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EX-31.1 - WEYLAND TECH, INC.v216912_ex31-1.htm
EX-32.2 - WEYLAND TECH, INC.v216912_ex32-2.htm
EX-31.2 - WEYLAND TECH, INC.v216912_ex31-2.htm
EX-32.1 - WEYLAND TECH, INC.v216912_ex32-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal years ended December 31, 2008, 2009 and 2010
or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to                                                                to                                                         

Commission File Number:       333-128399

SINOBIOMED INC.
(Exact name of registrant as specified in its charter)

Delaware
 
20-1945139
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)
     
Room 4304, 43/F China Resources Building
 
HKSAR
26 Harbour Road, Wan Chai
 
(Zip Code)
Hong Kong  HKSAR
   
(Address of principal executive offices)
   

011-852-2511-0238
(Registrant’s telephone number, including area code)

Securities registered under Section 12 (b) of the Exchange Act:  None
Securities registered under Section 12 (g) of the Exchange Act:  Common stock, $0.0001 par value (the “Common Stock”).

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ Yes   x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨ Yes   x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
¨ Yes   x No
 
 
 

 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨ Yes   ¨ No*
*The registrant has not yet been phased into the interactive data requirements.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K.
¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)  
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨ Yes   x No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

As at June 30, 2010 – 119,138,254 shares of common stock X $0.10 = $11,913,825.40

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
¨ Yes   ¨ No

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

226,971,586 shares of common stock as of March 21, 2011.
 
 
ii

 
 
DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.

The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).
 
 
iii

 
Table of Contents

USE OF NAMES
 
v
     
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
v
     
Part I
 
1
Item 1. Business
 
1
Item 1A. Risk Factors
 
5
Item 2. Properties
 
5
Item 3. Legal Proceedings
 
6
Item 4. [Removed and Reserved]
 
6
     
Part II
 
6
Item 5. Market For Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
6
Item 6. Selected Financial Data
 
13
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
13
Item 8. Financial Statements and Supplementary Data
 
33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
34
Item 9A. Controls and Procedures
 
34
Item 9B. Other Information
 
36
     
Part III
 
37
Item 10. Directors, Executive Officers, and Corporate Governance
 
37
Item 11. Executive Compensation
 
40
Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
 
45
Item 13. Certain Relationships And Related Transactions, and Director independence
 
47
Item 14. Principal Accountant Fees And Services
 
51
     
Part IV
 
51
Item 15. Exhibits, Financial Statements
 
51
     
SIGNATURES
 
58
Exhibit Index
 
59
 
 
iv

 
 
USE OF NAMES

In this annual report, the terms “Sinobiomed,” “Company,” “we,” or “our,” unless the context otherwise requires, mean Sinobiomed Inc. and its subsidiaries, if any.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K and other reports that we file with the SEC contain statements that are considered forward-looking statements.  Forward-looking statements give the Company’s current expectations, plans, objectives, assumptions or forecasts of future events.  All statements other than statements of current or historical fact contained in this annual report, including statements regarding the Company’s future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plans,” “potential,” “projects,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” and similar expressions.  These statements are based on the Company’s current plans and are subject to risks and uncertainties, and as such the Company’s actual future activities and results of operations may be materially different from those set forth in the forward looking statements.  Any or all of the forward-looking statements in this annual report may turn out to be inaccurate and as such, you should not place undue reliance on these forward-looking statements.  The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs.  The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions due to a number of factors, including:

·
dependence on key personnel;
·
competitive factors;
·
degree of success of research and development programs;
·
the operation of our business; and
·
general economic conditions in the United States and China.

These forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.  In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this annual report.
 
 
v

 
 
PART I

ITEM 1. BUSINESS

Year of Organization and Former Business

Sinobiomed Inc., (hereafter the “Company”) was incorporated under the name CDoor Corp. in Delaware on November 18, 2004.  On March 2, 2007, the Company changed its name to “Sinobiomed, Inc.”.

Formerly the Company was a development stage company that owned a United States patent (patent No. 5,074,073) (the “Patent”) for a “Car Door Safety Feature Device”.  The Patent was a safety feature related to the development of an injury-preventing system for doors of automobiles comprising a radiation emitter for emitting electromagnetic radiation, detectors for detecting the electromagnetic radiation thus preventing car doors from closing on a person’s hand, finger or leg.  The Company’s principal business plan was to develop a prototype of the Patent and then manufacture and market the product and/or seek third party entities interested in licensing the rights to manufacture and market the safety system.

Corporate Development and Current Business

Following a change of management that occurred on November 2, 2006, the Company determined to change its business plan from the development of the Car Door Safety Feature Patent and began focusing on the Chinese biopharmaceutical industry.

On January 12, 2007, the Company carried out a reverse merger by completing a share purchase agreement, dated December 21, 2006, (the “Share Purchase Agreement”) with Wanxin Bio-Technology Limited (“Wanxin”) and all the shareholders of Wanxin whereby the Company acquired 100% of the issued and outstanding shares in the capital of Wanxin (the “Wanxin Capital”), through the issuance of 1,750,000 (pre forward stock split) shares of Common Stock of the Company in aggregate to the shareholders of Wanxin on a pro rata basis in accordance with each Wanxin shareholders’ percentage of ownership in Wanxin. 95 percent of the voting stock of the former majority shareholder of the Company were surrendered to the Company for cancellation and return to the treasury such that voting control of the Company was obtained by the former stockholders of Wanxin.  A copy of the share purchase agreement was attached as Exhibit 10.1 to the Form 8-K/A-1 filed on January 16, 2007, and incorporated herein by reference.

At an annual meeting of the stockholders of the Company held on March 1, 2007, the stockholders voted to complete a forward stock split of forty for one of the Company’s common stock with an effective date of March 2, 2007.

Wanxin is the sole shareholder of Manhing Enterprises Limited, a company organized under the laws of Hong Kong, and Manhing Enterprises Limited is the registered owner of 82% of the capital of Shanghai Wanxing Bio-pharmaceuticals Co., Ltd (“Shanghai Wanxing”).  In addition, Shanghai Wanxing is the registered owner of 50.33% of the capital of Shanghai Wanxing Bio-science Cosmetic Co., Ltd. (“Wanxing Cosmetic”).

On August 6, 2007, the Company through its 82% owned subsidiary, Shanghai Wanxing, entered into a formal equity transfer contract (the “Equity Transfer Contract”) with the equity owners of Suzhou Boai Medical Development Co., Ltd. (“Suzhou Boai”), a pharmaceutical distribution company organized under the laws of the P.R. China, to acquire 90% of the equity in Suzhou Boai in exchange for the payment of a transfer fee (the “Transfer Fee”) to the equity owners of Suzhou Boai.
 
 
1

 
 
Under the Equity Transfer Contract, all the equity owners of Suzhou Boai were to transfer all of their equity to Shanghai Wanxing, except for one equity owner who was to retain a 10% interest, in exchange for an aggregate Transfer Fee of RMB18 million (approximately $2.4 million).

The Transfer Fee, the final determination of which was subject to a due diligence report, was to be two times the authorized capital of Suzhou Boai (RMB18 million, or approximately $2,400,000).  Shanghai Wanxing was to pay: (i) 30% of the Transfer Fee (RMB5.4 million, or approximately $720,000) three days after signing the Equity Transfer Contract, which was already paid as of August 7, 2007; (ii) 55% of the Transfer Fee (RMB9.9 million, or approximately $1,320,000) one week after registration of the equity alteration; and (iii) 15% of the Transfer Fee (RMB2.7 million, or approximately $360,000) a half year after registration of the equity alteration.  After receiving 30% of the Transfer Fee, which was already paid, the equity owners of Suzhou Boai were responsible for obtaining government administrative approval and registering the equity alteration.

The foregoing description of the Equity Transfer Contract does not purport to be complete and is qualified in its entirety by reference to the Equity Transfer Contract, which was attached as Exhibit 10.1 to the Form 8-K filed on August 10, 2007, which is incorporated herein by reference.

On August 6, 2007, the Equity Transfer Contract entered into the actual fulfillment period.  The due diligence report prepared for Suzhou Boai revealed that the total net assets of Suzhou Boai were only RMB 6.8 million instead of RMB 7.5 million as required and subject to possible further deductions, and the Company’s auditors also confirmed the total net assets of Suzhou Boai were considerably less than RMB 7.5 million.  This reduced total net assets level gave rise to a divergence on Suzhou Boai’s total net assets amount while in the fulfillment stage and Shanghai Wanxing decided to continue with the acquisition with the understanding that Shanghai Wanxing and Suzhou Boai would continue to negotiate a reduced Transfer Fee in good faith due to the reduced total net assets level.

After repeated negotiations, Shanghai Wanxing and Suzhou Boai’s former equity owners could not agree on a reduced Transfer Fee and on January 22, 2008, the parties to the Equity Transfer Contract decided to rescind such agreement while in the fulfillment stage and executed a Cancellation Agreement of the Stock Transfer Agreement (the “Cancellation Agreement”), whereby the parties agreed to resolve their disputes by having Shanghai Wanxing transfer the 90% registered capital back to its original status with the former owners, and the former owners returning to Shanghai Wanxing RMB 2.8 million of the RMB 5.4 million already paid.

As of February 3, 2008, Suzhou Boai and the former owners returned the full RMB 2.8 million to Shanghai Wanxing as agreed under the Cancellation Agreement.

The foregoing description of the Cancellation Agreement does not purport to be complete and is qualified in its entirety by reference to the Cancellation Agreement, which was attached as Exhibit 10.1 to the Form 8-K/A-2 filed on March 31, 2008, which is incorporated herein by reference.

Business of Shanghai Wanxing

Shanghai Wanxing is a Chinese developer of genetically engineered recombinant protein drugs and vaccines, based in Shanghai. For more detailed information about the business of Shanghai Wanxing, please refer to the Form 8-K/A-1 filed with the SEC on EDGAR on January 16, 2007 as well as the Form 10-K filed with the SEC on EDGAR on April 14, 2008.
 
 
2

 
 
Abandonment of Shanghai Wanxing

On 27 March 2009 at Wanxing offices in Shanghai, the China Construction Bank visited Shanghai Wanxing with their bailiff and announced the intention to seize assets charged to them under terms of bank loans to Shanghai Wanxing and as affirmed by court order. The bank subsequently executed the seizure of books and records of the Shanghai Wanxing and Wanxing Cosmetic in 2010.

On June 5, 2009 the Company’s Board of Directors formally announced its decision to abandon its operating subsidiaries in China, Shanghai Wanxing and Wanxing Cosmetic, due to the following factors:
 
1.
The Company’s President and Chief Executive Officer, who was also general manager of the subsidiaries, resigned his positions with Sinobiomed Inc. but retained management control of the subsidiaries by virtue of his nominee’s status as Chief Representative of the subsidiaries, a legal status in China that is difficult to change without cooperation of the incumbent.
 
2.
The debt of the subsidiaries in China exceeded the value of the assets and the prospects for generating sufficient cash flow to repay the debt were doubtful.
 
3.
Assets of the subsidiaries were subject to seizure order as noted above.

In December, 2010, the Company completed the abandonment process by entering into a stock purchase and sale agreement (the “Purchase and Sale Agreement”) with China Nonferrous Metals Resource Geological Survey Inc. (“China Nonferrous”), a British Virgin Islands subsidiary of the owner of the 18% minority interest in Shanghai Wanxing, and Wanxin Bio-Technology Limited (“Wanxin BVI”), the Company’s wholly-owned British Virgin Islands subsidiary, pursuant to which the Company agreed to sell 100% of its equity interest in Wanxin BVI to China Nonferrous for an aggregate sale price of $200,000. The Purchase and Sale Agreement was completed on December 23, 2010. With the sale of Wanxin BVI, the Company also sold its indirect interest in Manhing Enterprises Ltd, the 100%- owned subsidiary of Wanxin BVI, which was registered owner of 82% of the shares of Shanghai Wanxing, which owned 50.33% of the shares of Shanghai Wanxing Bio-science Cosmetic Co Ltd. Although the Company had abandoned Shanghai Wanxing and Wanxing Cosmetic(the “Wanxing Group”) in early 2009, the Company had not done anything in the intervening period to transfer the legal registered ownership to any other party, and therefore the legal rights of the party with effective operational control of the Wanxing Group were uncertain. With the abandonment of the Wanxing Group having been irreversibly done almost two years prior, the transfer of formal ownership was the logical conclusion of the process. The only asset of Wanxin BVI and Manhing Enterprises at the time, other than registered legal ownership of the Wanxing Group, was $4,056 in cash held in a bank account.

The foregoing description of the terms of the Purchase and Sale Agreement is qualified by reference to the Purchase and Sale Agreement which is attached as Exhibit 10.1 to the Form 8-K filed with the SEC on EDGAR on December 22, 2010.

The abandonment and sale of Wanxin BVI is accounted for in the financial statements as a disposition of the subsidiaries for proceeds of $200,000 as of January 1, 2009.

Acquisition of Computer Server Assets

On December 10, 2010, the Company consummated an asset purchase agreement (the “Asset Purchase Agreement”), dated December 10, 2010, , pursuant to which the Company agreed to purchase eight computer servers and associated fixtures for 4,500,000 shares of the Company’s common stock.
 
The foregoing description of the terms of the Asset Purchase Agreement is qualified by reference to the Asset Purchase Agreement which is attached as Exhibit 10.1 to the Form 8-K filed with the SEC on EDGAR on December 15, 2010.
 
 
3

 
 
The Company believes that the acquisition of the assets will enable the Company to utilize such telecommunications infrastructure to pursue its new business direction of operating a secure data storage and processing environment and engaging in strategic partnerships in the areas of e-commerce, media and social networking.

Employees

Currently, the Company only has one full time employee, which is Mr. George Yu, President, CEO and a director of the Company.  Mr. Yu and the Company have entered into an executive employment agreement, dated September 1, 2010, pursuant to which, the Company is obligated to pay Mr. Yu an initial monthly base salary of $5,000, which will be increased to a monthly base salary of $10,000 per month if the Company raises at least $1,000,000 in aggregate financing during the 24-month term of Mr. Yu’s employment.  To December 31, 2010 the Company has accrued but not paid the $20,000 earned to date by Mr. Yu.  In addition, the Company, as required under the executive employment agreement, has granted Mr. Yu stock options to purchase 5,000,000 restricted shares of the Company’s common stock under the Company’s 2006 Stock Option and Incentive Plan at an exercise price of $0.03 per share. The options will vest on a monthly basis over a 24-month period and have an expiry date of September 1, 2015.

Loan Obligations

From December 2007 to June 2008, Mr. Ka Yu, our Secretary and a Director and a shareholder, loaned the Company a total of $65,000.  Mr. Yu forgave the loan effective December 31, 2009.

In 2007, a Singapore entity loaned $300,000 to the Company, which loan was non-interest bearing and had no set terms of repayment.  The Company and such Singapore entity agreed to convert the $300,000 of such indebtedness into shares of common stock of the Company at a price of $0.30 per share to be issued to the Singapore entity or its nominees, which was approved by the Company’s Board of Directors on April 21, 2009.  On February 17, 2010, the Company issued an aggregate of 1,000,000 shares of common stock to two nominees of such Singapore entity. In addition, a shareholder of the Singapore entity loaned the Company $40,000 in 2008, which loan remains outstanding.  There are no interest or repayment terms on the loan.

On July 30, 2008, the Company issued a convertible debenture to Accelera Evolution Limited in the amount of $100,000 having an interest rate of 8% per annum compounded quarterly, a maturity date of July 1, 2011 and a conversion price of $0.30 per share.

On November 11, 2008 the Company issued a convertible debenture to Accelera Ventures Ltd. in the amount of $250,000 having an interest rate of 8% per annum compounded quarterly, a maturity date of July 1, 2011, and a conversion price of $0.30 per share.

However, on April 20, 2010, the Company entered into an Amendment Agreement (the “Amendment Agreement”) with Accelera Evolution Limited, whereby the parties agreed as follows:

 
1.
the conversion price contained the convertible debenture issued by the Company to Accelera Evolution Limited in the amount of $100,000 on July 30, 2008, including any accrued and unpaid interest thereon, is amended from $0.30 per share to $0.003 per share; and

 
2.
the conversion price contained in the convertible debenture issued by the Company to Accelera Ventures Ltd. in the amount of $250,000 on November 11, 2008, including any accrued and unpaid interest thereon, which was transferred from Accelera Ventures Ltd. to Accelera Evolution Limited and then such transfer was subsequently cancelled, is amended from $0.30 per share to $0.005 per share.
 
 
4

 
 
On April 20, 2010, Accelera Evolution Limited provided a conversion notice to the Company whereby Accelera Evolution Limited converted $100,000 plus accrued and unpaid interest thereon in the amount of $14,000 for a total of $114,000 at a conversion price of $0.003 per share.  On April 23, 2010, the Company issued 38,000,000 shares to Accelera Evolution Limited pursuant to the conversion notice.

On February 24, 2011, Accelera Ventures Ltd. provided a conversion notice to the Company whereby Accelera Ventures Ltd. converted $53,333 of accrued and unpaid interest thereon at a conversion price of $0.005 per share.  On March 18, 2011, the Company issued 10,666,666 shares to Accelera Ventures Ltd. pursuant to the conversion notice.  The principal amount of this convertible debenture remains outstanding.

In the year ended December 31, 2008, Mr. Michael Tan loaned a total of $561,370 to the Company. On December 6, 2010 the Company entered into a settlement and conversion of debt letter agreement, dated December 2, 2010 (the “Settlement and Conversion Agreement”), with Mr. Tan, whereby Mr. Tan agreed to convert the loan obligation of $561,370 owing to him from the Company into 10,000,000 shares of common stock.  On December 29, 2010, the Company issued the 10,000,000 shares of common stock to Mr. Tan which extinguished the indebtedness of $561,370 owing from the Company to Mr. Tan.

The foregoing description of the terms of the Settlement and Conversion Agreement is qualified by reference to the Settlement and Conversion Agreement which is attached as Exhibit 10.1 to the Form 8-K filed with the SEC on EDGAR on January 5, 2011.

Transfer Agent

We have engaged Nevada Agency and Trust Company as our stock transfer agent.  Nevada Agency and Trust Company is located at 50 West Liberty Street, Reno, Nevada 89501.

Available Information

The Company’s filings with the Securities and Exchange Commission (“SEC”) may be accessed at the internet address of the SEC, which is http://www.sec.gov.  Also, the public may read and copy any materials that the Company files with at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580 Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

ITEM 1A. RISK FACTORS

The Company, as a “smaller reporting company” (as defined by §229.10(f)(1)), is not required to provide the information required by this Item.

ITEM 2. PROPERTIES

The Company’s current executive offices are located at Room 4304, 43/F China Resources Building, 26 Harbour Road, Wan Chai, Hong Kong  HKSAR.
 
 
5

 

ITEM 3. LEGAL PROCEEDINGS

As at the date of this Form 10-K filing, there are no material pending legal proceedings to which we are a party or which any of our property is subject, and no director, officer, affiliate or beneficial owner of more than 5% of our common stock, or any associate or any such director, officer, affiliate or beneficial owner, is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceeding.  Other than as disclosed below, management is not aware of any other material legal proceedings pending or that have been threatened against us or our properties.

On 27 March 2009 at Wanxing offices in Shanghai, the China Construction Bank visited Shanghai Wanxing with their bailiff and announced the intention to seize assets charged to them under terms of bank loans to Shanghai Wanxing and as affirmed by court order. The bank subsequently executed the seizure of books and records of the Shanghai Wanxing and Wanxing Cosmetic in 2010.

According to the Shanghai Yangpu People’s Court order 131 (2009) dated November 13, 2009, a judgment was given to China Construction Bank Holding Ltd to "Seize, detain, freeze and transfer amount of Chinese renminbi currency 20,405,573 (equivalent to $3,139,319) or the other equal value of properties from Shanghai Wanxing Bio-pharmaceutical Ltd", the abandoned and subsequently sold indirect subsidiary of the Company.

Shanghai Yuancai LLP, legal counsel to Shanghai Wanxin, was engaged by CITIC Guo An Electric Company following the November 13, 2009 Court order becoming effective to deal with potential judgment.  Shanghai Yuancai LLP informed the Company that Shanghai Wanxing’s vehicles, property title and bank accounts were seized by several other China court orders.  On the basis of the Shanghai Yangpu People’s Court order 131 (2009) dated November 13, 2009, the actual legal seizure of accounting records occurred on March 30, 2010.  The delay of the final legal seizure of accounting records was due to the delay in enforcing the legal judgment within the Chinese legal system.

ITEM 4. [REMOVED AND RESERVED]

Not applicable.

PART II
 
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

We are authorized to issue 250,000,000 shares of Common Stock, at a par value $0.0001 per share.  The holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders.  There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors then up for election.  The holders of Common Stock are entitled to receive ratably such dividends when, as and if declared by the Board of Directors out of funds legally available therefore.  In the event we have a liquidation, dissolution or winding up, the holders of Common Stock are entitled to share ratably in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock.  Holders of shares of Common Stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock.
 
 
6

 
 
Market Information

The Company’s Common Stock currently only trades on the OTC Pink operated by OTC Markets Inc. under the symbol “SOBM”.  The Company’s Common Stock commenced trading under this symbol on March 2, 2007, and previously traded under the symbol “CDCX” from July 28, 2006 until March 1, 2007, without any trading or volume.

The following historical quotations obtained online at www.yahoo.com reflects the high and low bids for our Common Stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:
Quarter Ended
 
High ($)
   
Low ($)
 
December 31, 2010
  $ 0.07     $ 0.02  
September 30, 2010
  $ 0.28     $ 0.03  
June 30, 2010
  $ 0.16     $ 0.05  
March 31, 2010
  $ 0.06     $ 0.02  
December 31, 2009
  $ 0.06     $ 0.04  
September 30, 2009
  $ 0.08     $ 0.03  
June 30, 2001
  $ 0.15     $ 0.05  
March 31, 2009
  $ 0.12     $ 0.02  
December 31, 2008
  $ 0.24     $ 0.01  
September 30, 2008
  $ 0.77     $ 0.19  
June 30, 2008
  $ 0.69     $ 0.27  
March 31, 2008
  $ 1.09     $ 0.59  
December 31, 2007
  $ 2.86     $ 0.87  
September 30, 2007
  $ 3.76     $ 2.07  
June 30, 2007
  $ 2.25     $ 1.30  
March 31, 2007
  $ 1.35     $ 1.11  
 
As of March 21, 2011, the Company’s Common Stock closed at price of $0.03.

Holders

As of March 21, 2011, there are 226,971,586 shares of Common Stock issued and outstanding held by 168 shareholders of record.

Dividend Policy

We have never paid any cash dividends and have no plans to do so in the foreseeable future.  Our future dividend policy will be determined by our Board of Directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences and the restrictions that applicable laws and other arrangements then impose.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of the end of the fiscal year ended December 31, 2010, with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance, aggregated as follows: (i) all compensation plans previously approved by security holders; and (ii) all compensation plans not previously approved by security holders.
 
 
7

 
 
Plan category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
 
 
 
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders (1)
    10,950,000     $ 0.046       14,050,000  
Equity compensation plans not approved by security holders
                       
Total
    10,950,000     $ 0.046       14,050,000  
Notes:
(1)
The Company’s Board of Directors adopted a stock option plan on November 3, 2006 and was subsequently ratified by the shareholders at the Annual Meeting of Shareholders held on March 1, 2007.  See below for details of this plan.

On November 3, 2006, our Board of Directors unanimously approved and adopted a stock option and incentive plan (the “Stock Option Plan”).  The purpose of the Stock Option Plan is to advance our interests and our shareholders’ interests by affording our key personnel an opportunity for investment in the Company and the incentive advantages inherent in stock ownership in the Company.  Pursuant to the provisions of the Stock Option Plan, stock options, stock awards, cash awards or other incentives (the “Stock Options and Incentives”) will be granted only to our key personnel, generally defined as a person designated by the Board of Directors upon whose judgment, initiative and efforts we may rely including any director, officer, employee, consultant or advisor of the Company.

The Stock Option Plan is to be administered by our Board of Directors, which shall determine:

(i)
the persons to be granted Stock Options and Incentives;
(ii)
the fair market value of our shares;
(iii)
the exercise price per share of options to be granted;
(iv)
the number of shares to be represented by each option or incentive award;
(v)
the time or times at which options and incentive awards shall be granted;
(vi)
the interpretation of the Stock Option Plan;
(vii)
whether to prescribe, amend and rescind rules and regulations relating to the Stock Option Plan;
(viii)
the term and provisions or each option and incentive award granted (which need not be identical) and, with the consent of the grantee thereof, modify or amend such option or incentive award;
(ix)
whether to accelerate or defer (with the consent of the grantee) of the exercise date of any option or incentive award;
(x)
the person to execute on our behalf any instrument required to effectuate the grant of an option or incentive award previously granted by the Board;
(xi)
whether to accept or reject the election made by a grantee pursuant to Section 7.5 of the Stock Option Plan; and
 
 
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(xii)
all other determinations deemed necessary or advisable for the administration of the Stock Option Plan.

The Stock Option Plan provides authorization to the Board of Directors to grant Stock Options and Incentives to a total number of shares of our Common Stock, originally not to exceed ten million (10,000,000) (after the forward stock split adjustment of 40 new shares for each one share effective March 2, 2007) shares of our Common Stock as at the date of adoption by the Board of Directors of the Stock Option Plan. On February 9, 2009, the Board of Directors of the Company approved an increase to the number of shares of common stock available under the Stock Option Plan from 10,000,000 shares of common stock to 25,000,000 shares of common stock.

In the event an optionee who is a director, officer, employee (employee also encompasses consultants and advisors where such is appropriate or where such is intended by the Board or by a particular grant under the Stock Option Plan) (each an “Employee”) of the Company has his employment terminated by us, except if such termination is voluntary or occurs due to retirement with the consent of the Board or due to death or disability, then the option, to the extent not exercised, shall terminate on the date on which the Employee’s employment by the Company is terminated.  If an Employee’s termination is voluntary or occurs due to retirement with the consent of the Board, then the Employee may after the date such Employee ceases to be an Employee of the Company, exercise his option at any time within three (3) months after the date he ceases to be an Employee of the Company, but only to the extent that he was entitled to exercise it on the date of such termination.  To the extent that the Employee was not entitled to exercise the Option at the date of such termination, or if he does not exercise such option (which he was entitled to exercise) within the time specified herein, the option shall terminate.  In no event may the period of exercise in the case of incentive options extend more than three (3) months beyond termination of employment.

In the event an Employee is unable to continue his employment with us as a result of his permanent and total disability (as defined in Section 22(e)(3) of the Internal Revenue Code), he may exercise his option at any time within six (6) months from the date of termination, but only to the extent he was entitled to exercise it at the date of such termination.  To the extent that he was not entitled to exercise the option at the date of termination, or if he does not exercise such option (which he was entitled to exercise) within the time specified herein, the option shall terminate.  In no event may the period of exercise in the case of an incentive option extend more than six (6) months beyond the date the Employee is unable to continue employment due to such disability.

In the event an optionee dies during the term of the option and is at the time of his death an Employee who shall have been in continuous status as an Employee since the date of grant of the option, the option may be exercised at any time within six (6) months following the date of death by the optionee’s estate or by a person who acquired the right to exercise the option by bequest or inheritance, but only to the extent that an optionee was entitled to exercise the option on the date of death, or if the optionee’s estate, or person who acquired the right to exercise the option by bequest or inheritance, does not exercise such option (which he was entitled to exercise) within the time specified herein, the option shall terminate.  In no event may the period of exercise in the case of an incentive option extend more than six (6) months beyond the date of the Employee’s death.

Except to the extent otherwise expressly provided in an award, the right to acquire shares or other assets under the Stock Option Plan may not be assigned, encumbered or otherwise transferred by an optionee and any attempt by an optionee to do so will be null and void.  However Stock Options and Incentives granted under this Stock Option Plan may be transferred by an optionee by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder.  Unless assigned in accordance with the terms of an award, options and other awards granted under this Stock Option Plan may not be exercised during an optionee’s lifetime except by the optionee or, in the event of the optionee’s legal incapacity, by his guardian or legal representative acting in a fiduciary capacity on behalf of the optionee under state law and court supervision.
 
 
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Recent Sales of Unregistered Securities

On January 23, 2008, the Company issued 110,000 shares of common stock in return for the services of the Company’s Chief Financial Officer for the 12 months commencing January 1, 2008.  The Company recognized an issue price for the shares of $0.525 per share, reflecting a 30% discount from market price on that date due to there being a hold period before the shares could be sold.

On July 30, 2008, the Company closed an initial $100,000 portion of a $500,000 financing pursuant to a Non-U.S. and Non-Canadian Private Placement Subscription Agreement, dated June 30, 2008, between the Company and Accelera Evolution Limited (“Accelera”), an Asian-based investment fund.  The Company issued Accelera a $100,000 principal amount convertible debenture due July 1, 2011, convertible into shares of our Common Stock, par value $0.0001, at a price of $0.30 per share together with 300,000 common share purchase warrants and 600,000 common share purchase piggyback warrants.  Each warrant entitled the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.33 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on December 1, 2008.  Each piggyback warrant, which will only be available for exercise by the holder thereof if the warrants have been exercised in full (unless subsequently waived in writing by the Company), entitled the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.37 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on July 1, 2010.  None of the warrants were exercised, therefore all the warrants expired on December 1, 2008.

Interest is payable on the principal amount of the convertible debenture outstanding at 8% per annum, calculated and payable quarterly in arrears.  Interest payable under the convertible debenture shall be paid on the last day of September, December, March and June of each year. Unpaid interest compounds quarterly on the due date.  The holder of the convertible debenture has the option to convert any accrued and unpaid interest due at the time of a conversion.

On November 11, 2008, the Company closed a second $250,000 portion of a $350,000 financing, which was reduced from the original amount of $500,000 pursuant to a Non-U.S. and Non-Canadian Private Placement Subscription Agreement, dated June 30, 2008, between the Company and Accelera Ventures Ltd. (“Accelera”), an Asian-based investment fund.  The Company issued Accelera a $250,000 principal amount convertible debenture due July 1, 2011, convertible into shares of our Common Stock, par value $0.0001, at a price of $0.30 per share together with 750,000 common share purchase warrants and 1,500,000 common share purchase piggyback warrants.  Each warrant entitled the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.33 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on December 1, 2008.  Each piggyback warrant, which will only be available for exercise by the holder thereof if the warrants have been exercised in full (unless subsequently waived in writing by the Company), entitled the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.37 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on July 1, 2010. None of the warrants were exercised, therefore all the warrants expired on December 1, 2008.

Interest is payable on the principal amount of the convertible debenture outstanding at 8% per annum, calculated and payable quarterly in arrears.  Interest payable under the convertible debenture shall be paid on the last day of December, March, June and September of each year. Unpaid interest compounds quarterly on the due date.  The holder of the convertible debenture has the option to convert any accrued and unpaid interest due at the time of a conversion.
 
 
10

 
 
On April 20, 2010, the Company entered into an Amendment Agreement (the “Amendment Agreement”) with Accelera Evolution Limited, whereby the parties agreed as follows:

 
1.
the conversion price contained the convertible debenture issued by the Company to Accelera Evolution Limited in the amount of $100,000 on July 30, 2008, including any accrued and unpaid interest thereon, is amended from $0.30 per share to $0.003 per share; and

 
2.
the conversion price contained in the convertible debenture issued by the Company to Accelera Ventures Ltd. in the amount of $250,000 on November 11, 2008, including any accrued and unpaid interest thereon, which was transferred from Accelera Ventures Ltd. to Accelera Evolution Limited and then such transfer was subsequently cancelled, is amended from $0.30 per share to $0.005 per share.

On January 16, 2009, the Company issued 2,250,000 shares of common stock of the Company to one individual with respect to the conversion of a debt of $90,000 owing to such person as a result of outstanding finder’s fees associated with the Company’s private placement offering at $1.25 per Unit and the convertible debenture financing of an aggregate of $350,000 into shares of common stock of the Company at a conversion price of $0.04 per share.  The Company believes that the issuance is exempt from registration under Regulation S promulgated under the Act as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.

On March 6, 2009, the Company issued 882,839 shares of common stock of the Company to three individuals with respect to the conversion of a debt of $441,420 owing to an entity in Singapore as a result of outstanding finder’s fees associated with the Company’s private placement offering at $1.25 per Unit as well as related expenses and monthly service fees, at a conversion price of $0.50 per share.  The Company believes that the issuances are exempt from registration under Regulation S promulgated under the Act as the securities were issued to the individuals through offshore transactions which were negotiated and consummated outside of the United States.

On April 29, 2009, the Company issued 5,000,000 units (each a “Unit”) to 2 offshore individuals/entities due to the closing of the Company’s private placement at $0.05 per Unit for total gross proceeds of $250,000.  Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $0.07 per warrant share until April 29, 2011.  The Company believes that the issuances are exempt from registration under Regulation S promulgated under the Act as the securities were issued to the individuals/entities through an offshore transaction which was negotiated and consummated outside of the United States.

In relation to the Company’s private placement offering at $0.05 per Unit, the Company paid a cash finder’s fee in the amount of $16,500 to one individual in Hong Kong and $3,500 to one individual in Singapore.

On April 29, 2009, the Company issued 4,000,000 shares of common stock to 2 offshore individuals/entities due to the closing of the Company’s private placement at $0.05 per share for total gross proceeds of $200,000.  The Company believes that the issuances are exempt from registration under Regulation S promulgated under the Act as the securities were issued to the individuals/entities through an offshore transaction which was negotiated and consummated outside of the United States.
 
 
11

 
 
In relation to the Company’s private placement offering at $0.05 per share, the Company has paid a cash finder’s fee in the amount of $16,000 to one individual in Hong Kong.

On February 17, 2010, the Company issued 1,000,000 shares of common stock of the Company to two individuals with respect to the conversion of a debt of $300,000 owing to an entity in Singapore at a conversion price of $0.30 per share pursuant to an agreement made in 2009. The Company believes that the issuances are exempt from registration under Regulation S promulgated under the Act as the securities were issued to the individuals/entities through an offshore transaction which was negotiated and consummated outside of the United States.

On April 21, 2010, the Company issued 2,000,000 shares of common stock of the Company to one individual with respect to the conversion of a liability owing of $40,000 at a conversion price of $0.02 per share pursuant to an agreement made in 2009.  The Company believes that the issuance is exempt from registration under Regulation S and/or Section 4(2) under the Securities Act as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.

On April 22, 2010, the Company issued 10,933,329 shares of common stock of the Company to 9 individuals/entities due to the closing of the Company’s private placement at $0.015 per share for total gross proceeds of $164,000.  The Company believes that the issuances are exempt from registration under Regulation S and/or Section 4(2) under the Securities Act as the securities were issued to the individuals/entities through offshore transactions which was negotiated and consummated outside of the United States.

In relation to the closing of the Company’s private placement offering at $0.015 per share, the Company has paid a cash finder’s fee in the amount of $5,000 to an individual in Shanghai, China and a finder’s fee of 750,000 shares of common stock of the Company to an individual in Singapore.  The Company believes that the issuance is exempt from registration under Regulation S and/or Section 4(2) under the Securities Act as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.

On April 23, 2010, the Company issued 38,000,000 shares of common stock of the Company to Accelera Evolution Limited with respect to the conversion of the convertible debenture issued by the Company on July 30, 2008 in the amount of $100,000 plus accrued and unpaid interest thereon in the amount of $14,000 for a total of $114,000 at a conversion price of $0.003 per share.  The Company believes that the issuance is exempt from registration under Regulation S and/or Section 4(2) under the Securities Act as the securities were issued to the entity through an offshore transaction which was negotiated and consummated outside of the United States.

On September 15, 2010, we issued 6,666,666 shares of our common stock to two offshore entities due to the second closing of our private placement at $0.015 per share for total gross proceeds of $100,000.  We believe that the issuances are exempt from registration under Regulation S and/or Section 4(2) under the Securities Act of 1933, as amended, as the securities were issued to the entities through offshore transactions which were negotiated and consummated outside of the United States.

In relation to our private placement offering at $0.015 per share, we have paid a cash finder’s fee in the amount of $10,000 to one individual in Hong Kong.
 
 
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On December 29, 2010, we issued 10,000,000 shares of our common stock to an offshore individual with respect to the conversion of a debt of $561,370owing to him from us pursuant to an agreement made effective December 31, 2009.  We believe that the issuance is exempt from registration under Regulation S and/or Section 4(2) under the Securities Act of 1933, as amended, as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.

In addition, on December 29, 2010, we issued 3,400,000 shares of our common stock to two offshore individuals due to the third closing of our private placement at $0.015 per share for total gross proceeds of $51,000.  We believe that the issuances are exempt from registration under Regulation S and/or Section 4(2) under the Securities Act of 1933, as amended, as the securities were issued to the individuals through offshore transactions which were negotiated and consummated outside of the United States.

In relation to our private placement offering at $0.015 per share, we have paid a cash finder’s fee in the amount of $4,080 to one individual in Hong Kong.

The proceeds from the above transactions have been or will be used to fund the business of the Company and for general corporate purposes.

On March 18, 2011, we issued 10,666,666 shares of our common stock to Accelera Ventures Ltd. with respect to the conversion of $53,333 in accrued and unpaid interest pursuant to the convertible debenture issued by the Company on November 11, 2008 in the amount of $250,000 at a conversion price of $0.005 per share.  We believe that the issuance is exempt from registration under Regulation S and/or Section 4(2) under the Securities Act as the securities were issued to the entity through an offshore transaction which was negotiated and consummated outside of the United States.

Purchase of Equity Securities by the Company and Affiliated Purchasers

Not Applicable.

ITEM 6. SELECTED FINANCIAL DATA

The Company, as a “smaller reporting company” (as defined by §229.10(f)(1)), is not required to provide the information required by this Item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following plan of operation together with our financial statements and related notes appearing elsewhere in this annual report.  This plan of operation contains forward-looking statements that involve risks, uncertainties, and assumptions.  The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.

Overview

From the inception of the Company until the end of November, 2006, we were in business of developing a Patent known as the “Car Door Safety Feature”, however, we determined to change our business plan from the development of the Car Door Safety Feature Patent and began focusing around the Chinese biopharmaceutical industry.  On January 12, 2007, the Company completed the reverse acquisition of Wanxin and all the subsidiaries of Wanxin in accordance with the Share Purchase Agreement, whereby the Company acquired the Wanxin Capital, through the issuance of 1,750,000 (pre forward stock split) shares of Common Stock of the Company in aggregate to the shareholders of Wanxin on a pro rata basis in accordance with each Wanxin shareholder’s percentage of ownership in Wanxin. The Company subsequently made the determination to abandon Shanghai Wanxing and Wanxing Cosmetic as described in Part I, Item 1. On December 23, 2010, the Company completed the abandonment process with the sale of Wanxin to China Nonferrous for a sale price of $200,000, which results in the Company no longer having any subsidiary companies.
 
 
13

 
 
On December 10, 2010, the Company acquired the data centre assets of Keychain, Ltd., which the Company believes will enable the Company to utilize such telecommunications infrastructure to pursue its new business direction of operating a secure data storage and processing environment and engaging in strategic partnerships in the areas of e-commerce, media and social networking.

Plan of Operations

The Company currently has no operations and no source of income. The Company intends to seek out opportunities to enter or acquire new business operations.  The underlying value of the company is entirely dependent on the ability of the Company to find and implement a new business opportunity and obtain the necessary financing to capitalize on such opportunity.

Since the disposition of its Chinese subsidiaries the Company has decided to re-focus itself to participate in the growth of e-commerce, media and social networking through acquisitions.    The Company believes that those areas are converging and will experience high growth globally, and that the Company’s data centre assets, including telecommunications infrastructure, provide the opportunity for the Company to participate in those trends.

Need for Additional Capital

To become profitable and competitive, and execute strategic acquisitions, we may have to raise additional capital.  If we are unable to raise additional equity capital to develop our business and earn revenues, we will have to suspend or cease operations and our investors may lose their investment.

We have no assurance that future financings will be available to us on acceptable terms.  If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Equity financing could result in additional dilution to existing shareholders.

For the Fiscal Year Ended December 31, 2008

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills. Accordingly, we need to raise additional cash from other sources.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

As of December 31, 2008, we had total current assets of $1,524,952 and total assets of $7,977,087.  On December 31, 2008, we had a working capital deficit of $14,719,837 compared with a working capital deficit of $12,746,149 on December 31, 2007.

Operating activities used $708,624 in cash for the year ended December 31, 2008 compared to $4,729,438 for the year ended December 31, 2007.  Investing activities for the year ended December 31, 2008, used $105,206 for purchases of fixed assets, net of proceeds of disposition of fixed assets, compared to $140,135 for the year ended December 31, 2007.  Net cash flows provided by financing activities for the year ended December 31, 2008 was $1,068,061 compared to $3,018,663 for the year ended December 31, 2007.
 
 
14

 
 
We may not have enough money to complete our plan of operations.  If it turns out that we have not raised enough money to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional money through a private placement and there is no assurance that we will raise additional money in the future or that future financings will be available to us on acceptable terms.  If we require additional money and are unable to raise it, we may have to suspend or cease operations.

During the year ended December 31, 2008, we raised proceeds from the sale of our securities as follows:

On July 30, 2008, the Company closed an initial $100,000 portion of a $500,000 financing pursuant to a Non-U.S. and Non-Canadian Private Placement Subscription Agreement, dated June 30, 2008, between the Company and Accelera Evolution Limited (“Accelera”), an Asian-based investment fund.  The Company issued Accelera a $100,000 principal amount convertible debenture due July 1, 2011, convertible into shares of our Common Stock, par value $0.0001, at a price of $0.30 per share together with 300,000 common share purchase warrants and 600,000 common share purchase piggyback warrants.  Each warrant entitles the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.33 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on December 1, 2008.  Each piggyback warrant, which will only be available for exercise by the holder thereof if the warrants have been exercised in full (unless subsequently waived in writing by the Company), entitles the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.37 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on July 1, 2010.

Interest is payable on the principal amount of the convertible debenture outstanding at 8% per annum, calculated and payable quarterly in arrears.  Interest payable under the convertible debenture shall be paid on the last day of September, December, March and June of each year. Unpaid interest compounds on the quarterly due dates.  The holder of the convertible debenture has the option to convert any accrued and unpaid interest due at the time of a conversion.

On November 11, 2008, the Company closed a second $250,000 portion of a $350,000 financing, which was reduced from the original amount of $500,000 pursuant to a Non-U.S. and Non-Canadian Private Placement Subscription Agreement, dated June 30, 2008, between the Company and Accelera Ventures Ltd. (“Accelera”), an Asian-based investment fund.  The Company issued Accelera a $250,000 principal amount convertible debenture due July 1, 2011, convertible into shares of our Common Stock, par value $0.0001, at a price of $0.30 per share together with 750,000 common share purchase warrants and 1,500,000 common share purchase piggyback warrants.  Each warrant entitles the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.33 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on December 1, 2008.  Each piggyback warrant, which will only be available for exercise by the holder thereof if the warrants have been exercised in full (unless subsequently waived in writing by the Company), entitles the holder thereof to acquire one additional share of Common Stock in the capital of the Company at a price of $0.37 per share for the period ending at 4:00 p.m. (Pacific Standard Time) on July 1, 2010.

Interest is payable on the principal amount of the convertible debenture outstanding at 8% per annum, calculated and payable quarterly in arrears.  Interest payable under the convertible debenture shall be paid on the last day of December, March, June and September of each year. Unpaid interest compounds on the quarterly due dates.  The holder of the convertible debenture has the option to convert any accrued and unpaid interest due at the time of a conversion.
 
 
15

 
 
However, on April 20, 2010, the Company entered into an Amendment Agreement (the “Amendment Agreement”) with Accelera Evolution Limited, whereby the parties agreed as follows:

 
1.
the conversion price contained the convertible debenture issued by the Company to Accelera Evolution Limited in the amount of $100,000 on July 30, 2008, including any accrued and unpaid interest thereon, was amended from $0.30 per share to $0.003 per share; and

 
2.
the conversion price contained in the convertible debenture issued by the Company to Accelera Ventures Ltd. in the amount of $250,000 on November 11, 2008, including any accrued and unpaid interest thereon, which was transferred from Accelera Ventures Ltd. to Accelera Evolution Limited and then such transfer was subsequently cancelled, was amended from $0.30 per share to $0.005 per share.

The foregoing description of the Amendment Agreement does not purport to be complete and is qualified in its entirety by reference to the Amendment Agreement, which is attached as Exhibit 10.1 to the Form 8-K filed with the SEC on EDGAR on April 28, 2010.

In December 2008 the Company received subscriptions for a private placement of 5,000,000 units (each a “Unit”) at $0.05 per Unit for total gross proceeds of $250,000.  Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $0.07 per warrant share until April 29, 2011.

Results of Operation for the Fiscal Year ended December 31, 2008

Revenues

We have generated $1,197,983 product sales revenues for the year ended December 31, 2008, compared to $1,026,572 of revenues for the year ended December 31, 2007.  The increase is attributable to increased sales of Cosmetics through home shopping network channels in China, partially offset by decreased sales of pharmaceuticals.

We have generated $789,913 in other revenues from contract manufacturing and research grants for the year ended December 31, 2008 compared to $229,122 of revenues from product licensing and research grants for the year ended December 31, 2007.

Operating Expenses

Operating expenses decreased from $7,629,407 for year ending December 31 2007, to $6,087,323 for the year ended December 31, 2008.  This decrease was primarily due to: (i) a decrease in general and administrative expenses; (ii) a decrease in research and development activity in our biopharmaceuticals business; and (iii) a decrease in travel expenses due to decrease in R&D activity and due to travel being unusually high in 2007 due to the reverse merger in March 2007 and the failed acquisition attempt in the last half of 2007. Partially offsetting these decreases, there was an increase in stock-based compensation expense.
 
 
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General and Administrative Expenses

General and administrative expenses decreased to $1,572,311 for the fiscal year ended December 31, 2008, from $2,588,957 in the previous year, partially due to reduction in professional and reporting costs associated with the reverse take-over which occurred in the 2007 period and the cancelled attempt to acquire Suzhou Boai and due to decrease in staff at Shanghai Wanxing.

Research and Development Expenses

Research and development expenses decrease from $1,114,043 in 2007 to $441,123, corresponding to a decrease in R&D activity at Shanghai Wanxing due to the lack of available funding from the Company.

Travel Expenses

Travel expenses decreased from $354,505 in 2007 to $88,917 in 2008 due primarily to not repeating the amount of travel undertaken in 2007 because of the reverse merger in March 2007 and the cancelled acquisition attempt in the last half of 2007.

Stock-based compensation

Stock-based compensation expense of $2,682,016 was recognized in the fiscal year ended December 31, 2007, compared to $3,055,796 in the fiscal year ended December 31, 2008.  The increase in stock-based compensation expense is due to having a full year of options vesting in 2008 versus 7 months vesting in 2007 of options granted May 30, 2007 and a full year of options vesting in 2008 versus 1 month vesting in 2007 of options granted November 29, 2007. In addition, the options granted May 30, 2007 with exercise price of $1.90 and options granted November 29, 2007 with exercise price of $1.67 were re-priced on August 31, 2008 to exercise price of $0.50, resulting in additional stock-based compensation expense of $16,970 and $40,000, respectively. Partially offsetting these increases, 11 months vesting was recognized in 2007 versus 9 months in 2008 for the options granted March 1, 2007.

Other Income and Expenses

Interest and bank charges decreased from $1,026,482 in 2007 to $554,545 in 2008, reflecting the lower balance in outstanding short-term loans throughout 2008 due to repayments on those loans made in 2007.

During the year ended December 31, 2007, the Company incurred one-time non-recurring income and expenses as follows: (i) income from forgiveness of interest on debt in the amount of $2,320,115 (ii) an expense relating to costs associated with  the cancelled Suzhou Boai acquisition in the amount of $600,216, whereas these items were not repeated in the 2008 year.

Net Loss

As a result of the above, our net loss for the year ended December 31, 2008, was $5,773,716, compared to a loss of $6,669,420 for the year ended December 31, 2007, and cash used in operating activities in the year ended December 31, 2008, was $708,624, compared to cash used in operating activities of $4,729,438 for the year ended December 31, 2007.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.
 
 
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For the Three Month Period Ended March 31, 2009

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have no source of revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On March 31, 2009, we had a working capital deficit of $1,266,922 compared with a working capital deficit of $14,719,837 on December 31, 2008. The decrease is due to the disposition of Shanghai Wanxing and Wanxing Cosmetic, which relieved the Company’s consolidated balance sheet of current liabilities in the amount of $14,306,475 and current assets of $1,449,497 when recognized in the three months ended March 31, 2009.

Operating activities used $127,414 in cash in the three months ended March 31, 2009.  Investing activities in the three months ended March 31, 2009, used $4,056. Net cash flows provided by financing activities in the three months ended March 31, 2009 was $184,000 representing proceeds from subscriptions for our common stock of $200,000, less payment of finders’ fees of $16,000.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

Results of Operation for the Three Month Period Ended March 31, 2009

Overview

The Company recognized net income of $4,654,207 for the three months ended March 31, 2009 as compared to net loss of $1,858,906 for the three months ended March 31, 2008. The net income in 2009 is the result of abandonment of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1). The gain recognized as a result of these events arose because of the proceeds of the sale in the amount of $200,000 and the effect of the Company being relieved of the excess of liabilities over assets of the subsidiaries. The gain is net of the amount recognized as recovery of accumulated other comprehensive loss which originally arose due to foreign currency translation loss on translating the assets and liabilities of the subsidiaries denominated in foreign currency.

Assets and liabilities of the subsidiaries as at December 31, 2008, and revenues and expenses of the subsidiaries for the three months ended March 31, 2008 presented for comparative purposes in the March 31, 2009 interim financial statements have been reclassified to assets, liabilities and loss of discontinued operations to present the statements on an appropriately comparative basis. The loss from discontinued operations of $786,074 for the three months ended March 31, 2008 is the net loss of those operations.
 
 
18

 
 
Revenues

We have no revenues in the three months ended March 31, 2009 due to recognition of the disposition of the Company’s operating subsidiaries as at January 1, 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $42,981 and 917,158 for the three months ended March 31, 2009 and 2008, respectively. The decrease is due to options granted March 1, 2007 becoming fully vested in 2008, to cancellation of options of a director who stepped down, and due to recognition of the cancellation of options previously granted to employees of the abandoned subsidiaries. Upon cancellation of the options of the Chinese subsidiaries in the current period, a recapture of amortization in the amount of $345,083 was recognized due to the options not remaining outstanding until their first vesting date of May 30, 2009.

Consulting fees:  Consulting expenses were $75,595 and $52,019 for the three months ended March 31, 2009 and 2008, respectively. The increase is due to fees of a firm in China engaged to assist the Company in obtaining, analyzing and translating financial information of the former subsidiaries for the year ended December 31, 2008, work that previously would have been done by staff of the subsidiaries, and due to fees of the Company’s Chief Executive Officer appointed February 9, 2009 whereas the previous CEO was paid salary from the Chinese subsidiaries.

Professional fees:  Professional fee expenses were $25,580 and $87,438 for the three months ended March 31, 2009 and 2008, respectively. The decrease is due to there being less involvement of the Company’s external accountants, auditors and lawyer in the current period as difficulties obtaining financial records from former subsidiaries Shanghai Wanxing and Wanxing Cosmetic delayed much of their work, and due to not having to repeat in 2009 a substantial amount of effort that went in to the post-mortem review in 2008 of the cancelled acquisition of Suzhou Boai.

General and administrative expenses:  General and administrative expenses were $7,348 and $10,785 for the three months ended March 31, 2009 and 2008, respectively. The decrease is due to the decrease in the general level of activity of the Company. The Company was in the process of abandoning its operating subsidiaries in 2009. While this required the attention of consultants, lawyers and accountants, it required little other activity. In the corresponding period in 2008 the Company was attempting to raise capital and expand the Company’s business, and as a result greater expenses were incurred for such items as office administration services provided by another company, website expenses, wire services and promotional material.

Interest expense:  Interest expense was $19,733 and $5,432 for the three months ended March 31, 2009 and 2008, respectively. The increase is due to interest on the convertible debenture in 2009, which was not yet in existence in the corresponding period in 2008, and due to a higher balance of shareholder loans in 2009, on which imputed interest is recognized.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.
 
 
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For the Three and Six Month Periods Ended June 30, 2009

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have no source of revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Accordingly, we need to raise additional cash from sources.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On June 30, 2009, we had a working capital deficit of $1,448,912 compared with a working capital deficit of $14,719,837 on December 31, 2008. The decrease is due to the disposition of Shanghai Wanxing and Wanxing Cosmetic, which relieved the Company’s consolidated balance sheet of current liabilities in the amount of $14,306,475 and current assets of $1,449,497 when recognized in the three months ended March 31, 2009.

Operating activities used $81,648 in cash in the three months ended June 30, 2009.  Investing activities in the three months ended June 30, 2009, used $nil.  Net cash flows used in financing activities in the three months ended June 30, 2009 was $20,000 representing payment of finders’ fees of $20,000.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

During the three month period ended June 30, 2009, we raised proceeds from the sale of our securities as follows:

On April 29, 2009, the Company issued 5,000,000 units (each a “Unit”) to 2 offshore individuals/entities due to the closing of the Company’s private placement at $0.05 per Unit for total gross proceeds of $250,000.  Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $0.07 per warrant share until April 29, 2011.

In relation to the Company’s private placement offering at $0.05 per Unit, the Company paid a cash finder’s fee in the amount of $16,500 to one individual in Hong Kong and $3,500 to one individual in Singapore.

On April 29, 2009, the Company issued 4,000,000 shares of common stock to 2 offshore individuals/entities due to the closing of the Company’s private placement at $0.05 per share for total gross proceeds of $200,000.

In relation to the Company’s private placement offering at $0.05 per share, the Company has paid or will be paying a cash finder’s fee in the amount of $16,000 to one individual in Hong Kong.
 
 
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Results of Operations for the Three and Six Month Periods Ended June 30, 2009

Overview

The Company’s net loss was $400,340 for the three months ended June 30, 2009 as compared to net loss of $1,215,779 for the three months ended June 30, 2008. Net loss from operations was $400,340 for the three months ended June 30, 2009 as compared to net loss from operations of $1,120,069 for the three months ended June 30, 2008, as there were no operating subsidiaries in 2009 whereas operations of the subsidiaries produced a loss from discontinued operations of $95,710 for the three months ended June 30, 2008.

The Company had net income of $4,253,867 for the six months ended June 30, 2009 as compared to net loss of $3,074,685 for the six months ended June 30, 2008. The net income in 2009 is the result of abandonment of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1). Net loss from operations was $571,577 for the six months ended June 30, 2009 as compared to net loss from operations of $2,192,901 for the six months ended June 30, 2008, as there were no operating subsidiaries in 2009 whereas operations of the subsidiaries produced a loss from discontinued operations of $881,784 for the six months ended June 30, 2008.

Revenues

We have no revenues in the three months ended June 30, 2009 due to recognition of the disposition of the Company’s operating subsidiaries as at January 1, 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $225,522 and $917,158 for the three months ended June 30, 2009 and 2008, respectively and $268,503 and $1,834,316 for the six months ended June 30, 2009 and 2008, respectively. The decreases are due to options granted March 1, 2007 becoming fully vested in 2008, to cancellation of options of a director who stepped down and due to recognition of the cancellation of options previously granted to employees of the abandoned subsidiaries, partly offset by recognition of vesting of options granted February 9, 2009.

Consulting fees:  Consulting expenses were $75,267 and $51,439 for the three months ended June 30, 2009 and 2008, respectively and $150,862 and $103,458 for the six months ended June 30, 2009 and 2008, respectively. The increases are due to fees of a firm in China engaged to assist the Company in obtaining, analyzing and translating financial information of the former subsidiaries for the year ended December 31, 2008, work that previously would have been done by staff of the subsidiaries, and due to fees of the Company’s Chief Executive Officer appointed February 9, 2009 whereas the previous CEO was paid salary from the Chinese subsidiaries.

Professional fees:  Professional fee expenses were $72,924 and $135,058 for the three months ended June 30, 2009 and 2008, respectively and $98,504 and $222,496 for the six months ended June 30, 2009 and 2008, respectively. The decreases are due to there being less involvement of the Company’s external accountants, auditors and lawyer in the current period as difficulties obtaining financial records from former subsidiaries Shanghai Wanxing and Wanxing Cosmetic delayed much of their work, and due to not having to repeat in 2009 a substantial amount of accounting and legal fees still being incurred in the second quarter of 2008 related to the 2007 fiscal year.
 
 
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General and administrative expenses:  General and administrative expenses were $6,818 and $4,517 for the three months ended June 30, 2009 and 2008, respectively and $14,166 and $15,302 for the six months ended June 30, 2009 and 2008, respectively. These expenses are fairly consistent.

Interest expense:  Interest expense was $19,809 and $11,897 for the three months ended June 30, 2009 and 2008, respectively and $39,542 and $17,329 for the six months ended June 30, 2009 and 2008, respectively. The increase is due to interest on the convertible debenture in 2009, which was not yet in existence in the corresponding period in 2008, and due to a higher average balance of shareholder loans in 2009, on which imputed interest is recognized.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

For the Three and Nine Month Periods Ended September 30, 2009

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have no source of revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Accordingly, we need to raise additional cash from other sources.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On September 30, 2009, we had a working capital deficit of $1,463,133 compared with a working capital deficit of $14,719,837 on December 31, 2008. The decrease is due to the disposition of Shanghai Wanxing and Wanxing Cosmetic, which relieved the Company’s consolidated balance sheet of current liabilities in the amount of $14,306,475 and current assets of $1,449,497 when recognized in the three months ended March 31, 2009.

Operating activities used $24,329 in cash in the three months ended September 30, 2009.  Investing activities in the three months ended September 30, 2009, used $nil.  Net cash flows from financing activities in the three months ended September 30, 2009 was $82,500 representing proceeds from subscriptions for our common stock of $82,500.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

Results of Operation for the Three and Nine Month Periods Ended September 30, 2009

Overview

The Company’s net loss was $262,224 for the three months ended September 30, 2009 as compared to net loss of $1,639,588 for the three months ended September 30, 2008. Net loss from operations was $262,224 for the three months ended September 30, 2009 as compared to net loss from operations of $1,034,448 for the three months ended September 30, 2008, as there were no operating subsidiaries in 2009 whereas operations of the subsidiaries produced a loss from discontinued operations of $605,140 for the three months ended September 30, 2008.
 
 
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The Company had net income of $3,991,643 for the nine months ended September 30, 2009 as compared to net loss of $4,714,273 for the nine months ended September 30, 2008. The net income in 2009 is the result of abandonment of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic, and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1). Net loss from operations was $833,801 for the nine months ended September 30, 2009 as compared to net loss from operations of $3,227,349 for the nine months ended September 30, 2008, as there were no operating subsidiaries in 2009 whereas operations of the subsidiaries produced a loss from discontinued operations of $1,486,924 for the nine months ended September 30, 2008

Revenues

We have no revenues in the three months ended September 30, 2009 due to recognition of the disposition of the Company’s operating subsidiaries as at January 1, 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $152,674 and $928,570 for the three months ended September 30, 2009 and 2008, respectively and $421,177 and $2,762,886 for the nine months ended September 30, 2009 and 2008, respectively. The decreases are due to options granted March 1, 2007 becoming fully vested in 2008, to cancellation of options of a director who stepped down and due to recognition of the cancellation of options previously granted to employees of the abandoned subsidiaries, partly offset by recognition of vesting of options granted February 9, 2009.

Consulting fees:  Consulting expenses were $60,000 and $116,015 for the three months ended September 30, 2009 and 2008, respectively. The decrease is due to not repeating some one-time fees incurred in 2008 for consultants engaged to assist in finding sources of capital for the Company, partly offset by fees of the Company’s Chief Executive Officer appointed February 9, 2009 whereas the previous CEO was paid salary from the Chinese subsidiaries. Consulting expenses were $210,862 and $219,473 for the nine months ended September 30, 2009 and 2008, respectively. These amounts are fairly comparable as the increases in the first two quarters of 2009 over 2008 are offset by the decreases seen in the third quarter from 2008 to 2009.

Professional fees:  Professional fee expenses were $22,829 and $(27,923) (recovery) for the three months ended September 30, 2009 and 2008, respectively. Professional fees for these periods are not directly comparable due to a substantial revision in 2008 of estimated accounting and legal fees made at June 30, 2008, resulting in a recovery (negative value in an expense item) for the three month period in 2008.  Professional fee expenses were $121,333 and $194,573 for the nine months ended September 30, 2009 and 2008, respectively. The decrease is due to there being less involvement of the Company’s external accountants, auditors and lawyer in the current period as the difficulties obtaining financial records of the subsidiaries Shanghai Wanxing and Wanxing Cosmetic for 2008 delayed much of their work.

General and administrative expenses:  General and administrative expenses were $6,835 and $4,270 for the three months ended September 30, 2009 and 2008, respectively and $21,001 and $19,572 for the nine months ended September 30, 2009 and 2008, respectively. These expenses are fairly consistent.

Interest expense:  Interest expense was $19,886 and $13,516 for the three months ended September 30, 2009 and 2008, respectively and $59,428 and $30,845 for the nine months ended September 30, 2009 and 2008, respectively. The increase is due to interest on the convertible debenture in 2009, which was only outstanding for part of the corresponding period in 2008.
 
 
23

 
 
Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

For the Fiscal Year Ended December 31, 2009

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have not generated any revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Accordingly, we need to raise additional cash from other sources.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On December 31, 2009, we had a working capital deficit of $419,404 compared with a working capital deficit of $14,719,837 for the year ended December 31, 2008. The decrease is due to the disposition of Shanghai Wanxing and Wanxing Cosmetic, which relieved the Company’s consolidated balance sheet of current liabilities in the amount of $14,306,475 and current assets of $1,449,497 when recognized in the three months ended March 31, 2009, and due to agreements entered to settle debts with shares.

Operating activities used $328,221 in cash in the year ended December 31, 2009.  Investing activities in the year ended December 31, 2009 used $4,056. Net cash flow from financing activities in the year ended December 31, 2009 was $276,500 representing proceeds from subscriptions for our common stock of $312,500, less payment of finders’ fees of $36,000.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

Results of Operation for the Fiscal Year ended December 31, 2009

Overview

The Company recognized net income of $3,628,546 for the year ended December 31, 2009 as compared to net loss of $5,773,716 for the year ended December 31, 2008. The net income in 2009 is the result of abandonment of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1). The gain recognized as a result of these events arose because of the proceeds of the sale in the amount of $200,000 and the effect of the Company being relieved of the excess of liabilities over assets of the subsidiaries. The gain is net of the amount recognized as recovery of accumulated other comprehensive loss which originally arose due to foreign currency translation loss on translating the assets and liabilities of the subsidiaries denominated in foreign currency.
 
 
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Assets and liabilities of the subsidiaries as at December 31, 2008, and revenues and expenses of the subsidiaries for the year then ended presented for comparative purposes in the 2009 financial statements have been reclassified to assets, liabilities and loss of discontinued operations to present the statements on an appropriately comparative basis. The loss from discontinued operations of $2,028,148 for the year ended December 31, 2008 is the net loss of those operations.

Revenues

We have no revenues in the year ended December 31, 2009 due to recognition of the disposition of the Company’s operating subsidiaries as at January 1, 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $537,427 and $3,055,796 for the years ended December 31, 2009 and 2008, respectively. The decrease is due to options granted March 1, 2007 becoming fully vested in 2008, to cancellation of options of a director who stepped down and due to recognition of the cancellation of options previously granted to employees of the abandoned subsidiaries, partly offset by recognition of vesting of options granted February 9, 2009.

Consulting fees:  Consulting expenses were $307,191 and $271,089 for the years ended December 31, 2009 and 2008, respectively. The increase is due to fees of a firm in China engaged to assist the Company in obtaining, analyzing and translating financial information of the former subsidiaries for the year ended December 31, 2008, work that previously would have been done by staff of the subsidiaries, and due to fees of the Company’s Chief Executive Officer appointed February 9, 2009 whereas the previous CEO was paid salary from the Chinese subsidiaries partly offset by not repeating some one-time fees incurred in 2008 for consultants engaged to assist in finding sources of capital for the Company.

Professional fees:  Professional fee expenses were $234,939 and $302,207 for the years ended December 31, 2009 and 2008, respectively. The decrease is due to there being less involvement of the Company’s external accountants, auditors and lawyer in the early part of 2009 as the difficulties obtaining financial records for 2008 of former subsidiaries Shanghai Wanxing and Wanxing Cosmetic delayed much of their work, and due to not having to repeat in 2009 a substantial amount of effort that went in to the post-mortem review in 2008 of the cancelled acquisition of Suzhou Boai, partly offset by work required by the Company’s lawyers and accountants to sort out legal and accounting issues around the abandonment of subsidiaries.

General and administrative expenses:  General and administrative expenses were $38,027 and $33,589 for the years ended December 31, 2009 and 2008, respectively. These expenses have not changed significantly in amount.

Interest expense:  Interest expense was $79,314 and $47,887 for the years ended December 31, 2009 and 2008, respectively. The increase is due to interest on the convertible debenture in 2009, which was outstanding for less than half the year in 2008, and due to a higher average balance of shareholder loans in 2009, on which imputed interest is recognized.

Finder’s fees: Finder’s fees expense were $nil and $35,000 for the years ended December 31, 2009 and 2008, respectively. The decrease is due to not repeating in 2009 the expense incurred in 2008 for finder’s fees for arranging the convertible debenture financing.
 
 
25

 
 
Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

For the Three Month Period Ended March 31, 2010

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have no source of revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On March 31, 2010, we had a working capital deficit of $271,540 compared with a working capital deficit of $219,404 on December 31, 2009. The increase is due to accrued professional and consultants fees.

Operating activities used $15,010 in cash in the three months ended March 31, 2010.  Investing activities in the three months ended March 31, 2010 used $nil.  Net cash flows provided by financing activities in the three months ended March 31, 2010 was $1,500 representing proceeds from a subscription for our common stock.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

Results of Operation for the Three Month Period Ended March 31, 2010

Overview

The Company had a net loss of $168,542 for the three months ended March 31, 2010 as compared to net income of $4,654,207 for the three months ended March 31, 2009. The net income in 2009 was the result of abandonment of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1).

The Company had a net loss from operations of $168,542 for the three months ended March 31, 2010 as compared to net loss from operations of $171,237 for the three months ended March 31, 2009.

Revenues

We have no revenues in the three months periods ended March 31, 2010 and 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $114,375 and $42,981 for the three months ended March 31, 2010 and 2009, respectively. The increase is due to not having the one-time effect of cancellation of the options of the employees of the Chinese subsidiaries, which occurred in 2009, partly offset by not having the initial vesting of 25% of the options granted in February, 2009.
 
 
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Consulting fees:  Consulting expenses were $30,000 and $75,595 for the three months ended March 31, 2010 and 2009, respectively. The decrease is due to not having fees of a firm in China engaged to assist the Company with financial information of the former subsidiaries for the year ended December 31, 2008, and due to not having $10,000 per month fees of a consultant who terminated his work at December 31, 2009.

Professional fees:  Professional fee expenses were $15,674 and $25,580 for the three months ended March 31, 2010 and 2009, respectively. The decrease is due to there being less involvement of the Company’s external accountants, auditors and lawyer in the current period as the Company was unable to complete its financial reporting due to lack of financial information available regarding Shanghai Wanxing and Wanxing Cosmetic for the 2008 year.

General and administrative expenses:  General and administrative expenses were $1,058 and $7,348 for the three months ended March 31, 2010 and 2009, respectively. The decrease is due to the decrease in the general level of activity of the Company.

Interest expense:  Interest expense was $7,435 and $19,733 for the three months ended March 31, 2010 and 2009, respectively. The decrease is due to decreased imputed interest on shareholder loans in 2010, as the Company had settled most of its shareholder loans effective December 31, 2009.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

For the Three and Six Month Periods Ended June 30, 2010

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have no source of revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Accordingly, we need to raise additional cash from sources.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On June 30, 2010, we had a working capital deficit of $241,661 compared with a working capital deficit of $219,404 on December 31, 2009. The increase is due to accrued professional and consultants fees.

Operating activities used $34,509 in cash in the three months ended June 30, 2010.  Investing activities in the three months ended June 30, 2010 used $nil. Net cash flows from financing activities in the three months ended June 30, 2010 was $90,000 representing cash received form subscriptions for shares less finders’ fees of $10,000 paid.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.
 
 
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During the three month period ended June 30, 2010, we raised proceeds from the sale of our securities as follows:

On April 22, 2010, the Company issued 10,933,329 shares of common stock of the Company to 9 individuals/entities due to the closing of the Company’s private placement at $0.015 per share for total gross proceeds of $164,000. 

In relation to the closing of the Company’s private placement offering at $0.015 per share, the Company has paid a cash finder’s fee in the amount of $5,000 to an individual in Shanghai, China and a finder’s fee of 750,000 shares of common stock of the Company to an individual in Singapore. 

Results of Operations for the Three and Six Month Periods Ended June 30, 2010

Overview

The Company had a net loss of $150,902 for the three months ended June 30, 2010 as compared to a net loss of $400,340 for the three months ended June 30, 2009. The decrease was due to decreases in all expense categories.

The Company had a net loss of $319,444 for the six months ended June 30, 2010 compared to net income of $4,253,867 for the six months ended June 30, 2009. The net income in 2009 was the result of abandonment of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1).

The Company had a net loss from operations of $319,444 for the six months ended June 30, 2010 as compared to net loss from operations of $571,577 for the six months ended June 30, 2009.

Revenues

We have no revenues in the three and six months periods ended June 30, 2010 and 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $76,250 and $225,522 for the three months ended June 30, 2010 and 2009, respectively and $190,625 and $268,503 for the six months ended June 30, 2010 and 2009, respectively. The decrease in the three month periods is due to options vesting in 2009 that were relatively higher-value per option share whereas those options were fully vested by the end of 2009. The decrease in the six month periods is due the same factor plus not having the initial vesting of 25% of the options granted in February, 2009, partly offset by not having the one-time effect of cancellation of the options of the employees of the Chinese subsidiaries, which occurred in the first quarter of 2009.

Consulting fees:  Consulting expenses were $33,300 and $75,267 for the three months ended June 30, 2010 and 2009, respectively and $63,300 and $150,862 for the six months ended June 30, 2010 and 2009, respectively. The decreases are due to not having fees of a firm in China engaged to assist the Company with financial information of the former subsidiaries for the year ended December 31, 2008, and due to not having $10,000 per month fees of a consultant who terminated his work at December 31, 2009.
 
 
28

 
 
Professional fees:  Professional fee expenses were $33,518 and $72,924 for the three months ended June 30, 2010 and 2009, respectively and $49,192 and $98,504 for the six months ended June 30, 2010 and 2009, respectively. The decreases are due to there being less involvement of the Company’s external accountants, auditors and lawyer in the current period as the Company was unable to complete its financial reporting due to lack of financial information available regarding Shanghai Wanxing and Wanxing Cosmetic for the 2008 year.

General and administrative expenses:  General and administrative expenses were $1,878 and $6,818 for the three months ended June 30, 2010 and 2009, respectively and $2,936 and $14,166 for the six months ended June 30, 2010 and 2009, respectively. The decrease is due to the decrease in the general level of activity of the Company.

Interest expense:  Interest expense was $5,956 and $19,809 for the three months ended June 30, 2010 and 2009, respectively and $13,391 and $39,542 for the six months ended June 30, 2010 and 2009, respectively. The decrease is due to decreased imputed interest on shareholder loans in 2010, as the Company had settled most of its shareholder loans effective December 31, 2009, and due to decreased interest accrued on the convertible debentures as $100,000 of the debentures had been converted to shares effective April 20, 2010.

For the Three and Nine Month Period Ended September 30, 2010

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have no source of revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Accordingly, we need to raise additional cash from other sources.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On September 30, 2010, we had a working capital deficit of $260,627 compared with a working capital deficit of $219,404 on December 31, 2009. The increase is due to accrued professional and consultants fees.

Operating activities used $66,258 in cash in the three months ended September 30, 2010.  Investing activities in the three months ended September 30, 2010, used $nil. Net cash flows from financing activities in the three months ended September 30, 2010 was $45,000 representing proceeds from subscriptions for our common stock of $50,000 less finder’s fees paid in the amount of $5,000.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

During the three month period ended September 30, 2010, we raised proceeds from the sale of our securities as follows:
 
 
29

 
 
On September 15, 2010, we issued 6,666,666 shares of our common stock to two offshore entities due to the second closing of our private placement at $0.015 per share for total gross proceeds of $100,000.

In relation to our private placement offering at $0.015 per share, we have paid or will be paying a cash finder’s fee in the amount of $10,000 to one individual in Hong Kong.

Results of Operations for the Three and Nine Month Periods Ended September 30, 2010

The Company had a net loss of $91,580 for the three months ended September 30, 2010 as compared to a net loss of $262,224 for the three months ended September 30, 2009. The decrease was due to decreases in consulting, interest and stock-based compensation expenses.

The Company had a net loss of $411,024 for the nine months ended September 30, 2010 compared to net income of $3,991,643 for the nine months ended September 30, 2009. The net income in 2009 was the result of abandonment of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1).

The Company had a net loss from operations of $411,024 for the nine months ended September 30, 2010 as compared to net loss from operations of $833,801 for the nine months ended September 30, 2009.

Revenues

We have no revenues in the three and nine month periods ended September 30, 2010 and 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $27,083 and 152,674 for the three months ended September 30, 2010 and 2009, respectively and $217,708 and 421,177 for the nine months ended September 30, 2010 and 2009, respectively. The decrease in the three month periods is due to the options granted February 9, 2009 becoming filly vested by June 30, 2010, partly offset by one month vesting of options granted September 1, 2010. The decrease in the nine month periods is due the same factor plus not having the initial vesting of 25% of the options granted in February, 2009, partly offset by not having the one-time effect of cancellation of the options of the employees of the Chinese subsidiaries, which occurred in the first quarter of 2009.

Consulting fees:  Consulting expenses were $25,000 and $60,000 for the three months ended September 30, 2010 and 2009, respectively and $88,300 and $210,862 for the nine months ended September 30, 2010 and 2009, respectively. The decreases are due to not having fees of a firm in China engaged to assist the Company with financial information of the former subsidiaries for the year ended December 31, 2008, and due to not having $10,000 per month fees of a consultant who terminated his work at December 31, 2009 and due to two months with no CEO fees as the former CEO resigned July 2, 2010 and was not replaced until September 1, 2010.

Professional fees:  Professional fee expenses were $25,012 and $22,829 for the three months ended September 30, 2010 and 2009, respectively and $74,204 and $121,333 for the nine months ended September 30, 2010 and 2009, respectively. The three-month amounts are comparable. The decrease in the nine month amount is due to there being less involvement of the Company’s external accountants, auditors and lawyer in the current period as the Company was unable to complete its financial reporting due to lack of financial information available regarding Shanghai Wanxing and Wanxing Cosmetic for the 2008 year.
 
 
30

 
 
General and administrative expenses:  General and administrative expenses were $8,913 and $6,835 for the three months ended September 30, 2010 and 2009, respectively and $11,849 and $21,001 for the nine months ended September 30, 2010 and 2009, respectively. The decrease in the nine month amounts is due to the decrease in the general level of activity of the Company.

Interest expense:  Interest expense was $5,572 and $19,886 for the three months ended September 30, 2010 and 2009, respectively and $18,963 and $59,428 for the nine months ended September 30, 2010 and 2009, respectively. The decrease is due to decreased imputed interest on shareholder loans in 2010, as the Company had settled most of its shareholder loans effective December 31, 2009, and due to decreased interest accrued on the convertible debentures as $100,000 of the debentures had been converted to shares effective April 20, 2010.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

For the Fiscal Year Ended December 31, 2010

Liquidity and Capital Resources

Our registered independent auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our bills.  We have no source of revenues since the abandonment of Shanghai Wanxing and Wanxing Cosmetic.  Accordingly, we need to raise additional cash from other sources.  Our only other source for cash at this time is investments by others in the Company.  We need to raise cash to fully implement our project and stay in business.

On December 31, 2010, we had a working capital deficit of $235,919 compared with a working capital deficit of $219,404 on December 31, 2009.

Operating activities used $202,922 in cash in the year ended December 31, 2010.  Investing activities in the year ended December 31, 2010 generated $200,000. Net cash flows from financing activities in the year ended December 31, 2010 was $183,420 representing proceeds from subscriptions for our common stock of $202,500 less finder’s fees paid in the amount of $19,080.

We may not have enough working capital to complete our plan of operations.  If it turns out that we have not raised enough capital to complete our anticipated business development, we will try to raise additional funds from private placements or loans.  At the present time, we are in the process of attempting to raise additional capital through a private placement and there is no assurance that we will raise additional capital in the future or that future financings will be available to us on acceptable terms.  If we require additional capital and are unable to raise it, we may have to suspend or cease operations.

During the last quarter of the fiscal year ended December 31, 2010, we raised proceeds from the sale of our securities as follows:

On December 29, 2010, we issued 3,400,000 shares of our common stock to two offshore individuals due to the third closing of our private placement at $0.015 per share for total gross proceeds of $51,000. 

In relation to our private placement offering at $0.015 per share, we have paid a cash finder’s fee in the amount of $4,080 to one individual in Hong Kong.
 
 
31

 
 
Results of Operation for the Fiscal Year ended December 31, 2010

Overview

The Company had a net loss of $577,531 for the year ended December 31, 2010 compared to net income of $3,628,546 for the year ended December 31, 2009. The net income in 2009 was the result of disposition of the operating subsidiaries, Shanghai Wanxing and Wanxing Cosmetic and recognition of the subsequent sale of the shares of the intermediate subsidiary Wanxin Bio-Technology Limited (see Part 1, Item 1).

The Company had a net loss from operations of $577,531 for the year ended December 31, 2010 as compared to net loss from operations of $1,196,898 for the year ended December 31, 2009. The decrease is due to decreases in all categories of expenses.

Revenues

We have no revenues in the year ended December 31, 2010 due to recognition of the disposition of the Company’s operating subsidiaries as at January 1, 2009.

Operating Expenses

Stock-based compensation:  Stock-based compensation expenses were $ 276,458 and $537,427 for the years ended December 31, 2010 and 2009, respectively. The decrease is due to options granted February 2, 2009 becoming fully vested in May 2010, so there was effectively five months’ vesting of these options in 2010 vs. 15 months’ vesting in 2009, whereas there was only four months’ vesting in 2010 of options granted September 1, 2010 and these options had a lower grant-date fair value per option share and vest evenly over 24 months instead of some vesting immediately and the remainder vesting over 15 months. Partly offsetting the difference is the effect of recognition of the cancellation of options previously granted to employees of the abandoned subsidiaries.

Consulting fees:  Consulting expenses were $129,700 and $307,191 for the years ended December 31, 2010 and 2009, respectively. The decrease is primarily due to not having fees of a firm in China engaged to assist the Company with financial information of the former subsidiaries for the year ended December 31, 2008, and due to not having $10,000 per month fees of a consultant who terminated his work at December 31, 2009 and due to two months with no CEO fees as the former CEO resigned July 2, 2010 and was not replaced until September 1, 2010.

Professional fees:  Professional fee expenses were $130,309 and $234,939 for the years ended December 31, 2010 and 2009, respectively. The decrease is due to there being less involvement of the Company’s external accountants, auditors and lawyer in the current period as the Company was unable to complete its financial reporting due to lack of financial information available regarding Shanghai Wanxing and Wanxing Cosmetic for the 2008 year.

General and administrative expenses:  General and administrative expenses were $16,529 and $38,027 for the years ended December 31, 2010 and 2009, respectively. The decrease is due to the decrease in the general level of activity of the Company.

Interest expense:  Interest expense was $24,535 and $79,314 for the years ended December 31, 2010 and 2009, respectively. The decrease is due to decreased imputed interest on shareholder loans in 2010, as the Company had settled most of its shareholder loans effective December 31, 2009, and due to decreased interest accrued on the convertible debentures as $100,000 of the debentures had been converted to shares effective April 20, 2010.
 
 
32

 
 
Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, as a “smaller reporting company” (as defined by §229.10(f)(1)), is not required to provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
33

 
 
SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
   
Page
     
Report of Independent Public Accountants
 
1
     
Consolidated Balance Sheet
 
2
     
Consolidated Statements of Operations
 
3
     
Consolidated Statements of Cash Flows
 
4
     
Consolidated Statement of Stockholders' (Deficit)
 
5
     
Notes to Consolidated Financial Statements
 
6
 
 
 

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders of
Sinobiomed Inc
 
We have audited the accompanying consolidated balance sheet of Sinobiomed, Inc. (the “Company”)as of December 31, 2008 and December 31, 2007, the related consolidated statement of stockholders’ deficit  for the years ended December 31, 2008, 2007 and 2006, and the related statements of operations and cash flows for the years ended December  31, 2008 and December 31, 2007.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2008 and December 31, 2007 and the results of its operations and its cash flows for the years ended December 31, 2008 and December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has experienced losses since commencement of operations, and has negative working capital and stockholders’ deficit which raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ Schumacher & Associates, Inc.
 
Schumacher & Associates, Inc.
Certified Public Accountants
7931 S Broadway, #314
Littleton, Co. 80122
March 30, 2011
 
 
1

 
 
SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
(Expressed in U.S. Dollars)

 
Note 1 - Basis of Presentation - going concern
 
December 31
   
December 31
 
   
2008
   
2007
 
             
ASSETS
           
             
CURRENT ASSETS
           
Cash - unrestricted
  $ 170,456     $ 64,866  
Cash - restricted (Note 3)
    198       184  
Accounts receivable, net (Note 4)
    161,018       48,071  
Inventory (Note 6)
    1,124,789       893,402  
Prepaid expenses and deposits
    68,491       428,841  
Total current assets
    1,524,952       1,435,364  
                 
Fixed assets (Note 7)
    6,452,135       6,658,831  
                 
Total assets
  $ 7,977,087     $ 8,094,195  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
               
                 
CURRENT LIABILITIES
               
Short-term loans (Notes 8 and 9)
  $ 6,221,176     $ 7,105,118  
Accounts payable
    935,829       824,706  
Interest payable
    2,622,680       1,918,408  
Unearned revenue
    303,805       170,471  
Shareholder loans (Note 10)
    4,160,678       2,176,526  
Other current liabilities
    2,000,621       1,986,284  
Total current liabilities
    16,244,789       14,181,513  
                 
Convertible debentures (Note 11)
    350,000       -  
Total liabilities
    16,594,789       14,181,513  
                 
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 3, 4, 5, 8, 9, 10, 11, 12, 13, 16, 17 and 19)
               
                 
STOCKHOLDERS' (DEFICIT)
               
Common stock (Note 14)
               
Authorized 250,000,000 shares at par value of $ 0.0001 each
               
Issued and outstanding 131,422,086 shares (2007 - 131,312,086)
    13,143       13,132  
Additional paid-in capital
    29,430,084       26,127,797  
Subscriptions received
    250,000       -  
Accumulated (deficit)
    (36,535,586 )     (30,761,870 )
Accumulated other comprehensive income (loss)
    (1,775,343 )     (1,466,377 )
Total stockholders' (deficit)
    (8,617,702 )     (6,087,318 )
                 
Total liabilities and stockholders' (deficit)
  $ 7,977,087     $ 8,094,195  

The accompanying notes to the consolidated financial statements are an integral part of these statements.
 
 
2

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
(Expressed in U.S. Dollars)

   
Years Ended December 31
 
   
2008
   
2007
 
             
REVENUE
           
Sales
  $ 1,197,983     $ 1,026,572  
Cost of goods sold
    752,573       697,466  
Gross profit
    445,410       329,106  
Other revenue (Note 15)
    789,913       229,122  
      1,235,323       558,228  
EXPENSES
               
Advertising and promotion
    578       5,153  
Depreciation
    215,935       145,025  
General and administration
    1,572,311       2,588,957  
Repairs and maintenance
    43,193       45,192  
Research and development
    441,123       1,114,043  
Salaries and benefits
    669,470       694,516  
Stock-based compensation (Note 16)
    3,055,796       2,682,016  
Travel
    88,917       354,505  
Total expenses
    6,087,323       7,629,407  
                 
Net (loss) for the period from operations
    (4,852,000 )     (7,071,179 )
                 
OTHER INCOME AND EXPENSES
               
Interest and bank charges (Notes 8, 9 and 10)
    (554,545 )     (1,026,482 )
Gain on forgiveness of interest on debt
    -       2,320,115  
Finders fees (Note 11)
    (35,000 )     -  
(Loss) on failed acquisition of subsidiary
    -       (600,216 )
(Losses) on loans and guarantees to other parties (Note 5)
    (332,171 )     (299,697 )
                 
Net income (loss) for the period before minority interests
    (5,773,716 )     (6,677,459 )
                 
Minority interest in loss for the period
    -       8,039  
                 
Net income (loss) for the period
  $ (5,773,716 )   $ (6,669,420 )
                 
Other comprehensive income (loss)
               
Foreign currency translation
  $ (308,966 )   $ (651,210 )
                 
Comprehensive income (loss)
  $ (6,082,682 )   $ (7,320,630 )
                 
Net (loss) per common share - basic and fully diluted
  $ (0.04 )   $ (0.05 )
                 
Weighted average number of common stock outstanding
    131,415,154       134,892,246  

The accompanying notes to the consolidated financial statements are an integral part of these statements.
 
 
3

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)

   
Years Ended December 31
 
   
2008
   
2007
 
Cash from (used in) operating activities:
           
Net (loss)
  $ (5,773,716 )   $ (6,669,420 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
    784,930       790,170  
(Gain) loss on disposition of fixed assets
    (1,218 )     9,992  
Imputed interest expense on shareholders' loans
    188,752       113,771  
Minority interest in net income (loss)
    -       (8,039 )
Shares issued for services
    57,750       85,400  
Stock-based compensation
    3,055,796       2,682,016  
Gain on foregiveness of interest on debt
    -       (2,320,115 )
Net change in operating assets and liabilities:
               
Accounts receivable
    (112,947 )     213,817  
Inventory
    (231,387 )     (449,764 )
Prepaid expenses and deposits
    360,350       (398,178 )
Accounts payable
    111,123       560,284  
Interest payable
    704,272       619,638  
Unearned revenue
    133,334       95,328  
Other current liabilities
    14,337       (54,338 )
                 
Net cash  (used in) from operating activities
    (708,624 )     (4,729,438 )
                 
Cash (used in) investing activities:
               
Purchases of fixed assets
    (108,834 )     (145,553 )
Proceeds of disposition of fixed assets
    3,628       5,418  
                 
Net cash (used in) investing activities
    (105,206 )     (140,135 )
                 
Cash from (used in) financing activities:
               
Loans made to unrelated parties
    -       -  
Repayments of loans by unrelated parties
    -       146,165  
Share subscriptions received
    250,000       17,062,508  
Finders fees paid in cash
    -       (896,875 )
Exercise of warrants
    -       31,250  
Proceeds of convertible debentures received
    350,000       -  
Short-term loans received
    -       985,680  
Repayments of short-term loans
    (1,361,821 )     (14,328,449 )
Loans received from shareholders
    1,851,005       1,163,435  
Repayments of loans from shareholders
    (21,123 )     (1,145,051 )
                 
Net cash from (used in) financing activities
    1,068,061       3,018,663  
                 
Effect of other comprehensive income (loss) on cash
    (148,627 )     (230,320 )
                 
Increase (decrease) in cash
    105,604       (2,081,230 )
                 
Cash, including restricted cash of $184, beginning of period
    65,050       2,146,280  
                 
Cash, including restricted cash of $198, end of period
  $ 170,654     $ 65,050  
                 
Supplementary cash flow disclosure:
               
Interest paid
  $ 134,739     $ 154,556  

The accompanying notes to the consolidated financial statements are an integral part of these statements.
 
 
4

 
 
SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statement of Stockholders' (Deficit)
(Expressed in U.S. Dollars)

    
Common
Stock
   
Amount
   
Additional paid-
in capital
   
Subscriptions
received
   
Cumulative
Other
Comprehensive
Income (loss)
   
Accumulated
(Deficit)
   
Stockholders'
(Deficit)
 
                                           
Balance December 31, 2006
    70,000,000     $ 7,000     $ 7,660,082     $ -     $ (815,167 )   $ (24,092,450 )   $ (17,240,535 )
                                                         
Cancellation of shares
    (76,000,000 )     (7,600 )     7,600       -       -       -       -  
Capital changes to give effect to reverse take-over
    121,000,000       12,100       (74,073 )     -       -       -       (61,973 )
Issue of shares for services
    100,000       10       85,390       -       -       -       85,400  
Stock-based compensation
    -       -       2,682,016       -       -       -       2,682,016  
Shares issued pursuant to private placements
    15,994,806       1,600       17,060,908       -       -       -       17,062,508  
Finders fees paid or payable in cash
    -       -       (1,439,125 )     -       -       -       (1,439,125 )
Shares issued as finders fees
    192,280       19       (19 )     -       -       -       -  
Shares issued pursuant to exercise of warrants
    25,000       3       31,247       -       -       -       31,250  
Imputed interest on shareholders' loans
    -       -       113,771       -       -       -       113,771  
Net (loss) for the period
    -       -       -       -       (651,210 )     (6,669,420 )     (7,320,630 )
                                                         
Balance December 31, 2007
    131,312,086     $ 13,132     $ 26,127,797     $ -     $ (1,466,377 )   $ (30,761,870 )   $ (6,087,318 )
                                                         
Issue of shares for services
    110,000       11       57,739       -       -       -       57,750  
Stock-based compensation
    -       -       3,055,796       -       -       -       3,055,796  
Subscriptions received for units pursuant to private placement
    -       -       -       250,000       -       -       250,000  
Imputed interest on shareholders' loans
    -       -       188,752       -       -       -       188,752  
Net income (loss) for the period
    -       -       -       -       (308,966 )     (5,773,716 )     (6,082,682 )
                                                         
Balance December 31, 2008
    131,422,086     $ 13,143     $ 29,430,084     $ 250,000     $ (1,775,343 )   $ (36,535,586 )   $ (8,617,702 )

The accompanying notes to the consolidated financial statements are an integral part of these statements.
 
 
5

 
 
SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

1. BASIS OF PRESENTATION – GOING CONCERN
 
These consolidated financial statements of Sinobiomed Inc. (the “Company”) have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
 
The Company has experienced losses since commencement of operations amounting to $36,535,586 and has negative working capital and a stockholders’ deficit as of December 31, 2008, which raise substantial doubt about the Company's ability to continue as a going concern.  The ability of the Company to meet its commitments as they become payable is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations.  There are no assurances that the Company will be successful in achieving these goals.
 
The Company is in the process of researching, developing, testing and evaluating proposed new pharmaceutical products and has not yet determined whether these products are technically or economically feasible.  The underlying value of the company is entirely dependent on the successful implementation of one or more of these products, the ability of the Company to obtain the necessary financing to complete development and upon future profitable production or sufficient proceeds from the disposition of manufacturing rights. Management’s plan is to actively search for new sources of capital, including government and non-government grants toward research projects and new equity investment. See also Notes 14 and 19.
 
These financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of Business
 
The Company was incorporated under the laws of the State of Delaware on November 18, 2004 under the name CDoor Corp.  The initial business plan of the Company was to develop a commercial application utilizing a patent pertaining to automobiles. In addition, in 2004, the Company commenced a capital formation activity to effect a Registration Statement on Form SB-2 with the Securities and Exchange Commission (“SEC”), and raise capital of up to $100,000 from a self-underwritten offering of 40.0 million shares of newly issued common stock (post forward stock split) in the public markets.  On May 30, 2006, the Company successfully completed the capital formation activity of its registered common stock.

On October 16, 2006, the two Directors, officers, and principal stockholders of the Company agreed to sell 80.0 million shares of the Company’s common stock (post forward stock split), constituting 66% of the Company’s issued and outstanding stock, to an unrelated third party. The purchase closed on November 2, 2006. At the same time, the Company adopted a new business plan to pursue a reverse merger with Wanxin Bio-Technology Limited (“Wanxin BVI”), a British Virgin Islands company, and entered into a merger agreement with Wanxin BVI and its stockholders on December 21, 2006. Under the merger agreement, the stockholders of Wanxin BVI would transfer all the shares of Wanxin BVI to the Company in return for the issue of 70 million (post forward stock split) shares of the Company.  The new business plan and focus of the Company centers around the Chinese biopharmaceutical industry.

 
6

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

The transaction to complete the reverse merger with Wanxin BVI was effected on January 12, 2007, as a recapitalization of the Company, with the net assets of Wanxin BVI and the Company brought forward at their historical bases, and 95 percent of the voting stock of the former majority shareholder of the Company (76.0 million shares of common stock, post forward stock split) being surrendered to the Company for cancellation and return to the treasury such that voting control of the Company was obtained by the former stockholders of Wanxin BVI. The costs associated with the reverse merger were expensed as incurred.

At an annual meeting of the stockholders of the Company held on March 1, 2007, the stockholders voted to complete a forward stock split of forty for one of the Company’s common stock with an effective date of March 2, 2007.  All transactions involving the Company’s common stock prior to March 2, 2007 and determinations of the weighted average number of common shares outstanding have been restated to reflect this forward stock split. At the same meeting, a five-member board of directors was elected and the Company’s name was changed to its present name.

Wanxin BVI was incorporated under the laws of the British Virgin Islands on July 3, 2002. From the date of incorporation until October 15, 2006, Wanxin BVI remained dormant. On October 15, 2006 Wanxin BVI acquired all the shares of Manhing Enterprises Limited (“Manhing”), a company incorporated under the laws of Hong Kong on July 2, 1991, in return for 750 shares of Wanxin BVI. The purposes of this transaction were to expatriate the operating companies’ ownership and to align legal and beneficial ownership of the group of companies prior to the January 12, 2007 reverse merger. Accordingly the transaction has been treated as a reorganization of capital rather than a business combination.

On June 28, 1996, Manhing and two other unrelated companies founded Shanghai Pudong New District Wanxing Living Things Co., Ltd. (“Wanxing Bio-Pharmaceuticals”), a Sino-Foreign Joint Venture company incorporated with limited liability under the laws of the People’s Republic of China. Wanxing Bio-Pharmaceuticals has a term of 30 years from the date of incorporation, at which time it is to be liquidated. Manhing’s original investment and proportionate interest in Wanxing Bio-Pharmaceuticals were $1.3 Million and 52%, respectively. On August 19, 1996, Wanxing Bio-Pharmaceuticals changed its name to Shanghai Wanxing Living Things Co., Ltd. On the same date Manhing transferred a 1% interest in Wanxing Bio-Pharmaceuticals to another company for consideration of $25,000. On the same date Wanxing Bio-Pharmaceuticals increased its registered capital and Manhing contributed an additional $895,500 to keep its interest at 51%. In 1998 Manhing acquired an additional interest in Wanxing Bio-Pharmaceuticals for $1,445,000 and contributed an additional $2,087,500 upon Wanxing Bio-Pharmaceuticals increasing its registered capital. After these transactions Manhing held a 63.33% interest in Wanxing Bio-Pharmaceuticals.

 
7

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
 Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

In 2000, Wanxing Bio-Pharmaceuticals changed it name to its current name, Shanghai Wanxing Bio-pharmaceuticals Co., Ltd.

In 2002 Manhing transferred an 18% interest in Wanxing Bio-Pharmaceuticals to another investor.

In 2003 Manhing acquired an additional combined 36.6% interest in Wanxing Bio-Pharmaceuticals from other shareholders over three transactions. Subsequent to these transactions, Manhing’s interest in Wanxing Bio-Pharmaceuticals was 82%, or $7.38 Million of Wanxing Bio-Pharmaceuticals’ registered capital of $9.0 Million. On March 14, 2007, the government of China approved an increase in the registered capital of Wanxing Bio-Pharmaceuticals to $30 Million. Under Chinese law, Manhing and the minority shareholder are required to invest the additional $21 Million in Wanxing Bio-Pharmaceuticals by March 14, 2009. If the additional investment is not made by that date, time extensions are available. In the year ended December 31, 2007, Manhing invested $14,915,545 and in the year ended December 31, 2008, Manhing invested $638,944 in Wanxing Bio-Pharmaceuticals. No further investments have been made subsequent to December 31, 2008.

Wanxing Bio-Pharmaceuticals’ business is research, development, manufacture and sale of pharmaceutical products, primarily for the Chinese market. There are three product lines currently manufactured and sold as at December 31, 2008 and several other potential products in various stages of research and development. The product lines currently sold are Wanferon/Wanferin, formulations of recombinant human interferon for treating hepatitis and viral diseases,  Leflunomide, a drug for the treatment of rheumatoid arthritis, and acidic Fibroblast Growth Factor (“aFGF”), a product that treats diabetic ulcers and burns and supports recovery from plastic surgery. aFGF entered commercial production upon the receipt of the certificate of Good Manufacturing Practices, which was issued August 2, 2007. Wanxing Bio-Pharmaceuticals’ offices and manufacturing facility are in owned premises located on land used under license in the Pudong New Area of Shanghai, China.

On April 14, 2004,  Wanxing Bio-Pharmaceuticals and two other unrelated companies founded Shanghai Wanxing Bio-science Cosmetic Co., Ltd. (“Wanxing Cosmetic”). Wanxing Cosmetic’s registered capital is $3.0 Million and Wanxing Bio-Pharmaceuticals’ interest is 50.33% or $1,510,000. Wanxing Cosmetic has a term of thirty years from the date of issue of the business license, at which time it is to be liquidated. Wanxing Cosmetic manufactures skin-care products under the brand name KaiYing and does contract manufacturing for other companies.

 
8

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

On August 6, 2007, Wanxing Bio-Pharmaceuticals, entered into a formal equity transfer contract (the “Equity Transfer Contract”) with the equity owners of Suzhou Boai Medical Development Company (“Suzhou Boai”), a pharmaceutical distribution company organized under the laws of the P.R. China, to acquire 90% of the equity in Suzhou Boai in exchange for the payment of a transfer fee (the “Transfer Fee”) to the equity owners of Suzhou Boai. Under the contract, all the equity owners of Suzhou Boai were to transfer all of their equity to Wanxing Bio-Pharmaceuticals, except for one equity owner who would retain a 10% interest, for a net Transfer Fee equivalent to approximately $2.4 million less a deduction as an allowance for certain bad debts of Suzhou Boai. The Transfer Fee was subject to a due diligence report, which revealed net assets less than the total warranted by the equity owners of Suzhou Boai. This reduced total net assets level gave rise to a divergence on Suzhou Boai’s total net assets amount while in the fulfillment stage and Wanxing Bio-Pharmaceuticals decided to continue with the acquisition with the understanding that Wanxing Bio-Pharmaceuticals and the equity owners of Suzhou Boai would continue to negotiate a reduced Transfer Fee in good faith due to the reduced total net assets level. After repeated negotiations, Wanxing Bio-Pharmaceuticals and the equity owners of Suzhou Boai could not agree on a reduced Transfer Fee and on January 22, 2008, the parties to the Equity Transfer Contract decided to terminate such agreement while in the fulfillment stage and executed a Cancellation Agreement of the Stock Transfer Agreement (the “Cancellation Agreement”), whereby the parties agreed to resolve their disputes by having Wanxing Bio-Pharmaceuticals transfer the 90% registered capital back to its original status with the equity owners of Suzhou Boai and the equity owners of Suzhou Boai returning 2.8 million yuan (approximately $383,000) of the 5.4 million yuan (approximately $739,000) already paid to Wanxing Bio-Pharmaceuticals. As of February 3, 2008, Suzhou Boai and its equity owners have returned the full 2.8 million yuan to Wanxing Bio-Pharmaceuticals as agreed under the Cancellation Agreement. The costs incurred in 2007 of the failed attempt to acquire Suzhou Boai in the amount of $600,216, which includes the 2.6 million yuan not returned to Wanxing Bio-Pharmaceuticals plus audit, accounting and other costs, is presented as Loss on failed acquisition of subsidiary in the statement of operations.

Principles of Consolidation

The consolidated financial statements include accounts of the Company and its subsidiaries, Wanxin BVI, Manhing,  Wanxing Bio-Pharmaceuticals and Wanxing Cosmetic.

All significant inter-company balances and transactions are eliminated. Minority interest represents the other shareholders’ interests in the net assets of the subsidiaries after deducting the minority interest share of net losses of the companies.

Cash and Cash Equivalents
 
Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased.  As at December 31, 2008 and 2007, the Company did not have any cash equivalents.
 
Accounts Receivable

Accounts receivable are carried at estimated net realizable values net of provisions for uncollectible amounts.

Loans Receivable

Loans receivable are carried at estimated net realizable values net of provisions for uncollectible amounts.

 
9

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

Inventory

Inventory is carried at the lower of cost and estimated net realizable value. Raw materials cost is determined on the first in, first out basis. Manufacturing costs are applied to goods in process on a full cost basis. Cost of finished goods on hand at the balance sheet date is determined on the first in, first out basis.

Revenue recognition

Revenues are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition."  Under SAB 104, product revenues (or service revenues) are recognized when persuasive evidence of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable and collectability is reasonably assured. Revenue is recorded net of sales taxes.

Concentrations

The Company’s operations are located in the People’s Republic of China.

Wanxing Cosmetic derived 34% of its sales revenue in 2008 (2007 - 16%) from one product and 24% (2007- 59%) from contract manufacturing for other companies. Wanxing Cosmetic’s five largest-selling products represented 60% of total sales revenue in 2008 (2007 – 24%).

Wanxing Cosmetic derived 55% of its sales revenue in 2008 (2007 – 6%) from one customer and 78% of its sales revenue in 2008 (2007 – 13%) from its four largest customers.

The Interferon product line of Wanxing Bio-Pharmaceuticals, which accounts for approximately 29% and 32% of consolidated sales revenue in 2008 and 2007, respectively, is subject to increasing competition in the marketplace, with the result that gross margin per unit on sales has decreased markedly over the years 2005 through 2008.

Research and Development Expenditures
 
Expenditures on research and development activities, including assets acquired for use in research and development activities, are charged to operations as incurred.
 
Asset Retirement Obligations
 
The Company has adopted SFAS No. 143, Accounting for Asset Retirement Obligations which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. The Company has no asset retirement obligations.

 
10

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

Fixed Assets
 
Fixed assets are carried at cost less a provision for depreciation on a straight-line basis over their estimated useful lives. Each asset is estimated to have a residual value of 10% of cost at the end of its useful life. Estimated useful lives are as follows:

Buildings
5 - 30 years
Climate control equipment
8 years
Computer software
4 - 5 years
Land license
29 years
Manufacturing equipment
5 - 8 years
Office furniture and equipment
4 - 5 years
Other equipment and fixtures
4 - 5 years
Road
20 years
Vehicles
5 - 10 years

Advertising Expenses
 
Advertising expenses are expensed as incurred.

Foreign Currency
 
Sinobiomed Inc’s head office is located in China. Certain administrative functions are carried out by agents located in Vancouver, Canada.  The Company maintains bank accounts in Canadian dollars and U.S. dollars as well as a lawyer’s trust account in U.S. dollars. The functional currency is the U.S. Dollar. Transactions in foreign currencies, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains and losses that arise from exchange rate fluctuations are included in income or loss from operations. Monetary assets and liabilities denominated in foreign currencies are presented in the balance sheet at the rate in effect at the balance sheet date.

Wanxin BVI’s operation of the Company is located in the British Virgin Islands and Hong Kong.  It maintains bank accounts in Hong Kong Dollars and U.S. Dollars. The functional currency is the U.S. Dollar. Transactions in foreign currencies, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains and losses that arise from exchange rate fluctuations are included in income or loss from operations. Monetary assets and liabilities denominated in foreign currencies are presented in the balance sheet at the rate in effect at the balance sheet date.

Manhing’s operation of the Company is located in Hong Kong.  It maintains a bank account in U.S. Dollars. The functional currency is the U.S. Dollar. Transactions in foreign currencies, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains and losses that arise from exchange rate fluctuations are included in income or loss from operations. Monetary assets and liabilities denominated in foreign currencies are presented in the balance sheet at the rate in effect at the balance sheet date.

 
11

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

The operations of Wanxing Bio-Pharmaceuticals and Wanxing Cosmetic are located in China, and their accounting records are maintained in Chinese Renminbi Yuan. The functional currency is the Chinese Renminbi Yuan. Transactions in foreign currencies other than the functional currency, if any, are remeasured into the functional currency at the rate in effect at the time of the transaction. Remeasurement gains and losses that arise from exchange rate fluctuations are included in income or loss from operations. Monetary assets and liabilities of the subsidiaries denominated in the functional currency are translated into U.S. Dollars at the rate in effect at the balance sheet date.  Revenue and expenses denominated in the functional currency are translated at the average exchange rate.  Other comprehensive income (loss) includes the foreign exchange losses of $308,966 (2007 - $651,210) that arise from translating from the functional currency into U.S. Dollars.
 
Use of Estimates
 
The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared.    Actual results could differ from those estimates.

 
Loss Per Share
 
Basic earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period. For purposes of determining the weighted average number of common shares outstanding, the number of shares outstanding as at December 31, 2007 is given effect on a pro forma basis as if the forward stock split which occurred in 2007 had occurred by January 1, 2007.  Diluted earnings (loss) per share is equal to the basic loss per share for the years ended December 31, 2008 and 2007 because common stock equivalents, consisting of warrants to acquire 7,972,403 shares (2007 - 7,972,403 shares) and options to acquire 7,120,833 shares (2007 - 3,350,000 shares), outstanding and exercisable at December 31, 2008 and 2007 are anti-dilutive.

Fair Value of Financial Instruments
 
The Company’s financial instruments consist of cash, accounts receivable, loans receivable, short term loans payable and accounts payable at December 31, 2008 and 2007. Accounts receivable and loans receivable are carried at estimated net realizable values net of provisions for uncollectible amounts. Uncollectible accounts are charged off when determined to be unrecoverable. The carrying values of the remaining financial instruments reflected in these financial statements approximate their fair values due to the short-term maturity of the instruments.

 
12

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

Comprehensive Income
 
The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income”.  Comprehensive income includes net income and all changes in equity during a period that arise from non-owner sources, such as foreign currency items and unrealized gains and losses on certain investments in equity securities.

Income taxes
 
The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."  The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse.  A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Impairment of Long-Lived Assets
 
The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operation cash flows in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets.  If impairment is deemed to exist, the asset will be written down to its fair value.  Fair value is generally determined using a discounted cash flow analysis.

Stock-Based Compensation

The Company has implemented the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share- Based Payment (“SFAS No. 123R”), which replaced Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) as amended by No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. Compensation expense is recorded in accordance with the fair value recognition provisions of SFAS 123R for options issued to employees.

New Accounting Pronouncements

There were various other accounting standards and interpretations recently issued, none of which is expected to have a material impact on the Company's financial position, operations or cash flows.
 
3. CASH - RESTRICTED

Restricted cash consists of $198 (2007 - $184) on deposit pursuant to agreement with a bank to maintain funds on deposit to ensure payment of interest on debt.

 
13

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

4. ACCOUNTS RECEIVABLE

Trade accounts receivable consists of receivable for sales of product on credit. Accounts receivable are net of allowance for doubtful accounts in the amount of $4,452 (2007 - $8,630).

5. LOANS TO UNRELATED PARTIES

The Company has loans receivable from other companies arising from guarantee arrangements under which the Company guaranteed the debt of other companies and has been called on its guarantees (Note 8). The company has $5,555,468 (2007 - $4,874,185) receivable from these companies including interest accrued on the original debts since call of the guarantees, but has provided for the full amount of the receivables due to uncertainty of collectibility. $332,753 has been charged to income in the year ended December 31, 2008 (2007 - $300,501) in respect of the provision. The increase in the amount of the loan receivable and the corresponding provision from year to year arises due to the interest accruing on the debt guaranteed. Under the terms of the guarantee agreements, the other companies had until December 31, 2007 to pay the Company, but nothing has been paid.

The Company has fully provided for $15,366 (2007 - $12,616) of additional loans receivable from sales agents and employees. $582 (2007 - $804) recovery has been recognized in the year ended December 31, 2008  in respect of the provision. The difference in this amount from 2007 to 2008 is due to the change in foreign exchange rates.

The Company has fully provided for $136,913 (2007 - $127,900) of loans receivable from minority shareholders of Wanxing Cosmetic. The difference in this amount from 2007 to 2008 is due to the change in foreign exchange rates.

6. INVENTORY

Inventory consists of the following:
   
December 31,
2008
   
December 31,
2007
 
             
Raw materials
  $ 144,022     $ 74,007  
Goods in process
    803,704       550,198  
Finished goods
    177,063       269,197  
                 
    $ 1,124,789     $ 893,402  

 
14

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

7. FIXED ASSETS

Fixed assets consist of the following:
   
December 31,
2008
   
December 31,
2007
 
             
Buildings
  $ 6,710,682     $ 6,220,810  
Climate control equipment
    1,355,620       1,265,923  
Computer software
    2,052       1,917  
Land license
    2,462,880       2,299,920  
Manufacturing equipment
    2,319,680       2,119,775  
Office furniture and equipment
    174,873       156,532  
Other equipment
    31,473       29,048  
Road
    36,902       34,460  
Vehicles
    751,242       701,535  
                 
      13,845,404       12,829,920  
Less: Accumulated depreciation
    7,393,269       6,171,089  
                 
    $ 6,452,135     $ 6,658,831  

The land license is for the use of the land on which the Company’s buildings are situated, and is for a term of 30 years from September 18, 1996. At the end of the license, the Company expects to have an option to renew the license.

 
15

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

8. SHORT-TERM LOANS

The Company has obligations under the following loan agreements.

Name of Lender
 
Principal
amount
December
31, 2008
   
Principal
amount
December
31, 2007
   
Due date
   
Interest rate
Not due/
overdue
   
Security
(1)
 
                               
China Construction Bank
  $ 1,935,120     $ 1,957,670    
October 16, 2004
      5.31% / 7.56 %  
Building mortgage
(2) 
Shenzhen Development Bank
    820,960       766,640    
June 6, 2005
      6.372%/9.56 %  
Guarantee
 
Industrial Bank
    2,658,796       3,395,128    
December 19, 2005
      6.138%/9.21 %  
Guarantee
(3) 
Zheda Haina S&T Holding
    615,720       574,980       -       -         (4)
Luoyang Zonghong
    190,580       410,700       -       -       -  
    $ 6,221,176     $ 7,105,118                          
Weighted average interest rate
    7.55 %     7.27 %                        

 
(1)
Guarantees have been arranged with various companies under cross-guarantee arrangements where each guarantees a loan for the other, or a loan forward basis where Wanxing Bio-Pharmaceuticals borrows and then loans a specified amount to the guarantor in return for the guarantee. The Company has guaranteed debt of two other companies under such arrangements, up to an amount of $3,665,000 (25,000,000 yuan) plus interest. The Company’s debt to the Industrial Bank arose upon the Company being called on its two guarantees. The Company recorded a corresponding loan receivable from the other companies and has made a provision for uncollectability in the full amount of the receivable (Note 5).
 
(2)
Buildings with carrying value of $3,825,897 have been mortgaged as security.
 
(3)
A payment on the Industrial Bank loan in the nine months ended September 30, 2008 was provided by the minority shareholder of Wanxing Bio-Pharmaceuticals pursuant to a guarantee provided by the minority shareholder. The corresponding debt to the minority shareholder is included in Shareholder Loans (Note 10).
 
(4)
The debt to Zheda Haina arose upon the payment by Zheda Haina of part of the Company’s loan from Shenzhen Development Bank pursuant to a guarantee provided to the bank by Zheda Haina in 2004.

The bank loans are all delinquent at December 31, 2008 and 2007. The Company has been involved in litigation over some of its bank loans. Two of the suits have been settled, and a further one is outstanding as at December 31, 2008 as more fully described in Note 9.

 
16

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

On April 3, 2008, Wanxin Bio-pharmaceuticals agreed to a revised payment schedule for the bank loan with the China Construction Bank. Under this agreement, Wanxin Bio-pharmaceuticals agreed to pay 4 Million yuan (approximately $586,000) by June 30, 2008 and the balance of principal and interest by September 30, 2008. Wanxin Bio-pharmaceuticals paid 1,200,000 yuan (approximately $176,000)  by June 30, 2008.

On April 8, 2008, Wanxin Bio-pharmaceuticals agreed to a revised payment schedule for the bank loan with the Industrial Bank. Under this agreement, Wanxin Bio-pharmaceuticals agreed to pay 3 Million yuan (approximately $440,000) by April 30, 2008, 10 Million yuan (approximately $1,466,000) by June 30, 2008 and the balance of principal and interest by September 30, 2008. Wanxin Bio-pharmaceuticals paid 1 Million yuan (approximately $147,000) by April 30, 2008 another 600,000 yuan (approximately $88,000) by June 30, 2008 and another 300,000 yuan (approximately $44,000) by December 31, 2008.

9. LITIGATION

The Company has been sued by the Shenzhen Development Bank to enforce payment under the loan agreement with that bank and judgment was granted in favor of the bank by the 1st Secondary People’s Court of Shanghai. On October 25, 2006 the Company and the bank entered into a settlement agreement to settle the litigation and the debt. The debt at that time had a principal balance of 17,800,000 yuan (approximately $2,609,000 at December 31, 2008 exchange rates). Under the terms of the settlement agreement, the Company was obligated to pay the bank 5 million yuan (approximately $733,000) before October 30, 2006, 3 million yuan (approximately $ 440,000) before March 20, 2007, 3 million yuan (approximately $440,000) before June 20, 2007, 3 million yuan (approximately $440,000) before September 20, 2007 and 3.8 million yuan (approximately $557,000) plus the balance of accrued interest before December 20, 2007. The Company made a payment of 5 million yuan (approximately $733,000) in compliance with the settlement agreement in December 2006. The Company defaulted on the settlement agreement by not making the scheduled loan payment of 3 million yuan (approximately $440,000) on March 20, 2007. The bank granted a waiver of default in respect of this payment until May 30, 2007. The Company made the payment due May 30, defaulted on the two payments due by June 20, 2007 and September 20, 2007, made payments of 4,200,000 yuan (approximately $616,000) after September 30, 2007, and has defaulted on the payment due December 20, 2007.

See Note 19 with respect to further legal proceedings subsequent to December 31, 2008.

10. SHAREHOLDER LOANS

The loans from shareholders in the aggregate amount of $4,160,678 (2007- $2,176,526) do not bear interest. $1,969,690 payable to a shareholder of a subsidiary was due December 31, 2007 and the remainder have no stated repayment terms. Imputed interest has been recorded on the shareholder loans at an interest rate of 5.31%. The net interest calculated in the amount of $188,752 (2007 - $113,771) is included in interest expense and has been recorded as additional paid-in capital since the imputed interest is not payable. See also note 19.

 
17

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

11. CONVERTIBLE DEBENTURES

On July 30, 2008 the Company closed an initial $100,000 portion of a $350,000 financing pursuant to a subscription agreement dated June 30, 2008 between the Company and an Asian-based investment fund.  The Company issued the subscriber a $100,000 principal amount convertible debenture due July 1, 2011, convertible into shares of the Company’s common stock, par value $0.0001, at a price of $0.30 per share together with 300,000 common share purchase warrants (each a “Warrant”) and 600,000 common share purchase piggyback warrants (each a “Piggyback Warrant”).

On November 11, 2008 the Company closed the final $250,000 portion of the debenture financing.  The Company issued the fund a $250,000 principal amount convertible debenture due July 1, 2011, convertible into shares of the Company’s common stock, par value $0.0001, at a price of $0.30 per share together with 750,000 common share purchase warrants and 1,500,000 common share purchase piggyback warrants.

Each warrant entitles the holder thereof to acquire one additional share of common stock in the capital of the Company at a price of $0.33 per share for the period ending on December 1, 2008.  Each piggyback warrant, which will only be available for exercise by the holder thereof if the warrants have been exercised in full (unless subsequently waived in writing by the Company), entitles the holder thereof to acquire one additional share of common stock in the capital of the Company at a price of $0.37 per share for the period ending on July 1, 2010. The warrants were valued at $0 due to their short life.  None of the warrants were exercised by December 1, 2008 and therefore they have all expired.

Interest is payable on the principal amount of the convertible debenture outstanding at 8% per annum, calculated and payable quarterly in arrears.  Interest payable under the convertible debenture shall be paid on the last day of December, March, June and September of each year.  The holder of the convertible debenture has the option to convert any accrued and unpaid interest due at the time of a conversion. No interest has been paid to December 31, 2008. See also Note 19.

In connection with the convertible debentures the Company has incurred a finder’s fee payable to a related party in the amount of $35,000. These fees were unpaid at December 31, 2008. See also Note 19.

12. RELATED PARTY TRANSACTIONS

The Company incurred finder’s fees in 2008 in the amount of $35,000 to a related party in relation to the convertible debentures as described in Note 11. These fees remain unpaid at December and were subsequently paid in shares. See Note 19.

The Company incurred finders’ fees in 2007 to shareholders and a company related to a shareholder in the amounts of $1,295,875 and 20,000 shares. $542,250 of these fees remain unpaid at December 31, 2008. These finders’ fees are included in the finders’ fees described in Note 14. $456,000 of these fees was subsequently paid in shares. See Note 19.

 
18

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

The Company incurred fees and associated expenses in the amount of $40,420 in 2007 to a company related to a shareholder for services, which remains payable as at December 31, 2008.

Two minority shareholders of a subsidiary are indebted to the Company in the amount of  $136,913 (2007 - $127,900). The Company has provided an allowance for the full amount of this indebtedness (Note 5).

13. INCOME TAXES

The Company is subject to Chinese income taxes to the extent of the subsidiaries’ operations in China and in the United States the extent of its operations in the United States.  The company had no income tax expense during the reported periods due to net operating losses.

A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:
 
   
2008
   
2007
 
Loss for the year ended December 31
  $ (5,773,716 )   $ (6,669,420 )
Average statutory tax rate in China
    33 %     33 %
                 
Expected income tax provision
  $ (1,905,327 )   $ (2,200,909 )
Tax effect of non-deductible stock-based compensation and imputed interest expenses
    1,070,701       919,893  
Tax basis of deferred expenses in excess of book cost
           
Tax effect of unrecognized losses
    834,626       1,281,016  
                 
Income tax expense
  $     $  
 
Significant components of deferred income tax assets are as follows:
 
   
2008
   
2007
 
Operating losses carried forward
    4,598,364       3,981,646  
Excess of tax basis over book cost of deferred expenses in China
  $ 4,965,173     $ 4,747,265  
Valuation allowance
    (9,563,537 )     (8,728,911 )
                 
Net deferred income tax assets
  $ -     $ -  

 
19

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

The valuation allowance has increased due to the tax effect of unrecognized losses for the year.
 
The Company has tax losses carried forward for Chinese tax purposes of approximately $13,934,000 which will expire as follows if not utilized:

2009
  $ 1,832,000  
2010
    3,707,000  
2011
    5,145,000  
2012
    1,381,000  
2013
    1,869,000  
    $ 13,934,000  

Upon the abandonment of the Chinese subsidiaries in 2009 (see Note 19), the losses carried forward will stay with the abandoned companies, with the result that the Company will not have access to these losses carried forward from 2009 onward.

The Company has not filed United States income tax returns since 2006 and therefore has no net operating losses carried forward for U.S. tax purposes. All years remain open for examination by tax authorities in the U.S.

14. COMMON STOCK

On January 12, 2007 the Company issued 1,750,000 pre forward stock split shares of common stock (equivalent to 70,000,000 post-forward stock split shares) to the former shareholders of Wanxin BVI in return for all the outstanding shares of  Wanxin BVI as described in Note 1.

On March 1, 2007 the Company increased its authorized capital from 50,000,000 common shares to 250,000,000 common shares.

On March 2, 2007 the Company forward split its common stock on a 40-for-1 basis.

On March 9, 2007 the Company cancelled 76,000,000 (post forward stock split) common shares pursuant to the surrender for cancellation of those shares by the former majority shareholder of the Company.
 
On March 22, 2007, the Company issued 100,000 (post forward stock split) shares of common stock in return for the services of the Company’s Chief Financial Officer for the 12 months commencing January 1, 2007.  The Company recognized an issue price for the shares of $0.854 per share, reflecting a discount from market price on that date due to there being a one-year hold period before the shares can be sold.

On May 14, 2007, the Company issued 2,074,668 units (each a “Unit”) to 36 individuals/entities due to the closing of the Company’s private placement at $0.75 per Unit for total gross proceeds of $1,556,001. Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $1.25 per warrant share until May 14, 2009.

 
20

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

In addition, on May 14, 2007, the Company issued 1,623,000 units (each a “Unit”) to 44 individuals/entities due to the closing of the first part of the Company’s private placement at $1.00 per Unit for total gross proceeds of $1,623,000. Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $1.75 per warrant share until May 14, 2009.

On May 24, 2007, the Company issued 3,500,000 units (each a “Unit”) to 2 individuals/entities due to the closing of the second tranche of the Company’s private placement at $1.00 per Unit for total gross proceeds of $3,500,000. Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $1.75 per warrant share until May 24, 2009.

In addition, on May 30, 2007, the Company issued 3,000,000 units (each a “Unit”) to 4 individuals/entities due to the closing of the third and fourth tranches of the Company’s private placement at $1.00 per Unit for total gross proceeds of $3,000,000. Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $1.75 per warrant share until May 30, 2009.

On September 11, 2007, the Company issued 5,248,800 units (each a “Unit”) due to the closing of the Company’s private placement at $1.25 per Unit for total gross proceeds of $6,561,000.  Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $2.00 per warrant share until September 11, 2009.

On October 16, 2007, the Company issued 25,000 shares of common stock to one individual with respect to the exercise of 25,000 warrants at a price of $1.25 per share for total gross proceeds of $31,250.

On December 5, 2007, the Company issued 548,338 units (each a “Unit”) to 21 individuals/entities due to the closing of the Company’s private placement at $1.50 per Unit for total gross proceeds of $822,507. Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $2.00 per warrant share until December 5, 2009.

In relation to the Company’s private placement offerings entered into with offshore investors, the Company has paid or accrued cash finders’ fees in the amount of $1,439,125 and finders’ fees of 192,280 shares of common stock of the Company.

 
21

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

On January 23, 2008, the Company issued 110,000 shares of common stock in return for the services of the Company’s Chief Financial Officer for the 12 months commencing January 1, 2008.  The Company recognized an issue price for the shares of $0.525 per share, reflecting a 30% discount from market price on that date due to there being a hold period before the shares can be sold.

Warrants outstanding and exercisable as of December 31, 2008 are as follows:

Exercise Price
   
Number of Warrants
 
Expiry Date
$ 1.25       1,012,334  
May 14, 2009
$ 1.75       4,061,500  
May 14 to May 30, 2009
$ 2.00       2,624,400  
September 11, 2009
$ 2.00       274,169  
December 5, 2009
               
          7,972,403    

15. OTHER REVENUE

Other revenue includes $389,913 (2007 - $97,622) in government grant revenue received as funding assistance toward the research and development of the Company’s products and $400,000 contract revenue from hiring out part of the Company’s research and manufacturing facilities and staff to another company. Other revenue in 2007 included $131,500 in revenue from product licensing.
 
16. STOCK-BASED COMPENSATION

The Company’s 2006 Stock Option and Incentive Plan (the “Plan”) allows the Company to award stock options for up to 10,000,000 (post-forward stock split) shares to its directors, officers, employees, and consultants.  The Plan is administered by the Company’s Board of Directors, or its assigned committee, who has discretion as to the awards and terms of the options to be issued. Upon exercise of options, shares are issued from treasury.
  
On March 1, 2007, 6,000,000 stock options were granted under the Plan with the exercise price of $0.50 per share. 300,000 of 6,000,000 options vested on March 1, 2007 with the reminder to vest in equal monthly proportions on the first day of each of the next 19 months.

On May 30, 2007, 1,000,000 stock options were granted under the Plan with the exercise price of $1.90 per share. 500,000 of 1,000,000 options will vest on June 1, 2009 with the reminder to vest on June 1, 2011. On August 31, 2008 these options were re-priced to an exercise price of $0.50 per share. The value of repricing these options, $0.14 per option share or $140,000 in total, will be recognized as additional stock-based compensation expense over the remaining vesting period of the options, subject to cancellations, forfeitures or further modifications of the options. $16,970 of this additional expense has been recognized in the year ended December 31, 2008.

 
22

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

On November 29, 2007, 1,000,000 stock options were granted under the Plan with the exercise price of $1.67 per share. 50,000 of 1,000,000 options vested on November 29, 2007 with the reminder to vest in equal monthly proportions on the first day of each of the next 19 months. On August 31, 2008 these options were re-priced to an exercise price of $0.50 per share. The value of repricing these options, $0.11 per option share or $110,000 in total, will be recognized as additional stock-based compensation expense over the remaining vesting period of the options, subject to cancellations, forfeitures or further modifications of the options. $40,000 of this additional expense has been recognized in the year ended December 31, 2008.

On October 2, 2008, 500,000 stock options were granted under the Plan with the exercise price of $0.50 per share. 25,000 of 500,000 options vested on October 2, 2008 with the remainder to vest in equal monthly proportions on the first day of each of the next 19 months.

A summary of the Company’s stock option activities is presented below (after giving effect to repricing on August 31, 2008):

   
Number of
options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant-date
Fair Value
   
Aggregate
Intrinsic
Value
 
Options Outstanding, January 1, 2007
    -                    
                                 
Options granted in 2007
    8,000,000       0.50       0.825     $ nil  
Options Outstanding, December 31, 2007
    8,000,000       0.50       0.825     $ nil  
                                 
Options granted in 2008
    500,000       0.50       0.16     $ nil  
Options Outstanding, December 31, 2008
    8,500,000       0.50       0.786     $ nil  

Compensation cost related to options to vest in the future will be recognized as the related options vest.  Outstanding options vest as follows:

 
23

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

Vested at
December 31,
 
Range of
Exercise
Prices
   
Number
of Shares
   
Weighted
Average
Exercise
Price
   
Compensation
Expense to be
Recognized
   
Aggregate
Intrinsic 
Value
 
2008 and earlier
    0.50       7,120,833       0.50           $ nil  
2009
    0.50       900,000       0.50     $ 804,412        nil  
2010
    0.50       375,000       0.50       278,141       nil  
2011
    0.50       140,167       0.50       107,560       nil  
              8,500,000             $ 1,190,113     $ nil  

Non-vested options are as follows:
   
Number
outstanding
   
Total fair value
   
Weighted average grant-
date fair value
 
Non-vested options outstanding, January 1, 2008
    4,650,000     $ 4,037,450     $ 0.868  
Non-vested options outstanding, December 31, 2008
    1,379,167     $ 1,190,113     $ 0.723  
Options vested in year ended December 31, 2008
    3,625,000     $ 3,055,796     $ 0.843  

If not previously exercised or canceled, options outstanding at December 31, 2008 will expire as follows:
 
 
Expiration Date
 
Range of
Exercise Prices
   
Number
   
Weighted average
 
 Year Ending December 31,
 
High
   
Low
   
of Shares
   
exercise price
 
2012
    0.50       0.50       8,000,000     $ 0.50  
2013
    0.50       0.50       500,000     $ 0.50  
 
The fair values of the options granted in March, May and November, 2007 were estimated at values of $0.758 per share, $0.829 per share and $1.223, respectively. The post-repricing fair values of the May and November, 2007 options repriced on August 31, 2008 were estimated at values of $0.44 per share and $0.45, respectively. The fair value of the options granted in October, 2008 was estimated at a value of $0.16 per share. These estimates were made using the Black-Scholes Option Pricing Model with the following weighted average assumptions:

 
24

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

   
March
and May,
2007
   
November,
2007
   
August,
2008
repricing
   
October,
2008
 
Volatility:
    41.0 %     94 %     104 %     128 %
Risk-free interest rate:
    4.92 %     3.42 %     2.06 %     2.06 %
Dividend yield:
                       
Expected lives  (years):
    5       5    
3.75 to 4.25
      5  

Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Volatility was estimated based on past quoted market prices of the Company’s stock.  Changes in the underlying assumptions can materially affect the fair value estimates and therefore, in management’s opinion, existing models do not necessarily provide reliable measure of the fair value of the Company’s stock options.

17. CONTINGENT PATENT RIGHTS COMMITMENTS

The Company has committed to payments for rights to use patented technology, contingent upon successful clinical trials and approval of products for production as follows:

11 Million yuan (approximately $1,613,000) will be payable upon completion of both Phase III clinical trials and approval of new drug certificate for Ethelphazine,  an anti-tumor drug entering Phase III clinical trials.

20 Million yuan (approximately $2,932,000) will be payable upon completion of both Phase III clinical trials and approval of new drug certificate for the Company’s recombinant malaria vaccine. This drug is expected to enter Phase II clinical trials in 2009.

2.5 Million yuan (approximately $367,000) will be payable in respect of the Company’s recombinant Human Stem Cell factor bio-product in two stages. The first 1 Million yuan (approximately $147,000) will be due by the time of upon completion of Phase II trials and 1.5 Million yuan (approximately $220,000) will be payable upon completion of both Phase III clinical trials and approval of the product for production. This product is in Phase I trials.

See also Note 19.

18. SEGMENTED INFORMATION

The Company is operating in a single geographic market, the People’s Republic of China. The Company has two operating segments, the cosmetics business and the pharmaceuticals business. Segment revenues, net loss and assets are as follows:

 
25

 

SINOBIOMED INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(Expressed in U.S. Dollars)

Year ended December 31, 2008
 
Revenues
   
Net loss (income)
   
Total assets
 
Pharmaceuticals
  $ 1,238,392     $ 2,058,097     $ 7,371,805  
Cosmetics
    749,504       (176,962 )     529,826  
Parent company administration
    -       3,892,581       75,456  
                         
Total consolidated
  $ 1,987,896     $ 5,773,716     $ 7,977,087