SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
(Amendment No. 1 Filed on January 19, 2000)
General Form for Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Dragon Pharmaceutical Inc.
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(Name of Small Business Issuer in its charter)
Florida 65-0142474
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
543 Granville Street, Suite 1200
Vancouver, British Columbia, Canada V6C IX8
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(Address of principal executive offices)
Issuer's telephone number: (604) 669-8817
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock
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With the exception of historical facts stated herein, the following
discussion may contain forward- looking statements regarding events and
financial trends which may affect the Company's future operating results and
financial position. Such statements are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially from those anticipated in such forward- looking statements. Factors
that could cause actual results to differ materially include, in addition to
other factors identified in this report, the Company's operating losses, need
for additional capital, dependence on the development of a single product, its
ability to develop new products, and uncertainty of dealing in a foreign
country, all of which factors are set forth in more detail in the sections
entitled "Certain Considerations" and "Management's Discussion and Analysis or
Plan of Operation" herein. Readers of this report are cautioned not to put undue
reliance on "forward looking" statements which are, by their nature, uncertain
as reliable indicators of future performance. The Company disclaims any intent
or obligation to publicly update these "forward looking" statements, whether as
a result of new information, future events, or otherwise.
In this statement, all dollar amounts are expressed in United States
dollars unless otherwise stated.
PART I.
Item 1. Description of Business
General
Dragon Pharmaceutical Inc. ("Dragon" or the "Company"), a Florida
corporation, is a development stage pharmaceutical and biotechnological company
that intends to manufacture and market products in China. Although Dragon does
not at this time have the capability to produce drugs, Dragon believes that its
proprietary vector technology will allow it to produce drugs such as
Erythropietin ("EPO") in an efficient and cost effective manner. Dragon's
strategy is to use its biotechnological expertise to produce and market
pharmaceutical products primarily in China through the acquisition of a
manufacturing license and access to a production facility in China to produce
initially EPO and other drugs.
Corporate History
Dragon was originally formed on August 22, 1989, as First Geneva
Investments, Inc. First Geneva Investments was formed for the purpose of
evaluating and acquiring businesses. From 1989 to 1998, First Geneva Investments
had no significant activity. On July 28, 1998, pursuant to a share exchange
agreement, First Geneva Investments issued 7,000,000 shares of its Common Stock
and warrants to purchase 1,000,000 shares its Common Stock in exchange for all
of the outstanding shares of Allwin Newtech Ltd., a British Virgin Islands
corporation. Allwin Newtech Ltd. was formed on February 10, 1998 for the purpose
of developing pharmaceutical products in China. As a result of the acquisition,
the former shareholders of Allwin Newtech became 87.5% shareholders of First
Geneva Investments and Allwin Newtech became its wholly-owned subsidiary. On
September 21, 1998, First Geneva Investments changed its named to Dragon
Pharmaceutical Inc.
<PAGE>3
Joint Ventures
Through Allwin Newtech, on April 18, 1998, Dragon entered into a contract
to acquire a 75% interest in San-he Kailong Bio-pharmaceutical Limited, a
corporation organized under the laws of China. The other joint venture partner
is Sinoway Biotech Limited. San-he Kailong Bio-pharmaceutical was formed for the
purpose of developing, manufacturing and marketing pharmaceutical products in
China. For its initial 75% interest, Dragon will contribute approximately
$1,000,000 and its vector technology to San-he Kailong Bio-pharmaceutical
Limited. Dragon has the right to increase its interest to 85% upon the payment
of additional funds. For its initial 25% interest, Sinoway Biotech will
contribute a contract to purchase a license to manufacture EPO and other drugs
in China and a right to purchase 25 acres of land at a pharmaceutical park
located in the Yanjiao Special Economic Zone, China. San-he Kailong Bio-
pharmaceutical Limited has yet to begin operations, and Dragon is currently
evaluating its option under the joint venture agreement.
On July 27,1999, Allwin Newtech entered into a share transfer agreement
with the Nanjing Medical Group Ltd. whereby Allwin Newtech will have the right
to purchase from the Nanjing Medical Group up to a 75% equity interest in
Nanjing Huaxin Biotech Co. Ltd. under the terms of the share transfer agreement.
The total purchase price for the 75% equity interest will be $4.2 million of
which approximately $3.293 million has been paid. The balance of $907,000 is due
on January 31, 2000. Of the $4.2 million, $1,218,100 has been allocated as
working capital for the joint venture. In the event Allwin Newtech is unable to
make the remaining payments, the 75% interest in Nanjing Huaxin Biotech shall
revert back to Nanjing Medical Group. Dragon is in the process of securing
financing for the remaining payments.
Nanjing Huaxin Biotech is located in Nanjing City, China and owns a license
and production permit for the manufacture of EPO in China. Nanjing Huaxin
Biotech currently manufactures approximately 300,000 doses of EPO annually;
however Dragon believes the Nanjing Huaxin Biotech EPO production has been
hampered by out-of-date technology. As part of its business strategy, Dragon
will supply management to Nanjing Huaxin Biotech and will contribute its
proprietary vector technology consisting of inserting protein DNA into a cell to
product EPO. Dragon believes that its vector technology will lower costs and
increase the production yield of EPO at Nanjing Huaxin Biotech. Nanjing Huaxin
Biotech's board of directors shall consist of five directors of which three
shall be appointed by Allwin Newtech. Nanjing Huaxin Biotech was previously part
of Nanjing Research Institute of Military Medical Science, a corporation
operated by the Chinese military. Allwin Newtech acquired only the part relating
to the production of EPO.
Proposed Product
Erythropeoietin. EPO is a glyoprotein that stimulates and regulates the
rate of formation of red blood cells. In the adult human, EPO is produced by the
kidneys and it acts on precursor cells to stimulate cell proliferation and
differentiation into mature red blood cells. Kidney disease and chemotherapy or
radiation therapy for treating cancer may impair the body's ability to produce
EPO and, in turn, reduce the level of red blood cells to less than one-half that
of healthy humans. The shortage of red blood cells leads to insufficient
delivery of oxygen throughout the body. The result is anemia, which afflicts 90%
of all dialysis patients. Symptoms of anemia include fatigue and weakness.
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Anemia can be treated by providing intravenous administration of EPO
protein. This treatment has been available for the past decade, after years of
clinical trials that commenced in the mid-1980s. It is administered through
dialysis tubing or by injection approximately three times per week, either
intravenously or subcutaneously. Improvement in a patient's condition is
typically achieved in two to six weeks. EPO is most commonly administered to
people with chronic renal failure, HIV patients being treated with anti-viral
drugs, and cancer patients on chemotherapy. The treatment is less dangerous and
generates fewer adverse side effects than the alternatives, which include blood
transfusions and androgen therapy. However, side effects of EPO may include
hypertension, headaches, shortness of breath, diarrhea, rapid heart rate and
nausea.
Dragon's Vector Technology. Dragon anticipates achieving enhanced
efficiencies in the production of EPO by Nanjing Huaxin Biotech by introducing a
high-yield mammalian cell line. Dragon scientists designed a unique plasmid
vector for expression of target genes in mammalian cells and constructed the
EPO-expression CHO (Chinese Hamster Ovary) cell line using this technology. The
science behind Dragon's technology and "vectoring process" may be summarized as
follows.
CHO cells are used for obtaining the EPO-expression cell lines. CHO cells
have the ability of proliferating indefinitely in culture and are the most
widely-used mammalian cells for producing recombinant proteins. The CHO
cell-based expression system is considered the industry standard and is used by
Dragon for protein production.
In order to construct a CHO cell line, which expresses a particular
protein, the genetic materials encoding the sequences of the desired protein
(cDNA) are inserted into a plasmid vector. The plasmids are encapsulated in
liposomes and then used to transfect the CHO cells. The plasmid vector used for
carrying the genetic information of the desired protein is very crucial. In
addition to delivering the desired cDNA into CHO cells, it is the plasmid vector
that largely determines whether the high yield of the recombinant protein
production by the transfected CHO cells can be achieved or not. The plasmid
vector will allow the amplification of itself together with the cDNA of desired
protectin inside the CHO cells under certain conditions. This will lead to a
higher level production of the desired protein by the transfected CHO cells.
In addition to the protein genetic information that the plasmid vector
transports into the CHO cells, several marker genes are also included within the
plasmids. These genes produce enzymes that can be detected to provide an
indication that the cells are "transfected" (i.e., genetically modified by the
uptake of the genetic material). This will be used to select the transformed
cells from the unmodified cells. Some of the marker genes are used to induce the
amplification of cDNA of the desired protein in the transformed cells. More cDNA
copies would translate into a higher yield of the protein. Through a
time-consuming and complicated selection process, clones of the CHO cells with
stable growth and the highest level of expression of the desired protein are
selected. During this process, various techniques are used to amplify the number
of copies of the cDNA that codes for the desired protein.
These selected clones will be expanded into large volumes and stored in
aliquots as the Master Cell Banks ("MCB") for large-scale protein production.
The CHO cell culture systems for industrial production of recombinant proteins
are variable for a few months of sustained protein production. After that, new
cells from the cell bank will be scaled up for another circle. The protein
produced by the CHO cells will be secreted into the media during the culture and
the media obtained will be used to purify the desired protein.
<PAGE>5
Dragon has developed its own technology to construct the unique plasmid
vector. This plasmid vector is used for constructing a CHO cell line, which
produce EPO at high yields. This is expected by management of Dragon to increase
EPO production and reduce the cost of EPO production.
The yield of Dragon's EPO-expression CHO cell line was tested at the
Beijing Institute of Microbiology and Epidemiology in May of 1999. The CHO cells
were cultured according to the methods provided by Dragon. EPO production was
calculated by measuring the EPO levels in the harvested media using ELISA. The
yield of the EPO cell line was 37 mg/. This result exceeds the estimated 10-20
mg/L achieved by another manufacturer of EPO, and the estimated 2-3 mg/L
achieved by Chinese producers. No assurances can be given that Dragon will
achieve the same test results in commercial production.
Nanjing Huaxin Biotech currently produces EPO in China for kidney dialysis
applications and Chinese governmental approval for cancer therapeutic
applications is anticipated of July of 2000.
Originally, management of Dragon contemplated entering the EPO market by
acquiring an EPO license and building a manufacturing facility. This requires
large capital requirements. Dragon is currently evaluating its options and has
entered into an agreement to acquire an interest in Nanjing Huaxin Biotech which
has an existing facility and necessary permits and licenses. Nanjing Huaxin
Biotech, prior to the acquisition and technology transfer by Dragon, has been
producing an estimated 300,000 vials of EPO per year.
Market
China's Pharmaeutical Market
Dragon believes China's pharmaceutical market is large and believes China's
market is showing signs of continued expansion. The market has grown steadily
since 1990, according to a U.S. Department of Commerce article (1998),
"China-Drugs and Pharmaceuticals" detailing how the number of foreign- invested
pharmaceutical ventures had increased from less than a dozen in the late 1980s
to more than 1,800 today. New entrants in the Chinese pharmaceutical market in
the past decade have included J&J, Bristol Myers Squibb, Hoffman La Roche and
Hoechst Marion Roussel.
Growth factors in the Chinese market include:
o Increasing population
o Increasing age of the population
o Increasing wealth
o Increasing awareness of Western medicines
China's EPO Market
Sales of EPO in the Chinese market have been less than elsewhere in the
world because current sales prices of $20 to $40 per vial put it out of reach to
many of the patients who could benefit from it.
There are three sources of EPO in the Chinese marketplace.
<PAGE>6
First, Amgen services the market through offshore production facilities.
However, the price to the consumer is prohibitive because of tariffs and a value
added tax that combined add about 30% to the cost.
Second, there are a number of existing domestic producers similar to
Nanjing Huaxin Biotech. EPO is allowed for sale in China and does not infringe
on patent rights of Kirin-Amgen because no administration protection was filed
before EPO was exported to China; furthermore, EPO is not subject to the
U.S.-China agreement on intellectual property.
Dragon management believes that the market size for EPO would increase
dramatically if prices could be reduced to a more affordable level. A lower
price would allow non-governmental workers to afford EPO and also would increase
the likelihood of EPO being included on the reimbursement list of drugs that are
supplied at no charge to government workers with prescriptions. Dragon plans to
attain the lower costs by producing domestically, thus avoiding import duties,
and by producing with high-yield vector technology, thus avoiding the quality
and inefficient yield problems of existing domestic producers.
The third form of competition is represented by Sinogen (China) Ltd.,
("Sinogen"), a Hong Kong subsidiary of U.S.-based Sinogen International Co. Ltd.
Sinogen reached an agreement in 1998 with the shareholders of the Shandong
Yongming Vivogen Pharmaceutical Co. Ltd. on the establishment of a new joint
venture to research and develop EPO. This EPO was developed by the Nanjing
Institute of Military Medical Sciences and the Hainan Yalong Institute of
Biomedical Sciences. In October 1996, the Ministry of Health granted a new drug
certificate to the drug and approval to start production was received in 1997.
Competition
The world market for EPO is approximately $3 billion in annual sales and is
growing. The market is dominated by three firms: Amgen Inc. of Thousand Oaks,
California; Ortho Pharmaceutical Corp. ("Ortho"), a subsidiary of Johnson &
Johnson, Inc. ("J&J") of New Brunswick, New Jersey; and Kirin Brewery Company,
Limited ("Kirin") of Japan. EPO is marketed by Amgen as Epogen, by J&J as
Procrit/Eprex and by Kirin as Espo. A fourth participant in the international
EPO market is Roche Holding AG of Switzerland, which markets an EPO drug with a
different heritage.
Amgen was granted U.S. rights to market EPO under a licensing agreement
with Kirin-Amgen, Inc. ("Kirin-Amgen"), a joint venture between Kirin and Amgen
that was established in 1984. J&J acquired the rights to EPO for all treatments
except kidney dialysis in the U.S. and for all uses outside the U.S. in 1985.
Kirin manufacturers and markets EPO for China and Japan.
Potential competition to EPO includes any products or technologies that are
successful in attacking anemia. Hoechst Marion Roussel, Inc. is currently
conducting clinical trials on gene-activated erythropoietin for the treatment of
anemia, while Alkermes, Inc. of Cambridge, Massachusetts and J&J are currently
conducting clinical trials with a sustained delivery formulation of Epoetin alfa
for the treatment of anemia. Amgen has sole rights to Novel Erythropoiesis
Stimulating Protein ("NESP"), a second-generation EPO molecule that will post
serious competition to the existing products because it offers the possibility
of less frequent dosing (i.e., once a week rather than three times a week).
Phase I clinical trials have commenced in pre-dialysis patients, and Amgen
expects to begin studies in chemotherapy-induced anemia this year.
<PAGE>7
In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties that could increase their ability to reach customers in the
Chinese market. Such existing and future competition could affect Dragon's
ability to penetrate the Chinese market and generate sales revenues. No
assurances can be given that Dragon will be able to compete successfully against
current and future competitors, and any failure to do so would have a material
adverse effect on Dragon's business.
Intellectual Property, Government Approvals and Regulations
Dragon's vector technology is not protected by any patents or copyrights.
The development and manufacture of EPO requires a license from the Ministry of
Health, China. Amgen has a United States patent to develop EPO. However, because
no corresponding patent was filed in China, Dragon has the right to develop and
market EPO in China.
Customers
At this time, Dragon has no customers. If the share transfer agreement with
the Nanjing Medical Group is consummated, Dragon will have customers through
Nanjing Huaxin Biotech. Dragon intends to expand this customer base through its
relationship with Nanjing Medical Group, one of the largest pharmaceutical
enterprises in China with extensive experience and expertise in the marketing
and distribution of pharmaceutical products in China.
Employees
As of September 30, 1999, the Company had no employees, but has engaged two
consultants to perform administrative services.
CERTAIN CONSIDERATIONS
In addition to the other information presented herein, the following should
be considered carefully in evaluating the Company and its business. This
information contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below and
elsewhere in herein.
Dragon is in immediate need of a significant amount of funds. The
acquisition of Nanjing Huaxin Biotech and costs associated with modernizing the
production facility, ramping-up of production and marketing the EPO will require
an estimated investment of at least $2.0 million before commercial production
and sales growth can be achieved. Further, the Company must raise at least $2.0
million to complete its acquisition of Nanjing Huaxin Biotech.
There are technical risks associated with the Dragon technology. Although
Dragon believes that its vector technology will produce EPO at lower costs,
Dragon's method for producing EPO is commercially unproven. Small-scale
proof-of-product production must be initiated before full-scale production is
started. Although results from recent independent tests have been extremely
encouraging. Dragon's ability to produce EPO at a lower cost is unproven in
commercial production.
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The Integration of Huaxin/Nanjing Medical Corp. with Dragon is essential.
Dragon's management must integrate Nanjing Huaxin Biotech's technology into its
business.
No assurance that EPO market will develop in China. Dragon may prove
technically capable to producing EPO in the future year, but there is
insufficient evidence that there will be a large enough market to justify a
large volume of EPO vials. Among other marketing issues, vials of EPO must be
lower priced, the Chinese medical community and consumers must be educated about
the EPO, and export market opportunities must be studied. Further, Dragon will
be limited in its ability to market EPO outside of China due to EPO patent
rights held by its competitors.
Lack of Profits and Going Concern Disclosure. For the period from February
10, 1998 (inception) to December 31, 1998, and for the nine months ended
September 30, 1999, Dragon incurred comprehensive net losses of $473,862 and
$259,431, respectively. As a result of these losses and negative cash flows from
operations, the Company's ability to continue as a going concern is uncertain
and is dependent upon the raising additional capital.
In the event the Company is required to raise additional capital through
private placement of its equity securities, such placement of equity securities
will have the effect of diluting existing shareholders of their ownership
interest in the Company. If the Company is unable to raise sufficient funds to
finance these projects, the Company may not be able to complete its projects
which will have an adverse effect on the Company's business objectives.
Dependence on Key Personnel. The Company is dependent on the services of
Dr. Liu for the development of the vector technology. The loss of Dr. Liu would
adversely effect the ability of Dragon to implement its vector technology at
Nanjing Huaxin. The Company does not have key person insurance for Dr. Liu.
No Dividends. The Company has not paid cash dividends on its Common Shares
since its inception and does not anticipate any cash dividends on the Common
Shares in the foreseeable future. For the foreseeable future, the Company
intends to reinvest the earnings of the Company, if any, on the development and
expansion of its business.
Risks Relating to the People's Republic of China. Investment in the Company
may be adversely affected by the political, social and economic environment in
the People's Republic of China ("PRC"). The PRC is controlled by the Communist
Party of China. Under its current leadership, the PRC has been pursuing economic
reform policies, including the encouragement of private economic activity and
greater economic decentralization. There can be no assurance, however, that the
PRC government will continue to pursue such policies, that such policies will be
successful if pursued, or that such policies will not be significantly altered
from time to time. Economic development may be limited as well by the imposition
of austerity measures intended to reduce inflation, the inadequate development
or maintenance of infrastructure or the unavailability of adequate power and
water supplies, transportation, raw materials and parts, or a deterioration of
the general political, economic or social environment in the PRC, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, economic reforms and growth in
the PRC have been more successful in certain provinces than others, and the
continuation or increase of such disparities could affect the political or
social stability of the PRC.
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Loss of PRC Facilities; Nationalization; Expropriation. If for any reason
the Company were required to move its proposed manufacturing operations outside
of the PRC, the Company's profitability, competitiveness and market position
could be materially jeopardized, and there could be no assurance that the
Company could continue its manufacturing operations. The Company's business and
prospects are dependent upon agreements with various entities controlled by PRC
governmental instrumentalities. Not only would the Company's operations and
prospects be materially and adversely affected by the failure of such entities
to honor these contracts, but it might be difficult to enforce these contracts
in the PRC. There can be no assurance that assets and business operations in the
PRC will not be nationalized, which could result in the total loss of the
Company's investments in that country. Following the formation of the PRC in
1949, the PRC government renounced various debt obligations incurred by
predecessor governments, which obligations remain in default, and they
expropriated assets without compensation. Accordingly, an investment in the
Company involves a risk of total loss.
Government Control Over Economy. The PRC only recently has permitted
greater provincial and local economic autonomy and private economic activities.
The PRC central government has exercised and continues to exercise substantial
control over virtually every sector of the PRC economy. Accordingly, PRC
government actions in the future, including any decision not to continue to
support current economic reform programs and to return to a more centrally
planned economy, or regional or local variations in the implementation of
economic reform policies, could have a significant effect on economic conditions
in the PRC or particular regions thereof. Any such developments could affect
current operations of and property ownership by foreign investors.
PRC Law; Evolving Regulations and Policies. The PRC's legal system is a
civil law system based on written statutes in which decided legal cases have
little value as precedents, unlike the common law system in the United States.
The PRC does not have a well-developed, consolidated body of law governing
foreign investment enterprises. As a result, the administration of laws and
regulations by government agencies may be subject to considerable discretion and
variation. In addition, the legal system of the PRC relating to foreign
investments is both new and continually evolving, and currently there can be no
certainty as to the application of its laws and regulations in particular
instances. Definitive regulations and policies with respect to such matters as
the permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published, statements regarding these evolving
policies have been conflicting, and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. As a legal system in the PRC develops with
respect to these new types of enterprises, foreign investors may be adversely
affected by new laws, changes to existing laws (or interpretations thereof) and
the preemption of provincial or local laws by national laws. In circumstances
where adequate laws exist, it may not be possible to obtain timely and equitable
enforcement thereof. The Company's activities in the PRC are by law subject, in
some circumstances, to administrative review and approval by various national
and local agencies of the PRC government. Although the Company believes that the
present level of support from local, provincial and national governmental
entities enjoyed by the Company benefits the Company's operations in connection
with administrative review and the receipt of approvals, there is no assurance
that such approvals, when necessary or advisable in the future, will be
forthcoming. The inability to obtain such approvals could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Bulletin Board Eligibility. The OTC Bulletin Board, upon which Dragon's
common stock is quoted, has required that all companies whose securities are
quoted on the OTC Bulletin Board must become reporting issuers with the SEC
pursuant to a phase-in schedule beginning on August 1, 1999. We are required to
<PAGE>10
become a reporting issuer on or before November 4, 1999, in order to maintain
the quotation of our common stock. In the event we are not able to become a
reporting issuer with the SEC by the deadline, we may be unable to maintain our
quotes on the OTC Bulletin Board. If we are unable to maintain our quotes on the
OTC Bulletin Board, our common stock will be quoted in the "pink sheets" which
will have an adverse affect on the ability of investors to buy or sell our
common stock. Upon becoming a reporting issuer, Dragon will reapply to the OTC
Bulletin Board.
Item 2. Management's Discussion and Analysis or Plan of Operation
General
The following discusses the Company's financial condition and results of
operations based upon the Company's consolidated financial statements which have
been prepared in accordance with generally accepted accounting principles.
The Company was formed on August 22, 1989, under the name First Geneva
Investments Inc. First Geneva Investment's business was to evaluate business for
possible acquisition. On July 28, 1998, entered into a share exchange agreement
with Allwin Newtech. Allwin Newtech was formed in 1998 for the purpose of
developing and market pharmaceutical drugs for the sale in China. Prior to the
acquisition of Allwin Newtech, First Geneva Investments had no operations.
Following information discusses Dragon's results of operations for the year
ended December 31, 1998, and for the nine months ended September 30, 1999.
Because Dragon had no operations prior to 1998, the following financial
information will not be indicative of Dragon's operations in the future.
Results of Operations
For the Nine Months Ended September 30, 1999.
Revenues. For the nine months ended September 30, 1999, Dragon had revenues
of $333,555. Revenues were attributed to sales of pharmaceutical drugs provided
by Nanjing Huaxin. Cost of sales of $104,080 is attributed the production costs
for the pharmaceutical drugs.
Expenses. Total expenses for the nine months ended September 30, 1999, were
$566,344. Primary expenses related to office fees of $148,282, management fees
of $72,000, salary and benefits of $80,829, depreciation of fix assets of
$54,087, and travel of $54,585. Management fees relate to the payment of two
directors in the aggregate amount of $96,000 per annum for services,
depreciation related to office equipment, travel to China related to the
evaluation of pharmaceutical companies in China and the acquisition of Nanjing
Huaxin Biotech, and payment to staff. Further, total expenses increased during
the quarter ended September 30, 1999, reflecting the acquisition of Nanjing
Huaxin during the quarter.
Net and Comprehensive Loss. Dragon Pharmaceutical had a net loss of
$336,869 and a comprehensive loss of $259,431 for the nine months ended
September 30, 1999. Calculated in this comprehensive loss was a foreign currency
translation adjustment of $27,820 related to Dragon's operations in China and a
minority interest gain of $49,610.
<PAGE>11
For the Period from February 10, 1998 (inception) to December 31, 1998.
Revenues. For the period from February 10, 1998 to December 31, 1998,
Dragon had no revenues. During this period, Dragon had interest income of
$9,737. Interest income is related interest earned on cash received from the
private placement of common stock occurring during the last six months of 1998.
Expenses. Total expenses for the period from February 10, 1998 to December
31, 1998, was $481,454. The primary expenses related to stock option
compensation of $300,000, management fees of $41,943, travel of $41,784 and
legal of $23,241. Stock option compensation of $300,000 related to stock options
granted to officers and directors of the Company, management fees of $41,943
related to the payment to two directors for services, $41,784 related to travel
to China to evaluate pharmaceutical companies in China and legal expenses
related to the reorganization of Allwin Newtech and the raising of capital.
Net and Comprehensive Loss. Dragon Pharmaceutical had a net loss of
$471,717 and a comprehensive loss of $$473,862 for the period February 10, 1998
to December 31, 1998. Calculated in this comprehensive loss was a foreign
currency translation adjustment of $2,145 related to Dragon's operations in
China.
Liquidity and Capital Resources
Dragon Pharmaceutical is a development stage pharmaceutical and
biotechnological company that intends to manufacture and market pharmaceutical
products in China. At this time, the Company has no revenues, and does not
anticipate any substantial revenues until it is able to sell products in China.
Previously, the Company has raised funds through equity financings to fund its
operations and provide working capital. It is anticipated that the Company will
continue to finance its operations and those operations of its subsidiary
through equity and debt financings. As of December 31, 1998 and September 30,
1999, the Company's working capital (deficit) was $829,493 and ($459,784). The
decrease in working capital for the nine months ended June 30, 1999, was due to
the loss incurred for the period and payment under the share transfer agreement
with the Nanjing Medical Group.
In September 1998, the Company raised $1 million through the sale of
2,000,000 shares of common stock. The proceeds raised were for working capital.
In April 1999, entered into a $600,000 loan agreement. The $600,000 loan bears
interest at 8% and due in 6 months with the right of the Company to extent the
maturity date by an additional six months at the election of the Company. The
Company exercised this option to extend by six months in September 1999. As an
additional inducement, the Company issued 90,000 shares of common stock to the
lender. On October 14, 1999, the Company entered into a securities purchase
agreement with two investors located in Hong Kong. Under the terms of this
agreement, the investors purchased, in the aggregate, 600,000 shares of Common
Stock of the at $2.50 per share, with the Company raising in the aggregate $1.5
million. Further, as part of the securities purchase agreement, each investor
receive warrants to 300,000 shares of Common Stock at $2.50 per share. Each
warrant allows the holder to purchase one common share of the Company at a price
of $2.50 for a period of one year.
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Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's,
or its suppliers' and customers' computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Because the Company is in its development stage, it does not anticipate the
utilization of software or computer systems which will require any significant
modification or replacement in response to the Year 2000 Issue.
In connection with its interest in the Nanjing Medical Group, the Company
will make sure that it systems will Year 2000 compliant. The Company is
currently analyzing the year 2000 issue with the Nanjing Medical Group.
Item 3. Description of Property
Corporate Offices. The Company are located at 543 Granville Street, Suite
1200, Vancouver, British Columbia, Canada V6C 1X8. The Company's office is
located at the office of one of the directors of the Company. The Company pays
no rent.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 31, 1999, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each stockholder known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock, (ii) each executive officer and
director of the Company, and (iii) each director and executive officer of the
Company as a group.
As of December 31, 1999, there were 10,735,000 shares of Common Stock
outstanding.
<TABLE>
<S> <C> <C>
Percentage
Number of Beneficially
Name and Address Shares(1) Owned
- ------------------------------------------------- -------------- --------------
Arbora Portfolio Management
Gartenstrasse 38
Zurich, Switzerland 767,600 7.2%
Zhibin Cai
18 Main Street
Votian
Hubei, China 999,000 9.3%
Yu Fongmei
317 Meilhai Garden, Fontain
Beijing, China 900,000 8.4%
<PAGE>13
Percentage
Number of Beneficially
Name and Address Shares(1) Owned
- ------------------------------------------------- -------------- --------------
Chimei Wu Ho
396 Chungshan Road
China 2,400,000 22.36%
Longbin Liu 400,000 (2) 3.7%
Shaun Maskerine 75,000 (3) *
Ken Cai 300,000 (2) 2.7%
Greg Hall 200,000 (3) 1.8%
Philip Yuen 100,000 (3) *
Jackson Cheng 270,000 (4) 2.59%
Alexander Wick 100,000 (3) *
Yiu Kwong Sun 100,000 (3) *
All director and executive officer as a group 1,545,000 (5) 14.3%
</TABLE>
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed above, based on information furnished by
such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage ownership of the
person holding such option or warrants, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(2) Includes 100,000 shares of Common Stock owned with the balance representing
options exercisable within sixty days.
(3) Represents options exercisable within sixty days.
(4) Includes 170,000 shares of Common Stock owned with the balance representing
options exercisable within sixty days.
(5) Includes options to acquire 1,175,000 shares of Common Stock.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following table sets forth the name and age of the executive officers
and directors of the Company.
<TABLE>
<S> <C> <C> <C>
Name Position Age Period
- --------------------- ----------------------------- ---- --------------------------
Longbin Liu President, Chief Executive 37 September 1998 - present
Officer and Director
Shaun Maskerine Secretary/Treasurer 32 July 1998 - present
<PAGE>14
Name Position Age Period
- --------------------- ----------------------------- ---- --------------------------
Ken Z. Cai Director, Chief Financial 35 September 1998 - present
Officer
Greg Hall Director 43 September 1998 - present
Jackson Cheng Director 34 September 1998 - present
Alexander Wick Director 61 September 1998 - present
Philip Yuen Pak Yiu Director 64 November 1999 - present
Dr. Yiu Kwong Sun Director 62 November 1999 - present
</TABLE>
Executive Officers and Directors
The following is a description of Dragon's executive officers and directors
and their business background for at least the past five years.
Dr. Longbin Liu, M.D. is the President, Chief Executive Officer and
Director of Dragon. He has 15 years of biotechnology experience in North
America, Japan and China, most recently as an Assistant Professor of Medicine in
the Division of Cardiovascular Medicine of the University of Massachusetts
Medical Centre.
Mr. Shaun Maskerine is Secretary and Treasure of Dragon. From July 7, 1998,
to September 18, 1998, Mr. Maskerine was President of Dragon. From July 7, 1998,
to November 23, 1999, he was a director. Mr. Maskerine is the President and
Director of Aquarius Ventures Inc. and is also the President and Director of
Global Petroleum Inc. Aquarius Ventures Inc. and Global Petroleum Inc. are both
Vancouver Stock Exchange-listed companies.
Dr. Ken Z. Cai is Chief Financial Officer and a Director of Dragon. Dr. Cai
has a Ph.D in Mineral Economics from Queen's University in Kingston, Ontario, as
well as 13 years of experience in mining, public company administration and
financing. He is currently a Director and the President and Chief Executive
Officer of Minco Mining and Metals Corporation, a Toronto Stock Exchange-listed
company. Dr. Cai has extensive experience in conducting business in China and is
the Chairman of the Board of four Sino-foreign joint ventures.
Mr. Greg Hall is a Director of Dragon. Mr. Hall is a stockbroker with 17
years of corporate finance and public offerings experience. He is a former
member/seat holder of the Vancouver Stock Exchange. Mr. Hall was the Co-Founder
of both Pacific International Securities and Georgia Pacific Securities
Corporation. He currently is a Senior Vice President of Yorkton Securities Inc.
in Vancouver.
<PAGE>15
Mr. Jackson Cheng is a Director of Dragon. He is the President of Ulink
Marketing Inc. of Hong Kong (project finance) and is also CFO of an engineering
consulting firm.
Dr. Alexander Wick is a Director of Dragon. Dr. Wicks holds a doctorate
degree in synthetic organic chemistry from the Swiss Federal Institute of
Technology and has completed post-doctoral studies at Harvard University. He has
thirty years of biotechnology and pharmaceuticals experience and is currently
the President of Sylachim, a chemicals and pharmaceuticals producer.
Mr. Philip Yuen Pak Yiu is a director of Dragon. Mr. Yuen has been a legal
practitioner in Hong Kong since graduating from law school in London, England in
1961. In 1965, he established the law firm Yung, Yu, Yuen and Co. and is now the
principal partner of the firm. Mr. Yuen has over 30 years experience in the
legal field and has been a director of several large listed companies in various
sectors. He is a director of the Association of China-appointed Attesting
Officers Limited in Hong Kong, a standing committee member of the Chinese
General Chamber of Commerce in Hong Kong, a member of the National Committee of
the Chinese People Political Consultative Conference and an arbitrator of the
China International Economic and Trade Arbitration Commission.
Dr. Yiu Kwong Sun graduated from the University of Hong Kong Faculty of
Medicine in 1967. He is a Founding Fellow of the Hong Kong College of Family
Physicians and a Fellow of the Hong Kong Academy of Medicine. He is the Chairman
of the Dr. Sun Medical Centre Limited which has been operating a network of
medical centers in Hong Kong and China for the past 20 years. He is also the
Administration Partner of United Medical Practice, which manages a large network
of medical facilities throughout Hong Kong and Macau. Dr. Sun has been a member
of the Dr. Cheng Yu Fellowship Committee of Management of the University of Hong
Kong Faculty of Medicine since 1997.
Committees of the Board
The Board has an Executive Committee consisting of Messrs. Liu, Cai, and
Hall. The primary functions of the Executive Committee is to administer all
daily operating activities of the Company, its subsidiaries, and joint venture
companies.
Family Relationships
There are no family relationships between any director or executive
officer.
Item 6. Executive Compensation
Executive Compensation.
None of Dragon's directors, officers, or employees or officers and
employees of its subsidiaries earned in excess of $100,000 for the year ended
December 31, 1998.
The following table sets forth, for each of the compensation of the
Company's president during the last three complete fiscal years. No other
officers received annual compensation in excess of $100,000 during the last
three complete fiscal years.
<PAGE>16
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
-------------------------------------------------------------
Annual Compensation Awards Payout
--------------------------------------- ------------------------------- ------------
Restricted
Other Annual Stock Securities LTIP All Other
Bonus Compensation Award(s) Underlying Payout Compensation
Year Salary ($) ($) ($) Option s (#) ($) ($)
--------- ----------- ------- -------------- ----------- ---------------- ------------ -------------
Shaun Maskerine 1998 5,943(1) -0- -0- -0- 75,000 -0- -0-
Longbin Liu 1998 36,000(1) -0- -0- -0- 300,000 -0- -0-
</TABLE>
(1) Pursuant to an oral consulting contract.
During 1998, Dr. Longbin Liu replaced Mr. Maskerine as President. Dr. Liu's
annual salary is $72,000 and includes stock options to purchase 300,000 shares
of common stock pursuant to an oral consulting contract. Mr. Maskerine remains
as Secretary and a director of the Company. Mr. Maskerine's annual salary is
$24,000 and includes stock options to purchase 200,000 shares of common stock
pursuant to an oral consulting contract.
Stock Option Plans
Dragon has no Stock Option Plan. The Board of Directors has currently
approved to limit the number of options available to employees, directors and
officers of Dragon at 1,500,000. Unless otherwise provided by the Board, all
options are exercisable for a term of five years. Each option is exercisable
only so long as the optioned remains as a director or employee of Dragon. No
option is transferable by the optioned other than by will or the laws of descent
and distribution. As of December 31, 1999, options to acquire 1,225,000 shares
of common stock were outstanding.
<TABLE>
<S> <C> <C> <C> <C>
OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 1999
Number of
Securities % of Total
Underlying Options Granted
Options Granted to Employees in Exercise of Base
Name in 1999 Fiscal Year 1999 Price ($/Share) Expiration Date
- ------------------ ----------------- ----------------- ------------------ -------------------
Shaun Maskerine 75,000 23.08% $0.50 November 5, 2004
Ernst Pernet 50,000 15.4% $0.50 June 15, 2004
Philip Yuen 100,000 30.8% $0.50 November 5, 2004
Yiu Kwong Sun 100,000 30.8% $0.50 November 5, 2004
</TABLE>
<PAGE>17
<TABLE>
<S> <C> <C>
FISCAL YEAR END OPTION VALUE (DECEMBER 31, 1999)
Number of Securities Value of Unexercised in the
Underlying Unexercised Money Options/SARs at Fiscal
Options/SARs at Year End ($)*
Fiscal Year End (#)
Exercisable/Unexercisable Exercisable/Unexercisable
Name Options at December 31, 1999 Options at December 31, 1999
- -------------------- ----------------------------- -----------------------------
Longbin Liu 150,000 / 150,000 $553,000 / $553,000
Ken Cai 100,000 / 100,000 $369,000 / $369,000
Greg Hall 100,000 / 100,000 $369,000 / $369,000
Jackson Cheng 50,000 / 50,000 $184,500 / $184,500
Alexander Wick 50,000 / 50,000 $184,500 / $184,500
Philip Yuen 50,000 / 50,000 $184,500 / $184,500
Yiu Kwong Sun 50,000 / 50,000 $184,500 / $184,500
Shaun Maskerine 37,500 / 37,500 $138,375 / $138,375
Ernst Pernet 25,000 / 25,000 $ 92,250 / $ 92,250
</TABLE>
* The value of unexercised in-the-money options is based on a per share price
of $3.69 as quoted on the OTC Bulletin Board on December 31, 1999.
Item 7. Certain Relationships and Related Transactions
None.
Item 8. Description of Securities
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $0.001, of which 10,090,000 were outstanding as of December 31, 1999.
Common Stock
All issued and outstanding shares of Common Stock are fully paid and
non-assessable. Each holder of record of shares of Common Stock is entitled to
one vote for each share so held on all matters requiring a vote of shareholders,
including the election of directors. There are no preferences, conversion
rights, preemptive rights, subscription rights, or restrictions or transfers
attached to the Common Stock. In the event of liquidation, dissolution, or
winding up of the Company, the holders of Common Stock are entitled to
<PAGE>18
participate in the assets of the Company available for distribution after
satisfaction of and the claims of creditors.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's Common Stock began trading on the OTC Bulletin Board under
the symbol "DRUG" on October 9, 1998. The following quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The high and low prices of the Company's Common
Stock on a quarterly basis since October 9, 1998, are as follows:
Quarter High Low
- ----------------------- ------- -----
December 31, 1999 $3.69 $1.63
September 30, 1999 $3.38 $2.25
June 30, 1999 $3.19 $1.88
March 31, 1999 $2.00 $1.00
December 31, 1998 $1.50 $ .94
October 9, 1998 $ .75 $ .75
Item 2. Legal Proceedings.
The Company is not involved in any legal proceeding.
Item 3. Changes in and Disagreements with Accountants
Prior to the Reorganization, Dragon's accountant was Barry L. Friedman,
P.C., Las Vegas, Nevada. In connection with the reorganization with Allwin
Newtech, the Company changed its accountants Moore Stephens Ellis Foster,
Vancouver, British Columbia.
During the relationship with Barry L. Friedman, P.C. , there was no
disagreements with Dragon regarding any matters with respect to accounting
principles or practices, financial statement disclosure, or audit scope or
procedure, which disagreements, if not resolved to the satisfaction of the
former accountant, would have caused Barry L. Friedman, P.C., to make reference
to the subject matter of the disagreement in connection with its report. The
former accountants' report for Dragon's balance sheets as of March 31, 1998,
December 31, 1997, and December 31, 1996, and the statements of operations,
stockholders' equity and cash flows for the two years ended December 31, 1997,
December 31, 1996 and the period January 1, 1998 to March 31, 1998, is a part of
the financial statements of Dragon included in this registration statement.
<PAGE>19
Item 4. Recent Sales of Unregistered Securities
On August 17, 1998, Dragon Pharmaceutical (formerly First Geneva
Investments, Inc.) issued 7,000,000 shares of common stock and warrants to
purchase 1,000,000 shares of common stock in exchange for all the outstanding
shares of Allwin Newtech Ltd., a British Virgin Islands corporation, from 20
shareholders of Allwin Newtech. The issuance of the Dragon Pharmaceutical shares
of common stock were exempt pursuant to Regulation S. No commissions were paid.
On September 28, 1998, Dragon Pharmaceutical sold 2,000,000 shares of
common stock at $.50 per share to 11 investors. Dragon Pharmaceuticals relied on
Rule 504 of Regulation D as an exemption from Registration. No commissions were
paid.
On October 14, 1999, the Company sold, in the aggregate, 600,000 shares of
Common Stock of the at $2.50 per share to two investors located in Hong Kong.
Further, as part of the securities purchase agreement, each investor receive
warrants to 300,000 shares of Common Stock at $2.50 per share.. Each warrant
allows the holder to purchase one common share of the Company at a price of
$2.50 for a period of one year. The issuance of the Dragon Pharmaceutical shares
of common stock and warrants were exempt pursuant to Regulation S. No
commissions were paid.
Item 5. Indemnification of Directors and Officers
The Company has adopted Section 607.0850 of the 1999 Florida Statutes,
Business Organization of the State of Florida in its bylaws. Section 607.0850
states:
(1) A corporation shall have power to indemnify any person who was or is a
party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he or she 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 against
liability incurred in connection with such proceeding, including any appeal
thereof, if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, or conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of the corporation or, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
(2) A corporation shall have the power to indemnify any person, who was or
is a party to any proceeding by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person 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,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made under
this subsection in respect of any claim, issue, or matter as to which such
<PAGE>20
person shall have been adjudged to be to be liable unless, and only to the
extent that, the court in which such proceeding was brought, or any other court
of competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indeminity for such expenses which
such court shall deem proper.
PART F/S
The Company's financial statements for the period of December 31, 1997,
December 31, 1996, and the period January 1, 1998, to March 31, 1998, and
February 10, 1998 to December 31, 1998, and for the nine months ended September
30, 1999, are attached to this Registration Statement.
PART III
Item 1. Index to Exhibits
Item 2. Description of Exhibits
2.1 Share Exchange Agreement between First Geneva Investments, Inc. and
Allwin Newtech Limited(1)
3.1 Certificate of Incorporation(1)
3.2 Amendment to Certificate of Incorporation(1)
3.3 Amendment to Certificate of Incorporation(1)
3.4 By-laws of First Geneva Investments, Inc.(1)
10.1 Sino-Foreign Co-operative Company Contract(1)
10.2 Sino-Foreign Joint Venture Contract(1)
16.1 Letter regarding Changes in Certifying Accountant(1)
1. Previously filed with the Company's initial registration statement filed
with the SEC on November 4, 1999.
<PAGE>21
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this amendment no. 1 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
DRAGON PHARMACEUTICAL INC.
Dated: January , 2000 /s/ KEN CAI
-------------------
Ken Cai
Executive Director
<PAGE>F-1
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Consolidated Financial Statements
(Expressed in US Dollars)
INDEX
<TABLE>
<S> <C>
September 30, 1999
Consolidated Balance Sheet.................................................................F-2
Consolidated Statement of Stockholders' Equity.............................................F-3
Consolidated Statement of Operations and Comprehensive Income..............................F-4
Consolidated Statement of Cash Flows.......................................................F-5
Notes to Consolidated Financial Statements.................................................F-6
December 31, 1998
Report of Independent Accountants.........................................................F-15
Consolidated Balance Sheet................................................................F-16
Consolidated Statement of Stockholders' Equity............................................F-17
Consolidated Statement of Operations......................................................F-18
Consolidated Statement of Cash Flows......................................................F-19
Notes to Consolidated Financial Statements................................................F-20
March 31, 1998, December 31, 1997, and December 31, 1996
Independent Auditors' Report..............................................................F-28
Balance Sheet.............................................................................F-29
Statement of Operations...................................................................F-31
Statement of Changes in Stockholders' Equity..............................................F-32
Statement of Cash Flows...................................................................F-33
Notes to Financial Statements.............................................................F-34
</TABLE>
<PAGE>F-2
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments inc.)
Consolidated Balance Sheet
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
- -------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 324,091
Accounts receivable 328,738
Inventories 505,722
Prepaid expenses and deposits 548,063
-------------------
1,706,614
Fixed assets 2,412,489
Licence and permit 2,472,373
-------------------
$ 6,591,476
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current
Loans payable $ 1,205,327
Accounts payable and accrued liabilities 906,678
Due to related parties 54,393
-------------------
2,166,398
-------------------
Minority interest 2,934,739
-------------------
Stockholders' Equity
Share capital
Authorized:
50,000,000 common shares at par value of $0.001 each
Issued and outstanding:
10,090,000 common shares 10,090
Additional paid in capital 2,213,542
Accumulated other comprehensive income 25,683
Deficit accumulated during the development stage (758,976)
-------------------
1,490,339
-------------------
$ 6,591,476
===================
The accompanying notes are an integral part of these financial statements.
<PAGE>F-3
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise) (formerly First Geneva Investments inc.)
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Deficit
accumulated Accumulated Total
Common stock Additional during the other Stock-
-------------------------- paid-in development comprehensive holders'
Shares Amount capital stage income equity
------------ ---------- -------------- ------------- -------------- -------------
Balance, December 31, 1998 10,000,000 $ 10,000 $ 2,201,042 $ (471,717) $ (2,145) $ 1,737,180
Issued of common stock for
loan bonus 90,000 90 - - - 90
Foreign currency translation
adjustment - - - - 27,828 27,828
Stock option compensation - - 12,500 - 12,500
Net loss for the period - - - (287,259) - (287,259)
------------ ---------- -------------- ------------- -------------- -------------
Balance, September 30, 1999 10,090,000 $ 10,090 $ 2,213,542 $ (758,976) $ 25,683 $ 1,490,339
============ ========== ============== ============= ============== -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-4
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Consolidated Statement of Operations and Comprehensive Income
Nine Months Ended September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
Sales $ 333,555
Cost of sales (104,080)
------------------
Gross profit 229,475
------------------
Expenses
Accounting 10,112
Advertising 3,855
Amortizaiton of licence and permit 65,186
Conference 11,218
Consulting 4,424
Depreciation of fixed assets 54,087
Entertainment 17,975
Foreign exchange loss 6,200
Legal and corporate service 11,069
Listing and filing 1,725
Loan interest 21,789
Management fees 72,000
Office and miscellaneous 148,282
Salary and benefits 80,829
Stock option compensation 12,500
Telephone 4,771
Travel 54,585
Interest income (14,263)
------------------
566,344
------------------
Loss before minority interest (336,869)
Minority interest 49,610
------------------
Net loss for the period $ (287,259)
==================
Other comprehensive income
Foreign currency translation adjustments $ 27,828
==================
Comprehensive loss for the period $ (259,431)
==================
Loss per share
Basic and diluted $ (0.03)
==================
Weighted average common
shares outstanding
Basic and diluted 10,053,352
==================
The accompanying notes are an integral part of these financial statements.
<PAGE>F-5
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
Cash flows from (used in) operating activities
Net loss for the period $ (287,259)
Adjustments to reconcile net loss to
net cash used in operating activities:
- loan bonus fee 90
- stock option compensation expense 12,500
- depreciation of capital assets 54,087
- amortization of licence and permit 65,186
- minority interest (49,610)
-----------------
(205,006)
Changes in assets and liabilities:
- accounts receivable (328,738)
- inventories (165,724)
- prepaid expenses and deposits (354,358)
- accounts payable 217,438
-----------------
(836,388)
-----------------
Cash flows used in investing activities
Initial payment on the acquisition of Huaxin (1,500,000)
Purchase of capital assets (68,857)
-----------------
(1,568,857)
-----------------
Cash flows from financing activities
Cash acquired from subsidiary 89,552
Loans proceeds 1,205,627
-----------------
1,295,179
-----------------
Foreign exchange gain on cash held in foreign currency 53,802
-----------------
Decrease in cash and cash equivalents (1,056,264)
Cash and cash equivalents, beginning of period 1,380,355
-----------------
Cash and cash equivalents, end of period $ 324,091
==================
The accompanying notes are an integral part of these financial statements.
<PAGE>F-6
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
1. Nature of Business and Going Concern
The Company was formed on August 22, 1989 as First Geneva Investments Inc.
under the laws of the State of Florida. The Company changed its name to
Dragon Pharmaceuticals Inc. on August 31, 1998. Pursuant to a share
exchange agreement, dated July 29, 1998, the Company acquired 100% of the
issued and outstanding shares of Allwin Newtech Ltd. ("Allwin") by issuing
7,000,000 common shares of the Company. This transaction is accounted for
as a reverse acquisition (see Note 3).
Allwin was incorporated under the laws of British Virgin Islands on
February 10, 1998. Pursuant to a Sino-Foreign Co-operative Company
contract, dated April 18, 1998, Allwin and a Chinese corporation formed a
limited liability company under the Chinese law, named as Sanhe Kailong
Bio-pharmaceutical Co., Ltd. ("Kailong"), located in Hebei Province, China.
Allwin has a 75% interest in Kailong. Pursuant to another Sino-foreign
Co-operative Company Contract, dated July 27, 1999, Allwin completed the
acquisition of a 75% interest in Nanjing Huaxin Bio-pharmaceutical Co. Ltd.
("Huaxin"). Kailong and Huaxin are in the business of research and
development, production and sales of pharmaceutical products.
These consolidated financial statements have been prepared with generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The general business
strategy of the Company is to develop and manufacture pharmaceutical
products for sales in the market. The ability of the Company to continue as
a going concern is dependent upon obtaining necessary financing to complete
the development and upon future profitability. Management's plans in this
regard are to raise equity financing as required. These consolidated
financial statements do not include any adjustments that might result from
this uncertainty.
2. Significant Accounting Policies
(a) Basis of Consolidation
These consolidated financial statements include the accounts of the
Company and its subsidiaries, Allwin, Kailong and Huaxin. All
inter-company transactions and balances have been eliminated.
(b) Principles of Accounting
These financial statements are stated in US Dollars and have been
prepared in accordance with accounting principles generally accepted
in the United States.
<PAGE>F-7
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
2. Significant Accounting Policies (continued)
(c) Capital Assets
Depreciation is based on the estimated useful lives of the assets and
is computed using the straight-line method of depreciation. Fixed
assets were recorded at cost less accumulated depreciation.
Depreciation was provided over the following annual rates:
Land lease 2%
Office equipment 20%
Land improvement 10%
Leasehold improvement 10%
Production equipment 10%
(d) Foreign Currency Transactions
The Company, Allwin and Kailong maintain their accounting records in
their functional currencies (i.e., U.S. dollars, U.S. dollars and
Renminbi Yuan, respectively). They translate foreign currency
transactions into their functional currency in the following manner.
At the transaction date, each asset, liability, revenue and expense is
translated into the functional currency by the use of the exchange
rate in effect at that date. At the period end, monetary assets and
liabilities are translated into the functional currency by using the
exchange rate in effect at that date. The resulting foreign exchange
gains and losses are included in operations.
(e) Foreign Currency Translations
Assets and liabilities of the foreign subsidiary are translated into
U.S. dollars at exchange rates in effect at the balance sheet date.
Revenue and expenses are translated at average exchange rate. Gain and
losses from such translations are included in stockholders' equity.
(f) Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
<PAGE>F-8
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
2. Significant Accounting Policies (continued)
(g) Licence and Permit
Licence and permit is amortized on a straight-line basis over ten
years.
The carrying value of licence and permit is periodically reviewed by
management and impairment losses, if any, are recognized when the
expected non-discounted future operating cash flows derived from the
related product licence acquired are less than the carrying value of
such licence and permit. In the event of an impairment in the licence
and permit, the discounted cash flows method is used to arrive at the
estimated fair value of such licence and permit.
(h) Financial Instruments and Concentration of Risks
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash and accounts payable and accrued liabilities.
Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their
carrying amounts approximate fair values or they are receivable or
payable on demand.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents. The Company places its cash and cash equivalents with
high credit quality financial institutions. The Company is operating
in China, which may give rise to currency risks due to fluctuations in
foreign exchange rates. The Company is not exposed to significant
interest or credit risks arising from these financial instruments. The
Company does not require collateral to support financial instruments.
(i) Cash and Cash Equivalents
Cash equivalents usually consist of high liquid investments with
maturities of three months or less. The Company has no cash
equivalents as at September 30, 1999.
(j) Income Taxes
The Company has adopted Statement of Financial Accounting Standards
(SFAS") No. 109, which requires the Company to recognize deferred tax
liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial statement
carrying amounts and tax bases of assets using enacted rates in effect
in the years in which the differences are expected to reverse.
<PAGE>F-9
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
2. Significant Accounting Policies (continued)
(k) Loss Per Share
Loss per share is computed using the weighted average number of shares
outstanding during the period. The Company adopted SFAS No. 128,
"Earnings per share". Diluted loss per share is equal to the basic
loss per share because common stock equivalents consisting of
2,000,000 warrants and 1,150,000 stock options outstanding at
September 30, 1999 are anti-dilutive. However, they might be dilutive
in future.
(l) Research and Development
The Company expenses research and development as incurred. As at
September 30, 1999, the Company incurred no such costs.
3. Acquisition of Allwin Newtech Ltd.
Pursuant to a share exchange agreement, dated July 29, 1998, the Company
issued 7,000,000 shares in exchange for all the issued and outstanding
shares of Allwin. The transaction resulted in the former shareholders of
Allwin owning the majority of the issued and outstanding shares of the
Company. Accounting principles applicable to reverse acquisition have been
applied to record this transaction. Under this basis of accounting, Allwin
has been identified as the acquirer and, accordingly, the consolidated
entity is considered to be a continuation of Allwin with the net
liabilities of the Company deemed to have been assumed by Allwin for a fair
market value of $1,636.
The net liabilities of the Company acquired by Allwin are summarized as
follows:
Current liabilities $1,636
<PAGE>F-10
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
4. Acquisition of Nanjing Huaxin Bio-pharmaceutical Co. Ltd.
Effective July 29, 1999, Allwin completed the acquisition of a 75% interest
of Huaxin. In consideration for the acquisition, the Company will pay a
total of $3.3 million in cash, of which $1.5 million has already been paid.
The acquisition is accounted for by the purchase method and, accordingly,
the operating results of Huaxin from July 29, 1999 to September 30, 1999
are included in the statement of operations. Details relating to the net
asset acquired are as follows:
Cash and cash equivalents $ 89,552
Inventories 334,906
Fixed assets 1,480,263
Licence and permit 2,495,279
-------------------
Net asset $ 4,400,000
===================
75% thereof $ 3,300,000
===================
5. Fixed Assets
<TABLE>
<S> <C> <C> <C>
1999
------------------------------------------------------
Accumulated Net book
Cost amortization Value
------------- ------------- -----------
Land lease $ 907,990 $ 24,213 $ 883,777
Office equipment 1,490 447 1,043
Land improvement 14,827 2,595 12,232
Leasehold improvement 599,375 14,985 584,390
production equipment 954,203 23,156 931,047
------------- ------------- -----------
$ 2,477,885 $ 65,396 $2,412,489
</TABLE>
The government of China granted a land lease to Kailong for a period of fifty
(50) years, starting June 8, 1998. All capital assets are located in China.
<PAGE>F-11
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
6. Loans Payable
Interest bearing at 8% per annum and due on April 19, 2000 $ 600,000
RMB 5,000,000, interest bearing at 5.85% per annum and
due on September 30, 2000 605,327
-----------
$ 1,205,327
===========
7. Income Taxes
Kailong and Huaxin are subject to income taxes in China on its taxable
income as reported in its statutory accounts at a tax rate in accordance
with the relevant income tax laws applicable to Sino-foreign equity joint
venture enterprises. However, pursuant to the same income tax laws, Kailong
and Huaxin is fully exempt from income tax for five years starting from its
first profit-making year followed by a 15% corporation tax rate for the
next five years.
Allwin is not subject to income taxes.
The Company, Kailong and Huaxin have losses for tax purposes in the period
and, accordingly, no provision for income taxes are required.
8. Non Cash Financing Activities
The Company issued 90,000 common shares as a loan bonus fee for the
$600,000 loan raised.
<PAGE>F-12
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
9. Stock Options and Warrants
(a) A summary of the status of the Company's stock options as of September
30, 1999 and the changes during the period then ended is presented as
follows:
<TABLE>
<S> <C> <C>
Weighted Average
Exercise
Shares Price
------------- ----------------
Balance outstanding, December 31, 1998 1,200,000 $ 0.50
Cancellation (100,000) $ 0.50
Granted 50,000 $ 0.50
------------- ----------------
Balance outstanding, September 30, 1999 1,150,000 $ 0.50
------------- ----------------
Balance exercisable, September 30, 1999 575,000 $ 0.50
============= ===============
</TABLE>
(b) Stock options outstanding as at September 30, 1999:
Number of Shares Exercise Price Expiry Date
------------------ -------------- -----------------
1,100,000 $0.50 December 16, 2003
50,000 $0.50 June 15, 2004
(c) Share purchase warrants outstanding as at September 30, 1999:
Number of Shares Exercise Price Expiry Date
------------------ ------------- -----------------
2,000,000 $1.00 June 30, 2000
(d) The Company adopted a Stock Option Plan ("the Plan") for the grant of
options to a consultant of the Company to purchase up to 50,000 common
stocks on June 15, 1999. Options granted under the Plan will be
exercisable from the date of the grant for a period of five years.
Half of the options granted (i.e., 25,000 shares) vest immediately at
the date of the grant. The remaining half of the options granted would
vest upon when the Company's share price closes at a price of US $5 or
greater for five (5) consecutive days.
The Company applies Accounting Principles Board ("APB") No. 25
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for stock options. Under APB 25, when the exercise price
of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
<PAGE>F-13
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
(Expressed in US Dollars)
(Unaudited - See Accountants' Compilation Report)
9. Stock Options and Warrants (continued)
Pro-forma information regarding Net
Loss and Loss per Share is required under SFAS 123, and has been
determined as if the Company has accounted for its stock options under
the fair value method of SFAS 123. The weighted average fair value of
options granted on June 15, 1999 was $3.48. The fair value of these
options was estimated at the date of grant using a Black-Scholes
option pricing model with following weighted average assumptions: no
dividends, a risk-free interest rate of 4.75%, volatility factor of
the expected market price of the Company's common stock of 81% and
weighted average expected life of the option of 2 years.
$12,500 was charged to income in the period on the 25,000 shares that
were immediately vested on the date of grant. No compensation expense
was charged to income on the remaining 25,000 shares subject to
certain conditions being achieved. However, the compensation expense
of these 25,000 shares would be recognized based upon the excess of
the fair market value of the stock on the vesting date over its
exercise price of $0.50 per share. Therefore, the Company is likely to
incur substantial compensation expense in future years if these stock
options are being exercised. If compensation expense for stock options
plans has been determined based on the fair value at the grant dates
for an awards under the plans, consistent with the accounting
provisions of SFAS 123, the Company's Net Loss and Loss per Share
would have been increased to the pro-forma amounts indicated below:
As Reported Pro-forma
------------ ------------
Net Loss for the period (287,259) (498,887)
Loss per share-basic and diluted (0.03) (0.05)
10. Related Party Transactions
During the period, the Company incurred the following expenses to the
directors:
Management fee $72,000
=======
<PAGE>F-14
11. Commitments
(a) The other investor ("Chinese investor") of Kailong, who has a 25%
interest, has entered into a drug licence and related technology
transfer agreement. Under the agreement, the Chinese investor has to
pay RMB 8 Million (approximately US$1 million) in order to obtain the
licence. Pursuant to an agreement signed between Kailong and the
Chinese investor on July 10, 1998, Kailong will pay the RMB 8 Million
licence fee for the Chinese investor and the ownership of drug licence
and related technology will be transferred to Kailong when the drug
licence is obtained. Kailong has paid RMB1.6Million (US$193,709) as
deposit. The transferor of the licence defaulted on the agreement. The
Company is seeking refund of the deposit (The Company received the
refund subsequent to September 30, 1999).
(b) The Company has capital expenditure commitment of US $115,000 to
purchase bio-technology equipment.
(c) The Company is committed to pay the remaining US$1,800,000 to vendor
of the 75% interest of Huaxin pursuant to the Sino-foreign
Co-operative Company Contract. The Company made a second payment of
$935,200 subsequent to September 30, 1999.
(d) The Company has entered into operating lease agreement with respect to
Huaxin's production plant in Nanjing, China for an amount of
$3,541,163. Minimum payments required for the next five years under
the agreement are as follows:
1999 $ 90,799
2000 363,196
2001 363,196
2002 363,196
2003 363,196
2004 363,196
----------
$1,906,779
==========
<PAGE>F-15
MOORE STEPHENS
ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 737-8117 Facsimile: (604) 714-5916
E-Mail: [email protected]
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
DRAGON PHARMACEUTICALS INC. (formerly First Geneva Investments Inc.)
(A development stage enterprise)
We have audited the consolidated balance sheet of Dragon Pharmaceuticals Inc.
and subsidiaries (A development stage enterprise) (formerly First Geneva
Investments Inc.) as at December 31, 1998 and the related consolidated
statements of stockholders' equity, operations and cash flows for the period
from February 10, 1998 (inception) to December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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 audit provides a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as at
December 31, 1998 and the results of their operations and their cash flows for
the period from February 10, 1998 (inception) to December 31, 1998 in conformity
with generally accepted accounting principles in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates, among
other things, the realization of assets and the satisfaction of liabilities in
the normal course of business. As discussed in Note 1 to the consolidated
financial statements, the continued operations of the Company as a going concern
is dependent upon its ability to obtain necessary financing to complete the
development of pharmaceutical products. Management's plans concerning these
matters are described in Note 1. These consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Vancouver, Canada MOORE STEPHENS ELLIS FOSTER LTD."
April 12, 1999 Chartered Accountants
- -------------------------------------------------------------------------------
MS
An independently owned and operated member of Moore Stephens North America Inc.
Members in principal cities throughout North America. Moore Stephens North
America Inc. is a member of Moore Stephens International Limited, members in
principal cities throughout the world.
<PAGE>F-16
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments inc.)
Consolidated Balance Sheet
December 31, 1998
(Expressed in US Dollars)
<TABLE>
<S> <C>
1998
--------
ASSETS
Current
Cash and cash equivalents $ 1,380,355
Deposits and prepaid expenses 192,771
------------------
1,573,126
Fixed assets 907,687
------------------
$ 2,480,813
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current
Accounts payable and accrued liabilities
- land lease payable $ 630,120
- management fees payable - related parties 36,000
- accounts payable - related parties 55,316
- other accounts payable 22,197
------------------
743,633
------------------
Commitment
Stockholders' Equity
Share capital
Authorized: 50,000,000 common shares at par value of $0.001 each
Issued and outstanding: 10,000,000 common shares 10,000
Additional paid in capital 2,201,042
Accumulated other comprehensive deficit (2,145)
Deficit accumulated during the development stage (471,717)
------------------
1,737,180
------------------
$ 2,480,813
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-17
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments inc.)
Consolidated Statement of Stockholders' Equity
Period from February 10, 1998 (inception) to December 31, 1998
(Expressed in US Dollars)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Deficit
accumulated Accumulated Total
Common stock Additional during the other Stock-
------------------------ paid-in development comprehensive holders'
Shares Amount capital stage deficit equity
---------------------------------------------------------------------------------------------
Balance, February 10, 1998 1,000,000 $ 1,000 $ - $ (2,636) $ - $ (1,636)
Capitalization of accumulated
deficit on reverse acquisition - - (2,636) 2,636 - -
Reverse acquisition of Allwin
Newtech Ltd. on July 29, 1998 7,000,000 7,000 940,678 - - 947,678
Issuance of common stock at $0.50
per share net of offering costs
of $35,000 in December, 1998 2,000,000 2,000 963,000 - - 965,000
Stock option compensation - - 300,000 - - 300,000
Foreign currency translation
Adjustment - - - - (2,145) (2,145)
Net loss for the period - - - (471,717) - (471,717)
-------------- --------------- -------------- ------------- ------------- ------------------
Balance, December 31, 1998 10,000,000 $ 10,000 $2,201,042 $ (471,717) $ (2,145) $ 1,737,180
============== =============== ============== ============= ============= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-18
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Consolidated Statement of Operations
(Expressed in US Dollars)
<TABLE>
<S> <C>
February 10
1998 (inception)
to
December 31
1998
------------------
Interest income $ 9,737
-----------------
Expenses
Accounting 12,000
Depreciation of fixed assets 11,797
Donations 11,682
Entertainment 11,211
Legal 23,241
Listing, filing and transfer agents 2,043
Management fees - related parties 41,943
Office and miscellaneous 9,092
Salary and benefits 13,058
Stock option compensation 300,000
Telephone 1,275
Travel 41,784
Foreign exchange loss 2,328
-----------------
481,454
-----------------
Net loss for the period $ (471,717)
=================
Other comprehensive loss
Foreign currency translation adjustments $ (2,145)
=================
Comprehensive loss for the period $ (473,862)
=================
Loss per share
Basic and diluted $ (0.06)
=================
Weighted average common
shares outstanding
Basic and diluted 8,054,795
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-19
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly Cigma Ventures Corp.)
Consolidated Statement of Cash Flows
(Expressed in US Dollars)
<TABLE>
<S> <C>
February 10
1998 (inception)
to
December 31
1998
-----------------
Cash flows from (used by) operating activities
Net loss for the period $ (471,717)
Adjustments to reconcile net loss to
net cash used in operating activities:
- stock option compensation expense 300,000
- depreciation 11,797
Changes in assets and liabilities:
- increase in deposits and prepaid expenses (192,771)
- increase in accounts payable and accrued liabilities 743,633
----------------
390,942
Cash flows used by investing activities
Purchase of fixed assets (891,914)
Cash flows from financing activities
Proceeds from issuance of common stock, net
of share issuance costs 1,913,678
Foreign exchange loss on cash held in foreign currency (32,351)
----------------
Increase in cash and cash equivalents 1,380,355
Cash and cash equivalents, beginning of period -
------------------
Cash and cash equivalents, end of period $ 1,380,355
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-20
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
1. Nature of Business and Going Concern
The Company was formed on August 22, 1989 as First Geneva Investments Inc.
under the laws of the State of Florida. The Company changed its name to
Dragon Pharmaceuticals Inc. on August 31, 1998. Pursuant to a share
exchange agreement, dated July 29, 1998, the Company acquired 100% of the
issued and outstanding shares of Allwin Newtech Ltd. ("Allwin") by issuing
7,000,000 common shares of the Company. This transaction is accounted for
as a reverse acquisition (see Note 3).
Allwin was incorporated under the laws of British Virgin Islands on
February 10, 1998. Pursuant to a Sino-Foreign Co-operative Company
contract, dated April 18, 1998, Allwin and a Chinese corporation formed a
limited liability company under the Chinese law, named as Sanhe Kailong
Bio-pharmaceutical Co., Ltd. ("Kailong"), located in Hebei Province, China.
Allwin has a 75% interest in Kailong. Kailong is in the business of
research and development, production and sales of pharmaceutical products.
These consolidated financial statements have been prepared with generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The general business
strategy of the Company is to develop and manufacture pharmaceutical
products for sales in the market. The ability of the Company to continue as
a going concern is dependent upon obtaining necessary financing to complete
the development and upon future profitable production. Management's plans
in this regard are to raise equity financing as required. These
consolidated financial statements do not include any adjustments that might
result from this uncertainty.
2. Significant Accounting Policies
(a) Basis of Consolidation
These consolidated financial statements include the accounts of the
Company and its subsidiaries, Allwin and Kailong. All inter-company
transactions and balances have been eliminated.
(b) Principles of Accounting
These financial statements are stated in US Dollars and have been
prepared in accordance with accounting principles generally accepted
in the United States.
<PAGE>F-21
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
2. Significant Accounting Policies (continued)
(c) Fixed Assets
Depreciation is based on the estimated useful lives of the assets and
is computed using the straight-line method of depreciation. Fixed
assets were recorded at cost less accumulated depreciation.
Depreciation was provided over the following annual rates:
Land lease 2%
Office equipment 20%
Land improvement 10%
(d) Foreign Currency Transactions
The Company, Allwin and Kailong maintain their accounting records in
their functional currencies (i.e., U.S. dollars, U.S. dollars and
Renminbi Yuan, respectively). They translate foreign currency
transactions into their functional currency in the following manner.
At the transaction date, each asset, liability, revenue and expense is
translated into the functional currency by the use of the exchange
rate in effect at that date. At the period end, monetary assets and
liabilities are translated into the functional currency by using the
exchange rate in effect at that date. The resulting foreign exchange
gains and losses are included in operations.
(e) Foreign Currency Translations
Assets and liabilities of the foreign subsidiary are translated into
U.S. dollars at exchange rates in effect at the balance sheet date.
Revenue and expenses are translated at average exchange rate. Gain and
losses from such translations are included in stockholders' equity.
(f) Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
<PAGE>F-22
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
2. Significant Accounting Policies (continued)
(g) Financial Instruments and Concentration of Risks
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash and accounts payable and accrued liabilities.
Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their
carrying amounts approximate fair values or they are receivable or
payable on demand.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents. The Company places its cash and cash equivalents with
high credit quality financial institutions. The Company is operating
in China, which may give rise to currency risks due to fluctuations in
foreign exchange rates. The Company is not exposed to significant
interest or credit risks arising from these financial instruments. The
Company does not require collateral to support financial instruments.
(h) Cash and Cash Equivalents
Cash equivalents usually consist of high liquid investments with
maturities of three months or less. As at December 31, 1998, the
Company's cash equivalents consist of redeemable term deposits.
(i) Income Taxes
The Company has adopted Statement of Financial Accounting Standards
(SFAS") No. 109, which requires the Company to recognize deferred tax
liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial statement
carrying amounts and tax bases of assets using enacted rates in effect
in the years in which the differences are expected to reverse.
(j) Loss Per Share
Loss per share is computed using the weighted average number of shares
outstanding during the period. The Company adopted SFAS No. 128,
"Earnings per share". Diluted loss per share is equal to the basic
loss per share because common stock equivalents consisting of
2,000,000 warrants and 1,200,000 stock options outstanding at December
31, 1998 are anti-dilutive, however, they may be dilutive in future.
<PAGE>F-23
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
2. Significant Accounting Policies (continued)
(k) Research and Development
The Company expenses research and development as incurred. As at
December 31, 1998, the Company incurred no such costs.
3. Acquisition of Allwin Newtech Ltd.
Pursuant to a share exchange agreement, dated July 29, 1998, the Company
issued 7,000,000 shares in exchange for all the issued and outstanding
shares of Allwin. The transaction resulted in the former shareholders of
Allwin owning the majority of the issued and outstanding shares of the
Company. Accounting principles applicable to reverse acquisition have been
applied to record this transaction. Under this basis of accounting, Allwin
has been identified as the acquirer and, accordingly, the consolidated
entity is considered to be a continuation of Allwin with the net
liabilities of the Company deemed to have been assumed by Allwin for a fair
market value of $1,636.
The net liabilities of the Company acquired by Allwin are summarized as
follows:
Current liabilities $1,636
<TABLE>
<S> <C> <C> <C> <C>
4. Fixed Assets
1998
----------
Accumulated Net book
Cost amortization Value
------------------- ---------------------- -------------------
Land lease $903,614 $10,542 $893,072
Office equipment 1,483 148 1,335
Land improvement 14,755 1,475 13,280
=================== ====================== ===================
$919,852 $12,165 $907,687
=================== ====================== ===================
</TABLE>
The government of China granted a land lease to Kailong for a period of
fifty (50) years, starting June 8, 1998. All capital assets are located in
China.
<PAGE>F-24
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
5. Income Taxes
Kailong is subject to income taxes in China on its taxable income as
reported in its statutory accounts at a tax rate in accordance with the
relevant income tax laws applicable to Sino-foreign equity joint venture
enterprises. However, pursuant to the same income tax laws, Kailong is
fully exempt from income tax for two years starting from its first
profit-making year following by a 50% exemption for the next three years.
Allwin is not subject to income taxes.
The Company and Kailong have losses for tax purposes in the year and,
accordingly, no provision for income taxes are required.
The Company has approximately $171,000 of losses for tax purposes as of
December 31, 1998, which may reduce taxable income and income taxes in
future years. The utilization of these losses to reduce future income taxes
will depend on generating sufficient taxable income prior to their
expiration through the year 2018. In addition, the Internal Revenue Code of
1986 includes provisions which may limit the net operating loss
carryforwards available for uses in any given year if certain events occur,
including significant changes in stock ownership.
Deferred income taxes of the Company reflect the net tax effects of (i)
operating loss carryforwards; and (ii) temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
The Company evaluates its valuation allowance requirements on an annual
basis based on projected future operations. When circumstances change and
this causes a change in management's judgement about the realizability of
deferred tax assets, the impact of the change on the valuation allowance is
generally reflected in current operations.
The tax effect of significant items that give rise to the Company's
deferred tax asset are as follows:
Net operating loss carryforward $ 58,000
Stock option compensation 102,000
Less: valuation allowance (160,000)
-------------------
$ -
===================
<PAGE>F-25
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
5. Income Taxes (continued)
A reconciliation of the Federal statutory income tax to the Company's
effective income tax rate for the period ended December 31, 1998 is as
follows:
Federal statutory income tax rate 34%
Change in valuation allowance (34%)
--------
Effective income tax rate -
========
6. Stock Options and Warrants
(a) A summary of the status of the Company's stock options as of December
31, 1998 and the changes during the period then ended is presented as
follows:
<TABLE>
<S> <C> <C>
Weighted Average
Exercise
Shares Price
-------------------- -------------------
Balance, February 10, 1998 - $ -
Granted 1,200,000 $ 0.50
--------- -----------
Balance outstanding, December 31, 1998 1,200,000 $ 0.50
--------- -----------
Balance exercisable, December 31, 1998 600,000 $ 0.50
======= ===========
</TABLE>
(b) Stock options outstanding as at December 31, 1998:
Number of Shares Exercise Price Expiry Date
----------------- -------------- -----------------
1,200,000 $0.50 December 16, 2003
(c) On December 16, 1998, The Company adopted a Stock Option Plan ("the
Plan") for the grant of options to directors of the Company to
purchase up to 1,200,000 common stocks. Options granted under the Plan
will be exercisable from the date of the grant for a period of five
years. Half of the options granted (i.e., 600,000 shares) vest
immediately at the date of the grant. The remaining half of the
options granted would vest upon when the Company achieving the ability
to produce commercially acceptable and revenue generating products.
<PAGE>F-26
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
6. Stock Options and Warrants (continued)
(d) The Company applies Accounting Principles Board ("APB") No. 25
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for stock options. Under APB 25, when the exercise price
of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
Pro-forma information regarding Net Loss and Loss per Share is
required under SFAS 123, and has been determined as if the Company has
accounted for its stock options under the fair value method of SFAS
123. The weighted average fair value of options granted in 1998 was
$1.13. The fair value of these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted average assumptions: no dividends, a risk-free interest rate
of 5.5%, volatility factor of the expected market price of the
Company's common stock of 56% and a weighted average expected life of
the option of 5 years.
$300,000 was charged to income in 1998 on the 600,000 shares that were
immediately vested on the date of grant. No compensation expense was
charged to income on the remaining 600,000 shares subject to certain
conditions being achieved. However, the compensation expense of these
600,000 shares would be recognized based upon the excess of the fair
market value of the stock on the vesting date over its exercise price
of $0.50 per share. Therefore, the Company is likely to incur
substantial compensation expense in future years if these stock
options are being excercised. If compensation expense for stock option
plans has been determined based on the fair value at the grant dates
for an awards under the plans, consistent with the accounting
provisions of SFAS 123, the Company's Net Loss and Loss per Share
would have been increased to the pro-forma amounts indicated below:
<TABLE>
<S> <C> <C>
As Reported Pro-forma
---------------- -------------
Net loss for the year $471,717 $1,527,717
Loss per share - basic and diluted $(0.06) $(0.19)
</TABLE>
(e) Share purchase warrants outstanding as at December 31, 1998:
Number of Shares Exercise Price Expiry Date
- ------------------ ---------------- ---------------
2,000,000 $1.00 June 30, 2000
<PAGE>F-27
DRAGON PHARMACEUTICALS INC.
(A development stage enterprise)
(Formerly First Geneva Investments Inc.)
Notes to Consolidated Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Expressed in US Dollars)
7. Related Party Transactions
During the period, the Company incurred the following expenses to the
directors:
Management fee $41,943
Management fees will be paid to two directors of the Company at $72,000 and
$24,000 per annum, respectively, under agreements with the Company.
8. Commitment
The other investor ("Chinese investor") of Kailong, who has a 25% interest,
has entered into a drug licence and related technology transfer agreement.
Under the agreement, the Chinese investor has to pay RMB 8 Million
(approximately US$960,000) in order to obtain the licence. Pursuant to an
agreement signed between Kailong and the Chinese investor on July 10, 1998,
Kailong will pay the RMB 8 Million licence fee for the Chinese investor and
the ownership of drug licence and related technology will be transferred to
Kailong when the drug licence is obtained. As at December 31, 1998, Kailong
has paid RMB1.6Million (US$192,771) as deposit.
9. Non-Cash Investing and Financing Activities
As described in Note 3, as a non-cash investing activity, the Company
issued 7,000,000 shares in exchange for all the issued and outstanding
shares of Allwin.
<PAGE>F-28
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 Tulita Drive OFFICE (702) 361-8414
Las Vegas, Nevada 89123 FAX NO. (702) 896-0278
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors April 24, 1998
First Geneva Investments, Inc.
Miami, Florida
I have audited the accompanying Balance Sheets of First Geneva
Investments, Inc., (A Development Stage Company), as of March 31, 1998, December
31, 1997, and December 31, 1996, and the related statements of operations,
stockholders' equity and cash flows for the two years ended December 31, 1997,
December 31, 1996, and the period January 1, 1998, to March 31, 1998. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Geneva
Investments, Inc., (A Development Stage Company) as of March 31, 1998, December
31, 1997, and December 31, 1996, and the results of its operations and cash
flows for the two years ended December 31, 1997, and December 31, 1996, and the
period January 1, 1998, to March 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has no established source of revenue. This
raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BARRY L. FREIDMAN
----------------------------
Barry L. Friedman
Certified Public Accountant
<PAGE>F-29
FIRST GENEVA INVESTMENTS, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
<TABLE>
<S> <C> <C> <C>
March 31, December 31, December 31,
1998 1997 1996
CURRENT ASSETS: $ 0 $ 0 $ 0
============== =============== ==============
TOTAL CURRENT ASSETS $ 0 $ 0 $ 0
============== =============== ==============
OTHER ASSETS: $ 0 $ 0 $ 0
============== =============== ==============
TOTAL OTHER ASSETS $ 0 $ 0 $ 0
============== =============== ==============
TOTAL ASSETS $ 0 $ 0 $ 0
============== =============== ==============
</TABLE>
See accompanying notes to financial statements & audit report.
<PAGE>F-30
FIRST GENEVA INVESTMENTS, INC.
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
March 31, December 31, December 31,
1998 1997 1996
------------- ----------------- ----------------
CURRENT LIABILITIES:
Accounts Payable $ 1,636 $ 0 $ 0
============= ================== =================
TOTAL CURRENT LIABILITIES $ 1,636 $ 0 $ 0
============= ================== =================
STOCKHOLDERS' EQUITY: (Note 1)
Common stock, $1.00 par value
authorized 500 Shares issued and
outstanding at December 31, 1996-500
shares $ 500
Common stock, $ .001 par value
authorized 50,000,000 shares issued
and outstanding at December 31, 1997-
1,000,000 shares $ 1,000
March 31, 1998-1,000,000 shares $ 1,000
Additional paid in Capital 0 0 500
Accumulated loss (2,636) (1,000) (1,000)
TOTAL STOCKHOLDERS' EQUITY $ (1,636) $ 0 $ 0
============= ================== ===============
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 0 $ 0 $ 0
============== ================== =================
</TABLE>
See accompanying notes to financial statements & audit report
<PAGE>F-31
FIRST GENEVA INVESTMENTS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
Aug. 22, 1989
Jan. 1, 1998 to Year Ended Year Ended (inception)
Mar. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Mar. 31, 1998
--------------- -------------- -------------- --------------
INCOME:
Revenue $ 0 $ 0 $ 0 $ 0
================= ================= ================ ===============
EXPENSES:
General, Selling and
Administrative $ 1,636 $ 0 $ 0 $ 2,636
============== ================= ================= ==============
Total Expenses $ 1,636 $ 0 $ 0 $ 2,636
============== ================= ================= ==============
Net Loss $ (1,636) $ 0 $ 0 $ (2,636)
============== ================= ================= ==============
Net Loss per weighted
share (Note 2) $ (.0016) $ .0000 $ .0000 $ (.0026)
============== ================ ================= ==============
Weighted average
number of common
shares outstanding 1,000,000 1,000,000 1,000,000 1,000,000
============== ================ ================ ==============
</TABLE>
See accompanying notes to financial statements & audit report.
<PAGE>F-32
FIRST GENEVA INVESTMENTS, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C>
Additional
Common Stock paid-in Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------- --------------
Balance,
December 31, 1995 500 $ 500 $ 500
Net loss year ended
December 31, 1996 0
----------- ------------ ------------- --------------
Balance,
December 31, 1996 500 $ 500 $ 500 $ (1,000)
June 23, 1997
changed par value
from $1.00 to $ .001 (499) 499
June 23, 1997
forward stock split 2,000:1 999,500 999 (999)
Net loss year ended
December 31, 1997 0
--------- ------------ ------------- --------------
Balance,
December 31, 1997 1,000,000 $ 1,000 $ 0 $ (1,000)
Net loss January 1, 1998 to
March 31, 1998 (1,636)
--------- ------------ ------------- --------------
Balance,
March 31, 1998 1,000,000 $ 1,000 $ 0 $ (2,636)
========= =========== ============= ==============
</TABLE>
See accompanying notes to financial statements & audit report.
<PAGE>F-33
FIRST GENEVA INVESTMENTS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
Aug. 22, 1989
Jan. 1, 1998 to Year Ended Year Ended (inception)
Mar. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Mar. 31, 1998
----------------- ----------------- -------------- -----------------
Cash Flows from
Operating Activities:
Net Loss $ (1,636) $ 0 $ 0 $ (2,636)
Adjustment to reconcile
net loss to net cash
provided by operating
activities 0 0 0 0
Changes in assets and
liabilities:
Increase in current
liabilities: 1,636 0 0 1,636
--------------- ---------------- -------------- ------------
Net cash used in
operating activities $ 0 $ 0 $ 0 $ (1,000)
Cash Flows from
investing activities 0 0 0 0
Cash Flows from
Financing Activities:
Issuance of common
stock for services 0 0 0 1,000
--------------- ---------------- -------------- ------------
Net increase (decrease)
in cash $ 0 $ 0 $ 0 $ 0
Cash,
Beginning of period 0 0 0 0
--------------- ---------------- -------------- ------------
Cash, End of period $ 0 $ 0 $ 0 $ 0
=============== ================ =============== =============
</TABLE>
See accompanying notes to financial statements & audit report.
<PAGE>F-34
FIRST GENEVA INVESTMENTS, INC.
(A Development Stage Company) March 31, 1998,
December 31, 1997, and December 31, 1996
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - History and Organization of the Company
The Company was organized August 22, 1989, under the laws of the State
of Florida as First Geneva Investments, Inc. The Company currently has no
operations and, in accordance with SFAS #7, is considered a development company.
On September 25, 1989, the Company issued all of its authorized common
stock, 500 shares of its $1.00 par value common stock for services of $1,000.
On June 23, 1997, the State of Florida approved the Company's restated
Articles of Incorporation, which increased its capitalization from 500 common
shares to 50,000,000 common shares. The par value was changed from $1.00 to $
.001.
On June 23, 1997, the Company forward split its common stock 2,000:1,
thus increasing the number of outstanding common stock shares from 500 shares to
1,000,000 shares.
NOTE 2 - Accounting Policies and Procedures
The Company has not determined its accounting policies and procedures,
except as follows:
1. The Company uses the accrual method of accounting.
2. Earnings or loss per share is calculated using the weighted average
number of shares of common stock outstanding.
3. The Company has not yet adopted any policy regarding payment of
dividends. No dividends. No dividends have been paid since inception.
NOTE 3 - Warrants and Options
There are no warrants or options outstanding to issue any additional
shares of common stock of the Company.
<PAGE>F-35
FIRST GENEVA INVESTMENTS, INC.
(A Development Stage Company) March 31, 1998,
December 31, 1997, and December 31, 1996
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Going Concern
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has no current source of revenue. Without
realization of additional capital, it would be unlikely for the Company to
continue as a going concern. It is management's plan to seek additional capital
through a merger with an existing operating company.
NOTE 5 - Related Party Transactions
The Company neither owns or leases any real or personal property. Office
services are provided without charge by an officer. Such costs are immaterial to
the financial statements and accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business interests.
The Company has not formulated a policy for the resolution of such conflicts.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-SB/A FOR DRAGON PHARMACEUTICAL INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 324,091
<SECURITIES> 0
<RECEIVABLES> 328,738
<ALLOWANCES> 0
<INVENTORY> 505,722
<CURRENT-ASSETS> 1,706,614
<PP&E> 5,015,444
<DEPRECIATION> 130,582
<TOTAL-ASSETS> 6,591,476
<CURRENT-LIABILITIES> 2,166,398
<BONDS> 0
0
0
<COMMON> 10,090
<OTHER-SE> 1,480,249
<TOTAL-LIABILITY-AND-EQUITY> 6,591,476
<SALES> 333,555
<TOTAL-REVENUES> 333,555
<CGS> 104,080
<TOTAL-COSTS> 104,080
<OTHER-EXPENSES> 544,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,789
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (287,259)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (287,259)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
