UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
x
ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For the
fiscal year ended December 31, 2008
o
TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
For the
transition period from
______________
to _____________
Commission
File Number: 0-10999
BIO-BRIDGE
SCIENCE, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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20-1802936
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(State
or other jurisdiction of incorporation)
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(IRS
Employer Identification Number)
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1211 West
22nd Street, Suite 615
Oak
Brook, IL 60523
(Address
of principal executive offices) (Zip Code)
630-928-0869
(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:
$0.001
par value
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(Title
of each class)
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(Name
of exchange on which registered)
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Indicate
by check mark if the registrant is a well-know seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
o
No
x
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
o
No
x
Note —
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or Section 15 (d) of the Exchange Act from their
obligations under those Sections.
Indicate
by the check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (ss.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.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, o a non-accelerated filer or a smaller reporting
company.
(Check
one): Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
¨
Smaller Reporting
Company
x
Indicate
by check whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes
o
No
x
As of
February 28, 2009, 34,931,009 shares of the registrant's common stock and
4,000,000 shares of preferred stock were issued and outstanding, both at par
value of $0.001. Aggregate market value of the voting stock held by
non-affiliates as of June 30, 2008 was $21,785,377. Portions of the Registrant’s
definitive proxy statement for its 2009 Annual Meeting or Stockholders are
incorporated by reference into Part III of this Form 10-K.
BIO-BRIDGE
SCIENCE, INC.
TABLE OF
CONTENTS
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Page
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Part
I
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Item
1 - Business
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3
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Item
1A - Risk Factors
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15
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Item
1B - Unresolved Staff Comments
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23
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Item
2 - Properties
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24
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Item
3 - Legal Proceedings
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24
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Item
4 - Submission of Matters to a Vote of Security Holders
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24
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Part
II
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Item
5 - Market for Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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25
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Item
6 - Selected Financial Data
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27
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Item
7 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations
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27
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Item
7
A
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Quantative
and Qualitative Disclosures About Market
Ri
sk
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31
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Item
8 - Financial Statements and Supplementary Data
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31
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Item 9
- Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
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31
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Item
9A - Controls and Procedures
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32
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Item
9B - Other Information
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32
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Part
IV
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Item
15 - Exhibits, Financial Statement Schedules
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34
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Signatures
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35
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Index
to Exhibits
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36
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CAUTION
REGARDING FORWARD-LOOKING INFORMATION
In
addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements that involve risks and uncertainties that could cause
our actual results to differ materially. Factors that might cause or contribute
to such differences include, but are not limited to:
o our
ability to finance our activities and maintain our financial
liquidity;
o our
ability to attract and retain qualified, knowledgeable employees;
o our
ability to complete product development;
o our
ability to obtain regulatory approvals to conduct clinical trials;
o our
ability to design and market new products successfully;
o our
failure to acquire new customers in the future;
o
deterioration of business and economic conditions in our markets;
and
o
intensely competitive industry conditions.
When used
in this report, the words "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions are generally intended
to identify forward-looking statements. You should not place undue reliance on
these forward-looking statements, which reflect our opinions only as of the date
of this Annual Report. We undertake no obligation to publicly release any
revisions to the forward-looking statements after the date of this document. You
should carefully review the risk factors described in other documents we file
from time to time with the Securities and Exchange Commission, including our
Quarterly Reports on Form 10-Q in our 2008 fiscal year.
As used
in this Form 10-K, unless the context requires otherwise, we refer to Bio-Bridge
Science, Inc. and our wholly owned subsidiaries, including Bio-Bridge Science
(Beijing) Co. Ltd., a Wholly-Foreign Owned Enterprise of the People's Republic
of China ("Bio-Bridge (Beijing)")
,
Bio-Bridge Science
Corporation, a Cayman Islands corporation, Bio-Bridge Science(HK) CO., LIMITED,
a Hong Kong company,
Bio-Bridge Science Holding
Co., Ltd.
, a Cayman Islands corporation and Huhhot Xinheng Baide
Biotechnology Co., Ltd.(“XHBD”) a 51% owned subsidiary incorporated in Inner
Mongolia, PRC, as "we," "us," "our," "Bio-Bridge" and "the
Company."
PART I
ITEM
1 - BUSINESS
OVERVIEW
We are a
biotech company focused on the commercial development of biological products for
the prevention and treatment of human infectious diseases and production
material in producing vaccines. We intend to develop and obtain regulatory
approval for commercial sale of the following vaccines: an HIV vaccine (HIV-PV
Vaccine I), a vaccine designed to prevent and treat infection by the human
immunodeficiency virus, or HIV, an HPV vaccine, a colon cancer therapeutic
vaccine and other related potential products. Also, we sell bovine serum, a
major production material in producing vaccines, through our 51% owned
subsidiary, XHBD. The HIV vaccine and colon cancer vaccine are based on the
technology platform co-developed by Dr. Liang Qiao, our chief executive officer
and an associate professor at Loyola University Chicago. The technology is owned
by Loyola University. In June 2002, Loyola University exclusively licensed this
technology to our subsidiary Bio-Bridge Science Corporation with respect to
development and sales in the territories of People's Republic of China, Japan
and the United States. Pursuant to an agreement with the Beijing Institute of
Radiation Medicine, the pre-clinical testing of our first vaccine product
candidate, HIV-PV Vaccine I, on laboratory animals in mainland China was
completed and the test results were issued in June 2006 and showed encouraging
results. Once we are able to produce vaccine samples in our manufacturing
facility in Beijing, China, we plan to apply to China's State Food and Drug
Administration (SFDA) for approval to conduct clinical trials of HIV-PV Vaccine
I.
Since the
process of development, testing and approval can be a long-term process, we also
plan to acquire profitable vaccine and vaccine production related companies
selectively in Asia, mainly in China, to increase our revenues and to increase
our product offerings.
In May
2003, the Company acquired a land use right for approximately 28 acres of land
in the Tianzhu Export Processing Zone, Shunyi District, Beijing, China, which
the Company plans to develop into a laboratory and bio-manufacturing facility in
compliance with Good Manufacturing Practices, or GMP, regulations primarily for
clinical trials of our vaccine candidates. The general plans for development
include the construction of a laboratory facility (“Phase One”) and construction
of an administrative office building (“Phase Two”). At December 31, 2008, the
Phase One construction and internal clean room are awaiting the inspections and
approval from the government, which is expected to be finished by the second
quarter of 2009, and is recorded as construction in progress. At December 31,
2008, $185,929 was due to the contractors of Phase One for the completed
construction and internal clean room decoration and this obligation is recorded
as due to contractors.
The
Company estimates the cost of laboratory equipment for Phase One to be fully
operational will be approximately $500,000. As of December 31, 2008, the Company
had signed agreements with several parties for the purchase of the laboratory
equipment. The Company estimates the purchase and installation of the laboratory
equipment will be completed by the second quarter of 2009. At December 31, 2008,
Phase Two was still in the design stage. The Company estimates the total project
costs for Phase Two will be approximately $1,200,000.
The Company estimates
that construction may begin on Phase Two in 2011 or later, but currently has no
plans for Phase Two construction.
We have
finished the pre-clinical animal testing of HIV-PV Vaccine I through
collaboration with Beijing Institute of Radiation Medicine and the testing
showed encouraging results. After we are able to produce our HIV-PV vaccine
samples in our facility, we intend to submit application for approval of
clinical trials to Beijing branch of the China State Food and Drug
Administration (SFDA). After we receive approval, we will conduct Phase I, II
and III human clinical trials. If these clinical trials show that our vaccine is
safe and effective, we will apply for a new drug approval certificate and
approval for sale. We intend to conduct a phase IV clinical study after our
vaccine is made available to the market. To date, we have not commenced clinical
testing of this vaccine, nor has it been approved by the SFDA or any other
regulatory agency. Also, we are conducting the pre-clinical activities for a
colon cancer vaccine and an HPV vaccine.
On
November 21, 2005, we entered into an exclusive distribution agreement with
Xinhua Surgical Instruments Co. Ltd., located in Shandong, China. Under this
agreement, we have been granted exclusive distribution rights for all Xinhua
surgical instruments in the United States, which are subject to FDA approval. On
December 6, 2005, we received confirmation from the FDA of our registration as a
medical device establishment, which enables us to perform initial distributor
and repackager operations. This confirmation is not FDA approval of any product
or any of our activities. It is neither a license, nor a certification. We began
selling Xinhua surgical instruments that meet the criteria for class I medical
devices under FDA rules, which do not require pre-market notification to the
FDA.
On July
31, 2008, the Company acquired 51 percent of the outstanding capital interest of
Huhhot Xinheng Baide Biotechnology Co., Ltd. XHBD was
incorporated on May 17,
2006 under the laws of the People’s Republic of China (the “PRC”) as a limited
company, which is similar to a limited liability company. XHBD is located in the
capital city of Inner Mongolia of the PRC, Huhhot. The primary operations of the
Company are the manufacture and distribution of bovine serum products, which is
used in research, production of pharmaceuticals, and production of veterinary
medicines. The results of XHBD are included in the accompanying condensed
consolidated financial statements from August 1, 2008.
We have
incurred significant losses since inception as a result of research and
development, general and administrative expenses in support of our operations.
We expect to continue to incur substantial losses over at least the next few
years as we complete our pre-clinical trials, apply for regulatory approvals of
clinical trials, construct our phase II biomanufacturing facility and continue
development of our technology. Although we still plan to acquire more profitable
vaccine producing or vaccine production-related companies in China in the near
future, we cannot guarantee that we will successfully complete acquisitions or
that these acquisitions will bring us positive net incomes and cash flows on a
consolidated basis. Therefore, we will still need to raise additional capital
during the next twelve months to meet our operating expenses. See "Plan of
Operations."
HISTORY, REORGANIZATIONS AND
CORPORATE STRUCTURE OF THE COMPANY
We were
incorporated in Delaware on October 26, 2004 as a holding company for the shares
of Bio-Bridge Science Corp, a pre-existing vaccine development company. On
November 4, 2004, we initiated exchange offers to the shareholders of Bio-Bridge
Science Corp. By November 12, 2004, 100% of the shareholders of Bio-Bridge
Science Corp. had tendered their shares. Effective December 1, 2004, we issued
29,971,590 shares of our common stock to the shareholders of Bio-Bridge Science
Corp. pursuant to the Agreement for the Exchange of Shares dated as of November
4, 2004 ("Exchange Agreement") by and among us, Bio-Bridge Science Corp. and the
shareholders of record of Bio-Bridge Science Corp. As a result of this exchange
reorganization, effective December 1, 2004, we became the sole shareholder of
Bio-Bridge Science Corp., and it became our wholly owned subsidiary. The
Bio-Bridge Science Corp. shareholders acquired control of our company pursuant
to the Exchange Agreement, resulting in Dr. Liang Qiao's ownership of 13,750,000
shares or approximately 40% of our company. The directors and members of
management of Bio-Bridge Science Corp. are the same directors and management of
Bio-Bridge Science, Inc. There was no change in corporate structure before and
after the incorporation of Bio-Bridge Science, Inc. The acquisition was
accounted for as a reverse merger (recapitalization) with Bio-Bridge Science
Corp. deemed to be the accounting acquirer, and Bio-Bridge Science, Inc. deemed
to be the legal acquirer. Accordingly, the historical financial information
presented herein is that of Bio-Bridge Science Corp. as adjusted to give effect
to any difference in the par value of the issuer's and the accounting acquirer's
stock with an offset to capital in excess of par value. The historical basis of
assets, liabilities and retained earnings of Bio-Bridge Science Corp., the
accounting acquirer was carried forward after the acquisition.
Bio-Bridge
Science Corp. was incorporated in the Cayman Islands on February 11, 2002 to
complete development of, and commercialize, HIV-PV Vaccine I, a vaccine designed
to prevent and treat infection and disease caused by HIV, the virus that causes
AIDS. At the time of the exchange, Bio-Bridge Science Corp.'s directors included
Dr. Liang Qiao, Wenhui Qiao, Toshihiro Komoike, Isao Arimoto and Shyh-Jing
(Philip) Chiang. Its executive officers consisted of Dr. Liang Qiao, chief
executive officer and secretary, Wenhui Qiao, president, Chuen Huei (Kevin) Lee,
chief financial officer, and Toshihiro Komoike, vice president.
Bio-Bridge
Science Corp. holds a 100% interest in Bio-Bridge Science (Beijing) Corp. Ltd.,
a Wholly-Foreign Owned Enterprise of the People's Republic of China, which was
established on May 20, 2002. Bio-Bridge Science (Beijing) was issued an
operating license for 25 years on May 20, 2002. This license can be renewed for
an additional 25 years after payment of a registration fee. This 25-year
limitation currently applies to all commercial enterprises in the People's
Republic of China. Bio-Bridge Science Corp., through its wholly owned subsidiary
in Beijing, China, is currently engaged in the development and commercialization
of HIV-PV Vaccine I, HPV vaccine, and colon cancer vaccine, in China. Bio-Bridge
Science (Beijing)'s executive officer is Wenhui Qiao, general manager. Its
directors include Wenhui Qiao, chairman, Dr. Liang Qiao, vice chairman, Mingjin
Yu, Isao Arimoto and Shyh- Jing (Philip) Chiang.
On April
12, 2004, Bio-Bridge Science Corp. acquired 100% of the outstanding shares, of
Aegir Ventures, Inc., a public reporting company, for a purchase price of
$40,000. On November 26, 2004, Bio-Bridge Science Corp. sold all the issued and
outstanding capital stock of Aegir Ventures, to Nakagawa Corporation, a Japanese
corporation, in exchange for a $40,000 promissory note. The promissory note was
due November 26, 2007. In November 2007, the Company determined that the loan
was impaired, and accordingly, wrote off the note receivable of $40,000 as bad
debt expense in 2007.
We
incorporated Bio-Bridge Science (HK) CO., LIMITED, a Hong Kong company in March
2008, and Bio-Bridge Science Holding Co., Ltd., a Cayman Islands corporation in
February 2008, to serve as acquisition vehicles. We acquired 51
percent of the outstanding capital interest of Huhhot Xinheng Baide
Biotechnology Co., Ltd at July 31, 2008.
PRODUCTS
Our major
products under development are vaccines against HIV, cervical cancer and colon
cancer. Also, we sell bovine serum through our 51% owned subsidiary, Huhhot
Xinheng Baide Biotechnology Co. Ltd.
VACCINE
Most
vaccines are preventive, and as a result, they are particularly suited to
address epidemics, including HIV/AIDS. Some vaccines can be used to treat
diseases, and they are called therapeutic vaccines.
Vaccines
prevent infection by activating the immune system to fight against infectious
pathogens. The immune system's initial response to a pathogen such as a virus
includes the production of antibodies, which is one of the immune responses
known to prevent viral infection. The antibodies bind to a specific part of the
virus and prevent it from entering the cells. This specific structure, called an
antigen, is often a protein on the viral surface. If a virus cannot enter a
cell, it is unable to multiply and dies in the host. This protection against
infection is called neutralization.
Another
vaccine strategy is required to activate the immune system's cytotoxic T-cells,
which are white blood cells that search for and eliminate virus-infected cells
or tumor cells. Viruses replicate by subverting the metabolism of the infected
cell to make more virus. Once this process is completed, a new crop of viruses
leave the cell, often killing it in the process, and infect new cells. Except in
transit between cells, viruses which work inside the cell are safe from any
antibodies. But early in the process, infected cells display fragments of the
viral proteins in their surface molecules. Cytotoxic T-cells recognize these
fragments and bind to the infected cell and often will be able to destroy it
before it can release a new crop of viruses. Similarly, tumor cells display
fragments of tumor-specific or associated antigens in their surface molecules
and specific cytotoxic T-cells can recognize these antigens and subsequently
kill the tumor cells. Most cytotoxic T-cells will die after they have eliminated
the infected cells or tumor cells, but some will become memory cells, or
long-lived cells ready to respond to a later exposure to the
pathogen.
OUR
TECHNOLOGY
Bio-Bridge
Science’s products are based on the unique papillomavirus pseudovirus technology
co-developed by Dr. Liang Qiao, our chief executive officer. Papillomavirus are
sexually transmitted viruses and their major structural protein can
spontaneously assemble into virus-like particles. These particles can package
unrelated genes encoding proteins of interest to form papillomavirus
pseudovirus. Papillomavirus pseudoviruses are benign viruses, or vectors, that
deliver the genes of interest to cells in mucosal and systemic lymphoid tissues
via oral route. The infected antigen presenting cells then produce antigens that
can then activate cytotoxic T-cells. Antigens on the surface of pseudoviruses
and the antigens produced by the pseudoviruses can be recognized by B cells that
develop into antibody-producing cells. Thus, oral administration of the
pseudoviruses can induce antibodies and cytotoxic T-cells in mucosa and
peripheral blood, i.e., mucosal and systemic immunity to prevent and to treat
diseases. We plan to use this technology to develop vaccines against HIV and
colon cancer.
GOVERNMENT
REGULATION IN CHINA, JAPAN AND THE UNITED STATES
Our
vaccine candidates must receive regulatory approval before they can be marketed.
The regulatory requirements involve stringent standards that may vary among
different countries. In general, before a drug can qualify for marketing
approval, a registration application must be submitted to a regulatory authority
for review and evaluation. The registration application principally contains
detailed information about the safety and efficacy of a new medication. It also
provides details about the manufacturing process, the proposed production
facility and information to be provided to health care providers or patients.
The registration process can last from several months to several years and
depends, among other things, on the laws and regulations of the country in which
the review takes place, the nature of the medication under review, the quality
of the submitted data, and the efficiency of the review procedure. The process
of developing a drug from discovery through testing, registration and initial
product launch typically takes 10 to 15 years and, according to recent research
by the Tufts Center for Drug Development, exceeds U.S. $800 million in general.
There are four phases to clinical testing of unapproved drug candidates in
humans:
o Phase I
involves the first trial of a new drug candidate in humans. The focus at this
phase is an assessment of clinical safety, tolerability, and metabolic and
pharmacologic properties. Testing generally is performed in a small number of
human volunteers;
o Phase
II trials are controlled clinical studies that test the safety and efficacy of
the drug candidates in several hundred patients with the targeted disease. The
goals of this phase include determining the appropriate doses for further
testing and identifying common side effects and risks that may be associated
with the drug;
o Phase
III trials establish safety and effectiveness for regulatory approval for
indicated uses and to evaluate overall benefit-risk relationship. These studies
usually involve from several hundred up to several thousand people. The results
of these clinical trials are then submitted to appropriate regulatory
authorities with the objective of obtaining approval to market the drug;
and
o Phase
IV trials may be conducted after approval and commercial launch to further
evaluate the safety and efficacy of the products or to investigate potential new
applications.
A.
HIV VACCINE
HIV is
the virus that causes Acquired Immunodeficiency Syndrome, or AIDS, a lethal
disease characterized by the gradual deterioration of the human immune system.
HIV is transmitted by three predominant means: sexual contact; exposure to blood
from an infected person, such as sharing needles in drug use; and transmission
from infected mothers to their newborns. Although the disease is manifested in
many ways, the problem common to all patients is the destruction of essential
immune cells known as T lymphocytes, or T-cells. Destruction of these T-cells by
HIV makes the body particularly vulnerable to infections and cancers that typify
AIDS and ultimately cause death. Blocking HIV infection is the most important
step in preventing AIDS.
HIV is
transmitted sexually or directly into the bloodstream. The mucosal surface is
one of the most important portals for HIV transmission. The mucosal surface is
the membranous tissue that covers surfaces or lines a tube or cavity of the body
and serves to enclose and protect parts of the body from the exterior
environment. Mucosal surfaces include the mouth, intestinal and vaginal cavity.
The tissue in intestinal mucosa contains many immune cells that are usually
infected with HIV-1 in patients with AIDS. In the course of an AIDS infection,
the intestine is the earliest target for viral infection and loss of immune
cells. Some candidate vaccines that induced relatively strong systemic immune
responses in connection with virus transmitted directly into the bloodstream
have failed to provide adequate protection in non-human primate models.
Therefore, there is reason to believe that mucosal immunity will be essential
for designing an effective AIDS vaccine. Accordingly, we believe that it is
important for the ideal HIV vaccines to induce not only systemic but also
mucosal HIV-specific immune response to prevent the entry of HIV into the
mucosa, to inhibit HIV replication, and to clear HIV during and after
transmission. We believe that stimulating mucosal immune responses, including
neutralizing antibodies and cytotoxic T-cells, will be essential in the
development of an effective AIDS vaccine.
Several
neutralizing antibodies isolated from HIV-infected individuals can globally
neutralize diverse subtypes of HIV. Administration of the neutralizing
antibodies in HIV patients resulted in reductions in amount of viruses present
in a given volume of blood. Thus, eliciting broadly neutralizing antibodies is a
major goal in HIV vaccine development. Neutralizing antibody-based HIV vaccine
can induce neutralizing antibodies, which block the viral entry into target
cells. Virus specific cytotoxic T-cells have been detected in HIV-infected
individuals. These cytotoxic T-cells have been found to control viral
replication, resulting in slower progression of the AIDS disease. Cytotoxic
T-cells-based HIV vaccine can induce HIV specific cytotoxic T-cells that
eliminate HIV infected cells and control viral replication.
We
developed an HIV vaccine using our technology platform, papillomavirus
pseudovirus. Our papillomavirus pseudovirus technology is designed to administer
viral peptides, or fragments of viral proteins, or gene of interest, to induce
an immune response. Three regions of the major structural protein of bovine
papillomavirus can be replaced by unrelated viral peptides to generate chimeric
virus-like particles, or particles that consist of parts from two or more
proteins of diverse origins. We have introduced HIV gp41 fragments on bovine
papillomavirus chimeric virus-like particles. HIV gp41 is one of two proteins
located on the surface of HIV that facilitates the fusion of the viral membrane
with the cellular membrane. If gp41 is bound by neutralizing antibodies, then
viral membrane fusion may be blocked and HIV may be prevented from entering and
infecting cells. Furthermore, we use the gp41-papillomavirus chimeric virus-like
particles presenting HIV-1 gp41 fragments to package a plasmid encoding HIV-1
Gag. This vaccine is designed to be given orally and induce both mucosal and
systemic HIV-1- neutralizing antibodies and cytotoxic T-cells to treat and
prevent HIV-1 infection.
OVERVIEW
OF NEED FOR HIV VACCINE IN CHINA, JAPAN AND THE UNITED STATES
CHINA
In
December 2008, WHO and UNAIDS jointly estimated that 700,000 people were living
with HIV in China, including about 75,000 AIDS patients. During 2007 there were
approximately 48,159 new HIV infections and 39,000 AIDS deaths. These numbers
have to be considered in the context of China's extremely large population which
is estimated at around 1.3 billion.
The
figure of 700,000 is lower than the previously published estimate of 840,000 in
2003. This is not because prevalence is falling, but is due to better data and
improved methods of estimation. The number of reported AIDS cases is lower than
the estimated number because of massive under reporting, especially in the rural
areas. Undereporting can be explained by a shortage of testing equipment and
trained health staff, as well as the continuing stigma.
According
to the Joint United Nations Program on HIV/AIDS, or UNAIDS, and the World Health
Organization, or WHO, and their report dated 2003, high rates of HIV prevalence
has been found among injecting drug users - 35-80% in Xinjiang and 20% in
Guangdong provinces of China - while a severe HIV epidemic has affected
communities in China where unsafe blood-collection practices occurred in the
1990s. The HIV epidemic has spread to 31 provinces, autonomous regions and
municipalities, and the number of reported HIV/AIDS cases has increased
significantly in recent years.
The
Chinese government has acted to curb the HIV/AIDS epidemic, by prioritizing AIDS
drug approval and establishing a policy, referred to as the Fast Track policy,
to expedite the drug approval process. In 2001, the PRC Ministry of Health, the
lead government agency responsible for addressing the HIV/AIDS epidemic, formed
a Center for Disease Control and Prevention, adopted a five-year action plan,
and increased government spending at the national and provincial levels. The
funding for safety of national blood banks has been increased through a RMB 1.5
billion (about $181 million) government bond issue. As a comparison, from 1990
to 1995, annual spending by the central government on HIV/AIDS was estimated to
be around US$500,000 per year and increased to approximately $1.8 million per
year from 1996 to 2000. The Chinese government spent $499 million from 2005 to
2007 to curb the spread of AIDS/HIV. In 2008, the Chinese government increased
its efforts by spending $228 million alone (RMB 1.55 billion) to fight HIV/AIDS.
To date, we have not received any funding commitments from the Chinese
government, nor have we applied for any government funding. However, we may
apply for government funding in the future.
International
and domestic programs have been undertaken to help prevent the spread of HIV in
China and treat the patients infected by HIV. Grassroots organizations have
created peer-education groups, and even small groups of independently organized
college students are traveling to the countryside to teach prevention and raise
awareness of HIV. International non-governmental organizations, foreign
governments and the United Nations are all active in China and have invested
funds and expertise in addressing the HIV epidemic. The Chinese government has
expressed a willingness to work with the international community to create
policies and programs that will prevent HIV/AIDS from spreading. On February 24,
2006, the State Council issued China’s 2006-2010 Plan for preventing and curbing
the spread of HIV, in which the chief goal is to keep the number of people
infected by 2010 lower than 1.5 million.
Chinese
government policies currently emphasize treatment of HIV/AIDS by locally
producing more affordable antiretroviral treatments and negotiating reduced
prices for patented antiretrovirals produced by multinational pharmaceutical
companies to create "cocktail" treatments to suppress HIV. The prices of
imported and Chinese-produced medications are still well beyond the reach of the
vast majority of Chinese who have HIV. As a result, China is encouraging
HIV/AIDS research in order to develop effective HIV/AIDS vaccine and treatment
drugs. China's SFDA has given priority to domestically produced anti-AIDS drugs
during the examination and approval process, so as to expedite public access to
HIV drugs.
JAPAN
According
to UNAIDS statistics, among Japanese who are sexually active, the rate of condom
use is 80%. Even so, the rate of AIDS infections has risen 14%, the same rate
that it has been increasing in sub-Saharan Africa, although the total number of
Japanese cases is so far comparatively low. The number of people newly diagnosed
with HIV and those who developed AIDS in Japan in 2006 reached record highs of
914 and 390, respectively, according data released by the Japanese AIDS
Surveillance Committee.
UNAIDS
estimated that approximately 9,600 people were living with AIDS/HIV in Japan in
2007.
The Ministry of Health, Labor and Welfare is at the
forefront of domestic policies while the Ministry of Foreign Affairs formulates
foreign policies on HIV/AIDS, and no concerted national policy has yet been
articulated to bridge the various efforts in the fight against the domestic and
global spread of the epidemic. Much of Japan's present-day legal and regulatory
framework, social welfare coverage, promotion of basic and clinical research and
provision of medical care and treatment concerning HIV/AIDS in Japan has arisen
out of the 1996 settlement agreed to by representatives of the HIV-infected
hemophiliacs and the Ministry of Health, Labour and Welfare. The epidemic was
first identified in Japan among hemophiliacs who had been infected through
contaminated blood products. When the contamination was linked to the failure of
pharmaceutical companies and government officials to exercise proper safeguards,
scandal erupted. This scandal peaked in the mid-1990's and became the climactic
point in the history of HIV/AIDS in Japan, but once the legal settlement was
reached, the issue of AIDS appeared to have been put to rest in the eyes of the
general public. Ever since, the level of interest in HIV/AIDS in Japanese
society has remained low. The implementation of effective measures to promote
prevention and awareness-raising regarding sexual transmission of the disease,
in comparison to the 1996 settlement, lags far behind. Nonetheless, there is a
growing demand for greater efforts to counter the rapid spread of the epidemic
among populations vulnerable to HIV infection.
Fighting
infectious diseases has been given priority in Japan's Official Development
Assistance scheme, and the government has pledged a total of US$3 billion under
the Okinawa Infectious Diseases Initiative for the five-year period from 2000 to
2004. Although Japan can boast considerable expertise in treating tuberculosis,
polio, and parasitic diseases, the same cannot be said in the case of HIV/AIDS,
an area where Japan's potential contribution is seen as relatively limited.
Consequently, the Japanese government has resorted to taking a comprehensive
approach to fight all infectious diseases rather than focusing solely on
HIV/AIDS. In this sense, the Okinawa Infectious Diseases Initiative fails to
give high priority to HIV/AIDS, including it as one of many targeted infectious
and parasitic diseases. Indeed, projects under this initiative that are
specifically related to HIV/AIDS have only accounted for 8 percent of total
expenditures. There are approximately 100 community-based nongovernmental
organizations involved in HIV/AIDS issues on the domestic scene, which are
mostly run on a volunteer basis by medical experts or people living with
HIV/AIDS. They have been effective in conducting prevention programs and
offering care and support for population groups vulnerable to HIV infection and
not adequately reached by public agencies. Private financial resources for NGOs
involved in HIV/AIDS issues are severely limited. Grants from private
foundations seldom go to support nongovernmental organizations engaged in
grassroots activities. Meanwhile, although many foundations fund research and
offer scholarships in the fields of health, medicine and welfare, none give top
priority to HIV/AIDS.
On May
23, 2008, Prime Minister Fukuda announced Japan’s new financial commitment of
US$560 million to the Global Fund to Fight AIDS, Tuberculosis and Malaria (the
Global Fund). This new commitment will bring Japan’s total contribution to
US$1.4 billion since the Global Fund was established in 2002.
UNITED
STATES
The
UNAIDS/WHO 2008 report on the AIDS epidemic reports that infections are on the
rise in the U.S. An estimated 1.2 million people were living with HIV in the
United States in 2007, an increase from 900,000 in 2001. UNAIDS/WHO estimated
that around 22,000 people died of AIDS/HIV in 2007. An estimated 40,000 people
have been infected with HIV each year in the U.S. in the last ten years, but the
epidemic is now disproportionately found among African Americans, Hispanic
Americans and women. African Americans are just over 13% of the U.S. population
(according to the 2005 census), but account for almost half of new HIV cases
diagnosed in the 33 states with long-term, confidential name-based HIV
reporting.
The great
majority of people living with HIV in high-income countries, including the U.S.,
in need of antiretroviral therapy have access to it, so they are staying healthy
and surviving longer than infected people elsewhere. After the introduction of
antiretroviral therapy in 1995 and 1996, AIDS-related deaths fell steeply in the
U.S. until the late 1990s and then continued to decline more gradually—from
19,005 reported AIDS deaths in 1998 to 16,371 deaths in 2002. However, the rate
of death due to AIDS among African Americans was over twice as high as that
among whites in 2002. African Americans now have the poorest survival rates
among people diagnosed with AIDS-probably reflecting late diagnoses, often after
the disease has become symptomatic, and inadequate access to quality health care
services.
Progress
recently has been made in treating HIV infection. Current HIV therapies slow
multiplication of the virus and delay the onset of AIDS. They do not cure HIV
infection or AIDS. Considering costs, toxicities, difficulties in compliance
with complex drug regimens and the development of resistance to these drugs, we
believe such therapies will be available only to a small fraction of the
HIV-infected population. Accordingly, we believe they will probably have a
minimal impact on the worldwide epidemic. Vaccines are still the best method to
treat and prevent HIV infections.
In the
United States, the annual number of new HIV infections has decreased from a peak
of more than 150,000 in the mid-1980s and has stabilized since the late 1990s at
approximately 40,000. Populations of minority races and ethnicities are
disproportionately affected by the HIV epidemic. To reduce further the incidence
of HIV, CDC (US Centers for Disease Control and Prevention) announced the
Advancing HIV Prevention (AHP) initiative in 2003. This initiative comprises
four strategies: making HIV testing a routine part of medical care, implementing
new models for diagnosing HIV infections outside medical settings, preventing
new infections by working with HIV-infected persons and their partners, and
further decreasing prenatal HIV transmission.
Much has
been accomplished since the announcement of AHP in mid-2003. CDC was poised to
accomplish even more during 2005 and afterwards. Many new policies and plans
have been put in place and many new partners have been enlisted. The next few
years are critical to demonstrating the effect this enhanced HIV prevention
approach has on curbing the epidemic and helping us make new strides in reducing
the number of annual new infections and improving the lives of those persons who
are HIV positive.
DRUG
APPORVAL PROCESS IN CHINA, THE UNITED STATES, AND JAPAN
China
The SFDA
in China regulates the drug approval process. The process involves pre-clinical
in vitro laboratory and in vivo animal testing for toxicity and pharmacological
effects, and submission to the SFDA of an application for approval of clinical
studies. The provincial branch of the SFDA conducts an on-site review and
sampling process and accepts the application within a maximum of five days from
the date of submission. The Medicine Review Center of the SFDA then reviews the
technology and may request supplementary information from the applicant. The
Medicine Review Center completes its review within at least 100 days and the
SFDA then approves the clinical study or disapproves it. After the SFDA approves
the application for clinical trials, the applicant then presents the clinical
study plan and information concerning participating parties. The applicant may
then proceed with human clinical trial Phases I, II and III. Estimated
completion times for each phase includes six months for Phase I, 12 months for
Phase II and 12 to 18 months for Phase III (for therapeutic vaccines), and
longer time for preventive vaccines. The next step is to apply to the SFDA for
new drug certificates and approval for production and sale. This step of the
process takes approximately three to six months. The Fast Track policy allows
qualified applicants to enter the drug approval process immediately without
waiting in line for application. Thousands of new drugs ordinarily wait in line
for approval each year in China. We estimate that the total drug approval
process in China may take at least three years for the therapeutic HIV-PV
Vaccine I and five to seven years for the preventive HIV-PV Vaccine
I.
We plan
to submit our application for approval of clinical study to the SFDA in the
second half of 2009 when our laboratory facility meets the GMP standards and the
equipment has been installed fully. However, any delay in completion of the
installation of our laboratory equipment and compliance with GMP standards of
our facility would change the estimated date for submittal of our application
for approval of clinical study, and accordingly, increase the amount of time
estimated for SFDA approval. Moreover, encouraging results of pre-clinical tests
do not necessarily indicate positive results in clinical trials. The SFDA has
substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. We estimate the total cost to bring the therapeutic
HIV-PV Vaccine I to market in China is US$ 10 million, and an additional US$ 6
million will be needed to commercialize the preventive HIV-PV Vaccine I in this
market. We also anticipate that it will take about three years to conduct
clinical trials for the therapeutic vaccine, and it will take approximately five
to seven years to conduct clinical trials of the preventive HIV-PV Vaccine I and
test efficacy and safety of the drug in humans. We focus on the
commercialization of our vaccine candidates in China first because the estimated
cost of bringing the vaccine to market is much lower in China than those in the
United States or Japan.
United
States
The
principal regulatory authority with respect to prescription drug approvals in
the U.S. is the FDA. The FDA administers and executes requirements covering the
research, development, testing, approval, safety, effectiveness, manufacturing,
labeling and marketing of prescription drugs. Drug safety and efficacy are
evaluated pursuant to FDA regulations throughout the life of a product, and in
particular at four distinct stages:
o
preclinical safety assessment;
o
pre-approval safety or efficacy assessment in humans, or Phase I, II and III
clinical trials;
o safety
and efficacy assessment during FDA regulatory review, which is usually completed
in 10 to 12 months or six months for priority drugs; and
o
post-marketing safety surveillance.
The
results of the pre-clinical safety assessment together with manufacturing
information and analytical data are submitted to the FDA as part of the
Investigational New Drug Application, or IND, and are reviewed by the FDA before
the commencement of clinical trials. Unless the FDA objects to an IND by placing
the study on clinical hold, the IND will become effective 30 days following its
receipt by the FDA. If the FDA does place the study on clinical hold, the
sponsor must resolve all of the FDA's concerns before the study may proceed. The
IND application process may become extremely costly and substantially delay the
development of products.
Clinical
trials for drug candidates are typically conducted in three sequential phases
that may overlap. We estimate that the Phase I clinical trial will take
approximately one year to complete. Phase II clinical trial is estimated to take
up to two years, and the Phase III clinical trial program is estimated to take
approximately three years. A New Drug Application, or NDA, is the formal step
asking the FDA for marketing approval of a new drug in the U.S., which includes
all animal and human testing and analyses of the data, as well as information
about how the drug behaves in the body and how it is manufactured. After the NDA
is received, the FDA has 60 days to decide whether to file it so that it can be
reviewed. The FDA can refuse to file an application if it is incomplete. If the
FDA files the NDA, it then evaluates the safety, effectiveness and manufacturing
processes, which generally takes about 10 months, or six months for priority
drugs.
The FDA
permits accelerated approval of biological products that are intended to reduce
or prevent serious or life-threatening conditions. Under these requirements, new
drugs may be approved for use in humans based on evidence of effectiveness
derived from appropriate animal studies and any additional supporting data.
Products evaluated for effectiveness under these requirements are evaluated for
safety under preexisting requirements for establishing the safety of new drug
and biological products, including Phase I and Phase II clinical trials. Most
drugs to treat HIV have been approved under accelerated approval provisions,
with the company required to continue its studies after the drug is on the
market. We intend to pursue FDA review of our vaccine candidates under these
requirements, which would shorten the approval process. However, under
accelerated approval rules, if studies do not confirm the initial results, the
FDA can withdraw the approval.
The FDA may also withdraw the product
approval if compliance with pre- and post-market regulatory standards is not
maintained or if problems occur after the product reaches the marketplace. In
addition, the FDA may require post-marketing studies to monitor the effect of
approved products, and may limit further marketing of the product based on the
results of these post-market studies. The FDA has broad post-market regulatory
and enforcement powers, including the ability to levy fines and civil and
criminal penalties, suspend or delay issuance of approvals, seize or recall
products, and withdraw approvals. Foreign regulatory bodies also enforce
regulatory requirements.
We estimate that it will cost
approximately $300 million to commercialize our HIV Vaccine (HIV-PV vaccine I)
in the United States.
Japan
Japanese regulatory authorities
recognize clinical data developed outside of Japan. However, we will face two
particular challenges that make the drug approval process sometimes difficult
for drugs developed outside of Japan. First, the Japanese regulatory authorities
request bridging studies to verify that foreign clinical data are applicable to
Japanese patients. Second, Japanese regulatory authorities require the tests to
determine appropriate dosages for Japanese patients to be conducted on Japanese
patient volunteers. Due to these requirements, delays of two to three years in
introducing a drug developed outside of Japan to the Japanese market are
possible. In recent years, efforts have been made between the U.S. and Japan and
countries in other regions to achieve shorter development and registration times
for medicinal products by harmonizing the individual requirements of these three
regions. The project is called the International Conference on Harmonization
o
f Technical Requirements
for Registration of Pharmaceuticals for Human Use (ICH). For the foreseeable
future, however, approval must be obtained separately in each market. The
Japanese regulatory process for approval of new drugs is similar to the FDA
approval process, and the estimated time needed to bring a new drug to market in
each step of the process is substantially the same. Japan has a fast track
program to accelerate approval of new drugs, but each case is considered
differently. Accordingly, we cannot estimate the time needed to commercialize
our products in Japan at this time. We anticipate that the cost to bring our HIV
vaccine (HIV-PV Vaccine I) to market in Japan will be around US$200
million.
PRE-CLINICAL
TESTING
The
pre-clinical animal testing of our HIV vaccine (HIV-PV Vaccine I), was completed
in China pursuant to agreements with the Beijing Institute of Radiation
Medicine. We entered into an agreement with Beijing Institute of Radiation
Medicine on May 6, 2004 to conduct the pre-clinical studies of safety and
immunogenicity assessment of HIV-PV Vaccine I. These studies include acute
toxicity test, chronic toxicity test, immunogenicity and immunological test,
safety pharmacology and reproductive toxicity test. The information obtained
from toxicity tests is generally useful for determining doses for additional
studies, including Phase I clinical trials, providing preliminary identification
of target organs of toxicity and, occasionally, revealing delayed toxicity. The
term of this agreement was from May 6, 2004 to March 15, 2005, however the
parties have agreed to continue the testing pursuant to the agreement. The
aggregate amount for the testing is RMB 800,000 or US$96,734, under the terms of
the agreement. As of December 31, 2008, we have paid all the aggregate fee of
RMB 800,000 or US$96,734. Beijing Institute of Radiation Medicine also conducted
biodistribution and integration studies for HIV-PV Vaccine I pursuant to an
agreement that we entered into on May 12, 2004. Our aggregate fee for these
tests pursuant to the agreement is RMB 200,000, or $24,184. As of December 31,
2008, the remaining commitment was RMB 40,000 or US$5,476. We have entered into
confidentiality agreements with Beijing Institute of Radiation Medicine to
protect our proprietary interests.
Beijing
Institute of Radiation Medicine submitted to us the first part of the study
report at the end of January 2006. The studies showed that the vaccine at low,
medium and high doses did not have any side effects on the central nervous
system, the cardiovascular system or the respiratory system of the animals. No
significant differences on blood cells and serum biochemical parameters between
pre- and post-treatment groups were observed within 14 days after treatment. We
received the final complete result report in June 2006. Final results showed no
toxicity was observed in the animals orally administered with the HIV vaccine.
There is no indication that vaccine DNA integrates into host genome and passes
through placenta barrier. The immunogenicity study in monkeys shows that the
vaccine induces HIV-1 gp41-specific serum antibodies (IgG) and intestinal and
vaginal antibodies (sIgA). The sera, intestinal and vaginal washings neutralize
HIV-1 primary isolate in vitro. The vaccine also induces HIV-1 Gag-specific
T-cells in the vaccinated monkeys. We expect to submit the application for
clinical studies to the SFDA in the second half of 2009 after we are able to
produce sample vaccines in our GMP facility.
THE
MARKET FOR OUR HIV VACCINE
According
to Datamonitor, the worldwide market for HIV/AIDS drugs is expected to increase
from nearly $9.3 billion in 2007 to $15.1 billion by 2017. Although
industrialized countries currently share a disproportion amount on spending
related to HIV/AIDS, major international organizations, including the United
Nations, have and may continue to provide funds to developing countries in order
to effectively curb the spread of HIV/AIDS epidemic in these countries. The
Global Fund to Fight AIDS, Tuberculosis and Malaria was created to increase
resources to fight three of the world's most devastating diseases, and to direct
those resources to areas of greatest need. Since its creation in 2002, the
Global Fund has become the main source of finance for programs to fight AIDS,
tuberculosis and malaria, with approved funding of US$ 11.4 billion for more
than 550 programs in 136 countries. It provides a quarter of all international
financing for AIDS globally, two-thirds for tuberculosis and three quarters for
malaria.
The
Chinese government has increased its resources to fighting HIV/AIDS including
treatment to people living with HIV and additional resources for HIV prevention
programs targeting vulnerable groups. The Chinese government spent $499 million
from 2005 to 2007 to curb the spread of AIDS/HIV. In 2008, the Chinese
government increased its efforts by spending $228 million alone (RMB 1.55
billion) to fight HIV/AIDS.
We
anticipate that the initial market for our HIV vaccine will be primarily in
China. To our knowledge, currently there is no effective HIV/AIDS vaccine
commercially available either in China or other parts of the world. However, we
estimate the size of this market to be at least $350 million per annum, based on
the current HIV/AIDS population in China and the average cost of HIV/AIDS
treatment available in China, which is currently growing at more than 20% per
year.
B. COLON CANCER (CEA+)
VACCINE
Carcinoembryonic
antigen (CEA) is a 180-kDa cell surface glycoprotein extensively expressed in
the majority of colon, rectal, stomach and pancreatic cancers, 70% of non–small
cell lung cancers and 50% of breast cancers. Very low amounts of CEA can be
expressed in normal adult colonic epithelia. Due to its unique expression
pattern, it has been targeted as a tumor-associated antigen to induce
CEA-specific antibodies, CD4+ T helper cells, and CD8+ cytotoxic T cells to
treat CEA+ tumors.
Our colon
cancer vaccine is a Papillomavirus Pseudovirus containing a plasmid encoding CEA
that is to be given orally. Basically, we use the same technology platform
co-invented by our Chairman and CEO, Dr. Liang Qiao, to make our colon cancer
vaccine. We use bovine papillomavirus-like particles to package a plasmid
encoding human CEA. Oral immunization in animals induces CEA-specific mucosal
and systemic immune responses including intestinal CEA specific cytotoxic
T-lymphocyte (CTL) responses. Importantly, this vaccine shows significant
anti-tumor activities in a colon cancer model (CEA+Min+ mice).
We plan
to start pre-clinical trial for our colon cancer vaccine in the second half of
2009 and complete it by the first half of 2010 and plan to enter phase I
clinical trial in the second half of 2010. We expect that the clinical trials
will take three years to complete.
THE
MARKET FOR OUR COLON CANCER VACCINE
Globally,
colorectal cancer is the third leading cause of cancer in males and the fourth
leading cause of cancer in females. More than 1.2 million cases of colon cancer
are diagnosed worldwide each year with over 529,000 deaths, which demonstrates a
substantial medical need. In the United States alone, colorectal cancer is the
second most common cause of cancer, accounting for approximately 50,000 deaths
and approximately 20% of all deaths from cancer. The frequency of colorectal
cancer varies around the world. In countries where the people have adopted
western diets, the incidence of colorectal cancer is increasing. According to
the 2004 data from the National Program of Cancer Statistics (USCS), colon
cancer was the fourth leading cancer-related death in the United States, and
incidence was 149.5 per 100,000 population.
In China,
the incidence is around 130,000-150,000 per year, and the mortality is around
60,000-90,000 per year according to the data released by the Chinese government.
Most of the incidents occurred in middle to big cities, and the rate is
increasing. We estimate that the potential market for our colon cancer vaccine
candidate in China will be approximately $80 million per annum.
C.
HPV (CERVICAL CANCER) VACCINE
Over 30
different types of HPV can be sexually transmitted and infect the genitals of
both men and women. Cauliflower-like warts are the most commonly experienced
consequence of infection with HPV. In most cases, the immune system clears the
infection naturally, but in a small number of cases, and usually over many
years, HPV can cause changes in the cells of the cervix, anus and rectum which
can lead to cancer. Two types of HPV – types 16 and 18 - are considered
particularly high-risk for the development of cancer and are present in about
70% of all cases of cervical cancer. Before cancer develops, precancerous
lesions called cervical intraepithelial neoplasia (usually CIN for short) occur.
The equivalent disease process for anal cancer begins with high-risk HPV
infection and progresses through the three grades of precancerous lesions, known
as anal intraepithelial neoplasia (AIN 1-3).
Our HPV
vaccine candidate is an oral vaccine that will be used to prevent HPV types 16,
18, 31, 45 and 58 infection (cover >90% of HPV causing cervical cancer).
Above all, more Chinese women are infected by HPV type 58 than women in western
countries. Therefore, we believe that our HPV vaccine candidate will prevent
more infections than the current two HPV vaccines in the market if successfully
approved to market.
THE
MARKET FOR OUR HPV VACCINE
Datamonitor
sees a huge commercial opportunity in HPV vaccines, with annual sales of $1.4
billion, in teenage girls for the seven major markets by 2016 and a cumulative
catch-up opportunity in women aged 13-26 that could add up to over $17 billion
by 2016. According to the WHO report in 2003, 2.27 million women were affected
by cervical cancer, and around 500,000 new cases were reported each year. The
mortality rate is around 250,000 each year, and cervical cancer is the second
leading cause of women cancer-related deaths. The increased rate of cervical
cancer is about 2-3% each year, and the developing countries account for 80% of
the incidents. China alone has accounted for one-third of the incidents and
deaths of cervical cancer worldwide. We expect China to be a big potential
market for our HPV vaccine if we are able to receive the related approvals from
the SFDA. We estimate the annual market size for our HPV vaccine candidate will
be around $120 million in China.
INTELLECTUAL
PROPERTY
In April
2002, our wholly owned subsidiary, Bio-Bridge Science Corp., entered into an
agreement with Loyola University Chicago for an exclusive license of our core
technology related to papillomavirus pseudovius as a genetic vector and vaccine.
The license is royalty-bearing, covers the countries of the U.S., Japan and PRC,
and includes the right to grant sublicenses. This exclusive license gives us
rights to all uses in all fields under the papillomavirus technology. The term
of this license is perpetual or for the maximum period of time permitted by law,
unless terminated pursuant to the terms of the license. We may terminate the
license upon no earlier than 45 days and no later than 30 days notice to Loyola
University. Loyola University of Chicago may terminate this agreement only if
five years after U.S., Japanese and Chinese governments have granted permission
for its use as a drug, Bio-Bridge has made no effort to market the
product.
During
the license term, we will pay to Loyola a royalty of 4% from the net profit for
all uses of the licensed technology, including uses under sublicenses,
reimbursement of expenditures and legal fees in the amount of $3,000 in granting
the exclusive license for each country, and $50,000 in the event we are granted
a permit of production under the licensed technology in these countries. To
date, we have not generated any revenues from the sale of any products under
development, or any revenues from sublicenses, and accordingly, no royalty is
due under the agreement. We have reimbursed Loyola for expenditures and legal
fees in an aggregate amount of $9,000 in connection with granting the exclusive
license in each of the three countries. Since we have not been granted a permit
of production in these countries, no payment of $50,000 is due under the
agreement.
Under the
license agreement with Loyola, we have the right to file patent applications and
the right to initiate and control any actions concerning any claims of
infringement. Dr. Liang Qiao has applied for patents related to the
papillomavirus technology in China, Japan and the U.S. The patent was granted in
China on July 16, 2003 under patent publication number CN 133338A for a term of
20 years. The U.S. Patent and Trademark Office (PTO) issued the patent for
papilloma pseudovirus and preparation on April 12, 2005 under patent number
6,878,541 B2. U.S. patents generally have a term of 20 years from the date of
filing. This patent is due to expire in 2022. In the biotechnology industry, it
often takes several years from the date of filing of a patent application to the
date of a patent issuance, often resulting in a shortened period of patent
protection, which may adversely affect our ability to exclude competitors from
our markets. The patent application in Japan is pending. On February 17, 2005,
we filed a continuation application of the U.S. patent for broader protection of
the technology than the issued patent. Under the license agreement, Loyola owns
the patents related to the papillomavirus technology. During 2006, all the
claims in the second application were issued by the U.S. PTO. The second patent
number is 7,205,126.
This
license was followed by a second exclusive license agreement for the same
technology platform between our wholly owned subsidiaries Bio-Bridge Science
Corp. and Bio-Bridge Science (Beijing), effective as of June 2002. This
sublicense covers the territory of mainland China and expires in June 2012.
Under the terms of the sublicense, Bio-Bridge (Beijing) may use the technology
at no charge and has the right to file patent applications and enforce its right
to the technology. It is expected that the sublicense will be renewed at 2012 at
no additional cost.
LABORATORY/LAND
USE
On May
28, 2003, we entered into a land use agreement with Beijing Airport High-Tech
Park Co. Ltd, or BTA, regarding the use of the 2.8 acres of land, on which we
are currently building our research laboratory to conduct the clinical trial of
our HIV vaccine. This agreement expires in 2053. Under the Chinese law, there is
no private ownership of land, and accordingly, we do not own this land. Land use
rights can be purchased and sold under Chinese law.
Under the
current Chinese law, our land use right may be extended for an additional 50
years for a one-time fee of approximately $78,780. We have paid the entire land
use price to BTA pursuant to the agreement. To date, the construction of the
major body of the facility has been completed. Once the equipment is installed,
we expect that the lab will meet the GMP standard and will be eligible to
conduct the clinical trials under the current China SFDA rules. The facility has
53,753 square feet of usable space.
COMPETITION
To our
knowledge, currently there is no effective HIV vaccine commercially available to
patients in the world. We are currently focused on the commercial development of
an HIV vaccine. The pharmaceutical industry in which we participate is highly
competitive. We face intense competition from a number of companies in the
pharmaceutical industry, including Chiron Corp (now acquired by Novartis as a
business unit), Merck & Co., Inc., Aventis Pasteur, among others. These
companies are conducting or have completed Phase I or Phase II clinical trials
of HIV vaccines. In addition, several of these companies and others are
developing new drug therapies and other treatments that may mitigate the impact
of the disease. In February 2004, Vaxgen announced that it failed the AIDS phase
III clinical trial. Also, in September of 2007, Merck announced that its V520
vaccine had failed to prevent infection or to reduce the amount of the virus in
the bloodstream.
There are
currently two available HPV vaccines in the market - Merck’s Gardasil and
GlaxoSmithKline’s Cervarix. Merck’s Gardasil was approved in 2006 in several
countries. Gardasil is a quadrivalent, recombinant vaccine designed to reduce
infection due to HPV types 6, 11, 16 and 18 and trials have already shown it to
be effective for girls and women aged 9 to 26 years in the prevention of
cervical cancer, precancerous or dysplastic lesions and genital warts. As of
July 2008, GlaxoSmithKline had won approval from the European Commission for its
cervical cancer vaccine, Cervarix, and it was cleared for sale in 64 countries
and will compete with Gardasil. Cervarix has not been approved to sell in the
United States and is still waiting for FDA approval. Cervarix is aimed to reduce
infections due to HPV strains 16 and 18. The biggest difference between the two
vaccines is that Cervarix is specifically designed to target two types of the
virus, types 16 and 18, while Gardasil targets four types, two of which induce
cancer and the other two induce genital wards.
Our HPV
vaccine candidate is an oral vaccine that will be used to prevent HPV types 16,
18, 31, 45 and 58 infection (cover >90% of HPV causing cervical cancer).
Above all, more Chinese women are infected by HPV type 58 than women at western
countries. Therefore, our vaccine will prevent more HPV infections. Although
Gardasil and Cervarix are approved in some countries to sell, they have not yet
been approved in China. Also, our vaccine price and production cost will be
lower than our international competitors, thus, we believe our HPV vaccine will
be very competitive if we succeed in commercializing it.
To our
knowledge, currently there is no effective colon cancer vaccine commercially
available in the market worldwide. We have some competitors in this field, such
as Sanofi Pasteur’s ALVAC, Antigenics’s Oncophage, and Sinofi Aventis/Oxford
Biomedica’s Trovax. Of these, Trovax is in phase III clinical
trial.
These
companies are all substantially larger and more established than we are and have
significantly greater financial resources and experience in developing and
marketing drugs than we do. Companies in this industry compete based on
technological leadership and superiority, speed to market, improved patient
outcomes, effective marketing and distribution and acceptance by medical
professionals, and therefore, continually seek to develop products that provide
benefits that are similar to the product being developed by us. Although there
are companies that are developing competing vaccines, we believe that we can
prevent others from developing a competing vaccine using our technology. We
intend to explore potential collaborative relationships with Chinese
pharmaceutical companies and other companies with vaccine sales experience to
market our products. By developing such strategic relationships, we believe that
we can enhance our competitive position in this competitive
marketplace.
ENVIRONMENTAL
REGULATION
The
construction of our laboratory facility in China is subject to extensive
inspection and evaluation by regulatory agencies in China, including Beijing
Tianzhu Export Processing Zone Management Commission and Beijing Municipal
Planning Commission. We retained the Environmental Impact Assessment Center at
China Agriculture University to conduct the environmental impact assessment of
the project as required by Chinese law. The environmental assessments were
provided with regard to the construction of the laboratory facility. These
assessments found no potential environmental hazard resulting from our research
and development efforts. The assessment confirms our compliance with the
environmental regulations and was accepted by the EPA of Beijing Municipal
Government.
SCIENTIFIC
ADVISORY BOARD
Our
Scientific Advisory Board provides specific expertise in areas of research and
development relevant to our business and meets with our management personnel
from time to time to discuss our present and long-term research and development
activities. Scientific Advisory Board members include:
o Dr.
Mitchell Kronenberg PhD, is an internationally recognized leading expert on NKT
cells and mucosal immunology. He currently is the Scientific Director and
President of La Jolla Institute for Allergy & Immunology (LIAI) and Adjunct
Professor of Biology at the University of California, San Diego. He has over 230
highly cited publications, many in the most influential scientific journals. He
is currently on the Finance Committee of the American Association of
Immunologists and serves as the Deputy Editor for the Journal of Immunology. He
was named a Roy and Robert Kroc Distinguished Visiting Professor of Immunology
and Medicine by the University of California, Davis in 2000, and was a Burroughs
Wellcome Fund Visiting Professor at Harvard University in 2002.
o
Katherine L. Knight, PhD, Professor and Chairperson, Department of Microbiology
and Immunology, Stritch School of Medicine, Loyola University Chicago. Dr.
Knight is a well known expert in immunology.
We
currently have 46 employees, including four in clinical study preparatory work,
six in research and development, eight are management/administration staff, one
for regulatory affairs, one for public relations, twenty on our manufacturing
and general affairs staff and six on our sales team.
EXECUTIVE
OFFICERS OF THE REGISTRANT
NAME
|
|
AGE
|
|
INITIAL
ELECTION OR POSITION HELD
|
|
APPOINTMENT
DATE
|
Liang
Qiao, M.D.
|
|
49
|
|
Chairman
of the Board, Chief Executive Officer and Secretary
|
|
October
26, 2004
|
Wenhui
Qiao
|
|
39
|
|
President
and Director
|
|
October
26, 2004
|
Chuen
Huei (Kevin) Lee
|
|
38
|
|
Chief
Financial Officer
|
|
October
27, 2004
|
Toshihiro
Komoike
|
|
56
|
|
Vice
President and Director
|
|
October
26, 2004
|
Isao
Arimoto
|
|
60
|
|
Director
|
|
October
26, 2004
|
Shyh-Jing
(Philip) Chiang
|
|
48
|
|
Director
|
|
October
26, 2004
|
Trevor
Roy
|
|
62
|
|
Director
|
|
March
23, 2007
|
Cheung
Hin Shun Anthony
|
|
54
|
|
Director
|
|
March
23, 2007
|
Mr.
Wenhui Qiao and Dr. Liang Qiao are brothers. There are no other family
relationships among the executive officers and directors.
Our
executive officers are appointed by our board of directors and serve at the
board's discretion. There is no arrangement or understanding between any of our
directors or executive officers and any other person pursuant to which any
director or officer was or is to be selected as a director or officer, and there
is no arrangement, plan or understanding as to whether non-management
stockholders will exercise their voting rights to continue to elect the current
board of directors. There are also no arrangements, agreements or understandings
to our knowledge between non-management stockholders that may directly or
indirectly participate in or influence the management of our affairs. None of
our directors or executive officers has, during the past five
years:
o been
convicted in a criminal proceeding and none of our directors or executive
officers is subject to a pending criminal proceeding,
o been
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities, futures, commodities or banking activities,
or
o been
found by a court of competent jurisdiction (in a civil action), the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended, or vacated.
BUSINESS
EXPERIENCE
DR. LIANG
QIAO is one of our co-founders and has served as our chairman of the board of
directors, chief executive officer and secretary since October 2004. Since
February 2002, Dr. Qiao has served as director of our wholly owned subsidiary
Bio-Bridge Science Corp. and has served as its chief executive officer and
chairman of the board since May 2004. Since July 2000, Dr. Qiao has served as an
Associate Professor at Loyola University Chicago, Strich School of Medicine.
From May 1994 to June 2000, Dr. Qiao was an Assistant Professor at Loyola
University Chicago, Strich School of Medicine. Dr. Qiao also worked as a
research scholar at the German Cancer Research Center in Heidelberg, Germany.
Dr. Qiao received a B.M. from Henan Medical University in China and an M.D. from
Lausanne University in Switzerland.
MR.
WENHUI QIAO is one of our co-founders and has served as our president and
director since October 2004. Mr. Qiao has served as director of Bio-Bridge
Science Corp. since February 2002 and its president since May 2004. From July
1999 to December 2001, Mr. Qiao served as chief executive officer of Dongfang
Huaying Anti- Radiation Company, which was located in Henan Province, China.
From 1994 to 1998, he served as the chief representative for Henan Province in
Japan. Mr. Qiao received a B.A. in Economics from Doshisha University in
Japan.
MR. CHUEN
HUEI (KEVIN) LEE, CFA, FRM, has served as our chief financial officer since
October 2004. Mr. Lee also has served as chief financial officer of our
Bio-Bridge Science Corp. subsidiary since May 2004. From October 2001 to June
2004, he served as Senior Vice President of China Metropolitan Ventures in
Beijing and Shanghai, China. From February 2000 to August 2001, Mr. Lee served
as Senior Manager of Grand Cathay Securities Corporation in Taipei, Taiwan. From
September 1998 to February 2000, he was the Manager of American Express Bank's
Taipei treasury department. Mr. Lee received a B.A. from National Taiwan
University and an M.B.A. from Columbia University. He is a chartered financial
analyst (CFA) charter holder and a certified financial risk manager
(FRM).
MR.
TOSHIHIRO KOMOIKE has served as our director since October 2004. Mr. Komoike
also has served as director of our Bio-Bridge Science Corp. subsidiary since May
2004. From 1998 to 2004, Mr. Komoike served as Senior Manager of Sumisho Textile
Company in Japan. He received a degree in Commerce from Kansai University in
Japan. He is a vice president and our Japan representative.
MR. ISAO
ARIMOTO is one of our co-founders and has served as our vice president and
director since October 2004. Mr. Arimoto also has served as vice president of
our Bio-Bridge Science Corp. subsidiary since May 2004 and its director since
February 2002. Since February 1975, Mr. Arimoto has served as chief executive
officer of Chugoko-Knit Company in Japan. He has 30 years of business experience
as an entrepreneur in Japan and China.
MR.
SHYH-JING (PHILIP) CHIANG has served as our director since October 2004. Mr.
Chiang also has served as director of our Bio-Bridge Science Corp. subsidiary
since February 2002. Since June2008, Mr. Chiang has served as investment banking
head of Daiwa Securities SMBC-Cathay Co. in Taipei, Taiwan. From June 2004 to
May 2008, Mr. Chiang served as head of investment banking at Nomura Securities
in Taipei, Taiwan. From March 2004 to May 2004, he served as chief
representative of Rabobank's office in Taipei. From June 2001 to May 2004, he
was director of investment banking at ING Baring in Taipei. Mr. Chiang served as
executive vice president of Grand Cathay Securities from August 2000 to June
2001. From September 1996 to April 2000, he served as vice president of Credit
Agricole Indosuez. Mr. Chiang received a B.A. from Tunghai University in Taiwan
and an M.B.A. from the University of Missouri.
MR.
TREVOR ROY was a graduate of the University of Sydney. Mr. Roy's initial career
was in Education where he was a teacher and administrator at both High School
and Tertiary levels. Then in a business career spanning 30 years, Mr. Roy, with
his investment and management experience, both in his home country of Australia
and internationally, has been in a wide range of industries including
Rural/agricultural, Theatrical, Marketing and Promotions, Food manufacturing and
distribution, Medical, and Telephony and communications. For the past
18 years, Mr. Roy has been CEO (now Chairman) of the Creata Group. He has been
instrumental in establishing its business as a global provider of marketing and
promotional programs in 18 offices in 12 countries.
Mr.
CHEUNG HIN SHUN ANTHONY Mr. Cheung's early career was in Finance, Accounting and
Auditing with John B P Byrne & Co., now Grant Thornton in Hong Kong. This
formed the foundation of a successful business management and investment career
over 25 years that now includes: ownership of manufacturing facilities in Hong
Kong and China (Dongguan) with in excess of 10,000 employees producing over 200
million consumer products annually; ownership of a Class 2 hospital in China
(Fujian); and (commercial) real estate investments and developments in Hong
Kong, China and the United States.
ITEM 1A RISK
FACTORS
WE
HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT OF $11,034,931 AS OF
DECEMBER 31, 2008, AND WE MAY NEVER ACHIEVE PROFITABILITY.
We have
yet to establish any history of profitable operations. We have had insignificant
revenues since our inception in February 2002 before we acquired XHBD on July
31, 2008. We incurred net losses of $3,538,899 in 2008 and $1,600,792 in 2007.
These losses have resulted principally from research and development and general
and administrative expenses. To date, we have engaged primarily in research,
development and pre-clinical activities of our vaccine candidates. We anticipate
that we will continue to incur substantial operating losses based on projected
research and development and other operating costs for an indefinite period of
time due to the significant costs associated with the development of our
products. Even though we acquired XHBD, the contribution of net incomes and cash
flows from XHBD is still not significant enough to support our operations for
vaccine development. Our profitability will still require the successful
development and commercialization of our HIV-PV Vaccine I, HPV vaccine, colon
cancer vaccine and other product candidates. We may not be able to successfully
develop and commercialize our vaccine candidates and generate enough revenues
and net incomes to achieve profitability.
WE
STILL NEED TO RAISE MORE FUNDS FOR OUR DEVELOPMENT PLANS. IF WE ARE UNABLE TO
RAISE MORE FUNDS, OUR DEVELOPMENT PLANS MAY BE POSTPONED OR
CURTAILED.
We must
raise more money to fund the cost of developing, testing and obtaining
regulatory approval of our vaccine candidates. To date, we have funded our
operations through equity offerings. We will continue to raise money through
public or private sales of our securities, debt financing or short-term bank
loans, or a combination of the foregoing.
Although
XHBD provides us with some cash flows, we will need to secure funding of our
capital needs to develop and commercialize our core vaccine candidates. We may
still need more capital to fully implement our business, operating and
development plans. However, additional funding may not be available on favorable
terms to us, or at all. To the extent that money is raised through the sale of
our securities, the issuance of those securities could result in dilution to our
existing shareholders. If we raise money through debt financing or bank loans,
we may be required to secure the financing with all or part of our business
assets, which could be sold or retained by the creditor should we default in our
payment obligations. If we fail to raise sufficient funds, we would have to
curtail or cease operations.
AS
A COMPANY IN THE EARLY STAGE OF DEVELOPMENT WITH AN UNPROVEN BUSINESS STRATEGY,
OUR LIMITED HISTORY OF OPERATIONS MAKES EVALUATION OF OUR BUSINESS AND FUTURE
PROSPECTS DIFFICULT.
We have
had a limited operating history and are at an early stage of development. Since
our formation in February 2002, we have not yet demonstrated any ability to
commercialize our vaccine candidates. As a result, it is difficult to evaluate
our prospects, and our future success is more uncertain than if we had a longer
or more proven history of operations.
OUR
INTELLECTUAL PROPERTY RIGHTS MAY NOT PROVIDE MEANINGFUL PROTECTION FOR OUR
PRODUCTS UNDER DEVELOPMENT, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY, OR VERY SIMILAR TECHNOLOGY, AND COULD PREVENT US FROM DEVELOPING OR
MARKETING OUR PRODUCT CANDIDATES.
We rely
on patent and trade secret laws to limit the ability of others to compete with
us using the same or similar technology in the U.S. and other countries.
However, as described below, these laws afford only limited protection and may
not adequately protect our rights to the extent necessary to sustain any
competitive advantage we may have. The laws of some foreign countries do not
protect proprietary rights to the same extent as the laws of the U.S., and many
companies have encountered significant problems in protecting their proprietary
rights abroad. These problems can be caused by the absence of adequate rules and
methods for defending and enforcing intellectual property rights.
We will
be able to protect our technology from unauthorized use by third parties only to
the extent that they are covered by valid and enforceable patents or are
effectively maintained as trade secrets. The patent positions of companies
developing drugs for pharmaceutical, biotechnology and biomedical industries,
including our patent position, generally are uncertain and involve complex legal
and factual questions, particularly as to questions concerning the
enforceability of such patents against alleged infringement. The biotechnology
patent situation outside the U.S. is even more uncertain. Changes in either the
patent laws or in interpretations of patent laws in the U.S. and other countries
may therefore diminish the value of our intellectual property. Moreover, our
patent and patent applications may not be sufficiently broad to prevent others
from practicing our technologies or from developing competing products. We also
face the risk that others may independently develop similar or alternative
technologies or design around our patented technologies.
We
control a license with Loyola University of Chicago through an issued patent.
However, the patent on which we rely may be challenged and invalidated. The
patent that we have licensed from Loyola covering our technology was issued by
the U.S. Patent and Trademark Office on April 12, 2005 and has a term of 20
years from the date of filing. This patent will not expire until 2022. We filed
a continuation application of this issued patent with the Patent and Trademark
Office to seek broader protection on our technology than the protection provided
by the original patent, and the claims were all allowed. The patent in China was
issued by the State Intellectual Property Office in July 2003.
We have
taken measures to protect our proprietary information. These measures, however,
may not provide adequate protection of our trade secrets or other proprietary
information. We seek to protect our proprietary information by entering into
confidentiality agreements with employees, collaborators and consultants.
Nonetheless, employees, collaborators or consultants may still disclose our
proprietary information, and we may not be able to protect our trade secrets in
a meaningful way. If we lose employees, we may not be able to prevent the
disclosure or use of our technical knowledge or other trade secrets by those
former employees despite the existence of nondisclosure and confidentiality
agreements and other contractual restrictions to protect our proprietary
technology. In addition, others may independently develop substantially
equivalent proprietary information or techniques or otherwise gain access to our
trade secrets.
OUR
RIGHTS TO THE USE OF TECHNOLOGY LICENSED TO US BY A THIRD PARTY ARE NOT WITHIN
OUR CONTROL AND WITHOUT THIS TECHNOLOGY OUR PRODUCTS UNDER DEVELOPMENT MAY NOT
BE SUCCESSFUL AND OUR BUSINESS PROSPECTS COULD BE HARMED.
We rely
on a license to use technologies that are material to our business. We do not
own the patents that underlie this license. Our rights to use these technologies
and employ the inventions claimed in the licensed patents are subject to the
continuation of and compliance with the terms of that license and the continued
validity of these patents. Our license from Loyola University Chicago provides
us with exclusive rights within the United States, Japan and China, including
the right to enforce the patents licensed to us, but the scope of our rights
under this license may become subject to dispute by our licensor or third
parties. This license contains due diligence obligations, as well as provisions
that allow the licensor to terminate the license upon specific
conditions.
Although
we have other vaccine candidates, HIV-PV Vaccine I is our first product
candidate. We do not know whether the HIV-PV Vaccine I will be effective in
preventing or treating HIV infection. Although our research and pre-clinical
trial have indicated that the HIV-PV Vaccine I technology contains a pseudovirus
that induces both mucosal and systemic neutralizing antibodies and cytotoxic
T-cell responses that may be used to prevent and treat HIV infection, other
elements may be necessary to develop an effective vaccine. Also, we do not know
whether other vaccine candidates, such as HPV vaccine or colon cancer vaccine,
will be effective or not. Our success will depend primarily on the success of
our vaccine candidates. In particular, we must be able to:
o
complete pre-clinical trials on laboratory animals and obtain regulatory
approvals to proceed with clinical trials of vaccine candidates;
o
establish the safety, purity, potency and efficacy of vaccine candidates in
humans;
o obtain
regulatory approvals for our vaccine candidates; and
o
successfully commercialize vaccine candidates.
WE MAY NOT BE ABLE TO OBTAIN
REGULATORY APPROVAL TO MARKET OUR PRODUCTS IN CHINA, THE UNITED STATES OR JAPAN
ON A TIMELY BASIS, OR AT ALL, TO COMMERCIALIZE OUR VACCINE
CANDIDATES
.
Clinical
testing is a long, expensive and uncertain process. If the Chinese government
approves our application for clinical testing, we cannot assure you that the
data collected from our clinical trials will be sufficient to support approval
of HIV-PV Vaccine I or other vaccine candidates by the SFDA or regulatory
authorities in Japan and the United States, that the clinical trials will be
completed on schedule or, even if the clinical trials are successfully completed
and on schedule, that the SFDA or other regulatory authorities in the United
States or Japan will ultimately approve HIV-PV Vaccine I or other vaccines for
commercial sale.
To gain
SFDA regulatory approval for the sale of HIV PV Vaccine I or other vaccine
candidates in China, we believe, based on the SFDA's Fast Track policy that we
will need to complete the following five steps:
o
pre-clinical laboratory and animal testing;
o the
submission to the SFDA of an application for approval of clinical study, which
must be effective before clinical trials may commence;
o
adequate Phase I, II and III clinical studies to establish the safety, purity
and potency of the product candidate and demonstrate how it behaves in the human
body;
o obtain
Drug Production Quality Control Procedure or GMP certification;
o the
submission of an application to the SFDA for Drug Registration Document, and
obtain new drug approval certificate; and
o sales
for pre-production drugs in the market and phase IV clinical study.
We
estimate that the total drug approval process in China may take over three years
for therapeutic vaccine and over five to seven years for preventative vaccine
for HIV PV Vaccine I. Also, we expect it would take over three years for HPV
vaccine and colon cancer vaccine to finish the approval process. However, the
SFDA has substantial discretion in the drug approval process and may require us
to conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed due to changes
in government regulation, future legislation or administrative action or changes
in SFDA policy that occur prior to or during our regulatory review. Delays or
failure to obtain regulatory approvals may:
o delay
or prevent commercialization of, and our ability to derive product revenues
from, our product candidates;
o impose
significant costs on us to comply with such laws and regulations;
and
o
diminish any competitive advantage the we may otherwise have.
In the
United States and Japan, we must receive approval from the appropriate
regulatory authorities before we can commercialize our vaccine candidates. We
anticipate that the regulatory approval to market our vaccine candidates in the
United States and Japan will vary and may differ from that required by the SFDA.
We may incur significant costs to comply with government regulations in the
future, and such regulations may have a material adverse effect on
us.
DELAY
IN COMMENCEMENT AND COMPLETION OF OUR CLINICAL TRIALS COULD JEOPARDIZE OUR
ABILITY TO OBTAIN REGULATORY APPROVAL TO MARKET OUR VACCINE CANDIDATES IN CHINA,
THE UNITED STATES AND JAPAN ON A TIMELY BASIS.
Our
clinical trials could be delayed for a variety of reasons,
including:
o
availability of funds;
o
unforeseen safety issues;
o
determination of dosing issues;
o
lower-than-anticipated retention rate of volunteers in the trial;
o serious
adverse events related to the vaccine;
o
inability to monitor patients adequately during or after treatment;
or
o
different interpretations of our pre-clinical and clinical data, which can lead
initially to inconclusive results.
Our
inability to commence or complete our clinical trials in a timely manner could
jeopardize our ability to obtain regulatory approval.
THE
RESULTS OF OUR CLINICAL TRIALS MAY NOT SUPPORT OUR VACCINE CANDIDATE
CLAIMS.
Even if
our clinical trials are commenced and completed as planned, their results may
not support our vaccine candidate claims. Success in pre-clinical testing and
early phases of clinical trials does not ensure that later phases of clinical
trials will be successful, and the results of later phases of clinical trials
may not replicate the results of prior clinical trials and pre-clinical testing.
The clinical trial process may fail to demonstrate that our vaccine candidates
are safe for humans and effective for indicated uses. This failure would cause
us to abandon a vaccine candidate and may delay or prevent development of other
vaccine candidates.
ALTHOUGH
OUR LABORATORY AND MANUFACTURING FACILITY IN CHINA IS COMPLETED, WE MAY NOT BE
SUCCESSFUL AT MANUFACTURING OR SUPPLYING OUR VACCINE CANDIDATES IN NECESSARY
QUANTITIES, OR AT ALL.
In May
2003, we purchased a right to use for 50 years land located in the Shunyi
District of Beijing, China for the purpose of building and operating a
laboratory and manufacturing facility in China. To date, we have completed the
construction of the laboratory and manufacturing facility. However,
if:
o we are
unable to raise the necessary funding for purchasing equipment; or
o
approval of the facility in compliance with GMP requirements is not
obtained
We will
be unable to proceed to produce our vaccine candidates. Our facility may not
pass domestic or foreign regulatory approvals or be able to manufacture our
vaccine candidates in commercial quantities, or at all, or we may not be able to
manufacture our vaccine candidates on a cost-effective basis.
WE
DEPEND ON KEY MANAGEMENT EMPLOYEES FOR OUR FUTURE SUCCESS. IF WE LOSE OUR KEY
MANAGEMENT EMPLOYEES, OUR ABILITY TO OBTAIN FINANCING, DEVELOP OUR PRODUCT
CANDIDATES, CONDUCT CLINICAL TRIALS OR EXECUTE OUR BUSINESS STRATEGY COULD BE
SUBSTANTIALLY HARMED AND THE VALUE OF THE STOCK YOU OWN COULD BE ADVERSELY
AFFECTED.
Our
future success is substantially dependent on the efforts of our senior
management and scientific staff, particularly our chief executive officer, Liang
Qiao, MD. These individuals have played a critical role in developing the
vaccine and conducting pre-clinical trials, raising financing and negotiating
business development opportunities. The loss of the services of these key
members of our senior management and scientific staff may prevent us from
achieving our business objectives, and the value of our stock you own could be
adversely affected. We do not have employment agreements with our senior
management. We do not maintain key person life insurance for any of our key
personnel.
WE
CURRENTLY HAVE NO MANUFACTURING FACILITY AND NO MANUFACTURING
EXPERIENCE.
We have
no manufacturing experience. Pre-clinical study of the vaccine on laboratory
animals is being conducted through the collaboration between us and Loyola
University of Chicago and Beijing Institute of Radiation Medicine, respectively.
We have completed most of our manufacturing facility in China to produce HIV-PV
Vaccine I for clinical trials and on a commercial scale, and are in the process
of purchasing equipment to allow us to manufacture our vaccine samples. However,
we may not have adequate manufacturing capacity to produce HIV-PV Vaccine I on a
commercial scale. Our lack of manufacturing experience could delay
commercialization of our vaccine candidates, entail higher costs and result in
our being unable to effectively sell our products.
WE
HAVE NO EXPERIENCE IN MARKETING, SELLING OR DISTRIBUTING PRODUCTS AND NO
INTERNAL CAPABILITY TO DO SO. OUR LACK OF SALES AND MARKETING PERSONNEL AND
DISTRIBUTION RELATIONSHIPS MAY IMPAIR OUR ABILITY TO GENERATE
REVENUES.
We have
no sales, marketing or distribution capability. We do not anticipate having the
resources in the foreseeable future to allocate to the sales and marketing of
our product candidates under development. Our future success depends, in part,
on our ability to enter into and maintain such collaborative relationships, the
collaborator's strategic interest in the products under development and such
collaborator's ability to successfully market and sell any such products. We
intend to pursue collaborative arrangements regarding the sales, marketing and
distribution of our products, however, we may not be able to establish marketing
or distribution arrangements with collaborators in a timely manner or on
favorable terms, or at all.
WE
FACE COMPETITION FROM SEVERAL COMPANIES WITH GREATER FINANCIAL, PERSONNEL AND
RESEARCH AND DEVELOPMENT RESOURCES THAN OURS, WHICH MAY HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
The goal
of developing an HIV vaccine, HPV vaccine and colon cancer vaccine is an area of
interest to competitors, and several companies with substantially greater
financial, personnel and research and development resources than ours have
announced that they are trying to develop vaccine in our area and are planning,
conducting or have completed some stages of clinical trials. Although our
research has indicated that HIV-PV Vaccine I contains a pseudovirus that induces
both mucosal and systemic neutralizing antibodies and cytotoxic T-cells that may
be used to prevent and treat HIV infection, other elements may be necessary to
develop an effective vaccine, and several of our competitors are working to
develop vaccines that affect the immune system differently. In addition, several
of these companies are working to develop new drug cocktails and other
treatments that may mitigate the impact of the disease. Even if we commence and
complete our clinical trials, obtain SFDA and other required regulatory
approvals and commercialize HIV-PV Vaccine I, our competitors may develop
vaccines or treatments that are as or more effective, or less complex or less
expensive to produce, than HIV-PV Vaccine I. Also, Merck’s Gardasil and GSK’s
Cervarix have been approved in some countries to prevent cervical cancer, and
this may increase our difficulty to market our HPV vaccine if approved since
these competitors have first mover advantage.
ADVERSE
PUBLICITY REGARDING THE SAFETY OR SIDE EFFECTS OF OUR VACCINES COULD HARM OUR
BUSINESS AND CAUSE OUR STOCK PRICE TO FALL.
There may
be potential side effects or safety concerns in connection with clinical trials
of vaccine candidates. If our studies or other researchers' studies were to
raise or substantiate concerns over the safety or side effects of our vaccine
candidates or vaccine development efforts generally, our reputation and public
support for our future clinical trials could be harmed, which would harm our
business and could cause our stock price to fall.
OUR
USE OF HAZARDOUS MATERIALS, CHEMICALS AND VIRUSES REQUIRE US TO COMPLY WITH
REGULATORY REQUIREMENTS AND EXPOSES US TO POTENTIAL LIABILITIES.
Our
research and development activities involve the controlled use of hazardous
materials, chemicals and viruses. We are subject to federal, state, local and
foreign laws governing the use, manufacture, storage, handling and disposal of
such materials. Although we believe that our safety procedures for the use,
manufacture, storage, handling and disposal of such materials comply with the
standards prescribed by the federal, state, local and foreign regulations, we
cannot eliminate the risk of accidental contamination or injury from these
materials. In the event of such an accident, we could be held liable for
significant damages or fines. These damages could exceed our resources and any
applicable insurance coverage. In addition, we may be required to incur
significant costs to comply with regulatory requirements in the
future.
WE
MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS AND INCUR SUBSTANTIAL
LIABILITIES, WHICH COULD REDUCE DEMAND FOR HIV-PV VACCINE I OR LIMIT
COMMERCIALIZATION OF OUR VACCINE CANDIDATES.
We will
face an inherent risk of exposure to product liability suits in connection with
vaccine candidates, vaccines to be tested in human clinical trials and products
that may be sold commercially. We may become subject to a product liability suit
if our vaccine candidates cause injury, or if vaccinated individuals
subsequently become infected with HIV or cancers. We currently do not carry
clinical trial insurance or product liability insurance. Although we intend to
obtain clinical trial insurance prior to commencement of any clinical trials, we
may not be able to obtain insurance at a reasonable cost, if at all. Regardless
of merit or eventual outcome, product liability claims may result in decreased
demand for a vaccine, injury to our reputation, withdrawal of clinical trial
volunteers and loss of revenues.
POLITICAL
OR SOCIAL FACTORS MAY DELAY OR REDUCE REVENUES BY DELAYING OR IMPAIRING OUR
ABILITY TO MARKET OUR VACCINES.
Products
developed for use in addressing the HIV/AIDS epidemic, cervical cancer or colon
cancer have been, and will continue to be, subject to competing and changing
political and social pressures. The political and social response to the
HIV/AIDS epidemic, cervical cancer, and colon cancer have been highly charged
and unpredictable. Political or social pressures may delay or cause resistance
to bringing our product to market or limit pricing of our product.
RISKS
RELATED WITH OWNERSHIP OF OUR SECURITIES
THE
TRADING PRICE OF OUR COMMON STOCK MAY DECREASE DUE TO FACTORS BEYOND OUR
CONTROL. THIS MAY RESULT IN SUBSTANTIAL LOSSES TO INVESTORS IF THEY ARE UNABLE
TO SELL THEIR SHARES AT OR ABOVE THEIR PURCHASE PRICE.
The
trading price of our common stock is subject to significant fluctuations due to
a number of factors, including:
o our
status as a development stage company with a limited operating history and no
revenues to date, which may make risk-averse investors more inclined to sell
their shares on the market more quickly and at greater discounts than would be
the case with the shares of a seasoned issuer in the event of negative news or
lack of progress;
o
announcements of new products by us or our competitors;
o the
timing and development of our products;
o general
and industry-specific economic conditions;
o actual
or anticipated fluctuations in our operating results;
o our
capital commitments; and
o the
loss of any of our key management personnel.
WE
DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS IN THE FORESEEABLE FUTURE, WHICH MAY
REDUCE YOUR RETURN ON AN INVESTMENT IN OUR COMMON STOCK.
We have
never had earnings, but we plan to use any future earnings to fund our
operations. We do not plan to pay any cash dividends in the foreseeable future.
We cannot guarantee that we will, at any time, generate sufficient surplus cash
that would be available for distribution as a dividend to the holders of our
common stock. Therefore, any return on your investment would derive from an
increase in the price of our stock, which may or may not occur.
WE
MAY RAISE ADDITIONAL CAPITAL THROUGH A SECURITIES OFFERING THAT WOULD DILUTE
YOUR OWNERSHIP INTEREST AND VOTING RIGHTS.
Our
certificate of incorporation currently authorizes our board of directors to
issue up to 100,000,000 shares of common stock and 5,000,000 shares of preferred
stock. On December 31, 2008, our board of directors will be entitled to issue up
to 65,068,991 additional common shares and 1,000,000 additional preferred
shares. The power of the board of directors to issue shares of common stock,
preferred stock or warrants or options to purchase shares of our stock is
generally not subject to shareholder approval.
We
require substantial capital to fund our business. If we raise additional funds
through the issuance of equity, equity-related or convertible debt securities,
these securities may have rights, preferences or privileges senior to those of
the holders of our common stock. The issuance of additional common stock or
securities convertible into common stock by our board of directors will also
have the effect of diluting the proportionate equity interest and voting power
of holders of our common stock.
OUR
PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS CONTINUE TO OWN A
SIGNIFICANT PERCENTAGE OF OUR STOCK, AND AS A RESULT, THE TRADING PRICE FOR OUR
SHARES MAY BE DEPRESSED AND THESE STOCKHOLDERS CAN TAKE ACTIONS THAT MAY BE
ADVERSE TO YOUR INTERESTS.
Our
principal stockholders, executive officers and directors, in the aggregate,
beneficially own approximately 75.8% of our common stock. These stockholders,
acting together, will have the ability to exert substantial influence over all
matters requiring approval by our outstanding stockholders, including the
election and removal of directors and any proposed merger, consolidation or sale
of all or substantially all of our assets. In addition, they could dictate the
management of our business and affairs. This concentration of ownership could
have the affect of delaying, deferring or preventing a change in control, or
impeding a merger or consolidation, takeover or other business combination that
could be favorable to you. This significant concentration of share ownership may
also adversely affect the trading price for our common stock because investors
may perceive disadvantages in owning stock in companies with controlling
stockholders.
OUR
INCORPORATION DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT
STOCKHOLDERS CONSIDER FAVORABLE, COULD LIMIT THE MARKET PRICE OF YOUR STOCK AND
CAN INHIBIT AN ATTEMPT BY OUR STOCKHOLDERS TO CHANGE OUR DIRECTION OR
MANAGEMENT.
Our
certificate of incorporation and bylaws contain provisions that could delay or
prevent a change in control of our company. Some of these
provisions:
o
authorize our board of directors to determine the rights, preferences,
privileges and restrictions granted to, or imposed upon, the preferred stock and
to fix the number of shares constituting any series and the designation of such
series without further action by our stockholders; and
o
prohibit cumulative voting in the election of directors, which would otherwise
allow less than a majority of stockholders to elect director candidates. In
addition, we are governed by the provisions of Section 203 of Delaware General
Corporate Law. These provisions may prohibit large stockholders, in particular
those owning 15% or more of our outstanding voting stock, from merging or
combining with us, which may prevent or frustrate any attempt by our
stockholders to change our management or the direction in which we are heading.
These and other provisions in our amended and restated certificate of
incorporation and bylaws and under Delaware law could reduce the price that
investors might be willing to pay for shares of our common stock in the future
and result in the market price being lower than it would be without these
provisions.
Our
common stock is a low-priced security under the penny stock rules promulgated
under the Securities Exchange Act of 1934. In accordance with these rules,
broker-dealers participating in transactions in low-priced securities must first
deliver a risk disclosure document which describes the risks associated with
such stocks, the broker-dealer's duties in selling the stock, the customer's
rights and remedies and certain market and other information. Furthermore, the
broker-dealer must make a suitability determination approving the customer for
low-priced stock transactions based on the customer's financial situation,
investment experience and objectives. Broker-dealers must also disclose these
restrictions in writing to the customer, obtain specific written consent from
the customer, and provide monthly account statements to the customer. The effect
of these restrictions may decrease the willingness of broker-dealers to make a
market in our common stock, decrease liquidity of our common stock and increase
transaction costs for sales and purchases of our common stock as compared to
other securities.
Stockholders
should be aware that, according to Securities and Exchange Commission Release
No. 34-29093, dated April 17, 1991, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns
include:
(i)
control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;
(ii)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases;
(iii)
boiler room practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced sales persons;
(iv)
excessive and undisclosed bid-ask differential and markups by selling
broker-dealers; and
(v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor
losses.
Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our
securities.
OUR
OPERATIONS ARE LOCATED IN CHINA AND MAY BE ADVERSELY AFFECTED BY CHANGES IN THE
POLICIES OF THE CHINESE GOVERNMENT.
Our
business operations may be adversely affected by the political environment in
the PRC. The PRC has operated as a socialist state since 1949 and is controlled
by the Communist Party of China. In recent years, however, the government has
introduced reforms aimed at creating a "socialist market economy" and policies
have been implemented to allow business enterprises greater autonomy in their
operations. Changes in the political leadership of the PRC may have a
significant effect on laws and policies related to the current economic reforms
program, other policies affecting business and the general political, economic
and social environment in the PRC, including the introduction of measures to
control inflation, changes in the rate or method of taxation, the imposition of
additional restrictions on currency conversion and remittances abroad, and
foreign investment. These effects could substantially impair our business,
profits or prospects in China. Moreover, economic reforms and growth in the PRC
have been more successful in certain provinces than in others, and the
continuation or increases of such disparities could affect the political or
social stability of the PRC.
THE
CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH WE MUST
CONDUCT OUR BUSINESS ACTIVITIES.
The PRC
only recently has permitted greater provincial and local economic autonomy and
private economic activities. The government of the PRC has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Accordingly, government
actions in the future, including any decision not to continue to support recent
economic reforms and to return to a more centrally planned economy or regional
or local variations in the implementation of economic policies, could have a
significant effect on economic conditions in the PRC or particular regions
thereof, and could require us to divest ourselves of any interests we then hold
in Chinese properties or joint ventures. Any such developments could have a
material adverse effect on our business, operations, financial condition and
prospects.
FUTURE
INFLATION IN CHINA MAY INHIBIT ECONOMIC ACTIVITY IN CHINA AND ADVERSELY AFFECT
OUR OPERATIONS.
In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation, which have led to the adoption by the PRC government, from
time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. Inflation in
2007 and the first quarter of 2008 has risen dramatically, the PRC government
has imposed and will, in our view, impose more controls on credit and/or prices,
or to take other action, which could inhibit economic activities in China, and
thereby adversely affecting our business operations and prospects in the
PRC.
GOVERNMENTAL
CONTROL OF CURRENCY CONVERSION MAY AFFECT THE VALUE OF YOUR
INVESTMENT.
The PRC
government imposes controls on the convertibility of Renminbi (“RMB”) into
foreign currencies and, in certain cases, the remittance of currency out of
China. We expect to receive substantially all of our revenues in RMB. Shortages
in the availability of foreign currency may restrict the ability of our PRC
subsidiaries to remit sufficient foreign currency to make payments to us, or
otherwise satisfy their foreign currency denominated obligations. Under existing
PRC foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from trade-related
transactions, can be made in foreign currencies without prior approval from the
PRC State Administration of Foreign Exchange by complying with certain
procedural requirements. However, approval from appropriate government
authorities is required where RMB is to be converted into foreign currency and
remitted out of China to pay capital expenses such as the repayment of bank
loans denominated in foreign currencies. The PRC government may also at its
discretion restrict access in the future to foreign currencies for current
account transactions. If the foreign exchange control system prevents us from
obtaining sufficient foreign currency to satisfy our currency demands, we may
not be able to pay dividends in foreign currencies to our
shareholders.
FLUCTUATION
IN THE VALUE OF RENMINBI RELATIVE TO OTHER CURRENCIES MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND/OR AN INVESTMENT IN OUR SHARES.
The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Since 1994, the conversion of RMB into foreign currencies, including the U.S.
dollar, has been based on rates set by the People’s Bank of China, or PBOC,
which are set daily based on the previous day’s PRC interbank foreign exchange
market rate and current exchange rates on the world financial markets. Since
1994, the official exchange rate for the conversion of RMB to U.S. dollars has
generally been stable. On July 21, 2005, however, PBOC announced a reform of its
exchange rate system. Under the reform, Renminbi is no longer effectively linked
to U.S. dollars but instead is allowed to trade in a tight 0.3% band against a
basket of foreign currencies. If the RMB were to increase in value against the
U.S. dollar, for example, mainland Chinese consumers would experience a
reduction in the relative prices of goods and services, which may translate into
a positive increase in sales. On the other hand, a decrease in the value of the
RMB against the dollar would have the opposite effect and may adversely affect
our results of operations. Any significant revaluation of RMB may materially and
adversely affect our cash flows, revenues, earnings and financial position, and
the value of, and any dividends payments. For example, an appreciation of RMB
against the U.S. dollars would make any new RMB denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S.
dollars into RMB for such purposes.
UNCERTAINTIES
WITH RESPECT TO THE PRC LEGAL SYSTEM COULD ADVERSELY AFFECT US AND WE MAY BE
UNABLE TO ENFORCE OUR RIGHTS DUE TO POLICIES REGARDING THE REGULATION OF FOREIGN
INVESTMENTS IN CHINA.
Our
operations in China are governed by PRC laws and regulations. The PRC's legal
system is a civil law system based on written statutes in which decided legal
cases have little value as precedents, unlike the common law system prevalent in
the United States. Our operations in China are governed by PRC laws and
regulations. We are generally subject to laws and regulations applicable to
foreign investments in China and, in particular, laws applicable to wholly
foreign-owned enterprises (WFOE). However, the PRC does not have a
well-developed, consolidated body of laws governing foreign investment
enterprises. As a result, the administration of laws and regulations by
government agencies may be subject to considerable discretion and variation, and
may be subject to influence by external forces unrelated to the legal merits of
a particular matter. China's regulations and policies with respect to foreign
investments are evolving. Definitive regulations and policies with respect to
such matters as the permissible percentage of foreign investment and permissible
rates of equity returns have not yet been published. Statements regarding these
evolving policies have been conflicting and any such policies, as administered,
are likely to be subject to broad interpretation and discretion and to be
modified, perhaps on a case-by-case basis. The uncertainties regarding such
regulations and policies present risks which may affect our ability to achieve
our business objectives. We may not be able to enforce any legal rights we may
have under our contracts or otherwise. Our failure to enforce our legal rights
may have a material adverse impact on our operations and financial position, as
well as our ability to compete with other companies in our
industry.
In
addition, the PRC legal system is based in part on government policies and
internal rules (some of which are not published on a timely basis or at all)
that may have a retroactive effect. As a result, we may not be aware of our
violation of these policies and rules until some time after the violation. In
addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention.
IT
MAY BE DIFFICULT FOR SHAREHOLDERS TO ENFORCE ANY JUDGMENT OBTAINED IN THE UNITED
STATES AGAINST US, WHICH MAY LIMIT THE REMEDIES OTHERWISE AVAILABLE TO OUR
SHAREHOLDERS.
Substantially
all of our assets are located outside the United States. Our current operations
are conducted in China. Moreover, many of our directors and officers are
nationals or residents of countries other than the United States. All or a
substantial portion of the assets of these persons are located outside the
United States. As a result, it may be difficult for shareholders to effect
service of process within the United States upon these persons. In addition,
there is uncertainty as to whether the courts of China would recognize or
enforce judgments of United States courts obtained against us or such officers
and/or directors predicated upon the civil liability provisions of the
securities law of the United States or any state thereof, or be competent to
hear original actions brought in China against us or such persons predicated
upon the securities laws of the United States or any state thereof. Our PRC
counsel has advised us that the PRC does not have treaties with the United
States or many other countries providing for the reciprocal recognition and
enforcement of judgment of courts.
RISKS
RELATING TO OUR CORPORATE STRUCTURE
PRC
LAWS AND REGULATIONS GOVERNING OUR BUSINESS AND THE VALIDITY OF CERTAIN OF OUR
CONTRACTUAL ARRANGEMENTS ARE UNCERTAIN. IF WE ARE FOUND TO BE IN VIOLATION, WE
COULD BE SUBJECT TO SANCTIONS. IN ADDITION, CHANGES IN SUCH PRC LAWS AND
REGULATIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.
There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including, but not limited to, the laws and regulations
governing for profit business, or the enforcement and performance of our
contractual arrangements. We are considered a foreign person or foreign invested
enterprise under PRC law. As a result, we are subject to PRC law limitations on
foreign ownership of Chinese companies. These laws and regulations are
relatively new and may be subject to change, and their official interpretation
and enforcement may involve substantial uncertainty. The effectiveness of newly
enacted laws, regulations or amendments may be delayed, resulting in detrimental
reliance by foreign investors. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively.
The PRC
government has broad discretion in dealing with violations of laws and
regulations, including levying fines, revoking business and other licenses and
requiring actions necessary for compliance. In particular, licenses and permits
issued or granted to us by relevant governmental bodies may be revoked at a
later time by higher regulatory bodies. We cannot predict the effect of the
interpretation of existing or new PRC laws or regulations on our businesses. We
cannot assure you that our current ownership and operating structure would not
be found in violation of any current or future PRC laws or regulations. As a
result, we may be subject to sanctions, including fines, and could be required
to restructure our operations or cease to provide certain services. Any of these
or similar actions could significantly disrupt our business operations or
restrict us from conducting a substantial portion of our business operations,
which could materially and adversely affect our business, financial condition
and results of operations.
ITEM
1B-UNRESOLVED STAFF COMMENTS
Not
Applicable.
ITEM
2 - PROPERTIES
Our
corporate office is located in approximately 1,253 square feet of leased office
space in Oak Brook, Illinois. We lease this office space at a monthly base rent
of approximately $2,323 per month, plus triple net expenses. This lease will
expire on August 31, 2010. We expect that this property will be adequate for our
needs for the lease term.
We have a
1,302 square foot office located in Beijing, China that is leased from one of
our directors, Wenhui Qiao, and his wife, Mingjin Yu. The rent is
approximately $1,643 per month. This lease agreement will expire on June 30,
2009.
In May
2003, we acquired a 50 year land use right for approximately 2.8 acres of land
in the Tianzhu Export Processing Zone, Shunyi District, Beijing, China, which we
plan to develop into a laboratory and biomanufacturing facility in compliance
with GMP regulations primarily for clinical trials of our vaccine candidates. We
have received all necessary permits and approvals and construction of the
outside body of the facility has been completed. The major body and internal
clean room project of the phase one construction was completed in 2006. We also
expect that the installation of equipment can be completed by the end of the
second quarter of 2009.
ITEM
3 - LEGAL PROCEEDINGS
We are
not currently subject to either threatened or pending litigation, actions or
administrative proceedings.
ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted to a vote of our security holders during the fourth
quarter of our fiscal year ended December 31, 2008.
PART II
ITEM
5 - MARKET FOR THE COMPANY'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock is traded on the over-the-counter market on the OTC Bulletin Board
under the symbol "BGES.OB." The following table sets forth the high and low bid
information for our common stock for each quarter within the last fiscal year
during which our stock was traded. Prior to November 2005, there was no active
market for our stock.
|
|
High
|
|
|
Low
|
|
Fiscal
2008
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.05
|
|
|
$
|
0.70
|
|
Second
Quarter
|
|
|
2.00
|
|
|
|
0.65
|
|
Third
Quarter
|
|
|
3.50
|
|
|
|
0.80
|
|
Fourth
Quarter
|
|
|
3.00
|
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.04
|
|
|
$
|
0.70
|
|
Second
Quarter
|
|
|
1.15
|
|
|
|
0.51
|
|
Third
Quarter
|
|
|
0.92
|
|
|
|
0.27
|
|
Fourth
Quarter
|
|
|
1.25
|
|
|
|
0.22
|
|
These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. As of December 31, 2008,
there were approximately 191 stockholders of record of our common
stock.
We have
never paid any dividends on the common stock. We currently anticipate that any
future earnings will be retained for the development of our business and do not
anticipate paying any dividends on the common stock in the foreseeable future.
ISSUANCE
OF COMMON STOCK FOR SERVICES
On March
23, 2007, the Company granted three directors 10,000 shares each of restricted
common stock for one year of board service. The fair value of 30,000 shares was
determined to be $30,000, based on the closing price of the shares when granted,
and was recorded as compensation cost when the shares were granted.
On July
1, 2007, the Company granted two scientific board advisors 10,000 shares each of
restricted common stock for one year of scientific board service. The fair value
of 20,000 shares was determined to be $20,000, based on the closing price of the
shares when granted, and was recorded as compensation cost when the shares were
granted.
On July
1, 2008, the Company agreed to issue CH Capital LLC 50,000 shares of restricted
common stock for investor relations services. The fair value of the 50,000
shares was determined to be $87,500 based on the closing price of the Company’s
common stock on the date the agreement was signed. The Company recorded $87,500
as consulting expense when the shares were granted.
On
October 1, 2008, the Company entered into consulting agreements with two
scientific advisors in which the company granted 20,000 shares of restricted
common stock to them for scientific advisory service. The fair value of the
20,0000 shares was determined to be $23,000, based on the closing price of the
shares when granted, and was recorded as compensation cost when the shares were
granted.
On
November 26, 2008, the company granted 70,000 shares of restricted common stock
to seven board members for their service. The fair value of the 70,000 shares of
restricted common stock was determined to be $36,400, based on the closing price
of the shares when granted, and was recorded as compensation cost when the
shares were granted.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth aggregate information regarding our equity
compensation plans in effect as of December 31, 2008:
|
|
Number
of Securities to be issued upon Exercise of Outstanding Options, Warrants
and Rights
|
|
|
Weighted
Average per Share Exercise Price of Outstanding Options, Warrants and
Rights
|
|
|
Number
of Securities Remaining Available for Future Issuance Under Compensation
Plans
|
|
Equity
Compensation Plans Approved by securities holders
|
|
|
1,877,000
|
|
|
$
|
0.42
|
|
|
|
123,000
|
|
Equity
Compensation Plans not approved by securities holders
|
|
|
4,420,000
|
|
|
$
|
0.001
|
|
|
|
4,000,000
|
|
Total
|
|
|
6,297,000
|
|
|
$
|
0.42
|
|
|
|
4,123,000
|
|
On
December 1, 2004, the Company’s shareholders approved the 2004 Stock Incentive
Plan. The 2004 Stock Incentive Plan provides for the grant of incentive stock
options to our employees, and for the grant of non-statutory stock options,
restricted stock, stock appreciation rights and performance shares to our
employees, directors and consultants. The Company has reserved a total of
2,000,000 shares of its common stock for issuance pursuant to the 2004 Stock
Incentive Plan. The 2004 Stock Incentive Plan does not provide for automatic
annual increases in the number of shares available for issuance under the plan.
As of September 30, 2008, 1,877,000 options had been granted under this
plan.
The
administrator determines the exercise price of options granted under our 2004
Stock Incentive Plan, but the exercise price must not be less than 85% of the
fair market value of our common stock on the date of grant. In the event the
participant owns 10% or more of the voting power of all classes of our stock,
the exercise price must not be less than 110% of the fair market value per share
of our common stock on the date of grant. With respect to all incentive stock
options, the exercise price must at least be equal to the fair market value of
our common stock on the date of grant. The term of an incentive stock option may
not exceed 10 years, except with respect to any participant who owns 10% of the
voting power of all classes of our outstanding stock or the outstanding stock of
any parent or subsidiary of ours, which term must not exceed five years and the
exercise price must equal at least 110% of the fair market value on the grant
date. The administrator determines the term of all other options; however, no
option will have a term in excess of 10 years from the date of
grant.
On
November 26, 2008, the Company approved and adopted the 2008 Stock Incentive
Plan. The 2008 Stock Incentive Plan provides for the grant of incentive stock
options to our employees, and for the grant of non-statutory stock options,
restricted stock, stock appreciation rights and performance shares to our
employees, directors and consultants. The Company has reserved a total of
4,000,000 shares of its common stock for issuance pursuant to the 2008 Stock
Incentive Plan. The 2008 Stock Incentive Plan does not provide for automatic
annual increases in the number of shares available for issuance under the plan.
As of December 31, 2008, no options had been granted under this
plan.
The
administrator determines the exercise price of options granted under our 2008
Stock Incentive Plan, but the exercise price must not be less than 85% of the
fair market value of our common stock on the date of grant. In the event the
participant owns 10% or more of the voting power of all classes of our stock,
the exercise price must not be less than 110% of the fair market value per share
of our common stock on the date of grant. With respect to all incentive stock
options, the exercise price must at least be equal to the fair market value of
our common stock on the date of grant. The term of an incentive stock option may
not exceed 10 years, except with respect to any participant who owns 10% of the
voting power of all classes of our outstanding stock or the outstanding stock of
any parent or subsidiary of ours, which the term must not exceed five years and
the exercise price must equal at least 110% of the fair market value on the
grant date. The administrator determines the term of all other options; however,
no option will have a term in excess of 10 years from the date of
grant.
Issuance of stock
options
On April
1, 2007, the Company granted Mr. Larry E. Henneman, Jr. an option to purchase
20,000 shares of common stock for legal services in connection with our patent
application in the United States. The exercise price is $0.001 and the
expiration date is five years from the grant date. The fair value of the options
was $20,783 at the date of grant, which was determined using the Black-Scholes
valuation method, using the following assumptions: no expected dividend yield; a
risk-free interest rate of 3.4%; an expected life of 5 years; and an estimated
volatility of 52 percent based on recent history of the stock price in the
industry. The total of $20,783 was charged to consulting expense at the date the
options were granted.
On April
1, 2007, the Company granted Seven Star International Corp. an option to
purchase 100,000 shares of common stock for 2 years of consulting service. The
exercise price is $0.001 and the expiration date is five years from the grant
date. The fair value of the options was $103,916 at the date of grant, which was
determined by the Black-Scholes valuation method, using the following
assumptions: no expected dividend yield; risk-free interest rates of 3.4%;
expected lives of 5 years; and estimated volatility of 52 percent based on
recent history of the stock price in the industry. The total of $103,916 was
charged to consulting expense at the date the options were granted.
On March
23, 2007, the Company granted three directors 10,000 shares each of restricted
common stock for one year of board service. The fair value of 30,000 shares was
determined to be $30,000, based on the closing price of the shares when granted,
and was recorded as compensation cost when the shares were granted.
On July
1, 2007, the Company granted two scientific board advisors 10,000 shares each of
restricted common stock for one year of scientific board service. The fair value
of 20,000 shares was determined to be $20,000, based on the closing price of the
shares when granted, and was recorded as compensation cost when the shares were
granted.
ITEM
6- SELECTED FINANCIAL DATA
Not
Applicable for a Smaller Reporting Company.
ITEM
7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The
following discussion of our financial condition and plan of operations should be
read in conjunction with the financial statements and related notes thereto. The
following discussion contains certain forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
discussed herein. We undertake no obligation publicly to release the results of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
OVERVIEW
Bio-Bridge
Science, Inc. is a biotechnology company whose subsidiaries are focused on the
commercial development of HIV-PV Vaccine I, HPV vaccine, colon cancer vaccine,
mucosal adjuvant. Also, we sell bovine serum through our 51% owned subsidiary,
XHBD. The pre-clinical testing of HIV-PV Vaccine I on laboratory animals in
Beijing, China was completed in June 2006. After the lab equipment is installed
and we are able to produce vaccine candidate samples, we will apply to China's
State Food and Drug Administration for approval to conduct clinical trials of
HIV-PV Vaccine I. As of December 31, 2005, we had completed the construction of
the outside body of our laboratory and bio-manufacturing facility in Beijing,
China. The internal clean room installation project has been substantially
completed as of end of 2006. We expect to pass the local government inspection
and receive the necessary licenses in the second quarter of 2009, and by then
the laboratory facility will be in operations. We acquired a 51% equity interest
in Huhhot Xinheng Baide Biotechnology Co. Ltd. at the end of July in 2008. XHBD
produces and sells bovine serum, a major material used in the production of
vaccines. We expect XHBD will bring us increasing revenues in the
future.
Plan of
Operations
Vaccine
Development
Our
primary corporate focus is on the commercial development of our potential
vaccine products through our subsidiaries. Our capital requirements,
particularly as they relate to product research and development, have been and
will continue to be significant. Our future cash requirements and the adequacy
of available funds will depend on many factors, including the pace at which we
are able to obtain regulatory approvals of vaccine candidates, whether or not a
market develops for our products and, if a market develops, the pace at which it
develops, and the pace at which the technology involved in making our products
changes.
The
pre-clinical testing of HIV-PV Vaccine I on laboratory animals was completed in
Beijing Institute of Radiation Medicine, and the testing result was issued in
June 2006 and showed encouraging results. After the vaccine samples are produced
in our GMP facility, we will submit application for clinical trials with the
Chinese SFDA. The clinical trial for therapeutic vaccine is expected to last
three years. The clinical trial for preventive vaccine will last longer, most
likely five to seven years.
We also
plan to conduct the pre-clinical trials for colon cancer vaccine and HPV
vaccine. We estimate that we will complete the pre-clinical trial of colon
cancer vaccine by late 2009 and that of HPV vaccine by mid 2010. We expect to
enter clinical trials of colon cancer vaccine in the second half of 2010. As we
discussed previously, clinical trial for therapeutic vaccine is expected to last
three years. All the technology to make HIV vaccine and colon cancer vaccine is
based on the technology co-developed by our CEO, Dr. Liang Qiao. Because we use
the same technology to develop our potential vaccine products, we expect to use
the same GMP facility in Beijing, China, to produce the HIV vaccine and colon
cancer vaccine for pre-clinical and clinical trials.
To date
we have funded our operations from funds we raised in private offerings. During
2008, we sold common stock and investment units composed of common stock and
warrants to investors in several private placements in which we raised
$4,245,000. During the next twelve months, we will need to raise capital through
an offering of our securities or from loans to continue research and development
of our various vaccine product candidates in China as well as conducting
potential acquisition activities in China. We estimate that our capital
requirements for the next twelve months will be as follow:
o
approximately $1.0 million for preparatory work and Phase I clinical study of
HIV-PV Vaccine I;
o
approximately $1.0 million for working capital and general corporate needs;
and
o
approximately $0.7 million for pre-clinical trials on colon cancer vaccine and
HPV vaccine.
We expect
that the therapeutic vaccine can be brought to market in three years and the
preventive vaccine can be brought to market in five to seven years, if we are
successful in raising funds to complete development of the vaccines. As of
December 31, 2008, our cash and cash equivalents and trading securities position
was $1,601,886. Although we raised $ 4.245 million in 2008 in private
placements, we will still need to raise additional funds through the public or
private sales of our securities, loans, or a combination of the foregoing to
meet our planned operations. We cannot guarantee that financing will be
available to us, on acceptable terms or at all. We also may borrow from local
banks in China given that our land use right and laboratory facility could be
used as collateral for borrowing. If we fail to obtain other financing in the
next 12 months, either through an offering of our securities or by obtaining
additional loans, we may be unable to develop our planned projects as scheduled
and may be forced to scale back.
Distribution of Xinhua
surgical instruments
We signed
an exclusive agency agreement with Xinhua Surgical Instruments Co. Ltd. to
distribute its operational instruments in the United States at the end of 2005.
We are currently seeking collaboration with local distributors and developing
markets for Xinhua instruments. We built up a B2C website devoted to selling
Xinhua surgical instruments in 2008. Also, we initiated some marketing
campaigns, such as buying Google keywords. As a result of our efforts, our 2008
surgical instrument sale posted a 680% increase compared with 2007.
Acquisitions of companies
complementary to the Company
Another
major corporate focus is for the Company to acquire other profitable vaccine
companies or vaccine production related companies, such as those producing
materials for vaccine production, in China. Such an acquisition may help support
our development of our in-house vaccine candidates by providing us with
operating cash flows, lower cost for material used in our vaccine production,
skillful work force in vaccine production, and a distribution channel. We
believe these companies will be complementary to us and make us more
competitive.
On July
31, 2008, the Company completed the acquisition of Huhhot Xinheng Baide
Biotechnology Co. Ltd., (“XHBD”), in which the Company purchased 51% of the
outstanding capital interests of XHBD for RMB 6 million (approximately US$
881,000). XHBD was incorporated on May 17, 2006 under the laws of the
People’s Republic of China (“PRC”) as a limited company. XHBD is located in the
city of Huhhot in Inner Mongolia, China. The primary operations of the Company
are the manufacture and distribution of bovine serum products, which is used in
research and production of vaccines. The acquisition was
accounted for as a purchase in accordance with Statement of Financial Accounting
Standards No. 141 “Business Combinations.” The assets acquired and liabilities
assumed were recorded at their fair values at the date of acquisition. We
completed the 51% acquisition of Xinheng Baide on July 31, 2008 and its
operations are included in our consolidated financial statements beginning
August 1, 2008.
Potential Joint
Venture
We
entered into a non-binding memorandum of understanding with JR Scientific, Inc.,
a Woodland, California based manufacturer of classical and custom cell culture
medium and sera products ("JRS”) and Mr. Jan Baker, President and CEO of JRS on
April 15, 2008. Under the MOU, the Company will form a joint venture together
with JRS and several other investors in China. The joint venture is expected to
mainly produce culture medium, serum, and other biomaterial for sale in China
and other countries under the brand name of the joint venture. Cell culture
medium and serum are used in vaccine production as well as scientific research.
JRS and Mr. Baker as part of the MOU, agree to transfer technology and
“know-how” to the joint venture. The total investment for the joint venture is
planned to be around RMB 10 million (about US$ 1.47 million). We expect to own
at least 51% of the new joint venture. The joint venture is expected to be
formed in the second quarter of 2009. However, the agreement is non-binding and
we cannot assure you that a joint venture will be formed.
Results
of Operations
Year
ended December 31, 2008 Compared to Year ended December 31, 2007
During
the years ended December 31, 2008 and 2007, we had revenues of $618,705 and
$2,979, respectively. The increase was due to sales from XHBD for $595,454 and
the increase in sales of surgical instrument of $23,251 in 2008. The
cost of revenues was $467,983 in 2008 and $1,629 in 2007. XHBD’s
financial results are included in our consolidated financial statements
beginning August 1, 2008. As a result, we expect the revenue will
increase in 2009 due to a full year of HXBD’s sales and our continued efforts to
sell surgical instruments in the United States.
For the
year ended December 31, 2008, research and development expense was $104,422 as
compared to $155,087 for the year ended December 31, 2007. The decrease of
$50,665 was due primarily to pre-clinical development of our HIV-PV Vaccine I
that was largely finished in 2007.
For the
year ended December 31, 2008, general and administrative expense was $3,431,609,
as compared to $1,164,664 for the year ended December 31, 2007. The increase of
$2,266,945 was due primarily to compensation cost in association with private
placements in which we raised $3.98 million from directors or corporations
controlled by our director. The selling and distribution expenses were $140,820
in the year ended December 31, 2008 as compared to $40,128 for the year ended
December 31, 2007. The increase of $100,692 was due primarily to the increased
shipment expense of surgical instruments and selling and distribution expense of
XHBD, which was $50,288.
Net loss for the year ended December
31, 2008, was $3,538,899 as compared to $1,600,792 for the year ended December
31, 2007. This increase in net loss was primarily attributable to an increase in
general and administrative expenses, which was mainly composed of compensation
costs related to private placements in which we raised $3.98 million from
directors or corporations controlled by our director.
Liquidity and Capital Resources
Our
principal sources of liquidity are cash and cash equivalent and trading
securities balances, which totaled $1,601,886 at December 31, 2008 and
$1,614,288 at December 31, 2007. Since our inception, we have incurred
significant losses, and as of December 31, 2008, we had an accumulated deficit
of $11,000,931.
Net cash
used in operating activities was $819,638 for the year ended December 31, 2008
and $1,157,118 for the year ended December 31, 2007. The decrease is due
primarily to payments to contractors of $350,568 in 2007.
Cash
flows provided (used) in investing activities was $162,198 for the year ended
December 31, 2008 and ($1,913,358) for the year ended December 31, 2007. This
change was due to proceeds from sale of trading securities offset by an increase
in construction in progress.
Net cash
provided by financing activities decreased to $2,190,664 in the year ended
December 31, 2008 compared to $3,029,102 in the year ended December 31,
2007.
From
February 11, 2002 (inception) to December 31, 2008, we have an accumulated
deficit of $11,000,931. Our operations have been funded through
issuances of our common stock and preferred stock whereby we raised an aggregate
$8,365,888 from February 11, 2002 (inception) through December 31,
2008.
During
2008, the Company sold 5,841,609 shares of its common stock to seven individuals
for a total of $4,245,000. Four of these individuals, who purchased a
total of 5,488,276 shares of common stock for a total of $3,980,000, are members
of our Board of Directors. Some of the sales agreements also included
warrants to purchase common stock.
During
2007, the Company sold 4,000,000 shares of Series A Convertible Preferred Stock
and warrants to purchase 3,000,000 shares of common stock at $1.00 per share to
three individuals for a total of $3,000,000.
Based on
our current operating plan, we believe that we have sufficient cash and cash
equivalents to last approximately through April 2010. We will need to obtain
additional financing in addition to the funds already raised through the sale of
equity securities to fund our cash needs and continue our operations beyond
April 2010. Additional financing, whether through public or private equity or
debt financing, arrangements with stockholders or other sources to fund
operations, may not be available, or if available, may be on terms unacceptable
to us. Our ability to maintain sufficient liquidity is dependent on our ability
to raise additional capital. If we issue additional equity securities to raise
funds, the ownership percentage of our existing stockholders would be reduced.
New investors may demand rights, preferences or privileges senior to those of
existing holders of our common stock. Debt incurred by us would be senior to
equity in the ability of debt holders to make claims on our assets. The terms of
any debt issued could impose restrictions on our operations. If adequate funds
are not available to satisfy either medium or long-term capital requirements,
our operations and liquidity could be materially adversely affected and we could
be forced to cut back our operations.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses for each period. The following represents a summary of our critical
accounting policies, defined as those policies that we believe are the most
important to the portrayal of our financial condition and results of operations
and that require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of matters
that are inherently uncertain.
The
Company recognizes revenue from the sales of products in accordance with
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin ("SAB") No.
104, when persuasive evidence of an order arrangement exists, delivery has
occurred, the sales price is fixed or determinable and collectability is
reasonably assured. Generally, these criteria are met at the time the
product is shipped to customers when title and risk of loss have
transferred.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment,” (SFAS 123(R)) which requires the
measurement and recognition of compensation expense for all stock-based awards
based upon the grant-date fair value of those awards. We previously accounted
for our stock-based awards under SFAS No. 123, "Accounting for Stock-Based
Compensation" which was similar to SFAS 123R whereby the fair value of option
and warrant grants was determined using the Black-Scholes option pricing model
at the date of grant. We adopted SFAS No. 123(R), and its related
implementation guidance as promulgated by both the Financial Accounting
Standards Board (the "FASB"), and SAB No. 107, associated with the accounting
for stock-based compensation arrangements of our employees and directors. These
pronouncements require that equity-based compensation cost be measured at the
grant date (based upon an estimate of the fair value of the compensation
granted) and recorded to expense over the requisite service period, which
generally is the vesting period.
The
Company estimates the fair value of equity-based compensation utilizing the
Black-Scholes option pricing model. This model requires the input of several
factors such as the expected option term, expected volatility of our stock price
over the expected term, expected risk-free interest rate over the expected
option term, and an estimate of expected forfeiture rate, and is subject to
various assumptions. We believe this valuation methodology is appropriate for
estimating the fair value of stock options granted to employees and directors
which are subject to SFAS 123(R) requirements. These amounts are estimated and
thus may not be reflective of actual future results, nor amounts ultimately
realized by recipients of these grants. These amounts, and the amounts
applicable to future quarters, are also subject to future quarterly adjustments
based upon a variety of factors.
The
Company continues to apply the provisions of EITF No. 96-18, “Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” (EITF 96-18) for our non-employee
stock-based awards. Under EITF 96-18, the measurement date at which the fair
value of the stock-based award is measured is equal to the earlier of (1) the
date at which a commitment for performance by the counterparty to earn the
equity instrument is reached or (2) the date at which the counterparty’s
performance is complete. We recognize stock-based compensation expense for the
fair value of the vested portion of non-employee awards in our consolidated
statements of operations.
Trading
Securities
The
Company accounts for trading securities using the guidance of SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity Securities.” The
Company’s investment in trading securities is comprised of its investment in a
Van Kampen unit investment fund. Trading securities are reported at fair value,
with any changes in fair value during a period recorded as a charge or credit to
net income (loss). Gains or losses realized upon sale of all securities are
recognized at the time of sale. Cash received in excess of cumulative dividends
is considered a return of principal.
Construction
in Progress
Construction
in progress represents direct costs of construction or acquisition and design
fees incurred. Capitalization of these costs ceases and the construction in
progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are completed.
No depreciation is provided until it is completed and ready for intended
use.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, and
SFAS No. 160,
Accounting and
Reporting of Non-Controlling Interest in Consolidated Financial
Statements
, an Amendment of ARB No. 51. These new standards will
significantly change the financial accounting and reporting of business
combination transactions and non-controlling (or minority) interests in
consolidated financial statements. We will be required to adopt SFAS No. 141(R)
and SFAS No. 160 on or after December 15, 2008. The adoption of SFAS 141(R) and
SFAS No. 160 will, among other things, have an effect on the Company’s
presentation of minority interest, which will now be included in equity in our
consolidated financial statements.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (“FSP 157-2”).
FSP 157-2 delays the implementation of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis. This statement
defers the effective date to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years, which is fiscal year 2010 for the
Company. The Company does not believe that the adoption of FSP 157-2
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows
In April
2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”), which amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FASB Statement No. 142,
“Goodwill and Other Intangible Assets.” FSP 142-3 is effective beginning on
January 1, 2009. The Company does not believe that the adoption of Staff
Position No. FAS 142-3 will have a material effect on the Company’s consolidated
results of operations, financial position, or cash flows.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
Lease
Commitment
As of
December 31, 2008, we had remaining outstanding commitments with respect to our
non-cancelable operating lease for our office in Oak Brook, IL, of which $28,087
and $19,004 is due in 2009 and 2010, respectively, and our office in Beijing,
PRC (which is leased from Wenhui, Qiao, our director and president), of which
$11,437 is due in 2009 and none thereafter.
Royalty
and License Arrangements
Liang
Qiao, M.D., our co-founder and chief executive officer, is one of the two
co-inventors of our core technology that was assigned to Loyola University
Chicago in April 2001. Under an agreement with Loyola University Chicago, we
have obtained exclusive rights to this technology for use in its future products
within the United States, Japan and the People's Republic of China, including
mainland China, Hong Kong, Taiwan and Macau. The license continues perpetually
or for the maximum period of time permitted by law, unless terminated earlier
under the terms of the agreement. Pursuant to this agreement, Loyola receives a
royalty of 4% from the net profit for all uses of the licensed technology,
including uses under sublicenses. As of December 31, 2008, we had not generated
any revenues from the sale of any products under development, nor had we
received any revenues from sublicenses.
Contractual
Obligations
Payments
due under contractual obligations at December 31, 2008 mature as
follows:
|
|
Payments
due by period ($ in thousands)
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1
to 3
years
|
|
Lease
obligation
|
|
$
|
59
|
|
|
$
|
40
|
|
|
$
|
19
|
|
Payable
to contractors
|
|
|
186
|
|
|
|
186
|
|
|
|
|
|
R&D
agreement obligation
|
|
|
5
|
|
|
|
5
|
|
|
|
—
|
|
Total
|
|
$
|
250
|
|
|
$
|
231
|
|
|
$
|
19
|
|
ITEM
7A- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Issuance
of Common Stock
See PART
II Item 5 for issuance of unregistered common stock.
Inflation
Inflation
has not had a material impact on our business.
Currency
Exchange Fluctuations
Most of
the Company’s revenues and some of the expenses in 2008 were denominated
primarily in Renminbi (“RMB”), the currency of the PRC, and was converted into
US dollars at the exchange rate of 7.0696 to 1. In the third quarter of 2005,
the Renminbi began to rise against the US dollar. There could be no assurance
that RMB/U.S. dollar exchange rates will remain stable in the future. A
fluctuation of RMB relative to the U.S. dollar would affect our business,
financial condition and results of operations. We do not engage in currency
hedging.
ITEM
8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements together with the report of Independent Registered Public
Accounting Firm appear beginning on Page F-1 of this Report.
ITEM
9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM
9A - CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures. As of the end of the period
covered by this report, we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of the
applicable period to ensure that the information required to be disclosed by us
in reports that we file or submit under the Exchange Act (i) is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
(b)
Changes in internal controls over financial reporting. There was no change in
our internal control over financial reporting during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Management’s
Annual Report on Internal Control
over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934. The Company’s internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles in the United States. However, all internal control systems, no
matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and reporting.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on
our assessment, management believes that the Company maintained effective
internal control over financial reporting as of December 31, 2008, based on
those criteria.
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.
ITEM
9B - OTHER INFORMATION
None.
PART III
ITEM
10 - DIRECTORS, EXECUTIVE OFFICERS, AND COPRORATE GOVERNANCE
We
incorporate by reference the information appearing under “Executive Officers of
the Registrant” in Item 1 of this Form 10-K and under “Election of Directors”
and “Corporate Governance” in our definitive Proxy Statement for our 2009 Annual
Meeting of Stockholders, which we expect to file with the SEC on or about April
22, 2009 (the “Proxy Statement”).
ITEM
11 – EXECUTIVE COMPENSATION
We
incorporate by reference the information appearing under “Executive and Director
Compensation and Other Information,” “Corporate Governance - Compensation
Committee Interlocks and Insider Participation” and “Compensation Committee
Report” in the Proxy Statement.
ITEM
12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
We
incorporate by reference the information appearing under “Equity Compensation
Plan Information” in Item 5 of this Form 10-K and under “Principal Stockholders”
and “Election of Directors” in the Proxy Statement.
ITEM
13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
We
incorporate by reference the information appearing under “Transactions with
Related Persons” and “Corporate Governance” in the Proxy Statement.
ITEM
14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
We
incorporate by reference the information appearing under “Selection of
Independent Registered Public Accounting Firm” in the Proxy
Statement.
PART
IV
ITEM
15- EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The
following documents are filed as part of this report:
(1)
Financial Statements - See Index to Consolidated Financial Statements under Item
8 above.
(2)
Exhibits - See Index to Exhibits following the signatures to this
report.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
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BIO-BRIDGE
SCIENCE, INC.
|
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Dated:
March 31, 2009
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By:
|
/s/ Liang
Qiao, M.D.
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name
|
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Title
|
|
Date
|
/s/
Liang Qiao
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|
Chief
Executive Officer, Secretary and
|
|
March
31, 2009
|
Liang
Qiao, M.D.
|
|
Chairman
of the Board (Principal Executive Officer)
|
|
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/s/
Chuen Huei (Kevin) Lee
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|
Chief
Financial Officer (Principal
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|
March
31, 2009
|
Chuen
Huei (Kevin) Lee
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|
Financial
and Accounting Officer)
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|
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/s/
Wenhui Qiao
|
|
President
and Director
|
|
March
31, 2009
|
Wenhui
Qiao
|
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|
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/s/
Shyh-Jing (Philip) Chiang
|
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Director
|
|
March
31, 2009
|
Shyh-Jing
(Philip) Chiang
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/s/
Isao Arimoto
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Director
|
|
March
31, 2009
|
Isao
Arimoto
|
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/s/
Toshihiro Komoike
|
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Vice
President and Director
|
|
March
31, 2009
|
Toshihiro
Komoike
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/s/
Trevor Roy
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|
Director
|
|
March
31, 2009
|
Trevor
Roy
|
|
|
|
|
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|
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|
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/s/
Cheung Hin Shun Anthony
|
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Director
|
|
March
31, 2009
|
Cheung
Hin Shun Anthony
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Exhibit Index
2.1
|
|
Agreement
for the exchange of shares by and among the registrant, Bio-Bridge Science
Corporation and the shareholders of record of Bio-Bridge Science
Corporation, dated November 4, 2004(incorporated by reference to exhibits
to Registration Statement No. 333-121786.)
|
|
|
|
3.1(i)
|
|
Certificate
of incorporation of the registrant (incorporated by reference to exhibits
to Registration Statement No. 333-121786.)
|
|
|
|
3.1(ii)
|
|
Certificate
of determination of preferred shares (incorporated by reference to an
exhibit to Form 8-K filed November 11, 2005.)
|
|
|
|
3.2(i)
|
|
Bylaws
of the registrant (incorporated by reference to exhibits to Registration
Statement No. 333-121786.)
|
|
|
|
10.1
|
|
Exclusive
License Agreement between Bio-Bridge Science Corporation and Loyola
University Chicago, dated April 22, 2004 (incorporated by reference to
exhibits to Registration Statement No. 333-121786.)
|
|
|
|
10.2
|
|
Exclusive
Sub-license Agreement between Beijing Bio-Bridge Science Corporation and
Beijing Bio-Bridge Science Corporation, dated June 20, 2002 (incorporated
by reference to exhibits to Registration Statement No.
333-121786.)
|
|
|
|
10.3
|
|
2004
stock incentive plan (incorporated by reference to exhibits to
Registration Statement No. 333-121786.)
|
|
|
|
10.4
|
|
Lease
between Bio-Bridge Science Corporation and SFERS Real Estate K Limited
Partnership, dated July 30, 2004 (incorporated by reference to exhibits to
Registration Statement No. 333-121786)
|
|
|
|
10.5
|
|
Agreement
between Bio-Bridge Beijing Science Corporation and Beijing Institute of
Radiation Medicine, dated May 6, 2004. (incorporated by reference to
exhibits to Registration Statement No. 333-121786)
|
|
|
|
10.6
|
|
Land
Use Right Agreement between Bio-Bridge Science (Beijing) Co. Ltd. and
Beijing Airport High-Tech Park Co. Ltd., dated May 28, 2003. (incorporated
by reference to exhibits to Registration Statement No.
333-121786)
|
|
|
|
10.7
|
|
Agreement
between Bio-Bridge Beijing Science Corporation and Beijing Institute of
Radiation Medicine, dated May 12, 2004. (incorporated by reference to
exhibits to Registration Statement No. 333-121786)
|
|
|
|
10.8
|
|
Exclusive
Agency Agreement between Registrant and Xinhua Surgical Instruments Co.,
Ltd. dated November 16, 2005. (incorporated by reference to an exhibit to
Form 8-K filed November 11, 2005)
|
|
|
|
10.9
|
|
Investment
Agreement between Registrant and Dutchess Private Equities Fund, L.P.
dated November 29, 2005(incorporated by reference to an exhibit to Form
8-K filed December 2, 2005).
|
|
|
|
10.10
|
|
Registration
Rights Agreement between Registrant and Dutchess Private Equities Fund,
L.P. dated November 29, 2005. incorporated by reference to an exhibit to
Form 8-K filed November 11, 2005)
|
|
|
|
10.11
|
|
Code
of Ethics (incorporated by reference to an exhibit to Form 10-KSB filed
March 31, 2007).
|
|
|
|
10.12
|
|
Securities
Purchase Agreement dated January 2007(incorporated by reference to an
exhibit to Form 10-KSB filed March 31, 2007).
|
|
|
|
10.13
|
|
Common
Stock Warrant Purchase Agreement dated January 2007(incorporated by
reference to an exhibit to Form 10-KSB filed March 31,
2007).
|
|
|
|
10.14
|
|
Registration
Right Agreement dated January 2007(incorporated by reference to an exhibit
to Form 10-KSB filed March 31, 2007).
|
|
|
|
10.15
|
|
Exclusive
Agency Agreement between Registrant and Xinhua Surgical Instruments Co.,
Ltd. dated March 17, 2008 (incorporated by reference to an exhibit to Form
10-KSB filed on March 31, 2008).
|
|
|
|
10.16
|
|
Sale
and Purchase Agreement between Registrant and Huhhot Xinheng Baide
Technology Co. Ltd. dated April 30, 2008 (incorporated by reference to EX.
1.01 to Form 8-K filed on May 1,
2008).
|
10.17
|
|
Regulation
S Securities Purchase Agreement between Registrant, NFR International Pty
Limited, and China Diamond Limited (incorporated by reference to EX. 1.01
to Form 8-K filed on July 3, 2008).
|
|
|
|
10.18
|
|
Promissory
Note issued by NFR International Pty Limited dated July 2, 2008
(incorporated by reference to EX 1.02 to Form 8-K filed on July 3,
2008).
|
|
|
|
10.19
|
|
Promissory
Note issued by China Diamond Limited dated July 2, 2008(incorporated by
reference to EX 1.03 to Form 8-K filed on July 3,
2008).
|
|
|
|
10.20
|
|
Regulation
S Securities Purchase Agreement between Registrant and Cheung Hin Shun
Anthony dated July 9,2008 (incorporated by reference to EX 1.01 to Form
8-K filed on July 11, 2008).
|
|
|
|
10.21
|
|
Promissory
Note issued by Cheung Hin Shun Anthony dated July 9, 2008 (incorporated by
reference to EX 1.02 to Form 8-K filed on July 11,
2008).
|
|
|
|
10.22*
|
|
2008
Stock Incentive Plan
|
|
|
|
31.1
*
|
|
Chief
Executive Officer Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
*
|
|
Chief
Financial Officer Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
*
|
|
Chief
Executive Officer Certification pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
*
|
|
Chief
Financial Officer Certification pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
|
*Filed
herewith
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED
DECEMBER
31, 2008 AND 2007
CONTENTS
PAGE
39
|
|
Report
of Independent Registered Public Accounting Firm
|
PAGE
40
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
PAGE
41
|
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007
|
PAGE
42
|
|
Consolidated
Statements of Changes in Shareholders' Equity for the years ended December
31, 2008 a
nd
December 31, 2007
|
PAGE
44
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
PAGE
46-58
|
|
Notes
to Consolidated Financial Statements for the years ended December 31, 2008
and 2007
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Bio-Bridge
Science Inc.
We have
audited the accompanying consolidated balance sheets of Bio-Bridge Science Inc.
and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its 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 includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bio-Bridge
Science Inc. and Subsidiaries as of December 31, 2008 and 2007 and the results
of their operations and their cash flows for the years ended December 31, 2008
and 2007, in conformity with accounting principles generally accepted in the
United States of America.
The
accompanying consolidated financial statements have been prepared assuming
Bio-Bridge Science Inc. and Subsidiaries will continue as a going
concern. The Company has experienced recurring losses since
inception. This condition raises substantial doubt regarding the
Company's ability to continue as a going concern. Management's plans
in regard to this matter are described in Note 1. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
WEINBERG
& COMPANY, P.A.
Los
Angeles, California.
March 20,
2008
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2008 AND 2007
ASSETS
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,486,252
|
|
|
$
|
104,372
|
|
Accounts
receivable, net
|
|
|
340,633
|
|
|
|
-
|
|
Inventories
|
|
|
491,347
|
|
|
|
9,195
|
|
Trading
securities, at fair value
|
|
|
115,634
|
|
|
|
1,509,916
|
|
Prepaid
expenses and other current assets
|
|
|
38,364
|
|
|
|
19,467
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
2,472,230
|
|
|
|
1,642,950
|
|
|
|
|
|
|
|
|
|
|
Property,
plant, and equipment, net
|
|
|
243,507
|
|
|
|
65,774
|
|
Construction
in progress
|
|
|
2,676,938
|
|
|
|
1,814,291
|
|
Land
use right, net
|
|
|
372,696
|
|
|
|
366,597
|
|
Goodwill
|
|
|
243,248
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Long-term Assets
|
|
|
3,536,389
|
|
|
|
2,246,662
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
6,008,619
|
|
|
$
|
3,889,612
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
265,682
|
|
|
$
|
-
|
|
Accrued
expenses and other payables
|
|
|
158,686
|
|
|
|
121,270
|
|
Payable
to contractors
|
|
|
185,929
|
|
|
|
124,017
|
|
Due
to director
|
|
|
32,189
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
642,486
|
|
|
|
245,287
|
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST
|
|
|
522,310
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 5,000,000 shares authorized, 4,000,000 shares
issued and outstanding
|
|
|
4,000
|
|
|
|
4,000
|
|
Common
stock, $0.001 par value, 100,000,000 shares authorized, 34,931,009 and
34,357,676 shares issued and outstanding, respectively
|
|
|
34,931
|
|
|
|
34,358
|
|
Additional
paid-in capital
|
|
|
12,912,545
|
|
|
|
10,349,611
|
|
Preferred
stock dividend, payable in common shares
|
|
|
137,000
|
|
|
|
137,000
|
|
Subscription
receivable
|
|
|
(2,062,670
|
)
|
|
|
(20
|
)
|
Stock
to be issued, 5,818,276 and 50,000 shares, respectively
|
|
|
4,559,056
|
|
|
|
50
|
|
Accumulated
other comprehensive gain
|
|
|
259,892
|
|
|
|
221,358
|
|
Accumulated
deficit
|
|
|
(11,000,931
|
)
|
|
|
(7,102,032
|
)
|
|
|
|
|
|
|
|
|
|
Total
Shareholders’ Equity
|
|
|
4,843,823
|
|
|
|
3,644,325
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
6,008,619
|
|
|
$
|
3,889,612
|
|
See
accompanying notes to the consolidated financial statements.
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
For
The Year Ended December 31, 2008
|
|
|
For
The Year Ended December 31, 2007
|
|
Revenue
|
|
$
|
618,705
|
|
|
$
|
2,979
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
(467,983
|
)
|
|
|
(1,629
|
)
|
Gross
profit
|
|
|
150,722
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
|
Research
and development cost
|
|
|
(104,422
|
)
|
|
|
(155,087
|
)
|
Selling
and distribution expenses
|
|
|
(140,820
|
)
|
|
|
(40,128
|
)
|
General
and administrative expenses
|
|
|
(3,431,609
|
)
|
|
|
(1,164,664
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,526,129
|
)
|
|
|
(1,358,529
|
)
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
523
|
|
|
|
5,267
|
|
Unrealized
loss on trading securities
|
|
|
(90,745
|
)
|
|
|
(372,192
|
)
|
Loss
on sale of trading securities
|
|
|
(3,527
|
)
|
|
|
(2,818
|
)
|
Dividend
income
|
|
|
70,579
|
|
|
|
127,480
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and minority interest
|
|
|
(3,549,299
|
)
|
|
|
(1,600,792
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(34,892
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest
|
|
|
(3,584,191
|
)
|
|
|
(1,600,792
|
)
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
45,292
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,538,899
|
)
|
|
|
(1,600,792
|
)
|
|
|
|
|
|
|
|
|
|
Deemed
preferred stock dividends
|
|
|
-
|
|
|
|
(1,293,320
|
)
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
(360,000
|
)
|
|
|
(317,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(3,898,899
|
)
|
|
$
|
(3,211,112
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per share, attributable to common shareholders, basic and
diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted
|
|
|
34,578,525
|
|
|
|
33,992,951
|
|
See
accompanying notes to the consolidated financial statements.
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Preferred
stock
dividend payable in
common
|
|
|
Additional
Paid-in
|
|
|
Common
Stock
To
be
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Subscriptions
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
share
|
|
|
Capital
|
|
|
Issued
|
|
|
Gain
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
JANUARY 1,
2007
|
|
|
33,492,001
|
|
|
$
|
33,492
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,469,402
|
|
|
$
|
240
|
|
|
$
|
80,403
|
|
|
$
|
(25,091
|
)
|
|
$
|
(3,890,920
|
)
|
|
$
|
1,667,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock at $0.75 per share for cash, net of issuance
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,470
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred shares at $0.75 per share for cash, net of issuance
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
4,000
|
|
|
|
-
|
|
|
|
2,996,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend related to beneficial conversion feature of convertible preferred
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,293,320
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,293,320
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
of preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
317,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(317,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of preferred stock dividend
|
|
|
180,000
|
|
|
|
180
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(180,000
|
)
|
|
|
179,820
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensatory
shares issued to consultant
|
|
|
30,000
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,694
|
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
173,715
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
173,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consultant
stock option
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147,190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for previously exercised stock option
|
|
|
240,000
|
|
|
|
240
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(240
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from previously issued stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,071
|
|
|
|
-
|
|
|
|
25,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
415,675
|
|
|
|
416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,600,792
|
)
|
|
|
(1,600,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
DECEMBER 31,
2007
|
|
|
34,357,676
|
|
|
$
|
34,358
|
|
|
|
4,000,000
|
|
|
$
|
4,000
|
|
|
$
|
137,000
|
|
|
$
|
10,349,611
|
|
|
$
|
50
|
|
|
$
|
221,358
|
|
|
$
|
(20
|
)
|
|
$
|
(7,102,032
|
)
|
|
$
|
3,644,325
|
|
(Continued)
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007(Continued)
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Preferred
stock
dividend payable in
common
|
|
|
Additional
Paid-in
|
|
|
Common
Stock
To
be
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Subscriptions
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
share
|
|
|
Capital
|
|
|
Issued
|
|
|
Gain
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
DECEMBER 31,
2007
|
|
|
34,357,676
|
|
|
$
|
34,358
|
|
|
|
4,000,000
|
|
|
$
|
4,000
|
|
|
$
|
137,000
|
|
|
$
|
10,349,611
|
|
|
$
|
221,358
|
|
|
$
|
50
|
|
|
$
|
(20
|
)
|
|
$
|
(7,102,032
|
)
|
|
$
|
3,644,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 5,841,610 shares of common stock at $0.725 to $0.75 per
share for cash
|
|
|
113,333
|
|
|
|
113
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,886
|
|
|
|
-
|
|
|
|
4,160,000
|
|
|
|
(2,062,650
|
)
|
|
|
-
|
|
|
|
2,182,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation to directors
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
376,056
|
|
|
|
-
|
|
|
|
-
|
|
|
|
376,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrants issued to directors
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,903,586
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,903,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of vested employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,372
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of stock issued for services
|
|
|
50,000
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,450
|
|
|
|
-
|
|
|
|
23,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
of preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(360,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of preferred stock dividend
|
|
|
360,000
|
|
|
|
360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(360,000
|
)
|
|
|
359,640
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
50,000
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,534
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss in 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,538,899
|
)
|
|
|
(3,538,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
DECEMBER 31,
2008
|
|
|
34,931,009
|
|
|
$
|
34,931
|
|
|
|
4,000,000
|
|
|
$
|
4,000
|
|
|
$
|
137,000
|
|
|
$
|
12,912,545
|
|
|
$
|
259,892
|
|
|
$
|
4,559,056
|
|
|
$
|
(2,062,670
|
)
|
|
$
|
(11,000,931
|
)
|
|
$
|
4,843,823
|
|
See
accompanying notes to the consolidated financial statements.
BIO-BRIDGE SCIENCE INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASHFLOW
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
For
the Year Ended December 31, 2008
|
|
|
For
the Year Ended December 31, 2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,538,899
|
)
|
|
$
|
(1,600,792
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
34,656
|
|
|
|
19,308
|
|
Amortization
of land use right
|
|
|
18,476
|
|
|
|
17,285
|
|
Write
off of note receivable
|
|
|
-
|
|
|
|
40,000
|
|
Fair
value of stock compensation expense
|
|
|
2,517,512
|
|
|
|
388,648
|
|
Unrealized
loss on trading securities
|
|
|
90,745
|
|
|
|
372,192
|
|
Loss
on sale of trading securities
|
|
|
3,527
|
|
|
|
2,818
|
|
Minority
interests’ share of net loss
|
|
|
51,292
|
|
|
|
-
|
|
Allowance
for bad debt
|
|
|
12,000
|
|
|
|
-
|
|
Change
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(254,448
|
)
|
|
|
-
|
|
Inventories
|
|
|
233,272
|
|
|
|
-
|
|
Prepaid
expense and other current assets
|
|
|
7,656
|
|
|
|
(11,834
|
)
|
Accounts
payable
|
|
|
(5,428
|
)
|
|
|
-
|
|
Payable
to contractors
|
|
|
10,733
|
|
|
|
(350,568
|
)
|
Accrued
expenses and other payables
|
|
|
(13,264
|
)
|
|
|
(34,175
|
)
|
Net
Cash Used In Operating Activities
|
|
|
(832,170
|
)
|
|
|
(1,157,118
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Increase
in construction in progress
|
|
|
(723,279
|
)
|
|
|
(23,832
|
)
|
Purchase
of fixed assets
|
|
|
(20,593
|
)
|
|
|
(4,600
|
)
|
Purchase
of trading securities
|
|
|
-
|
|
|
|
(1,984,924
|
)
|
Proceeds
from sale of trading securities
|
|
|
1,300,010
|
|
|
|
99,998
|
|
Purchase
of business, net of cash acquired
|
|
|
(393,940
|
)
|
|
|
-
|
|
Net
Cash Provided By (Used In) Investing Activities
|
|
|
162,198
|
|
|
|
(1,913,358
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
2,182,349
|
|
|
|
22,500
|
|
Proceeds
from issuance of preferred stock
|
|
|
-
|
|
|
|
3,000,000
|
|
Proceeds
from issuance of previously issued stocks
|
|
|
-
|
|
|
|
25,071
|
|
Proceeds
from exercise of stock option
|
|
|
-
|
|
|
|
416
|
|
Due
to director
|
|
|
8,315
|
|
|
|
(18,885
|
)
|
Net
Cash Provided By Financing Activities
|
|
|
2,190,664
|
|
|
|
3,029,102
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
|
|
|
1,520,692
|
|
|
|
(41,374
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(138,812
|
)
|
|
|
(3,867
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
104,372
|
|
|
|
149,613
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
1,486,252
|
|
|
$
|
104,372
|
|
(Continued
)
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASHFLOW
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007(Continued)
|
|
For
the Year Ended December 31, 2008
|
|
|
For
the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
SUPPLEMENTAL
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Deemed
dividend related to beneficial conversion feature of convertible preferred
stock
|
|
$
|
-
|
|
|
$
|
1,293,320
|
|
Accrual
of preferred stock dividend
|
|
$
|
360,000
|
|
|
$
|
317,000
|
|
See
accompanying notes to the consolidated financial statements.
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
Bio-Bridge
Science, Inc ("the Company") was incorporated in the State of Delaware on
October 26, 2004. The Company's fiscal year end is December
31. On December 1, 2004, the Company acquired all of the outstanding
shares of Bio-Bridge Science Corporation ("BBS"), a Cayman Islands corporation,
in exchange for 29,971,590 shares of its common stock, and as a result, BBS
became a wholly owned subsidiary of Bio-Bridge Science, Inc. The acquisition was
accounted for as a reverse merger (recapitalization) with BBS deemed to be the
accounting acquirer, and the Company the legal acquirer.
BBS was
incorporated in the Cayman Islands on February 11, 2002. At the time
of the exchange, BBS held a 100% interest in Bio-Bridge Science (Beijing) Corp.
("BBS Beijing"), a wholly-foreign funded enterprise of the People's Republic of
China ("PRC") which was established on May 20, 2002. BBS Beijing is currently
engaged in the development and commercialization of several vaccine candidates,
such as HIV-PV vaccine I, cervical cancer vaccine, colon cancer vaccine, in
mainland China.
On July
31, 2008, the Company acquired 51 percent of the outstanding capital interest of
Huhhot Xinheng Baide Biotechnology Co., Ltd. (“XHBD”). XHBD was incorporated on
May 17, 2006 under the laws of the People’s Republic of China (“PRC”) as a
limited company, which is similar to a limited liability company. XHBD is
located in the city of Huhhot in Inner Mongolia of the PRC. The primary
operations of the Company are the manufacture and distribution of bovine serum
products, which is used in research, the production of pharmaceuticals, and
production of veterinary medicines. The results of XHBD are included in the
accompanying consolidated financial statements from August 1, 2008.
Going
Concern
Since its
inception, the Company has been engaged in organizational and pre-operating
activities. The Company has generated insignificant revenues and has incurred
accumulated losses and negative operating cash flows of $7,921,670 and
$11,000,931, respectively, from February 11, 2002 (Inception) through December
31, 2008. We incurred net losses of $3,538,899 and $1,600,792 for the
years ended December 31, 2008 and 2007, respectively.
Our
operations have been funded through issuances of our common stock and preferred
stock whereby we raised an aggregate $8,365,888 from February 11, 2002
(inception) through December 31, 2008.
During
2008, the Company sold 5,841,609 shares of its common stock to seven individuals
for a total of $4,244,999. Four of these individuals, who purchased a
total of 5,488,276 shares of common stock for a total of $3,980,000, are members
of our Board of Directors. Some of the sales agreements also included
warrants to purchase common stock (see Note 9).
During
2007, the Company sold 4,000,000 shares of Series A Convertible Preferred Stock
and warrants to purchase 3,000,000 shares of common stock at $1.00 per share to
three individuals for a total of $3,000,000 (see Note 10).
Based on
our current operating plan, we believe that we have sufficient cash and cash
equivalents to last approximately through April 2010. We will need to obtain
additional financing in addition to the funds already raised through the sale of
equity securities to fund our cash needs and continue our operations beyond
April 2010. Additional financing, whether through public or private equity or
debt financing, arrangements with stockholders or other sources to fund
operations, may not be available, or if available, may be on terms unacceptable
to us. Our ability to maintain sufficient liquidity is dependent on our ability
to raise additional capital. If we issue additional equity securities to raise
funds, the ownership percentage of our existing stockholders would be reduced.
New investors may demand rights, preferences or privileges senior to those of
existing holders of our common stock. Debt incurred by us would be senior to
equity in the ability of debt holders to make claims on our assets. The terms of
any debt issued could impose restrictions on our operations. If adequate funds
are not available to satisfy either medium or long-term capital requirements,
our operations and liquidity could be materially adversely affected and we could
be forced to cut back our operations.
2.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of
Bio-Bridge Science Inc. and our wholly owned subsidiaries, Bio-Bridge Science
Corp., Bio-Bridge Science (Beijing) Corp, Bio-Bridge Science Holding Co. and Bio
Bridge Science (HK), Co. and our 51% owned subsidiary Huhhot Xinheng Baide
Biotechnology Co. Ltd (“XHBD”). Intercompany accounts and transactions have been
eliminated in consolidation.
Development
Stage Reporting
In prior
periods, the Company was presented as a development stage company as defined by
Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting and
Reporting by Development Stage Enterprises." Subsequent to the
purchase of HXBD (see Note 3), the Company began operational activities and is
now presented as an operating company.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Management makes these estimates using the best
information available and the best judgment at the time the estimates are made,
however actual results could differ materially from those
estimates.
The
Company recognizes revenue from the sales of products in accordance with
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin ("SAB") No.
104, when persuasive evidence of an order arrangement exists, delivery has
occurred, the sales price is fixed or determinable and collectibility is
reasonably assured. Generally, these criteria are met at the time the
product is shipped to customers when title and risk of loss have
transferred.
Cash and
Cash Equivalents
For
financial reporting purpose, the Company considers all highly liquid investments
purchased with original maturity of three months or less to be cash
equivalents.
Cash at
BBS Beijing and HXBD, in the US dollar equivalent of $1,245,445 and $38,374 at
December 31, 2008 and 2007, respectively, was held in accounts at financial
institutions located in the PRC. The Company and its subsidiaries
have not experienced any losses in such accounts and do not believe the cash is
exposed to any significant credit risk.
The
Company's cash balances on deposit in banks in the United States of America are
now guaranteed up to $250,000 by the Federal Deposit Insurance Corporation (the
“FDIC”). The Company may periodically be exposed to risk for the amount of funds
held in one bank in excess of the insurance limit. In order to
control the risk, the Company's policy is to maintain cash balances with high
quality financial institutions. The Company had no cash balances with a bank in
excess of the insurance limit as of December 31, 2008 and 2007.
Accounts
Receivable
Accounts
receivable are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. The Company uses the
allowance method to account for uncollectible trade receivable
balances. An estimate for doubtful accounts is made when collection
of the full amount is no longer probable. At December 31, 2008, the
allowance for doubtful accounts was $12,000. At December 31, 2007,
the Company had no accounts receivables.
Inventories
Inventories
are stated at the lower of cost or market value. Cost is determined
principally on a first-in-first-out average cost basis.
Plant and
Equipment
Plant and
equipment are carried at cost less accumulated depreciation and amortization.
Depreciation or amortization is provided over the estimated useful life of the
asset, using the straight-line method. Estimated useful lives are as
follows:
Asset category
|
Useful
Life
|
Machinery
|
8
years
|
Motor
vehicles
|
8
years
|
Leasehold
improvements
|
Shorter
of 4 years or lease term
|
Office
equipment
|
3
years
|
The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of operations. The cost of maintenance and repairs is charged to income as
incurred, whereas significant renewals and betterments are
capitalized.
Construction
in Progress
Construction
in progress represents direct costs of construction or acquisition and design
fees incurred. Capitalization of these costs ceases and the construction in
progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are completed.
No depreciation is provided until it is completed and ready for intended
use.
Land Use
Rights
According
to the law of China, the government owns all the land in China. Companies or
individuals are authorized to possess and use the land only through land use
rights granted by the Chinese government. Land use rights are being amortized
using the straight-line method over the 25 year life of the Company’s Chinese
business license, which is shorter than the lease term of 50 years.
Goodwill
Goodwill
is related to the Company's acquisition of Huhhot Xinheng Baide Biotechnology
Co., Ltd on July 31, 2008 (see Note 3). Goodwill and other intangible
assets are accounted for in accordance with the provisions of SFAS No. 142,
“Goodwill and Other Intangible Assets”. Under SFAS 142, goodwill is not
amortized. Rather, goodwill is assessed for impairment at least
annually. The Company tests goodwill by using a two-step
process. In the first step, the fair value of the reporting unit is
compared with the carrying amount of the reporting unit, including
goodwill. If the carrying amount of the reporting unit exceeds its
fair value, goodwill is considered impaired and a second step is performed to
measure the amount of impairment loss, if any. Based on management’s
assessment, there were no indicators of impairment of recorded goodwill at
December 31, 2008.
Trading
Securities
The
Company accounts for trading securities using the guidance of Statement of
Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain
Investments in Debt and Equity Securities”. The Company’s investment
in trading securities is comprised of its investment in a Van Kampen unit
investment fund. Trading securities are reported at fair value, with any changes
in fair value during a period recorded as a charge or credit to net income
(loss). Gains or losses realized upon sale of all securities are recognized at
the time of sale. Cash received in excess of cumulative dividends is considered
a return of principal.
Financial
Assets and Liabilities Measured at Fair Value
Fair
Value Measurements are determined by the Company's adoption of Statement of
Financial Accounting Standards ("SFAS") No. 157, “Fair Value Measurements”
("SFAS 157") as of January 1, 2008, with the exception of the application of the
statement to non-recurring, non-financial assets and liabilities as permitted.
The adoption of SFAS 157 did not have a material impact on the Company's fair
value measurements. SFAS 157 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants at the measurement date. SFAS 157
establishes a fair value hierarchy, which prioritizes the
inputs used in measuring fair value into three broad levels as
follows:
Level
1—Quoted prices in active markets for identical assets or
liabilities.
Level
2—Inputs, other than the quoted prices in active markets, are observable either
directly or indirectly.
Level
3—Unobservable inputs based on the Company's assumptions.
SFAS 157
requires the use of observable market data if such data is available without
undue cost and effort
At
December 31, 2008, the Company’s financial assets and liabilities that were
measured at fair value include its investment in trading securities which have a
cost of $259,270, a gross unrealized loss of $143,636 and a fair value of
$115,634. The Company estimates the fair value of its trading securities based
on unadjusted quoted prices in active markets of identical assets. In accordance
with SFAS No. 157, this is a Level 1 valuation.
Foreign
Currency Translation
The
accompanying consolidated financial statements are presented in United States
dollars. The functional currency of the Company is the Renminbi (RMB). Capital
accounts of the consolidated financial statements are translated into United
States dollars from RMB at their historical exchange rates when the capital
transactions occurred. Assets and liabilities are translated at the exchange
rates as of balance sheet date. Income and expenditures are translated at the
average exchange rate of the year.
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Year
end RMB : US$ exchange rate
|
|
|
6.8346
|
|
|
|
7.3046
|
|
|
|
|
|
|
|
|
|
|
Average
yearly RMB : US$ exchange rate
|
|
|
7.0696
|
|
|
|
7.5567
|
|
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US
dollars at the rates used in translation.
Research
and Development
Research
and development costs are expensed as incurred. For the years ended
December 31, 2008 and 2007, research and development expenses totaled $104,422
and $155,087, respectively.
Income
Taxes
The
Company accounts for income tax using the liability method that allows for
recognition of deferred tax benefits in future years. Under the liability
method, deferred taxes are provided for the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize their
benefits, or that future utilization is uncertain.
Comprehensive
Income
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. The Company’s current
components of comprehensive income consist of foreign currency translation
adjustments:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Net
loss
|
|
$
|
(3,544,899
|
)
|
|
$
|
(1,600,792
|
)
|
Foreign
currency translation gain
|
|
|
38,534
|
|
|
|
140,955
|
|
Comprehensive
loss
|
|
$
|
(3,506,365
|
)
|
|
$
|
(1,459,837
|
)
|
Loss per
Share
SFAS No.
128, “Earnings Per Share”, requires presentation of basic earnings per share
(“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
during the period. The diluted earnings per share calculation gives effect to
all potentially dilutive common shares outstanding during the period using the
treasury stock method. Common equivalent shares consist of shares
issuable upon the exercise of stock options or warrants. As of December 31,
2008, common stock equivalents were composed of options convertible into
2,297,000 shares of the Company's common stock and warrants convertible into
8,864,943 shares of the Company's common stock. As of December 31, 2007, common
stock equivalents were composed of options convertible into 2,317,000 shares of
the Company's common stock and warrants convertible into 5,367,000 shares of the
Company's common stock. For the years ended December 31, 2008
and 2007, common equivalent shares have been excluded from the calculation of
loss per share as their effect is anti-dilutive.
Stock-Based
Compensation
The
Company periodically issues stock options and warrants to employees and
non-employees in capital raising transactions, for services and for financing
costs. The Company adopted SFAS No. 123R effective January 1, 2006, and is using
the modified prospective method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of SFAS No. 123R
for all share-based payments granted after the effective date and (b) based on
the requirements of SFAS No. 123R for all awards granted to employees prior to
the effective date of SFAS No. 123R that remain unvested on the effective
date. The Company accounts for stock option and warrant grants issued
and vesting to non-employees in accordance with EITF No. 96-18: “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” and EITF No. 00-18 “Accounting
Recognition for Certain Transactions involving Equity Instruments Granted to
Other Than Employees” whereas the value of the stock compensation is based upon
the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to
earn the equity instruments is complete.
Concentrations
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and unsecured trade accounts
receivable.
For the
year ended December 31, 2008, four customers accounted for 100% of total sales
(40%, 30%, 20% and 10% respectively). At December 31, 2008, three of
these customers accounted for 100% of accounts receivable (40%, 31%, and 29%,
respectively). There were no sales or accounts receivable in
2007.
Economic
and Political Risks
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company’s results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation, among other
things.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, and
SFAS No. 160,
Accounting and
Reporting of Non-Controlling Interest in Consolidated Financial
Statements
, an Amendment of ARB No. 51. These new standards will
significantly change the financial accounting and reporting of business
combination transactions and non-controlling (or minority) interests in
consolidated financial statements. We will be required to adopt SFAS No. 141(R)
and SFAS No. 160 on or after December 15, 2008. The adoption of SFAS
141(R) and SFAS No. 160 will, among other things, effect the Company’s
presentation of minority interest, which will now be included in equity in our
consolidated financial statements.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (“FSP 157-2”).
FSP 157-2 delays the implementation of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis. This statement
defers the effective date to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years, which is fiscal year 2010 for the
Company. The Company does not believe that the adoption of FSP 157-2
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows.
In April
2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”), which amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FASB Statement No. 142,
“Goodwill and Other Intangible Assets.” FSP 142-3 is effective beginning on
January 1, 2009. The Company does not believe that the adoption of Staff
Position No. FAS 142-3 will have a material effect on the Company’s consolidated
results of operations, financial position, or cash flows.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
3. ACQUISITION
OF HUHHOT XINHENG BAIDE BIOTECHNOLOGY CO., LTD.
On July
31, 2008, the Company acquired 51 percent of the outstanding capital interest of
Huhhot Xinheng Baide Biotechnology Co., Ltd. (“XHBD”). XHBD is located in the
city of Huhhot in Inner Mongolia of the PRC and is organized under the laws of
the PRC. XHBD manufactures and distributes bovine serum products, which is used
in research, the production of pharmaceuticals, and production of veterinary
medicines. The Company purchased 51 percent of the outstanding capital interest
of XHBD in exchange for cash of $881,058 (RMB 6,000,000). The acquisition has
been accounted for as a purchase in accordance with SFAS No. 141
Business Combinations
. As
such, the results of XHBD's operations have been included in the consolidated
financial statements since August 1, 2008. The components of the purchase price
and the allocation of the purchase price are as follows:
Purchase
Price
|
|
|
|
Cash
consideration
|
|
$
|
881,058
|
|
Purchase
price allocation
|
|
|
|
Fair
value of tangible assets acquired, including cash of
$487,118
|
|
$
|
1,114,828
|
|
Goodwill
|
|
|
243,248
|
|
|
|
|
1,358,076
|
|
Historical
cost of 49% minority interest
|
|
|
(477,018
|
)
|
Net
purchase price
|
|
$
|
881,058
|
|
Allocation
of the purchase price was determined by management who utilized a valuation
prepared by independent valuation experts as part of their assessment. Goodwill
represents the excess of the purchase price of XHBD over the fair value of the
identifiable assets acquired and liabilities assumed. The Company accounts for
minority interest using a historical basis.
The
following unaudited pro forma operating data shown below presents the results of
operations for the year ended at December 31, 2008 and 2007, as if the
acquisition of XHBD had occurred at the beginning of the earliest fiscal period
presented. The pro forma results are not necessarily indicative of
the financial results that might have occurred had the acquisition actually
taken place on the respective dates, or of future results of
operations.
|
Pro
forma combined
|
|
|
2008
|
|
2007
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Net
sales
|
|
$
|
845,123
|
|
|
$
|
556,733
|
|
Net
loss
|
|
$
|
(3,526,138
|
)
|
|
$
|
(1,567,155
|
)
|
Net
loss per share-basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.05
|
)
|
Weighted
average shares outstanding-basic and diluted
|
|
|
34,578,525
|
|
|
|
33,992,951
|
|
In
addition, China Diamond, an entity controlled by Mr. Trevor Roy, a director of
the Company, purchased 14 percent of XHBD on April 30, 2008.
4. INVENTORIES
Inventories
as of December 31, 2008 and 2007 consist of the following:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
40,929
|
|
|
$
|
9,195
|
|
Finished
goods
|
|
|
450,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
|
$
|
491,347
|
|
|
$
|
9,195
|
|
5. TRADING
SECURITIES
At
December 31, 2008 and 2007, trading securities consisted of the
following:
|
|
2008
|
|
|
2007
|
|
Cost
|
|
$
|
206,379
|
|
|
$
|
1,882,108
|
|
Unrealized
loss
|
|
|
(90,745
|
)
|
|
|
(372,192
|
)
|
Fair
Value
|
|
$
|
115,634
|
|
|
$
|
1,509,916
|
|
6. PROPERTY
AND EQUIPMENT
Property
and equipment consist of the following at December 31, 2008 and
2007:
|
|
2008
|
|
|
2007
|
|
Transportation
Facilities
|
|
$
|
41,958
|
|
|
$
|
16,020
|
|
Office
Equipment
|
|
|
60,393
|
|
|
|
33,747
|
|
Machinery
|
|
|
132,164
|
|
|
|
62,719
|
|
Leasehold
improvement
|
|
|
93,692
|
|
|
|
|
|
|
|
|
328,207
|
|
|
|
112,486
|
|
Less
accumulated depreciation
|
|
|
(84,700
|
)
|
|
|
(46,712
|
)
|
Fixed
assets, net
|
|
$
|
243,507
|
|
|
$
|
65,774
|
|
Depreciation
expense for the years ended December 31, 2008 and 2007 was $34,656 and $19,308,
respectively.
7. LAND
USE RIGHT
In July
2003, the Company obtained a 50 year land use right to build a research factory
in Beijing, PRC. This amount has been capitalized and is being amortized over
twenty-five years, the term of the Company's business license.
Land use
right as of December 31, 2008 and 2007, consisted of the following:
|
|
2008
|
|
|
2007
|
|
Cost
|
|
$
|
477,812
|
|
|
$
|
447,068
|
|
Less
accumulated amortization
|
|
|
(105,116
|
)
|
|
|
(80,471
|
)
|
|
|
|
|
|
|
|
|
|
Net
land use rights
|
|
$
|
372,696
|
|
|
$
|
366,597
|
|
The
expected amortization of the land use right over each of the next five years and
thereafter is summarized as follows:
Year
ending December 31,
|
|
Amount
|
|
2009
|
|
$
|
17,882
|
|
2010
|
|
|
17,882
|
|
2011
|
|
|
17,882
|
|
2012
|
|
|
17,882
|
|
2013
|
|
|
17,882
|
|
Thereafter
|
|
|
283,286
|
|
|
|
$
|
372,696
|
|
8. INCOME
TAXES
The
Company has not recorded a provision for U.S. federal income tax for the years
ended December 31, 2008 and 2007 due to a net operating loss carry forward in
the United States of America. The net operating loss carry forward in
the United States of America as of December 31, 2008 was $276,931 and expires
through 2014.
In
accordance with the relevant tax laws and regulations of PRC, the applicable
corporation income tax rate for BBS Beijing and HXBD are 15% and 25%,
respectively.
Corporation
Income Tax ("CIT")
Beginning
January 1, 2008, China implemented a new CIT, in which local and foreign
enterprises are subject to CIT of 25%. Previously, the CIT was
33%. BBS Beijing is entitled to full exemption from Chinese CIT for
the first two years after recording a profit. BBS Beijing did not
record a profit in 2008 or 2007. HXBD taxes are not due until after
2009, and its CIT rate is reduced to 12.5% from 25% in 2010-2012.
Significant
components of the Company's deferred income tax assets at December 31, 2008 and
2007 are as follows:
|
|
2008
|
|
|
2007
|
|
Deferred
income tax asset:
|
|
|
|
|
|
|
Net
operating loss carried forward
|
|
|
276,931
|
|
|
|
237,339
|
|
Valuation
allowance
|
|
|
(276,931
|
)
|
|
|
(237,339
|
)
|
Net
deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation
of the effective income tax rate to CIT statutory rate for the years ended
December 31, 2008 and 2007 is as follows:
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
Tax
expense (benefit) at the statutory income tax rate
|
|
|
(25.0
|
)%
|
|
|
(33.0
|
)%
|
Net
operating loss valuation
|
|
|
26.0
|
%
|
|
|
33.0
|
%
|
Effective
income tax (benefit) rate
|
|
|
1.0
|
%
|
|
|
0
|
%
|
Effective January 1, 2007, the Company adopted
Financial Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes (“FIN 48”) — an interpretation of FASB Statement No.
109, Accounting for Income Taxes.” The Interpretation addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48, we may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures. At the
date of adoption, and as of December 31, 2008, the Company does not have a
liability for unrecognized tax uncertainties. The Company and its Chinese
subsidiaries have never been subject to a tax examination and all years are open
to examination by the tax authorities.
Value
added tax ("VAT")
In
accordance with the relevant tax laws in the PRC, VAT is levied at 17% on the
invoiced value of sales and is payable by the consumer. The Company is required
to remit the VAT collected to the tax authority, but may deduct therefore the
VAT it has paid on eligible purchases.
9. SHAREHOLDERS’
EQUITY
Preferred
Stock
On
December 31, 2006, the Company amended its certificate of incorporation to
provide for 5,000,000 shares of Series A preferred stock. Pursuant to the
Company's certificate of incorporation, its board of directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of undesignated preferred stock, par value $0.001 per share. The
Company's board will also have the authority, without the approval of the
stockholders, to fix the designations, powers, preferences, privileges and
relative, participating, optional or special rights and the qualifications,
limitations or restrictions of any preferred stock issued, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. Preferred stock could thus be issued with terms that could delay or
prevent a change in control of our company or make removal of management more
difficult.
On
January 30, 2007, the Company entered into a Securities Purchase Agreement with
three individuals, whereby the Company agreed to sell 4,000,000 shares of Series
A Convertible Preferred Stock and warrants to purchase 3,000,000 shares of
common stock at $1.00 per share. On February 12, 2007, the preferred stock and
warrants were issued for $0.75 per unit, or $3,000,000 in
aggregate.
The
preferred stock earns dividends at 12% annually, in common shares of the Company
valued at $1.00 per share, payable semiannually in arrears. The preferred stock
dividend is cumulative and non-participating. During the years ended
December 31, 2008 and 2997, the Company recorded $360,000 and $317,000 of
preferred stock dividends payable. The preferred stock has
liquidation preference of $0.75 per share and no voting rights. The preferred
shares contain
standard anti-dilution
protection.
At the
holder’s option, the preferred stock is convertible into the Company’s common
stock on a one-for-one basis anytime up to January 30, 2010 (three years). The
conversion price is $0.75 per share, subject to reset adjustments, but in no
event below $0.50 per share.
At the
Company’s option, the preferred stock is convertible into the Company’s common
stock (at the conversion price initially set at $0.75 per share) when the
average closing price of the common stock for any 20 consecutive trading days is
at least $2.00. On the third anniversary (January 30, 2010) of the closing, the
Company shall have the right to convert all the Preferred Stock then outstanding
into shares of common stock.
The
warrants are exercisable through January 20, 2010, into 3,000,000 shares of the
Company’s common stock for $1.00 per share.
The
$3,000,000 proceeds were allocated to the preferred stock and warrants based on
their relative fair values. The Company determined the fair value of the
warrants to be $693,177 using a Black-Scholes option pricing model with the
following assumptions: expected volatility of 50%, a risk-free interest rate of
3.40%, an expected term of 3 years, and 0% dividend yield. The
Company determined the warrants are properly classified as an equity instrument
and no value was recorded for the warrants as any value assigned would result in
an increase and decrease to additional-paid-in-capital in the same amount. The
conversion terms of the preferred stock resulted in a beneficial conversion
feature valued at $1,293,320. The Company recorded a charge to retained earnings
for $1,293,320 representing a deemed dividend to the preferred stockholders with
the offset recorded in additional paid in capital.
Common
Stock
In 2008,
the Company sold 5,841,609 shares of common stock and warrants to purchase
5,814,943 shares of common stock to seven individuals at $0.725 to $0.75 per
unit, for total consideration of $4,245,000. Four of these
individuals, who purchased a total of 5,488,276 shares of common stock and
warrants to purchase 5,488,276 shares of common stock for a total of $3,980,000,
are members of our Board of Directors. As of December 31, 2008,
$2,182,350 of the total consideration had been received, and the balance of
$2,062,650 is included in subscription receivable, including $1,852,500
subscription receivable from directors.
The fair
value of the warrants acquired by the directors was $1,903,587, which was
determined using the Black-Scholes valuation method, using the following
assumptions: no expected dividend yield; a risk-free interest rate of 2.4%; an
expected life of 3 to 5 years; and an estimated volatility of 56 percent based
on recent history of the stock price in the industry. The total of $1,903,587
was charged to compensation expense on the date the warrants were acquired (see
Note 10). In addition, $339,655 of stock compensation was recognized
for two of the directors for the difference between the fair value of the units
they purchased based on the closing price of the Company’s common stock and the
purchase price of the units on the dates of the transactions.
In 2007,
the Company sold 30,000 shares of common stock at $0.75 per share for total
consideration of $22,500.
Issuance of common stock for
services
On March
23, 2007, the Company granted three directors 10,000 shares each of restricted
common stock for one year of board service. The fair value of 30,000 shares was
determined to be $30,000, based on the closing price of the shares when granted,
and was recorded as compensation cost when the shares were granted.
On July
1, 2007, the Company granted two scientific board advisors 10,000 shares each of
restricted common stock for one year of scientific board service. The fair value
of 20,000 shares was determined to be $20,000, based on the closing price of the
shares when granted, and was recorded as compensation cost when the shares were
granted.
On July
1, 2008, the Company agreed to issue CH Capital LLC 50,000 shares of restricted
common stock for investor relations services. The fair value of the 50,000
shares was determined to be $87,500 based on the closing price of the Company’s
common stock on the date the agreement was signed. The Company recorded $87,500
as consulting expense when the shares were granted.
On
October 1, 2008, the Company entered into consulting agreements with two
scientific advisors in which the company granted 20,000 shares of restricted
common stock to them for scientific advisory service. The fair value of the
20,0000 shares was determined to be $23,000, based on the closing price of the
shares when granted, and was recorded as compensation cost when the shares were
granted. As of December 31, 2008, these shares had not been
issued.
On
November 26, 2008, the Company granted 70,000 shares of restricted common stock
to seven board members for their service. The fair value of the 70,000 shares of
restricted common stock was determined to be $36,400, based on the closing price
of the shares when granted, and was recorded as compensation cost when the
shares were granted.
10. STOCK
OPTION AND WARARNTS
On
December 1, 2004, the Company approved and adopted the 2004 Stock Incentive
Plan. The 2004 stock incentive plan provides for the grant of incentive stock
options to our employees, and for the grant of non-statutory stock options,
restricted stock, stock appreciation rights and performance shares to our
employees, directors and consultants. The Company has reserved a total of
2,000,000 shares of its common stock for issuance pursuant to the 2004 stock
incentive plan. The 2004 stock incentive plan does not provide for automatic
annual increases in the number of shares available for issuance under the plan.
As of December 31, 2008, 1,877,000 options had been granted under this plan, and
an additional 420,000 options have been granted outside of the
plan.
The
administrator determines the exercise price of options granted under our 2004
stock incentive plan, but the exercise price must not be less than 85% of the
fair market value of our common stock on the date of grant. In the event the
participant owns 10% or more of the voting power of all classes of our stock,
the exercise price must not be less than 110% of the fair market value per share
of our common stock on the date of grant. With respect to all incentive stock
options, the exercise price must at least be equal to the fair market value of
our common stock on the date of grant. The term of an incentive stock option may
not exceed 10 years, except with respect to any participant who owns 10% of the
voting power of all classes of our outstanding stock or the outstanding stock of
any parent or subsidiary of ours, which the term must not exceed five years and
the exercise price must equal at least 110% of the fair market value on the
grant date. The administrator determines the term of all other options; however,
no option will have a term in excess of 10 years from the date of
grant.
On
November 26, 2008, the Company approved and adopted the 2008 Stock Incentive
Plan. The 2008 stock incentive plan provides for the grant of incentive stock
options to our employees, and for the grant of non-statutory stock options,
restricted stock, stock appreciation rights and performance shares to our
employees, directors and consultants. The Company has reserved a total of
4,000,000 shares of its common stock for issuance pursuant to the 2004 stock
incentive plan. The 2004 stock incentive plan does not provide for automatic
annual increases in the number of shares available for issuance under the plan.
As of December 31, 2008, no options had been granted under this
plan.
The
administrator determines the exercise price of options granted under our 2008
stock incentive plan, but the exercise price must not be less than 85% of the
fair market value of our common stock on the date of grant. In the event the
participant owns 10% or more of the voting power of all classes of our stock,
the exercise price must not be less than 110% of the fair market value per share
of our common stock on the date of grant. With respect to all incentive stock
options, the exercise price must at least be equal to the fair market value of
our common stock on the date of grant. The term of an incentive stock option may
not exceed 10 years, except with respect to any participant who owns 10% of the
voting power of all classes of our outstanding stock or the outstanding stock of
any parent or subsidiary of ours, which the term must not exceed five years and
the exercise price must equal at least 110% of the fair market value on the
grant date. The administrator determines the term of all other options; however,
no option will have a term in excess of 10 years from the date of
grant.
Issuance of stock
options
On April
1, 2007, the Company granted to Mr. Larry E. Henneman, Jr. an option to purchase
20,000 shares of commons stock for legal services in connection with our patent
applications in the United States. The exercise price is $0.001 and the
expiration date is five years from the grant date. The fair value of the options
was $20,783 at the date of grant, which was determined using the Black-Scholes
valuation method, using the following assumptions: no expected dividend yield; a
risk-free interest rate of 3.4%; an expected life of 5 years; and an estimated
volatility of 52 percent based on recent history of the stock price in the
industry. The total of $20,783 was charged to consulting expense at the date the
options were granted.
On April
1, 2007, the Company granted Seven Star International Corp. an option to
purchase 100,000 shares of common stock for 2 years of consulting service. The
exercise price is $0.001 and the expiration date is five years from the grant
date. The fair value of the options was $103,916 at the date of grant, which was
determined by the Black-Scholes valuation method, using the following
assumptions: no expected dividend yield; risk-free interest rate of 3.4%;
expected life of 5 years; and estimated volatility of 52 percent based on recent
history of the stock price in the industry. The total of $103,916 was charged to
consulting expense at the date the options were granted.
At
December 31, 2008 and 2007, stock options outstanding were as
follows:
|
|
Options
Granted
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
2,685,675
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
122,000
|
|
|
|
0.001
|
|
Exercised
|
|
|
(415,675
|
)
|
|
|
0.001
|
|
Expired
or withdrawn
|
|
|
(75,000
|
)
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
2,317,000
|
|
|
|
0.42
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Withdrawn
|
|
|
(20,000
|
)
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
2,297,000
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2008
|
|
|
2,297,000
|
|
|
$
|
0.42
|
|
The
following table summarizes information about stock options outstanding as of
December 31, 2008:
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise
Prices
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
$0.001
to $0.55
|
|
|
2,297,000
|
|
|
$
|
0.42
|
|
|
|
7.08
|
|
|
|
2,297,000
|
|
|
$
|
0.42
|
|
Information
relating to stock options at December 31, 2008 summarized by exercise price is
as follows:
|
|
|
Exercisable
|
|
Exercise
price per
Share
|
|
|
Number
of
shares
|
|
|
Remaining
Life (years)
|
|
|
Exercise
price
|
|
|
Number
of
Shares
|
|
|
Weighted
average
exercise
price
|
|
$0.001
|
|
|
|
400,000
|
|
|
|
6.44
|
|
|
$
|
0.001
|
|
|
|
400,000
|
|
|
$
|
0.0001
|
|
$0.001
|
|
|
|
20,000
|
|
|
|
3.75
|
|
|
$
|
0.001
|
|
|
|
20,000
|
|
|
$
|
0.0001
|
|
$0.5
|
|
|
|
1,277,000
|
|
|
|
7.25
|
|
|
$
|
0.50
|
|
|
|
1,277,000
|
|
|
$
|
0.50
|
|
$0.55
|
|
|
|
600,000
|
|
|
|
7.25
|
|
|
$
|
0.55
|
|
|
|
600,000
|
|
|
$
|
0.55
|
|
$0.001
to $0.55
|
|
|
|
2,297,000
|
|
|
|
7.08
|
|
|
$
|
0.42
|
|
|
|
2,297,000
|
|
|
$
|
0.42
|
|
The
aggregate intrinsic value of 2,297,000 options outstanding and exercisable as of
December 31, 2008 was $3,629,260. The aggregate intrinsic value for the options
is calculated as the difference between the price of the underlying awards and
quoted price of the Company’s common shares for the options that were
in-the-money as of December 31, 2008. At December 31, 2008, all options shares
were vested, and there is no unamortized cost to be recognized in future
periods.
Common stock
warrants
On
January 30, 2007, the Company issued warrants to purchase 3,000,000 shares of
common stock at $1.00 per share with a term of three years to three individuals
who also agreed to purchase 4,000,000 shares of Series A Convertible Preferred
Stock at $0.75 per share (see Note 9). The Company determined the
warrants are properly classified as an equity instrument and no value was
recorded for the warrants as any value assigned would result in an increase and
decrease to additional-paid-in-capital in the same amount.
On June
4, 2008 and June 18, 2008, the Company issued two series of warrants to four
investors to purchase 183,334 shares of common stock at $0.75 per share with a
term of three years and to purchase 183,333 shares of common stock at $1.20 per
share with a term of four years (366,667 warrants in the aggregate). Warrants to
purchase 40,000 shares of common stock were acquired by two of our directors
(see Note 9). We recorded the fair value of the warrants acquired by the two
directors as compensation costs. The fair value of three-year warrant and
five-year warrant issued to our directors was $5,898 and $5,610, respectively,
at the grant date, which was determined using the Black-Scholes valuation
method, using the following assumptions: no expected dividend yield; a risk-free
interest rate of 2.4%; an expected life of 3 and 5 years respectively; and an
estimated volatility of 56 percent based on recent history of the stock price in
the industry. The total of $11,508 was charged to compensation cost at the date
the warrants were granted.
On July
2, 2008, Company issued warrants to another director (see Note 9) to purchase
1,724,138 shares of common stock at $0.725 per share with a term of four years
and to purchase 1,724,138 shares of common stock at $1.10 per share with a term
of five years. We recorded the fair value of the warrants to purchase
the 3,448,276 shares of common stock as compensation cost. The fair value of
four-year warrant and five-year warrant issued to these two investors was
$633,091 and $546,220, respectively, at the grant date, which was determined
using the Black-Scholes valuation method, using the following assumptions: no
expected dividend yield; a risk-free interest rate of 2.4%; an expected life of
4 and 5 years respectively; and an estimated volatility of 56 percent based on
recent history of the stock price in the industry. The total of $1,179,311 was
charged to compensation cost at the date the warrants were granted.
On July
9, 2008, Company issued warrants to another director (see Note 9) to purchase
1,000,000 shares of common stock at $0.725 per share with a term of four years
and to purchase 1,000,000 shares of common stock at $1.10 per share with a term
of five years. We recorded the fair value of the warrants to purchase
2,000,000 shares of common stock as compensation cost. The fair value of
four-year warrant and five-year warrant issued to these two investors was
$382,474 and $330,293, respectively, at the grant date, which was determined
using the Black-Scholes valuation method, using the following assumptions: no
expected dividend yield; a risk-free interest rate of 2.4%; an expected life of
4 and 5 years respectively; and an estimated volatility of 56 percent based on
recent history of the stock price in the industry. The total of $712,767 was
charged to compensation cost at the date the warrants were granted.
At
December 31, 2008 and 2007, warrants outstanding were as follows:
|
|
Number
of
Shares
under Warrants
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
Warrants
outstanding at January 1, 2007
|
|
|
50,000
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted
|
|
|
3,000,000
|
|
|
|
1.00
|
|
Warrants
expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2007
|
|
|
3,050,000
|
|
|
$
|
1.01
|
|
Warrants
granted
|
|
|
5,814,943
|
|
|
|
.97
|
|
Warrants
expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2008
|
|
|
8,864,943
|
|
|
$
|
0.95
|
|
The
following table summarizes information about warrants outstanding at December
31, 2008:
Warrants
Outstanding and Exercisable
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares Under Warrants
|
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
$
|
1.20
|
|
November
20, 2009
|
|
$
|
1.20
|
|
3,000,000
|
|
|
$
|
1.00
|
|
January
20, 2010
|
|
$
|
1.00
|
|
183,334
|
|
|
$
|
0.75
|
|
June
4, 2011
|
|
$
|
0.75
|
|
183,333
|
|
|
$
|
1.20
|
|
June
4, 2013
|
|
$
|
1.20
|
|
1,724,138
|
|
|
$
|
0.725
|
|
July
2, 2012
|
|
$
|
0.725
|
|
1,724,138
|
|
|
$
|
1.10
|
|
July
2, 2013
|
|
$
|
1.10
|
|
1,000,000
|
|
|
$
|
0.725
|
|
July
9, 2012
|
|
$
|
0.725
|
|
1,000,000
|
|
|
$
|
1.10
|
|
July
9, 2013
|
|
$
|
1.10
|
|
8,864,943
|
|
|
$
|
0.75-$1.20
|
|
|
|
$
|
0.95
|
|
11. COMMITMENTS
AND CONTINGENCIES
In May
2003, the Company acquired a land use right for approximately 28 acres of land
in the Tianzhu Export Processing Zone, Shunyi District, Beijing, China, which
the Company plans to develop into a laboratory and bio-manufacturing facility in
compliance with Good Manufacturing Practices, or GMP, regulations primarily for
clinical trials of our vaccine candidates. The general plans for development
include the construction of a laboratory facility (“Phase One”) and construction
of an administrative office building (“Phase Two”). At December 31, 2008, the
Phase One construction and internal clean room are awaiting the inspections and
approval from the government, which is expected to be finished by the second
quarter of 2009, and is recorded as construction in progress. At December 31,
2008, $185,929 was due to the contractors of Phase One for the completed
construction and internal clean room decoration and this obligation is recorded
as due to contractors.
The
Company estimates the cost of laboratory equipment for Phase One to be fully
operational will be approximately $500,000. As of December 31, 2008, the Company
had signed agreements with several parties for the purchase of the laboratory
equipment. The Company estimates the purchase and installation of the laboratory
equipment will be completed by the second quarter of 2009. At December 31, 2008,
Phase Two was still in the design stage. The Company estimates the total project
costs for Phase Two will be approximately $1,200,000.
The Company estimates
that construction may begin on Phase Two in 2011 or later, but currently has no
plans for Phase Two construction.
Lease
Commitment
As of
December 31, 2008, We had remaining outstanding commitments with respect to its
non-cancelable operating lease for our office in Oak Brook, IL, of which $28,087
and $19,004 is due in 2009 and 2010, and our office in Beijing, PRC (which is
leased from Wenhui, Qiao, our director and president), of which $11,437, is due
in 2009 and none thereafter.
Royalty
and License Arrangements
Liang
Qiao, M.D., our co-founder and chief executive officer, is one of the two
co-inventors of our core technology that was assigned to Loyola University
Chicago in April 2001. Under an agreement with Loyola University Chicago, we
have obtained exclusive rights to this technology for use in its future products
within the United States, Japan and the People's Republic of China, including
mainland China, Hong Kong, Taiwan and Macau. The license continues perpetually
or for the maximum period of time permitted by law, unless terminated earlier
under the terms of the agreement. Pursuant to this agreement, Loyola receives a
royalty of 4% from the net profit for all uses of the licensed technology,
including uses under sublicenses. As of December 31, 2008, we had not generated
any revenues from the sale of any products under development, nor had we
received any revenues from sublicenses.
Potential
Joint Venture
We
entered into a non-binding memorandum of understanding with JR Scientific, Inc.,
a Woodland, California based manufacturer of classical and custom cell culture
medium and sera products ("JRS”) and Mr. Jan Baker, President and CEO of JRS on
April 15, 2008. Under the agreement, the Company will form a joint venture
together with JRS and several other investors in China to produce culture
medium, serum, and other biomaterial for sale in China and other
countries. The total investment for the joint venture is planned to
be around RMB 10 million (approximately $1,500,000). We expect to own at least
51% of the new joint venture. The joint venture is expected to be formed in the
second quarter of 2009. However, the agreement is non-binding and we are not
certain a joint venture will be formed
Contractual
Obligations
Payments
due under contractual obligations at December 31, 2008 mature as
follows:
|
|
Payments
due by period ($ in thousands)
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1
to 3
years
|
|
Lease
obligation
|
|
$
|
59
|
|
|
$
|
40
|
|
|
$
|
19
|
|
Payable
to contractors
|
|
|
186
|
|
|
|
186
|
|
|
|
|
|
R&D
agreement obligation
|
|
|
5
|
|
|
|
5
|
|
|
|
—
|
|
Total
|
|
$
|
250
|
|
|
$
|
231
|
|
|
$
|
19
|
|
11.
SUBSEQUENT EVENTS
In the
first quarter of 2009, we signed investment agreements with 123 individual
investors in which we sold a total of 12,800 shares of common stock at $1.375
per share. These shares of common stock shares are restricted, and can only be
resold in accordance with Rule 144.
Bio Bridge Science (CE) (USOTC:BGES)
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Bio Bridge Science (CE) (USOTC:BGES)
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