SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
(Filed on April 27, 2000)
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1999 Commission File Number 0-27937
DRAGON PHARMACEUTICAL INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0142474
--------------------------------- --------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
543 Granville Street, Suite 1200
Vancouver, British Columbia V6C 1X8
--------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (604) 669-8817
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange
Act: Common Stock, par value $0.001.
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $989,539
The aggregate market value of the issuer's voting stock held by
non-affiliates of the issuer based upon the average bid and asked prices
of such stock as of March 31, 2000, was $80,767,031
The number of shares outstanding of the issuer's common stock as of
February 29, 2000, was 15,093,000.
Documents Incorporated By Reference:
Certain exhibits required by Item 13 have been incorporated by
reference from the Company's Form 10- SB filed on November 4, 1999.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>2
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are being filed as part of this report:
(1) Financial Statements
(i) The following Financial Statements pertaining to Dragon are
filed as part of this Report:
Report of Independent Accountants *.......................................F-2
Year-end Consolidated Balance Sheets *....................................F-3
Year-end Consolidated Statements of Stockholders' Equity *................F-4
Year-end Consolidated Statements of Operations *..........................F-5
Year-end Consolidated Statements of Cash Flows *..........................F-6
Notes to Consolidated Financial Statements *....................F-7 thru F-19
* These financial statements previously filed with Form 10-KSB filed April
12, 2000.
(ii) The following Financial Statements pertaining to Nanjing
Huaxin Bio-Pharmaceuticals, Inc. are filed as part of this Report:
Report of Independent Accountants........................................F-20
Year-end Balance Sheets..................................................F-21
Year-end Statements of Stockholders' Equity..............................F-22
Year-end Statement of Operations ........................................F-23
Year-end Statements of Cash Flows........................................F-24
Notes to Financial Statements..................................F-25 thru F-30
(2) Exhibits
<TABLE>
<S> <C> <C>
EXHIBIT
NO. DESCRIPTION LOCATION
- ----------- ------------------------------------- ---------------------------------------
3.1 - 3.4 Articles of Incorporation and Bylaws Incorporated by reference to Exhibits
No. 3.1 - 3.4 to the Company's Form
10-SB filed on November 4, 1999
10.1 Sino-Foreign Co-operative Company Incorporated by reference to Exhibit
contract No. 10.1 to the Company's Form 10-
SB filed on November 4, 1999
10.2 Sino-Foreign Joint Venture Contract Incorporated by reference to Exhibit
No. 10.2 to the Company's Form 10-
SB filed on November 4, 1999
16.1 Letter regarding Changes in Certifyin Incorporated by reference to Exhibit
Accountant No. 16.1 to the Company's Form 10-
SB filed on November 4, 1999
</TABLE>
(b) Reports on Form 8-K:
None.
<PAGE>3
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 15, 2000 DRAGON PHARMACEUTICAL INC.
a Florida Corporation
/S/ LONGBN LIU
----------------------
Longbin Liu, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates stated.
Signatures Date
/S/ LONGBIN LIU
-----------------------------------
Longbin Liu April 15, 2000
President, Director, Chief Executive
Officer
/S/ KEN Z. CAI
-----------------------------------
Ken Z. Cai April 15, 2000
Director, Chief Financial Officer
and Principal Financial Officer
/S/ GREG HALL
-----------------------------------
Greg Hall, Director April 15, 2000
/S/ ROBERT FRIEDLAND
-----------------------------------
Robert Friedland, Director April 15, 2000
/S/ ALEXANDER WICK
-----------------------------------
Alexander Wick, Director April 15, 2000
/S/ PHILIP YUEN PAK YIU
-----------------------------------
Philip Yuen Pak Yiu, Director March 31, 2000
/S/ DR. YIU KWONG SUN
-----------------------------------
Dr. Yiu Kwong Sun, Director April 15, 2000
<PAGE>F-20
MOORE STEPHENS ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
E-Mail: [email protected]
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD
We have audited the balance sheets of Nanjing Huaxin Bio-pharmaceuticals Co.
Ltd. ("the Company") as at June 11, 1999, December 31, 1998 and 1997, and the
related statements of stockholders' equity, operations and cash flows for the
years ended December 31, 1998 and 1997 and the period from January 1, 1999 to
June 11, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our
opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 11, 1999, December
31, 1998 and 1997 and the results of its operations and cash flows for the years
ended December 31, 1998 and 1997 and the period from January 1, 1999 to June 11,
1999 in conformity with generally accepted accounting principles in the United
States.
Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."
February 29, 2000 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-21
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Balance Sheet
(Expressed in US Dollars)
<TABLE>
<S> <C> <C> <C>
June 11 December 31 December 31
1999 1999 1998
-------------- --------------- ---------------
ASSETS
Current
Cash and cash equivalents $ 82,621 $ 158,257 $ 102,318
Accounts receivable 535,182 355,451 206,217
Inventories 193,478 162,937 69,852
-------------- --------------- ---------------
811,281 676,645 378,387
Fixed assets 1,349,501 1,419,483 1,570,998
-------------- --------------- ---------------
Total assets $ 2,160,782 $ 2,096,128 $ 1,949,385
============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current
Bank loan $ - $ - $ 120,482
Accounts payable and accrued liabilities 63,939 17,736 19,246
Due to parent company,
non-interest bearing 633,289 840,204 553,825
-------------- --------------- ---------------
Total liabilities 697,228 857,940 693,553
-------------- --------------- ---------------
Commitments
Stockholders' Equity
Registered capital 602,410 602,410 602,410
Additional paid in capital 1,361,812 1,287,113 1,139,467
Accumulated deficit (500,668) (651,335) (486,045)
-------------- --------------- ---------------
Total stockholders' equity 1,463,554 1,238,188 1,255,832
-------------- --------------- ---------------
Total liabilities and stockholders' equity $ 2,160,782 $ 2,096,128 $ 1,949,385
============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-22
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Statement of Stockholders' Equity
Period from January 1, 1997 to June 11, 1999
(Expressed in US Dollars)
<TABLE>
<S> <C> <C> <C> <C>
Additional Total
Registered Paid-up Accumulated Stockholders'
Capital Capital Deficit Equity
------------- -------------- ------------- ----------------
Balance, December 31, 1996 $ 602,410 $ - $ - $ 602,410
Net (loss) for the year - - (486,045) (486,045)
Fixed assets contributed by parent company - 1,007,231 - 1,007,231
Non-cash interest expense charged by parent company - 33,200 - 33,200
Non-cash services provided by parent company - 99,036 - 99,036
------------- -------------- ------------- ----------------
Balance, December 31, 1997 602,410 1,139,467 (486,045) 1,255,832
Net (loss) for the year - - (165,290) (165,290)
Non-cash interest expense charged by parent company - 46,200 - 46,200
Non-cash services provided by parent company - 101,446 - 101,446
------------- -------------- ------------- ----------------
Balance, December 31, 1998 602,410 1,287,113 (651,335) 1,238,188
Net (loss) for the period - - 150,667 150,667
Non-cash interest expense charged by parent company - 30,000 - 30,000
Non-cash services provided by parent company - 44,699 - 44,699
------------- -------------- ------------- ----------------
Balance, June 11, 1999 $ 602,410 $ 1,361,812 $ (500,668) $ 1,463,554
============= ============== ============= ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-23
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Statement of Operations
(Expressed in US Dollars)
<TABLE>
<S> <C> <C> <C>
January 1 January 1 January 1
1999 to 1998 to 1997 to
June 11 December 31 December 31
1999 1998 1997
-------------- -------------- --------------
Sales $ 732,659 $ 1,000,790 $ 228,067
Cost of sales 145,556 470,023 138,230
-------------- -------------- --------------
Gross profit 587,103 530,767 89,837
-------------- -------------- --------------
Expenses
Research and development 23,616 210,101 32,516
Selling 279,648 282,399 167,679
General and administrative 133,172 203,557 375,687
-------------- -------------- --------------
436,436 696,057 575,882
-------------- -------------- --------------
Net income (loss) for the period $ 150,667 $ (165,290) $ (486,045)
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-24
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Statement of Cash Flows
(Expressed in US Dollars)
<TABLE>
<S> <C> <C> <C>
January 1 January 1 January 1
1999 to 1998 to 1997 to
June 11 December 31 December 31
1999 1998 1997
------------ ------------ -------------
Cash flows from (used in)
operating activities
Net income (loss) for the period $ 150,667 $ (165,290) $ (486,045)
Adjustments to reconcile net loss to
net cash used in operating activities:
- depreciation 74,652 176,889 46,097
- non-cash interest expense charged
by parent company 30,000 46,200 33,200
- non-cash services provided by
parent company 44,699 101,446 99,036
------------ ------------ -------------
300,018 159,245 (307,712)
Changes in assets and liabilities:
- accounts receivable (179,731) (149,234) (206,217)
- inventories (30,541) (93,085) (69,852)
- accounts payable and accrued liabilities 46,203 (1,510) 19,246
------------ ------------ -------------
135,949 (84,584) (564,535)
------------ ------------ -------------
Cash used in investing activities
Purchase of fixed assets (4,670) (25,374) (609,864)
------------ ------------ -------------
Cash flows from (used in)
financing activities
Advance from (repayment to) parent company (206,915) 286,379 553,825
Proceeds (repayment) of short-term loan - (120,482) 120,482
------------ ------------ -------------
(206,915) 165,897 674,307
------------ ------------ -------------
Increase (decrease) in cash and
cash equivalents (75,636) 55,939 (500,092)
Cash and cash equivalents,
beginning of period 158,257 102,318 602,410
------------ ------------ -------------
Cash and cash equivalents,
end of period $ 82,621 $ 158,257 $ 102,318
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-25
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Notes to Financial Statements
June 11, 1999, December 31, 1998 and 1997
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
Nature of Business
1. The Company was incorporated on January 23, 1996 under the laws of China
and is in the business of research and development, production and sales of
pharmaceutical products in China.
2. Significant Accounting Policies
(a) Principles of Accounting
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
(b) Currency of Presentation
These financial statements, which were originally presented in Chinese
RMB, the currency of the Company's primary economic environment, are
being translated into U.S. Dollars at the exchange rate of US$1=RMB8.3
for the convenience of the readers.
(c) Capital Assets
Fixed assets are recorded at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets
on a straight-line basis at the following annual rates:
Office equipment and furniture 20%
Leasehold improvements Terms of the lease (10 years)
Production equipment 10%
(d) Inventories
Inventories are stated at the lower of cost and replacement cost with
respect to raw materials and the lower of cost and net realizable
value with respect to finished goods. Cost includes direct material,
direct labour and overheads. Cost is calculated using the first-in,
first-out method. Net realizable value represents the anticipated
selling price less all further costs for completion and distribution.
(e) 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-26
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Notes to Financial Statements
June 11, 1999, December 31, 1998 and 1997
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
(f) Financial Instruments and Concentration of Risks
The carrying amounts of cash and cash equivalents, accounts
receivable, short-term loan, accounts payable and accrued liabilities
and amount due to the parent company approximate their respective fair
value due to the short-term nature of these financial instruments.
The Company is not exposed to significant interest and foreign
currency risk arising from these financial instruments. The Company
has minimal concentration of credit risks and does not require
collateral to support these financial instruments.
(g) Cash and Cash Equivalents
Cash equivalents usually consist of highly liquid investments with
maturities of three months or less. As at June 11, 1999, December
31, 1998 and 1997, cash and cash equivalents consist of cash only.
(h) Research and Development
The Company expenses research and development costs as incurred.
(i) Income Taxes
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes", 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 using the
liability method. Under this method, deferred tax liabilities and
assets are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse.
(j) Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. The
Company is disclosing this information on its Statement of
Stockholders' Equity. Comprehensive income comprises equity except
those resulting from investments by owners and distributions to
owners. SFAS NO. 130 did not change the current accounting treatments
for components of comprehensive income.
<PAGE>F-27
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Notes to Financial Statements
June 11, 1999, December 31, 1998 and 1997
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
3. Fixed Assets
<TABLE>
<S> <C> <C> <C>
1999
--------------------------------------------------------
Accumulated Net book
Cost depreciation value
------------- ----------------- --------------
Office equipment and furniture $ 78,581 $ 22,199 $ 56,382
Production equipment 848,818 155,483 693,335
Leasehold improvements 719,741 119,957 599,784
------------- ----------------- --------------
$ 1,647,140 $ 297,639 $ 1,349,501
============= ================= ===============
1998
--------------------------------------------------------
Accumulated Net book
Cost depreciation value
------------- ----------------- --------------
Office equipment and furniture $ 77,142 $ 15,906 $ 61,236
Production equipment 845,587 117,113 728,474
Leasehold improvements 719,741 89,968 629,773
------------- --------------- -------------
$ 1,642,470 $ 222,987 $ 1,419,483
============= =============== =============
1997
--------------------------------------------------------
Accumulated Net book
Cost depreciation value
------------- ----------------- --------------
Office equipment and furniture $ 61,219 $ 2,485 $ 58,734
Production equipment 836,135 25,619 810,516
Leasehold improvements 719,741 17,993 701,748
------------- ----------------- --------------
$ 1,617,095 $ 46,097 $ 1,570,998
============= ================= ==============
</TABLE>
Depreciation expense was $74,652, $176,889 and $46,097 for the period
ended June 11, 1999, and years ended December 31, 1998 and 1997,
respectively.
4. Inventories
1999 1998 1997
---------- --------- -----------
Raw materials $ 54,767 $ 30,581 $ 34,545
Work-in-progress 65,217 29,549 31,779
Finished goods 73,494 102,807 3,528
---------- --------- -----------
$ 193,478 $ 162,937 $ 69,852
========== ========= ===========
<PAGE>F-28
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Notes to Financial Statements
June 11, 1999, December 31, 1998 and 1997
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
5. Bank Loan
The loan bears interest at 0.79% per month and was due on November 17,
1998.
6. Income Taxes
The Company 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 bio-technology enterprises. The
Company is subject to a corporation tax rate of 33% on its taxable income.
As at June 11, 1999, the Company have estimated losses, for tax purposes,
totalling approximately $501,000, which may be applied against future
taxable income. Accordingly, there is no tax expense charged to the
Statement of Operations for the years ended December 31, 1997 and 1998 and
for the period ended June 11, 1999. The potential tax benefits arising from
these losses have not been recorded in the financial statements. 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 income.
The tax effect of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
----------- ------------ -------------
Tax loss carryforwards $ 215,000 $ 215,000 $ 160,000
Set off against net income for the period (50,000) - -
Less: valuation allowance (165,000) (215,000) (160,000)
----------- ------------ -------------
$ - $ - $ -
=========== ============= ==============
</TABLE>
<PAGE>F-29
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Notes to Financial Statements
June 11, 1999, December 31, 1998 and 1997
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
7. Related Party Transactions
(a) The following services or goods were provided by the parent company:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Equipment leasing $ 3,989 $ 15,957 $ 3,989
Interest expense 30,000 46,200 33,200
Quality control expenses 7,803 18,728 4,682
Rent 50,201 120,482 30,120
Repairs and maintenance 7,530 18,072 4,518
Research and development 18,180 53,868 8,591
Staff benefits 42,892 97,832 95,422
Transportation 1,807 3,614 3,614
--------- --------- ---------
Total expenses $162,402 $374,753 $184,136
========= ========= =========
</TABLE>
The above expenses are included in the statement of operations as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Cost of sales $ 80,547 $ 191,524 $ 72,718
Research and development 22,169 69,825 12,580
Selling 18,014 41,089 40,077
General and administrative 41,672 72,315 58,761
--------- --------- ---------
$ 162,402 $ 374,753 $ 184,136
========= ========= =========
</TABLE>
These expenses were provided at cost or, if they were shared expenses,
allocation was based on estimated proportional usage. Interest expense
was charged at the annual prime rate on amount owed. Management
believes that the method of provision is reasonable.
(b) In 1997, the Company received $1,609,641 of fixed assets from its
parent company. The Company paid cash of $602,410 to purchase these
fixed assets and the remaining $1,007,231 was credited as additional
paid-up capital of the Company. These fixed assets were transferred at
net book value and are included in fixed assets. Management believes
that the transfer value is reasonable.
<PAGE>F-30
NANJING HUAXIN BIO-PHARMACEUTICALS CO. LTD.
Notes to Financial Statements
June 11, 1999, December 31, 1998 and 1997
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
8. Non-cash Investing and Financing Activities
(a) In 1997, the parent company contributed $1,007,231 in fixed assets to
the Company. This amount is included in the $1,609,642 fixed assets
described in Note 7(b).
(b) The parent company provided non-cash services in transportation and
staff housing benefits totalling $44,699, $101,446 and $99,036 for the
period ended June 11, 1999, and the years ended December 31, 1998 and
1997, respectively, to the Company. These expenses were charged to
operations and disclosed in Note 7(a).
(c) Interest expenses of $33,200 in fiscal 1997 based on a prime interest
rate of 6% per annum, $46,200 in fiscal 1998 based on a prime interest
rate of 5.5% per annum and $30,000 in fiscal 1999 on a prime interest
rate of 4.75% per annum were recorded by the Company on amounts owed
to its parent company. These non-cash expenses were charged to
operations and disclosed in Note 7(a).
9. Subsequent Event
Subsequent to June 11, 1999, the Company disposed of its cash, inventories,
fixed assets and drug distribution licence and manufacturing permit for
total proceeds of US$4,000,000.
The transaction resulted in a gain of approximately $2.7 million.
