UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-KSB
x
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT
OF 1934
For
the
fiscal year ended December 31, 2007
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
|
20-1802936
|
(State
of incorporation)
|
(IRS
Employer ID Number)
|
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
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, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act).
(Check
one): Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x
Indicate
by check whether the registrant is a shell company (as defined in Rule 12b-2
of
the Act). Yes
o
No
x
Issuer's
revenues for its most recent fiscal year: $2,979, As of January 22, 2008,
34,357,676 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 December
31, 2007 was $10,053,056
BIO-BRIDGE
SCIENCE, INC.
TABLE
OF
CONTENTS
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Page
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Part
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Item
1 - Business
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3
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Item
2 - Properties
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22
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Item
3 - Legal Proceedings
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22
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Item
4 - Submission of Matters to a Vote of Security Holders
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22
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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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23
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Item
6 - Management's Discussion and Analysis or Plan of
Operations
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25
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Item
7 - Financial Statements and Supplementary Data
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30
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Item
8 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
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30
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Item
8A - Controls and Procedures
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30
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Item
8B - Other Information
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30
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Part
III
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Item
9 - Directors, Executive Officers, Promoters and Control
Persons
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31
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Item
10 - Executive Compensation
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33
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Item
11 - Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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34
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Item
12 - Certain Relationships and Related Transactions
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35
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Item
13 - Exhibits
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36
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Item
14 - Principal Accountant Fees and Services
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36
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Part
IV
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Signatures
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37
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Index
to Exhibits
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38
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CAUTION
REGARDING FORWARD-LOOKING INFORMATION
In
addition to historical information, this Annual Report on Form 10-KSB 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-QSB in our 2007 fiscal year.
As
used
in this Form 10-KSB, 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)") and Bio-Bridge Science Corporation,
a
Cayman Islands corporation as "we," "us," "our," "Bio-Bridge" and "the Company."
PART
I
ITEM
1 - BUSINESS
OVERVIEW
We
are a
development stage company focused on the commercial development of biological
products for the prevention and treatment of human infectious diseases. Through
our wholly owned subsidiaries, 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. 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
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 2.8 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 HIV-PV Vaccine I, our HPV vaccine and our colon cancer
vaccine. As of December 31, 2005, the Company has received all necessary permits
and approvals. The general plans for development include the construction of
a
laboratory facility (“Phase One”) and construction of an administrative office
building (“Phase Two”). The Company estimates the total project costs for Phase
One will be approximately $2,100,000 to $2,200,000. At December 31, 2006, Phase
One construction and internal decoration was substantially complete at a cost
of
approximately $1,814,000, and is recorded as construction in progress. At
December 31, 2007, $124,017 is due to the contractors of Phase One for the
completed construction and internal decoration and is recorded as due to
contractors. The Company estimates the remaining costs associated with Phase
One
will be approximately $400,000 to $500,000, primarily for permanent electrical
and related equipment the Company intends to install. At December 31, 2007,
the
Company had not negotiated any contracts for the purchase of any of the
electrical equipment. The Company estimates the purchase and installation of
the
electrical equipment to be completed by the second quarter of 2008. In addition,
the Company estimates the cost of laboratory equipment it will need to purchase
will be approximately $800,000 to $1,000,000. At December 31, 2007, the Company
had not negotiated any contracts for purchase of any of the laboratory
equipment. The Company estimates the purchase and installation of the laboratory
equipment to be completed by August, 2008. At December 31, 2007, Phase Two
was
still in the design stage. The Company estimates total project costs for Phase
Two will be approximately $1,000,000. The Company estimates that construction
for Phase Two may begin after 2009, but currently the Company has no firm plans
for construction of Phase Two.
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. We plan to purchase laboratory equipment and install
the equipment in our newly finished manufacturing laboratory in the second
half
of 2008. 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. Further, we have generated
insignificant revenues to date and, until we receive the necessary approvals
from the SFDA or a similar regulatory authority located in Japan or the United
States, we will not have significant revenues unless we acquire other vaccine
companies with revenues. Also, we are conducting pre-clinical activities for
HPV
vaccine and colon cancer 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.
Our minimum turnover requirement begins in the second year in the amount of
$50,000 and increases to $60,000 during the third year and increases 10%
annually thereafter. Subject to minimum turnover requirements, our exclusivity
rights in the United States will be extended unless we fail to fulfill the
minimum turnover requirements. Although we did not reach the minimum sale of
$50,000 in 2007,Xinhua has indicated that there will be no penalty for not
reaching the minimum sale requirement for 2007 and the Company can will maintain
the exclusive distribution right in 2008. 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 marketing 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.
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 laboratory and biomanufacturing facility
and continue development of our technology. Although we plan to acquire
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, Isao Arimoto, vice president, 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.
PRODUCTS
IN DEVELOPMENT
Our
major
products under development are vaccines against HIV, cervical cancer and colon
cancer.
VACCINE
Most
vaccines are preventive, and as a result, they are particularly suited to
address epidemics, including the 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 it 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 three 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
January 2006, the Chinese government along with WHO and UNAIDS jointly estimated
that 650,000 people were living with HIV in China, including about 75,000 AIDS
patients. During 2005 there were approximately 70,000 new HIV infections and
25,000 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 650,000 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. In 2005 alone, there were an estimated 70,000
new
HIV (range 60,000 to 80,000) and 25,000 AIDS deaths (range 20,000 to 30,000)
according to the Ministry of Health report dated January 24, 2006.
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. In 2003, the central government spent RMB 390 million
(US$48.75 million) and increased to RMB 800 million (US$100 million) in 2005
according to a report issued jointly by Ministry of Health, PRC, Joint United
Nations Program on HIV/AIDS, and World Health Organization. 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
affected by HIV 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
Levels
of
AIDS, HIV and other sexually transmitted diseases, particularly among middle
school children and teenagers have skyrocketed in Japan. The Japan Family
Planning Association, a group affiliated with International Planned Parenthood
Federation, began distributing condoms in 1982. Since then the rates of sexually
transmitted diseases has steadily climbed.
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.
The
official estimate of approximately 17,000 people living with AIDS/HIV in Japan
in 2005 by UNAIDS. Satoshi Kimura, head of the AIDS Clinical Center at the
Tokyo-based International Medical Center, estimates that between 20,000 and
30,000 people in Japan do not know they have the virus. Unless effective
preventive action is taken, the number of infected is likely to more than double
to 50,000 by the year 2010.
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.
In
June
2005, Japan pledged to contribute an additional $500 million to the Global
Fund,
likely to be disbursed over several years. In March 2006, Japan donated $130
million out of that contribution. Japan already has pledged $341 million and
contributed $327.7 million to the Global Fund in 2005. Japanese officials in
June 2005 announced that the country would provide $5 billion over five years
to
help African nations fight infectious diseases, such as HIV/AIDS and malaria.
The initiative aims to help developing countries achieve U.N. Millennium
Development Goal targets and succeeds Japan's Okinawa Infectious Diseases
Initiative, which was established in 2000 to fight the spread of diseases
worldwide.
UNITED
STATES
The
UNAIDS 2007 report on the AIDS epidemic reports that infections are on the
rise
in the U.S. An estimated 1.2 million people are living with HIV in the United
States in 2006, an increase from 900,000 in 2001. 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 US 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.
Hispanics,
who comprise 14% of the population in the U.S. and Puerto Rico, account for
about 18% of new HIV diagnoses (US Centers for Disease Control and Prevention,
2005a). Among African-Americans and Hispanics, most men with HIV were exposed
to
the virus during sex with other men (49% and 59%, respectively), while most
women with HIV became infected during heterosexual intercourse (78% and 73%,
respectively) (US Centers for Disease Control and Prevention, 2005c). African
American women are up to a dozen times more likely to be infected with HIV
than
their white counterparts. AIDS is the leading cause of death among African
American women aged 25-34 years and ranks in the top three causes of death
for
African American men aged 25-54 years (US Centers for Disease Control and
Prevention, 2004b). Moreover, African Americans are about half as likely to
be
receiving antiretroviral treatment, compared with other population groups
(Walensky et al., 2005). In 2003, almost twice as many African Americans died
of
AIDS than did white people (US Centers for Disease Control, 2004a). In the
U.S,
the challenge of slowing the rate of new HIV infections overlaps with a need
to
provide diagnosis, treatment and care services more equitably (US Centers for
Disease Control and Prevention, 2005b).
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.
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 4 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.
DRUG
APPORVAL PROCESS IN CHINA, THE UNITED STATES, AND JAPAN
China-The
State Food and Drug Administration, or 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 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 at the
end
of 2008 if our laboratory facility meets the GMP standards and the equipment
has
been installed. 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 we anticipate 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 longer, 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 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 Food and Drug Administration, or 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 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 process
is
called the International Conference on Harmonization. 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$180
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 is 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, 2007, 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,
2007, the remaining commitment was RMB 40,000 or US$5,476. We entered into
confidential agreements with Beijing Institute of Radiation Medicine to protect
our proprietary interests.
Beijing
Institute of Radiation Medicine has submitted 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 at the end of 2008 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 $7.4 billion in 2005 to $12 billion by 2012. Although industrialized
countries currently share a disproportion amount on spending related to
HIV/AIDS, major international organizations, including 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 in 2002 to increase resources
to fight three of the world's most devastating diseases, and to direct those
resources to areas of greatest need. Total spending by Global Fund for six
proposal rounds was $7.1 billion, and $2.41 billion of which was spent on
fighting HIV/AIDS in developing countries.
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. In 2003, the central government spent
$48.75 million on HIV/AIDS, and the amount was increased to $100 million in
2005. The Chinese government planned to spend $499 million (RMB 3.86 billion)
from 2005 to 2007 to curb the spread of AIDS/HIV. In June 2005, China has signed
new grants with the Global Fund for HIV/AIDS and tuberculosis worth US$ 52
million over the first two years. The total lifetime value of the grants over
five years is $120 million.
We
anticipate that our 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 $300 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
P
apillomavirus
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 trail in the spring of 2008 and complete it by the end
of
2008 or early 2009 and plan to enter phase
I
clinical
trail in 2009. 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. 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 incidence 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 at 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.
PRE-CLINICAL
TESTING OF HPV VACCINE
We
plan
to develop a second generation of HPV vaccine with low cost of production and
broader coverage. In early 2007, we entered into a cooperative agreement with
the Institute of Basic Medical Sciences at the Chinese Academy of Medical
Sciences, a leading medical research institute in China. We were granted the
preferential right to develop the vaccine and enjoy a 60% interest in the
project. The projected completion of construction of the vaccine will be by
the
end of 2008 and we plan to start the preclinical trials by then.
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 increase rate of cervical
cancer is about 2-3% each year, and the developing countries account of 80%
of
the incidence. China alone has accounted for one-third of the incidence 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 Corporation, entered
into
an agreement with Loyola University Chicago for an exclusive license of our
core
technology related to papillomavirus pseudovirions 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 had 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 subsidiary Bio-Bridge Science
Corporation 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.
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 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
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 trial under the current China SFDA rules. The facility
will
have 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),
Merck
& Co., Inc., Aventis Pasteur, etc. 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. In 2007,
GlaxoSmithKline
won approval from the European Commission for its cervical cancer vaccine,
Cervarix, and it was cleared for sale in 27 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.
T
he
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 been approved
in
China yet. 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
Gregory
T. Spear, PhD, Professor, Department of Immunology and Microbiology, Rush
University. Dr. Spear is a well known expert in the areas of HIV infection
and
its interactions with the immune system.
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.
EMPLOYEES
We
currently have 25 employees, including four in clinical study preparatory
work, six in research and development, seven are
management/administration staff, one for regulatory affairs, one for public
relations, four on our manufacturing and general affairs staff and two on our
sales team.
RISK
FACTORS
WE
HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT OF $7,102,032 AS OF DECEMBER
31, 2007, AND WE MAY NEVER ACHIEVE PROFITABILITY.
We
have
yet to establish any history of profitable operations. We are a development
stage company and have had insignificant revenues since our inception in
February 2002. We have incurred net losses of $1,600,792 in 2007, $1,323,894
in
2006, and $5,491,712 since inception. 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.
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. Our profitability will 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 revenue
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 money to fund the cost of developing, testing and obtaining regulatory
approval of our HIV-PV Vaccine I and other vaccine product candidates. To date,
we have funded our operations through equity offerings whereby we raised an
aggregate of $7,266,900 as of December 31, 2007. 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.
Until
we
are able to commercialize and sell our products, we will need to secure funding
of our capital needs. 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 through 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 and the patent
number is ZL 01 1 18003. The patent numbers in United States were US
6,878,541(issued in April 2005) and US 7,205,126 ( issued in April 2007).
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.
IF
WE ARE UNABLE TO COMMERCIALIZE OUR VACCINE CANDIDATES, WE MAY BE UNABLE TO
CONTINUE OPERATIONS.
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
other vaccine candidates, such as HPV vaccine, 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 PRODUCT 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 PRODUCT 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 equipments; 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. Even if we successfully
purchase the laboratory equipment and install in the manufacturing facility,
the
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.
Our
Beijing manufacturing facility is not complete and 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 Gradasil 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, 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.
In
addition, the financial markets have experienced extreme price and volume
fluctuations. The market prices of the securities of biotechnology companies,
particularly companies like ours without consistent revenues and earnings,
have
been highly volatile and may continue to be highly volatile in the future,
some
of which may be unrelated to the operating performance of particular companies.
The sale or attempted sale of a large amount of common stock into the market
may
also have a significant impact on the trading price of our common stock. Many
of
these factors are beyond our control and may decrease the market price of our
common stock, regardless of our operating performance. In the past, securities
class action litigation has often been brought against companies that experience
volatility in the market price of their securities. Whether or not meritorious,
litigation brought against us could result in substantial costs, divert
management's attention and resources and harm our financial condition and
results of operations.
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, 2007, our board of directors will be entitled to
issue up to 65,642,324 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 69% 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.
WE
ARE SUBJECT TO THE PENNY STOCK RULES. THESE RULES MAY ADVERSELY AFFECT TRADING
IN OUR COMMON STOCK.
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.
RISKS
RELATING TO OUR FOREIGN OPERATIONS
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
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. We entered into a one
year
lease for office space on July 1, 2006, which was renewed for another year
on
July 1, 2007. The rent is approximately $1,643 per month.
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 Good Manufacturing Practices, or 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 had been
completed. We estimate that the cost of the building and outfitting of the
total
phase one and phase two of the facility is $3,000,000. 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 third quarter of 2008.
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, 2007.
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 the stock.
|
|
High
|
|
Low
|
|
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
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2.35
|
|
|
1.70
|
|
Second
Quarter
|
|
|
2.49
|
|
|
1.88
|
|
Third
Quarter
|
|
|
2.25
|
|
|
1.40
|
|
Fourth
Quarter
|
|
|
1.75
|
|
|
0.83
|
|
Fiscal
2005
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
|
2.55
|
|
|
0.90
|
|
These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. As of March 1, 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
December 1, 2004, the Company issued 100,000 shares of its common stock to
Richardson & Patel, LLC in consideration for legal services.
The
fair
value of 100,000 shares was determined to be $50,000, based on the closing
price
of the shares when granted, and was recorded as legal expense in 2004.
On
February 9, 2006, the Company agreed to issue CEOcast, Inc. 72,000 shares of
common stock for investor relations services. 36,000 shares of common stock
were
granted on February 9, 2006 and an additional 36,000 shares were granted on
May
9, 2006. The fair value of the 72,000 shares was $140,400 based on the closing
price of the Company’s common stock on the date the shares were granted. The
Company recorded the total fair value of the shares of $140,400 as consulting
expense in 2006.
On
March
6, 2006, the Company agreed to issue CH Capital LLC 50,000 shares for financial
consulting services. 25,000 shares were granted on March 6, 2006 and an
additional 25,000 shares were granted on September 6 2006. The fair value of
the
50,000 shares was $101,250 based on the closing price of the Company’s common
stock on the date the shares were granted. The Company amortized $83,506 of
expense in 2006 and $17,744 in 2007.
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.
ISSUANCE
OF STOCK OPTIONS AND WARRANTS
In
2004,
the
Company issued to Columbia China Capital Group, Inc. (“Columbia China”) an
option to purchase 1,342,675 shares of common stock at $.001 per share to be
exercised within a three-year period in consideration for financial consulting
services to be provided over a two-year period. The fair value of the options
was $670,098 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 life of 3 years; and estimated
volatility of 85% based on recent history of the stock price in the industry.
The Company revalued the fair value of the options at the end of each reporting
period in accordance with EITF 96-18 and determined there was no significant
change to the initial valuation. The Company amortized the value of the options
over the two- year term of the service agreement. Amortization was $279,208
in
2004 and $251,287 in 2005. On December 1, 2004, 200,000 options were exercised
and on October 17, 2005, 300,000 options were exercised. On October 18, 2005,
Columbia China forfeited 350,000 options. The unamortized balance of deferred
compensation of $139,604 was reclassified into additional paid-in capital in
2005. On January 9, 2006 and March 2, 2007, Columbia China forfeited a total
of
97,000 additional options. In February 2007, Columbia China Capital Group
exercised 395,675 options and no longer owns any options.
On
December 1, 2004, the Company an option to purchase 50,000 shares of its common
stock at $0.001 per share to Richardson & Patel, LLC in consideration for
legal services. The fair value of the options was $24,954 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 3 years; and estimated volatility of 85 percent based on
recent history of the stock price in the industry. The value of the options
was
reflected as a consulting expense in 2004. The options were forfeited in 2007.
On
July
1, 2005, the Company issued to two consultants an option to purchase 20,000
shares of common stock at $.001 per share to be exercised within a three-year
period in consideration for scientific advisory service. The fair value of
the
options was $9,982 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 3 years;
and
estimated volatility of 70 percent based on recent history of the stock price
in
the industry. The Company revalued the fair value of the options at the end
of
each reporting period in accordance with EITF 96-18 and determined there was
no
significant change to the initial valuation. The value of the options issued
was
amortized over the one- year term of the service agreement.
On
October 14, 2005, the Company issued to Mr. Liang Qiao, MD, the Company's chief
executive officer, an option to purchase 600,000 shares of common stock at
$0.55
per share, exercisable for a ten-year period. The fair value of the options
was
$157,770 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 four years; and estimated
volatility of 70 percent based on recent history of the stock price in the
industry. The value of the options are being amortized over the three year
vesting period. For years ended December 31, 2007 and 2006, $52,600 and $52,600,
respectively, was amortized and included in compensation cost.
On
October 14, 2005, the Company issued to 25 employees options to purchase
1,345,000 shares of common stock at $0.5 per share to be exercised with a
ten-year (10) period. The fair value of the options was $369,045 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 4 years; and estimated volatility of 70 percent based
on
recent history of the stock price in the industry. The value of the options
will
be amortized over the three year vesting period. For years ended December 31,
2007 and 2006, $121,115 and $122,070, respectively, was amortized and included
in compensation cost.
On
November 2, 2005, the Company issued to Mr. Wenhui Qiao (the Company's director
and president) and Mr. Chuen Huei (Kevin) Lee (the Company's CFO) an option
to
purchase 300,000 shares of common stock at $0.001 per share. The fair value
of
the options was $149,738 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 4 years;
and
estimated volatility of 70 percent based on recent history of the stock price
in
the industry. The value of the stock options of $149,738 was reflected as
compensation expense in 2005.
On
November 2, 2005, the Company issued to Adam Friedman Associates, LLC, the
Company's investor relations consultant, an option to purchase 50,000 shares
of
common stock at $0.001 per share to be exercised within a one-year period
in
consideration for investor relations service.
The fair value of the
options was $24,952 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 1.5 years;
and estimated volatility of 70 percent based on recent history of the stock
price in the industry. The value of the options was being amortized over
the
one- year term of the service agreement. For the years ended December 31,
2006
and 2005, $20,794 and $4,158, respectively, was amortized and included in
consulting expense. The options were exercised in 2007
On
November 2, 2005, the Company issued to Ms. Ma Suifang, the Company's financial
consultant, an option to purchase 8,116 shares of common stock at $.001 per
share. The fair value of the options was $4,051 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 3 years; and estimated volatility of 70 percent based on
recent history of the stock price in the industry. The value of the stock
options of $4,051 was reflected as consulting expense in 2005.
On
July
1, 2006, the Company issued options to two consultants to purchase 10,000 shares
of common stock, individually. The fair value of the options was $44,982 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 3 years; and estimated volatility of 49 percent
based
on recent history of the stock price in the industry. For the years ended
December 31, 2007 and 2006, $22,491 and $22,491, respectively, was amortized
and
included as consulting expense.
In
November 2006, the Company issued a warrant to purchase 50,000 shares of common
stock at $1.20 per share with a term of three years to an investor who also
purchased 33,333 shares of common stock at $0.75 per share.
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.
On
April
1, 2007, the Company granted 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 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.
ITEM
6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN 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 development stage company whose subsidiaries are focused
on
the commercial development of HIV-PV Vaccine I, HPV vaccine, colon cancer
vaccine, mucosal adjuvant. 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.
History
of Losses and Negative Cash Flows
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 $5,491,712 and
$3,092,669, respectively, from inception through December 31, 2007. We incurred
net losses of $1,600,792 and $1,323,894 for the years ended December 31, 2007
and 2006, respectively. On February 12, 2007, the Company raised $3,000,000
in a
private placement in the form of a sale of shares of Series A convertible
preferred stock and warrants to purchase common stock. Our capital requirements
for the next 12 months, as they relate to further research and development
relating to our vaccine candidates, HIV-PV Vaccine I, HPV vaccine and colon
cancer vaccine, have been and will continue to be significant. As of December
31, 2007, we have funded our operations through equity offerings whereby we
raised an aggregate $7,266,900 since inception.
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 early 2009 and that of HPV vaccine by late 2009. We expect
to
enter clinical trials of colon cancer vaccine in the second half of 2009. 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
2007, we sold 30,000 shares of common stock at a price of $0.75 per share to
investors from private placements, and raised gross proceeds of $22,500. Also
in
2007, we sold 4,000,000 shares of preferred A stock to three investors for
a
gross proceed of $3,000,000. 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 the potential acquisition activities in China. We estimate
that our capital requirements for the next twelve months will be as
follow:
o
approximately $0.7 million for our laboratory/bio-manufacturing facility’
electricity work for Phase One laboratory manufacturing facility project in
Beijing, China;
o
approximately $1.0 million to purchase advanced laboratory equipment and
supplies for our vaccine production;
o
approximately $0.5 million for preparatory work for Phase I clinical
study;
o
approximately $0.9 million for working capital and general corporate needs;
and
o
approximately $0.6 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 of 2007, our cash and cash equivalents and trading securities
position was $1,614,288. Although we raised $ 3 million in February 2007 in
a
private placement, 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 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 forming a sales team and seeking collaboration with local
distributors and developing markets for Xinhua instruments. As these activities
will take significant amount of time, we do not expect to generate any
significant revenues in the next 12 months.
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 vaccines 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. We plan to spend less than $ 1 million to execute our first
acquisition in China. However, we cannot assure you that we will be able to
achieve our goal by acquiring vaccine related companies in China although we
are
talking to several potential targets in China. Furthermore, even if we acquire
a
vaccine company, we may not be successful at generating positive operating
cash
flows or other benefits we anticipate.
Results
of Operations
Year
ended December 31, 2007 Compared to Year ended December 31,
2006
During
each of the years ended December 31, 2007 and 2006, we had insignificant revenue
$2,979 in 2007 and $1,768 in 2006. This was due to sales of surgical instrument
in the United States. The cost of revenues was $1,629 in 2007 and $1,179 in
2006. Since we entered into this agreement, we have been establishing sales
inventory of Xinhua’s surgical instruments, printed marketing materials such as
catalogs and post cards, complied a list of potential customers, started forming
a sales force, and implementing a strategic marketing plan for selling Xinhua’s
instruments. We expect that the revenue from sales of these instruments will
gradually increase in the future as a result of these efforts.
For
the
year ended December 31, 2007, research and development expense was $155,087
as
compared to $95,255 for the year ended December 31, 2006. The increase of
$59,832 was due primarily to pre-clinical development of our HIV-PV Vaccine
I
and other vaccine candidates, and the continuing hiring of the research and
development staff.
For
the
year ended December 31, 2007, general and administrative expense was $1,164,664,
as compared to $1,184,974 for the year ended December 31, 2006. The decrease
of
$20,310 was due primarily to consulting fees. For the sales of the surgical
instrument, it incurred the selling and distribution expenses $40,128 in the
year ended December 31, 2007 as compared to $48,153. The decrease of $8,025
was
due primarily to the shipment expenses.
Net
loss
for the year ended December 31, 2007, was $1,600,792 as compared to $1,323,894
for the year ended December 31, 2006. This increase in net loss was primarily
attributable to increase in unrealized loss on trading securities of $372,192
offset by an increase in dividend income of $127,480.
Year
ended December 31, 2006 Compared to Year ended December 31,
2005
During
each of the years ended December 31, 2006 and 2005, we had insignificant revenue
$1,768 in 2006. This was due to sales of surgical instrument in the United
States. The cost of revenues was $1,179. Since we entered into this agreement,
we have been establishing sales inventory of Xinhua’s surgical instruments,
printed marketing materials such as catalogs and post cards, complied a list
of
potential customers, started forming a sales force, and implementing a strategic
marketing plan for selling Xinhua’s instruments. We expect that the revenue from
sales of these instruments will gradually increase in the future as a result
of
these efforts.
For
the
year ended December 31, 2006, research and development expense was $95,255
as
compared to $81,425 for the year ended December 31, 2005. The increase of
$13,830 was due primarily to pre-clinical development of our HIV-PV Vaccine
I on
laboratory animals, and the continuing hiring of the research and development
staff.
For
the
year ended December 31, 2006, general and administrative expense was $1,184,974
as compared to $1,178,534 for the year ended December 31, 2005. The increase
of
$6,440 was due primarily to audit fees. For the sales of the surgical
instrument, it incurred the selling and distribution expenses $48,153, of which
most was due to the sales salaries.
Comprehensive
loss for the year ended December 31, 2006, was $1,268,773 as compared to
$1,226,211 for the year ended December 31, 2005. This increase in net loss
was
attributable to increase in research and development cost and selling and
distribution expenses.
Liquidity
and Capital Resources
Our
principal sources of liquidity are cash and cash equivalent and trading
securities balances, which totaled $1,614,288 at December 31, 2007 and $149,613
at December 31, 2006. Since our inception, we have incurred significant losses,
and as of December 31, 2007, we had an accumulated deficit of
$7,102,032.
Net
cash
used in operating activities was $1,157,118 for the year ended December 31,
2007
and $834,451 for the year ended December 31, 2006. The increase is due primarily
to an increase in the scale of business.
Cash
flows used in investing activities was $1,913,358 for the year ended December
31, 2007 and $312,469 for the year ended December 31, 2006. This change was
due
to increase in the purchase of marketable securities in 2007.
Net
cash
provided by financing activities decreased to $3,029,103 in the year ended
December 31, 2007 compared to $867,261 in the year ended December 31,
2006.
As
of
December 31, 2007, our operations have been funded through issuances of our
common stock whereby we raised an aggregate $4,266,900 from February 11, 2002
(inception) through December 31, 2007. On February 12, 2007, the Company raised
an additional $3,000,000 in a private placement in the form of a sale of shares
of Series A convertible preferred stock and warrants to purchase common
stock.
In
May
2003, the Company acquired a land use right for approximately 2.8 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 HIV-PV Vaccine I. As of December 31, 2005, the Company has
received all necessary permits and approvals. The general plans for development
include the construction of a laboratory facility (“Phase One”) and construction
of an administrative office building (“Phase Two”). The Company estimates the
total project costs for Phase One will be approximately $2,100,000 to
$2,200,000. At December 31, 2007, Phase One construction and internal decoration
was substantially completed at a cost of approximately $1,814,000, and is
recorded as construction in progress. At December 31, 2007, $124,017 is due
to
the contractors of Phase One for the completed construction and internal
decoration and is recorded as due to contractors. The Company estimates the
remaining costs associated with Phase One will be approximately $400,000 to
$500,000, primarily for permanent electrical equipment the Company intends
to
install. At December 31, 2007, the Company had not negotiated any contracts
for
the purchase of any of the electrical equipment. The Company estimates the
purchase and installation of the electrical equipment to be completed by August
of 2008. In addition, the Company estimates the cost of laboratory equipment
will be approximately $800,000 to $1,000,000. At December 31, 2007, the Company
had not negotiated any contracts for the purchase of any of the laboratory
equipment. The Company estimates the purchase and installation of the laboratory
equipment to be completed in the second quarter of 2008. At December 31, 2007,
Phase Two was still in the design stage. The Company estimates total project
costs for Phase Two will be approximately $1,000,000. The Company estimates
that
Phase Two construction may begin after 2009, but currently the Company has
no
firm plans for construction of Phase Two.
Based
on
our current operating plan we believe that we have sufficient cash and cash
equivalents to last approximately through March 2009. 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
March 2009. 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 cease 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.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment,” (SFAS 123R) 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. 123R, and its related implementation
guidance as promulgated by both the Financial Accounting Standards Board (
the
"FASB"), and the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin ("SAB") No 107 (“SAB 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 123R 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 investments 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.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 provides a common definition of fair value and
establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS No. 157
also
requires expanded disclosures to provide information about the extent to which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures
on
earnings. SFAS No. 157 is effective for financial statements issued in fiscal
years beginning after November 15, 2007 and to interim periods within those
fiscal years.
In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS
159, which becomes effective for the Company on January 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by instrument.
In
December 2007, the FASB issued FASB Statement No. 141 (R), “Business
Combinations” (FAS 141(R)), which establishes accounting principles and
disclosure requirements for all transactions in which a company obtains control
over another business. Statement 141 (R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15, 2008. Earlier
adoption is prohibited.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160
establishes accounting and reporting standards that require that the ownership
interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parent’s equity; the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income; and changes in a parent’s ownership interest while the
parent retains its controlling financial interest in its subsidiary be accounted
for consistently. SFAS No. 160 also requires that any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair value
when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
requirements to identify and distinguish between the interests of the parent
and
the interests of the noncontrolling owners. SFAS No. 160 applies to all entities
that prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. SFAS No. 160 must be applied prospectively as of the
beginning of the fiscal year in which it is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure
requirements are applied retrospectively for all periods presented.
The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows.
Lease
Commitment
As
of
December 31, 2007, We had remaining outstanding commitments with respect to
its
non-cancelable operating lease for our office in Oak Brook, IL, of which
$29,113, $28,087 and $19,004 is due in 2008, 2009 and 2010, and our office
in
Beijing, PRC (which is leased from Wenhui, Qiao, our director and president),
of
which $9,857, is due in 2008 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, 2007, we had not generated
any revenues from the sale of any products under development, nor had we
received any revenues from sublicenses.
Research
and Development Agreements
On
May 6,
2004, Beijing Institute of Radiation Medicine and we entered into agreements
for
conducted biodistribution and integration studies for HIV-PV Vaccine I. The
aggregate amount for the testing is $24,184 and as of December 31, 2007, the
remaining commitment was $5,476.
Contractual
Obligations
Payments
due under contractual obligations at December 31, 2007 mature as
follows:
|
|
Payments
due by period ($ in thousands)
|
|
Contractual
Obligations
|
|
Total
|
|
Less
than
1
year
|
|
1
to 3
years
|
|
Lease
obligation
|
|
$
|
86
|
|
$
|
39
|
|
$
|
47
|
|
Payable
to contractors
|
|
|
124
|
|
|
124
|
|
|
—
|
|
R&D
agreement obligation
|
|
|
5
|
|
|
5
|
|
|
—
|
|
Total
|
|
$
|
215
|
|
$
|
168
|
|
$
|
47
|
|
ITEM
7 - FINANCIAL STATEMENTS
The
financial statements together with the report of Independent Registered Public
Accounting Firm appear beginning on Page F-1 of this Report.
ITEM
8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM
8A - 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, 2007. 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, 2007, 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
8B - OTHER INFORMATION
None.
PART
III
ITEM
9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND COPRORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The
following table sets forth the names, ages, and positions of our directors
and
executive officers.
NAME
|
|
AGE
|
|
INITIAL
ELECTION OR POSITION HELD
|
|
APPOINTMENT DATE
|
Liang
Qiao, M.D.
|
|
47
|
|
Chairman
of the Board, Chief Executive Officer and Secretary
|
|
October
26, 2004
|
Wenhui
Qiao
|
|
38
|
|
President
and Director
|
|
October
26, 2004
|
Chuen
Huei (Kevin) Lee
|
|
37
|
|
Chief
Financial Officer
|
|
October
27, 2004
|
Toshihiro
Komoike
|
|
55
|
|
Vice
President and Director
|
|
October
26, 2004
|
Isao
Arimoto
|
|
59
|
|
Vice
President and Director
|
|
October
26, 2004
|
Shyh-Jing
(Philip) Chiang
|
|
47
|
|
Director
|
|
October
26, 2004
|
Trevor
Roy
|
|
61
|
|
Director
|
|
March
23, 2007
|
Cheung
Hin Shun Anthony
|
|
53
|
|
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
had any
bankruptcy petition filed by or against any business of which such person was
a
general partner or executive officer, either at the time of the bankruptcy
or
within two years prior to that time,
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 June 2004, Mr. Chiang has 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.
Our
board
of directors currently consists of seven members. Our bylaws provide that our
directors will be elected at each annual meeting of the stockholders. Their
term
of office will run until the next annual meeting of the stockholders and until
their successors have been elected.
To
date,
our board of directors has not separately designated a standing audit committee.
Since no such committee exists, our entire board of directors constitutes the
audit committee pursuant to Section 3(a)(58)(A) of the Exchange Act of
1934.
No
individual on our board of directors possesses all of the attributes of an
audit
committee financial expert and no one on our board of directors is deemed to
be
an audit committee financial expert. In forming our board of directors, we
sought out individuals who would be able to guide our operations based on their
business experience, both past and present, or their education. Mr. Lee, our
Chief Financial Officer, serves as our financial expert regarding generally
accepted accounting principals and general application of such principles in
connection with the accounting for estimates and accruals, including an
understanding of internal control procedures and policies over financial
reporting, and maintains sufficient experience analyzing or evaluating financial
statements in such depth and breadth as may be required of an audit committee
financial expert. However, Mr. Lee is not an elected director of the company.
We
recognize that having a person who possesses all of the attributes of an audit
committee financial expert would be a valuable addition to our board of
directors. As a result, we are looking for suitable and renowned professionals
to serve the capacity of audit committee financial experts.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires
our
directors and executive officers, and persons who beneficially own more than
ten
percent of a registered class of our equity securities, to file with the
Securities and Exchange Commission (the "Commission") initial reports of
beneficial ownership and reports of changes in beneficial ownership of our
Common Stock. The rules promulgated by the Commission under Section 16(a) of
the
Exchange Act require those persons to furnish us with copies of all reports
filed with the Commission pursuant to Section 16(a). To our knowledge, based
solely upon review of the copies of such reports received or written
representations from the reporting persons, we believe that during our 2007
fiscal year our directors, executive officers and persons who own more than
10%
of our common stock complied with all Section 16(a) filing
requirement.
We
have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. Such code of ethics will be provided
to
any person without charge, by sending a request to our principal executive
office. You may request a copy of this code of ethics to be sent as a pdf file
to an e-mail address or by regular mail.
ITEM
10 - EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following executive compensation disclosure reflects all compensation awarded
to, earned by or paid to the executive officers below, for the fiscal year
ended
December 31, 2007. The following table summarizes all compensation for fiscal
year 2007 received by our chief executive officer and our four highest paid
officers in fiscal year 2007 and 2006.
The
following Summary Compensation Table sets forth certain information regarding
the compensation of our named executive officers for services rendered in all
capacities to Bio-Bridge during the year ended December 31, 2007 and
2006.
Summary
Compensation Table
Name
and Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Stock
Awards ($)
|
|
Option
Awards($)
(1)
|
|
Non-Stock
Incentive
Plan
Comp($)
|
|
All other
Comp. ($)
|
|
Total ($)
|
|
Liang
Qiao, MD
Chief
Executive Officer
Chairman
of the Board
|
|
|
2007
2006
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
52,600
52,590
|
|
|
0
0
|
|
|
0
0
|
|
|
52,600
52,590
|
|
Wenhui
Qiao
President
and Director
|
|
|
2007
2006
|
|
|
23,000
16,258
|
|
|
0
0
|
|
|
0
0
|
|
|
22,867
22,867
|
|
|
0
0
|
|
|
0
0
|
|
|
45,867
39,125
|
|
Chuen
Huei (Kevin) Lee
Chief
Financial Officer
|
|
|
2007
2006
|
|
|
102,000
102,000
|
|
|
0
0
|
|
|
0
0
|
|
|
22,867
22,867
|
|
|
0
0
|
|
|
0
0
|
|
|
124,867
124,867
|
|
Toshihiro
Komoike
Vice
President and Director
|
|
|
2007
2006
|
|
|
36,000
36,000
|
|
|
0
0
|
|
|
0
0
|
|
|
13,720
13,720
|
|
|
0
0
|
|
|
0
0
|
|
|
49,720
49,720
|
|
(1)
|
Represents
fair market value of options vested during the year ended
December 31, 2007, calculated using the Black-Scholes option pricing
model and related assumptions as disclosed in Note 8,
Shareholders
Equity,
of
our consolidated financial
statements.
|
The
following table sets forth information concerning the outstanding equity awards
granted to the named executive officers at December 31, 2007.
Outstanding
Equity Awards at Fiscal Year End Table
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options(#)
|
|
Option
Exercise
Price
($/Sh)
|
|
Option
Expiration
Date
|
|
Number
Of
Shares
Or Units
of
Stock
That
Have Not
Vested(#)
|
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested($)
|
|
Equity
Incentive
Plan
Awards:
Number
Of
Unearned
Shares
That
Have not
Vested(#)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares
That have
Not Vested
($)
|
|
Liang
Qiao
|
|
|
450,000
|
|
|
150,000
|
|
|
0
|
|
|
0.55
|
|
10-13-2015
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Wenhui
Qiao
|
|
|
187,500
150,000
|
|
|
62,500
0
|
|
|
0
0
|
|
|
0.5
0.001
|
|
10-13-2015
10-13-2015
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
Chuen
Huei
(Kevin)
Lee
|
|
|
187,500
150,000
|
|
|
62,500
0
|
|
|
0
0
|
|
|
0.5
0.001
|
|
10-13-2015
10-13-2015
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
Toshihiro
Komoike
|
|
|
112,500
|
|
|
37,500
|
|
|
0
|
|
|
0.5
|
|
10-13-2015
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
(1)
Based
on closing price of Bio-Bridge’s Common Stock on December 31, 2007 of
$0.95.
(2)
Dr.
Liang Qiao's employment with Bio-Bridge Science, Inc. commenced on October
26,
2004. He has not received a salary in 2007.
(3)
Mr.
Kevin Lee's employment with Bio-Bridge Science Corporation commenced in May
2004. His salary for the remainder of 2004 was $45,000. $15,000 of Mr. Lee's
2004 salary was deferred; $30,000 of Mr. Lee's 2005 salary was deferred, $30,000
of Mr. Lee’s 2007 salary was deferred.
(4)
Mr.
Wenhui Qiao's employment with Bio-Bridge Science, Inc. commenced on October
26,
2004.
COMPENSATION
OF DIRECTORS
Executive
directors do not currently receive compensation for their services as directors,
but are reimbursed for expenses incurred in attending board meetings.
Non-executive directors receive 10,000 shares of restricted common stock for
services as directors per annum in addition to expense reimbursement in
connection with attending board meetings.
EMPLOYMENT
AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
We
currently do not have any employment agreements with our executive officers.
ITEM
11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Security
Ownership of Certain Beneficial Owners and Management
The
following tables set forth certain information regarding beneficial ownership
of
our securities as of March 15, 2008 by (i) each person who is known by us to
own
beneficially more than five percent (5%) of the outstanding shares of each
class
of our voting securities, (ii) each of our directors and executive officers,
and
(iii) all of our directors and executive officers as a group. We believe that
each individual or entity named has sole investment and voting power with
respect to the securities indicated as beneficially owned by them, subject
to
community property laws, where applicable, except where otherwise noted. Unless
otherwise stated, their address is c/o Bio-Bridge Science, Inc., 1211 West
22nd
Street, Suite 615, Oak Brook, IL 60523. As of March 15, 2008 there were
34,357,676 shares of common stock and 4,000,000 shares of preferred stock
issued.
COMMON
STOCK
NUMBER OF SHARES OF NAME OF
DIRECTOR, OFFICER AND
OUTSTANDING BENEFICIAL OWNER
|
|
COMMON STOCK
BENEFICIALLY OWNED
|
|
PERCENTAGE
OF SHARES
|
|
Liang
Qiao, M.D.(1)
|
|
|
14,250,000
|
|
|
37.2
|
%
|
Wenhui
Qiao(2)
|
|
|
2,033,333
|
|
|
5.3
|
%
|
Chuen
Huei (Kevin)Lee(3)
|
|
|
358,333
|
|
|
1.0
|
%
|
Toshihiro
Komoike(4)
|
|
|
875,000
|
|
|
2.2
|
%
|
Isao
Arimoto(5)
|
|
|
3,833,333
|
|
|
10.0
|
%
|
Shyh-Jing
(Philip) Chiang(6)
|
|
|
900,278
|
|
|
2.3
|
%
|
Trevor
Roy(7)
|
|
|
2,100,000
|
|
|
5.5
|
%
|
Cheung
Hin Shun Anthony (8)
|
|
|
2,100,000
|
|
|
5.5
|
%
|
All
Officers and Directors as a Group
(8
Persons)
|
|
|
26,450,277
|
|
|
69.0
|
%
|
(1)
Includes 13,750,000 shares and an option to purchase 600,000 shares of which
50,000 shares are exercisable within 60 days of March 15, 2008
(2)
Includes 825,000 shares, a vested option to purchase 150,000 shares, and an
option to purchase 250,000 shares of which 20,833 shares are exercisable within
60 days of March 15, 2008 owned by Wenhui Qiao. Also includes 850,000 shares
held by Mingjin Yu, Mr. Qiao's wife. Mr. Qiao disclaims beneficial ownership
of
the shares held by his wife, except to the extent of his pecuniary interest
therein.
(3)
Includes a vested option to purchase 150,000 shares, and an option to purchase
250,000 shares of which 20,833 shares are exercisable within 60 days of March
15, 2008.
(4)
Includes 750,000 shares and an option to purchase 150,000 shares of which 12,500
shares are exercisable within 60 days of March 15, 2008 owned by Toshihiro
Komoike.
(5)
Includes 2,125,000 shares and an option to purchase 250,000 shares of which
20,833 shares are exercisable within 60 days of March 15, 2008 owned by Isao
Arimoto, 1,500,000 shares owned by Yukiko Arimoto, Mr. Arimoto's wife. Mr.
Arimoto disclaims beneficial ownership of the shares held by his wife, except
to
the extent of his pecuniary interest therein.
(6)
Includes 786,111 shares and an option to purchase 5,000 shares of which 417
are
exercisable within 60 days of March 15, 2008,and 10,000 shares of restricted
common shares granted on March 23, 2007 for board service Also includes 100,000
shares held by Mei-Ju Shi, Mr. Chiang 's wife. Mr. Chiang disclaims beneficial
ownership of the shares held by his wife, except to the extent of his pecuniary
interest therein.
(7)
Includes 2,000,000 preferred shares to be convertible to common shares owned
by
Mr. Roy through directly or indirectly controlled companies and 10,000 shares
of
restricted common stock granted on March 23, 2007 for board service. Also
includes 90,000 common shares for Series A convertible preferred Stock
dividends.
(8)
Includes 2,000,000 preferred shares to be convertible to common shares and
10,000 shares of restricted common stock granted on March 23, 2007 for board
service. Also includes 90,000 common shares for Series A convertible preferred
Stock dividends.
CHANGE
OF CONTROL
To
the
knowledge of management, there are no present arrangements or pledges of
securities of our Company that may result in a change in control of the Company.
ITEM
12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr.
Liang
Qiao, our chief executive officer and chairman of the board, as well as his
brother, Wenhui Qiao, a director and president, and Isao Arimoto, our
vice-president and director, Shyh-Jing(Philip) Chiang, our director, are
considered promoters. All transactions with the promoters are set forth below.
SHARE
EXCHANGE WITH BIO-BRIDGE SCIENCE CORP.
On
December 1, 2004, the related parties below participated in the share exchange
with Bio-Bridge Science Corp., a Cayman Islands corporation ("Bio-Bridge
Science"). In exchange for shares in Bio-Bridge Science, each received shares
of
common stock of registrant as set forth below.
NAME(1)
|
|
NUMBER
OF SHARES
OF
COMMON STOCK
|
|
Dr.
Liang Qiao
|
|
|
13,750,000
|
|
Wenhui
Qiao
|
|
|
825,000
|
|
Isao
Arimoto
|
|
|
2,125,000
|
|
Shyh-Jing
(Philip) Chiang
|
|
|
786,111
|
|
(1)
See
"Security Ownership of Certain Beneficial Owners and Management" for a listing
of all issuer securities owned by these promoters.
Royalty
and License Arrangements
Liang
Qiao, MD., 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 a license agreement with Loyola University Chicago,
our wholly owned subsidiary Bio-Bridge Science Corporation has obtained
exclusive rights to this technology for use in our future products within the
United States, Japan and PRC. This license continues perpetually or for the
maximum period of time permitted by law, unless terminated earlier by us with
prior notice or by Loyola University in the event we do not make any effort
to
market the product after five years from the date on which the U.S., Japan
or
China grant us a permit for production. See "Business—Intellectual Property."
Pursuant to this agreement, Loyola is entitled to receive a royalty of four
percent from the net profit for all uses of the licensed technology, including
uses under sublicenses. To date, we have not generated any revenues from the
sale of any products under development, or any revenues from
sublicenses.
Our
director, Wenhui Qiao, is president of our wholly-owned subsidiary Bio-Bridge
Science (Beijing). In April 2002, Bio-Bridge Science Corporation, or Bio-Bridge
Science Corp. signed a sublicense agreement with Bio-Bridge Science (Beijing).
Under the terms of the agreement, Bio-Bridge Science Corp, granted an exclusive
license to Bio-Bridge Science Beijing within mainland China. The term of the
license agreement is 10 years. There are no royalty fees or one-time costs
owed
to us under this agreement.
Office
Lease in Beijing, China
In
July
2004, from one of our directors, Wenhui Qiao, and his wife, Mingjin Yu, lease
office space for our office located in Beijing, China. The monthly rent is
$1,643
.
The
rental rate is at the housing rental market rate in Chaoyang District, Beijing.
The agreement is renewed every year since the lease term is for one year. The
current lease agreement with Mr. Qiao and Ms. Yu will expire in June
2008.
Salary
Deferral
At
our
request, part of Mr. Kevin Lee's salary from 2004 to 2007 was deferred. As
of
December 31, 2007, the total salary deferred for Mr. Lee was
$75,000.
ITEM
13- EXHIBITS
The
following documents are filed as part of this report:
(1)
Financial Statements - See Index to Consolidated Financial Statements under
Item
7 above.
(2)
Exhibits - See Index to Exhibits following the signatures to this report.
ITEM
14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table sets forth fees billed to us by our auditors during the fiscal
years ended December 31, 2007 and December 31, 2006 for: (i) services rendered
for the audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services by our auditor that are reasonably related
to the performance of the audit or review of our financial statements and that
are not reported as Audit Fees, (iii) services rendered in connection with
tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.
|
|
|
|
December 31,
2007
|
|
December 31,
2006
|
|
(i)
|
|
Audit
Fees
|
|
$
|
81,470
|
|
$
|
93,827
|
|
(ii)
|
|
Audit
Related Fees
|
|
|
—
|
|
|
—
|
|
(iii)
|
|
Tax
Fees
|
|
|
—
|
|
|
—
|
|
(iv)
|
|
All
Other Fees
|
|
|
—
|
|
|
—
|
|
The
board
of directors serves as the function of audit committee.
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.
|
|
|
|
BIO-BRIDGE
SCIENCE, INC.
|
|
|
|
Dated:
March 31, 2008
|
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
|
|
Title
|
|
Date
|
/s/
Liang Qiao
|
|
Chief
Executive Officer, Secretary and
|
|
March
31, 2008
|
Liang
Qiao, M.D.
|
|
Chairman
of the Board (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Chuen Huei (Kevin) Lee
|
|
Chief
Financial Officer (Principal
|
|
March
31, 2008
|
Chuen
Huei (Kevin) Lee
|
|
Financial
and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Wenhui Qiao
|
|
President
and Director
|
|
March
31, 2008
|
Wenhui
Qiao
|
|
|
|
|
|
|
|
|
|
/s/
Shyh-Jing (Philip) Chiang
|
|
Director
|
|
March
31, 2008
|
Shyh-Jing
(Philip) Chiang
|
|
|
|
|
|
|
|
|
|
/s/
Isao Arimoto
|
|
Vice
President and Director
|
|
March
31, 2008
|
Isao
Arimoto
|
|
|
|
|
|
|
|
|
|
/s/
Toshihiro Komoike
|
|
Vice
President and Director
|
|
March
31, 2008
|
Toshihiro
Komoike
|
|
|
|
|
|
|
|
|
|
/s/
Trevor Roy
|
|
Director
|
|
March
31, 2008
|
Trevor
Roy
|
|
|
|
|
|
|
|
|
|
/s/
Cheung Hin Shun Anthony
|
|
Director
|
|
March
31, 2008
|
Cheung
Hin Shun Anthony
|
|
|
|
|
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
|
|
|
|
3.1(i)*
|
|
Certificate
of incorporation of the registrant
|
|
|
|
3.1(ii)**
|
|
Certificate
of determination of preferred shares
|
|
|
|
3.2(i)*
|
|
Bylaws
of the registrant
|
|
|
|
10.1*
|
|
Exclusive
License Agreement between Bio-Bridge Science Corporation and Loyola
University Chicago, dated April 22, 2004
|
|
|
|
10.2*
|
|
Exclusive
Sub-license Agreement between Beijing Bio-Bridge Science Corporation
and
Beijing Bio-Bridge Science Corporation, dated June 20,
2002
|
|
|
|
10.3*
|
|
2004
stock incentive plan
|
|
|
|
10.4*
|
|
Lease
between Bio-Bridge Science Corporation and SFERS Real Estate K
Limited
Partnership, dated July 30, 2004
|
|
|
|
10.5*
|
|
Agreement
between Bio-Bridge Beijing Science Corporation and Beijing Institute
of
Radiation Medicine, dated May 6, 2004.
|
|
|
|
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.
|
|
|
|
10.7*
|
|
Agreement
between Bio-Bridge Beijing Science Corporation and Beijing Institute
of
Radiation Medicine, dated May 12, 2004.
|
|
|
|
10.8**
|
|
Exclusive
Agency Agreement between Registrant and Xinhua Surgical Instruments
Co.,
Ltd. dated November 16, 2005.
|
|
|
|
10.9***
|
|
Investment
Agreement between Registrant and Dutchess Private Equities Fund,
L.P.
dated November 29, 2005.
|
|
|
|
10.10***
|
|
Registration
Rights Agreement between Registrant and Dutchess Private Equities
Fund,
L.P. dated November 29, 2005.
|
|
|
|
10.11****
|
|
Code
of Ethics.
|
|
|
|
10.12****
|
|
Securities
Purchase Agreement dated January 2007.
|
|
|
|
10.13****
|
|
Common
Stock Warrant Purchase Agreement dated January 2007.
|
|
|
|
10.14****
|
|
Registration
Right Agreement dated January 2007.
|
|
|
|
10.15
(1)
|
|
Exclusive
Agency Agreement between Registrant and Xinhua Surgical Instruments
Co.,
Ltd. dated March 17, 2008.
|
|
|
|
31.1
(1)
|
|
Chief
Executive Officer Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
(1)
|
|
Chief
Financial Officer Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
(1)
|
|
Chief
Executive Officer Certification pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
(1)
|
|
Chief
Financial Officer Certification pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
|
*
Previously filed with the Securities and Exchange Commission pursuant to
Registration Statement No. 333-121786.
**
Previously filed with the Securities and Exchange Commission in a Form 8-K
filed
November 11, 2005.
***
Previously filed with the Securities and Exchange Commission in a Form 8-K
filed
December 2, 2005.
**** Previously
filed with the Securities and Exchange Commission in a Form 10-KSB filed March
31, 2007.
(1)
Filed
herewith
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED
DECEMBER
31, 2007 AND 2006
AND
FOR THE PERIOD
FEBRUARY
11, 2002 (INCEPTION)
THROUGH
DECEMBER 31, 2007
CONTENTS
PAGE
40
|
|
Report
of Independent Registered Public Accounting Firm
|
PAGE
41
|
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
PAGE
42
|
|
Consolidated
Statements of Operations and Comprehensive Loss for the years ended
December 31, 2007 and 2006 and for the period from February 11, 2002
(inception) through December 31, 2007
|
PAGE
43
|
|
Consolidated
statements of changes in shareholders' equity for the period from
February
11, 2002 (inception) through December 31, 2007
|
PAGE
46
|
|
Consolidated
statements of cash flows for the years ended December 31, 2007 and
2006
and for the period from February 11, 2002 (inception) through December
31,
2007
|
PAGE
47-58
|
|
Notes
to Consolidated financial statements for the years ended December
31, 2007
and 2006
|
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 (a development stage company) as of December 31, 2007 and
2006,
and the related consolidated statements of operations and comprehensive loss,
changes in shareholders' equity, and cash flows for the years then ended, and
for the period from February 11, 2002 (Inception) through December 31, 2007.
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 (a development stage company) as of December
31,
2007 and 2006 and the results of their operations and their cash flows for
the
years ended December 31, 2007 and 2006 and for the period from February 11,
2002
(Inception) through December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying 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 and has an accumulated deficit
at December 31, 2007. This condition raises substantial doubt regarding the
Company's ability to continue as a going concern.
Management's
plans in regard to these matters are also described in Note 1.
The
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
17,
2008
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 AND 2006
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
104,372
|
|
$
|
149,613
|
|
Prepaid
expenses and other current assets
|
|
|
28,662
|
|
|
16,828
|
|
Trading
securities, at fair value
|
|
|
1,509,916
|
|
|
-
|
|
Note
receivable
|
|
|
-
|
|
|
40,000
|
|
Total
Current Assets
|
|
|
1,642,950
|
|
|
206,441
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
65,774
|
|
|
76,238
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
1,814,291
|
|
|
1,674,104
|
|
|
|
|
|
|
|
|
|
Land
use right
|
|
|
366,597
|
|
|
359,658
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
3,889,612
|
|
$
|
2,316,441
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accrued
expenses and other payables
|
|
$
|
121,270
|
|
$
|
155,444
|
|
Amount
due to shareholder
|
|
|
-
|
|
|
18,885
|
|
Payable
to contractors
|
|
|
124,017
|
|
|
474,586
|
|
Total
current liabilities
|
|
|
245,287
|
|
|
648,915
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 5,000,000 shares authorized, 4,000,000 and
0
shares issued and outstanding, respectively
|
|
|
4,000
|
|
|
-
|
|
Common
stock, $0.001 par value, 100,000,000 shares authorized, 34,357,676
and
33,492,001 shares issued and outstanding, respectively
|
|
|
34,358
|
|
|
33,492
|
|
Additional
paid-in capital
|
|
|
10,349,611
|
|
|
5,469,402
|
|
Preferred
stock dividend payable in common stock
|
|
|
137,000
|
|
|
-
|
|
Subscription
receivable
|
|
|
(20
|
)
|
|
(25,091
|
)
|
Common
stock to be issued, 50,000 and 240,000 shares,
respectively
|
|
|
50
|
|
|
240
|
|
Accumulated
other comprehensive gain
|
|
|
221,358
|
|
|
80,403
|
|
Deficit
accumulated during the development stage
|
|
|
(7,102,032
|
)
|
|
(3,890,920
|
)
|
Total
Shareholders’ Equity
|
|
|
3,644,325
|
|
|
1,667,526
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
3,889,612
|
|
$
|
2,316,441
|
|
See
accompanying notes to the consolidated financial statements
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE LOSS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND FOR THE
PERIOD
FROM
FEBRUARY 11, 2002 (INCEPTION) THROUGH DECEMBER 31, 2007
|
|
For the Year
Ended
December 31,
2007
|
|
For the Year
Ended
December 31, 2006
|
|
For the Period
from
February 11, 2002
(Inception)
through
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,979
|
|
$
|
1,768
|
|
$
|
4,747
|
|
Cost
of goods sold
|
|
|
(1,629
|
)
|
|
(1,179
|
)
|
|
(2,808
|
)
|
Gross
profit
|
|
|
1,350
|
|
|
589
|
|
|
1,939
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
|
(155,087
|
)
|
|
(95,255
|
)
|
|
(472,341
|
)
|
Selling
and distribution expenses
|
|
|
(40,128
|
)
|
|
(48,153
|
)
|
|
(88,281
|
)
|
General
and administrative expenses
|
|
|
(1,164,664
|
)
|
|
(1,184,974
|
)
|
|
(4,7022,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,358,529
|
)
|
|
(1,327,793
|
)
|
|
(5,261,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
5,267
|
|
|
3,899
|
|
|
16,989
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on trading securities
|
|
|
(372,192
|
)
|
|
-
|
|
|
(372,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of trading securities
|
|
|
(2,818
|
)
|
|
-
|
|
|
(2,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
D
ividend
income
|
|
|
127,480
|
|
|
-
|
|
|
127,480
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(1,600,792
|
)
|
|
(1,323,894
|
)
|
|
(5,491,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
preferred stock dividend
|
|
|
(1,293,320
|
)
|
|
-
|
|
|
(1,293,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
(317,000
|
)
|
|
-
|
|
|
(317,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common
shareholders
|
|
$
|
(3,211,112
|
)
|
$
|
(1,323,894
|
)
|
$
|
(7,102,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, attributable to common
shareholders,
basic and diluted
|
|
$
|
(0.09
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted
|
|
|
33,992,951
|
|
|
32,992,213
|
|
|
|
|
See
accompanying notes to the consolidated financial statements
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE PERIOD FROM FEBRUARY 11, 2002 (INCEPTION) THROUGH
DECEMBER
31, 2007
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Deferred
|
|
Common
Stock
To
be
|
|
Accumulated
Other
Comprehensive
|
|
Deficit
Accumulated
During the Development
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Issued
|
|
Gain
(Loss)
|
|
Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 11, 2002
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.00004 per share
|
|
|
13,750,000
|
|
|
13,750
|
|
|
(13,200
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.0468 per share
|
|
|
7,461,090
|
|
|
7,461
|
|
|
341,719
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
349,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.12 per share
|
|
|
1,875,000
|
|
|
1,875
|
|
|
223,125
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(499
|
)
|
|
-
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(114,476
|
)
|
|
(114,476
|
)
|
BALANCE
DECEMBER 31, 2002
|
|
|
23,086,090
|
|
|
23,086
|
|
|
551,644
|
|
|
-
|
|
|
-
|
|
|
(499
|
)
|
|
(114,476
|
)
|
|
459,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.12 per share
|
|
|
3,508,425
|
|
|
3,509
|
|
|
417,502
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
421,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.32 per share
|
|
|
201,200
|
|
|
201
|
|
|
64,186
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
64,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(644
|
)
|
|
-
|
|
|
(644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(255,020
|
)
|
|
(255,020
|
)
|
BALANCE
DECEMBER 31, 200
3
|
|
|
26,795,715
|
|
|
26,796
|
|
|
1,033,332
|
|
|
-
|
|
|
-
|
|
|
(1,143
|
)
|
|
(369,496
|
)
|
|
689,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.12 per share
|
|
|
434,600
|
|
|
435
|
|
|
51,715
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
52,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.32 per share
|
|
|
1,125,275
|
|
|
1,125
|
|
|
358,961
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
360,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.50 per share
|
|
|
1,616,000
|
|
|
1,616
|
|
|
806,382
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
807,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted for services
|
|
|
-
|
|
|
-
|
|
|
695,052
|
|
|
(695,052
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of shares issued for services
|
|
|
100,000
|
|
|
100
|
|
|
49,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
200,000
|
|
|
200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
304,162
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
304,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(457
|
)
|
|
-
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(944,437
|
)
|
|
(944,437
|
)
|
BALANCE
DECEMBER 31, 2004
|
|
|
30,271,590
|
|
|
30,272
|
|
$
|
2,995,342
|
|
$
|
(390,890
|
)
|
|
-
|
|
$
|
(1,600
|
)
|
$
|
(1,313,933
|
)
|
$
|
1,319,191
|
|
See
accompanying notes to the consolidated financial statements
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE PERIOD FROM FEBRUARY 11, 2002 (INCEPTION) THROUGH
DECEMBER
31, 2007 (CONTINUED)
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Deferred
|
|
Common
Stock
To
be
|
|
Accumulated
Other
Comprehensive
|
|
Subscriptions
|
|
Deficit
Accumulated
During
the
Development
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Issued
|
|
Gain
(Loss)
|
|
receivables
|
|
Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
DECEMBER 31, 2004
|
|
|
30,271,590
|
|
$
|
30,272
|
|
$
|
2,995,342
|
|
$
|
(390,890
|
)
|
$
|
-
|
|
$
|
(1,600
|
)
|
$
|
-
|
|
$
|
(1,313,933
|
)
|
$
|
1,319,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $0.50 per share
|
|
|
2,179,947
|
|
|
2,180
|
|
|
1,087,794
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,089,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for services
|
|
|
-
|
|
|
-
|
|
|
34,935
|
|
|
(34,935
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted to employees and officers
|
|
|
-
|
|
|
-
|
|
|
680,604
|
|
|
(680,604
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
458,157
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
458,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture
of options
|
|
|
-
|
|
|
-
|
|
|
(139,604
|
)
|
|
139,604
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
(328
|
)
|
|
-
|
|
|
328
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26,882
|
|
|
-
|
|
|
-
|
|
|
26,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,253,093
|
)
|
|
(1,253,093
|
)
|
BALANCE
DECEMBER 31, 2005
|
|
|
32,451,537
|
|
|
32,452
|
|
|
4,658,743
|
|
|
(508,698
|
)
|
|
328
|
|
|
25,282
|
|
|
-
|
|
|
(2,567,026
|
)
|
|
1,641,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of deferred compensation balance to
additional-paid-in-capital
|
|
|
-
|
|
|
-
|
|
|
(508,698
|
)
|
|
508,698
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for previously exercised stock options
|
|
|
328,116
|
|
|
328
|
|
|
-
|
|
|
-
|
|
|
(328
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares at $1.20 per share
|
|
|
540,348
|
|
|
540
|
|
|
647,877
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(25,091
|
)
|
|
-
|
|
|
623,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 100,000 shares to be issued
at
$1.20 per share
|
|
|
-
|
|
|
-
|
|
|
119,900
|
|
|
-
|
|
|
100
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 140,000 shares to be issued
at
$0.75 per share
|
|
|
-
|
|
|
-
|
|
|
104,860
|
|
|
-
|
|
|
140
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of shares issued for services
|
|
|
122,000
|
|
|
122
|
|
|
223,773
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
223,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of vested employee options
|
|
|
-
|
|
|
-
|
|
|
174,670
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
174,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of vested consultant options
|
|
|
-
|
|
|
-
|
|
|
48,277
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
48,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
50,000
|
|
|
50
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
55,121
|
|
|
-
|
|
|
-
|
|
|
55,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,323,894
|
)
|
|
(1,323,894
|
)
|
BALANCE
DECEMBER 31, 2006
|
|
|
33,492,001
|
|
$
|
33,492
|
|
$
|
5,469,402
|
|
$
|
-
|
|
$
|
240
|
|
$
|
80,403
|
|
$
|
(25,091
|
)
|
$
|
(3,890,920
|
)
|
$
|
1,667,526
|
|
See
accompanying notes to the consolidated financial statements
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE PERIOD FROM FEBRUARY 11, 2002 (INCEPTION) THROUGH
DECEMBER
31, 2007 (CONTINUED)
|
|
Common Stock
|
|
Preferred Stock
|
|
Preferred
stock
dividend
payable in
common
|
|
|
|
Common
Stock
To be
|
|
Other
Comprehensive
|
|
Subscriptions
|
|
Deficit
Accumulated
During the
Development
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Issued
|
|
|
|
receivables
|
|
|
|
Total
|
|
BALANCE DECEMBER 31, 2006
|
|
|
33,492,001
|
|
$
|
33,492
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,469,402
|
|
$
|
240
|
|
$
|
80,403
|
|
$
|
(25,091
|
)
|
$
|
(3,890,920
|
)
|
$
|
1,667,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of shares to be issued at $0.75 per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,470
|
|
|
30
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred shares at $0.75 per
share
|
|
|
-
|
|
|
-
|
|
|
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of shares issued for services
|
|
|
30,000
|
|
|
30
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
67,694
|
|
|
20
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
67,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of vested employee options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
173,715
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
173,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of vested consultant options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
147,190
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
147,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares previously sold
|
|
|
240,000
|
|
|
240
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(240
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from shares previously issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,071
|
|
|
-
|
|
|
25,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
415,675
|
|
|
416
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
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
|
|
See
accompanying notes to the consolidated financial statements
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOW
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND
FOR
THE PERIOD FROM FEBRUARY 11, 2002 (INCEPTION) THROUGH
DECEMBER
31, 2007
|
|
For the Year
Ended December
31, 2007
|
|
For the Year
Ended December
31, 2006
|
|
For the Period
From February 11,
2002 (Inception)
Through December
31, 2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,600,792
|
)
|
$
|
(1,323,894
|
)
|
$
|
(5,491,712
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
19,308
|
|
|
12,274
|
|
|
44,195
|
|
Amortization
of land use right
|
|
|
17,285
|
|
|
16,542
|
|
|
73,324
|
|
Write
off for note receivable
|
|
|
40,000
|
|
|
-
|
|
|
40,000
|
|
Fair
value of stock compensation expense
|
|
|
388,648
|
|
|
446,842
|
|
|
1,647,779
|
|
Unrealized
loss on trading securities
|
|
|
372,192
|
|
|
-
|
|
|
372,192
|
|
Loss
on sale of trading securities
|
|
|
2,818
|
|
|
-
|
|
|
2,818
|
|
Loss
on sale of investment
|
|
|
-
|
|
|
-
|
|
|
2,107
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expense and other assets
|
|
|
(11,834
|
)
|
|
(12,290
|
)
|
|
(28,660
|
)
|
Payable
to contractors
|
|
|
(350,568
|
)
|
|
-
|
|
|
124,018
|
|
Accrued
expenses and other payable
|
|
|
(34,175
|
)
|
|
26,075
|
|
|
121,270
|
|
Net
Cash Used In Operating Activities
|
|
|
(1,157,118
|
)
|
|
(834,451
|
)
|
|
(3,092,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase
of land use right
|
|
|
-
|
|
|
-
|
|
|
(394,559
|
)
|
Increase
in construction in progress
|
|
|
(23,832
|
)
|
|
(252,272
|
)
|
|
(1,697,936
|
)
|
Purchase
of fixed assets
|
|
|
(4,600
|
)
|
|
(60,197
|
)
|
|
(106,240
|
)
|
Purchase
of investment
|
|
|
-
|
|
|
-
|
|
|
(40,000
|
)
|
Purchase
of trading securities
|
|
|
(1,984,924
|
)
|
|
-
|
|
|
(1,984,924
|
)
|
Proceeds
from sale of trading securities
|
|
|
99,998
|
|
|
-
|
|
|
99,998
|
|
Net
Cash Used In Investing Activities
|
|
|
(1,913,358
|
)
|
|
(312,469
|
)
|
|
(4,123,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
22,500
|
|
|
848,376
|
|
|
4,265,906
|
|
Proceeds
from issuance of preferred stock
|
|
|
3,000,000
|
|
|
-
|
|
|
3,000,000
|
|
Proceeds
from issuance of previously issued stocks
|
|
|
25,071
|
|
|
-
|
|
|
-
|
|
Proceeds
from exercise of stock option
|
|
|
416
|
|
|
-
|
|
|
994
|
|
Due
to shareholders
|
|
|
(18,885
|
)
|
|
18,885
|
|
|
-
|
|
Net
Cash Provided By Financing Activities
|
|
|
3,029,102
|
|
|
867,261
|
|
|
7,266,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash
equivalents
|
|
|
(41,374
|
)
|
|
(279,659
|
)
|
|
50,570
|
|
Effect
of exchange rate changes on cash
|
|
|
(3,867
|
)
|
|
43,626
|
|
|
53,802
|
|
Cash
and cash equivalents, beginning of period
|
|
|
149,613
|
|
|
385,646
|
|
|
-
|
|
Cash
and cash equivalents, end of period
|
|
$
|
104,372
|
|
$
|
149,613
|
|
$
|
104,372
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,293,000
|
|
|
-
|
|
$
|
1,293,000
|
|
Accrual
of preferred stock dividend
|
|
$
|
317,000
|
|
|
-
|
|
$
|
317,000
|
|
See
accompanying notes to the consolidated financial statements
BIO-BRIDGE
SCIENCE INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
Bio-Bridge
Science, Inc. (a development stage company) ("the Company") was incorporated
in
the State of Delaware on October 26, 2004. The Company is a development stage
enterprise as defined by Statement of Financial Accounting Standards (SFAS)
No.
7, "Accounting and Reporting by Development Stage Enterprises." All losses
accumulated since the inception of the Company will be considered as part of
the
Company's development stage activities. The Company has generated insignificant
revenue. 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 ("BBSC"), a Cayman Islands corporation, in
exchange for 29,971,590 shares of its common stock, and as a result, BBSC became
a wholly owned subsidiary of Bio-Bridge Science, Inc.
The
acquisition was accounted for as a reverse merger (recapitalization) with BBSC
deemed to be the accounting acquirer, and the Company the legal acquirer.
Accordingly, the historical financial information presented in the financial
statements is that of BBSC as adjusted to give effect to any difference in
the
par value of the issuer’s and the accounting acquirer stock with an offset to
capital in excess of par value. The basis of the assets, liabilities and
retained earnings of BBSC, the accounting acquirer, have been carried over
in
the recapitalization.
BBSC
was
incorporated in the Cayman Islands on February 11, 2002. At the time of the
exchange, BBSC 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.
History
of losses and negative cash flows
The
accompanying consolidated financial statements have been prepared on the basis
that the Company will continue as a going concern which assumes the realization
of assets and settlement of lliabilities in the normal course of business.
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
$5,491,712
and $3,080,411, respectively, from February 11, 2002 (Inception) through
December 31, 2007. We incurred net losses of $1,600,792 and $1,323,894 for
the
years ended December 31, 2007 and 2006, respectively. On February 12, 2007,
the
Company raised $3,000,000 in a private placement in the form of a sale of shares
of Series A convertible preferred stock and warrants to purchase common stock
(See Note 10). Our capital requirements for the next 12 months, as they relate
to further research and development relating to our product candidate, HIV-PV
Vaccine I, have been and will continue to be significant. As of December 31,
2007, we have funded our operations through equity offerings whereby we raised
an aggregate $7,266,900 since inception.
On
November 29, 2005, the Company entered into an Investment Agreement with
Dutchess Private Equities Fund, LP, a Delaware limited partnership based in
Boston, Massachusetts ("Dutchess"). Under the terms of the Agreement, Dutchess
has agreed to purchase from the Company up to $10,000,000 of the Company's
common stock over a 24-month period. As of December 31, 2007, we had not
requested Dutchess to invest nor had any shares been issued under the agreement
with Dutchess.
Based
on
our current operating plan, we believe that we have sufficient cash and cash
equivalents to last approximately through March 2009. 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
March 2009. 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
consolidated financial statements include the accounts of Bio-Bridge Science
Inc. and its wholly owned subsidiaries, Bio-Bridge Science Corporation and
Bio-Bridge Science (Beijing) Corporation. Inter-company accounts and
transactions have been eliminated in consolidation.
Economic
and Political Risks
The
Company faces a number of risks and challenges since its operation is in
People’s Republic of China (PRC) and its primary market is in the PRC. We have
major operations in China, where we are currently engaged in the development
of
HIV-PV Vaccine I, HPV vaccine, colon cancer vaccine and other related products.
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.
Use
of
Estimates
The
preparation of the financial statements in conformity with generally accepted
accounting principles 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. Actual results could differ from those
estimates.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is provided over the estimated useful
lives of the related assets, using the straight-line method. Estimated useful
lives are as follows:
Motor
vehicles
|
|
|
5
years
|
|
Furniture
and fixtures
|
|
|
5
years
|
|
Equipment
and machinery
|
|
|
5
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.
Land
Use
Right
Land
use
right represents the right to use and lease land in the PRC. The cost of such
acquired right has been capitalized, and is being amortized using the
straight-line method over twenty- five years, which is the life of the Company’s
operating license period granted by the Chinese government.
Construction
in Progress
Construction
in progress represents direct costs of constructing our facility in the PRC.
Capitalization of these costs will cease and the construction in progress will
be transferred to fixed assets when substantially all the activities necessary
to prepare the assets for their intended use are completed. No depreciation
will
be provided until the facility is completed and ready for its intended
use.
Cash
and
Cash Equivalents
For
financial reporting purpose, the Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents. Cash of the BBS (Beijing) Corporation is held in accounts at
financial institutions which are located in the PRC. The Company and
subsidiaries have not experienced any losses in such accounts and do not believe
that cash is exposed to any significant credit risk. At December 31, 2007,
BBS
(Beijing)'s cash, which is denominated in Renminbi ("RMB"), totaled
$38,374.
Trading
Securities
The
Company accounts for trading securities using the guidance of SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity Securities ”. The
Company’s trading securities are comprised of its investment in a Van Kampen
unit investment fund.
Trading
securities are reported at fair value, with any changes in fair value during
a
period recorded as a charge or credit to net income (loss). Gains or losses
realized upon sale of all securities are recognized at the time of sale.
Fair
Value of Financial Instruments
The
carrying value of financial instruments including cash and cash equivalents,
prepaid expenses, other current assets, accrued expenses and other payables,
and
payable to contractors approximates their fair value at December 31, 2007 due
to
the relatively short-term nature of these instruments. Trading securities are
reported at fair value.
Foreign
Currency Translation
The
company’s financial information is presented in United States dollars. The
functional currency of the Company is the Renminbi (RMB). The consolidated
financial statements are translated into United States dollars from RMB at
year-end exchange rates as to assets and liabilities and average exchange rates
as to revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Year
end RMB : US$ exchange rate
|
|
|
7.3046
|
|
|
7.8087
|
|
|
|
|
|
|
|
|
|
Average
yearly RMB : US$ exchange rate
|
|
|
7.5567
|
|
|
7.9395
|
|
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 (US$) at the rates used in translation.
In
2007
and 2006, the RMB appreciated against the US dollar by approximately 6.9% and
3.2%, respectively. The Chinese government manifested that it would adopt a
more
flexible exchange rate system. Therefore, it is expected that the RMB will
appreciate gradually against major currencies in the future.
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 (Loss)
Comprehensive
gain (loss) is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other disclosures,
all items that are required to be recognized under current accounting standards
as components of comprehensive gain (loss) should be reported in a financial
statement that is presented with the same prominence as other financial
statements. The Company's only current component of comprehensive gain (loss)
is
a foreign currency translation adjustment. For the years ended December 31,
2007
and 2006, comprehensive loss was $1,459,837 and $1,268,773, respectively.
Loss
per
Share
Basic
loss per share has been computed using the weighted average number of common
shares outstanding during the period. Diluted loss per share is computed based
on the weighted average number of common shares and all common equivalent shares
outstanding during the period in which they are dilutive. Common equivalent
shares consist of shares issuable upon the exercise of stock options (using
the
treasury stock method) or warrants. As of December 31, 2007 common stock
equivalents consist of 2,317,000 options that each convert into one share of
the
Company's common stock. For the years ended December 31, 2007 and 2006, common
equivalent shares have been excluded from the calculation of loss per share
as
their effect is anti-dilutive.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
Payment” (SFAS 123R), 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. 123R, and its related implementation guidance as promulgated by both
the Financial Accounting Standards Board ( the "FASB"), and the Securities
and
Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No 107 (“SAB
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 123R requirements. As 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
and are 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.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 provides a common definition of fair value and
establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS No. 157
also
requires expanded disclosures to provide information about the extent to which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures
on
earnings. SFAS No. 157 is effective for financial statements issued in fiscal
years beginning after November 15, 2007 and to interim periods within those
fiscal years.
In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS
159, which becomes effective for the Company on January 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by instrument.
In
December 2007, the FASB issued FASB Statement No. 141 (R), “Business
Combinations” (FAS 141(R)), which establishes accounting principles and
disclosure requirements for all transactions in which a company obtains control
over another business. Statement 141 (R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15, 2008. Earlier
adoption is prohibited.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160
establishes accounting and reporting standards that require that the ownership
interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parent’s equity; the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income; and changes in a parent’s ownership interest while the
parent retains its controlling financial interest in its subsidiary be accounted
for consistently. SFAS No. 160 also requires that any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair value
when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
requirements to identify and distinguish between the interests of the parent
and
the interests of the noncontrolling owners. SFAS No. 160 applies to all entities
that prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. SFAS No. 160 must be applied prospectively as of the
beginning of the fiscal year in which it is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure
requirements are applied retrospectively for all periods presented.
The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows.
3.
TRADING SECURITIES
At
December 31, 2007, trading securities consisted of the following:
|
|
Cost
|
|
|
|
|
|
Investment
in Van Kampen
Unit
Investment Trust, Series 638
|
|
$
|
1,882,108
|
|
$
|
(372,192
|
)
|
$
|
|
|
There
were no trading securities at December 31, 2006.
4.
FIXED
ASSETS
Fixed
assets consist of the following at December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Motor
vehicles
|
|
$
|
16,020
|
|
$
|
14,986
|
|
Furniture
and fixtures
|
|
|
33,747
|
|
|
27,984
|
|
Machinery
|
|
|
62,719
|
|
|
58,670
|
|
|
|
|
112,486
|
|
|
101,640
|
|
Less
accumulated depreciation
|
|
|
(46,712
|
)
|
|
(25,402
|
)
|
Fixed
assets, net
|
|
$
|
65,774
|
|
$
|
76,238
|
|
Depreciation
expense for the years ended December 31, 2007 and 2006 was $19,308 and $12,274,
respectively.
5.
LAND
USE RIGHT
In
July
2003, the Company obtained a 50 year land use right to build a research factory
in Beijing, PRC. This type of arrangement is common for the use of land in
the
PRC. This amount has been capitalized and is being amortized over the
twenty-five years, the term of the Company's business license.
Land
use
right as of December 31, 2007 and 2006, consisted of the following:
|
|
2007
|
|
2006
|
|
Cost
|
|
$
|
447,068
|
|
$
|
418,206
|
|
Less
accumulated amortization
|
|
|
(80,471
|
)
|
|
(58,548
|
)
|
|
|
|
|
|
|
|
|
Net
land use rights
|
|
$
|
366,597
|
|
$
|
359,658
|
|
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
|
|
2008
|
|
$
|
17,882
|
|
2009
|
|
|
17,882
|
|
2010
|
|
|
17,882
|
|
2011
|
|
|
17,882
|
|
2012
|
|
|
17,882
|
|
Thereafter
|
|
|
277,187
|
|
|
|
$
|
366,597
|
|
6.
NOTE
RECEIVABLE
On
April
12, 2004, Bio-Bridge Science Corp. acquired 100% of the outstanding shares,
of
Aegir Ventures, Inc., a public reporting company, for $40,000. On November
26,
2004, Bio-Bridge Science Corp. sold all the issued and outstanding capital
stock
of Aegir Ventures, to Nakagawa Corporation, in exchange for a $40,000 promissory
note. The promissory note was due November 26, 2007. In November 2007, the
Company determined the loan was impaired, and accordingly, wrote off the note
receivable of $40,000 as bad debt expense in 2007.
7.
INCOME
TAXES
Corporation
Income Tax ("CIT")
In
accordance with the relevant tax laws and regulations of PRC, the applicable
corporation income tax rate for the subsidiary was 15%. The Company is entitled
to full exemption from CIT for the first two years and a 50% reduction in CIT
for the next three years, commencing from the first profitable year after
offsetting all tax losses carried forward from the previous five years. From
January 2008, China implemented new CIT, in which local and foreign enterprises
are subject to CIT of 25%, unless the enterprise is a high tech enterprise.
We
are able to enjoy the grandfathering treatment for our tax holiday, in which
we
are exempt from paying taxes in 2008 and 2009, and CIT rate is 12.5% from
2010-2012. We are still waiting for the detailed tax treatment stipulations
for
high tech enterprises from the Chinese government to decide our CIT after 2013.
The Company suffered continuing loss from its inception, and the taxable net
operating losses are
$1,582,263
at December 31, 2007. A valuation allowance has been provided for 100% of the
future tax savings because its realization is not predicable.
The
net
loss carried forward for tax purposes will expire five years from when the
loss
is incurred. The expiring amounts for the five years after 2007 are as
follows:
Expired
year
|
|
|
Amount
|
|
2009
|
|
$
|
139,074
|
|
2010
|
|
|
385,088
|
|
2011
|
|
|
269,548
|
|
2012
|
|
|
340,567
|
|
2013
|
|
|
447,986
|
|
Total
|
|
$
|
1,582,263
|
|
Significant
components of the Company's deferred income tax assets at December 31, 2007
and
2006 are as follows:
|
|
2007
|
|
2006
|
|
Deferred
income tax asset:
|
|
|
|
|
|
|
|
Amortization
of land use right
|
|
$
|
-
|
|
$
|
-
|
|
Other
|
|
|
-
|
|
|
-
|
|
Net
operating loss carried forward
|
|
|
237,339
|
|
|
184,553
|
|
Valuation
allowance
|
|
|
(237,339
|
)
|
|
(184,553
|
)
|
Net
deferred income tax asset
|
|
$
|
-
|
|
$
|
-
|
|
The
Company is not a U.S. taxpayer. 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, 2007, the Company does not
have
a liability for unrecognized tax uncertainties.
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.
8.
SHAREHOLDER'S 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. 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 30, 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
The
following represents transactions involving the issuance of the Company's common
stock for the period from February 11, 2002 (inception) to December 31,
2007:
Sales
of common stock in 2002
Issuance
of 13,750,000 shares at inception at $0.00004 per share for total consideration
of $550
Issuance
of 7,461,090 shares at $0.0468 per share for total consideration of
$349,180
Issuance
of 1,875,000 shares at $0.12 per share for total consideration of
$225,000
Sales
of common stock in 2003
Issuance
of 3,508,425 shares at $0.12 per share for total consideration of
$421,011
Issuance
of 201,200 shares at $0.32 per share for total consideration of
$64,387
Sales
of common stock in 2004
Issuance
of 434,600 shares at $0.12 per share for total consideration of
$52,150
Issuance
of 1,125,275 shares at $0.32 per share for total consideration of
$360,086
Issuance
of 1,616,000 shares at $0.50 per share for total consideration of
$807,998
Sales
of common stock in 2005
Issuance
of 2,179,947 shares at $0.50 per share for total consideration of
$1,089,974
Sales
of common stock in 2006
Issuance
of 540,348 shares at $1.20 per share for total consideration of
$648,417
Sale
of
100,000 shares at $1.20 per share for total consideration of $120,000. The
shares were issued in 2007.
Sale
of
140,000 shares at $0.75 per share for total consideration of $105,000. The
shares were issued in 2007.
Sales
of common stock in 2007
Sale
of
30,000 shares at $0.75 per share for total consideration of
$22,500.
Issuance
of common stock for services
On
December 1, 2004, the Company issued 100,000 shares of its common stock to
Richardson & Patel, LLC in consideration for legal services.
The
fair
value of 100,000 shares was determined to be $50,000, based on the closing
price
of the shares when granted, and was recorded as legal expense in 2004.
On
February 9, 2006, the Company agreed to issue CEOcast, Inc. 72,000 shares of
common stock for investor relations services. 36,000 shares of common stock
were
granted on February 9, 2006 and an additional 36,000 shares were granted on
May
9, 2006. The fair value of the 72,000 shares was determined to be $140,400
based
on the closing price of the Company’s common stock on the dates the shares were
granted, and was recorded as consulting expense in 2006.
On
March
6, 2006, the Company agreed to issue CH Capital LLC 50,000 shares for financial
consulting services. 25,000 shares were granted on March 6, 2006 and an
additional 25,000 shares were granted on September 6 2006. The fair value of
the
50,000 shares was determined to be $101,250 based on the closing price of the
Company’s common stock on the date the shares were granted. The Company
amortized $83,506 of expense in 2006 and $17,744 in 2007.
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.
Common
stock warrants
In
November 2006, the Company issued a warrant to purchase 50,000 shares of common
stock at $1.20 per share with a term of three years to an investor who purchased
33,333 shares of common stock in 2006 at $0.75 per share.
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
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 discussion above). 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
9.
STOCK
OPTION PLAN
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, 2007, 1,897,000 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.
Issuance
of stock options
In
2004,
the
Company issued to Columbia China Capital Group, Inc. (“Columbia China”) an
option to purchase 1,342,675 shares of common stock at $.001 per share to be
exercised within a three-year period in consideration for financial consulting
services to be provided over a two-year period. The fair value of the options
was $670,098 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 life of 3 years; and estimated
volatility of 85% based on recent history of the stock price in the industry.
The Company revalued the fair value of the options at the end of each reporting
period in accordance with EITF 96-18 and determined there was no significant
change to the initial valuation. The Company amortized the value of the options
over the two- year term of the service agreement. Amortization was $279,208
in
2004 and $251,287 in 2005. On December 1, 2004 and October 17, 2005, 200,000
and
300,000 options, respectively, were exercised. On October 18, 2005, Columbia
China forfeited 350,000 options. The unamortized balance of deferred
compensation of $139,604 was reclassified into additional paid-in capital in
2005. On January 9, 2006 and March 2, 2007, Columbia China forfeited a total
of
97,000 additional options. In February 2007, Columbia China exercised 395,675
options and no longer owns any options.
On
December 1, 2004, the Company an option to purchase 50,000 shares of its common
stock at $0.001 per share to Richardson & Patel, LLC in consideration for
legal services. The fair value of the options was $24,954 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 3 years; and estimated volatility of 85 percent based on
recent history of the stock price in the industry. The value of the options
was
reflected as a consulting expense in 2004. The options were forfeited in 2007.
On
July
1, 2005, the Company issued to two consultants an option to purchase 20,000
shares of common stock at $.001 per share to be exercised within a three-year
period in consideration for scientific advisory service. The fair value of
the
options was $9,982 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 3 years;
and
estimated volatility of 70 percent based on recent history of the stock price
in
the industry. The Company revalued the fair value of the options at the end
of
each reporting period in accordance with EITF 96-18 and determined there was
no
significant change to the initial valuation. The value of the options issued
was
amortized over the one- year term of the service agreement.
On
October 14, 2005, the Company issued to Mr. Liang Qiao, MD, the Company's chief
executive officer, an option to purchase 600,000 shares of common stock at
$0.55
per share, exercisable for a ten-year period. The fair value of the options
was
$157,770 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 four years; and estimated
volatility of 70 percent based on recent history of the stock price in the
industry. The value of the options is being amortized over the three year
vesting period. For years ended December 31, 2007 and 2006, $52,600 and $52,600,
respectively, was amortized and included in compensation cost.
On
October 14, 2005, the Company issued to 25 employees options to purchase
1,345,000 shares of common stock at $0.5 per share to be exercised with a
ten-year (10) period. The fair value of the options was $369,045 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 4 years; and estimated volatility of 70 percent based
on
recent history of the stock price in the industry. The value of the options
will
be amortized over the three year vesting period. For years ended December 31,
2007 and 2006, $121,115 and $122,070, respectively, was amortized and included
in compensation cost.
On
November 2, 2005, the Company issued to Mr. Wenhui Qiao (the Company's director
and president) and Mr. Chuen Huei (Kevin) Lee (the Company's CFO) an option
to
purchase 300,000 shares of common stock at $0.001 per share. The fair value
of
the options was $149,738 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 4 years;
and
estimated volatility of 70 percent based on recent history of the stock price
in
the industry. The value of the stock options of $149,738 was reflected as
compensation expense in 2005.
On
November 2, 2005, the Company issued to Adam Friedman Associates, LLC, the
Company's investor relations consultant, an option to purchase 50,000 shares
of
common stock at $0.001 per share to be exercised within a one-year period in
consideration for financial. The fair value of the options was $24,952 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 1.5 years; and estimated volatility of 70 percent
based on recent history of the stock price in the industry. The value of the
options was being amortized over the one- year term of the service agreement.
For the years ended December 31, 2006 and 2005, $20,794 and $4,158,
respectively, was amortized and included in consulting expense. The options
were
exercised in 2007
On
November 2, 2005, the Company issued to Ms. Ma Suifang, the Company's financial
consultant, an option to purchase 8,116 shares of common stock at $.001 per
share. The fair value of the options was $4,051 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 3 years; and estimated volatility of 70 percent based on
recent history of the stock price in the industry. The value of the stock
options of $4,051 was reflected as consulting expense in 2005.
On
July
1, 2006, the Company issued options to two consultants to purchase 10,000 shares
of common stock, individually. The fair value of the options was $44,982 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 3 years; and estimated volatility of 49 percent
based
on recent history of the stock price in the industry. For the years ended
December 31, 2007 and 2006, $22,491 and $22,491, respectively, was amortized
and
included as consulting expense.
On
April
1, 2007, the Company granted 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 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.
The
following table summarizes the stock option activity under the plan and non
plan
issuances:
|
|
Options
Granted
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at December 31, 2003 and prior
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
1,392,675
|
|
|
|
|
Exercised
|
|
|
(200,000
|
)
|
|
|
|
Outstanding
at December 31, 2004
|
|
|
1,192,675
|
|
|
|
|
Granted
|
|
|
2,323,116
|
|
|
|
|
Exercised
|
|
|
(328,116
|
)
|
|
|
|
|
|
|
(350,000
|
)
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
2,837,675
|
|
|
|
|
Granted
|
|
|
20,000
|
|
|
|
|
Exercised
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
(122,000
|
)
|
|
|
|
Outstanding
at December 31,2006
|
|
|
2,685,675
|
|
|
|
|
Granted
|
|
|
122,000
|
|
|
|
|
Exercised
|
|
|
(415,675
|
)
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
Expired
|
|
|
(50,000
|
)
|
|
|
|
Outstanding
at December 31,2007
|
|
|
2,317,000
|
|
|
|
|
Exercisable
at December 31 2007
|
|
|
1,843,250
|
|
|
|
|
The
following table summarizes information about stock options outstanding as of
December 31, 2007:
|
|
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
|
|
|
2,317,000
|
|
$
|
0.42
|
|
|
3
|
|
|
1,843,250
|
|
$
|
0.40
|
|
|
|
|
2,317,000
|
|
|
|
|
|
|
|
|
1,843,250
|
|
|
|
|
Information
relating to stock options at December 31, 2007 summarized by exercise price
is
as follows:
Outstanding
|
|
Exercisable
|
|
Exercise price
per
share
|
|
Number
of
shares
|
|
Life (years)
|
|
Exercise
price
|
|
Number
of
Shares
|
|
Weighted
average
exercise price
|
|
$0.001
|
|
|
400,000
|
|
|
2
|
|
|
|
|
|
400,000
|
|
|
|
|
$0.001
|
|
|
20,000
|
|
|
1
|
|
|
|
|
|
20,000
|
|
|
|
|
$0.5
|
|
|
1,297,000
|
|
|
3
|
|
|
|
|
|
973,250
|
|
|
|
|
$0.55
|
|
|
600,000
|
|
|
3
|
|
|
|
|
|
450,000
|
|
|
|
|
$0.001
to $0.55
|
|
|
2,317,000
|
|
|
3
|
|
|
|
|
|
1,843,250
|
|
|
|
|
The
aggregate intrinsic value of 2,317,000 options outstanding and 1,843,250 options
exercisable as of December 31, 2007 was $1,107,550 and $1,015,743, respectively.
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, 2007.
At
December 31, 2007, options for 473,750 shares were nonvested.
The
total
deferred compensation expense for the outstanding value of unvested stock
options was $157,235 as of December 31, 2007, which will be recognized over
a
weighted average period of 12 months.
10.
COMMITMENTS AND CONTINGENCIES
Construction
in Progress
In
May
2003, the Company acquired a land use right for approximately 2.8 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 (“GMP”) regulations primarily for
clinical trials of HIV-PV Vaccine I. As of December 31, 2005, the Company had
received all necessary permits and approvals. The general plans for
development include the construction of a laboratory facility (“Phase One”) and
construction of an administrative office building (“Phase Two”). The Company
estimates the total project costs for Phase One will be approximately $2,100,000
to $2,200,000. At December 31, 2007, Phase One construction and internal -clean
room decoration was substantially complete at a cost of approximately
$1,814,000, and is recorded as construction in progress. At December 31, 2007,
$124,017 is due to the contractors of Phase One for the completed construction
and internal clean room decoration. The Company estimates the remaining costs
associated with Phase One will be approximately $400,000 to $500,000, primarily
for permanent electrical and related equipment the Company intends to install.
At December 31, 2007, the Company had not negotiated any contracts for the
purchase of any of the electrical equipment. The Company estimates the purchase
and installation of the electrical equipment to be completed by August 2008.
In
addition, the Company estimates the cost of laboratory equipment it will need
to
purchase before Phase One can be used will be approximately $800,000 to
$1,000,000. At December 31, 2007, the Company had not negotiated any contracts
for the purchase of any of the laboratory equipment. The Company estimates
the
purchase and installation of the laboratory equipment to be completed by August
2008. At December 31, 2007, Phase Two was still in the design stage. The Company
estimates total project costs for Phase Two will be approximately $1,000,000.
The Company estimates that construction of Phase Two may begin after 2009,
but
currently the Company has no firm plans for construction of Phase
Two.
Lease
Commitment
As
of
December 31, 2007, future minimum lease payments are for our office in Oak
Brook, IL., were $29,113, $28,087 and $19,004 for 2008, 2009 and 2010,
respectively. As of December 31, 2007, future minimum lease payments for our
office in Beijing, PRC (which is leased from Wenhui, Qiao, our director and
president) are $9,857 for 2008 and none thereafter.
Royalty
and License Arrangements
Mr.
Liang
Qiao, M.D., the Company's co-founder and chief executive officer, is one of
the
two co-inventors of the Company's core technology that was assigned to Loyola
University Chicago in April 2001. Under an agreement with Loyola University
Chicago, the Company has 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, 2007, the
Company had not generated any revenues from the sale of any products under
development, nor had the Company received any revenues from
sublicenses.
Research
and Development Agreement
On
May 6,
2004, Beijing Institute of Radiation Medicine and we entered into agreements
for
conducted biodistribution and integration studies for HIV-PV Vaccine I. The
aggregate amount for the testing is $24,184 and as of December 31, 2007, the
remaining commitment was $5,476.
Distribution
Agreement
On
November 21, 2005, we entered into an exclusive distribution agreement with
Xinhua Surgical Instruments Co. Ltd., (“Xinhua”) 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. The Company is responsible for advertising and marketing expenses
in
connection with distribution of Xinhua surgical instruments in the United
States. Sales were $2,979 in 2007 and $1,768 in 2006. Minimum sales per the
agreement are $50,000 in 2007, $60,000 in 2008, and increases 10% annually
thereafter. Although we did not reach the minimum sales requirement in 2007,
Xinhua indicated that we still have the exclusive distribution right in
2008.
On
March
17, 2008, the Company entered into an Exclusive Agency Agreement (the
"Agreement") with Xinhua. Under the renewed Agreement, the Company has been
granted exclusive distribution rights for all Xinhua surgical instruments in
the
United States, Australia, and New Zealand. The Company’s minimum sale
requirement for these three areas in 2008 will be $55,000 and increases 10%
annually thereafter. The Company is responsible for advertising and marketing
expenses in connection with distribution of Xinhua surgical instruments in
these
three areas. Subject to minimum sale requirements, the Company's exclusivity
rights in these three areas will be extended. The new Agreement supersedes
the
previous agreement signed on November 21, 2005.
On
January 15, 2008, we executed a non-binding letter of intent to acquire 51%
of
Xinheng Baide Biotechnology Co. Ltd. ( “Xinheng Baide”), based in Huhhot in
China. Xinheng Baide is a bovine serum manufacturer in China. Bovine serum
is
used in production of many vaccines as well as for laboratory scientific
research. The completion of the acquisition is subject to execution of a
definitive acquisition agreement (including determination of sale price), as
well as certain due diligence.
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