SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 20, 2005
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Date of Report
(Date of Earliest Event Reported)
TS Electronics, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-29523 73-1564806
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
Unit 8, D Area, Office Hall, Haikou Bonded Zone, Haikou, Hainan Province, China.
Zip Code: 570216
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(Address of principal executive offices)
Zip Code: 570216
Telephone: +86 898 6681 8282
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(Registrant's telephone number, including area code)
12890 Hilltop Road, Argyle, Texas 76226
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(Former name and former address, if changed since last report)
SECTION 1--REGISTRANT'S BUSINESS AND OPERATIONS
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SECTION 1--REGISTRANT'S BUSINESS AND OPERATIONS
Item 1.01 Entry into a Material Definitive Agreement
On October 20, 2005 we entered into a Securities Exchange Agreement (the
"Exchange Agreement") with Onny Investment Limited, a corporation organized
under the laws of the British Virgin Islands ("Onny"), and its original
stockholders and Halter Financial Group, Inc. ("Halter") pursuant to which we
acquired all of the issued and outstanding shares of Onny from said stockholders
in exchange for 27,499,940 shares of our common stock. Upon the effectiveness of
an amendment to the Company's Certificate of Incorporation to increase its
common capital stock, as more particularly described below, the Company shall
issue to Heung Mei Tsui, the principal stockholder of Onny, an additional
4,723,056 shares of common stock (the "Post Closing Shares") to which she would
otherwise have been entitled if the Company had enough authorized shares as of
the closing of the exchange transaction (the "Exchange Transaction"). Upon the
issuance of the Post Closing Shares, Ms. Tsui will hold 25,278,385 shares or
approximately 72.8% of the issued and outstanding common capital stock of the
Company..
The Agreement entered into is an ordinary stock-swap agreement containing the
standard representations, warranties, and covenants.
On October 20, 2005, Onny completed a private placement of $5,000,000 (the
"Offering") in consideration of the issuance of 10,000 shares of preferred
stock.. Participants in this Offering exchanged their preferred shares for
ordinary shares in contemplation of participating the Exchange Transaction with
the Company. As a result, offering participants received in the aggregate
6,944,611 shares of our common stock in the Exchange Transaction.
Under the terms of the Offering, Ms. Heung Mei Tsui has agreed to escrow
6,944,611 shares of the Company's common stock that she received as a result of
the Exchange Transaction, which shares represent 20% of the Company's issued and
outstanding common capital stock immediately following the closing of the
Exchange Transaction (the "Make Good Pool"), so that in the event the
consolidated financial statements of the Company do not reflect $8 million of
Net Income ("NI") for the fiscal year ending December 31, 2006 (the "Guaranteed
NI") the Make Good Shares can be distributed on a pro rata basis to the
participants of the Offering in accordance with the following formula:
Make Good Pool = (($8 million - Actual FY 06 US GAAP Net Income) /$8m)X
Make Good Pool
If required, the Make Good Shares will be delivered to participants in the
Offering within ten (10) business days of the date the audit report for the
period is filed with the SEC.
Ms. Heung Mei Tsui has also escrowed 277,785 shares of the Company's common
stock that she received as a result of the Exchange Transaction, which shares
represent 0.8% of the Company's issued and outstanding common capital stock
immediately following the closing of the Exchange Transaction (the " HFG Make
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Good Shares"), so that in the event the Company does not achieve the Guaranteed
NI the HFG Make Good Shares will be distributed to HFG International, Limited in
accordance with the following formula:
HFG Make Good Shares = (($8 million - Actual FY 06 US GAAP Net Income)
/$8m)X HFG Make Good Pool
If required, the HFG Make Good Shares will be delivered within ten (10) business
days of the date the audit report for the period is filed with the SEC.
The Company intends to file an Information Statement in accordance with Section
14 of the Securities Exchange Act of 1934, as amended, for the purpose of
increasing the Company's authorized common capital stock to 100,000,000 shares,
to change the Company's name to ChinaPharma Holdings, Inc. and to grant to the
board of directors the right to conduct up to a 2.89 for 1 reverse split of our
common stock at any time commencing 20 days after the Information Statement is
mailed to our stockholders and ending six months thereafter.
SECTION 2--FINANCIAL INFORMATION
Item 2.01. Completion of Acquisition or Disposition of Assets.
Reference is made to the Exchange Transaction identified in Item 1.01 above.
DESCRIPTION OF THE COMPANY'S PREDECESSOR BUSINESS
TS Electronics, Inc. (formerly, Softstone, Inc.) was incorporated on January 28,
1999 pursuant to the provisions of the General Corporation Act of the State of
Delaware. On May 31, 1999, we merged with Soft Stone Building Products, Inc., an
Oklahoma corporation that was a predecessor to our company's business. Our
initial business operations were conducted at 620 Dallas Drive, Denton TX 76205.
On February 1, 2000, we moved our offices and facilities to Ardmore, OK. In June
2002, we moved our office facilities to Pottsboro, TX . On August 13, 2003, we
changed our name to TS Electronics, Inc.
Our focus initially was solely on realizing the commercial benefits of a process
developed and patented by our first president, Frederick Parker. This process
converted waste tires into useful products. We were not successful in promoting
this business, wrote off all assets associated with the business and shifted our
attention to the commercial possibilities of a then, newly discovered
devulcanization process to which we acquired a 5.5-year exclusive license for
the Western Hemisphere. In addition, we entered into the business of importing
hard-to-find and specialty crumb rubber. We were also not successful in these
endeavors, and have abandoned all efforts regarding these pursuits.
Effective August 11, 2004, the company entered into a Stock Exchange Agreement
with Mr. Hou Xiao, the sole stockholder of China ESCO Holdings Limited ("China
ESCO"), a company organized in the Hong Kong Special Administration Region in
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the People's Republic of China and its wholly owned operating subsidiary,
AsiaNet PE Systems Limited. China ESCO was engaged in the development and
manufacturing of electrical energy saving systems and products in the PRC.
The consummation of the transaction with China ESCO was subject to a number of
conditions, including receipt by us of financial statements of China ESCO as
required under applicable regulations, and satisfaction of all applicable
regulatory requirements. In January 2005, we declared China ESCO to be in
material breach of the agreement and rescinded the agreement.
Effective February 8, 2005, we executed a Letter of Intent with Osage Energy
Company, LLC ("Osage") whereby Osage would acquire 90% of the equity interests
of the company. This transaction was never consummated by the parties.
The company has had no operations or significant assets since the quarter ended
December 31, 2004.
On May 11, 2005, we sold to Halter Financial Group, Inc., in a private
placement, 1,875,045 shares of restricted common stock at a purchase price of
$0.1066641 per share, pursuant to the terms of a Stock Purchase Agreement (the
"Purchase Agreement"). The private placement was exempt from the registration
requirements of the Securities Act of 1933, as amended, in reliance upon Section
4(2) thereunder. As a result of the purchase, Halter Financial Group, Inc.
became our controlling stockholder, owning approximately 75% of our issued and
outstanding shares of common stock.
Immediately subsequent to and as a result of the closing of the transactions
contemplated by the Purchase Agreement, Gene F. Boyd, Keith P. Boyd, Fredrick W.
Parker and Leo G. Templer resigned as officers and directors, as applicable, of
the company. Timothy P. Halter was concurrently appointed as a member of the
Board of Directors, and Mr. Halter was elected as President, Chief Accounting
Officer, and Secretary of the company.
On October 20, 2005 we entered into the Exchange Agreement pursuant to which we
acquired all of the issued and outstanding shares of Onny from its stockholders
in exchange for 27,499,940 shares of our common stock. Upon the effectiveness of
an amendment to the Company's Certificate of Incorporation to increase its
common capital stock, the Company shall issue to Heung Mei Tsui, the principal
stockholder of Onny, an additional 4,723,056 shares of common stock (the "Post
Closing Shares") to which she would otherwise have been entitled if the Company
had enough authorized shares as of the closing of the Exchange Transaction (the
"Exchange Transaction"). Upon the issuance of the Post Closing Shares, Ms. Tsui
will hold 25,278,385 shares or approximately 72.8% of the issued and outstanding
common capital stock of the Company.
Prior to the closing of the Exchange Transaction, Onny completed a private
placement of its convertible preferred stock to 45 accredited investors. The
offering raised gross proceeds of $5,000,000. Prior to the Exchange Transaction,
participants in the offering exchanged their preferred shares for an aggregate
of 10,000 shares of Onny's common capital stock. Participants in the offering
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then participated in the Exchange Transaction, and the shares of our common
stock that they received therein are included in the registration statement of
which this prospectus is a part.
The Company intends to file an Information Statement in accordance with Section
14 of the Securities Exchange Act of 1934, as amended, for the purpose of
increasing the Company's authorized common capital stock to 100,000,000 shares,
to change the Company's name to ChinaPharma Holdings, Inc. and to grant to the
board of directors the right to conduct up to a 2.89 for 1 reverse split of our
common stock at any time commencing 20 days after the Information Statement is
mailed to our stockholders and ending six months thereafter.
DESCRIPTION OF CURRENT BUSINESS
Except as otherwise indicated by the context, references in this Current Report
to "we," "us," or "our" are to the combined business of TS and its wholly-owned
direct subsidiary, Onny, and its wholly-owned subsidiary, Helpson. References to
"China" or to the "PRC" are references to the People's Republic of China.
General
Onny was incorporated on January 12, 2005 under the laws of the British Virgin
Islands. On May 25, 2005, Onny acquired all the equity interests in Helpson in
consideration of RMB 28,000,000 (approximately $3,456,790). Effective as of June
21, 2005, Onny became the sole stockholder of Helpson and Helpson became a
wholly foreign-owned enterprise as defined by Chinese laws.
Helpson
Helpson is a foreign-invested enterprise established in Haikou, Hainan Province
on February 25, 1993. Initially, its name was Hainan Fulin Biomedical Co., Ltd.
and it changed to "Helpson" in 1999. The company was originally an "equity joint
venture" as defined by China's laws on foreign invested enterprises. The two
joint venturers were Haikou Biomedical Engineering Co., Ltd. ("Haikou
Biomedical"), a Chinese company, and Hong Kong Fudao Development Co., Ltd.
("Fudao"), a Hong Kong company. Haikou Biomedical invested RMB2,100,000
(equivalent to US$367,197) for a 70% share of Helpson, and Fudao invested
$150,000 for a 30% share of Helpson.
On June 16, 2001, Fudao entered into an equity interest transfer agreement with
Hainan Kaidi Technology Co., Ltd ("Kaidi"). In accordance with the equity
interest transfer agreement, Fudao transferred all its 30% capital contribution
in Helpson to Kaidi. As a result of the transfer, Haikou Biomedical continued to
hold a 70% equity interest in Helpson, while Kaidi had a 30% equity interest in
Helpson. Furthermore, Helpson became a PRC domestic company, rather than a
foreign-invested company.
Effective on December 26, 2003, Helpson issued new shares to Chengdu Huineng
Biomedical Co., Ltd. ("Chengdu Bio") and Chongqing Chemical Medicine Holding
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Group ("Chongqing Chemical"). Chengdu Bio contributed RMB3,000,000
(approximately US$370,370) for a 10.71% equity interest in Helpson, and
Chongqing Chemical contributed RMB5,000,000 (approximately US$617,284) for a
17.86% equity interest in Helpson. After the issuance of shares, Helpson had
four equity holders: Haikou Biomedical, which held a 50% equity interest in
Helpson; Kaidi, which held a 21.43% interest in Helpson; Chengdu Bio, which held
a 10.71% interest in Helpson; and Chongqing Chemical, which held a 17.86%
interest in Helpson.
On March 8, 2005, Chongqing Chemical entered into an equity interest transfer
agreement with Haikou Biomedical to transfer all its equity interest in Helpson
to Haikou Biomedical. Upon completion of the transfer, there remain only three
equity holders of Helpson: Haikou Biomedical, who holds a 67.86% equity
interest; Kaidi, who holds a 21.43% equity interest, and Chengdu Bio, who holds
a 10.71% equity interest.
On May 25, 2005, Haikou Biomedical, Kaidi and Chengdu Bio entered into an equity
interest transfer agreement with Onny, a company organized in the British Virgin
Islands, to transfer all their equity interests in Helpson to Onny in
consideration of RMB28,000,000 (approximately $3,456,790). Effective as of June
21, 2005, Onny became the sole stockholder of Helpson, and Helpson became a
wholly foreign-owned enterprise as defined by Chinese laws.
Since its establishment, Helpson has positioned itself in the research,
development, manufacturing, and sales of a series of bio-pharmaceutical
products. Helpson's products focus primarily on genetic engineering,
bioengineering and peptidergic medicine, as well as chemical medicinal products.
Our principal executive office is located at Unit 8, D Area, Office Hall, Haikou
Bonded Zone, Haikou, Hainan Province, China, 570216.
Overview
Our Company is a holding company with no significant operations and no
significant assets other than the capital stock of our wholly owned subsidiary,
Onny, and our indirect wholly owned subsidiary, Helpson. Helpson's primary
business is drug manufacturing and drug sale and marketing. Through Helpson, we
manufacture and market products in three major categories in terms of purpose:
cardiovascular and cerebrovascular medicine, raw materials for surface wound,
and anti-infection medicine.
Principal Products and Services
The following drugs have attained new medicine certifications:
Buflomedil Hydrocholoride tablets, Buflomedil Hydrocholoridefor injection,
Buflomedil frozen powder aricula and raw materials. This product is a chemical
medicine used for the nervous system.
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PuSenOK tablets. PuSenOK is a new anti-flu medicine in the market mixed with
pseudoephederine hydrochloride with a non-drowsy formula and a runny nose
suppressant.
In addition to the above new medicines, Helpson is manufacturing the following
products:
Neurotrophicpeptide 2ml, 5ml, and 10ml: This product is a biopharmaceutical
medicine intended for the nervous system. Its effect is to provide nutrition to
the neural system and fight nerve system diseases. The product is administered
by injection.
Haizhu oral liquid: This product is a Chinese herbal medicine. It is available
in fluid form to be taken orally.
Andrographolide tablet: This product is a Chinese herbal medicine that is
intended for use as an anti-infectant. The product has low bacteria resistance
and is suitable for long-term use. It is available in tablet form.
Clarithromycin capsules and granules: This product is a chemical medicine
intended to be used as an anti-infectant. The product is an antibiotic
specifically used for the effective curing of Helicobacter. The product is
available in capsule and granule forms.
Roxithromycin: This product is a chemical medicine that is used as an
anti-infectant. The product has germ- and virus-resistant characteristics, but
is also a troche type of Roxithromycin that makes it more attractive for use by
patients with deglutition problems. It is administered through tablets.
Thymopetidum Injection: This product is used to adjust the immune system. Its
function is to adjust and increase the immunity of human being cells. It is
administered by injection.
At present, the Helpson is manufacturing a total of 15 drugs listed in the
following chart, including three that have received new drug certifications. In
addition, there are 21 drugs being reviewed by SFDA and eight drugs undergoing
research and development. Among them, two new drugs have gained the important
national new product certificate.
1. Buflomedil Hydrocholoride tablets.
2. Buflomedil Hydrocholoride for injection
3. Buflomedil Hydrocholoride frozen powder aricula
4. Buflomedil Hydrocholoride raw materials
5. PuSenOK tablets
6. Neurotrophicpeptide 2ml
7. Neurotrophicpeptide 5ml
8. Neurotrophicpeptide 10ml
9. Haizhu Oral Liquid
10. Andrographolide tablet
11. Thymopetidum Injection
12. Clarithromycin capsules
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13. Clarithromycin granules
14. Cefaclor dispersible tablets
15. Roxithromycin dispersible tablets
Due to the nature of the biotechnology and pharmaceutical industries, the
product structure of the Company strives to change with market demand. Helpson
traditionally focused on R&D and marketing of cardiovascular and cerebrovascular
medicine medicines. Recently, Helpson launched PuSenOK, an anti-flu medicine in
the market mixed with pseudoephederine hydrochloride that has a non-drowsy
formula and a runny nose suppressant. Helpson's PuSenOK has passed clinical
experiments and entered the trial production stage, and awarded the new medicine
certificate.
Helpson also plans to expand its biotechnology product series. Based upon the
foundation established by Helpson's Neurotrophicpeptide, Helpson will launch
several additional biological medicines, including Brain peptide injections, and
injected Hepatocyte Growth-promoting Factors.
Helpson adjusts the delivery system and marketing for each of its products based
on the product's target patient group. Maintaining a variety of delivery systems
(e.g. tablet, injection, powder, etc) targeted for different groups enhances
Helpson's competitive position in the market. Helpson's present types of
delivery include covered tablet, capsule, troche, oral fluid, injection, frozen
powder, acicula, and germfree powder acicula.
Sales and Marketing
The principal markets of Helpson lie within China. China has the world's largest
population of nearly 1.3 billion people. The pharmaceutical industry accounts
for approximately 3% of China's annual GDP (Source:
http://www.chinability.com/2004%20economic%20performance.htm). In 2004, PRC's
pharmaceutical industry realized sales of RMB347.6 billion (US$42 billion) and
net profits of RMB30.64 billion (US$3.7 billion); a 17.44% increase in realized
sales and 11.74% increase in net profits from the previous year (Source:
http://www.chinapharm.com.cn/html/scfx/10121720050811.html). According to a
Chinese government report, China's pharmaceutical sales in 2005 are expected to
be approximately RMB 376.6 billion (US$ 45.5 billion), growing 17% from the
previous year (Source: http://www.biotech.org.cn/news/news/show.php?id=21470).
It is estimated that China's pharmaceutical industry will maintain at least a
12%-15% growth rate through the year 2010(Source:
http://www.511511.com/A1/200501/A100000391720050104093750375.shtml). The
predicted growth is based upon the relaxation of trade barriers following
China's accession to the World Trade Organization, advances in the Chinese
economy, and China's large, aging population.
Detailed Market Sectors
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Reepitheliazation/Wound rehabilitation medications: These products belong to a
new and advanced classification of drugs used to speed the rehabilitation of a
wide variety of wounds ranging from lacerations and burns to injuries sustained
during childbirth and surgery. Cardiovascular & Cerebrovascular Disease
medications: Cardiovascular & cerebrovascular diseases have become increasingly
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common and have a serious impact on people's health. The SFDA estimated the
market share in 2003 of these two medicines in the PRC to be 14.36% of the
US$5.1 billion (RMB42.2 billion) market. (Source:
http://www.specc.com.cn/hydt/ShowHydt.aspx?id=121)
OTC Cold & Flu medicines: In 2003, the OTC medicine market capacity in the PRC
was approximately US$3.6 billion, (Source:
http://www.cnm21.com/xinwen2/041028_007.htm ) with cold & flu medicines having a
market of RMB2.5 billion (Source:
http://www.fx120.net/ypsj/ypsc/scfx/200406101631184449.htm ). The sales of such
medicines make up 8.3% of total OTC medicine retail sales.
Anti-infection medicines: In the past few years, Anti-infection medicines have
become the best selling drugs within the PRC while also maintaining a growth
rate of 20%. In 2001, the sales reached roughly RMB30 billion (US$3.6 billion);
in 2003, the sales reached more than RMB40 billion (US$4.8 billion), achieving a
30% market share. (Source: SFDA Prospectus of Zhejiang Jingxin Pharmaceutical
Co., Ltd.).
Distribution
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Helpson's products are currently sold in more than 20 provinces, sovereignties,
and autonomous regions. Helpson has 16 sales offices and approximately 250 proxy
agents in China.
Helpson uses a flat distribution channel system of independent regional
distributors. In a typical distribution contract, a distributor will be provided
with certain sales targets for a particular period according to a set retail
price. If the distributor completes the sales task within the prescribed period,
the agent distributor will be given greater economic incentives and future
distribution opportunities. If the distributor fails to complete the sales task
within the prescribed period, Helpson will cancel its contract with the
distributor and sign with other competent distributors. Helpson also signs
reselling contracts with franchise drug companies for the distribution of its
products. The franchise drug company, as a reseller, resells the Company's
products to local hospitals, drug stores, and other channel distributors. In
addition, Helpson sells its products directly to hospitals and retail drug
stores.
We use a niche market strategy. The Company avoids products with overly
competitive markets and avoids directly competing with the giant medical
manufacturing enterprises. The Company uses its cost and technical advantages
within niche markets to exploit new products as they are developed. With this
strategy the Company can satisfy the requirements of a variety of customers and
encourage Company growth. Our mid and long term objectives build on the
Company's current strategy.
The mid-term development objective of the Company:
1) The Company will produce common medicine products that have broad market
demand, which will be the renewals or replacements of the original ones. This
includes more than 10 kinds of medicines that treat nerve system diseases, flu
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and infections. The Company will also expand sales networks to increase the
sales growth rate five fold by 2007.
2) Through the transfer of undeveloped but existing drug formulas and
manufacturing techniques, the Company will receive cash to support the R & D of
biopharmaceutical products.
3) Expand the domestic market through of the expansion of marketing efforts.
4) Continue to develop the Company's R & D capability, and increase R&D
investment to maintain its leading position.
The long-term objective of the Company:
1) The Company plans to continuously exploit high-level products like AFGF and
commercialize them quickly. The high return rate of biotech products will
provide momentum to the Company's long-term growth.
2) By accessing the U.S. capital markets, the Company will look for a suitable M
& A target both domestically and internationally to expand the Company's
business scale. And through taking advantage of the economies of scale, the
Company will increase the market penetration rate of its products and lower its
cost in order to maximize shareholder return.
Competition
The pharmaceutical industry accounts for approximately 3% of China's GDP.
(Source: http://blog.fh21.com.cn/post/65/106). The industry's primary categories
include chemical medicine, traditional Chinese medicinal material, traditional
Chinese medicinal film, prepared Chinese herbal medicine, antibiotics,
biological products, biological medicine, radioactive medicine, medical
appliances, sanitation materials, pharmaceutical machinery, medical packaging,
and trading.
There is a low degree of consolidation among pharmaceutical companies in the
PRC. According to the SFDA-reported statistics, in July of 2004, there were 5071
manufacturing pharmaceutical companies (not including companies producing
traditional Chinese medicinal film, medical oxygen, reagent of in-vitro
diagnosis or supplementary materials). The total market share of the top 10
biggest companies was about 42%, compared to 66% in the US. (Source:
SFDA Prospectus of Zhejiang Jingxin Pharmaceutical Co., Ltd.)
Competition in the pharmaceutical industry is reduced by barriers to entry. A
company wishing to enter the industry must comply with the standards and
regulations set forth by the government. In the PRC, SFDA is the authority that
monitors and supervises the administration of the pharmaceutical industry
including pharmaceutical products, medical appliances, and equipment.
Pharmaceutical manufacturing enterprises must obtain a Pharmaceutical
Manufacturing Enterprise Permit issued by the relevant pharmaceutical
administrative authorities and relevant health departments at the provincial
level where the enterprise is located. Furthermore, all pharmaceutical products
produced in the PRC, with the exception of Chinese herbal medicines in soluble
form, must bear a registered number approved by the appropriate medicine
administration authorities in the PRC. Lastly, in accordance with the World
Health Organization, the PRC now requires compliance with GMP standards in
pharmaceutical production in order to minimize the risks involved in any
pharmaceutical production that cannot be eliminated through testing final
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products. As the regulatory approval process becomes more stringent, it also
increases the industry's capital entry barrier.
Due to the variety of consumer demands within the pharmaceutical market,
pharmaceutical companies have relatively dispersed product lines. We have
identified, however, two primary strategies we must adopt in order to stay
competitive. In expanding market share of common traditional medicine, we must
take advantage of 1) our large manufacturing scale and reasonable cost control
mechanisms, and 2) our strong sales network.
Research and Development
Helpson cooperates with several research institutions including Chinese Academy
of Sciences, China University of Pharmaceuticals, Military Medical Academy Basic
Medical Science Institute, Chongqing Medical Industry Institute and China
Sichuan University. The research and development of our new and existing
products and their subsequent commercialization plays an important role in our
success. There are 8 Products that are currently under research and development,
including rh-CNTF, rh-aFGF, Thymopetidum for Injection, Mycophenolate mofetil,
Yimaikang Capsule, Compound Ossotide for Injection, and Deproteinised Calf Blood
for Injection.
Employees
The Company currently has 105 regular employees. Helpson is also aided by the
efforts of a 250 member outside sales & marketing team.
Facilities
Helpson owns a factory with a floor area of 663.94 square meters located at the
East Wing, 6/F, 5 Jianshe Road, Jinpan Industrial Development Zone, Haikou.
Helpson also owns the land use right of the land covering an area of 31,050
square meters located at plot C09-2, Hainan Bonded Zone, Haikou. Helpson built a
factory with a floor area of approximately 7,300 square meters on this land
plot.
In addition, Helpson entered into a lease agreement with Hainan Zhongfu
Going-abroad Personnel Service Center ("Zhongfu"), under which Helpson rented
the offices located at 2/F, Jiahai Building owned by Zhongfu as its principal
executive offices. The lease term being 10 years, from November 21, 2000 to
November 20, 2010. The rent from November 21, 2000 to November 20, 2005 is
RMB3,600 per month. The rent from November 21, 2005 to November 20, 2010 may be
adjusted within 5% of the original rent.
Intellectual Property
Helpson owns 10 registered trademarks and logos used in connection with western
medicine, raw material medicine, Chinese herbal medicine and medicine
injections, which are: Funalin, Fukexing, Helspon, Beisha, Shiduotai, Xinuo and
HPS logo and three other logos; one logo used in connection with bathing
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cosmetics, shampoo, hair stimulating shampoo, facials, nail polish, cosmetics,
perfume, perfume essence oils, skin care toner, and cosmetics cleansers; and 1
registered trademark, Helpson, and one logo, used in connection with medical
appliances and equipment, surgical implants, surgical implanted artificial eyes,
surgical artificial crystalline lens, surgical artificial skin, and artificial
eyes. In addition, Helpson is applying for registration of nine other trade
marks used in connection with western medicine, raw material medicine, Chinese
herbal medicine and medicine injections.
Helpson owns the intellectual property rights of its genetic engineering
technology for rh-CNTF and rh-aFGA, and fungi form engineering and production
techniques.
Legal Proceedings
We have no pending legal proceedings. From time to time, we may be involved in
various claims, lawsuits, disputes with third parties, and actions involving
allegations of breach of contract actions incidental to the normal business
operations of the business.
CAUTIONARY STATEMENTS
You should carefully consider the following risks and the other information set
forth elsewhere in this Current Report, including our financial statements and
related notes.. If any of these risks occur, our business, financial condition
and results of operations could be adversely affected. As a result, the trading
price of our common stock could decline, perhaps significantly.
Risks Related to Our Business and Industry
WE MAY NEED TO RAISE ADDITIONAL CAPITAL WITHIN THE NEXT TWELVE MONTHS TO FUND
OUR OPERATIONS AND FAILER TO RAISE ADDITIONAL CAPITAL MAY FORCE US TO DELAY,
REDUE, OR ELMINATE OUR PRODUCT DEVELOPMENT PROGRAMS
Due to the large funds required for research and development and the subsequent
marketing of products, the pharmaceutical industry is very capital intensive.
The industry is characterized by large receivable turnovers, which signifies
that we will need more working capital as our revenues increase. We have
traditionally been committed to biomedical R&D, and are now developing
traditional chemical medicines within specific market segments such as those of
anti-flu and anti-infection. It is likely that we will need to raise additional
capital within the next twelve months. Additional capital may be needed for the
development of new products or product lines, financing of general and
administrative expenses, licensing or acquisition of additional technologies,
and marketing of new or existing products. There are no assurances that we will
be able to raise the appropriate amount of capital needed for our future
operations. Failure to obtain funding when needed may force us to delay, reduce,
or eliminate our product development programs.
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WE RELY ON FEW SUPPLIERS AND ANY DISRUPTION WITH OUR SUPPLIERS COULD DELAY
PRODUCT SHIPMENTS AND ADVERSELY AFFECT OUR BUSINESS OPERATIONS AND PROFITABILITY
We have developed relationships with a single or limited number of suppliers for
materials that are otherwise generally available. Purchases from our largest
supplier in 2004, Hainan Xinxin Biotechnology Company, accounted for
approximately 74.35% of the total purchases of our company. Purchases from our
second-to-largest supplier in 2004, Chengdu Xingwangji Pharmaceutical Company,
accounted for 12.02% of our total purchases. Although we believe that
alternative suppliers are available to supply materials, should any of these
suppliers terminate their business arrangements with us or increase their prices
of materials supplied, it could delay product shipments and adversely affect our
business operations and profitability.
WE MAY UNDERTAKE ACQUISITIONS IN THE FUTURE, AND ANY DIFFICULTIES IN INTEGRATING
THESE ACQUISITIONS MAY DAMAGE OUR PROFITABILITY
In the future, we may acquire additional businesses or products that complement
our existing business and expand our business scale. The integration of new
businesses and products may prove to be an expensive and time consuming
procedure. We can offer no assurance that we will be able to successfully
integrate the newly acquired businesses and products or operate the acquired
business in a profitable manner. Failure to locate an appropriate M&A target or
failure to successfully integrate and operate acquired businesses and products
may adversely impact our operations and profits.
THE FAILURE TO MANAGE GROWTH EFFECTIVELY COULD HAVE AN ADVERSE EFFECT ON OUR
BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OUR OPERATIONS
The rapid market growth of our pharmaceutical products may require our company
to expand our employee base for managerial, operational, financial, and other
purposes. As of September 23, 2005, we had 105 regular employees. The continued
future growth will impose significant added responsibilities upon the members of
management to identify, recruit, maintain, integrate, and motivate new
employees. Aside from increased difficulties in the management of human
resources, we may also encounter working capital issues, as we need increased
liquidity to finance the purchases of raw materials and supplies, research and
development of new products, acquisition of new businesses and technologies, and
the hiring of additional employees. For effective growth management, we will be
required to continue improving our operations, management, and financial systems
and control. Our failure to manage growth effectively may lead to operational
and financial inefficiencies that will have a negative effect on the Company's
profitability.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL AND LOSS OF THESE KEY PERSONNEL COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FIANANCIAL CONDITION AND RESULTS
OF OPERATIONS
13
Our Company's success is, to a certain extent, attributable to the management,
sales and marketing, and pharmaceutical factory operational expertise of key
personnel. Ms. Zhilin Li, Mr. Heqi Cai, and Ms. Yao Huang perform key functions
in the operation of our Company. Ms. Zhilin Li entered into an Employment
Agreement with Helpson, which provides that Ms. Li was employed by Helpson to
act as its CEO. The term of her employment is from July 1, 2005 to June 30,
2010. Mr. Heqi Cai entered into an Employment Agreement with Helpson to act as
its Director of Development Department for a term from from July 1, 2005 to June
30, 2010. Ms. Yao Huang entered into an Employment Agreement with Helpson to act
as its Head of Pharmaceutical Plant for a term from July 1, 2005 to June 30,
2010. There can be no assurance that we will be able to retain these officers
after the term of their employment contracts expire. The loss of these officers
could have a material adverse effect upon our business, financial condition, and
results of operations. We must attract, recruit and retain a sizeable workforce
of technically competent employees. Our ability to effectively implement our
business strategy will depend upon, among other factors, the successful
recruitment and retention of additional highly skilled and experienced
management and other key personnel. We cannot assure that we will be able to
hire or retain such employees.
IF ALL OR A SIGNIFICANT PORTION OF OUR CUSTOMERS WITH TRADE RECEIVABLES FAIL TO
PAY ALL OF PART OF THE TRADE RECEIVABLES OR DELAY THE REPAYMENT, OUR NET INCOME
WILL DECREASE AND OUR PROFITABILITY WILL BE ADVERSELY AFFECTED
Our Company had trade receivables, net of allowance for doubtful
accountssprovisions, of approximately Y10,425,289 ($1,259,595)(C)and Y19,948,709
($2,410,282) as of 31st December 31, 2003 and 2004, respectively. During the
same periodyears ended December 31, 2003 and 2004, the debtors' turnover period
were approximately 213 days and 135 days, respectively. It is usual commercial
practice that certain customers may repay their debts beyond credit periods
granted or may repay slowly when transaction volume increases. There is no
assurance that our trade receivables will be fully repaid on a timely basis.
Our Company had trade receivables, net of allowance for doubtful
accountsprovisions, of approximately Y39,705,780 ($4,797,412) as of 30th June
30, 2005. During the same periodsix months ended June 30, 2005, the debtors'
turnover period wasere approximately [297] days.
It is usual commercial practice that certain customers may repay their debts
beyond credit periods granted or may repay slowly when transaction volume
increases. There is no assuance that our trade receivables will be fully repaid
on a timely basis.
If all or a significant portion of our customers with trade receivables fail to
pay all or part of the trade receivables or delay the payment due to us for
whatever reason, our net profit will decrease and our profitability will be
adversely affected.
IF WE FAIL TO DEVELOP NEW PRODUCTS WITH HIGH PROFIT MARGINS AND OUR HIGH PROFIT
MARGIN PRODUCTS ARE SUBSTITUTED BY COMPETITOR'S PRODUCTS, OUR GROSS AND NET
PROFIT MARGINS WILL BE ADVERSELY AFFECTED
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In the years ended December 31, 2003 and 2004, the gross profit margin for our
Company was 50.7% and 40.4% respectively. However, there is no assurance that we
will be able to sustain such profit margin in the future. The pharmaceutical
industry is very competitive, and there may be pressure to reduce sale prices of
products without a corresponding decrease in the price of raw materials. To the
extent that we fail to develop new products with high profit margins and our
high profit margin products are substituted by competitors' products, the gross
profit margins will be adversely affected.
WE FACE COMPETITION IN THE PHARMACEUTICAL INDUSTRY AND SUCH COMPETITION COULD
CAUSE OUR SALES REVENUE AND PROTITS TO DECLINE
According to the State Food and Drug Administration of China (the "SFDA"), there
were approximately 5,071 pharmaceutical manufacturing companies in the PRC as of
the end of June 2004, of which approximately 3,237 manufacturers obtained GMP
certification. After GMP certification became a mandatory requirement on July 1,
2004, approximately 1,834 pharmaceutical manufacturers were forced to cease
production (Source: http://www.jlda.gov.cn/hyzx/showhyzx.x?id=789). Only the
3,237 pharmaceutical manufacturers with GMP certifications may continue their
manufacturing operations. The certificates, permits, and licenses required for
pharmaceutical operation in the PRC create a potential barrier for new
competitors seeking entrance into the market. Despite these obstacles, we face
competitors that will attempt to create or are marketing products in the PRC
that are similar to ours. There can be no assurance that our products will be
either more effective in their therapeutic abilities and/or be able to compete
in price with that of our competitors. Failure to do either of these may result
in decreased profits for our Company.
OUR SUCCESS IS HIGHLY DEPENDENT ON CONTINUALLY DEVELOPING NEW AND ADVANCED
PRODUCTS, TECHNOLOGIES, AND PROCESSES AND FAILURE TO DO SO MAY CAUSE US TO LOSE
OUR COMPETITIVENESS IN THE PHARMACEUTICAL INDUSTRY AND MAY CAUSE OUR PROFITS TO
DECLINE
To remain competitive in the pharmaceutical industry, it is important to
continually develop new and advanced products, technologies, and processes.
There is no assurance that the competitors' new products, technologies, and
processes will not render our Company's existing products obsolete or
non-competitive. Our Company's competitiveness in the pharmaceutical market
therefore relies upon our ability to enhance our current products, introduce new
products, and develop and implement new technologies and processes. Our
Company's failure to technologically evolve and/or develop new or enhanced
products may cause us to lose our competitiveness in the pharmaceutical industry
and may cause our profits to decline.
THE COMMERCIAL SUCCESS OF OUR PRODUCTS DEPENDS UPON THE DEGREE OF MARKET
ACCEPTANCE AMONG THE MEDICAL COMMUNITY AND FAILURE TO ATTAIN MARKET ACCPETANCE
15
AMONG THE MEDICAL COMMUNICTY MAY HAVE AN ADVERSE IMPACT ON OUR OPERATIONS AND
PROFITABILITY
The commercial success of our products depends upon the degree of market
acceptance among the medical community. Even if our products are approved by the
SFDA, there is no assurance that physicians will prescribe or recommend our
products to patients. Furthermore, a product's prevalence and use at hospitals
may be contingent upon our relationship with the medical community. The
acceptance of our products among the medical community may depend upon several
factors, including but not limited to, the product's acceptance by physicians
and patients as a safe and effective treatment, cost effectiveness, potential
advantages over alternative treatments, and the prevalence and severity of side
effects. Failure to attain market acceptance among the medical community may
have an adverse impact on our operations and profitability.
WE ENJOY CERTAIN PREFERENTIAL TAX CONCESSIONS AND LOSS OF THESE PREFERENTIAL TAX
CONCESSIONS WILL CAUSE OUR TAX LIABILITIES TO INCREASE AND OUR PROFITABILITY TO
DECLINE
Helpson enjoys preferential tax concessions as a high-tech enterprise. Pursuant
to the State Council's Regulations on Encouraging Investment in and Development
of Hainan Island, Hainan Provincial State Tax Bureau recognized and approved
Helpson's status as a high and new technology enterprise and thus Helpson was
granted a 50% reduction in its income tax liability for the years 2003, 2004 and
2005. As the corporate income tax in Hainan province is 15%, Helpson's income
tax liability for the period between 2003 and 2005 is 7.5%. After the expiration
of the preferential tax treatment to Helpson as a high and new technology
enterprise, Helpson will be subject to 15% corporate income tax unless it
receives other preferential tax treatments.
Pursuant to the Examining and Administrative Measures Regarding Income Tax
Deduction for Investment in PRC Made Equipment Used in Technical Reform, 40% of
the purchase price in PRC-made equipment can be used for income tax deduction.
In the case of Helpson, RMB3,161,001.40 (approximately US$390,247) can be used
for income tax deduction . For the two years ending December 31, 2003 and
December 31, 2004, the amount of tax deduction approved was USD$27,916 and
USD$19,726 respectively.
There is no assurance that the preferential tax treatment mentioned above will
remain unchanged and effective. Helpson's tax liabilities will increase and its
profits may accordingly decline if the reduced income tax rate of 7.5% is no
longer applicable and/or the tax relief on investment in PRC-made equipment is
no longer available.
WE MAY BE SUBJECT TO THE PRC'S PRICE CONTROL OF DRUGS WHICH MAY LIMIT OUR
PROFITABILITY AND EVEN CAUSE US TO STOP MANUFACTURING OF CERTAIN PRODUCTS
The State Development and Reform Commission ("SDRC") of the PRC and the price
administration bureaus of the relevant provinces of the PRC in which the
pharmaceutical products are manufactured are responsible for the retail price
16
control over our pharmaceutical products. The SDRC sets the price ceilings for
certain pharmaceutical products in the PRC. Although our products have not been
subject to such price control as of the date of this Prospectus, there is no
assurance that our products will remain unaffected by it. Where our products are
subject to a price ceiling, we will need to adjust the product price to meet the
requirement and to accommodate for the pricing of competitors in the competition
for market shares. The price ceilings set by the SDRC may limit our
profitability, and in some instances, such as where the price ceiling is below
production costs, may cause us to stop manufacturing certain products.
OUR CERTIFICATES, PERMITS, AND LICENSES ARE SUBJECT TO GOVERNMENTAL CONTROL AND
RENEWAL AND FAILURE TO OBTAIN RENEWAL WILL CAUSE ALL OR PART OF OUR OPERATIONS
TO BE TERMINATED
Our Company is subject to various PRC laws and regulations pertaining to the
pharmaceutical industry. Our Company has attained certificates, permits, and
licenses required for the operation of a pharmaceutical enterprise and the
manufacturing of pharmaceutical products in the PRC. We obtained the Medicine
Production Permit in December 2000, which is valid through December 31, 2005.
When the permit expires, our Company will not be able to operate medicine
production which will cause our operations to be terminated. We also obtained
three GMP certificates which are effective through July 17, 2008, December 2,
2009 and February 2, 2010 respectively. The pharmaceutical production permits
and GMP certificates are valid for a term of five years and must be renewed
before their expiration. During the renewal process, we will be re-evaluated by
the appropriate governmental authorities and must comply with the then
prevailing standards and regulations which may change from time to time. In the
event that we are not able to renew the certificates, permits and licenses, all
or part of our operations may be terminated. Furthermore, if escalating
compliance costs associated with governmental standards and regulations restrict
or prohibit any part of our operations, it may adversely affect our operation
and profitability.
IF OUR PRODUCTS FAIL TO RECEIVE REGULATORY APPROVAL OR ARE SEVERELY LIMITED IN
THE PRODUCTS SCOPE OF USE, WE MAY BE UNABLE TO RECOUP CONSIDERABLE RESEARCH AND
DEVELOPMENT EXPENDITURES
Our products that are approved to be manufactured include 15 medicines. We
applied to the SFDA for registration of manufacturing 21 medicines and SFDA has
accepted these applications. There are eight products in the stage of research
and development. The production of our pharmaceutical products is subject to the
regulatory approval of the SFDA. The regulatory approval procedure for
pharmaceuticals can be quite lengthy, costly, and uncertain. Depending upon the
discretion of the SFDA, the approval process may be significantly delayed by
additional clinical testing and require the expenditure of resources not
currently available; in such an event, it may be necessary for us to abandon our
application. Even where approval of the product is granted, it may contain
significant limitations in the form of narrow indications, warnings,
precautions, or contra-indications with respect to conditions of use. If
approval of our product is denied, abandoned, or severely limited in terms of
the scope of products use, it may result in the inability to recoup considerable
research and development expenditures.
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OUR RESEARCH AND DEVELOPMENT MAY BE COSTLY AND/OR UNTIMELY AND THERE ARE NO
ASSURANCES THAT OUR RESEARCH AND DEVELOPMENT WILL EITHER BE SUCCESSFUL OR
COMPLETED WITHIN THE ANTICIPATED TIMEFRAME, IF EVER AT ALL
The research and development of our new and existing products and their
subsequent commercialization plays an important role in our success. There are
eight Products that are currently under research and development, including
rh-CNTF, rh-aFGF, Thymopetidum for Injection, Mycophenolate mofetil, Yimaikang
Capsule, Compound Ossotide for Injection, and Deproteinised Calf Blood for
Injection. The research and development of new products is costly and time
consuming, and there are no assurances that our research and development of new
products will either be successful or completed within the anticipated
timeframe, if ever at all. There are also no assurances that if the product is
developed, that it will lead to successful commercialization.
WE CANNOT GAURANTEE THE PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS AND IF
INFRINGEMENT OR COUNTERFEITING OF OUR INTELLECTUAL PROPERTY RIGHTS OCCURS, OUR
REPUTATION AND BUSINESS MAY BE ADVERSELY AFFECTED
To protect the reputation of our products, we have registered and applied for
registration of our trademarks in the PRC where we have a major business
presence.
All of our products are sold under these trademarks. As of the date of this
report, we have not experienced any infringements of such trademarks for sales
of pharmaceutical products and as of the date of this Prospectus, the Directors
were not aware of any infringement of our intellectual property rights. However,
there is no assurance that there will not be any infringement of our brand name
or other registered trademarks or counterfeiting of our products in the future.
Should any such infringement or counterfeiting occur, our reputation and
business may be adversely affected. We may also incur significant expenses and
substantial amounts of time and effort to enforce our intellectual property
rights in the future. Such diversion of our resources may adversely affect our
existing business and future expansion plans.
WE MAY SUFFER AS A RESULT OF PRODUCT LIABILITY OR DEFECTIVE PRODUCTS
We may produce products which inadvertently have an adverse pharmaceutical
effect on the health of individuals despite proper testing. Existing PRC laws
and regulations do not require us to maintain third party liability insurance to
cover product liability claims. However, if a product liability claim is brought
against us, it may, regardless of merit or eventual outcome, result in damage to
our reputation, breach of contract with our customers, decreased demand for our
products, costly litigation, product recalls, loss of revenue, and the inability
to commercialize some products. We currently are not aware of any existing or
anticipated product liability claims with respect to our products.
18
WE RELY ON THE COOPERATION WITH RESEARCH LABORATORIES, PHARMACEUTICAL
INSITITUIONS, AND UNIVERSITIES AND IF THESE INSTITUTIONS CEASE TO COOPERATE WITH
US AND WE CANNOT FIND OTHER SUITABLE SUBSTITUTE RESEARCH AND DEVELOPMENT
PARTNERS, OUR ABILITY TO DEVELOP NEW PRODUCTS MAY BE HINDERED AND OUR BUSINESS
MAY BE ADVERSELY AFFECTED
Helpson cooperates with several research institutions including Chinese Academy
of Sciences, China University of Pharmaceuticals, Military Medical Academy Basic
Medical Science Institute, Chongqing Medical Industry Institute and China
Sichuan University. Helpson relies to a certain extent on the above-mentioned
institutions for its development of new products. There is no assurance that
these institutions will continue cooperating with Helpson to develop new
products. In the event that these institutions cease to cooperate with Helpson
and Helpson cannot find other suitable substitute research and development
partners, our ability to develop new products may be hindered and our business
may be adversely affected.
Risks Related to Doing Business in China
Helpson operates from facilities that are located in China. Accordingly, its
operations must conform to governmental regulations and rules of China.
THE PRC LEGAL SYSTEM HAS INHERENT UNCERTAINTIES THAT COULD LIMIT THE LEGAL
PROTECTIONS AVAILABLE TO US
The Chinese legal system is a civil law system based on written statutes. Unlike
common law systems, it is a system in which decided legal cases have little
precedent value. In the late 1970s, the Chinese government began to promulgate a
comprehensive system of laws and regulations governing commercial matters. The
overall effect of legislation enacted over the past 20 years has significantly
enhanced the protections afforded to foreign-invested enterprises in China.
However, these laws, regulations, and legal requirements are relatively recent
and are evolving rapidly, and their interpretation and enforcement involve
uncertainties. These uncertainties could limit the legal protections available
to foreign investors.
The practical effect of the PRC's legal system on our business operations in
China can be viewed from two separate but intertwined considerations. First, as
a matter of substantive law, the Foreign Invested Enterprise laws provide
significant protection from government interference. In addition, these laws
guarantee the full benefit of corporate articles and contracts to Foreign
Invested Enterprise participants. These laws, however, do impose standards
concerning corporate formation and governance, which are not qualitatively
different from the corporation laws found in the United States. Similarly, PRC
accounting laws mandate accounting practices which may not be consistent with
the US Generally Accepted Accounting Principles. China accounting laws require
that an annual "statutory audit" be performed in accordance with PRC accounting
19
standards and that the books of account of Foreign Invested Enterprises be
maintained in accordance with Chinese accounting laws. Article 14 of the PRC
Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned Enterprise
to submit certain periodic fiscal reports and statements to designated financial
and tax authorities, at the risk of business license revocation.
Second, while the enforcement of substantive rights may appear less clear than
United States procedures, Foreign Invested Enterprises and Wholly Foreign-Owned
Enterprises are Chinese registered companies that enjoy the same status as other
Chinese registered companies in business-to-business dispute resolutions. The
Chinese legal infrastructure is significantly different in operation from its
United States counterpart, and may present a significant impediment to the
operation of Foreign Invested Enterprises.
PRC ECONOMIC REFORM POLICIES OR NATIONALIZATION COULD RESULT IN A TOTAL
INVESTMENT LOSS IN OUR COMMON STOCK
Since 1979, the Chinese government has reformed its economic policies. Because
many reforms are unprecedented or experimental, they are expected to be refined
and improved. Other political, economic and social factors, such as political
changes, changes in the rates of economic growth, unemployment or inflation, or
in the disparities in per capita wealth between regions within China, could lead
to further readjustment of the reform measures. This refining and readjustment
process may negatively affect our operations.
Although the Chinese government owns the majority of productive assets in China,
in the past several years the government has implemented economic reform
measures that emphasize decentralization and encourage private economic
activity. Because these economic reform measures may be inconsistent or
ineffectual, there are no assurances that:
- We will be able to capitalize on economic reforms;
- The Chinese government will continue its pursuit of economic reform
policies;
- The economic policies, even if pursued, will be successful;
- Economic policies will not be significantly altered from time to time; and
- Business operations in China will not become subject to the risk of
nationalization.
Over the last few years, China's economy has registered high growth rates.
Recently, there have been indications that rates of inflation have increased. In
response, the Chinese government recently has taken measures to curb this
excessively expansive economy. These measures have included restrictions on the
availability of domestic credit, reducing the purchasing capability of some of
its customers, and limited recentralization of the approval process for
purchases of certain foreign products. These austere measures alone may not
succeed in slowing down the economy's excessive expansion or control inflation,
and may result in severe dislocations in the Chinese economy. The Chinese
government may adopt additional measures to further combat inflation, including
the establishment of freezes or restraints on certain projects or markets. These
measures may adversely affect our operations.
20
There can be no assurance that the reforms to China's economic system will
continue or that we will not be adversely affected by changes in China's
political, economic, and social conditions and by changes in policies of the
Chinese government, such as changes in laws and regulations, measures which may
be introduced to control inflation, changes in the rate or method of taxation,
imposition of additional restrictions on currency conversion and remittance
abroad, and reduction in tariff protection and other import restrictions.
YOU MAY EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS, ENFORCING
FOREIGN JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN THE PRC BASED ON U.S. OR OTHER
FOREIGN LAWS AGAINST OUR MANAGEMENT AND US
Helpson, our operating company, is incorporated under the laws of the PRC, and
substantially all of our assets are located in the PRC. In addition, many of our
directors, managers, and executive officers reside within the PRC, and
substantially all of the assets of these persons are located within the PRC. As
a result, it may not be possible to effect service of process within the United
States or elsewhere outside the PRC upon certain directors, supervisors or
executive officers, including with respect to matters arising under U.S. federal
securities laws or applicable state securities laws. Moreover, the PRC does not
have treaties providing for the reciprocal recognition and enforcement of
judgments of courts with the United States, the United Kingdom, Japan or many
other countries. As a result, recognition and enforcement in the PRC of
judgments of a court in the United States and any of the other jurisdictions
mentioned above in relation to any matter may be difficult or impossible.
Furthermore, an original action may be brought in the PRC against us, our
directors, managers, or executive officers only if the actions are not required
to be arbitrated by PRC law and Helpson's articles of association, and only if
the facts alleged in the complaint give rise to a cause of action under PRC law.
In connection with any such original action, a PRC court may award civil
liability, including monetary damages.
BECAUSE WE RECEIVE SUBSTANTIALLY ALL OF OUR REVENUE IN RENMINBI, WHICH CURRENTLY
IS NOT A FREELY CONVERTIBLE CURRENCY, AND THE GOVERNMENT CONTROLS THE CURRENCY
CONVERSION AND THE FLUCTUATION OF THE RENMINBI, WE ARE SUBJECT TO CHANGES IN THE
PRCS' POLITICAL AND ECNOMONIC DECISIONS
We receive substantially all of our revenues in Renminbi, which currently is not
a freely convertible currency. The Chinese government may, at its discretion,
restrict access in the future to foreign currencies for current account
transactions.
The value of the Renminbi against the U.S. dollar and other currencies
fluctuates and is affected by, among other things, changes in the PRC's
political and economic conditions. Since 1994, the conversion of Renminbi into
foreign currencies, including Hong Kong and U.S. dollars, has been based on
rates set by the People's Bank of China, which are set daily based on the
previous day's inter-bank foreign exchange market rates and current exchange
rates on the world financial markets. Since 1994, the official exchange rate for
the conversion of Renminbi to U.S. Dollars generally has been stable. Any
21
devaluation of the Renminbi, however, may materially and adversely affect the
value of, and any dividends payable on, our shares in foreign currency terms,
since we will receive substantially all of our revenues, and express our
profits, in Renminbi. Our financial condition and results of operations also may
be affected by changes in the value of certain currencies other than the
Renminbi. Our results of operation may be adversely affected by changes in the
political and social conditions in the PRC, and changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
THE GROWTH OF THE CHINESE ECONOMY HAS BEEN UNEVEN ACROSS GEOGRAPHIC REGIONS AND
ECONOMIC SECTORS, AND A DOWNTURN IN CERTAIN REGIONS IN WHICH WE DO BUSINESS OR
IN OUR ECONMIC SECTOR WOULD SLOW DOWN OUR GROWTH AND PROFITABILITY
The growth of the Chinese economy has been uneven across geographic regions and
economic sectors. For example, during the years between 1978 and 2000, the per
capital GDP growth rate of Fujian Province in Southeastern China was 12% while
that of Gansu Province in Northwestern China was 5.3% (Source: New China
Statistical Materials Compilation for 50 Years and 2001 China Annual
Statistics). There can be no assurance that growth of the Chinese economy will
be steady or that any downturn will not have a negative effect on our business.
Our profitability may decrease due to a downturn in the Chinese economy. More
specifically, the expansion of our sales area in the less economically developed
central and western provinces of China will depend on those provinces achieving
certain income levels.
ANY OCCURRENCE OF SERIOUS INFECTIOUS DISEASES, SUCH AS RECURRENCE OF SEVERE
ACUTE RESPIRATORY SYNDROME (SARS) CAUSING WIDESPREAD PUBLIC HEALTH PROBLEMS,
COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS
A renewed outbreak of SARS or other widespread public health problems in China,
where all of our revenue is derived, and in Hainan, where our operations are
headquartered, could have a negative effect on our operations. Our operations
may be impacted by a number of public health-related factors, including the
following:
o quarantines or closures of our factories or subsidiaries which would
severely disrupt its operations;
o the sickness or death of the key officers and employees; and
o general slowdown in the Chinese economy.
Any of the foregoing events or other unforeseen consequences of public health
problems could adversely affect our business and results of operations.
WE ARE SUBJECT TO THE ENVIRONMENTAL PROTECTION LAWS OF THE PRC
22
Our manufacturing process may produce by-products such as effluent, gases and
noise, which are harmful to the environment. We are subject to multiple laws
governing environmental protection, such as "The Law on Environmental Protection
in the PRC" and "The Law on Prevention of Effluent Pollution in the PRC", as
well as standards set by the relevant governmental bodies determining the
classification of different wastes and proper disposal. We have properly
attained a waste disposal permit for our manufacturing facility, which details
the types and concentration of effluents and gases allowed for disposal. The
temporary waste disposal permit will expire on September 28, 2009. We are
responsible for the renewal of the waste disposal permit. There is no assurance
that we will obtain the renewal of the waste disposal permit when the current
permit expires.
China is experiencing substantial problems with environmental pollution.
Accordingly, it is likely that the national, provincial and local governmental
agencies will adopt stricter pollution controls. There can be no assurance that
future changes in environmental laws and regulations will not impose costly
compliance requirements on us or otherwise subject us to future liabilities. Our
business's profitability may be adversely affected if additional or modified
environmental control regulations are imposed upon us.
RECENT PRC REGULATIONS RELATING TO ACQUISITIONS OF PRC COMPANIES BY FOREIGN
ENTITIES MAY LIMIT OUR ABILITY TO ACQUIRE PRC COMPANIES AND ADVERSELY AFFECT THE
IMPLEMENTATION OF OUR STRATEGY AS WELL AS OUR BUSINESS AND PROSPECTS
The PRC State Administration of Foreign Exchange, or SAFE, issued a public
notice in January 2005 concerning foreign exchange regulations on mergers and
acquisitions in China ("January Notice"). The public notice states that if an
offshore company controlled by PRC residents intends to acquire a PRC company,
such acquisition will be subject to strict examination by the relevant foreign
exchange authorities. The public notice also states that the approval of the
relevant foreign exchange authorities is required for any sale or transfer by
the PRC residents of a PRC company's assets or equity interests to foreign
entities, such as us, for equity interests or assets of the foreign entities.
In April 2005, SAFE issued another public notice further explaining the January
notice. In accordance with the April notice, if an acquisition of a PRC company
by an offshore company controlled by PRC residents has been confirmed by a
Foreign Investment Enterprise Certificate prior to the promulgation of the
January notice, the PRC residents must each submit a registration form to the
local SAFE branch with respect to their respective ownership interests in the
offshore company, and must also file an amendment to such registration if the
offshore company experiences material events, such as changes in the share
capital, share transfer, mergers and acquisitions, spin-off transactions or use
of assets in China to guarantee offshore obligations. The April notice also
provides that failure to comply with the registration procedures set forth
therein may result in a restriction on the PRC company's ability to distribute
profits to its offshore parent company. Pending the promulgation of detailed
23
implementation rules, the relevant government authorities are reluctant to
commence processing any registration or application for approval required under
the SAFE notices.
As it is uncertain how the SAFE notices will be interpreted or implemented, we
cannot predict how they will affect our business operations or future strategy.
For example, we may be subject to more stringent review and approval process
with respect to our foreign exchange activities, such as remittance of dividends
and foreign-currency-denominated borrowings, which may adversely affect our
results of operation and financial condition. In addition, if we decide to
acquire a PRC company by stocks, we cannot assure that the owners of such
company, as the case may be, will be able to complete the necessary approval,
filings and registrations for the acquisition. This may restrict our ability to
implement our acquisition strategy and adversely affect our business and
prospects.
OUR BUISNESS MAY BE ADVERSELY AFFECTED AS A RESULT OF CHINA'S ENTRY INTO THE
WORLD TRADE ORGANIZATION ("WTO") BECAUSE THE PREFERENTIAL TAX TREATMENTS
AVAILABLE TO US MAY BE DISCONTINUED AND FOREIGN PHARMACEUTICAL MANUFACTURERS MAY
COMPETE WITH US IN THE PRC PHARMACEUTIAL INDUSTRY
The PRC became a member of the WTO on 11th December, 2001. The current tax
benefits enjoyed by our Company may be regarded as unfair treatment by other
members of the WTO. Accordingly, the preferential tax treatments available to us
may be discontinued. In such circumstances, our profitability may be adversely
affected. In addition, we may face additional competition from foreign
pharmaceutical manufacturers if they set up their production facilities in the
PRC or form Sino-foreign joint ventures with our competitors in the PRC. In the
event that we fail to maintain our competitiveness against these competitors,
our profitability may be adversely affected.
Risks Related to Our Common Stock
THE MARKET PRICE FOR OUR COMMON STOCK MAY BE VOLATILE WHICH COULD RESULT IN A
COMPLETE LOSS OF YOUR INVESTMENT
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following:
o actual or anticipated fluctuations in our quarterly operating results,
o announcements of new products by us or our competitors,
o changes in financial estimates by securities analysts,
o conditions in the pharmaceutical market,
o changes in the economic performance or market valuations of other
companies involved in pharmaceutical production,
24
o announcements by our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments,
o additions or departures of key personnel, or
o potential litigation,
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.
WE MAY ISSUE ADDITIONAL SHARES OF OUR CAPITAL STOCK TO RAISE ADDITIONAL CASH FOR
WORKING CAPITAL. IF WE ISSUE ADDITIONAL SHARES OF OUR CAPITAL STOCK, OUR
STOCKHOLDERS WILL EXPERIENCE DILUTION IN THEIR RESPECTIVE PERCENTAGE OWNERSHIP
IN US
We may issue additional shares of our capital stock to raise additional cash for
working capital. If we issue additional shares of our capital stock, our
stockholders will experience dilution in their respective percentage ownership
in us.
A LARGE PORTION OF OUR COMMON STOCK IS CONTROLLED BY A SMALL NUMBER OF
STOCKHOLDERS AND AS A RESULT, THESE STOCKHOLDERS ARE ABLE TO INFLUENCE THE
OUTCOME OF STOCKHOLDER VOTES ON VARIOUS MATTERS
A large portion of our common stock is held by a small number of stockholders.
For instance, Ms. Tsui holds 72.8% of the Company's common stock after the
closing of the Exchange Transaction. As a result, this stockholder is able to
influence the outcome of stockholder votes on various matters, including the
election of directors and other corporate transactions including business
combinations. In addition, the occurrence of sales of a large number of shares
of our common stock, or the perception that these sales could occur, may affect
our stock price and could impair our ability to obtain capital through an
offering of equity securities. Furthermore, the current ratios of ownership of
our common stock reduce the public float and liquidity of our common stock which
can in turn affect the market price of our common stock.
THERE IS CURRENTLY A LIMITED TRADING MARKET FOR OUR COMMON STOCK WHICH MAY MAKE
IT DIFFICULT TO SELL SHARES OF OUR COMMON STOCK
Our common stock is traded in the over-the-counter market through the
Over-the-Counter Electronic Bulletin Board. While there is an active trading
market for our common stock, it is small. Further, there can be no assurance
that an active trading market will be maintained. We cannot assure you that our
common stock will ever be included for trading on any stock exchange or through
any other quotation system (including, without limitation, the NASDAQ Stock
Market).
25
WE ARE LIKELY TO REMAIN SUBJECT TO "PENNY STOCK" REGULATIONS AND AS A
CONSEQUENCE THERE ARE ADITIONAL SALES PRACTICE REQUIREMENTS AND ADDITIONAL
WARNINGS ISSUED BY THE SEC
As long as the trading price of our common stock is below $5.00 per share, the
open-market trading of our common stock will be subject to the "penny stock"
rules. The "penny stock" rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability of broker-dealers to sell the
common stock and may affect a stockholder's ability to resell the common stock.
Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, 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.
WE ARE RESPONSIBLE FOR THE INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS WHICH
COULD RESULT IN SUBSTANTIAL EXPENDITURES, WHICH WE MAY BE UNABLE TO RECOUP
Our bylaws provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against attorney's fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities on behalf of us. This
indemnification policy could result in substantial expenditures, which we may be
unable to recoup.
COMPLIANCE WITH THE SARBANES-OXLEY ACT COULD COST HUNDREDS OF THOUSANDS OF
DOLLARS, REQUIRE ADDITIONAL PERSONNEL AND REQUIRE HUNDREDS OF MAN HOURS OF
26
EFFORT, AND THERE CAN BE NO ASSURANCE THAT WE WILL HAVE THE PERSONNEL, FINANCIAL
RESOURCES OR EXPERTISE TO COMPLY WITH THESE REGULATIONS
The US Public Company Accounting Reform and Investor Protection Act of 2002,
better known as Sarbanes-Oxley, is the most sweeping legislation to affect
publicly traded companies in 70 years. Sarbanes-Oxley created a set of complex
and burdensome regulations. Compliance with such regulations requires hundreds
of thousands of dollars, additional personnel and hundreds of man hours of
effort. There can be no assurance that we will have the personnel, financial
resources or expertise to comply with these regulations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential," or "continue," or
the negative of such terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various factors, including
the risks outlined in the "Cautionary Statements" section beginning on page 8 in
this Current Report. These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this Current Report to conform such
statements to actual results or to changes in our expectations.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of all of our current directors and
executive officers as of October 20, 2005. The directors will serve until the
next annual meeting of the stockholders or until their successors are elected or
appointed and qualified. Executive officers will serve at the board's
discretion.
-------------------------------- --------- -------------------------------------
Name and Address Age Position
-------------------------------- --------- -------------------------------------
Heung Mei TSUI 48 Director
-------------------------------- --------- -------------------------------------
Zhilin LI 48 President and Chief Executive Officer
-------------------------------- --------- -------------------------------------
Xinhua WU 38 Chief Financial Officer
-------------------------------- --------- -------------------------------------
Jian YANG 45 Secretary
-------------------------------- --------- -------------------------------------
Ms. Heung Mei TSUI. Ms. TSUI is director of the Company since October 20, 2005.
She is a self-employed business woman engaged in the re-export business,
including chemical products trade and electromechanical products trade. She is
27
also the Toyota automobile's agent in Hainan province. She graduated from Huhan
Financial & Economic College in 1982.
Ms. Zhilin LI: Ms. Li is President and Chief Executive Officer of the Company
since October 20, 2005. She is a founder of Helpson, and has served as chairman
and CEO of Helpson since 1993. Ms. Li was formerly the president of Haikou
Bio-engineering institute, and the vice president of the Sichuan Institute of
Biology . She graduated from Sichuan University, where she majored in biology,
and later became an instructor.
Mr. Xinhua WU: Mr. Wu is Chief Financial Officer of the Company since October
20, 2005. He has acted as CFO of Helpson since his hiring in 1999. Mr. Wu served
as CFO and assistant to the CEO at Hainan Guobang Enterprises Inc., where he was
employed from 1992 to 1999. Mr. Wu graduated from the University of Wales with
an MBA degree and Jiangxi Financial college with a Bachelor of Science degree in
Finance.
Ms. Jian YANG: Ms. Yang is Secretary of the Company since October 19, 2005. She
is a founder and director of Helpson. Ms. Yang was a technician at the Sichuan
Institute of Biology in 1990 and vice president of Haikou Biomedicine
Enginerring Co., Ltd. in 1991 Ms. Yang earned her MBA at the University of
Wales, England.
Board Composition and Committees
The board of directors is currently composed solely of Heung Mei Tsui. All board
actions require the approval of a majority of the directors in attendance at a
meeting at which a quorum is present.
We currently have no committees of Audit, Compensation, or any other committees;
therefore, the board will act in the capacity of the absent committees.
Family Relationships
There are no family relationships among our directors or officers.
Director and executive compensation
No cash compensation was paid to our director for services as a director since
May 11, 2005. We have no standard arrangement pursuant to which our board of
directors are compensated for their services in their capacity as directors. The
board of directors may award special remuneration to any director undertaking
any special services on behalf of our company other than those services
ordinarily required of a director. All authorized out-of-pocket expenses
incurred by a director on our behalf will be subject to reimbursement upon our
receipt of required supporting document of such expenses. No director received
and/or accrued any compensation for his services as a director, including
committee participation and/or special assignments.
The following table provides compensation information for the period indicated
with respect to the person who served as our President for the years ended June
30, 2005, 2004 and 2003, and all other of our executive officers receiving total
28
salary and bonus in excess of $100,000 during the years ended June 30, 2005,
2004and 2003 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------ ------------------------------- -----------
Long Term Compensation
------------------------- --------- ------------------------------ -------------------------------
Annual Compensation Awards Payouts
------------------------- --------- ------------------------------ ----------------------- ------- -----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Under-lying LTIP All Other
Name and Principal Bonus Compensa- Stock Options/ Payouts Compen-
Position Year Salary ($) ($) tion Awards ($) SARs (#) ($) sation ($)
------------------------- --------- ----------- ----- ------------ ---------- ----------- ------- ----------
(1) Keith P. Boyd 2005 0 0 0 0 0 0 0
CEO, CFO & 2004 0 0 0 0 0 0 0
President 2003 36,000 0 0 0 0 0 0
------------------------- --------- ----------- ----- ------------ ---------- ----------- ------- ----------
------------------------- --------- ----------- ----- ------------ ---------- ----------- ------- ----------
(1) Tim Halter 0 0 0 0 0 0 0
President, CAO and 2005
Secretary
------------------------- --------- ----------- ----- ------------ ---------- ----------- ------- ----------
(1) Our management did not spend any material time working since we had no
material business. Accordingly, we did not compensate any officer or director
during this time period.
STOCK OPTION GRANTS AND EXERCISES
We currently have no option, retirement, pension, or profit sharing programs for
the benefit of the directors, officers or other employees, but the board of
directors may recommend adoption of one or more such programs in the future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
29
The following table sets forth certain information known to us with respect to
the beneficial ownership of our common stock as of October 20, 2005 and (i) all
persons who are known to us to be beneficial owners of five percent or more of
the common stock, (ii) each of our Directors, and (iii) all current Directors
and executive officers as a group.
The following table sets forth certain information known to us with respect to
the beneficial ownership of our common stock as of October 20, 2005 and (i) all
persons who are known to us to be beneficial owners of five percent or more of
the common stock, (ii) each of our Directors, and (iii) all current Directors
and executive officers as a group.
NAME AND ADDRESS OF SHARES BENEFICIALLY % OF CLASS
BENEFICIAL OWNER (1) OWNED OWNED
Heung Mei TSUI (2) 20,555,329 68.5
Halter Financial Investments, 1,828,170 6.0
L.P.(3)
(1) Unless otherwise stated, the address of all persons in the table is
c/o Unit 8, D Area, Office Hall, Haikou Bonded Zone, Haikou, Hainan
Province, China.
(2) Upon the effectiveness of an amendment to the Company's Certificate of
Incorporation to increase its common capital stock, the Company shall
issue to Heung Mei Tsui, the principal stockholder of Onny, an
additional 4,723,056 shares of Post Closing Shares. Upon the issuance
of the Post Closing Shares, Ms. Tsui will hold 25,278,385 shares or
approximately 72.8% of the issued and outstanding common capital stock
of the Company. Ms. Heung Mei Tsui has also agreed to escrow 6,944,611
shares of common stock for the participants in Onny's private
placement and 277,785 shares for HFG International, Limited .
(3) The address for Halter Financial Investments, L.P. is 12890 Hilltop
Road, Argyle, Texas 76226.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities.. Unless otherwise indicated, the address for each of
the individuals listed in the table is care of Hainan Helpson Bio-Pharmaceutical
Co. Ltd, Unit 8, D Area, Office Hall, Haikou Bonded Zone, Haikou, Hainan
Province, China.
Unless otherwise indicated by footnote, the persons named in the table have sole
voting and sole investment power with respect to all shares of common stock
shown as beneficially owned by them, subject to applicable community property
laws. Percentage of beneficial ownership is based on 30,000,000 shares of our
common stock outstanding as of October 20, 2005.
SECTION 3--SECURITIES AND TRADING MARKETS
Item 3.02. Unregistered Sales of Equity Securities.
On October 20, 2005, we entered into a Securities Exchange Agreement with Onny
and its original stockholders pursuant to which we acquired all of the issued
and outstanding shares of Onny from said stockholders in exchange for 27,499,940
shares of our common stock. This issuance was made in reliance on Section 4(2)
30
of the Act and was made without general solicitation or advertising. The
acquirers were sophisticated investors with access to all relevant information
necessary to evaluate the investment, and who represented to us that the shares
were being acquired for investment.
SECTION 5--CORPORATE GOVERNANCE AND MANAGEMENT
Item 5.01. Changes in Control of Registrant.
The information set forth above under "Item 2.01 -Completion of Acquisition or
Disposition of Assets" is incorporated herein by this reference.
Heung Mei TSUI, as the sole director, now is controlling TS. Pursuant to the
Agreement and on the Effective Date, as consideration for the exchange of Onny
Shares, TS issued 27,499,940 restricted shares of its common capital stock, par
value $0.001 per share, to Onny Stockholders, representing approximately 91.67%
of the issued and outstanding common capital stock of TS following the time of
the issuance. Among these shares, Ms. Tsui owns 20,555,329 shares (approximately
68.5177625% of TS). There are currently 30,000,000 issued and outstanding shares
of common stock of the reorganized TS. Upon the effectiveness of an amendment to
the Company's Certificate of Incorporation to increase its common capital stock,
the Company shall issue to Heung Mei Tsui, the principal stockholder of Onny, an
additional 4,723,056 shares of common stock (the "Post Closing Shares") to which
she would otherwise have been entitled if the Company had enough authorized
shares as of the closing of the Exchange Transaction (the "Exchange
Transaction"). Upon the issuance of the Post Closing Shares, Ms. Tsui will hold
25,278,385 shares or approximately 72.8% of the issued and outstanding common
capital stock of the Company.
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers.
Pursuant to the Exchange Agreement, at the closing of the Exchange, the
membership of the board of directors of the Company was increased from one (1)
to two (2) directors, and Heung Mei TSUI was appointed to serve as a member of
the Company's board of directors; thereafter, Mr. Halter resigned as a director
of the Company. Also under the terms of the Exchange Agreement, all existing
officers resigned as officers of the Company effective immediately following the
closing of the Exchange Transaction, and Zhilin LI was elected as President and
Chief Executive Officer, Xinhua WU was elected as Chief Financial Officer and
Jian YANG was elected as Secretary.
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
The Board of Directors approved on October 20, 2005 a change in the Company's
fiscal year end from June 30 to December 31. This change is being effectuated in
connection with the exchange transaction described in Item 1.01 above.
Item 9.01 Financial Statements and Exhibits
a) Audited financial statements for the years ended December 31, 2003, 2004 and
un-audited Quarterly financial statement ended June 30, 2005 of Onny and
Helpson;
b) Pro forma financial information.
c) Exhibits:
The following exhibits are furnished in accordance with Item 601 of Regulation
S-B:
---------------------- --------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
---------------------- --------------------------------------------------------------------------
2.1 Securities Exchange Agreement, dated as of October 20, 2005, by and
among TS, Onny, Onny Stockholders and Halter.
---------------------- --------------------------------------------------------------------------
3.1* Certificate of Incorporation for TS Electronics, Inc.
---------------------- --------------------------------------------------------------------------
3.2* Bylaws of TS Electronics, Inc.
---------------------- --------------------------------------------------------------------------
3.3+ Memorandum and Articles of Association of Onny Investments Ltd.
---------------------- --------------------------------------------------------------------------
3.4 Articles of Association of Helpson
---------------------- --------------------------------------------------------------------------
10.1+ Material Contracts
---------------------- --------------------------------------------------------------------------
99.1 Audited financial statements of Onny Helpson and TS Electronics, Inc.
---------------------- --------------------------------------------------------------------------
99.2 Pro forma financial information
---------------------- --------------------------------------------------------------------------
* Previously filed.
+ To be filed by amendment.
31
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereto duly authorized.
Date: October 20, 2005
TS ELECTRONICS, INC.
a Delaware corporation
By: /s/ Zhilin LI
-------------------
Zhilin LI
President and CEO
32