UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No.1)
BODISEN BIOTECH, INC.
(Name of small business issuer in its charter)
Delaware 5191 98-0381367
(State or other jurisdiction (Primary Standard Industrial I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
North Part of Xinquia Road, Yang Ling AG, High-Tech Industries Demonstration
Zone, Yang Ling, China 712100
Telephone 86-29-870749
(Address and telephone number of principal executive offices)
North Part of Xinquia Road, Yang Ling AG, High-Tech Industries Demonstration
Zone, Yang Ling, China 712100
(Address of principal place of business or intended principal place of business)
Copies of all communications to:
Stephen W. Johnson, Esq.
Reed Smith LLP, 435 Sixth Avenue, Pittsburgh, PA, 15219
Telephone 412-288-3131
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
---------------------- ------------------- ------------------------ ------------------------- ----------------------------
Title of each class Amount of shares Proposed maximum Proposed maximum Amount of registration fee
of securities to be to be registered offering price per aggregate offering
registered unit (1) price (1)
---------------------- ------------------- ------------------------ ------------------------- ----------------------------
Common Stock 908,750 (2) $6.88 $6,252,200 $735.88
---------------------- ------------------- ------------------------ ------------------------- ----------------------------
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933 based upon the average
of the Registrant's common stock price as determined under the terms of the
conversion of the debenture and warrants as set forth in the respective
agreements.
(2) Pursuant to Rule 416 under the Securities Act of 1933, also includes an
indeterminate number of additional shares of common stock issuable upon
conversion of the convertible debenture and the exercise of warrants. The actual
number of shares of common stock registered in this registration statement also
includes such additional number of shares of common stock as may be issued by
reason of any stock split, stock dividend, anti-dilution provisions or similar
transaction involving the common stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
The information contained in prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
Prospectus Subject to Completion, dated __________, 2005
BODISEN BIOTECH, INC.
908,750 shares of common stock
The 908,750 shares of common stock, $.0001 par value, are being offered by
the Selling Stockholders listed on page 9 (the "Selling Stockholders"). The
shares of our common stock covered by this prospectus include: (i) up to 681,250
shares of common stock issuable upon conversion of a convertible debenture,
assuming such conversion occurs one day prior to March 16, 2006 and (ii) 227,500
shares of common stock issuable upon exercise of 227,500 warrants to purchase
shares of our common stock, which were issued in a private placement on March
16, 2005.
The prices at which the Selling Stockholders may sell their shares will be
determined by the prevailing market price for the shares or in privately
negotiated transactions. Information regarding the Selling Stockholders and the
times and manner in which they may offer and sell the shares under this
prospectus is provided under "Selling Stockholders" and "Plan of Distribution"
in this prospectus. Bodisen will not receive any of the proceeds from the sale
of the shares under this prospectus.
Our common stock is traded in the over-the-counter market and quoted
through the Over-The-Counter ("OTC") Bulletin Board under the symbol "BBOI.OB".
We expect it to continue to trade in that market. The closing bid for shares of
our common stock on April 11, 2005, was $5.96, based upon bids that represent
prices quoted by broker-dealers on the OTC Bulletin Board System. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not represent actual transactions. We cannot give any
assurance that a stable trading market will develop for our common stock.
The Selling Stockholders, and any broker-dealer executing sell orders on
behalf of the Selling Stockholders, may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933. Commissions received by any
broker-dealer may be deemed to be underwriting commissions under the Securities
Act of 1933. See "Plan of Distribution."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. PLEASE CAREFULLY REVIEW THE
SECTION TITLED "RISK FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ________, 2005
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, SHARES OF COMMON STOCK IN ANY JURISDICTION
WHERE OFFERS AND SALES WOULD BE UNLAWFUL. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS COMPLETE AND ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF THE SHARES OF COMMON STOCK.
TABLE OF CONTENTS
PART I
Prospectus Summary.......................................................................................2
Background of the Company.......................................................................2
The Offering by the Selling Stockholders........................................................3
Risk Factors....................................................................................3
Risks Relating to Our Business.........................................................3
Risks Relating to the Agricultural Industry in the People's Republic
of China.............................................................................5
Risks Relating to the People's Republic of China.......................................5
Risks Relating to The Offering.........................................................7
USE OF PROCEEDS..........................................................................................8
CONVERSION AND DILUTION..................................................................................8
SELLING SECURITY HOLDERS.................................................................................9
PLAN OF DISTRIBUTION....................................................................................10
LEGAL PROCEEDINGS.......................................................................................11
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS and CONTROL
PERSONS...............................................................................................11
Directors and Officers.........................................................................12
Committees of the Board of Directors...........................................................14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.........................................................14
DESCRIPTION OF SECURITIES...............................................................................15
Common Stock..........................................................................16
Preferred Stock.......................................................................16
ORGANIZATION............................................................................................16
Merger Agreement...............................................................................16
DESCRIPTION OF THE BUSINESS.............................................................................17
Industry Overview..............................................................................17
Products.......................................................................................18
Marketing......................................................................................18
Sources and Availability of Raw Materials (Vendors)............................................19
Customers......................................................................................19
Intellectual Property..........................................................................20
Research and Development.......................................................................20
Governmental and Environmental Regulation......................................................21
Competition....................................................................................21
Employees......................................................................................22
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...............................................22
Overview.......................................................................................22
Significant Accounting Policies................................................................22
Use of Estimates......................................................................22
Accounts Receivable...................................................................22
Inventories...........................................................................22
Property & Equipment..................................................................23
Intangible Assets.....................................................................23
Revenue Recognition...................................................................23
Stock-based Compensation..............................................................23
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Income Taxes..........................................................................24
Foreign Currency Transactions and Comprehensive Income (Loss).........................24
Recent Accounting Pronouncements......................................................24
Result of Operations Comparison of 2004 with 2003.....................................25
Liquidity and Capital Resources.......................................................26
DESCRIPTION OF PROPERTY.................................................................................26
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTER.................................................27
EXECUTIVE COMPENSATION..................................................................................28
Executive Compensation.........................................................................28
Director Compensation..........................................................................28
Stock Incentive Plan...........................................................................28
FINANCIAL STATEMENTS...................................................................................F-1
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...................................................................29
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS...............................................................29
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.............................................................30
RECENT SALES OF UNREGISTERED SECURITIES.................................................................30
EXHIBITS................................................................................................31
UNDERTAKINGS............................................................................................32
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this prospectus, exhibits and associated documents are
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as well as
historical information. Forward-looking statements include those that use
forward-looking terminology, such as the words "anticipate," "believe,"
"estimate," "expect," "intend," "may," "project," "plan," "will," "shall,"
"should," and similar expressions, including when used in the negative. Although
we believe that the expectations reflected in these forward-looking statements
are reasonable and achievable, these statements involve risks and uncertainties
and no assurance can be given that actual results will be consistent with these
forward-looking statements. Important factors that could cause our actual
results, performance or achievements to differ from these forward-looking
statements include the factors described in the "Risk Factors" section and
elsewhere in this prospectus.
All forward-looking statements attributable to us are expressly qualified
in their entirety by these and other factors. We undertake no obligation to
update or revise these forward-looking statements, whether to reflect events or
circumstances after the date initially filed or published, to reflect the
occurrence of unanticipated events or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
Bodisen Biotech, Inc. is subject to the informational requirements of the
Exchange Act of 1934 and, accordingly, files registration statements and other
information with the SEC. You may obtain these documents electronically through
the SEC's website at http://www.sec.gov. You may also obtain copies of this
information by mail from the Public Reference Branch at: U.S. Securities and
Exchange Commission 450 5th Street, NW, Room 1300 Washington, D.C. 20549-0102
Telephone: (202) 942-8090 Fax: (202) 628-9001. Bodisen Biotech, Inc.'s filings
with the SEC are also available from commercial document retrieval services.
Information contained on our web site should not be considered part of this
prospectus. You may also request a copy of our filings at no cost, by writing,
telephoning or emailing us at: North Part of Xinquia Road, Yang Ling AG,
High-Tech Industries Demonstration Zone, Yang Ling, China 712100, Telephone
86-29-870749.
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PROSPECTUS SUMMARY
The following is a summary of what we believe to be the most important
information regarding Bodisen Biotech, Inc. and the securities being offered
herein. Since this is a summary, it may not contain all of the information that
is important to you. To understand our business and this offering fully, we urge
you to read this entire prospectus our financial statements and related notes
carefully.
The Company
Bodisen Biotech, Inc.
North Part of Xinquia Road, Yang Ling AG
High-Tech Industries Demonstration Zone
Yang Ling, China 712100
Telephone: 86-29-870749
Bodisen Biotech, Inc. ("Bodisen", the "Company," "we," "us," "our" and
similar terms) is an agricultural company incorporated in Delaware with its
principal place of business based in The People's Republic of China. Bodisen is
a publicly listed company quoted under the symbol (OTC: BBOI.OB). Bodisen is
primarily engaged in developing, manufacturing and selling organic fertilizers
and pesticides in The People's Republic of China.
Our Business
Bodisen is incorporated under the laws of the State of Delaware. Bodisen's
sole operating subsidiary, Yang Ling Bodisen Biology Science and Technology
Development Company Limited ("Yang Ling"), was founded in the People's Republic
of China on August 31, 2001 and is headquartered in the Shaanxi Province,
People's Republic of China. Yang Ling is primarily engaged in the business of
manufacturing and marketing organic fertilizers and pesticides to 20
agricultural provinces of China. We produce numerous proprietary product lines,
from pesticides to crop specific fertilizer. These products are then marketed
and sold to farmers throughout 20 provinces of China. We conduct research and
development to further improve existing products and develop new formulas and
products.
Background of the Company
Prior to March 1, 2004, Bodisen was known as Stratabid.com, Inc.
("Stratabid"). We were a startup stage Internet-based commercial mortgage
origination business. We operated primarily through our wholly-owned subsidiary,
Stratabid.com Online (B.C.) Ltd. ("Strataid.com Online") which provided services
throughout Canada. On January 14, 2004, Stratabid created a wholly-owned
corporation, Bodisen Holdings, Inc., a Delaware corporation ("BHI") to pursue a
merger with Bodisen International, Inc., a Delaware corporation ("BII") and the
parent of Yang Ling. On February 11, 2004, Stratabid entered into an Agreement
and Plan of Merger with BHI, BII and the shareholders of BII, providing for the
merger of BII into BHI, with BHI being the surviving entity. Under the terms of
the merger agreement, Stratabid acquired 100 percent of BII's stock in exchange
for the issuance by Stratabid of three million shares of its common stock to the
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holders of BII. The new shares constituted approximately 66 percent of the
outstanding shares of Stratabid. The transactions provided for in the Agreement
and Plan of Merger closed on February 24, 2004. On February 25, 2004, Stratabid
sold Stratabid.com Online to Derrek Wasson, Stratabid's former Chief Executive
Officer. On March 1, 2004, Stratabid changed its name from Stratabid.com, Inc.
to Bodisen Biotech, Inc.
The Offering by the Selling Stockholders
We are offering up to 908,750 shares of our common stock under this
prospectus by the Selling Stockholders. This number includes up to 681,250
shares of common stock issuable upon conversion of a convertible debenture and
227,500 shares of common stock issuable upon exercise of 227,500 warrants to
purchase shares of our common stock, which were issued in a private placement on
March 16, 2005. We will not receive any proceeds from the sale of the common
stock hereunder. We may receive proceeds from any exercise of outstanding
warrants. The warrants may also be exercised by surrender of the warrants in
exchange for an equal value of shares in accordance with the terms of the
warrant. See "Use of Proceeds" for a complete description.
RISK FACTORS
You should carefully consider the risks described below before making an
investment in Bodisen. All of these risks may impair our business operations. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected. In such case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.
RISKS RELATING TO OUR BUSINESS
Our management owns a significant amount of our common stock, giving them
influence or control in corporate transactions and other matters, and their
interests could differ from those of other stockholders.
Our principal executive officers Wang Qiong and Chen Bo own approximately
48.02 percent of our outstanding common stock. As a result, they are in a
position to significantly influence or control the outcome of matters requiring
a stockholder vote, including the election of directors, the adoption of any
amendment to our certificate of incorporation or bylaws, and the approval of
significant corporate transactions. Their control may delay or prevent a change
of control on terms favorable to our other stockholders and may adversely affect
the voting and other rights of our other stockholders.
We may require additional financing in the future and a failure to obtain such
required financing will inhibit our ability to grow
The continued growth of our business may require additional funding from
time to time. Funding would be used for general corporate purposes. General
corporate purposes may include acquisitions, investments, repayment of debt,
capital expenditures, repurchase of our capital stock and any other purposes
that we may specify in any prospectus supplement. Obtaining additional funding
3
would be subject to a number of factors including market conditions, operational
performance and investor sentiment. These factors may make the timing, amount,
terms and conditions of additional funding unattractive, or unavailable, to us.
The terms of any future financing may adversely affect your interest as
stockholders.
If we require additional financing in the future, we may be required to
incur indebtedness or issue equity securities, the terms of which, may adversely
affect your interests in the Company. For example, the issuance of additional
indebtedness may be senior in right of payment to your shares upon liquidation
of the Company. In addition, indebtedness may be under terms that make the
operation of our business more difficult because the lender's consent will be
required before we take certain actions. Similarly the terms of any equity
securities we issue may be senior in right of payment of dividends to your
common stock and may contain superior rights and other rights as compared to
your common stock. Further, any such issuance of equity securities may dilute
your interest in the Company.
Our corporate structure may subject our stockholders to two levels of taxation
on the payment of dividends or the disposition of our operating subsidiary,
thereby substantially reducing the return on our stockholders' investment.
If Yang Ling pays a dividend to parent company Bodisen for distribution to
the stockholders as a dividend, or if Yang Ling, rather than parent company
Bodisen, is ultimately sold, the dividend or the proceeds of that transaction
would be subject to two levels of tax-one at the parent corporate level and one
at the parent stockholder level. Because our operations are conducted through
Yang Ling in China, any dividends payable by Bodisen parent company must come
from Yang Ling and it is more likely that Yang Ling, rather than the parent
company, will ultimately be sold. Thus, if Yang Ling pays a dividend to Bodisen
parent company in the future or if Yang Ling is sold in the future, those
proceeds may be subject to two levels of taxation: (i) parent company Bodisen
will pay tax on the dividend or sale proceeds received from Yang Ling, and (ii)
you will pay tax on the distribution of the dividend or the proceeds of the
sale. These two levels of taxation will effectively reduce the financial return
on your investment in Bodisen.
We do not anticipate paying dividends on our common stock.
We have never paid dividends on our common stock and do not anticipate
paying dividends in the foreseeable future. We intend to follow a policy of
retaining all of our earnings, if any, to finance development and expansion of
our business.
We may not be able to adequately protect and maintain our intellectual property.
Our success will depend on our ability to continue to develop and market
fertilizer and pesticide products. We currently have not applied for patents for
our products or formulas, as we believe an application for such patents would
result in public knowledge of our proprietary technology and formulas.
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We may not be able to obtain regulatory approvals for our products.
The manufacture and sale of agricultural products in The People's Republic
of China is regulated by the People's Republic of China and the Shaanxi
Provincial Government. Although our licenses and regulatory filings are current,
the uncertain legal environments in The People's Republic of China and our
industry may be vulnerable to local government agencies or other parties who
wish to renegotiate the terms and conditions of, or terminate their agreements
or other understandings with Bodisen.
Our success depends on our management team and other key personnel, the loss of
any of whom could disrupt our business operations.
Our future success will depend in substantial part on the continual service
of our senior management including Mrs. Wang Qiong, our Chairman and Chief
Executive Officer, Chen Bo, our President and Wang Chunsheng, our Chief
Operational Officer. The loss of the services of one or more of our key
personnel could impede implementation of our business plan and result in reduced
profitability. We do not carry key person life insurance on any of our officers
or employees. Our future success will also depend on the continued ability to
attract, retain and motivate highly qualified technical sales and marketing
customer support. Because of the rapid growth of the economy in China,
competition for qualified personnel is intense. We cannot assure you that we
will be able to retain our key personnel or that we will be able to attract,
assimilate or retain qualified personnel in the future.
RISKS RELATING TO THE AGRICULTURAL INDUSTRY IN THE PEOPLE'S REPUBLIC OF CHINA
Our success depends upon the development of China's agricultural industry.
China is currently the world's most populous country and one of the largest
producers and consumers of agricultural products. Roughly half of China's labor
force is engaged in agriculture, even though only about 10% of the land is
suitable for cultivation. Although China hopes to further increase agricultural
production, incomes for Chinese farmers are stagnating. Despite the Chinese
government's continued emphasize on agricultural self-sufficiency, inadequate
port facilities and a lack of warehousing and cold storage facilities impedes
the domestic agricultural trade. Since we rely on the local farmer to purchase
our products, which is generally purchased under a COD or on 9-12 months credit,
their inability to sell their agriculture goods could impede the demand for our
products and hinder their ability to timely pay their credit obligations.
RISKS RELATING TO THE PEOPLE'S REPUBLIC OF CHINA
China's Economic Policies Could Affect our Business.
Substantially all of our assets are located in China and substantially all
of our revenue is derived from our operations in China. Accordingly, our results
of operations and prospects are subject, to a significant extent, to the
economic, political and legal developments in China.
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While China's economy has experienced a significant growth in the past
twenty years, growth has been uneven, both geographically and among various
sectors of the economy. The Chinese government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of
these measures benefit the overall economy of China, but may also have a
negative effect on us. For example, our operating results and financial
condition may be adversely affected by the government control over capital
investments or changes in tax regulations. The economy of China has been
transitioning from a planned economy to a more market-oriented economy. In
recent years the Chinese government has implemented measures emphasizing the
utilization of market forces for economic reform and the reduction of state
ownership of productive assets and the establishment of corporate governance in
business enterprises; however, a substantial portion of productive assets in
China are still owned by the Chinese government. In addition, the Chinese
government continues to play a significant role in regulating industry
development by imposing industrial policies. It also exercises significant
control over China's economic growth through the allocation of resources,
controlling payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or
companies. Capital outflow policies in The People's Republic of China may hamper
our ability to remit income to the United States.
The People's Republic of China has adopted currency and capital transfer
regulations. These regulations may require that we comply with complex
regulations for the movement of capital. Although we believe that we are
currently in compliance with these regulations, should these regulations or the
interpretation of them by courts or regulatory agencies change we may not be
able to remit all income earned and proceeds received in connection with our
operations or from the sale of our operating subsidiary to the U.S. or to our
stockholders.
Fluctuation of the Renminbi could materially affect our financial condition and
results of operations.
The value of the Renminbi fluctuates and is subject to changes in The
People's Republic of China's political and economic conditions. Since 1994, the
conversion of Renminbi into foreign currencies, including United States dollars,
has been based on rates set by the People's Bank of China, which are set based
upon the interbank foreign exchange market rates and current exchange rates on
the world financial markets. Since 1994, the official exchange rate for the
conversion of Renminbi to United States dollars has generally been stable. As of
April 11, 2005, the exchange rate between the Renminbi and the United States
dollar was 8.28650 Renminbi to every one United States dollar.
We may face obstacles from the communist system in The People's Republic of
China.
Foreign companies conducting operations in The People's Republic of China
face significant political, economic and legal risks. The Communist regime in
The People's Republic of China, including a stifling bureaucracy, may hinder
Western investment.
6
We may have difficulty establishing adequate management, legal and financial
controls in The People's Republic of China.
The People's Republic of China historically has been deficient in Western
style management and financial reporting concepts and practices, as well as in
modern banking, computer and other control systems. We may have difficulty in
hiring and retaining a sufficient number of qualified employees to work in The
People's Republic of China. As a result of these factors, we may experience
difficulty in establishing management, legal and financial controls, collecting
financial data and preparing financial statements, books of account and
corporate records and instituting business practices that meet Western
standards.
It will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in The People's Republic of
China.
Because our Executive Officers and several of our Directors, including, the
chairman of our Board of Directors are Chinese citizens it may be difficult, if
not impossible, to acquire jurisdiction over these persons in the event a
lawsuit is initiated against Bodisen and/or its officers and directors by a
stockholder or group of stockholders in the U.S. Also, because the majority of
our assets are located in The People's Republic of China it would also be
extremely difficult to access those assets to satisfy an award entered against
us in U.S. court.
We may face political and/or judicial corruption in The People's Republic of
China.
Another obstacle to foreign investment is corruption. There is no assurance
that we will be able to obtain recourse, if desired, through The People's
Republic of China's poorly developed and often corrupt judicial systems.
The admission of China into the World Trade Organization could lead to increased
foreign competition.
Domestic competition in the compound fertilizer industry is largely
fragmented and foreign competition is minimal. However, as a result of China
becoming a member of the World Trade Organization (WTO), import restrictions on
agricultural products are expected to be reduced. With the lowering of import
restrictions and the WTO's requirement for a reduction of import tariffs as
condition of membership, such reduced import restrictions and tariffs may result
in an increase of foreign products and could in turn lead to increased
competition in the domestic agricultural market.
RISKS RELATING TO THE OFFERING
There may not be sufficient liquidity in the market for our securities in order
for investors to sell their securities.
There is a limited public market for our common stock, which is traded on
the OTC, and there can be no assurance that a trading market will develop
7
further or be maintained in the future. As of April 11, 2005, the closing bid
price of our common stock on the OTC was $5.96 per share. As of April 11, 2005,
we had approximately 95 stockholders of record. The average trading range had a
low price of $6.00 per share and a high price of $6.00 per share. We have
applied for listing of our shares on the American Stock Exchange, but that
listing application has not been, and there is no assurance that it ever will
be, approved.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares to be offered by
the Selling Stockholders. The proceeds from the sale of each Selling
Stockholders' common stock will belong to that Selling Stockholder. However, we
may receive the sale price of any common stock we sell to the Selling
Stockholders upon exercise of outstanding warrants.
Unless otherwise indicated in the applicable prospectus supplement, we
anticipate that any net proceeds from the sale of the securities that we may
offer under this prospectus and any accompanying prospectus supplement will be
used for general corporate purposes. General corporate purposes may include
acquisitions, investments, repayment of debt, capital expenditures, repurchase
of our capital stock and any other purposes that we may specify in any
prospectus supplement. We may invest the net proceeds temporarily until we use
them for their stated purpose.
CONVERSION AND DILUTION
On March 16, 2005, pursuant to a private placement under Section 4(2)
and/or Regulation D of the Securities Act of 1933, as amended, the Company
received $3.0 million and issued (i) a one year 9% convertible debenture at an
initial conversion price of $4.80 per share of common stock (subject to
adjustment in the event of certain dilutive stocks issues) and (ii) a three year
warrant to purchase 187,500 shares of common stock exercisable at an initial
price of $4.80 per share (subject to adjustment in the event of certain dilutive
stock issues). Additionally, a three year warrant to purchase 40,000 shares of
common stock exercisable at $6.88 per share was issued, as a part of the
brokers' commission. As of the date of this prospectus, in the aggregate, the
holder of the convertible debenture and warrants has the right to own 5.37% of
the Company's outstanding equity securities, after conversion of the convertible
debenture and exercise of the warrants. Under the terms of the convertible
debenture and warrant agreements their ownership is limited to 4.99%; however,
they have the right to obtain up to 9.99% by giving notice to the Company, which
shall not be effective until the 61st day after such notice is delivered to the
Company. The issuance of shares upon conversion of the convertible debenture and
exercise of warrants may result in dilution to the interests of other
stockholders
The sales of the shares of our common stock, on a fully converted basis
will not result in any change to the net tangible book value per share before
and after the distribution of shares by the Selling Stockholders. There will be
no change in the net tangible book value per share attributable to cash payments
made by purchasers of the shares being offered by the Selling Stockholders.
Prospective investors in the shares held by the Selling Stockholders should be
aware, however, that the price of shares being offered by the Selling
Stockholders may not bear any rational relationship to our net tangible book
value per share.
8
SELLING SECURITY HOLDERS
The following table sets forth certain information concerning the resale of
the shares of common stock by the Selling Stockholders. Unless otherwise
described below, to our knowledge, neither the Selling Stockholders nor any
affiliates have held any position or office with, been employed by or otherwise
have had any material relationship with us or our affiliate during the three
years prior to the date of this prospectus.
The Selling Stockholders may offer all or some portion of the shares of the
common stock. Accordingly, no estimate can be given as to the amount or
percentage of our common stock that will be held by the Selling Stockholders
upon completion of sales pursuant to this prospectus. In addition, the Selling
Stockholders identified below may have sold, transferred or disposed of all or a
portion of their shares since the date on which they provided the information
regarding their holdings in transactions exempt from the registration
requirements of the Securities Act.
As of April 11, 2005 there were 15,268,000 shares of our common stock
outstanding. Unless otherwise indicated, the Selling Stockholders have the sole
power to direct the voting and investment over the shares owned by them. We will
not receive any proceeds from the resale of the common stock by the Selling
Stockholders. We estimate that our costs and expenses of registering the shares
listed herein for resale will be approximately $10,000.
The Selling Stockholders and any other persons participating in the sale or
distribution of the shares offered under this prospectus will be subject to
applicable provisions of the Securities Exchange Act of 1934 and Regulation M,
including the rules and regulations promulgated thereunder. These provisions may
restrict activities of, and limit the timing of purchases and sales of any of
the shares by, the Selling Stockholders or any other such persons. Furthermore,
pursuant to Regulation M, persons engaged in a distribution of securities are
prohibited from simultaneously engaging in market making and other activities
with respect to those securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares
offered hereby.
--------------------------------------------------------------------------------------------------------------------
OWNERSHIP OF COMMON STOCK BY SELLING STOCKHOLDERS
--------------------------------------------------------------------------------------------------------------------
Name of Selling Stockholder Number of Percentage of Number of Shares Percentage of
Shares Ownership Prior to Offered Hereby Ownership After the
the Offering Offering (3)
--------------------------------------------------------------------------------------------------------------------
Amulet Limited 868,750 (1) 4.99% (2) 868,750 0
--------------------------------------------------------------------------------------------------------------------
Baxter Capital Advisors Inc. 32,000 .19% 32,000 0
--------------------------------------------------------------------------------------------------------------------
MidSouth Capital, Inc. 8,000 .05% 8,000 0
--------------------------------------------------------------------------------------------------------------------
(1) assumes the conversion of all of the convertible debenture and exercise of
all of the warrants, provided however that the number of shares obtainable
pursuant to the convertible debenture and the warrants are subject to adjustment
in certain circumstances
(2) pursuant to the terms of the convertible debenture and warrants, the holder
of such debenture and warrants shall not convert or exercise such debenture or
warrants to the extent such conversion or exercise would cause the holder to
beneficially own in excess of 4.99% of the Company's outstanding common stock
immediately after giving effect to such conversion or exercise; however, they
have the right to obtain up to 9.99% by giving notice to the Company, which
shall not be effective until the 61st day after such notice is delivered to the
Company. In the event the holder provides such notice, then effective on the
61st day of such notice, the holder may convert all of the debenture and
exercise all of the warrants thereby obtaining 5.37% of beneficial interest in
the Company.
(3) assumes the sale of all shares offered herein
9
Each of Amaranth Securities L.L.C. and Amaranth Global Securities Inc. is
each a broker-dealer registered pursuant to Section 15(b) of the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. (the "NASD"). Each such broker-dealer may be deemed to be an
affiliate of the Selling Stockholder. Neither of such broker-dealers, however,
is authorized by the NASD to engage in securities offerings either as an
underwriter or as a selling group participant and neither of such broker-dealers
actually engages in any such activity.
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, donees, transferees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The Selling Stockholders may use any one or more of
the following methods when selling shares:
(i) ordinary brokerage transactions and transactions in which the
broker-dealer solicits investors;
(ii) block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
(iii) purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
(iv) an exchange distribution in accordance with the rules of the
applicable exchange;
(v) privately negotiated transactions;
(vi) short sales;
(vii) broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
(viii) a combination of any such methods of sale; and
(ix) any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
10
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders may from time to time pledge or grant a security
interest in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of Selling
Stockholders to include the pledgee, transferee or other successors in interest
as Selling Stockholders under this prospectus.
The Selling Stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.
The Selling Stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
securities will be paid by the Selling Stockholder and/or the purchasers. At the
time a particular offer of shares is made by the Selling Stockholders, to the
extent required, a prospectus will be distributed. Each Selling Stockholder has
represented and warranted to the Company that it acquired the securities subject
to this registration statement in the ordinary course of such Selling
Stockholder's business and, at the time of its purchase of such securities such
Selling Stockholder had no agreements or understandings, directly or indirectly,
with any person to distribute any such securities.
The Company is required to pay all fees and expenses incident to the
registration of the shares, but the Company will not receive any proceeds from
the sale of the common stock. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL PROCEEDINGS
From time to time, the Company may become involved in various lawsuits and
legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm the Company's
business. The Company is currently not aware of any such legal proceedings or
claims that it believes will have, individually or in the aggregate, a material
adverse affect on its business, financial condition or operating results.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS and CONTROL PERSONS
11
Directors and Officers
Wang Qiong
Mrs. Wang Qiong, Age 40, has served as the Chairman of the Board of
Directors since founding Bodisen in September 2001. Mrs. Wang Qiong has over 10
years experience in the fertilizer and chemical industry. From 1997 to May 2001,
she was the Chief Executive Officer and President of Shaanxi Bodisen Chemical
Co., Ltd., which became Bodisen International, Inc. From May 1996 to December
1997, she was the President of Yang Ling Kang Yuan Chemical Company, a company
dedicated to the research and development of agricultural products. Mrs. Wang
Qiong graduated from North-West Agronomy College, with a Bachelor of Science
degree in 1986.
Chen Bo
Mr. Chen, Age 47, the President of Bodisen, is one of its original founders
and stockholders. From August 1997 to August 2001, Mr. Chen Bo was Chief
Operations Officer and Chief Technology Officer of Shaanxi Bodisen Chemical Co.,
Ltd. From July 1994 to December 1997, he was the Chief Executive Officer and
President of Yang Ling Shikanglu Chemurgical Technology Development Co., Ltd.
Mr. Chen received his Bachelor of Science degree from Shaanxi Normal College in
July 1984.
Patrick McManus
Mr. Patrick McManus, Age 49. CPA, J.D. Mr. McManus joined Bodisen's Board
of Directors on May 1, 2004 as an independent board member. Mr. McManus brings
over 25 years of experience in business, finance and law to Bodisen. He was
elected Mayor of the City of Lynn, Massachusetts in 1992 and served in this
position until his retirement to the private practice of law and accounting in
2002. While serving the City of Lynn as its Mayor, he was elected a member and
trustee of the Executive Committee of the U.S. Conference of Mayors (USCM) with
responsibility for developing policy for the USCM. He also served as the
Chairman of the USCM Science and Technology Subcommittee, the Urban Water
Council, and the USCM Audit Committee. Mayor McManus started his career in
business with the General Electric Company in 1979, and was a Professor of
Business and Finance at Salem State College in Massachusetts. Mayor McManus is
an expert on China. He was instrumental in establishing a close alliance as well
as coordinating a regular exchange of visits by members of the U.S. Conference
of Mayors and the China Association of Mayors. Mr. McManus has been a Certified
Public Accountant since 1985. Mr. McManus received his Juris Doctorate from
Boston College Law School and an M.B.A from Suffolk University
David Gatton
Mr. David Gatton, Age 51. Mr. Gatton joined Bodisen's Board of Directors on
May 1, 2004 as an independent board member. Mr. Gatton currently serves as
President and Chairman of the Board of Development Initiatives, Inc., a
government relations and business development firm in Washington, D.C. He also
currently serves as Director of the U.S. Conference of Mayors Council on
12
Investment in the New American City, a consortium of mayors, financial
institutions, businesses, and non-profit organizations, to promote capital flow,
business and infrastructure investment in America. Mr. Gatton has also served as
Senior Environmental Advisor and as Managing Director of the U.S. Conference of
Mayors' environmental programs, which include the Urban Water Council, the Joint
Center for Sustainable Communities, and the Municipal Waste Management
Association (MWMA). Mr. Gatton has advised the U.S. Conference of Mayors on the
reauthorization of the Clean Water Act, the Safe Drinking Water Act, the
Resource Conservation and Recovery Act, Superfund reform, and implementation of
the Clean Air Act. Some of Mr. Gatton's other accomplishments include:
development of U.S.-Sino Memorandum of Cooperation between U.S. and China
conference of Mayors, development of U.S. Conference of Mayors' Brownfield
Redevelopment Program, Joint Center for Sustainable Communities, Recycling at
Work Campaign, and Urban Water Council. Mr. Gatton holds a Master's degree from
Harvard University.
Weirui Wan
Mr. Weirui Wan, Age 64. Mr. Wan joined Bodisen's Board of Directors on May
1, 2004 as an independent board member. Mr. Wan has over 40 years of experience
in management and leadership positions in the agricultural sector in China. He
started his career in 1967 as an agricultural scientist at the Chinese Academy
of Water and Soil Preservation, China's leading government agency on soil and
agricultural studies. In 1984, Mr. Wan was appointed the position of Deputy
Director of the Chinese Academy of Water and Soil Preservation. In 1997, Mr. Wan
moved to the city of Yang Ling and was appointed Deputy Governor of the Yang
Ling Agricultural High-Tech Industries Demonstration Zone and was in charge of
building the zone into the agricultural hub of China. Mr. Wan retired in 2001
and is currently on the Advisory Board of Yang Ling Agricultural High-Tech
Industries Demonstration Zone. Mr. Wan graduated from Beijing University of
Agriculture in 1967 with a Bachelor's degree in Agriculture.
Wang Chunsheng
Mr. Wang Chunsheng, Age 42, joined Bodisen in September 2001 as Chief
Operations Officer. From September 1999 to August 2001, Mr. Wang Chunsheng was
Vice General Manager of the Shaanxi Bodisen Chemical Co. Ltd. responsible for
sales and marketing. From January 1997 to July 1999, he held a position as
Senior Sales Manager with the Ling Kangyuan Agriculture Chemical Company. Mr.
Wang Chunsheng holds agronomist certification.
Shuiwang Wei
Mr. Wei, Age 44, is a Certified Public Accountant in China. He joined
Bodisen as its financial controller in January 2004 until his promotion to the
position of Chief Financial Officer in April 2004. He started his career in the
accounting department of Xi'An Machinery Company in 1982 as an accountant. He
was promoted to the head of accounting in 1995. He joined Xi'An He Feng
Fertilizer Company in 1996 as the head of accounting department. Mr. Wei has a
Bachelor's degree in Accounting.
13
Committees of the Board of Directors
Our Board of Directors currently has three committees. The committees and
the committee member are listed below:
1. Audit Committee: Patrick McManus and David Gatton
2. Nominating Committee: Wan Weirui
3. Compensation Committee: Patrick McManus and David Gatton
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, by:
(i) each person known to beneficially own more than five percent of the
Common Stock;
(ii) each officer and director of the Company; and
(iii) all directors and executive officers as a group.
The number of shares beneficially owned by each director or executive
officer is determined under rules of the SEC, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under the
SEC rules, beneficial ownership includes any shares as to which the individual
has the sole or shared voting power or investment power. In addition, beneficial
ownership includes any shares that the individual has the right to acquire
within 60 days. Unless otherwise indicated, each person listed below has sole
investment and voting power (or shares such powers with his or her spouse). In
certain instances, the number of shares listed includes (in addition to shares
owned directly), shares held by the spouse or children of the person, or by a
trust or estate of which the person is a trustee or an executor or in which the
person may have a beneficial interest.
The amount of beneficial ownership indicated below, does not include the
holder of the convertible debenture and warrants, as such holder is prohibited
from converting or exercising such debenture or warrants to the extent such
conversion or exercise would cause the holder to beneficially own in excess of
4.99% of the Company's outstanding common stock immediately after giving effect
to such conversion or exercise; however, they have the right to obtain up to
9.99% by giving notice to the Company, which shall not be effective until the
61st day after such notice is delivered to the Company.
14
---------------------------------------------------------------------------------------------------------
Title of Class Name and Address Amount of Percent of
of Beneficial Owner Beneficial Class
Ownership (1)
---------------------------------------------------------------------------------------------------------
Common Stock Wang Qiong 3,748,780 24.55%
Bodisen Biotech, Inc.,
North Part of Xinquia Road,
Yang Ling Agricultural High-Tech
Industries Demonstration Zone,
Yang Ling, China 712100.
---------------------------------------------------------------------------------------------------------
Common Stock Chen Bo 3,584,096 23.47%
Bodisen Biotech, Inc.,
North Part of Xinquia Road,
Yang Ling Agricultural High-Tech
Industries Demonstration Zone,
Yang Ling, China 712100.
---------------------------------------------------------------------------------------------------------
Common Stock Patrick McManus 39,375 (2) 0%
Bodisen Biotech, Inc.,
North Part of Xinquia Road,
Yang Ling Agricultural High-Tech
Industries Demonstration Zone,
Yang Ling, China 712100.
---------------------------------------------------------------------------------------------------------
Common Stock David Gatton 39,375 (2) 0%
Bodisen Biotech, Inc.,
North Part of Xinquia Road,
Yang Ling Agricultural High-Tech
Industries Demonstration Zone,
Yang Ling, China 712100.
---------------------------------------------------------------------------------------------------------
Common Stock Weirui Wan 0 0%
Bodisen Biotech, Inc.,
North Part of Xinquia Road,
Yang Ling Agricultural High-Tech
Industries Demonstration Zone,
Yang Ling, China 712100.
---------------------------------------------------------------------------------------------------------
Common Stock Shares of all directors and 7,411,626 48.54%
executive officers as a
group (5 persons)
---------------------------------------------------------------------------------------------------------
(1) Based on 15,268,000 shares of common stock currently outstanding.
(2) Reflects stock options vested but unexercised.
DESCRIPTION OF SECURITIES
15
Our authorized capital stock consists of 30,000,000 shares of common stock,
$.0001 par value, and 5,000,000 shares of preferred stock, $.0001 par value. As
of April 11, 2005, there were 15,268,000 shares of common stock outstanding and
no preferred stock outstanding.
Common Stock
Holders of common stock are each entitled to cast one vote for each share
held of record on all matters presented to our stockholders. Cumulative voting
is not allowed; therefore, the holders of a majority of the outstanding common
stock can elect all directors.
Holders of our common stock are entitled to receive such dividends as may
be declared by our board of directors out of funds legally available for
dividends and, in the event of liquidation, to share pro rata in any
distribution of our assets after payment of liabilities. Our board of directors
is not obligated to declare a dividend. It is not anticipated that dividends
will be paid in the foreseeable future.
Holders of our common stock do not have pre-emptive rights to subscribe to
additional shares if issued by us. There are no conversion, redemption, sinking
fund or similar provisions regarding the common stock.
Preferred Stock
Our Certificate of Incorporation and the laws of the State of Delaware
provide that our board of directors has the authority to divide the preferred
stock into series and to fix by resolution the voting power, designations,
preferences, and relative participation, special rights, and the qualifications,
limitations or restrictions of the shares of any series so established. The
relative rights and privileges of holders of common stock may be adversely
affected by the rights of holders of any series of preferred stock which Bodisen
may issue and designate in the future.
ORGANIZATION
Merger Agreement
On February 11, 2004, Stratabid entered into an Agreement and Plan of
Merger (the "Agreement") with Bodisen Holdings Inc., a Delaware corporation
("BHI"), an acquisition subsidiary wholly-owned by Stratabid, Bodisen
International, Inc., a Delaware corporation ("BII") and the stockholders of BII.
BII has one 100% wholly-owned subsidiary in Shaanxi, China, Yang Ling Bodisen
Biology Science and Technology Development Company Limited ("BBST"). Under the
terms of the agreement, BHI acquired 100 percent of BII's stock in exchange for
the issuance by Stratabid of three million shares of its common stock to the
holders of BII. The new shares constitute approximately 79 percent of the
outstanding shares of Stratabid, which changed its name to Bodisen Biotech, Inc.
(the "Company"). The Agreement closed on February 24, 2004.
BII's Chairman of the Board was appointed the Company's Chief Executive
Officer.
16
At the Effective Time, by virtue of the Merger and without any action on
the part of the BHI, BII or the BII Stockholders, the shares of capital stock of
each of BII and BHI were converted as follows:
(a) Capital Stock of the BHI. Each issued and outstanding share of the
BHI's capital stock continued to be issued and outstanding and was converted
into one share of validly issued, fully paid, and non-assessable common stock of
the surviving company, BHI. Each stock certificate of BHI evidencing ownership
of any such shares continued to evidence ownership of such shares of capital
stock of BHI.
(b) Conversion of BII Shares. Each BII Share that was issued and
outstanding at the Effective Time was automatically cancelled and extinguished
and converted, without any action on the part of the holder thereof, into the
right to receive at the time and in the amounts described in the Agreement an
amount of Acquisition Shares (as defined in the Agreement) equal to the number
of Acquisition Shares divided by the number of BII Shares outstanding
immediately prior to Closing. All such BII Shares, so converted, were no longer
outstanding and were automatically cancelled and retired and ceased to exist,
and each holder of a certificate representing any such shares ceased to have any
rights with respect thereto, except the right to receive the Acquisition Shares
paid in consideration therefore upon the surrender of such certificate in
accordance with the Agreement.
DESCRIPTION OF THE BUSINESS
Bodisen Biotech, Inc. ("Bodisen") is incorporated under the laws of the
State of Delaware. Bodisen's sole operating subsidiary, Yang Ling Bodisen
Biology Science and Technology Development Company Limited ("Yang Ling"), was
founded in the People's Republic of China on August 31, 2001 and is
headquartered in the Shaanxi Province, People's Republic of China. Yang Ling is
primarily engaged in the business of manufacturing and marketing organic
fertilizers and pesticides to 20 agricultural provinces of China. We produce
numerous proprietary product lines, from pesticides to crop specific fertilizer.
These products are then marketed and sold to farmers throughout 20 provinces of
China. We conduct research and development to further improve existing products
and develop new formulas and products.
Industry Overview
The organic fertilizer business in China is still in its infancy. Compared
with traditional chemical fertilizer, organic fertilizer is composed of natural
nutritional elements that enhance soil quality to increase crop yields, without
the chemical side effect of harming soil fertility. In relation to traditional
compound chemical fertilizer, organic compound fertilizer accelerates
reproduction of soil microbes to improve soil quality through the decomposition
of organic material. This microbe enhanced soil improves the soil's retention of
nitrogen. Moreover, this application can activate dormant soil by increasing
soil nitrites and moisture content that otherwise is not enhanced by traditional
chemical fertilizers. This process controls the release of nutritional elements
that enhances the quality, quantity and health of crops. As a result of years of
intensive farming, China's soil quality is low compared to international
standards; therefore, it has been widely recognized that organic fertilizer can
17
be more effective than traditional chemical fertilizer in stabilizing and
enhancing soil quality. Based on these facts, and the fact that organic
fertilizer can be widely utilized, the market for organic fertilizer is rapidly
growing and the use of organic fertilizer has become popular throughout China.
Products
We maintain over 60 packaged products, which are broken down into 3 product
line categories:
Organic Compound Fertilizer
Tests conducted by us with local area farmers in Shaanxi have been found to
increase yields within one planting season in a variety of crops including,
wheat, maize, tobacco and various vegetable and fruit crops. (See the
"Marketing" description below.) Plants tend to easily absorb organic fertilizer
without the side effects found in synthetic chemical fertilizer products. In
addition, the organic process strengthens photosynthesis, which improves the
overall health of a plant in resisting drought and disease. The International
Organization for Standardization or ISO has qualified our organic compound
fertilizer products.
Liquid Fertilizer
We have developed a series of liquid fertilizers that can be applied to
grapes, pears, cucumbers, potatoes, watermelon, apples, oranges, asparagus,
garlic and strawberries. By applying liquid fertilizer during the early stages
of a plant's development, plants absorb the key elements and nutrients of the
fertilizer, which strengthen photosynthesis, improving the overall health of the
plant and making it more resistant to disease. In addition, liquid fertilizer
heightens the color and luster of fruits and vegetables and the overall quality
of the end product.
Pesticides and Insecticides
Our pesticide and insecticide products can be applied to fruit trees and
vegetable crops and help eliminate harmful pests that reduce overall crop
yields. A sample of the pests that bring harm to crops in China include: the
peach fruit fly, white aphid, red aphid, red mite, cotton bollworm, maize mite,
cabbage butterfly, leaf acaroids, pear mite, grain worm, wheat moth, and the
millet fly.
All of our products are mass-produced and distributed to the wholesalers
and distribution centers in the 20 provinces in which we do business. The
organic compound fertilizer and liquid fertilizer are used mainly in the first
half of each year. The busy periods of the farmers from south China and north
China are different, so the seasonal sales of the organic compound fertilizer
and liquid fertilizer vary. With regards to pesticide, the busy period for this
product is from April to August of each year. Our wholesalers sell the products
to the farmers directly.
Marketing
All three of our product lines are sold directly to the farming community
in rural areas or wholesalers through our distribution network. The distribution
network consists of 12 branches with each branch consisting of five sales teams,
with each team being responsible for an assigned territory.
18
Since our inception, the "Bodisen" brand has been aggressively marketed and
promoted, through trade fairs, conventions and the print media. We also promote
our product lines through television and radio advertising in China. Since the
end-user for our products is the local farmer, we utilize educational seminars
to promote products directly to farmers. These educational seminars are
conducted locally in China and explain the advantages of organic fertilizers and
how they may be used to enhance crop yields. We market directly to farmers,
which allows us to collect feedback to help in preparing and designing products
based on the needs of the farmers. Included in this process is the distribution
of free samples that attract attention and increase brand awareness.
The free samples are made available to allow farmers the opportunity to
test the product and compare it to other fertilizer products. After the farmers
participate in this test, we announce and promote the results to surrounding
towns in the test zone. The cost of this is not material and is often offset by
new sales in that test zone. The objective of this test is to compare our
products with the similar products of competitors.
The primary task for sales and marketing is to strengthen the home market
in the Shaanxi province and expand the market outside the Shaanxi province into
new districts where our products are not well established. We will try to
accomplish this through traditional means, which utilize market strategies of
price control and the franchising of distribution to wholesalers.
We intend to increase marketing in regions where our products are not well
known. In addition, we will promote our products through national newspapers in
China explaining the advantages of the high-tech nature of its environmental or
"green" product lines. In order to enter the untapped markets of western China,
we will explore selling exclusive franchise opportunities to new wholesale
agents.
Sources and Availability of Raw Materials (Vendors)
There are numerous suppliers and vendors of raw materials in the Shaanxi
Province of China from which we can choose in satisfying our production
requirements. In 2003, there were 68 vendors. Out of the 68 vendors, we relied
upon three vendors to provide 51% of the raw materials. In 2004 the number of
suppliers decreased to 56 vendors. Of the current 56 vendors we used four
vendors to provide 70% of our raw material needs. We have no contracts with
these trade vendors and conduct business on an order-by-order basis, a practice
that is typical throughout the industry in China. We believe that as result of
our relationships within the agricultural vendor community and the availability
of other vendors to supply raw materials, the loss of any one of the four
vendors would not have a material adverse effect on our operations.
Customers
All orders for our products are informal and are indications of interest
which can be canceled by the customers at anytime and for any reason. In China,
orders of indication are the norm, and are based on the goodwill of a company's
relationships with its customers. All orders that we sign with customers are
informal indications of interest and there are no written or verbal sales
contracts with its customers. Signed orders on file with us will be filled on a
first come-first served basis, as the product is manufactured and distributed.
19
Intellectual Property
We own a trademark on the "BODISEN" name, which is used on all our
products. BODISEN is also a recognized trade name in the provinces in China in
which we conduct business.
We hold no patents and have not applied for patents on our proprietary
technology or formulas because we believe application for such patents in China
would result in public knowledge of our proprietary technology and formulas,
which would be detrimental to our future well-being. Only certain key executives
of ours have knowledge of such proprietary technology and formulas.
Research and Development
Our research and development team consists of four professionals, which
perform administrative and ministerial functions. Much of our research work is
done in close cooperation with universities and research labs in the Yang Ling
and Xian metropolitan areas and the cost of such research work is incurred by
such universities and research labs and not by us.
In 2005, we plan to spend $130,000 on research and development, a majority
of which is dedicated to current experiments to develop new products.
The following projects are ongoing from 2004 and are currently scheduled
for completion in 2006:
Project Ion
Project Ion is the study of metal ions, copper, zinc and manganese in
combination with silver positive ions to control and remove crop disease brought
about by fungus. We are trying to determine if the combination of these metal
ions will prohibit the release of an intrusive enzyme from fungus that kills
crops in China.
Project Fly
Project Fly is the development of a protein abstract from a common fly to
develop bacteria-based pesticides, which may have a better effect on a plant's
resistance to insects. This project seeks to isolate a series of anti-bacteria
peptides from the proteins of a common fly. This kind of anti-bacteria peptide
could effectively control many pathogens which may prove better than pesticides
currently available.
Project Amino Acid
Project Amino Acid is a program that was developed to build a new compound
fertilizer product, based on a proactive amino acid enzyme.
20
Project Build Project Build utilizes a technique for the manufacturing of
organic compound fertilizer, which could enhance the quality of organic
fertilizer products.
Governmental and Environmental Regulation
Through the laws and regulation of the People's Republic of China and
Shaanxi Provincial government, our products and services are subject to material
regulation by governmental agencies responsible for the Agricultural Industry
and through the government district where we are headquartered. Business and
company registrations, along with our products, are certified on a regular basis
and must be in compliance with the laws and regulations of the state governments
and industry agencies, which are controlled and monitored through the issuance
of licenses. To date, we have been compliant with all registrations and
requirements for the issuance and maintenance of all licenses required by the
governing bodies. As of March 18, 2005, all license fees and filings are
current. These licenses include:
Production of Organic Compound Fertilizer License
Authorized by the Shaanxi Soil and Fertilizer Institution. After June
2004, this production license was transferred to a Production License
authorized by Ministry of Agriculture, People's Republic of China.
Certificate for Pesticide Registration
Pesticide registration is required for the production of liquid
fertilizer and issued by Ministry of Agriculture, People's Republic of
China.
Production Standard
We are registered with Bureau of Quality Controls and Technology,
Shaanxi Provincial Government, Xi'an.
There is no prohibitive cost in obtaining and maintaining these licenses,
and it is illegal to do business without these licenses. Since it is an accepted
business practice to operate within the regulations of the issued license, the
issuance of the license is considered a cost of doing business and fees
associated with this are minimal. If we were to lose any of these licenses, we
would only have a limited time to reapply for such licenses and would face
possible regulatory fines. We are not subject to any environmental controls or
restrictions that require the outlay of capital or the obtaining of a permit in
order to engage in business operations.
Competition
The compound fertilizer industry is largely fragmented with most
competitors operating small regional factories, serving local requirements. Most
companies in this industry in China do not promote their products through brand
name recognition.
21
We have not yet identified any competition in the Shaanxi province that
operates in all three segments (compound, liquid and pesticide) of the organic
fertilizer business. Our nearest competitor is Tian Bang Shaanxi. We believe
that the only international company operating in China which is a competitor to
us is DuPont. We compete and sell our products in twenty provinces throughout
China.
Employees
As of December 31, 2004, we employed a total of 487 employees on a
full-time basis, 22 of which are clerical, 391 of which are in operations, 10 in
accounting, 30 of which are sales and marketing, 30 of which are administrative
and 4 of which are research and development. As of December 31, 2004, the
company had no part-time employees.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
We are incorporated under the laws of the state of Delaware and are
headquartered in the Shaanxi Province, People's Republic of China. We engage in
the business of manufacturing and marketing a brand of organic fertilizer in
China. We produce numerous proprietary product lines, from pesticides to crop
specific fertilizer. These products are then marketed and sold to farmers
throughout the 20 provinces of China. We conduct research and development to
further improve existing products and develop new formulas and products.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Accounts Receivable
We maintain reserves for potential credit losses on accounts receivable. We
review the composition of accounts receivable and analyze historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves.
Reserves are recorded primarily on a specific identification basis.
Inventories
Inventories are valued at the lower of cost (determined on a weighted
average basis) or market. We compare the cost of inventories with the market
value and allowance is made for writing down the inventories to their market
value, if lower.
22
Property & Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of: 30 years for
building, 10 years for machinery, 5 years for office equipment and 8 years for
vehicles.
Intangible Assets
Intangible assets consist of rights to use land and proprietary technology
rights to fertilizers. We evaluate intangible assets for impairment, at least on
an annual basis and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test is
performed to measure the amount of impairment loss. Potential impairment of
goodwill after July 1, 2002 is being evaluated in accordance with SFAS No. 142.
The SFAS No. 142 is applicable to the financial statements of the Company
beginning July 1, 2002.
Revenue Recognition
Our revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations by us exist and
collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
Stock-based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had we adopted the new fair value method. We use the
intrinsic value method prescribed by APB 25 and have opted for the disclosure
provisions of SFAS No. 123.
23
Income Taxes We utilize SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. According to the Provisional
Regulations of the People's Republic of China on Income Tax, the Document of
Reductions and Exemptions of Income Tax for us have been approved by the local
tax bureau and the Management Regulation of Yang Ling Agricultural High-Tech
Industries Demonstration Zone. We are exempted from income tax in our first two
years of operations.
Foreign Currency Transactions and Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Certain statements, however, require
entities to report specific changes in assets and liabilities, such as gain or
loss on foreign currency translation, as a separate component of the equity
section of the balance sheet. Such items, along with net income, are components
of comprehensive income. Our transactions occur in Chinese Renminbi. The unit of
Renminbi is in Yuan.
Recent Accounting Pronouncements
In November 2004, the FASB has issued FASB Statement No. 151, "Inventory
Costs, an Amendment of ARB No. 43, Chapter 4" ("FAS No. 151"). The amendments
made by FAS No. 151 are intended to improve financial reporting by clarifying
that abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges and
by requiring the allocation of fixed production overheads to inventory based on
the normal capacity of the production facilities.
The guidance is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Earlier application is permitted for inventory
costs incurred during fiscal years beginning after November 23, 2004. The
provisions of FAS No. 151 will be applied prospectively. The Company does not
expect the adoption of FAS No. 151 to have a material impact on its consolidated
financial position, results of operations or cash flows.
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R
requires companies to recognize in the statement of operations the grant- date
24
fair value of stock options and other equity-based compensation issued to
employees. FAS No. 123R is effective beginning in the Company's second quarter
of fiscal 2005. The Company is in process of evaluating the impact of this
pronouncements on its consolidated financial position, results of operations or
cash flows.
In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Nonmonetary Assets." The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. The Company believes that the adoption of
this standard will have no material impact on its financial statements.
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." The EITF reached a consensus about the
criteria that should be used to determine when an investment is considered
impaired, whether that impairment is other-than-temporary, and the measurement
of an impairment loss and how that criteria should be applied to investments
accounted for under SFAS No. 115, "ACCOUNTING IN CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES." EITF 03-01 also included accounting considerations
subsequent to the recognition of an other-than-temporary impairment and requires
certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. Additionally, EITF 03-01 includes new
disclosure requirements for investments that are deemed to be temporarily
impaired. In September 2004, the Financial Accounting Standards Board (FASB)
delayed the accounting provisions of EITF 03-01; however the disclosure
requirements remain effective for annual reports ending after June 15, 2004. The
Company will evaluate the impact of EITF 03-01 once final guidance is issued.
Results of Operations Comparison of 2004 with 2003
Twelve Months Ended December 31, 2004 Compared To Twelve Months Ended
December 31, 2003
Revenue. The Company generated revenues of $16,225,896 for the twelve
months ended December 31, 2004, an increase of $6,442,112 or 65.84%, compared to
$9,783,784 for the twelve months ended December 31, 2003. The growth in revenue
was primarily attributable to the increase in customer base through the
implementation of the strategy to franchise wholesale distribution to provinces
outside of Shaanxi and the building of the Bodisen brand name.
Gross profit. The Company achieved a gross profit of $6,571,931 for the
twelve months ended December 31, 2004, an increase of $3,494,229 or 113.5%,
compared to $3,077,702 for the twelve months ended December 31, 2003. Gross
margin, as a percentage of revenues, increased from 31.46% for the twelve months
ended December 31, 2003, to 40.5% for the twelve months ended December 31, 2004.
The increase in gross margin was attributable to the average 10% price increase
for the compound fertilizer line of products which constitute 60% of total
sales.
25
Operating expenses. The Company incurred operating expenses of $1,523,350
an increase of $319,143 or 27%, compared to $1,204,207 for the twelve months
ended December 31, 2003. These operating expenses are related to increased sales
and marketing costs related to the 65.84% increase in sales for 2004, as well as
the hiring of 138 additional employees by the Company.
Net Income. Net income increased by 155% to $5,027,403, an increase of
$3,057,042, from $1,970,361. Earnings per share (EPS) rose to $0.33 in 2004 from
$0.13 in 2003. The increase was attributable to the substantial growth in demand
for the Company's products throughout China, increased sales of products with a
higher profit margin and the relatively low operating expenses resultant from
doing business in China.
Liquidity and Capital Resources
As of December 31, 2004 Bodisen Biotech, Inc. had $2,121,811 cash and cash
equivalents on hand, compared to $2,974,773 cash and cash equivalents on hand as
of December 31, 2003.
For December 31, 2004 accounts payable was $112,344 and short term loans
was $980,100. Cash outflows for investing activities increased from $1,608,837
to $2,778,136 as a result of additions made to work in progress and acquisitions
of property and equipment. The Company's accounts receivable for the year ended
December 31, 2004, were $4,988,984. Based on past performance and current
expectations, we believe our cash and cash equivalents, cash generated from
operations, as well as future possible cash investments, will satisfy our
working capital needs, capital expenditures and other liquidity requirements
associated with our operations. On March 16, 2005, we completed a $3.0 million
financing. The proceeds of the financing are intended for acquisition of other
businesses, purchase of raw materials and working capital.
The majority of Bodisen Biotech, Inc. revenues and majority of the expenses
in 2004 were denominated primarily in Renminbi ("RMB"), the currency of the
People's Republic of China. There is no assurance that exchange rates between
the RMB and the U.S. dollar will remain stable. A devaluation of the RMB
relative to the U.S. dollar could adversely affect our business, financial
condition and results of operations. We do not engage in currency hedging.
Inflation has not had a material impact on our business.
DESCRIPTION OF PROPERTY
Our principal executive offices are located at North Part of Xinquia Road,
Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling,
Shaanxi province, People's Republic of China, 712100 and our telephone number is
86-29-87074957. We own two factories, which include three production lines, an
office building, one warehouse, and two research labs which are located on
10,900 square meters of land. The rent of the office building is $121 a month
from May 20, 2004 through May 20, 2005. We also lease a warehouse in Yang Ling
26
near the site of our factories. This warehouse is 300 square meters in area. The
rent of the warehouse is $194 a month from January 2005 through May 2005. We
completed a new 609,840 square foot manufacturing facility on March 15, 2005 and
we believe that our owned and leased property is sufficient for our current and
immediately foreseeable operating needs.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the NASD Over-The-Counter Bulletin Board under
the symbol "BBOI.OB". The Over-The-Counter Bulletin Board is sponsored by the
National Association of Securities Dealers (NASD) and is a network of security
dealers who buy and sell stocks.
For the periods indicated, the following table sets forth the high and low
bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
Period Low($) High($)
------ ------ -------
2004
Fourth Quarter 5.60 7.31
2004
Third Quarter 6.10 8.60
2004
Second Quarter 4.40 7.62
2004
First Quarter (1) .25 13.90
(1) We effected a 4:1 forward split on March 3, 2004.
As of April 11, 2005, management believes there to be approximately 95
holders of record of our common stock.
Bodisen is a legal entity separate and distinct from its operating
subsidiary, Yang Ling, which is an indirect wholly-owed subsidiary of Bodisen.
Bodisen's revenues (on a parent company only basis) would be derived entirely
from dividends paid to Bodisen by Yang Ling. The Chinese government exerts
significant influence over the economy of the People's Republic of China, and
there may be regulatory restrictions on Yang Ling's ability to make
distributions of cash to Bodisen. Further, the right of Bodisen, and
consequently the right of creditors and stockholders of Bodisen, to participate
in any distribution of the assets or earnings of Yang Ling through the payment
of such dividends or otherwise is necessarily subject to the prior claims of
creditors of Yang Ling, except to the extent that claims of Bodisen in its
capacity as a creditor may be recognized. We have not paid any dividends on our
common stock, nor do we currently intend to pay dividends in the future.
27
EXECUTIVE COMPENSATION
Executive Compensation
The following table contains information concerning the compensation of the
Bodisen's chief executive officer and each of the other four most highly
compensated executive officers in excess of $100,000 in 2004.
------------------- ---------- ---------- --------- ---------- -------------- -------------- --------------- --------- ------------
Other Restricted Securities LTIP All Other
Name and Annual Restricted Stock Awards underlying payouts Compensation
Principal Position Year Salary Bonus CompensatioStock Awards options ($) ($)
($) ($) ($) ($)
------------------- ---------- ---------- --------- ---------- -------------- -------------- --------------- --------- ------------
Wang Qiong, CEO 2004 23,220 0 23,220 N/A N/A N/A N/A N/A
2003 4,400 0 4,400 N/A N/A N/A N/A N/A
2002 $11,600 0 $11,600 N/A N/A N/A N/A N/A
------------------- ---------- ---------- --------- ---------- -------------- -------------- --------------- --------- ------------
Derek Wasson, CEO 2004 N/A N/A N/A N/A N/A N/A N/A N/A
2003 N/A N/A N/A N/A N/A N/A N/A 32,694 (1)
2002 N/A N/A N/A N/A N/A N/A N/A 19,047 (1)
------------------- ---------- ---------- --------- ---------- -------------- -------------- --------------- --------- ------------
(1) Represents consulting fees paid.
Directors' Compensation
During the fiscal year 2004, Messrs. Gatton and McManus each received
$4,500 as a cash fee for 3 months service as Directors, (May, June, July). On
December 28, 2004 they received 5,000 stock options each for five months service
as Directors, (August through December), which vested on December 31, 2004.
Directors are not entitled to additional fees for serving on committees of the
Board of Directors. Pursuant to the Company's Stock Option Plan, the Company
granted 110,000 stock options to David Gatton and Patrick McManus in 2004, each
a director of the Company. Messrs. Gatton and McManus were each granted 50,000
stock options on June 4, 2004. 25,000 vested immediately and the remaining
25,000 vest over 8 equal quarterly installments, and the first such installment
vested at the end of the second quarter 2004. The option exercise price was
$5.00 for the first 100,000 stock options, which was the same as the market
price of the shares at the time of granting of the options. The option exercise
price was $5.80 for the second 10,000 stock options, which was the same as the
market price of the shares at the time of granting of the options.
Stock Incentive Plan
The Company's long term incentives are in the form of stock options to
directors, executives, employees and consultants under the 2004 stock Option
Plan (the "Plan"). The objective of these awards is to advance the longer term
interests of the Company and its stockholders and complement incentives tied to
annual performance. These awards provide rewards to directors, executives and
other key employees and consultants upon the creation of incremental stockholder
value and attainment of long-term earnings goals. Stock option awards under the
Plan produce value to participants only if the price of the Company's stock
appreciates, thereby directly linking the interests of the participants with
those of the stockholders. No stock options were granted to executive officers
in 2004.
28
FINANCIAL STATEMENTS
Bodisen Biotech, Inc.
Financial Statements
December 31, 2004 and 2003
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm....................F-2
Consolidated Balance Sheet.................................................F-3
Consolidated Statements of Income..........................................F-4
Consolidated Statement of Stockholders' Equity.............................F-5
Consolidated Statements of Cash Flows......................................F-6
Notes to Consolidated Financial Statements.................................F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Bodisen Biotech, Inc.
We have audited the accompanying consolidated balance sheet of Bodisen Biotech,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2004 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 2004 and 2003. 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 audit.
We conducted our audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bodisen
Biotech, Inc. and subsidiaries as of December 31, 2004, and the results of its
consolidated operations and its cash flows for the years ended December 31, 2004
and 2003 in conformity with accounting principles generally accepted in the
United States of America.
/S/ KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Huntington Beach, California
March 1, 2005
F-2
BODISEN BIOTECH, INC.
(Formerly Stratabid.com, Inc.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
ASSETS
------
CURRENT ASSETS:
Cash & cash equivalents $ 2,121,811
Accounts receivable, net 4,988,984
Advances to Suppliers 755,210
Inventory 767,344
Loan receivable 968,000
--------------------------
Total current asset 9,601,349
PROPERTY AND EQUIPMENT, net 1,353,598
CAPITAL WORK IN PROGRESS 1,596,405
INTANGIBLE ASSETS, net 2,199,639
OTHER ASSETS 48,736
--------------------------
TOTAL ASSETS $ 14,799,727
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 112,344
Accrued expenses 264,502
Short term loans 980,100
--------------------------
Total current liabilities 1,356,946
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 per share; authorized 5,000,000 shares;
none issued -
Common stock, $0.0001 per share; authorized 30,000,000 shares;
issued and outstanding 15,268,000 shares 1,527
Additional paid in capital 5,991,823
Accumulated other comprehensive gain 68,855
Statutory reserve 1,017,905
Retained earnings 6,362,671
--------------------------
Total stockholders' equity 13,442,781
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 14,799,727
==========================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
BODISEN BIOTECH, INC.
(Formerly Stratabid.com, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
--------------------- --------------------
Net revenue $ 16,225,896 9,783,784
Cost of revenue 9,653,965 6,706,082
--------------------- --------------------
Gross profit 6,571,931 3,077,702
Operating expenses
Selling expenses 615,549 573,807
General and administrative expenses 907,801 630,401
--------------------- --------------------
Total operating expenses 1,523,350 1,204,207
--------------------- --------------------
Income from operations 5,048,581 1,873,495
Non-operating Income (expense):
Other income (expense) 7,623 -
Interest income 45,338 138,225
Interest expense (74,139) (41,359)
--------------------- --------------------
Total non-operating income (expense) (21,178) 96,866
--------------------- --------------------
Net Income 5,027,403 1,970,361
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain 68,855 -
--------------------- --------------------
COMPREHENSIVE INCOME $ 5,096,258 $ 1,970,361
===================== ====================
Basic weighted average shares outstanding 15,268,000 15,268,000
===================== ====================
Basic earnings per share $ 0.33 $ 0.13
===================== ====================
Diluted weighted average shares outstanding 15,328,356 15,268,000
===================== ====================
Diluted earnings per share $ 0.33 $ 0.13
===================== ====================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
BODISEN BIOTECH, INC
(Formerly Stratabid.com, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Common Stock Accumulated
Additional Other Retained Total
Number of paid in Comprehensive Statutory earnings stockholders'
shares Amount capital Gain reserve (deficit) equity
------------ ------------- ------------ ------------- ----------- ------------- ----------------
Balance, January 1, 2003 1,500 $ 1 $ 6,014,399 $ - $ 66,758 $ 316,054 $ 6,397,212
Recapitalization on
reverse acquisition 15,266,500 1,526 (22,576) - - - (21,050)
------------ ------------- ------------ ------------- ----------- ------------- ----------------
Balance after
recapitalization 15,268,000 1,527 5,991,823 - 66,758 316,054 6,376,162
Net income for the year
ended December 31, 2003 - - - - 1,970,361 1,970,361
Allocation to statutory
reserve - - - 197,036 (197,036) -
------------ ------------- ------------ ------------- ----------- ------------- ----------------
Balance, December 31, 2003 15,268,000 1,527 5,991,823 - 263,794 2,089,379 8,346,523
Foreign currency translation
adjustments - - - 68,855 - - 68,855
Net income for the year ended
December 31, 2004 - - - - - 5,027,403 5,027,403
Allocation to statutory reserve - - - - 754,110 (754,110) -
------------ ------------- ------------ ------------- ----------- ------------- ----------------
Balance, December 31, 2004 15,268,000 $ 1,527 $ 5,991,823 $ 68,855 $1,017,905 $6,362,671 $ 13,442,781
============ ============= ============ ============= =========== ============= ================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-5
BODISEN BIOTECH, INC.
(Formerly Stratabid.com, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,027,403 $ 1,970,361
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 302,803 247,958
(Increase)/decrease in current assets
Accounts receivable (3,166,143) 249,086
Advances to suppliers 1,178,306 (270,645)
Inventory 51,612 81,538
Other assets (48,736) -
Increase/(decrease) in current liabilities:
Accounts payable (1,521,819) 535,186
Unearned revenue (15,888) (586,087)
Other payables (35,350) (67,122)
Accrued expenses 196,031 75,753
----------------- ---------------
Net cash provided by operating activities 1,968,219 2,236,028
----------------- ---------------
Effect of exchange rate on cash 68,855
CASH FLOWS FROM INVESTING ACTIVITIES
Payment on loan receivable (968,000) -
Acquisition of property & equipment (435,814) (133,653)
Additions to intangible assets - (1,470,307)
Additions to work in progress (1,374,322) (4,877)
----------------- ---------------
Net cash used in investing activities (2,778,136) (1,608,837)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) loan (111,900) 1,080,000
Issuance of subsidiary stock - 1,214,400
Dividend paid - (180,000)
----------------- ---------------
Net cash provided by (used in) financing activities (111,900) 2,114,400
----------------- ---------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (852,962) 2,741,591
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 2,974,773 233,182
----------------- ---------------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 2,121,811 $ 2,974,773
================= ===============
Notes to the Consolidated Financial Statements
F-6
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Yang Ling Bodisen Biology Science and Technology Development Company
Limited ("BBST") was founded in the People's Republic of China on August 31,
2001. BBST, located in Yang Ling Agricultural High-Tech Industries Demonstration
Zone, is primarily engaged in developing, manufacturing and selling pesticides
and compound organic fertilizers in the People's Republic of China. Bodisen
International, Inc. ("BII") is a Delaware Corporation, incorporated on November
19, 2003. BII was a non-operative holding company of BBST. On December 15, 2003,
BII entered in to an agreement with all the shareholders of BBST to exchange all
of the outstanding stock of BII for all the issued and outstanding stock of
BBST. After the consummation of the agreement, the former shareholders of BBST
own 1500 shares of common stock of BII, which represent 100% of BII's issued and
outstanding shares. For U.S. Federal income tax purpose, the transaction is
intended to be qualified as a tax-free transaction under section 351 of the
Internal Revenue Code of 1986, as amended.
The exchange of shares with BBST has been accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders of
the BBST obtained control of the consolidated entity. Accordingly, the merger of
the two companies has been recorded as a recapitalization of BBST, with BBST
being treated as the continuing entity. The historical financial statements
presented are those of BBST. The continuing company has retained December 31 as
its fiscal year end. The financial statements of the legal acquirer are not
significant; therefore, no pro forma financial information is submitted.
On February 24, 2004, BII consummated a merger agreement with
Stratabid.com, Inc. ("Stratabid"), a Delaware corporation, to exchange
12,000,000 shares of Stratabid to the shareholders of BII, in which BII merged
into Bodisen Holdings, Inc. (BHI), an acquisition subsidiary of Stratabid, with
BHI being the surviving entity. As a part of the merger, Stratabid cancelled
3,000,000 shares of its issued and outstanding stock owned by its former
president and declared a stock dividend of three shares on each share of its
common stock outstanding for all stockholders on record as of February 27, 2004.
Stratabid was incorporated in the State of Delaware on January 14, 2000 and
before the merger, was a start-up stage Internet based commercial mortgage
origination business based in Vancouver, BC, Canada.
The exchange of shares with Stratabid has been accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders of
BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed
Bodisen Biotech, Inc. (the "Company"). Accordingly, the merger of the two
companies has been recorded as a recapitalization of the Company, with the
Company being treated as the continuing entity. The financial statements of
legal acquiree are not significant; therefore, no pro forma financial
information is submitted.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and cash in time deposits,
certificates of deposit and all highly liquid debt instruments with original
maturities of three months or less.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Terms of the sales vary from COD
through a credit term up to 9 to 12 months. Reserves are recorded primarily on a
specific identification basis. Allowance for doubtful debts amounted to $185,301
as at December 31, 2004.
Advances to Suppliers
The Company advances to certain vendors for purchase of its material. The
advances to suppliers are interest free and unsecured. The advances to suppliers
amounted to $755,210 at December 31, 2004.
Inventories
Inventories are valued at the lower of cost (determined on a weighted
average basis) or market. The Management compares the cost of inventories with
the market value and allowance is made for writing down the inventories to their
market value, if lower.
Loan Receivable
On December 8, 2004, the Company entered in to an agreement to loan
$968,000 to an unrelated party. The loan is unsecured, payable by December 7,
2005 and carries an interest rate of 8.7% per annum.
Property & Equipment & Capital Work in Progress
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of: 30 years for
building, 10 years for machinery, 5 years for office equipment and 8 years for
vehicles.
On December 31, 2004, the Company has "Capital Work in Progress"
representing the construction in progress of the Company's manufacturing plant
amounting $1,596,405.
F-8
Long-lived Assets
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations for a
Disposal of a Segment of a Business." The Company periodically evaluates the
carrying value of long-lived assets to be held and used in accordance with SFAS
144. SFAS 144 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amounts. In that event, a loss is recognized based on the
amount by which the carrying amount exceeds the fair market value of the
long-lived assets. Loss on long-lived assets to be disposed of is determined in
a similar manner, except that fair market values are reduced for the cost of
disposal. Based on its review, the Company believes that, as of December 31,
2004 there were no significant impairments of its long-lived assets.
Intangible Assets
Intangible assets consist of Rights to use land and Fertilizers proprietary
technology rights. The Company evaluates intangible assets for impairment, at
least on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows. Recoverability of intangible assets, other long-lived assets
and, goodwill is measured by comparing their net book value to the related
projected undiscounted cash flows from these assets, considering a number of
factors including past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is considered impaired,
and a second test is performed to measure the amount of impairment loss.
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair
value of financial instruments, requires that the Company disclose estimated
fair values of financial instruments. The carrying amounts reported in the
statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimate of fair value.
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 104. Sales revenue is recognized at the date of
shipment to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectibility is reasonably assured. Payments received before
all of the relevant criteria for revenue recognition are satisfied are recorded
as unearned revenue.
F-9
Advertising Costs
The Company expenses the cost of advertising as incurred or, as
appropriate, the first time the advertising takes place. Advertising costs for
the years ended December 31, 2004 and 2003 were insignificant.
Stock-based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value method. The
Company uses the intrinsic value method prescribed by APB 25 and has opted for
the disclosure provisions of SFAS No. 123.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
According to the Provisional Regulations of the People's Republic of China
on Income Tax, the Document of Reductions and Exemptions of Income Tax for the
Company had been approved by the local tax bureau and the Yang Ling Agricultural
High-Tech Industries Demonstration Zone. The Company is exempted from income tax
through December 31, 2004.
Foreign Currency Transactions and Comprehensive Income (loss)
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Certain statements, however, require
entities to report specific changes in assets and liabilities, such as gain or
loss on foreign currency translation, as a separate component of the equity
section of the balance sheet. Such items, along with net income, are components
of comprehensive income. The functional currency of the Company is Chinese
Renminbi. The unit of Renminbi is in Yuan. Translation gains of $68,855 at
December 31, 2004 are classified as an item of other comprehensive income in the
stockholders' equity section of the consolidated balance sheet. During the year
ended December 31, 2004, comprehensive income in the consolidated statements of
operation included translation gains of $68,855. The Company had insignificant
translation gain in the year ended December 31, 2003.
Basic and Diluted Net Loss Per Share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
SFAS No. 128 superseded Accounting Principles Board Opinion No. 15 (APB 15). Net
loss per share for all periods presented has been restated to reflect the
adoption of SFAS No. 128. Basic net loss per share is based upon the weighted
average number of common shares outstanding. Diluted net loss per share is based
on the assumption that all dilutive convertible shares and stock options were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, options and warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average market
price during the period.
F-10
Statement of Cash Flows:
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations is
calculated based upon the local currencies. As a result, amounts related to
assets and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet.
Segment Reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosure About Segments of an Enterprise and Related Information" requires
use of the "management approach" model for segment reporting. The management
approach model is based on the way a company's management organizes segments
within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure, or any other manner in which management
disaggregates a company. SFAS 131 has no effect on the Company's consolidated
financial statements as the Company consists of one reportable business segment.
All revenue is from customers in People's Republic of China. All of the
Company's assets are located in People's Republic of China.
Recent Pronouncements
In November 2004, the FASB has issued FASB Statement No. 151, "Inventory
Costs, an Amendment of ARB No. 43, Chapter 4" ("FAS No. 151"). The amendments
made by FAS No. 151 are intended to improve financial reporting by clarifying
that abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges and
by requiring the allocation of fixed production overheads to inventory based on
the normal capacity of the production facilities.
The guidance is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Earlier application is permitted for inventory
costs incurred during fiscal years beginning after November 23, 2004. The
provisions of FAS No. 151 will be applied prospectively. The Company does not
expect the adoption of FAS No. 151 to have a material impact on its consolidated
financial position, results of operations or cash flows.
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R
requires companies to recognize in the statement of operations the grant- date
fair value of stock options and other equity-based compensation issued to
employees. FAS No. 123R is effective beginning in the Company's second quarter
of fiscal 2005. The Company is in process of evaluating the impact of this
pronouncements on its consolidated financial position, results of operations or
cash flows.
In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Nonmonetary Assets." The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. The Company believes that the adoption of
this standard will have no material impact on its financial statements.
F-11
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." The EITF reached a consensus about the
criteria that should be used to determine when an investment is considered
impaired, whether that impairment is other-than-temporary, and the measurement
of an impairment loss and how that criteria should be applied to investments
accounted for under SFAS No. 115, "ACCOUNTING IN CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES." EITF 03-01 also included accounting considerations
subsequent to the recognition of an other-than-temporary impairment and requires
certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. Additionally, EITF 03-01 includes new
disclosure requirements for investments that are deemed to be temporarily
impaired. In September 2004, the Financial Accounting Standards Board (FASB)
delayed the accounting provisions of EITF 03-01; however the disclosure
requirements remain effective for annual reports ending after June 15, 2004. The
Company will evaluate the impact of EITF 03-01 once final guidance is issued.
3. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, BII and its wholly owned
subsidiary, BBST. All significant inter-company accounts and transactions have
been eliminated in consolidation. The acquisition of BII on February 24, 2004,
has been accounted for as a purchase and treated as a reverse acquisition (note
1). The historical results for the year ended December 31, 2004 include both the
Company (from the acquisition date) and BII and BBST (for full year) while the
historical results for the year ended December 31, 2003 includes only BBST and
BII.
4. INTANGIBLE ASSETS
Net intangible assets at December 31, 2004 were as follows:
Rights to use land $ 1,666,920
Fertilizers proprietary technology rights
968,000
---------------
2,634,920
Less Accumulated amortization (435,281)
---------------
$ 2,199,639
===============
The Company's office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shaanxi, People's
Republic of China. The Company leases land per a real estate contract with the
government of People's Republic of China for a period from November 2001 through
November 2051. Per the People's Republic of China's governmental regulations,
the Government owns all land.
F-12
During July 2003, the Company leased another parcel of land per a real
estate contract with the government of the People's Republic of China for a
period from July 2003 through June 2053.
The Company has recognized the amounts paid for the acquisition of rights
to use land as intangible asset and amortizing over a period of fifty years. The
"Rights to use land" is being amortized over 50 years period.
The Company acquired Fluid and Compound Fertilizers proprietary technology
rights with a life ending December 31, 2011. The Company is amortizing
Fertilizers proprietary technology rights over a period of ten years.
Amortization expense for the Company's intangible assets for the year ended
December 31, 2004 and 2003 amounted to $130,181 and $109,401, respectively.
Amortization expense for the Company's intangible assets over the next five
fiscal years is estimated to be: 2005-$130,000, 2006-$130,000, 2007-$130,000,
2008-$130,000 and 2009-$130,000.
5. SHORT TERM LOANS
Short term loans consisted of the following at December 31, 2004:
Note payable to bank, interest rate; 6.51% per annum,
payable quarterly, maturity date; 5/30/05, secured by
assets of the Company. $ 544,500
Note payable to bank, interest rate; 6.05% per annum,
payable quarterly, maturity date; 10/28/05, secured by
assets of the Company. 423,500
Short term support loan from the Shanxi Technology
Bureau of the Government of People's Republic of
China, interest free; secured by assets of the
Company, due on demand. 12,100
--------------
$ 980,100
==============
6. SHAREHOLDERS' EQUITY
On February 24, 2004, BII entered into a merger agreement with
Stratabid.com, Inc. (Stratabid) to exchange 12,000,000 shares of Stratabid to
the shareholders of BII (note 14). As a part of the merger, Stratabid cancelled
3,000,000 shares of its issued and outstanding stock owned by a majority
shareholder and declared a stock dividend of three shares on each share of its
common stock outstanding for all stockholders on record as of February 27, 2004,
after the merger agreement. The Company has a total of 15,268,000 shares of
common stock outstanding as of December 31, 2004.
F-13
7. STOCK OPTIONS
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies' interim reporting period
ending January 31, 2003.
In compliance with FAS No. 148, the Company has elected to continue to
follow the intrinsic value method in accounting for its stock-based employee
compensation plan as defined by APB No. 25 and has made the applicable
disclosures below.
In 2004 the board of directors approved the creation of the 2004 Stock
Option Plan. This plan provides for the grant of incentive stock options to
employees, directors and consultants. Options issued under this plan will expire
over a maximum term of five years from the date of grant.
Pursuant to the Stock Option Plan, the Company granted 110,000 stock
options to two Directors (55,000 options each) during the year ended December
31, 2004, of which 100,000 stock options was granted on June 4, 2004 and the
balance of the 10,000 was granted on Dec. 28, 2004.
On the first 100,000 stock options granted, 50,000 stock options vested
immediately and 50,000 stock options became vested over 8 equal quarterly
installments, with the first installment vesting at the end of the second
quarter of 2004. The 10,000 stock options granted on Dec. 28, 2004 vested on
Dec. 31, 2004.
The option exercise price was $5 for the first 100,000 stock options which
was the same as fair value of the shares at the time of granting of the options.
The option exercise price was $5.80 for the second 10,000 stock options which
was the same as fair value of the shares at the time of granting of the options.
Following is a summary of the stock option activity:
Outstanding at December 31, 2003
Granted 110,000
Forfeited 0
Exercised 0
Outstanding at December 31, 2004 110,000
=======
F-14
Following is a summary of the status of options outstanding at December 31,
2004:
Outstanding Options Exercisable Options
------------------- -------------------
Average
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Number Life Price Number Price
-------------- ------ ----------- -------- ------ --------
$ 5.00 100,000 4.42 $ 5.00 68,750 $ 5.00
$ 5.80 10,000 4.99 $ 5.80 10,000 $ 5.80
For options granted during the year ended December 31, 2004, the
weighted-average fair value of such options was $1.92.
The assumptions used in calculating the fair value of options granted using
the Black-Scholes option- pricing model are as follows:
First 100,000 stock options granted on June 4, 2004
---------------------------------------------------
Risk-free interest rate 4.0%
Expected life of the options 5.00 years
Expected volatility 35%
Expected dividend yield 0
Second 100,000 stock options granted on December 28, 2004
---------------------------------------------------------
Risk-free interest rate 4.0%
Expected life of the options 5.00 years
Expected volatility 40%
Expected dividend yield 0
Had the Company determined employee stock based compensation cost based on
a fair value model at the grant date for its stock options under SFAS 123, the
Company's net earnings per share would have been adjusted to the pro forma
amounts for the year ended December 31, 2004 as follow ($ in thousands, except
per share amounts):
Net Income - as reported $ 5,027
Stock-Based employee compensation expense included in
reported net income, net of tax -
Total stock-based employee
compensation expense determined
under fair-value-based method for all
rewards, net of tax (153)
----------------
Pro forma net income $ 4,874
================
F-15
Earnings per share: Year ended
December 31, 2004
-----------------
Basic, as reported $ 0.33
Diluted, as reported $ 0.33
Basic, pro forma $ 0.32
Diluted, pro forma $ 0.32
The Company did not grant any option during year ended December 31, 2003.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method
as defined under the Financial Accounting Standard No. 95.
The Company paid $60,231 and $41,359 for interest and $0 for income tax
during the year ended December 31, 2004 and 2003, respectively.
9. EMPLOYEE WELFARE PLAN
The Company has established its own employee welfare plan in accordance with
Chinese law and regulations. The Company makes annual contributions of 14% of
all employees' salaries to employee welfare plan. The total expense for the
above plan $80,761 and $55,813 for the year ended December 31, 2004 and 2003,
respectively. The Company has recorded welfare payable of $175,758 at December
31, 2004.
10. STATUTORY COMMON WELFARE FUND
As stipulated by the Company Law of the People's Republic of China (PRC),
net income after taxation can only be distributed as dividends after
appropriation has been made for the following:
(i) Making up cumulative prior years' losses, if any;
(ii) Allocations to the "Statutory surplus reserve" of at least 10% of
income after tax, as determined under PRC accounting rules and
regulations, until the fund amounts to 50% of the Company's registered
capital;
(iii) Allocations of 5-10% of income after tax, as determined under PRC
accounting rules and regulations, to the Company's "Statutory common
welfare fund", which is established for the purpose of providing
employee facilities and other collective benefits to the Company's
employees; and
(iv) Allocations to the discretionary surplus reserve, if approved in the
shareholders' general meeting.
The Company established a reserve for the annual contribution of 5% of net
income to the welfare fund in 2004. The amount included in the statutory reserve
for the year ended December 31, 2004 amounted to $251,370.
F-16
11. STATUTORY RESERVE
In accordance with the Chinese Company Law, the company has allocated 10%
of its annual net income, amounting $502,740 and $197,036 as statutory reserve
for the year ended December 31, 2004 and 2003, respectively.
12. FACTORY LOCATION AND LEASE COMMITMENTS
BBST's principal executive offices are located at North Part of Xinquia
Road, Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling,
Shaanzi province, People's Republic of China. BBST owns two factories, which
includes three production lines, an office building, one warehouse, and two
research labs and, is located on 10,900 square meters of land. The rent of the
office building is $121 a month from May 20, 2004 through May 20, 2005. BBST
also leases warehouses in Yang Ling near the site of Bodisen's factories. The
rent of the warehouses is $194 a month from January 2005 through May 2005. Total
future commitment through June 30, 2005 amounts to $1,573.
The Company has committed to pay $18,150 to an advertising agency for an
advertising campaign, by October 2006.
13. EARNINGS PER SHARE
Earnings per share for year ended December 31, 2004 and 2003 were
determined by dividing net income for the periods by the weighted average number
of both basic and diluted shares of common stock and common stock equivalents
outstanding.
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
For the year ended
December 31,
2003 2004
------------------ ------------
Weighted average common shares outstanding 15,268,000 15,268,000
Effect of dilutive securities:
Stock options - 60,356
---------------- ------------
Weighted average common shares
outstanding and common share equivalents 15,268,000 15,328,356
================ ============
14. MERGER AGREEMENT
On February 11, 2004, Stratabid entered into an Agreement and Plan of
Merger with Bodisen Acquisition Corp., a Delaware corporation ("BAC")
wholly-owned by Stratabid, Bodisen International, Inc., a Delaware corporation
("BII") and the shareholders of BII. BII has one 100% wholly-owned subsidiary in
Shaanxi, China, Yang Ling Bodisen Biology Science and Technology Development
Company Limited ("BBST"). Under the terms of the agreement, BAC acquired 100
percent of BII's stock in exchange for the issuance by Stratabid of three
million shares of its common stock to the holders of BII. The new shares
constitute approximately 79 percent of the outstanding shares of Stratabid,
which changed its name to Bodisen Biotech, Inc. (the "Company"). The Agreement
and Plan of Merger was closed on February 24, 2004.
F-17
BII's Chairman of the Board was appointed the Company's Chief Executive
Officer.
At the Effective Time, by virtue of the Merger and without any action on
the part of the BAC, BII or the BII Shareholders, the shares of capital stock of
each of BII and the BAC were converted as follows:
(a) Capital Stock of the BAC. Each issued and outstanding share of the
BAC's capital stock continued to be issued and outstanding and was converted
into one share of validly issued, fully paid, and non-assessable common stock of
the Surviving Company (Bodisen Holdings, Inc.). Each stock certificate of the
BAC evidencing ownership of any such shares continued to evidence ownership of
such shares of capital stock of the Surviving Company.
(b) Conversion of BII Shares. Each BII Share that was issued and
outstanding at the Effective Time was automatically cancelled and extinguished
and converted, without any action on the part of the holder thereof, into the
right to receive at the time and in the amounts described in the Agreement an
amount of Acquisition Shares equal to the number of Acquisition Shares divided
by the number of BII Shares outstanding immediately prior to Closing. All such
BII Shares, so converted, were no longer outstanding and were automatically
cancelled and retired and ceased to exist, and each holder of a certificate
representing any such shares ceased to have any rights with respect thereto,
except the right to receive the Acquisition Shares paid in consideration
therefore upon the surrender of such certificate in accordance with the
Agreement.
(c) Within thirty (30) days from the Closing Date, Stratabid was required
to sell its business operations, as they exist immediately prior to the Closing,
to Derek Wasson, former president. In consideration of the sale, Mr. Wasson
returned 750,000 Common Shares to Stratabid for cancellation. In addition, Mr.
Wasson forgave all indebtedness owed by Stratabid to Mr. Wasson. Other than
indebtedness of BII, Stratabid had no indebtedness or other liability of any
kind or nature after the sale of the business to Mr. Wasson, save and except for
liabilities incurred in connection with the Merger.
15. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
Four vendors provided 70% of the Company's raw materials for the year ended
December 31, 2004 and three vendors provided 51% of the Company's raw materials
for the year ended December 31, 2003. The payable balance for these parties
amounted to $53,098 and $241,078 at December 31, 2004 and 2003, respectively.
The Company's operations are carried out in the PRC. Accordingly, the
Company's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the PRC, by the
general state of the PRC's economy. The Company's business may be influenced by
changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things.
F-18
16. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the year
ended December 31, 2004 presentation.
F-19
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company has not had any changes in or disagreements with its
independent accountants.
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Under Delaware law, we may indemnify our directors or officers or other
persons who were, are or are threatened to be made a party to an action, suit or
proceeding because the person is or was our director, officer, employee or
agent, against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by them in connection with
the action, suit or proceeding if the person:
(i) acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and
(ii) with respect to any criminal action or proceeding, had no reasonable
cause to believe the person's conduct was unlawful.
Our bylaws include indemnification provisions under which we have agreed to
indemnify our directors and officers from and against certain claims arising
from or related to future acts or omissions as our directors or officers, except
in relation to matters as to which any such director or officer was personally
involved in the situation giving rise to the injury or unless such officer or
director committed a criminal offense.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of ours
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
29
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred, all of
which will be paid by the Registrant, in connection with the preparation and
filing of this Registration Statement.
ITEM AMOUNT
---- ------
SEC Registration Fee $ 735.88
Legal Fees 8,000.00
Printing and Engraving Costs 1,000.00
Miscellaneous 264.12
Total $10,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company has sold the following securities within the past three years
that were not registered under the Securities Act of 1933:
On February 24, 2004, the Company issued 3.0 million shares of its Common
Stock to the stockholders of Bodisen International, Inc., in connection with the
acquisition of the Company's current sole operating subsidiary, Yang Ling
Bodisen Biology Science and Technology Development Company Limited. See Item 1,
"Description of Business, Introduction and Background," above. The sale was
effective pursuant to a private placement under Section 4(2) and/or Regulation D
of the Securities Act of 1933, as amended.
On March 16, 2005, pursuant to a private placement under Section 4(2)
and/or Regulation D of the Securities Act of 1933, as amended, the Company
received $3.0 million and issued (i) a one year 9% convertible debenture at an
initial conversion price of $4.80 per share of common stock (subject to
adjustment in the event of certain dilutive stocks issues) and (ii) a three year
warrant to purchase 187,500 shares of common stock exercisable at an initial
price of $4.80 per share (subject to adjustment in the event of certain dilutive
stock issues). Additionally, a three year warrant to purchase 40,000 shares of
common stock exercisable at $6.88 per share was issued, as a part of the
brokers' commission. In connection with the offering, the Company entered into a
registration rights agreement with the investor and agreed to file a
registration statement with the Securities and Exchange Commission
("Commission") for the resale of the common stock issuable upon conversion of
the debenture and the exercise of the warrant within forty five (45) days of the
closing date.
Pursuant to the Company's Stock Option Plan, the Company granted 110,000
stock options to David Gatton and Patrick McManus in 2004, each a director of
the Company. Messrs. Gatton and McManus were each granted 50,000 stock options
on June 4, 2004, 25,000 vested immediately and the remaining 25,000 vest over 8
equal quarterly installments, where the first installment vested at the end of
the second quarter 2004. In addition to the 50,000 options, Messrs. Gatton and
McManus were each granted 5,000 options on December 28, 2004 which vested on
December 31, 2004. The option exercise price was $5.00 for the first 100,000
stock options, which was the same as the market price of the shares at the time
of granting of the options. The option exercise price was $5.80 for the second
10,000 stock options, which was the same as the market price of the shares at
the time of granting of the options.
30
Equity Compensation Plan Information Number of securities remaining
Plan category Number of securities to be Weighted-average available for future issuance
issued upon exercise of exercise price of under equity compensation plans
outstanding options, outstanding options, (excluding securities reflected in
warrants and rights warrants and rights column (a)
(a) (b) (c)
Equity compensation plans N/A N/A N/A
approved by security holders
Equity compensation plans not 110,000 $5.07 890,000
approved by security holders
Total 110,000 890,000
ITEM 27. EXHIBITS
Exhibit Number Description
-------------- -----------------------------------------------------------------
3.1 Certificate of Incorporation of the Company
3.2 Amendment to Certificate of Incorporation of the Company,
changing name to Bodisen Biotech, Inc.
3.3 By-Laws of the the Company
4.1 Form of Debenture issued March 16, 2005
5.1 Opinion of Reed Smith LLP
10.1 Loan Agreement, dated as of September 28, 2003, between the
Company and Xianyang City Commercial Bank
10.2 Bodisen Biotech, Inc. 2004 Stock Option Plan
10.3 Form of Bodisen Biotech, Inc. Nonstatutory Stock Option Agreement
10.4 Securities Subscription Agreement dated March 16, 2005 between
the Company and Amulet Limited
10.5 Registration Rights Agreement dated March 16, 2005 between the
Company and Amulet Limited
10.6 Form of Common Stock Warrant issued March 16, 2005
31
21.1 Schedule of Subsidiaries
23.1 Consent of Karbani & Company, Inc.
23.2 Consent of Reed Smith LLP (Included in Exhibit 5.1)
ITEM 28. UNDERTAKINGS
(a) We hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
In addition, we hereby undertake:
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
32
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
33
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the North Part of
Xinquia Road, Yang Ling AG, High-Tech Industries Demonstration Zone, Yang Ling,
China on April 21, 2005.
Bodisen Biotech, Inc.
By:/s/ Wang Qiong
---------------
Name: Wang Qiong
Title: Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
/s/ Wang Qiong
--------------
Name: Wang Qiong
Title: Chief Executive Officer
Date: May 9, 2005
/s/ Chen Bo
------------
Chen Bo
Title: President
Date : May 9, 2005
/s/ Shuiwang Wei
----------------
Name Shuiwang Wei
Title Chief Financial Officer
(Principal Acounting Officer)
Date May 9, 2005
/s/Patrick McManus
------------------
Name: Patrick McManus
Title: Director
Date: May 9, 2005
/s/ David Gatton
-----------------
Name: David Gatton
Title: Director
Date: May 9, 2005
/s/ Weirui Wan
--------------
Name: Weirui Wan
Title: Director
Date: Mar 9, 2005
34
EXHIBIT INDEX
Exhibit Number Description Method of Filing
-------------- ----------- ----------------
3.1 Certificate of Incorporation of the Filed as Exhibit 3.1 to the registration
Company statement on Form SB-2 filed with the
Commission on September 3, 2002 and
incorporated herein by reference.
3.2 Amendment to Certificate of Filed as Exhibit 3.2 to the annual report
Incorporation of the Company, changing on Form 10-KSB filed with the Commission
name to Bodisen Biotech, Inc. on March 30, 2004 and incorporated herein
by reference.
3.3 By-Laws of the of the Company Filed as Exhibit 3.2 to the registration
statement on Form SB-2 filed with the
Commission on September 3, 2002 and
incorporated herein by reference.
4.1 Form of Debenture issued March 16, 2005 Previously filed as Exhibit 4.1 to this
Registration Statement on Form SB-2,
Filed No 333-124272, date May 4, 2005.
5.1 Opinion of Reed Smith LLP Previously filed as Exhibit 5.1 to this
Registration Statement on Form SB-2,
Filed No 333-124272, dated May 4, 2005.
10.1 Loan Agreement, dated as of September Filed as Exhibit 10.2 to the annual
28, 2003, between the Company and report on Form 10-KSB filed with the
Xianyang City Commercial Bank Commission on March 30, 2004 and
incorporated herein by reference.
10.2 Bodisen Biotech, Inc. 2004 Stock Option Filed as Exhibit 10.2 to the annual
Plan report on Form 10-KSB filed with the
Commission on March 31, 2005.
10.3 Form of Bodisen Biotech, Inc. Filed as Exhibit 10.3 to the annual
Nonstatutory Stock Option Agreement report on Form 10-KSB filed with the
Commission on March 31, 2005.
10.4 Securities Subscription Agreement dated Previously filed as Exhibit 10.4 to this
March 16, 2005 between the Company and Registration Statement on Form SB-2,
Amulet Limited Filed No 333-124272, dated May 4, 2005.
10.5 Registration Rights Agreement dated Previously filed as Exhibit 10.5 to this
March 16, 2005 between the Company and Registration Statement on Form SB-2,
Amulet Limited Filed No 333-124272, dated May 4, 2005.
35
10.6 Form of Common Stock Warrant issued Previously filed as Exhibit 10.6 to this
March 16, 2005 Registration Statement on Form SB-2,
Filed No 333-124272, dated May 4, 2005.
21.1 Schedule of Subsidiaries Filed as Exhibit 21.1 to the annual
report on Form 10-KSB filed with the
Commission on March 31, 2005.
23.1 Consent of Karbani & Company, Inc. Filed herewith as Exhibit 23.1
23.2 Consent of Reed Smith LLP Previously filed as Exhibit 5.1 to this
Registration Statement on Form SB-2,
Filed No 333-124272, dated May 4, 2005.
36