Suite C
Dover,
Delaware 19904
(County
of Kent)
(302)
734-8300
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies
to
:
Darren
L.
Ofsink, Esq.
GUZOV
OFSINK LLC
600
Madison Avenue, 14
th
Floor,
New
York,
NY 10022
Approximate
date of commencement of proposed sale to the public
:
From
time to time after the Registration Statement has been declared effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box:
x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
|
Non-accelerated
filer
¨
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
x
|
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
|
Amount
to be
registered
(1)
|
Proposed
maximum offering price per unit (2)
|
Proposed
maximum aggregate offering price (2)
|
Amount
of registration fee
|
Common
stock, par value $.0001 per share, underlying Series A Preferred
(3)
|
4,008,188
|
$3.03
|
$12,144,810
|
$477.29
|
Common
stock, par value $.0001 per share, underlying Warrants (4)
|
2,004,094
|
$3.03
|
$6,072,405
|
$238.65
|
Total
|
6,012,282
|
|
$18,217,214
|
$715.94
|
(1)
Pursuant
to Rule 416 promulgated under the Securities Act of 1933, as amended, there
are
also registered hereunder such indeterminate number of additional shares as
may
be issued to the selling stockholders to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(2)
The
registration fee is calculated pursuant to Rule 457(c). Our common stock is
quoted under the symbol "AAXT.OB" on the Over-the-Counter Bulletin Board
(“OTCBB”) administered by FINRA. As of May 21, 2008, the last reported bid price
was $2.80 per share and the last reported asked price was $3.25 per share.
The
average of the bid and asked price was $3.03 per share. Accordingly, the
registration fee is $
715.94
.
based
on $3.03 per share.
(3)
Includes
4,008,188 shares of common stock issuable to the selling stockholders upon
conversion of the Series A Preferred that they purchased in the private
placement.
(4)
2,004,094
shares of common stock issuable to the selling stockholders upon exercise of
Warrants to purchase common stock which they acquired in the private placement.
The
Registrant amends this registration statement on such date or dates as may
be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
hereafter become effective in accordance with Section 8(a) of the Securities
Act
of 1933, or until the registration statement shall become effective on such
date
as the Commission, acting pursuant to Section 8(a), may
determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED MAY 23, 2008
PRELIMINARY
PROSPECTUS
AAMAXAN
TRANSPORT GROUP, INC.
6,012,282
Shares of Common Stock
Offered
by Selling Stockholders
This
prospectus relates to the sale by the selling stockholders identified in this
prospectus of up to 6,012,282 shares of our common stock
comprising:
·
|
4,008,188
shares of common stock that the selling stockholders may acquire
on
conversion of our Series A Senior Convertible Preferred Stock, par
value
$.001 per share (“Series A Preferred”);
|
·
|
2,004,094
shares of common stock issuable to the selling stockholders upon
exercise
of our Class A Warrants
(“Warrants”);
|
The
Series A Preferred and the Warrants were acquired in a private placement
completed on April 15, 2008. We are required by the terms of a registration
rights agreement to register the shares listed above. The Series A Preferred
are
convertible into common stock at the rate of one share of common stock for
each
share of Series A Preferred (subject to adjustment). The Warrants have an
exercise price of $3.91 per share (subject to adjustment) and expire on October
13, 2013.
The
selling stockholders may sell all or any portion of their shares of common
stock
in one or more transactions on the over-the-counter market or in private
negotiated transactions. Each selling stockholder will determine the prices
at
which it sells its shares. Although we will incur expenses in connection with
the registration of the common stock, we will not receive any of the proceeds
from the sale of the shares of common stock by the selling stockholders. To
the
extent the Warrants are exercised for cash, if at all, we will receive the
exercise price for those Warrants. Under the terms of the Warrants cashless
exercise is permitted but not until after October 12, 2008 and only then if
the
resale of the Warrant shares by the holder is not covered by an effective
registration statement. We cannot assure you that the Warrants will be exercised
for cash or at all.
Our
common stock is quoted on the Over-the-Counter Bulletin Board overseen by FINRA
(the “OTCBB”) under the symbol “AAXT.OB.” On May 21, 2008, the last reported
sale price of our common stock quoted on the OTCBB was $3.00 per share.
There
is
no established trading market for our common stock. We cannot give you any
assurance that an established trading market in our common stock will develop,
or if such a market does develop, that it will continue.
Investing
in our common stock involves a high degree of risk.
See
“Risk Factors” beginning on page 5
for
a discussion of certain risk factors that you should
consider
.
You
should read the entire prospectus before making an investment
decision.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus
is ,
2008
TABLE
OF CONTENTS
|
|
About
This Prospectus
|
1
|
Cautionary
Note Regarding Forward-Looking Statements and Other Information
Contained
in this Prospectus
|
1
|
Currency,
exchange rate, and “China” and other references
|
1
|
Explanatory
Note
|
2
|
Prospectus
Summary
|
3
|
Risk
Factors
|
5
|
Selling
Stockholders
|
10
|
Plan
of Distribution
|
12
|
Use
of Proceeds
|
13
|
Reverse
Merger and Private Placement
|
14
|
Business
|
20
|
Properties
|
28
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
Market
Price of and Dividends of our Common Equity and Related Stockholder
Matters
|
40
|
Security
Ownership of Certain Beneficial Owners and Management
|
42
|
Directors
and Executive Officers
|
44
|
Executive
Compensation
|
46
|
Certain
Relationships and Related Transactions
|
46
|
Legal
Proceedings
|
47
|
Description
of Securities to be Registered
|
47
|
Legal
Matters
|
48
|
Experts
|
48
|
Interests
of Named Experts and Counsel
|
48
|
Changes
in and Disagreements with Accountants
|
48
|
Financial
Statements
|
49
|
Where
You Can Find More Information
|
49
|
Disclosure
of Commission Position on Indemnification For Securities Act Liabilities
|
49
|
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information other than that contained
in
this prospectus. The selling stockholders are offering to sell and seeking
offers to buy shares of our common stock, including shares they acquire on
exercise of their Warrants, only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as
of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. The prospectus will be updated
and updated prospectuses made available for delivery to the extent required
by
the federal securities laws.
No
person
is authorized in connection with this prospectus to give any information or
to
make any representations about us, the selling stockholders, the securities
or
any matter discussed in this prospectus, other than the information and
representations contained in this prospectus. If any other information or
representation is given or made, such information or representation may not
be
relied upon as having been authorized by us or any selling stockholder. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy the securities in any circumstances under which the offer or solicitation
is unlawful. Neither the delivery of this prospectus nor any distribution of
securities in accordance with this prospectus shall, under any circumstances,
imply that there has been no change in our affairs since the date of this
prospectus. The prospectus will be updated and updated prospectuses made
available for delivery to the extent required by the federal securities laws.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS
This
prospectus contains some forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical
or
current facts. Forward-looking statements involve risks and uncertainties.
Forward-looking statements include statements regarding, among other things,
(a)
our projected sales, profitability and cash flows, (b) our growth strategies,
(c) anticipated trends in our industries, (d) our future financing plans and
(e)
our anticipated needs for working capital. They are generally identifiable
by
use of the words "may," "will," "should," "anticipate," "estimate," "plan,"
“potential," "projects," "continuing," "ongoing," "expects," "management
believes," "we believe," "we intend" or the negative of these words or other
variations on these words or comparable terminology. These statements may be
found under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as in this prospectus generally.
In particular, these include statements relating to future actions, future
performance, sales efforts, expenses, the outcome of contingencies such as
legal
proceedings, and financial results.
Any
or
all of our forward-looking statements in this prospectus may turn out to be
inaccurate. They can be affected by inaccurate assumptions we might make or
by
known or unknown risks or uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially as a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact occur and
you
should not place undue reliance on these forward-looking statements.
Currency,
exchange rate, and “China” and other references
Unless
otherwise noted, all currency figures in this filing are in U.S. dollars.
References to "yuan" or "RMB" are to the Chinese yuan, which is also known
as
the renminbi. According to the currency exchange website www.xe.com, on May
21,
2008, $1.00 was equivalent to
6.9602
yuan.
References
in this prospectus to the “PRC” or “China” are to the People’s Republic of
China.
References
to “Shanghai Medical” are to Shanghai Atrip Medical Technology Co., Ltd., a PRC
company that we control.
Unless
otherwise specified or required by context, references to “we,” “our” and “us”
refer collectively to (i) Aamaxan Transport Group, Inc. (“ATG”), (ii) the
subsidiaries of Aamaxan Transport Group, Inc., Asia Business Management Group
Limited (BVI) (“ABM
”)
and
Anhante (Beijing) Medical Technology Co., Ltd. (“ABMT”), and (iii) Shanghai
Medical.
Explanatory
Note
This
registration statement on Form S-1 of which this prospectus forms a part is
being filed by Aamaxan Transport Group, Inc. in order to register shares of
our
common stock so that they may be sold to the public by investors who recently
purchased them from us in a private placement completed April 15, 2008. In
the
private placement we sold to certain accredited investors, for gross proceeds
to
us of approximately $12.5 million, 4,008,188 units at a purchase price of $3.13
per unit, each unit consisting of one share of our Series A Preferred (each
of
which is convertible into one share of our common stock) and a Warrant, each
of
which is exercisable to purchase 0.5 of a share of our common stock (and which
together are exercisable to purchase up to a total of 2,004,094 shares of our
common stock). The Warrants have an exercise price of $3.91 per share (subject
to adjustment). We received $10,347,522 as net proceeds from this financing.
In
order to induce the investors in the private placement to purchase our
securities, we agreed to register their stock for resale with the SEC. We have
filed the registration statement of which this prospectus forms a part in order
to meet our obligations under that agreement. At the same time as the private
placement closed, we acquired control of an operating company in China. We
refer
to the transactions through which we acquired control of the operating company
as the “reverse merger.” Through the reverse merger we ceased to be a shell
company as that term is defined in Rule 12b-2 under the Securities Exchange
Act
of 1934 (the “Exchange Act”) and are now in the business of distributing
hemodialysis equipment and supplies, diagnostic equipment and supplies and
consulting in China.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. This
summary does not contain all of the information you should consider before
investing in our common stock. You should read the entire prospectus, including
"Risk Factors" and the consolidated financial statements and the related notes
before making an investment decision.
The
Company
Business
Overview
ATG
is a
holding company for Shanghai Medical, which
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 have begun to distribute diagnostic equipment and Disposables
related to the treatment of kidney disease with our partner Roche 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.
For
more
information about our business you should read the section entitled
“Business.”
Our
net
revenue for 2007 was approximately $35 million, an increase of $10.9 million,
or
45%, compared to net revenue of $24 million for 2006. For the first quarter
of
2008 our net revenue was approximately $10.2 million, an increase of $2.2
million, or 28%, compared to net revenue of $7.9 million for the first quarter
of 2007. All of our net revenue for these periods was derived from sales made
to
customers in the PRC.
Recent
Developments
On
April
15, 2008, ATG acquired control of Shanghai Medical through a “reverse merger
“transaction. Through the reverse merger we ceased to be a shell company as
that
term is defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the
“Exchange Act”) and are now in the business of distributing hemodialysis and
diagnostic equipment and supplies in the PRC. At the same time as the closing
of
the reverse merger ATG sold to certain accredited investors, for gross proceeds
to us of approximately $12.5 million, 4,008,188 units at a purchase price of
$3.13 per unit, each unit consisting of one share of our (each of which is
convertible into one share of our common stock), a Warrant , each of which
is
exercisable to purchase 0.5 of a share of our common stock (and which together
are exercisable to purchase up to a total of 2,004,094 shares of our common
stock). The Warrants have an exercise price of $3.91 per share (subject to
adjustment). We received $10,347,522 as net proceeds from this financing. In
order to induce the investors in the private placement to purchase our
securities, we agreed to register their stock for resale with the SEC. We have
filed the registration statement of which this prospectus forms a part in order
to meet our obligations under that agreement. For more information about the
reverse merger and the private placement you should read the section entitled
“Reverse Merger and Private Placement.”
Employees
As
of May
21, 2008, we had 56 employees, all of whom are full-time employees. 30 of our
employees work in sales. 60% of our employees have college or higher degrees.
Executive
Offices
Our
executive offices are located at
Suite
6B,
1440 Hongqiao Road Changning District, Shanghai, People's Republic of China
200336
and
our
telephone number is (011) 86-
215-080-5789
.
The
Offering
Offering
by Selling Stockholders
This
prospectus relates to the resale by the selling stockholders identified in
this
prospectus of up to 6,012,282 shares of our common stock including:
·
|
4,008,188
shares of common stock that the selling stockholders may acquire
on
conversion of our Series A Preferred Stock; and
|
·
|
2,004,094
sharesof common stock issuable to the selling stockholders upon exercise
of Warrants.
|
The
shares being registered may be offered for sale by the selling stockholders
from
time to time. No shares are being offered for sale by the Company.
Common
stock outstanding prior to Offering
|
|
15,991,811
|
|
|
|
Common
stock offered by the Company
|
|
0
|
|
|
|
Total
shares of common stock offered by selling stockholders
|
|
6,012,282
(representing approximately 27% of the shares of common stock currently
outstanding).
|
|
|
|
Common
stock to be outstanding after the offering (assuming conversion of
the
Series A Preferred being offered and exercise of all of the Warrants
being
offered).
|
|
22,004,093
shares.
|
|
|
|
Total dollar
value of common stock being registered
|
|
The
closing market price for the common stock on April 15, 2008, the
date of
closing of the sale of the shares of common stock in the private
placement
was $3.25. Using this value the dollar value of the 6,012,282 shares
of
common stock (including the shares underlying the Series A Preferred
and
Warrants) being registered was $19,539,917. The closing market price
for
the common stock on May 21, 2008 was $3.00. Using this value the
total
dollar value of the 6,012,282 shares of common stock (including shares
underlying the Series A Preferred and Warrants) being registered
is
$18,036,846.
|
|
|
|
Use
of Proceeds
|
|
We
will not receive any of the proceeds from the sales of the shares
by the
selling stockholders. To the extent the Warrants are exercised for
cash,
if at all, we will receive the exercise price for those Warrants.
Under
the terms of the Warrants, cashless exercise is permitted but only
after
October 12, 2008 and then only if the underlying shares have not
been
registered. We intend to use any cash proceeds received from the
exercise
of the Warrants for working capital and other general corporate purposes.
We cannot assure you that any of those Warrants will ever be exercised
for
cash or at all.
|
Our
OTC Bulletin Board Trading Symbol
|
|
AAXT.OB
|
|
|
|
Risk
Factors
|
|
See
"Risk Factors" beginning on page 5
and
other information included in this prospectus for a discussion of
factors
you should consider before deciding to invest in shares of our common
stock.
|
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 prospectus 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:
|
o
|
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 and our Chief Financial Officer, Ms. Michelle Zhao.
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 is also required to set aside a
portion of its 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 the “Reverse Merger and Private Placement” section
of this Prospectus 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 Prospectus. 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 the “Reverse
Merger and Private Placement” section of this Prospectus, 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.
SELLING
STOCKHOLDERS
This
prospectus relates to the offer and sale of our common stock by the selling
stockholders identified in the table below.
None
of
the selling stockholders has held a position as an officer or director of the
Company, nor has any selling stockholder had a material relationship of any
kind
with the Company.
The
table
set forth below lists the names of the selling stockholders as well as (1)
the
number of shares underlying the Series A Preferred acquired by each of the
selling stockholders in the private placement that are being registered and
(2)
the number of shares underlying the Warrants acquired by each of the selling
stockholders in the private placement that are being registered.
Each
selling stockholder may offer for sale all or part of the shares from time
to
time. The table below assumes that the selling stockholders will sell all of
the
shares offered for sale. A selling stockholder is under no obligation, however,
to sell any shares pursuant to this prospectus.
After
due
inquiry and investigation and based on information provided by the selling
stockholders, none of the selling stockholders has an existing short position
in
our stock.
Other
than as described in this prospectus, we have not in the past engaged in any
securities transaction with any of the selling stockholders, any affiliates
of
the selling stockholders, or, after due inquiry and investigation, to the
knowledge of the management of the Company, any person with whom any selling
stockholder has a contractual relationship regarding the transaction (or any
predecessors of those persons). In addition, other than in connection with
the
contractual obligations set forth in (i) share exchange agreement entered into
between ATG, KAL, and ABM and (ii ) the securities purchase agreement (and
the
related registration rights agreement) entered into between the Company and
each
of the selling stockholders who invested in the private placement, we do not
have any agreement or arrangement with any selling stockholder with respect
to
the performance of any current or future obligations.
Names
of Selling Stockholder
|
|
Number
of shares of common stock underlying Series A Preferred Stock
owned prior
to the offering
|
|
Number
of shares of common stock underlying Series A Warrants owned
prior to the
offering
|
|
Number
(and Percent) of shares of Common Stock beneficially owned prior
to
offering (1) (2)
|
|
Number
of shares of Common Stock underlying Series A Preferred to be
sold in
offering
|
|
Number
of shares of Common Stock underlying Warrants to be sold in
offering
|
|
Number
(and Percent) of shares of Common Stock beneficially owned after
the
offering (1) (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors
in Private Placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pope
Investments II LLC
|
|
|
1,919,017
|
|
|
959,509
|
|
|
2,878,526
|
|
|
1,919,017
|
|
|
959,509
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(15.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk
Private Equity Fund II LP
|
|
|
799,591
|
|
|
399,795
|
|
|
1,199,386
|
|
|
799,591
|
|
|
399,795
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(7.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alder
Capital Partners I LP
|
|
|
227,084
|
|
|
113,542
|
|
|
340,626
|
|
|
227,084
|
|
|
113,542
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alder
Offshore Master Fund LP
|
|
|
92,753
|
|
|
46,376
|
|
|
139,129
|
|
|
92,753
|
|
|
46,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ancora
Greater China Fund, LP
|
|
|
207,894
|
|
|
103,947
|
|
|
311,841
|
|
|
207,894
|
|
|
103,947
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heller
Capital Investments
|
|
|
179,108
|
|
|
89,554
|
|
|
268,662
|
|
|
179,108
|
|
|
89,554
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(1.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patara
Capital Management LP
|
|
|
127,934
|
|
|
63,967
|
|
|
191,901
|
|
|
127,934
|
|
|
63,967
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chestnut
Ridge Partners LP
|
|
|
95,951
|
|
|
47,975
|
|
|
143,926
|
|
|
95,951
|
|
|
47,975
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew
Hayden
|
|
|
32,623
|
|
|
16,312
|
|
|
48,935
|
|
|
32,623
|
|
|
16,312
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paragon
Capital LP
|
|
|
63,967
|
|
|
31,984
|
|
|
95,951
|
|
|
63,967
|
|
|
31,984
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daybreak
Special Situations Master Fund Ltd.
|
|
|
79,959
|
|
|
39,980
|
|
|
119,939
|
|
|
79,959
|
|
|
39,980
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Octagon
Capital Partners
|
|
|
22,389
|
|
|
11,194
|
|
|
33,583
|
|
|
22,389
|
|
|
11,194
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hua-Mei
21
st
Century Partners LP
|
|
|
127,934
|
|
|
63,967
|
|
|
191,901
|
|
|
127,934
|
|
|
63,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guerrilla
Partners LP
|
|
|
31,984
|
|
|
15,992
|
|
|
47,976
|
|
|
31,984
|
|
|
15,992
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(*
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,008,188
|
|
|
2,004,094
|
|
|
6,012,282
|
|
|
4,008,188
|
|
|
2,004,094
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
(27.3
|
%)
|
|
|
|
|
|
|
|
|
|
___________
(1)
|
Under
applicable SEC rules, a person is deemed to beneficially own securities
which the person as the right to acquire within 60 days through the
exercise of any option or warrant or through the conversion of another
security. Also under applicable SEC rules, a person is deemed to
be the
“beneficial owner” of a security with regard to which the person directly
or indirectly, has or shares (a) the voting power, which includes
the
power to vote or direct the voting of the security, or (b) the investment
power, which includes the power to dispose, or direct the disposition,
of
the security, in each case, irrespective of the person’s economic interest
in the security. Each listed selling stockholder has the sole investment
and voting power with respect to all shares of common stock shown
as
beneficially owned by such selling stockholder, except as otherwise
indicated in the table.
|
(2)
|
As
of May 21, 2008 there were 15,991,811 shares of our common stock
issued
and outstanding. In determining the percent of common stock beneficially
owned by a selling stockholder on May 21, 2008, (a) the numerator
is the
number of shares of common stock beneficially owned held by such
selling
stockholder (including shares that he has the right to acquire within
60
days of May 21, 2008 ), and (b) the denominator is the sum of (i)
the
15,991,811 shares outstanding on May 21, 2008 and (ii) the number
of
shares of common stock which such selling stockholders has the right
to
acquire within 60 days of May 21,
2008.
|
(3)
|
All
of the shares held by each selling stockholder are being registered.
Accordingly, assuming all the shares in the offering are sold, the
number
of shares beneficially owned will be zero and the percentage will
be zero.
|
Plan
of Distribution
The
selling security holders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock being offered under this prospectus on any stock exchange,
market or trading facility on which shares of our common stock are traded or
in
private transactions. These sales may be at fixed or negotiated prices. The
selling security holders may use any one or more of the following methods when
disposing of shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resales by the broker-dealer
for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
to
cover short sales made after the date that the registration statement
of
which this prospectus is a part is declared effective by the
Commission;
|
·
|
broker-dealers
may agree with the selling security holders to sell a specified number
of
such shares at a stipulated price per
share;
|
·
|
a
combination of any of these methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
shares may also be sold under Rule 144 under the Securities Act of 1933, as
amended (“Securities Act”), if available, rather than under this prospectus. The
selling security holders have the sole and absolute discretion not to accept
any
purchase offer or make any sale of shares if they deem the purchase price to
be
unsatisfactory at any particular time.
The
selling security holders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling security holder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers
engaged by the selling security holders may arrange for other broker-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, which
commissions as to a particular broker or dealer may be in excess of customary
commissions to the extent permitted by applicable law.
If
sales
of shares offered under this prospectus are made to broker-dealers as
principals, we would be required to file a post-effective amendment to the
registration statement of which this prospectus is a part. In the post-effective
amendment, we would be required to disclose the names of any participating
broker-dealers and the compensation arrangements relating to such
sales.
The
selling security holders and any broker-dealers or agents that are involved
in
selling the shares offered under this prospectus may be deemed to be
“underwriters” within the meaning of the Securities Act in connection with these
sales. Commissions received by these broker-dealers or agents and any profit
on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Any broker-dealers or agents
that are deemed to be underwriters may not sell shares offered under this
prospectus unless and until we set forth the names of the underwriters and
the
material details of their underwriting arrangements in a supplement to this
prospectus or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which this prospectus
is a part.
The
selling security holders and any other persons participating in the sale or
distribution of the shares offered under this prospectus will be subject to
applicable provisions of the Exchange Act, and the rules and regulations under
that act, including Regulation M. These provisions may restrict activities
of,
and limit the timing of purchases and sales of any of the shares by, the selling
security holders or any other person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and other activities with respect to those securities
for a specified period of time prior to the commencement of such distributions,
subject to specified exceptions or exemptions. All of these limitations may
affect the marketability of the shares.
If
any of
the shares of common stock offered for sale pursuant to this prospectus are
transferred other than pursuant to a sale under this prospectus, then subsequent
holders could not use this prospectus until a post-effective amendment or
prospectus supplement is filed, naming such holders. We offer no assurance
as to
whether any of the selling security holders will sell all or any portion of
the
shares offered under this prospectus.
We
have
agreed to pay all fees and expenses we incur incident to the registration of
the
shares being offered under this prospectus. However, each selling security
holder and purchaser is responsible for paying any discounts, commissions and
similar selling expenses they incur.
We
and
the selling security holders have agreed to indemnify one another against
certain losses, damages and liabilities arising in connection with this
prospectus, including liabilities under the Securities Act.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the sales of the shares of the common
stock
by the selling stockholders. To the extent the Warrants are exercised for cash,
if at all, we will receive the exercise price for those Warrants. Under the
terms of the Warrants cashless exercise is permitted but only after October
12,
2008 and then only if the underlying shares have not been registered. We
intend to use any cash proceeds received from the exercise of the Warrants
for
working capital and other general corporate purposes. We cannot assure you
that
any of the Warrants will ever be exercised for cash or at all.
REVERSE
MERGER AND PRIVATE PLACEMENT
On
April
15, 2008, ATG completed a number of related transactions through which it
acquired control of Shanghai Medical, a PRC-based company. Shanghai Medical
is
now engaged in the business of distributing and selling HDE and Disposables,
diagnostic products and services and providing consulting services. ATG acquired
control through two separate transactions: (i) a restructuring transaction
which
granted control of Shanghai Medical to another PRC entity, ABMT, and (ii) a
share exchange transaction transferring control of ABMT to ATG.
We
refer
to the restructuring transaction and the share exchange transaction together
as
the “reverse merger.” The purpose of the reverse merger was to acquire control
of Shanghai Medical. ABMT did not acquire Shanghai Medical directly, by either
issuing its own stock or paying cash for Shanghai Medical (or for ABMT) because
under PRC law it is uncertain whether such a share exchange would be legal,
and
the terms of a cash purchase would not have been favorable to ABMT.
Restructuring
Transaction
:
In
the
restructuring transaction, on April 15, 2008, 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").
Share
Exchange:
In the
share exchange transaction, ATG acquired control of ABM, a British Virgin
Islands holding company and the parent company of ABMT, by issuing to the
stockholders of ABM shares of common stock in exchange for all of the
outstanding capital stock of ABM. The stockholder of ABM with whom we did the
share exchange was the sole holder, Kamick Assets Limited, a British Virgin
Islands holding company (“KAL”) all of whose stock may be acquired in the future
by our Chief Executive Officer, Mr. Chen Zhong, pursuant to a call option held
by Mr. Chen.
Our
current structure, after the reverse merger, is set forth in the diagram
below:
Contractual
Arrangement
PRC
Entrustment Agreements
The
following is a summary of the material terms of each of the Entrustment
Agreements.
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.
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.
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 approximately RMB 56 million (which
shall be equivalent to $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)-days’ 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 above.
Exclusive
Purchase Option Agreement
The
Exclusive Purchase Option Agreement, among ABMT, Shanghai Medical, Majority
Shareholders and Shanghai Health Industry Development Center ( “Industry
Center”), holding 1.85% of equity interests of Shanghai Medical, 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 conditions 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.
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.
Completion
of the PRC Restructuring
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 full amount 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
”
),
amounting to $1.2 million shall be contributed within ninety (90) days after
the
issuance of its business license, and the remainder, amounting to $6,800,000,
shall be paid within two years after such issuance. ABMT's temporary
business license was issued on January 23, 2008 by Beijing Branch of the
PRC
State Administration for Industry and Commerce. The first installment was
contributed following the closing of the reverse merger and private placement.
The new business license was issued on May 7
,
2008 by
the Beijing Administration Bureau for Industry and Commerce.
Private
Placement
The
other
transaction we completed on April 15, 2008 was a private placement in which
we
raised funds through a private sale of securities that was exempt from the
registration requirements of the Securities Act of 1933 (the “Act”), under
Section 4(2) of the Act as a result of our compliance with Rule 506 of
Regulation D promulgated under the Act. In the private placement we sold to
certain accredited investors, for gross proceeds to us of $12.5 million,
a
total
of
4,008,188 shares of our Series A Preferred (each of which is convertible into
one share of our common stock, or 4,008,188 in the aggregate) and Warrants
exercisable to purchase a total of 2,004,094 shares of common stock.
The
agreements through which the reverse merger and the private placement were
carried out are described in detail below.
Share
Exchange Agreement
On
April
15, 2008 ATG entered into and completed a share exchange agreement with (i)
ABM;
(ii) ABMT and (iii) KAL (a company that is wholly-owned and controlled by Mr.
Shao Ganghua (all of whose stock may be acquired in the future by our CEO,
Mr.
Chen Zhong, pursuant to a call option held by Mr. Chen)), which owned 100%
of
the ABM stock. Under the terms of the share exchange agreement, KAL exchanged
all of the outstanding shares of ABM for a total of 14,991,812
newly
issued shares of ATG common stock. As a result of the share exchange, ATG
acquired ABM as a wholly-owned subsidiary, and KAL became the holder of 94%
of
our common stock on a non-diluted basis (75% of our common stock assuming
conversion of our newly-issued Series A Preferred and 66.9% of our common stock
assuming conversion of our newly-issued Series A Preferred and exercise of
all
of the Warrants.)
In
the
PRC restructuring transaction described in this prospectus, which occurred
at
the same time as the share exchange, ABM gained control of an operating company,
Shanghai Medical. Therefore, when we acquired control of ABM in the share
exchange, we acquired indirect control of Shanghai Medical. As a result, at
the
time of the share exchange, (i) we ceased to be a shell company as that term
is
defined in Rule 12b-2 under the Exchange Act, (ii) ABM became our wholly-owned
subsidiary, and (iii) through our newly-acquired indirect subsidiary ABMT we
now
control, through a series of contractual arrangements, Shanghai Medical..
Securities
Purchase Agreement
Also
on
April 15, 2008 we entered into and closed on a securities purchase agreement
with Pope Investments II LLC (“Pope”) and certain other investors listed in
Exhibit A thereto for the sale of an aggregate of 4,008,188 shares of Series
A
Preferred Stock and 2,004,094 Warrants. Each share of Series A Preferred is
convertible into one share of common stock subject to adjustment as described
below. Accordingly, the Series A Preferred is convertible into a total of
4,008,188 shares of common stock.
The
Warrants are exercisable for an aggregate of up to 2,004,094 shares of common
stock and have an exercise price of $3.91 per share. The Warrants expire on
October 13, 2013.
Representations;
Warranties; Indemnification
:
The
securities purchase agreement contains representations and warranties by us
and
the investors which are customary for transactions of this type. The securities
purchase agreement also obligates us to indemnify the investors for any losses
arising out of any breach of the agreement or failure by us to perform with
respect to the representations, warranties or covenants in the
agreement.
Covenants/Investor
Rights
:
The
securities purchase agreement contains certain covenants on our part and grant
the investors certain rights, including the following:
·
Subsequent
financing participation.
Until
December 31, 2009, investors who continue to hold Series A Preferred have the
right to participate in any subsequent sale of securities by the Company.
Specifically, each such investor has the right to purchase a percentage of
the
total amount of securities sold in the subsequent sale equal to the percentage
of the total amount of securities in the private placement purchased by such
investor.
·
Consent
for asset sale.
The
Company may not sell all or a substantial portion of its assets, except to
a
subsidiary, without the consent of the holders of a majority of the
then-outstanding Series A Preferred Stock.
·
Investor
relations fund.
The
Company must fund an escrow account with $300,000 in connection with investor
and public relations. The escrow account was established through the General
Escrow Agreement described below and was funded at the closing.
The
terms
of our Series A Preferred are set forth in a Certificate of Designations, which
we filed with the Secretary of State of the State of Delaware on March 13,
2008.
Set forth below are the material terms of our Series A Preferred
Stock:
Conversion
and Anti-Dilution:
Each
share of Series A Preferred is convertible at any time into one share of our
common stock.
Voting:
Holders
of the Series A Preferred vote on an “as converted” basis together with the
common stock, as a single class, in connection with any proposal submitted
to
stockholders to: (i) increase the number of authorized shares, (ii) approve
the
sale of any capital stock of the Company, (iii) adopt an employee stock option
plan, and (iv) effect any merger, consolidation, sale of all or substantially
all of the assets of the Company, or related consolidation or combination
transaction. Holders of the Series A Preferred have a separate class vote on
all
matters that impact the rights, value, or ranking of the Series A Preferred
Stock.
Liquidation
Preference:
In the
event of a liquidation, dissolution or winding up, voluntary or involuntary,
of
the Company, the holders of Series A Preferred then outstanding will be entitled
to receive, out of our assets available for distribution to our stockholders,
an
amount equal to $3.13 per share before any payment is made or any assets
distributed to the holders of the common stock or any other stock that ranks
junior to the Series A Preferred Stock. The holders rank senior to the common
stock and to any other class or series of stock issued by the Company.
Dividends
:
The
shares of Series A Preferred are not entitled to dividends unless the Company
pays dividends, in cash or other property, to holders of outstanding shares
of
common stock. If the Company does pay dividends, each outstanding share of
Series A Preferred will entitle its holder to receive dividends, out of
available funds, equal to the dividends to which the common stock into which
such share was convertible on the record date would have been entitled, had
such
common stock been issued.
As
of
April 15, 2008, we entered into a securities escrow agreement with Pope, as
representative of the purchasers under the securities purchase agreement, KAL,
and Tri-State Title & Escrow, LLC, as escrow agent wherein, as an inducement
to the purchasers to enter into the securities purchase agreement, KAL agreed
to
deliver 4,008,188
shares
of
our common stock belonging to it as escrow shares to the escrow agent for the
benefit of the purchasers, and to deliver some or all of those shares to the
purchasers in the event the Company fails to achieve certain financial
performance thresholds for the 12-month periods ending December 31, 2007
(“2007”) and December 31, 2008 (“2008”).
The
earnings threshold for 2007 will be satisfied if the Company achieves earnings
per share equal to or greater than $0.31.
“Earnings
Per Share” for this purpose shall 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
earnings threshold for 2008 will be satisfied if we achieve earnings per share
equal to or greater than $0.45.
If
we
achieve at least 92%, but less than 99%, of the 2007 performance threshold,
then
the escrow agent will deliver to the purchasers a percentage of the escrow
shares determined by doubling the percentage by which the 2007 performance
threshold was not achieved.
If
we
achieve 100% or more of the 2007 performance threshold, the 4,008,188 escrow
shares will continue to be held in escrow.
If
we
achieve less than 92% of the 2008 performance threshold, then all of the escrow
shares will be delivered to the purchasers and distributed to them ratably
according to the number of Series A Preferred that each of them holds at that
time.
If
we
achieve at least 92%, but less than 99%, of the 2008 performance threshold,
then
the escrow agent will deliver to the purchasers a percentage of the escrow
shares determined by doubling the percentage by which the 2008 performance
threshold was not achieved. The remaining escrow shares, if any, will then
be
returned to KAL.
If
we
achieve at least 100% of the 2008 performance thresholds, all of the 2008 escrow
shares will be returned to KAL.
Investor
and Public Relations Escrow Agreement
Also
on
April 15 2008, we entered into a general escrow agreement with Pope, as
representative of the purchasers under the securities purchase agreement, and
Tri-State Title & Escrow, LLC, as escrow agent. Under 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.
In
connection with the private placement we entered into a registration rights
agreement with the investors under which we agreed to prepare and file with
the
SEC and maintain the effectiveness of a “resale” registration statement
providing for the resale pursuant to Rule 415 under the Securities Act of the
following securities (collectively, the “registrable securities”).
1.
|
the
4,008,188 shares of common stock issuable on conversion of the Series
A
Preferred Stock;
|
2.
|
the
2,004,094 sharesof common stock issuable upon exercise of the Warrants
purchased by the selling stockholders in the private placement (the
shares
described in paragraphs 1 and 2 being defined as the “initial registrable
securitiess”);
|
3.
|
the
4,008,188 shares of common stock underlying the Series A Preferred
held in
escrow to be released to the investors in the event we fail to achieve
certain performance targets for 2008 and
2009.
|
The
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 restriction under Rule 144 under
the Securities Act.
The
deadline for filing the registration statement covering the initial registrable
securities is forty-five days after the closing date, or June 2, 2008 (the
“initial filing deadline”). The deadline for obtaining the effectiveness of the
registration statement is either (i) 150 days after the closing date, or
September12, 2008, or (ii) if the SEC performs a full review of the registration
statement, 180 days after the closing date or October 12,
2008.
In
the
event we are unable to register for resale under Rule 415 all of the registrable
securities in the registration statement due to limits imposed by the SEC’s
interpretation of Rule 415, we are required to file a registration statement
covering the resale of such lesser amount of registrable securities as we are
able to register pursuant to the SEC’s interpretation of Rule 415 and use our
reasonable best efforts to have that registration statement become effective
as
promptly as possible and, when permitted to do so by the SEC, we will file
subsequent registration statement(s) covering the resale of any registrable
securities that were omitted from previous registration statement and use our
reasonable best efforts to have such registration declared effective as promptly
as possible.
The
deadline for filing subsequent registration statements will be 30 days after
we
receive a written notice from any holder of Series A Preferred Stock, provided
that the notice is delivered to us after the later of (i) a date six months
after the effectiveness date of the most recently filed registration statement,
or (ii) the date on which all registrable securities registered on all of the
prior registration statements are sold.
If
we
fail to meet these deadlines or certain events of default occur under the
registration rights agreement, we will be obligated to pay liquidated damages
to
each investor in an amount equal to one percent of the investor’s initial
investment in the Series A Preferred for each month until the default is cured,
subject to a cap of ten percent of the amount of the initial investment.
In
addition to the registration rights described above, if at any time after the
initial registrable securities have been registered for resale as described
above, (i) holders owning 50% or more in interest of the registrable securities
(other than the initial registrable securities) may request that the Company
file a registration statement providing for the resale of all such registrable
securities then held by such holders by giving written notice of such demand
to
the Company.
In
addition to the foregoing registration rights, the registration rights agreement
grants holders of registrable securities customary piggy back rights during
any
time when there is not an effective registration statement providing for the
resale of the registrable securities.
Our
failure to meet this schedule and other timetables provided in the registration
rights agreement will result in the imposition of liquidated damages. No
liquidated damages will accrue on any registrable securities which the SEC
has
requested (due to the application of Rule 415) us to remove from the
registration statement and the required effectiveness date for such securities
will be tolled until such time as we are able to effect the registration of
those securities in accordance with any SEC restrictions.
Under
the
terms of our agreements with the placement agent entered into on October 16,
2007 and on May 14, 2008 we agreed that 821,429 shares of common stock and
400,819 shares underlying Warrants issued to the placement agent have the same
rights as the Warrants issued to the investors.
On
May
22
,
2008,
the placement agent waived its right to have all its shares and the shares
underlying its Warrants included in the registration statement of which this
prospectus forms a part.
Lock-Up
Agreements
Also
on
April 15, 2008, we entered into an agreement with KAL under which, in order
to
induce ATG to enter into the share exchange agreement, certain stockholders
including Mr. Chen Zhong, our CEO, and Mr. Shao Ganhua, the owner of all the
shares of KAL, and Belmont and CIS agreed that they will not sell or transfer
any shares of our common stock until at least 12 months after the effective
date
of this registration statement of which this prospectus forms a
part.
BUSINESS
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, strategic 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 Prospectus, 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 three years 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 56 full-time employees. 60% of our employees have college or higher
degrees.
Government
Regulation
On
January 4, 2000, PRC National Congress promulgated Regulations for the
Supervision and Administration of Medical Appliances 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 a License for Medical Appliance Operation Enterprises (Hu Yao
Guan
Xie Jing Ying Xu No. 05305202) issued by Shanghai Food and Drug Administration
on 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 a 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 Prospectus, 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.
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 Prospectus, 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
15, 2008 we completed the reverse merger and private financing described above.
Our former sole director and officer resigned from his executive positions
effective April 15, 2008, and resigned as a director effective April 25, 2008,
ten days after a Form 14F-1 was 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. As a result of the
reverse merger, ABM became our wholly-owned subsidiary, and ABMT became our
indirectly wholly-owned subsidiary.
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 May 21, 2008:
Name
|
|
Position
|
|
Ownership
Percentage
|
|
|
|
|
|
Chen
Zhong
|
|
CEO,
Director, Chairman of the Board
|
|
93.9%
|
|
|
|
|
|
Total
|
|
|
|
93.9%
|
DESCRIPTION
OF PROPERTY
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 Building
|
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
|
FINANCIAL
INFORMATION
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS
OF OPERATION
DISCLAIMER
REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in this prospectus, 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 prospectus and 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 May 23, 2008, the
date
of the filing of this registration statement on Form S-1, 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 unaudited pro forma
consolidated financial statements of ATG for the three months ended March 31,
2008 and March 31, 2007 and the year ended December 31, 2007 and the financial
statements of Shanghai Medical and accompanying notes for the fiscal years
ended
December 31, 2007 and December 31, 2006 annexed to this Prospectus.
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.
Fiscal
Years Ended December 31, 2007 and 2006
RESULTS
OF OPERATIONS
The
following table shows our operating results for the fiscal years ended December
31, 2007 and 2006.
|
|
2007
|
|
2006
|
|
Increase/
Decrease
|
|
Precentage
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
|
%
|
|
|
$
|
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:
|
o
|
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 (%)
|
|
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
|
%
|
Shanghi
Zhongshan Hospital
|
|
|
1,864,616
|
|
|
254,934
|
|
|
11
|
%
|
Ningbo
Tianyi Medical Equipment Co. Ltd.
|
|
|
2,015,520
|
|
|
275,566
|
|
|
11
|
%
|
Total
|
|
|
18,237,480
|
|
|
1,126,247
|
|
|
47
|
%
|
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.
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.
Three
Months Ended March 31, 2008 and 2007
Results
of Operations
The
following table shows our operating results for the
first
three months ended March 31, 2008 and 2007.
|
|
First
Q of 2008
|
|
First
Q of 2007
|
|
Increase/
Decrease
|
|
Percentage
Increase/ Decrease
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
10,190,623
|
|
$
|
7,942,576
|
|
$
|
2,248.047
|
|
|
28.30
|
%
|
Cost
of sales
|
|
|
($6,460,885
|
)
|
|
($4,875,294
|
)
|
$
|
1,585,591
|
|
|
32.52
|
%
|
Gross
profit
|
|
$
|
3,729,738
|
|
$
|
3,067,282
|
|
$
|
662,456
|
|
|
21.60
|
%
|
Selling
|
|
|
($632,834
|
)
|
|
($168,479
|
)
|
$
|
464,355
|
|
|
275.61
|
%
|
General
and administrative
|
|
|
($346,317
|
)
|
|
($311,562
|
)
|
$
|
34,755
|
|
|
11.15
|
%
|
Operating
income
|
|
$
|
2,750,587
|
|
$
|
2,587,241
|
|
$
|
163,346
|
|
|
6.3
|
%
|
Interest
income, net
|
|
$
|
6,675
|
|
$
|
739
|
|
$
|
6,296
|
|
|
751.04
|
%
|
Income
before income taxes
|
|
$
|
2,755,915
|
|
$
|
2,587,980
|
|
$
|
167,935
|
|
|
6.49
|
%
|
Net
income
|
|
$
|
1,970,195
|
|
$
|
1,732,566
|
|
$
|
237,629
|
|
|
13.72
|
%
|
Comprehensive
income
|
|
$
|
2,608,307
|
|
$
|
1,945,875
|
|
$
|
662,432
|
|
|
34.04
|
%
|
Net
Revenues
Net
revenues were $10,190,623 for the first three month ended March 31, 2008, an
increase of $2,248.047 or 28.30% from $7,942,576 for the first three month
ended
March 31, 2007. Our revenues increased primarily as a result of an 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 the first
quarter of 2008, additional hospitals and clinics added as customers in the
first quarter of 2008 and 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 first three months
ended March 31, 2008, hemodialysis and disposable sales accounted for 99.5%
of
our net sales.
Cost
of Sales
Cost
of
sales rose to $6,460,885 for the first three month ended March 31, 2008, an
increase of $1,585,591 or 32.52% from $4,875,294 for the first three months
ended March 31, 2007. Cost of sales measured as a percentage of net revenues
was
63.4%, an increase from 61.38% in the first quarter of 2007. The increase in
cost of sales was principally driven by the increase in marketing expense and
sales volume.
Gross
Profit
Gross
profit for the first three months ended March 31, 2008 was $3,729,738 up 21.6%
from gross profit of approximately $3,067,282 for the first quarter of 2007.
Gross profit margin was
36.6%
for
the
first
three months ended March 31, 2008
compared
to 38.62% 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 and our entry into new markets with lower sales
prices.
Selling,
General and Administrative Expenses
Selling
expenses were $632,834 for the first three months ended March 31, 2008, an
increase of $464,355 or 275.61% from $168,479 for the first three months ended
March 31, 2007. The high increase in cost of sales was substantially driven
by
the implementation of our geographical expansion strategy. From the end of
year
2007, for the purpose of expanding our market share in Hemodialysis equipment
and related disposables, we started to increase our marketing and sales
expenditures in entering new markets (such as Beijing and its surrounding
districts, and Southeastern China) in order to establish or expand our sales
network. Most of the new markets are located in highly developed economic
regions with higher competitive environments, which require an increase in
our
marketing promotion expenses (including ongoing training and education programs
for doctors and sales representatives) than those required in Shanghai and
its
surrounding districts. These new markets have significant strategic functions
to
our business strategy which may continue our leading market position and
increase our market share. Management believes, with the increase of market
share in these new regions and more efficient internal control, the sales cost
will gradually decrease in the future.
General
and administrative expenses were $346,317 for the first three months ended
March
31, 2008, an increase of $34,755 or 11.15% from $311,562 for the first three
months ended March 31, 2007. 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 56 people in Shanghai
Medical Technology. We have a sales & marketing team of nearly 30 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 first
three months ended March 31, 2008, at 9.6% of net revenues, compared to 6%
of
net revenues for the first quarter of 2007. 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 now that we are a public company.
Operating
Income
Operating
Income was $2,750,587 for the first three months ended March 31, 2008, an
increase of $163,346 or 6.3% from $2,587,241 for the first quarter of 2007.
Our
operating margins
de
creased
from 32.57
%
for the
first
three months ended March 31,
2007
to
26.99% for the
first
three months ended March 31, 2008. This operating margin decrease was
principally due to a decrease in gross margin and an 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 and this is putting downward pressure on margins.
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:
|
o
|
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 $786,208 for the first three months ended March 31, 2008,
a
decrease of $67,599 from $853,807 for the first quarter of 2007. The decrease
of
income tax is primarily due to the adjustment of income tax rate from 33% to
25%
for domestic company by the PRC tax authorities since January 1
st
,
2008.
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 25%, 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 25% and 33% for the first quarter of 2008 and 2007 respectively.
Minority
interests
Minority
interests were $488 for the first three months ended March 31, 2008, a decrease
of $1,119 from $1,607 for the first quarter of 2007. The decrease is due to
an
increase in net income before minority interests.
Net
Income
Net
income was $1,970,195 for the first three months ended March 31, 2008, an
increase of $237,629 or 13.72% from $1,732,566 for the first quarter of 2007.
Net profit margin was 19.33 % for the first three months ended March 31, 2008
compared to 21.81 % for the same period in 2007 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 three months ended March 31, 2008 and 2007, 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 $638,112 and $213.309,
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 the first three months ended by March 31, 2008
and
2007 were denominated in Renminbi. The income statement accounts were translated
at the first three months average exchange rate of $1 to
RMB
7.1757
and 7.7714, respectively
,
and the
balance sheet items, except the equity accounts were translated at the quarter
end rates of $1 to RMB 7.0222 and 7.7410, respectively.
The
equity accounts were stated at their historical rate when corresponding
transactions happened. The exchange rate on May 15, 2008 was $1 to
RMB
7.01600.
Inventory
Inventory
was $1,879,836 for the first three months ended by March 31, 2008, an increase
of $673,160 or 55.78% from $1,206,676 as that of in the fiscal year ended
December 31, 2007. The increase is mainly due to the increase of the sales
volume of the products.
Accounts
Receivable
Accounts
Receivable increased 45.6% to $3,506,494 as of the first three months ended
March 31, 2008, compared with $2,408,223 as of in the fiscal year ended December
31, 2007. Accounts receivable related to our five largest customers totaled
$1,507,792 million, accounting for 43% of all accounts receivable as of March
31, 2008.
Management
reviews its accounts receivable on a regular basis to determine if the allowance
for doubtful accounts is adequate at each year-end. We only extend 30 to 90
day
trade credits to our large customers, who tend to be well-established and large
sized businesses, and we have not seen any accounts receivable go uncollected
beyond 90 days or experienced any write-off of accounts receivable in the past.
Thus, we elected not to make any provision for doubtful accounts and consider
all accounts receivable collectable.
Five
largest Creditors as of March 31, 2008
Creditors
|
|
Receivable
amounts
(RMB)
|
|
Receivable
amounts
(US$)
|
|
Percentage
of Total receivables (%)
|
|
Shanghai
Beiyi Commercial &Trade Co.Ltd.
|
|
|
3,016,987.43
|
|
|
420,779.28
|
|
|
12
|
%
|
No.455
Hospital
|
|
|
2,262,740.57
|
|
|
315,584.46
|
|
|
9
|
%
|
Nanjing
Dakang Medical Equipment Co.Ltd.
|
|
|
2,011,324.95
|
|
|
280,519.52
|
|
|
8
|
%
|
Heilongjiang
Jichang Medical Equipment Co.Ltd.
|
|
|
2,011,324.95
|
|
|
280,519.52
|
|
|
8
|
%
|
Changchun
Jinli Medical Equipment Co.Ltd.
|
|
|
1,508,493.71
|
|
|
210,389.64
|
|
|
6
|
%
|
Total
|
|
|
10,810,871.65
|
|
|
1,507,792.42
|
|
|
43
|
%
|
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.
Operating
Activities
Net
cash
provided by operating activities for the first three months ended by March
31,
2008 was $1,162,099, an increase of $489,454 or 72.76% from $672,645 for the
first three months ended by March 31, 2007. This increase was principally
because we have more focused on main business operation and increased the
allocation of our resources to market promotion and geographical expansion.
Investing
Activities
Net
cash
used in investing activities for the first three months ended by March 31,
2008
was $54,274, a decrease of $148,395 from $202,669 for the first three months
ended by March 31, 2007. This decrease was due primarily to the adjustment
of
our business strategy in 2008 which we have concentrated more resources to
the
operation of our business and relatively decreased our investment activities,
and we had neither intangible asset investments nor equity acquisitions in
the
first quarter of 2008.
Financing
Activities
Loans
There
were no short-term bank loans outstanding at the end of first quarter of 2008
and 2007.
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 partly 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.
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.
MARKET
PRICE OF AND DIVIDENDS OF COMMON EQUITY
AND
RELATED STOCKHOLDER MATTERS
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 May 21, 2008 were: $2.80 and $2.80, 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 May 21, 2008, our common
stock was held by approximately 163 holders of record.
Closing
Bid Prices
Fiscal
2008
|
|
High
|
|
Low
|
|
Quarter
Ended March 31, 2008
|
|
$
|
2.20
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
Quarter
Ended December 31, 2007
|
|
$
|
2.20
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
Quarter
Ended September 30, 2007
|
|
$
|
3.00
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
|
Quarter
Ended June 30, 2007
|
|
$
|
4.20
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
Quarter
Ended March 31, 2007
|
|
$
|
3.00
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
Quarter
Ended December 31, 2006
|
|
$
|
1.50
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
Quarter
Ended September 30, 2006
|
|
$
|
2.00
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
Quarter
Ended June 30, 2006
|
|
$
|
2.00
|
|
$
|
.05
|
|
|
|
|
|
|
|
|
|
Quarter
Ended March 31, 2006
|
|
$
|
.05
|
|
$
|
.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 Prospectus, we do not have any securities authorized for issuance
under any equity compensation plans and we do not have any equity compensation
plans.
Shares
Eligible for Future Sale
There
is
no established trading market for our common stock. Future sales of substantial
amounts of our common stock in the trading market could adversely affect market
prices.
This
is
an offering of 6,012,282 shares of our common stock by the selling stockholders.
As of May 21, 2008, there were issued and outstanding (i) 15,991,812 shares
of
common stock, (ii) 4,008,188 shares of Series A Preferred (convertible into
4,008,188 shares of common stock) and (iii) Warrants to purchase 2,404,913
shares of common stock. Assuming conversion of all of the Series A Preferred
and
exercise of all of the Warrants , there will be 22,404,913 shares of common
stock outstanding. 6,012,282 of these shares are being registered for resale
in
this prospectus.
On
December 16, 2007, Shanghai Medical entered into an engagement agreement with
Rosewood Securities, LLC, a division of Capital Investment Services, Inc.(“CIS
Agreement”) for the provision of investment banking and other services as in
contemplation of a reverse merger of the company or a company affiliated with
the company with a publicly traded shell company and simultaneous $12.5 million
financing transaction. On April 14, 2008, Shanghai Medical entered into an
engagement agreement (“shell broker agreement”) with Belmont Partners, LLC, a
company affiliated with Rosewood, for the provision of brokerage services in
identifying and negotiating with an appropriate shell company. Under the terms
of these agreements Shanghai Medical must pay the the following:
|
·
|
A
cash fee to CIS equal to 10% of the gross proceeds invested in the
financing by investors introduced to the Company by CIS, less $85,000,
the
amount by which the cost of the shell exceeded
$500,000.
|
|
·
|
Deliver
to CIS Warrants to purchase 10% of the securities sold to investors,
or
400,819 shares of our common stock
.
|
|
·
|
Deliver
to Belmont 400,819 shares of our common
stock.
|
None
of
these shares are currently eligible for resale under Rule 144.
Other
Registration Rights
Other
than (i) the registration rights set forth in the registration rights agreement
entered into on April 15, 2008 with the selling stockholders (who were investors
in the private placement) and (ii) the placement agent agreement and the shell
broker agreement, under which we obligated to register 1,222,248 shares of
common stock for resale in one or more registration statements, we have no
other
obligation to register under the Securities Act any of our shares of common
stock.
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 May 21,
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 Series A
|
|
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
|
|
|
15.3
|
%
|
|
48
|
%
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk
Private Equity Fund II LP
5410
W. 61st Place, Suite 100
Mission,
KS 66205
|
|
|
|
|
|
799,591
|
|
|
399,795
|
|
|
7.0
|
%
|
|
20
|
%
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alder
Capital Partners I LP
12750
High Bluff Drive, Suite 120
San
Diego, CA 92130
|
|
|
|
|
|
227,084
|
|
|
113,542
|
|
|
2.1
|
%
|
|
6
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ancora
Greater China Fund, LP
One
Chagrin Highlands,
2000
Auburn Dr #300
Cleveland,
OH 44122
|
|
|
|
|
|
207,894
|
|
|
103,947
|
|
|
1.9
|
%
|
|
5
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belmont
Partners, LLC
360
Main Street
PO
Box 393
Washington,
Virginia 22747
|
|
|
821,429
|
|
|
|
|
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kamick
Assets Limited
(4)(5)
|
|
|
14,991,812
|
|
|
|
|
|
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shao
Ganghua (4)(5)
|
|
|
14,991,812
|
|
|
|
|
|
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chen
Zhong (Chairman, CEO and Director) (4) (5)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michelle
Zhao (Chief Financial Officer)
|
|
|
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 May 21, 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 May 21, 2008 (15,991,811), and (ii) the total number
of
shares that the beneficial owner may acquire within 60 days 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 4,008,188 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 May 21, 2008, the outstanding Series
A
Preferred is convertible into
4,008,188
shares
of our common stock. Pursuant to the Securities Purchase Agreement,
the
purchasers have been issued Series A Warrants to purchase an aggregate
of
2,004,094 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.
|
(6)
|
As
of April 15, 2008, we had outstanding (i) 15,991,811 shares of common
stock, (ii) 4,008,188 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:
|
|
|
|
o
|
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.
The
address of each of KAL and the officers and directors named in
the table
is Suite 6B, 1440 Hongqiao Road, Changning District Shanghai,
PRC. The
address of Mr. Shao is Room 209, 2/F, China Insurance Group Building,
141
Des Voeux Road, Central, Hong Kong.
|
|
|
|
(8)
|
The
address
of each of KAL and the officers and directors named in the table
is Suite
6B, 1440 Hongqiao Road, Changning District Shanghai, PRC. The address
of
Mr. Shao is Room 209, 2/F, China Insurance Group Building, 141 Des
Voeux
Road, Central, Hong Kong.
|
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS
AND
CONTROL PERSONS
Our
Directors and Executive Officers
In
connection with our change of control described in “Organizational History of
Aamaxan Transport Group, Inc.”, 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 May 21, 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
|
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.
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:
|
o
|
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 two years ended December 31, 2007 and
2006. No other executive officer received compensation in excess of $100,000.
The Company does not have any stock, option, non-equity incentive compensation
or deferred compensation plans. Therefore the following table is limited to
Salary.
|
|
|
|
Salary
(cash
or
non-cash)
|
|
Name
and Principal Position
|
|
Year
|
|
($)
|
|
|
|
|
|
|
|
Chen
Zhong
|
|
|
2007
|
|
|
500,000
|
|
|
|
|
2006
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Michelle
Zhao, CFO (current)
|
|
|
2007
|
|
|
0
|
|
|
|
|
2006
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Marc
Juliar
|
|
|
2007
|
|
|
0
|
|
|
|
|
2006
|
|
|
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 our 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 “Reverse Merger and Private Placement” section above
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 that section 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.
LEGAL
PROCEEDINGS
To
our
knowledge, there is no material litigation pending or threatened against us.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
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 4,008,188 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 the “Reverse Merger and Private Placement” section of this
Prospectus. 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.
Our
counsel, Guzov Ofsink, LLC, located at 600 Madison Avenue, 14th Floor, New
York,
New York 10022, is passing upon the validity of the issuance of the common
stock
that we are offering under this prospectus.
EXPERTS
Albert
Wong & Co, independent registered public accountants, located in Hong Kong,
have audited our financial statements included in this registration statement
to
the extent and for the periods set forth in their report. We have relied on
such
reports given upon the authority of such firm as experts in accounting and
auditing.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No
"expert" or "counsel" as defined by Item 509 of Regulation S-K promulgated
under
the Securities Act, whose services were used in the preparation of this Form
S-1, was hired on a contingent basis or will receive a direct or indirect
interest in us or our parents or subsidiaries, nor was any of them a promoter,
underwriter, voting trustee, director, officer or employee of the Company.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
Previous
Independent Accountants
On
April
15, 2008, we dismissed Turner, Stone & Company, L.L.P., as our independent
accountant. The reports of Turner, Stone & Company, L.L.P., on our financial
statements for each of the past two fiscal years contained no adverse opinion
or
a disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles, except that such reports contained a
qualification opinion as to the Company’s ability to continue as a going
concern. Such opinions stated that, as of January 31, 2008 and January 31,
2007,
the Company had no significant assets or working capital nor any business
operations and had a significant deficit. The decision to change independent
accountants was approved by our Board of Directors on May 15, 2008.
During
our two most recent fiscal years and through the date of this report, we have
had no disagreements with Turner, Stone & Company, L.L.P., on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction
of
Turner, Stone & Company, L.L.P., would have caused it to make reference to
the subject matter of such disagreements in its report on our financial
statements for such periods.
We
provided Turner, Stone & Company, L.L.P., with a copy of this disclosure
before its filing with the SEC. We requested that Turner, Stone & Company,
L.L.P., provide us with a letter addressed to the SEC stating whether or not
it
agrees with the above statements, and we received a letter from Turner, Stone
& Company, L.L.P., stating that it does agree with the above statements. A
copy of such letter, dated as of May 15, 2008, is filed as Exhibit 16.1 to
our current report on Form 8-K filed with the SEC on May 20, 2008.
New
Independent Accountants
Our
Board
of Directors appointed Albert Wong & Company, Certified Public Accountants
as our new independent registered public accounting firm effective as of May
15,
2008. During the two most recent fiscal years and through the date of our
engagement, we did not consult with Albert Wong & Company regarding either
(1) the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on
our financial statements, or (2) any matter that was either the subject of
a
disagreement (as defined in Regulation S-K Item 304(a)(1)(v)), during the two
most recent fiscal years.
FINANCIAL
STATEMENTS
Our
consolidated audited financial statements for the fiscal years ended December
31, 2007 and 2006, together with the report of the independent certified public
accounting firm thereon and the notes thereto, are presented beginning at page
F-1. Our unaudited pro forma consolidated financial statements for the three
months ended March 31, 2008 and 2007 and for the year ended December 31, 2007
are presented beginning at page F-[__]
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the U.S. Securities and Exchange Commission, 100 F. Street,
N.E., Washington, D.C. 20549, a registration statement on Form S-1 under the
Securities Act for the common stock offered by this prospectus. We have not
included in this prospectus all the information contained in the registration
statement and you should refer to the registration statement and its exhibits
for further information.
The
registration statement and other information may be read and copied at the
SEC's
Public Reference Room at 100 F. Street N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room
by
calling the SEC at 1-800-SEC-0330. The SEC maintains a web site
(HTTP://WWW.SEC.GOV.) that contains the registration statements, reports, proxy
and information statements and other information regarding registrants that
file
electronically with the SEC such as us.
You
may
also read and copy any reports, statements or other information that we have
filed with the SEC at the addresses indicated above and you may also access
them
electronically at the web site set forth above. These SEC filings are also
available to the public from commercial document retrieval services.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
Our
bylaws provide that we will indemnify our directors and officers from all
liabilities incurred by them in connection with any action, suit or proceeding
in which they are involved by reason of their acting as our directors and
officers.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons, we have been
inFormed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities (other
than
the payment by us of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
INFORMATION
NOT REQUIRED IN PROSPECTUS
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
Although
we will not receive any of the proceeds from the sale of the shares being
registered in this registration statement, we have agreed to bear the costs
and
expenses of the registration of those shares. Our expenses in connection with
the issuance and distribution of the securities being registered, other than
the
underwriting discount, are as follows:
SEC
Registration Fee
|
|
$
|
715.94
|
|
Professional
Fees and Expenses*
|
|
$
|
100,000
|
|
Printing
and Engraving Expenses *
|
|
$
|
5,000
|
|
Transfer
Agent's Fees*
|
|
$
|
2,500
|
|
Miscellaneous
Expenses*
|
|
$
|
11,784.06
|
|
Total
|
|
$
|
120,000
|
*
|
*
Estimates
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.
On
April
15, 2008, we entered into and consummated a share exchange agreement with (i)
Asia Business Management Group Limited (BVI); (ii) ABMT; (iii) the owner of
all
of the outstanding voting stock of Asia Business Management Group Limited (BVI),
namely Kamick Assets Limited (“KAL”), a company that is wholly owned and
controlled by Mr. Shao Ganhua and all of the stock of which may be acquired
in
the future by our CEO, Mr. Chen Zhong, pursuant to a call option held by Mr.
Chen. Under the terms of the share exchange agreement, KAL delivered all of
the
outstanding shares of ABM to us, and in exchange, we issued and delivered a
total of 14,991,812 shares of our common stock to them. As a result of the
share
exchange, we acquired ABM as a wholly-owned subsidiary, and KAL became holders
of the majority of our outstanding common stock. The transaction qualified
as an
exempt transaction under Section 4(2) of the Securities Act, as amended, and
Rule 506 of Regulation D thereunder.
On
April
15, 2008, we entered into a private placement transaction we sold to certain
accredited investors, for gross proceeds to us of $12.5 million, 4,008,188
units
at a purchase price of $3.13 per unit, each unit consisting of one share of
our
Series A Preferred (each of which is convertible into one share of our common
stock) and a Warrant , which is exercisable to purchase 0.5 of a share of our
common stock (and which together are exercisable to purchase up to a total
of
2,004,094 sharesof our common stock). The Warrants have an exercise price of
$3.91 per share (subject to adjustment). We received $10,347,522 as net proceeds
from this financing. The transaction qualified as an exempt transaction under
Section 4(2) of the Securities Act, as amended, and Rule 506 of Regulation
D
thereunder.
On
December 16, 2007, Shanghai Medical entered into an engagement agreement with
Rosewood Securities, LLC, a division of Capital Investment Services, Inc.(“CIS
Agreement”) for the provision of investment banking and other services as in
contemplation of a reverse merger of the company or a company affiliated with
the company with a publicly traded shell company and simultaneous $12.5 million
financing transaction. On April 14, 2008, Shanghai Medical entered into an
engagement agreement with Belmont Partners, LLC, a company affiliated with
Rosewood, for the provision of brokerage services in identifying and negotiating
with an appropriate shell company. Under the terms of these agreements Shanghai
Medical must pay the the following:
|
·
|
A
cash fee to CIS equal to 10% of the gross proceeds invested in the
financing by investors introduced to the Company by CIS, less $85,000,
the
amount by which the cost of the shell exceeded
$500,000.
|
|
·
|
Deliver
to CIS Warrants to purchase 10% of the securities sold to investors,
or
400,819 shares of our common stock
.
|
|
·
|
Deliver
to Belmont 400,819 shares of our common
stock.
|
EXHIBITS
(d)
Exhibits
INDEX
TO
EXHIBITS
Exhibit
No.
|
Description
of Exhibit
|
|
|
3.1
|
Certificate
of Incorporation of the Company, as amended.(1)
|
|
|
3.2
|
Amended
and Restated Bylaws. (3)
|
|
|
3.3
|
Specimen
Common Stock Certificate (2)
|
|
|
3.4
|
Amended
Certificate of Designations, Preferences and Rights of Series A
Senior
Convertible Preferred Stock.(2)
|
|
|
4.1
|
Form
of Class A Warrant(2)
|
|
|
4.2
|
Registration
Rights Agreement dated April 14, 2008 among the Company and the
Purchasers(2)
|
|
|
4.3.1
|
Lock-up
Agreement dated April 14, 2008 between the Company and
KAL(2)
|
4.3.2
|
Lock-up
Agreement dated April 14, 2008 between the Company and Shao Ganghua
and
Chen Zhong(2)
|
|
|
4.3.3
|
Lock-up
Agreement dated April 14, 2008 between the Company and
Belmont(2)
|
|
|
5.1
|
Legal
Opinion of Guzov Ofsink, LLC re legality of the common stock being
registered.*
|
|
|
10.1
|
Share
Exchange Agreement, dated as of April 14, 2008, by and between
the
Company, KAL and ABM.(2)
|
|
|
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.(2)
|
|
|
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. (2)
|
|
|
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.
(2)
|
|
|
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. (2)
|
|
|
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. (2)
|
|
|
10.5
|
Shell
Brokerage Agreement dated April 14, 2008, between Belmont and Shanghai
Medical. (2)
|
|
|
10.6
|
Exclusive
Purchase Option Agreement, dated as of April 14, 2008, among Shanghai
Medical, all shareholders of Shanghai Medical and ABMT.
(2)
|
|
|
10.7
|
Equity
Pledge Agreement, dated as of April 14, 2008, among Shanghai Medical,
the
Majority Shareholders and ABMT. (2)
|
|
|
10.8
|
Consigned
Management Agreement, dated as of April 14, 2008, among ABMT, Shanghai
Medical, and the Majority Shareholders(2)
|
|
|
10.9
|
Loan
Agreement, dated as of April 14, 2008, among Shanghai Medical,
the
Majority Shareholders and ABMT. (2)
|
|
|
10.10
|
Technology
Service Agreement, dated as of April 14, 2008, among Shanghai Medical
ABMT
and the Majority Shareholders(2)
|
|
|
10.12
|
Call
Option Agreement dated April 14, 2008, between Shao Ganghua and
Chen
Zhong. (2)
|
16.1
|
Letter
from Turner, Stone & Company, L.L.P. to the SEC (3)
|
|
|
21.1
|
List
of Subsidiaries(2)
|
|
|
23.1
|
Consent
of counsel to the use of the opinion annexed at Exhibit 5.1 (contained
in
the opinion annexed at Exhibit 5.1)
|
|
|
23.2
|
Consent
of Albert Wong & Co., Certified Public Accountants, for use of their
report.*
|
(1)
|
Incorporated
by reference to the Company’s Registration Statement on Form 10-SB filed
April 12, 2005.
|
(2)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed April 21,
2008.
|
(3)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed May 20,
2008.
|
UNDERTAKINGS
The
undersigned Registrant hereby undertakes:
(1)
To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
i.
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
ii.
To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement(or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(2)
That,
for the purpose of determining any liability under the Securities Act, each
such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4)
Insofar
as indemnification for liabilities arising under the Act may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer
will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and
will be governed by the final adjudication of such issue.
[Remainder
of page intentionally blank]
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Shanghai, People’s Republic
of China, on May 23, 2008.
|
Aamaxan
Transport Group, Inc.
|
|
|
|
|
|
|
|
s/
Chen Zhong
|
|
|
|
By
Chen Zhong
|
|
|
|
Chairman
and Chief Executive Officer and Director
(principal
executive officer)
|
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates indicated.
Name
and Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Chen
Zhong
|
|
May
23, 2008
|
|
|
Chen
Zhong ,
Chairman
and Chief Executive Officer and Director
(principal
executive officer)
|
|
|
|
|
/s/
Michelle
Zhao
|
|
May
23, 2008
|
|
|
Michelle
Zhao
Chief
Financial Officer
(principal
financial officer and accounting officer)
|
|
|
|
|
INDEX
TO FINANCIAL STATEMENTS
Unaudited
Pro Forma Consolidated Financial Statements of ATG for
the Three Months ended March 31, 2008 and March 31, 2007 and the Year
ended December 31, 2007
|
|
|
|
i.
|
Basis
of Presentation
|
F-1
|
|
|
|
ii.
|
Pro
Forma Consolidated Balance Sheet as of March 31, 2008
|
F-2
|
|
|
|
iii.
|
Pro
Forma Statement of Operations for the Period from January 1, 2008
to March
31, 2008
|
F-3
|
|
|
|
iv.
|
Pro
Forma Statement of Operations for the Year ended December 31,
2007
|
F-5
|
|
|
|
Unaudited
Reviewed Consolidated Financial Statements of ATC for the Three Months
ended March 31, 2008 and 2007
|
|
|
|
Consolidated
Balance Sheets
|
F-1
|
|
|
Consolidated
Statements of Income and Comprehensive Income
|
F-3
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-4
|
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
|
N
otes
to Consolidated Financial Statements
|
F-7
|
|
|
Consolidated
Financial statements of Shanghai Medical
For
the Years ended December 31, 2007 and 2006
|
|
|
|
Independent
auditor’s report
|
F-1
|
|
|
ii.
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
F-2
|
|
|
|
iii.
|
Consolidated
Statements of Income for the Years ended December 31, 2007 and 2006
|
F-4
|
|
|
|
iv.
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007 and
2006
|
F-5
|
|
|
|
v.
|
Consolidated
Statement of Changes in Shareholders' Equity and Comprehensive Income
from
January 1, 2005
through
December 31, 2007
|
F-6
|
|
|
|
vi.
|
Notes
to Consolidated Financial Statements
|
F-8
|
AAMAXAN
TRANSPORT GROUP, INC.
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Basis
of Presentation
The
unaudited pro forma consolidated financial statements of Ammaxan Transport
Group, Inc. (“Aamaxan”) in the opinion of management include all material
adjustments directly attributable to the share exchange contemplated by a share
exchange agreement with Kamick Assets Limited (“KAL”), dated April 15, 2008, in
which Aamaxan exchanged 14,991,812 shares of its common stock, par value $0.0001
per share, for all of the issued and outstanding stock of Asia Business
Management Group Limited (“ABM”) held by KAL. As a result of the share exchange
transaction, ABM became the wholly-owned subsidiary of Aamaxan, and Anhante
(Beijing) Medical Technology Co., Ltd (ABMT) became an indirectly wholly-owned
subsidiary of Aamaxan.
In
connection with the share exchange transaction, on April 15, 2008, Aamaxan
consummated a private financing transaction, in which Aamaxan issued an
aggregate of 4,008,812 shares of its Series A Preferred and warrants (including
a warrant issued to the placement agent of the private financing transaction)
to
purchase an aggregate of 2,404,913 shares of its 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 Technology Co., Ltd (SMT), which give AMBT
control over SMT’s business, personnel and finances as if it was a wholly owned
subsidiary of ABMT.
The
statements of operations were prepared as if the above mentioned reverse merger
transaction of ABM by Aamaxan was consummated on January 1, 2007 and the balance
sheet was prepared as if it was consummated on March 31, 2008. These pro forma
consolidated financial statements have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the transaction occurred on the dates indicated
and are not necessarily indicative of the results that may be expected in the
future.
AAMAXAN
TRANSPORT GROUP, INC.
PRO
FORMA CONSOLIDATED BALANCE SHEET
AS
OF MARCH 31, 2008
|
|
Aamaxan
Transport Group, Inc
|
|
Asia
Business Management Group Limited
|
|
Anhante
(Beijing) Medical Technology
Co.,
Ltd
|
|
Shanghai
Medical Technology Co., Ltd
|
|
Pro
forma
Adjustment
|
|
Pro
forma Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,527,410
|
|
$
|
10,132,522
|
|
$
|
13,659,932
|
|
Restricted
cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
|
300,000
|
|
Account
receivables
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,506,494
|
|
|
|
|
|
3,506,494
|
|
Subscription
receivables
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
386,458
|
|
|
|
|
|
386,461
|
|
Other
receivables
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
289,059
|
|
|
|
|
|
289,059
|
|
Inventories
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,879,836
|
|
|
|
|
|
1,879,836
|
|
Advances
to suppliers
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
464,794
|
|
|
|
|
|
464,794
|
|
Prepaid
expenses
|
|
|
190
|
|
|
-
|
|
|
-
|
|
|
40,104
|
|
|
|
|
|
40,294
|
|
Current
portion of long term prepayment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,424,055
|
|
|
|
|
|
1,424,055
|
|
Total
current assets
|
|
$
|
190
|
|
$
|
3
|
|
$
|
-
|
|
$
|
11,518,210
|
|
$
|
|
|
$
|
21,950,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
due from shareholders
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
50,708
|
|
$
|
|
|
$
|
50,708
|
|
Unlisted
investments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
854,433
|
|
|
|
|
|
854,433
|
|
Goodwill
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
42,332
|
|
|
|
|
|
42,332
|
|
Long
term prepayment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,655,075
|
|
|
|
|
|
3,655,075
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
194,699
|
|
|
|
|
|
194,699
|
|
Intangible
assets, net
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,083,877
|
|
|
|
|
|
5,083,877
|
|
TOTAL
ASSETS
|
|
$
|
190
|
|
$
|
3
|
|
$
|
-
|
|
$
|
21,399,334
|
|
$
|
|
|
$
|
31,832,049
|
|
AAMAXAN
TRANSPORT GROUP, INC.
PRO
FORMA CONSOLIDATED BALANCE SHEET (Continued)
AS
OF MARCH 31, 2008
|
|
Aamaxan
Transport Group, Inc
|
|
Asia
Business Management Group Limited
|
|
Anhante
(Beijing) Medical Technology
Co.,
Ltd
|
|
Shanghai
Medical Technology Co., Ltd
|
|
Pro
forma
Adjustment
|
|
Pro
forma Total
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,600,701
|
|
$
|
|
|
$
|
2,600,705
|
|
Due
to a shareholder
|
|
|
74,579
|
|
|
-
|
|
|
-
|
|
|
56,962
|
|
|
|
|
|
131,541
|
|
Customers’
deposits
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,487
|
|
|
|
|
|
20,487
|
|
Accruals
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
326,105
|
|
|
|
|
|
326,105
|
|
Other
payables
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
668,628
|
|
|
|
|
|
668,628
|
|
Income
tax payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
803,392
|
|
|
|
|
|
803,392
|
|
Total
current liabilities
|
|
$
|
74,583
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,476,275
|
|
$
|
|
|
$
|
4,550,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
$
|
74,583
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,476,275
|
|
$
|
|
|
$
|
4,550,858
|
|
Commitments
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contingencies
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
|
|
$
|
-
|
|
Minority
interests
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
217,227
|
|
$
|
|
|
$
|
217,227
|
|
AAMAXAN
TRANSPORT GROUP, INC.
PRO
FORMA CONSOLIDATED BALANCE SHEET (Continued)
AS
OF MARCH 31, 2008
|
|
Aamaxan
Transport Group, Inc
|
|
Asia
Business Management Group Limited
|
|
Anhante
(Beijing) Medical Technology
Co.,
Ltd
|
|
Shanghai
Medical Technology Co., Ltd
|
|
Pro
forma
Adjustment
|
|
Pro
forma Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A Preferred Stock, $0.001 par value, 10,000,000 shares authorized,
4,008,812 shares issued and outstanding
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,009
|
|
$
|
4,009
|
|
Common
Stock, $0.0001 par value, 200,000,000 shares authorized,15,235,812
shares
issued and outstanding
|
|
|
24
|
|
|
3
|
|
|
-
|
|
|
589,764
|
|
|
(588,268
|
)
|
|
1,523
|
|
Statutory
reserves
|
|
|
-
|
|
|
|
|
|
-
|
|
|
2,529,527
|
|
|
|
|
|
2,529,527
|
|
Additional
paid-in capital
|
|
|
7,352,748
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,016,781
|
|
|
18,369,529
|
|
Accumulated
(deficits) / profits
|
|
|
(7,427,165
|
)
|
|
-
|
|
|
-
|
|
|
12,055,261
|
|
|
|
|
|
4,628,096
|
|
Accumulated
other comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,531,280
|
|
|
|
|
|
1,531,280
|
|
|
|
$
|
(74,393
|
)
|
$
|
3
|
|
$
|
-
|
|
$
|
16,705,832
|
|
$
|
|
|
$
|
27,063,964
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
190
|
|
$
|
3
|
|
$
|
-
|
|
$
|
21,399,334
|
|
$
|
|
|
$
|
31,832,049
|
|
AAMAXAN
TRANSPORT GROUP, INC
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR
THE PERIOD FROM JANUARY 1, 2008 TO MARCH 31, 2008
|
|
Aamaxan
Transport Group, Inc
|
|
Asia
Business Management Group Limited
|
|
Anhante
(Beijing) Medical Technology
Co.,
Ltd
|
|
Shanghai
Medical Technology Co., Ltd
|
|
Pro
forma
Adjustment
|
|
Pro
forma Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
10,190,623
|
|
$
|
|
|
$
|
10,190,623
|
|
Cost
of net revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,460,885
|
)
|
|
|
|
|
(6,460,885
|
)
|
Gross
profit
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,729,7378
|
|
$
|
|
|
$
|
3,729,7378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(632,834
|
)
|
|
|
|
|
(632,834
|
)
|
General
and administrative expense
|
|
|
(9,745
|
)
|
|
-
|
|
|
-
|
|
|
(346,317
|
)
|
|
|
|
|
(356,062
|
)
|
|
|
$
|
(9,745
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
2,750,587
|
|
$
|
|
|
$
|
2,740,842
|
|
Loss
on disposal of fixed assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,347
|
)
|
|
|
|
|
(1,347
|
)
|
Interest
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,675
|
|
|
|
|
|
6,675
|
|
Income
from continuing operation before income taxes
|
|
$
|
(9,745
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
2,755,915
|
|
$
|
|
|
$
|
2,746,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(786,208
|
)
|
|
|
|
|
(786,208
|
)
|
Net
(loss)income
before
minority
interests
|
|
$
|
(9,745
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
1,969,707
|
|
$
|
|
|
$
|
1,959,962
|
|
Minority
interests
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
488
|
|
|
|
|
|
488
|
|
Net
(loss)income
|
|
$
|
(9,745
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
1,970,195
|
|
$
|
|
|
$
|
1,960,450
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
638,112
|
|
|
|
|
|
638,112
|
|
|
|
$
|
(9,745
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
2,608,307
|
|
$
|
|
|
$
|
2,598,562
|
|
AAMAXAN
TRANSPORT GROUP, INC
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
FOR
THE PERIOD FROM JANUARY 1, 2008 TO MARCH 31, 2008
Earnings
per common share
|
|
|
|
-
Basic
|
|
$
|
0.13
|
|
-
Fully diluted
|
|
$
|
0.09
|
|
|
|
|
|
|
Basic
and fully diluted net income
|
|
$
|
1,960,450
|
|
Common
shares outstanding
|
|
|
|
|
-
Basic
|
|
|
15,235,812
|
|
-
Fully diluted
|
|
|
21,649,537
|
|
AAMAXAN
TRANSPORT GROUP, INC
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2007
|
|
Aamaxan
Transport Group, Inc
|
|
Asia
Business Management Group Limited
|
|
Anhante
(Beijing) Medical Technology
Co.,
Ltd
|
|
Shanghai
Medical Technology Co., Ltd
|
|
Pro
forma
Adjustment
|
|
Pro
forma Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
34,966,210
|
|
$
|
|
|
$
|
34,966,210
|
|
Cost
of net revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(21,521,706
|
)
|
|
|
|
|
(21,521,706
|
)
|
Gross
profit
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
13,444,504
|
|
$
|
|
|
$
|
13,444,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(899,668
|
)
|
|
|
|
|
(899,668
|
)
|
General
and administrative expense
|
|
|
(26,538
|
)
|
|
-
|
|
|
-
|
|
|
(1,654,103
|
)
|
|
|
|
|
(1,680,641
|
)
|
|
|
$
|
(26,538
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
10,890,733
|
|
$
|
|
|
$
|
10,864,195
|
|
Loss
on disposal of fixed assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(978
|
)
|
|
|
|
|
(978
|
)
|
Forfeiture
of share capital by an exit shareholder
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,148
|
|
|
|
|
|
45,148
|
|
Interest
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,092
|
|
|
|
|
|
17,092
|
|
Income
from continuing operation before income taxes
|
|
$
|
(26,538
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
10,951,995
|
|
$
|
|
|
$
|
10,925,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,709,818
|
)
|
|
|
|
|
(3,709,818
|
)
|
Net
(loss)income
before
minority
interests
|
|
$
|
(26,538
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
7,242,177
|
|
$
|
|
|
$
|
7,215,639
|
|
Minority
interests
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(14,617
|
)
|
|
|
|
|
(14,617
|
)
|
Net
(loss)income
|
|
$
|
(26,538
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
7,227,560
|
|
$
|
|
|
$
|
7,201,022
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
623,695
|
|
|
|
|
|
623,695
|
|
Comprehensive
income
|
|
$
|
(26,538
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
7,851,255
|
|
$
|
|
|
$
|
7,824,717
|
|
AAMAXAN
TRANSPORT GROUP, INC
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
FOR
THE YEAR ENDED DECEMBER 31, 2007
Earnings
per common share
|
|
|
|
-
Basic
|
|
$
|
0.47
|
|
-
Fully diluted
|
|
$
|
0.33
|
|
|
|
|
|
|
Basic
and fully diluted net income
|
|
$
|
7,201,022
|
|
Common
shares outstanding
|
|
|
|
|
-
Basic
|
|
|
15,235,812
|
|
-
Fully diluted
|
|
|
21,649,537
|
|
The
following adjustments to the unaudited pro forma financial statements are based
on the assumption that the share exchange was consummated as of March 31,
2008.
DESCRIPTION
|
|
DR
|
|
CR
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Common
stock - Shanghai Medical Technology Co., Ltd
|
|
|
589,764
|
|
|
|
|
Common
stock - Asia Business Management Group Limited
|
|
|
3
|
|
|
|
|
Additional
paid in capital
|
|
|
|
|
|
589,767
|
|
|
|
|
589,767
|
|
|
589,767
|
|
To
record
the elimination of cost of investment against share capital of Shanghai Medical
Technology Co., Ltd and Asia Business Management Group Limited.
Additional
paid in capital
|
|
|
1,499
|
|
|
|
|
Common
Stock (14,991,812 x $0.0001)
|
|
|
|
|
|
1,499
|
|
To
record
14,991,812 shares of Common Stock issued pursuant to share exchange agreement
between Aamaxan Transport Group, Inc. and Asian Business Management Group
Limited.
DESCRIPTION
|
|
DR
|
|
CR
|
|
|
|
$
|
|
$
|
|
Cash
and cash equivalents
|
|
|
10,132,522
|
|
|
|
|
Restricted
cash
|
|
|
300,000
|
|
|
|
|
Additional
paid in capital
|
|
|
|
|
|
10,428,513
|
|
Series
A Preferred Stock (4,008,812 x $0.001)
|
|
|
|
|
|
4,009
|
|
|
|
|
10,432,522
|
|
|
10,432,522
|
|
To
record
4,008,812 shares of Series A Preferred Stock and warrants issued to purchase
an
aggregate of 2,404,913 shares of common stock for $12,532,000 (including
$300,000 restricted cash for investors' relation) after deducting placement
agent costs and due diligence costs of $2,099,478.
REVIEWED
FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US dollars)(Unaudited) and Notes
AAMAXAN
TRANSPORT GROUP, INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
AS
AT MARCH 31, 2008 AND DECEMBER 31, 2007
|
(Stated
in US Dollars)(Unaudited)
|
|
|
Note
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
3,527,410
|
|
$
|
2,299,772
|
|
Accounts
receivable, net
|
|
|
4
|
|
|
3,506,494
|
|
|
2,408,223
|
|
Subscription
receivables
|
|
|
5
|
|
|
386,458
|
|
|
371,035
|
|
Other
receivables
|
|
|
6
|
|
|
289,059
|
|
|
197,435
|
|
Inventories
|
|
|
7
|
|
|
1,879,836
|
|
|
1,206,676
|
|
Advances
to suppliers
|
|
|
|
|
|
464,794
|
|
|
1,125,088
|
|
Prepayments
|
|
|
|
|
|
40,104
|
|
|
1,368
|
|
Current
portion of long term
|
|
|
|
|
|
|
|
|
|
|
prepayments
|
|
|
10
|
|
|
1,424,055
|
|
|
1,367,222
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
|
|
$
|
11,518,210
|
|
$
|
8,976,819
|
|
Due
from directors
|
|
|
8
|
|
|
50,708
|
|
|
7,206
|
|
Goodwill
arising from acquisition
|
|
|
|
|
|
42,332
|
|
|
40,643
|
|
Deposit
for an unlisted investment
|
|
|
9
|
|
|
854,433
|
|
|
820,333
|
|
Long
term prepayments
|
|
|
10
|
|
|
3,655,075
|
|
|
3,851,009
|
|
Plant
and equipment, net
|
|
|
11
|
|
|
194,699
|
|
|
184,330
|
|
Intangible
assets, net
|
|
|
12
|
|
|
5,083,877
|
|
|
5,023,174
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
$
|
21,399,334
|
|
$
|
18,903,514
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
$
|
2,600,701
|
|
$
|
2,538,964
|
|
Due
to a shareholder
|
|
|
13
|
|
|
56,962
|
|
|
54,689
|
|
Customers’
deposits
|
|
|
|
|
|
20,487
|
|
|
49,325
|
|
Accruals
|
|
|
|
|
|
326,105
|
|
|
316,545
|
|
Other
payables
|
|
|
14
|
|
|
668,628
|
|
|
719,172
|
|
Income
tax payable
|
|
|
|
|
|
803,392
|
|
|
909,579
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
$
|
4,476,275
|
|
$
|
4,588,274
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
|
|
$
|
4,476,275
|
|
$
|
4,588,274
|
|
See
accompanying notes to consolidated financial statements
AAMAXAN
TRANSPORT GROUP, INC.
|
|
CONSOLIDATED
BALANCE SHEETS (Continued)
|
AS
AT MARCH 31, 2008 AND DECEMBER 31, 2007
|
(Stated
in US Dollars)(Unaudited)
|
|
|
Note
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
18
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
|
|
$
|
217,227
|
|
$
|
217,715
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock - $0.001 par value 10,000,000 share authorized ; no shares
issued or
outstanding
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
Common
stock - $0.0001 par value 200,000,000 shares authorized; 15,235,812
and
14,991,812 shares
outstanding
respectively
|
|
|
|
|
|
1,523
|
|
|
1,499
|
|
Additional
paid-in capital
|
|
|
|
|
|
7,941,013
|
|
|
588,265
|
|
Statutory
reserves
|
|
|
|
|
|
2,529,527
|
|
|
2,529,527
|
|
Retained
profits
|
|
|
|
|
|
4,628,096
|
|
|
10,085,066
|
|
Accumulated
other comprehensive income
|
|
|
|
|
|
1,605,673
|
|
|
893,168
|
|
|
|
|
|
|
$
|
16,705,832
|
|
$
|
14,097,525
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
$
|
21,399,334
|
|
$
|
18,903,514
|
|
See
accompanying notes to consolidated financial statements
AAMAXAN
TRANSPORT GROUP, INC.
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
FOR
THE THREE-MONTHS ENDED MARHC 31, 2008 AND 2007
|
(Stated
in US Dollars)(Unaudited)
|
|
|
|
|
Three
months ended March 31,
|
|
|
|
Note
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
16
|
|
$
|
10,190,623
|
|
$
|
7,942,576
|
|
Cost
of sales
|
|
|
|
|
|
(6,460,885
|
)
|
|
(4,875,294
|
)
|
Gross
profit
|
|
|
|
|
$
|
3,729,738
|
|
$
|
3,067,282
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
|
|
|
(632,834
|
)
|
|
(168,479
|
)
|
General
and administrative expenses
|
|
|
|
|
|
(346,317
|
)
|
|
(311,562
|
)
|
Income
from operation
|
|
|
|
|
$
|
2,750,587
|
|
$
|
2,587,241
|
|
Loss
on disposal of fixed assets
|
|
|
|
|
|
(1,347
|
)
|
|
-
|
|
Interest
income
|
|
|
|
|
|
6,675
|
|
|
739
|
|
Income
from continuing operation before income taxes
|
|
|
|
|
$
|
2,755,915
|
|
$
|
2,587,980
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
17
|
|
|
(786,208
|
)
|
|
(853,807
|
)
|
Net
income before minority interests
|
|
|
|
|
$
|
1,969,707
|
|
$
|
1,734,173
|
|
Minority
interests
|
|
|
|
|
|
488
|
|
|
(1,607
|
)
|
Net
income
|
|
|
|
|
$
|
1,970,195
|
|
$
|
1,732,566
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
712,505
|
|
|
213,309
|
|
Comprehensive
income
|
|
|
|
|
$
|
2,682,700
|
|
$
|
1,945,875
|
|
Basic
and diluted earnings per share
|
|
|
15
|
|
$
|
0.13
|
|
$
|
0.12
|
|
Basic
and diluted weighted average share outstanding
|
|
|
15
|
|
|
15,235,812
|
|
|
14,991,812
|
|
See
accompanying notes to consolidated financial statements
AAMAXAN
TRANSPORT GROUP, INC.
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND THREE-MOHTS ENDED MARCH 31,
2008
|
(Stated
in US Dollars)(Unaudited)
|
|
|
|
|
|
|
Series
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No.
of
|
|
|
|
No.
of
|
|
|
|
paid-in
|
|
Statutory
|
|
Retained
|
|
comprehensive
|
|
|
|
|
|
share
|
|
Amount
|
|
share
|
|
Amount
|
|
capital
|
|
reserves
|
|
earnings
|
|
income
|
|
Total
|
|
Balance,
January 1, 2007
|
|
|
14,991,812
|
|
$
|
1,499
|
|
|
-
|
|
$
|
-
|
|
$
|
233,804
|
|
$
|
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
623,695
|
|
|
623,695
|
|
Balance,
December 31
,
2007
|
|
|
14,991,812
|
|
$
|
1,499
|
|
|
-
|
|
$
|
-
|
|
$
|
588,265
|
|
$
|
2,529,527
|
|
$
|
10,085,066
|
|
$
|
893,168
|
|
$
|
14,097,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,991,812
|
|
$
|
1,499
|
|
|
-
|
|
$
|
-
|
|
$
|
588,265
|
|
$
|
2,529,527
|
|
$
|
10,085,066
|
|
$
|
893,168
|
|
$
|
14,097,525
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,970,195
|
|
|
-
|
|
|
1,970,195
|
|
|
|
|
244,000
|
|
|
24
|
|
|
-
|
|
|
-
|
|
|
7,352,748
|
|
|
-
|
|
|
(7,427,165
|
)
|
|
-
|
|
|
(74,393
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
712,505
|
|
|
712,505
|
|
|
|
|
15,235,812
|
|
$
|
1,523
|
|
|
-
|
|
$
|
-
|
|
$
|
7,941,013
|
|
$
|
2,529,527
|
|
$
|
4,628,096
|
|
$
|
1,605,673
|
|
$
|
16,705,832
|
|
See
accompanying notes to consolidated financial statements
AAMAXAN
TRANSPORT GROUP, INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
|
(Stated
in US Dollars)(Unaudited)
|
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
1,970,195
|
|
$
|
1,732,566
|
|
Depreciation
|
|
|
8,000
|
|
|
6,819
|
|
Amortization
|
|
|
493,333
|
|
|
136,077
|
|
Minority
interests
|
|
|
(488
|
)
|
|
1,607
|
|
Loss
on disposal of fixed assets
|
|
|
1,347
|
|
|
-
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(976,816
|
)
|
|
(506,487
|
)
|
Other
receivables
|
|
|
(81,632
|
)
|
|
61,328
|
|
Inventories
|
|
|
(609,675
|
)
|
|
(247,645
|
)
|
Advances
to suppliers
|
|
|
691,938
|
|
|
2,678
|
|
Prepayments
|
|
|
(37,852
|
)
|
|
(37,092
|
)
|
Accounts
payable
|
|
|
(42,866
|
)
|
|
585,989
|
|
Notes
payables
|
|
|
-
|
|
|
101,923
|
|
Customers’
deposits
|
|
|
(30,228
|
)
|
|
(136,346
|
)
|
Accruals
|
|
|
(3,522
|
)
|
|
(6,647
|
)
|
Other
payables
|
|
|
(78,718
|
)
|
|
(952,425
|
)
|
Income
tax payable
|
|
|
(140,917
|
)
|
|
(69,700
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$
|
1,162,099
|
|
$
|
672,645
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Acquisition
of a subsidiary
|
|
$
|
-
|
|
$
|
(433,064
|
)
|
Purchase
of plant and equipment
|
|
|
(11,995
|
)
|
|
-
|
|
Amount
paid to a director
|
|
|
(42,279
|
)
|
|
230,395
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
$
|
(54,274
|
)
|
$
|
(202,669
|
)
|
See
accompanying notes to consolidated financial statements
AAMAXAN
TRANSPORT GROUP, INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
|
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
|
(Stated
in US Dollars)(Unaudited)
|
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Cash
flows from financing activities
|
|
|
|
|
|
Bank
borrowings
|
|
$
|
-
|
|
$
|
128,678
|
|
Payables
to holding company
|
|
|
-
|
|
|
70,773
|
|
Dividend
payables
|
|
|
-
|
|
|
1,286,776
|
|
Dividend
paid
|
|
|
-
|
|
|
(1,930,164
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in by financing activities
|
|
$
|
-
|
|
$
|
(443,937
|
)
|
|
|
|
|
|
|
|
|
Net
cash and cash equivalents sourced
|
|
$
|
1,107,825
|
|
$
|
26,039
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency translation on cash and cash
equivalents
|
|
|
119,813
|
|
|
260,734
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents-beginning of year
|
|
|
2,299,772
|
|
|
1,896,853
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents-end of year
|
|
$
|
3,527,410
|
|
$
|
2,183,626
|
|
|
|
|
|
|
|
|
|
Supplementary
cash flow information:
|
|
|
|
|
|
|
|
Interest
received
|
|
$
|
6,675
|
|
$
|
739
|
|
Tax
paid
|
|
|
786,208
|
|
|
853,807
|
|
See
accompanying notes to consolidated financial statements
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
1.
|
ORGANIZATION
AND
PRINCIPAL
ACTIVITIES
|
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. 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.
On
April
4, 2008, the Company 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 the Company’s Common Stock and the
right to nominate all members of the Company’s board. Pursuant to this
agreement, the Company’s 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
the Company’s 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 the Company’s 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, Anhante (Beijing) Medical Technology
Co., Ltd (“ABMT”) and Shanghai Medical Technology Co., Ltd. (“SMTL” or “Shanghai
Medical”).
On
April
15, 2008, the Company consummated a share exchange transaction with KAL,
in
which the Company exchanged 14,991,812 shares of the Company’s common stock, par
value $0.0001 per share, for all of the issued and outstanding stock of Asia
Business Management Group Limited (“ABM”) held by KAL. As a result of the share
exchange transaction, ABM became the Company’s wholly-owned subsidiary, and ABMT
became the Company’s indirectly wholly-owned subsidiary.
SMTL
was
established in Shanghai of the People’s Republic of China (the PRC) as a limited
company on June 28, 2005. SMTL 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.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (C
ontinued
)
|
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
SMTL
and Chen Zhong signed the Consignment Agreement which stipulated that Chen
Zhong
should consign all its 95% equity interests in Vantage to the SMTL, and the
SMTL
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 SMTL.
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 SMTL 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.
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,
SMTL
became the holding company of Hemo.
SMTL
is
the holding company of, Vantage and Hemo through the aforesaid group
restructuring.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (C
ontinued
)
|
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 SMTL 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.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
c)
|
Principles
of consolidation
|
The
consolidated financial statements are presented in US Dollars. All significant
inter-company balances and transactions are eliminated in the
consolidation.
The
following table depicts the identity of the subsidiaries
Name
of Company
|
|
Place
& date of Incorporation
|
|
Attributable
Equity Interest %
|
|
Registered
Capital
|
|
Common
stock
|
Asia
Business Management Group Limited
|
|
BVI/
Aug
12, 1999
|
|
100%
|
|
-
|
|
$3
|
|
|
|
|
|
|
|
|
|
Anhante
(Beijing) Medical Technology Co., Ltd
|
|
PRC/
Jan
23, 2008
|
|
100%
|
|
$8,000,000
|
|
|
|
|
|
|
|
|
|
|
|
*Shanghai
Medical
Technology
Co., Ltd
|
|
PRC/
June
28, 2005
|
|
100%
|
|
RMB6,300,000
|
|
-
|
|
|
|
|
|
|
|
|
|
*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
|
|
-
|
*
They
are variable interests entities.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
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.
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.
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.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
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.
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.
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.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
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.
The
PRC
government imposes significant exchange restrictions on fund transfers out
of
the PRC that are not related to business operations. These restrictions have
not
had a material impact on the Group because it has not engaged in any significant
transactions that are subject to the restrictions.
The
exchange rates used to translate amounts in RMB into USD for the purposes
of
preparing the consolidated financial statements were as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
March
31, 2007
|
|
Twelve
months ended
|
|
|
-
|
|
|
7.3141
|
|
|
-
|
|
RMB
: USD exchange rate
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
7.0222
|
|
|
-
|
|
|
7.7410
|
|
RMB
: USD exchange rate
|
|
|
|
|
|
|
|
|
|
|
Average
three months ended
|
|
|
7.1757
|
|
|
-
|
|
|
7.7714
|
|
RMB
: USD exchange rate
|
|
|
|
|
|
|
|
|
|
|
The
RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into
US
D
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
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
three
months ended March 31, 2008 and 2007 were $53,628 and $21,239
respectively.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
The
Group
expensed all advertising costs as incurred. Advertising expenses included
in the
selling expenses for the three months ended March 31, 2008 and 2007 were
$8,955
and nil 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 three months ended March 31, 2008 and 2007
were
$36,822 and $28,284 respectively.
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 25% and 33% for 2008
and
2007 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.
|
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 March 31, 2008 and December 31, 2007 amounted
to
$3,527,410 and $2,299,772 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.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
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
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.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (
Continued)
|
|
(t)
|
Recent
accounting pronouncements
(continued)
|
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.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
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 March 31, 2008 and December
31,
2007. The Group performs ongoing evaluations of its cash position and credit
evaluations to ensure sound collections and minimize credit losses
exposure.
As
of
March 31, 2008 and December 31, 2007, 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
three months ended March 31, 2008 and 2007, all of the Group’s sales were
generated from the PRC. In addition, all accounts receivable as of March
31,
2008 and December 31, 2007 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:
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Customer
A
|
|
$
|
1,038,646
|
|
$
|
2,558,155
|
|
Details
of customer account for 10% or more of the Group’s accounts receivable are as
follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Customer
B
|
|
$
|
-
|
|
$
|
254,934
|
|
Customer
C
|
|
|
-
|
|
|
275,566
|
|
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
4.
|
ACCOUNTS
RECEIVABLES, NET
|
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Trade
receivable, gross
|
|
$
|
3,575,992
|
|
$
|
2,474,947
|
|
Provision
for doubtful debts
|
|
|
(69,498
|
)
|
|
(66,724
|
)
|
|
|
$
|
3,506,494
|
|
|
2,408,223
|
|
All
of
the above accounts receivable are due within 12 months of aging.
An
analysis of the allowance for doubtful accounts for the three months ended
March
31, 2008 and 2007 is as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
66,724
|
|
$
|
-
|
|
Addition
of bad debt expense
|
|
|
|
|
|
66,724
|
|
Foreign
exchange adjustment
|
|
|
2,774
|
|
|
-
|
|
Balance
at end of period
|
|
$
|
69,498
|
|
$
|
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:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Chen
Zhong
|
|
$
|
203,823
|
|
$
|
195,688
|
|
Yang
Fong
|
|
|
163,410
|
|
|
156,889
|
|
Shanghai
City Hygiene Industry Development Centre
|
|
|
19,225
|
|
|
18,458
|
|
|
|
$
|
386,458
|
|
$
|
371,035
|
|
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
Details
of other receivables are as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Rental
deposits
|
|
$
|
23,029
|
|
$
|
12,715
|
|
Loans
to an unrelated company
|
|
|
228,042
|
|
|
171,338
|
|
Advances
to employee
|
|
|
16,905
|
|
|
1,383
|
|
Others
|
|
|
21,083
|
|
|
11,999
|
|
|
|
$
|
289,059
|
|
$
|
197,435
|
|
Loan
to
an unrelated company is unsecured, interest free, and has no fixed repayment
date.
Details
of inventories are as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
23,446
|
|
$
|
22,510
|
|
Materials
in consignment
|
|
|
13,532
|
|
|
12,992
|
|
Finished
goods
|
|
|
1,934,245
|
|
|
1,258,914
|
|
|
|
$
|
1,971,223
|
|
$
|
1,294,416
|
|
Provision
for inventory write-down
|
|
|
(91,387
|
)
|
|
(87,740
|
)
|
|
|
$
|
1,879,836
|
|
$
|
1,206,676
|
|
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
Details
of due from directors are as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Chen
Zhong
|
|
$
|
20,897
|
|
$
|
6,796
|
|
Xu
Yifei
|
|
|
29,811
|
|
|
410
|
|
|
|
$
|
50,708
|
|
$
|
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:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Dealership
of products in China
|
|
$
|
5,079,130
|
|
$
|
5,218,231
|
|
Current
portion
|
|
|
(1,424,055
|
)
|
|
(1,367,222
|
)
|
|
|
$
|
3,655,075
|
|
$
|
3,851,009
|
|
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
11.
|
PLANT
AND EQUIPMENT, NET
|
Details
of plant and equipment, net are as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
At
cost
|
|
|
|
|
|
Machinery
and equipment
|
|
$
|
37,595
|
|
$
|
36,094
|
|
Office
equipment
|
|
|
66,275
|
|
|
54,020
|
|
Motor
vehicles
|
|
|
221,381
|
|
|
212,546
|
|
|
|
$
|
325,251
|
|
$
|
302,660
|
|
Less:
accumulated depreciation
|
|
|
(110,882
|
)
|
|
(99,445
|
)
|
Less:
provision for impairment
|
|
|
(19,670
|
)
|
|
(18,885
|
)
|
|
|
$
|
194,699
|
|
$
|
184,330
|
|
Depreciation
expenses included in the selling expenses were $2,982 and $2,752 respectively,
and included in the general and administrative expenses for the three months
ended March 31, 2008 and 2007 were $5,018 and $4,067 respectively.
12.
|
INTANGIBLE
ASSETS, NET
|
Details
of intangible assets, net are as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Patent
rights, at cost
|
|
$
|
5,924,069
|
|
$
|
5,687,644
|
|
Less:
accumulated amortization
|
|
|
(840,192
|
)
|
|
(664,470
|
)
|
|
|
$
|
5,083,877
|
|
$
|
5,023,174
|
|
Amortization
expenses included in the selling expenses were $348,399 and nil respectively,
and included in the general and administrative expenses for the three months
ended March 31, 2008 and 2007 were $144,934 and $136,077
respectively.
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
Details
of due to a shareholder are as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Shanghai
Pharmacy Co., Ltd
|
|
$
|
56,962
|
|
$
|
54,689
|
|
Due
to a
shareholder is unsecured, interested free and repayable on demand.
Details
of other payables are as follows:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Sales
rebates
|
|
$
|
317,431
|
|
$
|
247,499
|
|
Payables
to unrelated companies
|
|
|
123,974
|
|
|
-
|
|
Sundry
PRC taxes payables
|
|
|
158,720
|
|
|
455,070
|
|
Unrealized
subsidies from government
|
|
|
51,551
|
|
|
-
|
|
Sundry
|
|
|
16,952
|
|
|
16,603
|
|
|
|
$
|
668,628
|
|
$
|
719,172
|
|
Payables
to unrelated companies is unsecured, interested free and repayable on
demand.
The
calculation of the basic and diluted earnings per share attributable to the
common stock holders is based on the following data:
|
|
March
31, 2008
|
|
March
31, 2007
|
|
Earnings:
|
|
|
|
|
|
|
|
Earnings
for the purpose of basic and dilutive earnings per
share
|
|
$
|
1,970,195
|
|
|
1,732,566
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
|
|
|
|
|
Weighted
average number of common stock for the purpose of basic and dilutive
earnings per share
|
|
|
15,235,812
|
|
|
14,991,812
|
|
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
Details
of net revenues are as follows:
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Diagnosis
product revenues
|
|
$
|
10,165,463
|
|
$
|
7,942,576
|
|
Others
|
|
|
25,160
|
|
|
-
|
|
|
|
$
|
10,190,623
|
|
$
|
7,942,576
|
|
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 25% and 33% for 2008
and
2007 respectively.
No
deferred tax has been provided as there are no material temporary differences
arising for the three months ended March 31, 2008 and 2007.
18.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Group
has entered into a tenancy agreement for office premise expiring through 2007.
Total rental expenses for the three months ended March 31, 2008 and 2007
amounted to $53,628 and $21,239 respectively.
The
Group’s commitments for minimum lease payments under the lease for next five
years are as follows:
Year
ending March 31,
|
|
|
|
2009
|
|
$
|
180,633
|
|
2010
|
|
|
5,411
|
|
2011
|
|
|
-
|
|
2012
|
|
|
-
|
|
2013
and thereafter
|
|
|
-
|
|
|
|
$
|
186,044
|
|
AAMAXAN
TRANSPORT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated
in US Dollars)(Unaudited)
19.
|
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.
The
Group
currently is engaged in the technical development, transfer, consulting and
servicing of pharmaceutical and medical appliance, and the selling of diagnosis
products. Accordingly, no analysis of the Company's sales and assets by product
is presented.
The
Group's operations are located in the PRC. All revenue is from customers in
the
PRC. Also, all of the Group’s assets are located in the PRC. Accordingly, no
analysis of the Company's sales and assets by geographical market is
presented.
As
described in our May 22, 2008 Report on Form 8-K , on April 15, 2008, the
Company acquired all of the issued and outstanding capital stock of Asia
Business Management Group Limited, a British Virgin Islands corporation (ABM),
which owns 100% of the issued and outstanding capital 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 on the same date entered a series
of
contracts with SMTL, which give it control over SMTL’s business, personnel and
finances as if it were a wholly owned subsidiary of ABMT. (the “Reverse
Merger”). On the same date the Company completed a private placement financing
transaction, 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 for $12,532,000 in gross proceeds
(the “Private Placement”). Under the terms of the Reverse Merger proceeds of the
Private Placement will be provided to SMTL, which intends to use such proceeds
to make acquisitions, to develop hemodialysis centers and for working
capital.
On
May
15, 2008 the Company changed its fiscal year from January 31 to December 31
to
coincide with that of SMTL.
ALBERT
WONG & CO. INDEPENDENT AUDITOR’S REPORT &
SHANGHAI
ATRIP MEDICAL TECHNOLOGY CO
.,
LTD
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Stated
in US dollars) AND NOTES
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.
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.
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.
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