x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended December 31, 2008 |
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from _____________to ______________ |
Maryland
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20-5101287
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(State
or other jurisdiction of
incorporation or organization)
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(IRS
Employer Identification
No.)
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Title
of each class
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Name
of each exchange on which registered
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o (Do not
check if a smaller reporting company)
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Smaller
reporting company x
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Page
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PART
I
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|||
Item
1.
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3
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Item
1A.
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21
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Item
1B.
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36
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Item
2.
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36
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Item
3.
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37
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Item
4.
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37
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PART
II
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|||
Item
5.
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37
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Item
6
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39
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Item
7.
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39
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Item
7A.
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46
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Item
8.
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46
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Item
9.
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49
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Item
9A.
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49
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Item
9B.
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49
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PART
III
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|||
Item
10.
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50
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Item
11.
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53
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Item
12.
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54
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Item
13.
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55
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Item
14.
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55
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PART
IV
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|||
Item
15.
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56
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58
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·
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Shaanxi
Biostar entered into a Management Entrustment Agreement with Aoxing
Pharmaceutical and the shareholders of Aoxing Pharmaceutical (the
"Management Entrustment Agreement"), in which Aoxing Pharmaceutical and
its shareholders agreed to transfer control, or entrust, the operations
and management of its business to Shaanxi Biostar.
Under
the Management Entrustment Agreement, Shaanxi Biostar manages the
operations and assets of Aoxing Pharmaceutical, controls all of the cash
flow of Aoxing Pharmaceutical through a bank account controlled by Shaanxi
Biostar, is entitled to all of the net profits of Aoxing Pharmaceutical as
a management fee, and is obligated to pay all payables and loan payments
of Aoxing Pharmaceutical. In addition, under the terms of the Management
Entrustment Agreement, Shaanxi Biostar has been granted certain rights
which include, in part, the right to appoint and terminate members of
Aoxing Pharmaceutical’s Board of Directors, hire management and
administrative personnel and control decisions relating to entering and
performing customer contracts and other instruments.
The
Management Entrustment Agreement will remain in effect until Shaanxi
Biostar exercises its option to acquire all of the assets or equity of
Aoxing Pharmaceutical under the terms of the Exclusive Option Agreement as
more fully described below. We anticipate that Aoxing Pharmaceutical will
continue to be the contracting party under its customer contracts, bank
loans and certain other instruments unless Shaanxi Biostar exercises its
option. The Management Entrustment Agreement will not terminate unless the
business of Aoxing Pharmaceutical is terminated or Shaanxi Biostar
completes the acquisition of Aoxing Pharmaceutical. Global Law
Office, our PRC counsel, has advised us that in their opinion the
Management Entrustment Agreement is legal and enforceable under PRC
law.
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|
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||
In
exchange for causing Aoxing Pharmaceutical to enter into the Management
Entrustment Agreement, we issued an aggregate of 19,832,311 shares our
common stock to the shareholders of Aoxing Pharmaceutical, which was
allocated based on their respective pro rata ownership of Aoxing
Pharmaceutical. The shares of our common stock that were issued for the
benefit of Ronghua Wang, Yan Wang, Rongfa Wang, Xuezhu Cao, Rangmei Wang,
Xiaoru An, Rong Bai and Yuxing Wang were placed in separate BVI trust
accounts with the Equity Trust (BVI) Limited named as their respective
trustee to be held for the benefit of each of the respective shareholders
(each a “Settlor”). Each trust is
irrevocable.
|
●
|
In
order to give the Biostar further control over Aoxing Pharmaceutical,
the Aoxing Pharmaceutical shareholders and Shaanxi Biostar, entered into a
shareholders' Voting Proxy Agreement (the "Voting Proxy Agreement")
whereby the Aoxing Pharmaceutical shareholders irrevocably and exclusively
appointed the members of Shaanxi Biostar's board of directors, as their
proxies to vote on all matters that require Aoxing Pharmaceutical
shareholder approval, including, without limitation, the right to appoint
members of the board of directors of Aoxing Pharmaceutical. The Voting
Proxy Agreement further provides that Shaanxi Biostar will appoint all
members of the board of directors of Biostar as its board of directors. As
the board of directors of Biostar changes, Shaanxi Biostar must remove and
appoint new members of the board to Aoxing Pharmaceutical. The said
agreement terminates upon the exercise of the option by Shaanxi Biostar to
purchase the shares of Aoxing Pharmaceutical as described below and is
governed by the laws of the PRC.
|
● |
In
order to permit Aoxing Pharmaceutical to become an indirectly
wholly-owned subsidiary of Biostar when permitted under PRC law, Shaanxi
Biostar, Aoxing Pharmaceutical and the Aoxing Pharmaceutical shareholders
entered into an exclusive option agreement (the "Exclusive Option
Agreement") whereby the Aoxing Pharmaceutical shareholders granted Shaanxi
Biostar an irrevocable and exclusive purchase option (the "Option") to
acquire Aoxing Pharmaceutical's equity and/or remaining assets, but only
to the extent that the acquisition does not violate limitations imposed by
PRC law on such transactions. Current PRC law does not specifically
provide for the equity of a non-PRC entity to be used as consideration for
the purchase of a PRC entity's assets or equity unless the value of the
shares are equal to or greater than the value of the enterprise acquired.
In addition, there is a lengthy appraisal process which must be approved
by the provincial PRC government entities. The consideration for the
exercise of the Option is to be determined by the parties and memorialized
in future definitive agreements setting forth the kind and value of such
consideration.
Accordingly,
we will consider exercising the Option under such circumstances we believe
will be in the best interests of the Company and our shareholders and the
Exclusive Option Agreement has been drafted to give us such flexibility.
In considering whether or not we will exercise the Option we may consider
such factors as (1) if the exercise price can be lower than the appraised
value under current PRC law (2) availability of funds (3) any relevant tax
considerations at the time, (4) any other relevant PRC laws that may exist
at the time, (5) the value of our shares that were previously paid to
shareholders of Aoxing Pharmaceutical, and (6) whether or not the exercise
of the Option will provide any other additional benefits to us or our
shareholders. Upon exercise of the Option, the parties will prepare
transfer documents to be submitted for governmental approval and work
together to obtain all approvals and permits. The Exclusive Option
Agreement may be terminated by the agreement of all parties or by Shaanxi
Biostar with 30 days notice and is governed by the laws of the
PRC.
|
● |
In
order to further solidify Biostar’s rights, benefits and control of Aoxing
Pharmaceutical through its ownership of Shaanxi Biostar under the
Entrusted Management Agreement, Voting Proxy Agreement and Exclusive
Option Agreement, Shaanxi Biostar and the Aoxing Pharmaceutical
shareholders entered into a share pledge agreement (the "Share Pledge
Agreement") whereby the Aoxing Pharmaceutical shareholders pledged all of
their equity interests in Aoxing Pharmaceutical, including the proceeds
thereof, to guarantee the performance by the shareholders of all of the
agreements they entered into with Shaanxi Biostar. Upon breach by any of
the shareholders of any of the Voting Proxy Agreement, the Exclusive
Option Agreement or the Share Pledge Agreement, Shaanxi Biostar is
entitled by operation of law to become the beneficial owner of the shares
of Aoxing Pharmaceutical. Prior to termination of the Share Pledge
Agreement, the pledged equity interests of Aoxing Pharmaceutical cannot be
transferred without Shaanxi Biostar's prior written consent. The
provisions of the Share Pledge Agreement and the Voting Proxy Agreement
work together to give the board of directors of Biostar control over
transfers by the shareholders of Aoxing Pharmaceutical. The Share Pledge
Agreement will not terminate until agreed to by all of the parties in
writing and is governed by the laws of the
PRC.
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·
|
Tianqi
Dysmenorrhea Capsule, designed for the relief of pain and other symptoms
associated with menstruation.
|
·
|
Danshen
Granule, designed for the treatment of coronary heart disease, myocarditis
and angina pectoris;
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·
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Taohuasan,
designed for the relief of bronchial congestion of the lungs and to reduce
associated coughing.
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Name
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Treatment
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Benefits
and side effects
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SFDA
Classification
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|||
Xin
Ao Xing Oleanlic Acid Capsule
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Hepatitis
B
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Relieves
hepatic injury, reduce glutamic-pyruvic transaminase activity, reduce
r-GLO. Believed to promote hepatic cell regeneration, to be effective in
hepatic coma treatment, to inhibit fibrous hyperplasia and prevent
hepatocirrhosis. Used to reduce hepatic damage caused by HBV
regeneration.
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OTC
|
|||
Ganwang
(Compound Paracetamol Capsule)
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Colds,
runny nose, sore throat pain, headache and fever
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Relieves
the symptoms of the common cold, including runny nose, sniffles and
sneezing. Some patients experience symptoms of anorexia, queasiness and
upset stomach after use.
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OTC
|
|||
Danshen
granule
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Coronary
heart disease, myocarditis and angina pectoris
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Believed
to stimulate circulation to end stasis, regulating the flow of qi (vital energy) to
alleviate pain. There are no known side effects.
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Prescription
|
|||
Taohuasan
(Pediatric Medicine)
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Bronchial
congestion and coughs
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Used
for the treatment for children’s cough and respiratory tract infection.
There are no known side effects.
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Prescription
|
|||
Tianqi
Dysmenorrhea Capsule
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Dysmenorrhea
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Traditional
Chinese medicine used for treatment of pain and other symptoms associated
with menstruation. There are no known side effects.
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OTC
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Name
|
Function
and Benefits
|
SFDA
Classification
|
||
Ao
Xing No.1
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Believed
to promote health of the elderly, development of children's intelligence,
and improve memory.
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Nutrient,
OTC
|
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Yanshuang
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For
the relief of pharyngeal discomfort and chronic
pharyngitis.
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Nutrient,
OTC
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New
Chakederi
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Believed
to prevent and relive symptoms of rhinitis, sinusitis, headache congestion
and running nose.
|
Nutrient,
OTC
|
||
Tiantianle
|
Believed
to strengthen immune system against influenza and certain viruses from
sexually transmitted diseases and general detoxification.
|
Nutrient,
OTC
|
||
AoXing
Ganbao
|
Believed
to promoting blood circulation by removing blood stasis, strengthen the
spleen and stomach, detoxify, and act as a cholagogic purgative and lower
transaminase.
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Nutrient,
OTC
|
||
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||||
Fengningdan
|
Believed
to assist in elimination of toxins associated with gynecological
inflammation of young and middle-aged women.
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Nutrient,
OTC
|
||
Heigen
|
Believed
to treat premature graying of beard and hair, phalacrosis caused by excess
fat, and postpartum hair loss.
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Nutrient,
OTC
|
||
Baitongning
|
Believed
to relieve rheumatism, hyperplasia, cervical spondylosis, lumbar lesion,
osteoporosis and rheumatoid arthritis.
|
Nutrient,
OTC
|
||
Sukang
Capsule
|
Believed
to improve cardiovascular and cerebrovascular complications, such as,
dizziness headache, amnesia, kidney deficiency, coronary heart disease,
and Atherosclerosis, in the elderly.
|
Nutrient,
OTC
|
||
Aoxing
Ointment
|
Used
to treat psoriasis, vitiligo and various dermatitis.
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Nutrient,
OTC
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Name
|
Functions
|
Type
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STAGE
|
|||||
1
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Ganfukang
|
For
the treatment of acute and chronic hepatitis treatment, and removal of
toxins from the body..
|
Prescription
|
In
phase of examination by SFDA
|
||||
2
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Niaosaitong
|
A
traditional Chinese medicine used for regulating vital energy, dredging
collaterals and eliminating stagnation and ischuria.
|
Prescription
|
In
phase of examination by SFDA
|
||||
|
||||||||
3
|
Azithromycin
|
A
chemical prescription medicine used for the treatment of tympanitis,
pharyngitis, bronchitis, pneumonia and anti-infection.
|
Prescription
|
In
phase of examination by SFDA
|
||||
4
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Shenrong
|
Used
for strengthening immunity, preventative cancer care and restraining
growth of tumor, sedating and resting pain, anti-fatigue, anti-aging,
strengthen sexual function and desire
|
Prescription
|
Clinical
test has been completed. Now in phase of application for preliminary
permit.
|
5
|
Zhixuening
|
|
For
stopping bleeding, relieving swelling and expelling blood stasis. Used in
the treatment of uterine bleeding, acute vaginal bleeding and hematockezia
in women , nose bleeding, blood regurgitation.
|
Prescription
|
Clinic
test has been completed. Now in the phase of application for preliminary
permit.
|
|||
6
|
Xiao'aiping
|
For
the treatments of tumors, and mainly on esophagus cancer, stomach cancer
and lung cancer.
|
Prescription
|
Clinic
test has been completed. Now in phase of application for preliminary
permit.
|
||||
7
|
Zhenbao
Wan
|
A
type of traditional Chinese medicine. It is mainly used in the treatment
of thrombus and coronary heart disease, hemiplegia, muscle and tendon
atrophy, kidney impairment and meridian damage, murrain and
pyreticosis.
|
Prescription
|
Clinic
test has been completed. Now in phase of application for preliminary
permit.
|
||||
8
|
Huazhi
Pian
|
Used
to reduce temperature, clean blood, reduce bleeding, activate “Qi” flow
and eliminate stasis to activate blood circulation.
|
Prescription
|
Clinic
test has been completed. Now in phase of application for preliminary
permit.
|
||||
9
|
KunLing
Wan
|
Used
to regulate menstruation and nourish blood, dissipate blood stasis and
generate new blood, treatment of irregular menses, abnormal
menstrual blood volume, menstrual cramps, uterus cold, infertility,
leucorrhea with red and white discharge, metrorrhagia and metrostaxis,
deficiency of vital energy due to a long illness, deficiency of kidney and
lower back pain.
|
OTC
|
Clinic
test has been completed. Now in phase of application for preliminary
permit.
|
Product
|
Sales through Distributors
|
Sales by Company
|
Xin
Ao Xing Oleanlic Acid Capsule
|
17%
|
83%
|
Ganwang
(Compound Paracetamol Capsule)
|
43%
|
57%
|
Danshen
granule
|
32%
|
68%
|
Taohuasan
(Pediatric Medicine)
|
33%
|
67%
|
Tianqi
Dysmenorrhea Capsule
|
33%
|
67%
|
Total
|
25%
|
75%
|
(i)
|
China
Hepatitis Internet Hospital
|
Name of Supplier
|
Amount Purchased (RMB)/($)
|
Percentage
|
Xi’an
Fangzhou Packaging Company Ltd.
|
527,492.40
/ $77,118
|
0.56%
|
Xianyang
Wenlin
|
16,813,620.74
/ $2,458,132
|
17.76%
|
Shaanxi
Hengqing Pharmaceutical Company Ltd.
|
6,082,105.27/
$889,197
|
6.42%
|
Xi’an
Chinese Medicine Herbal Tablets Factory
|
26,758,677.72/
$3,912,088
|
28.27%
|
Xianyang
Sifang Carton Company Ltd
|
1,959,521.30/
$286,479.72
|
2.07%
|
Sichuan
Xieli Pharmaceutical Company Ltd.
|
25,209,823.30/
$3,685,647
|
26.63%
|
Zhejiang
Xinchang Yaofeng
|
10,584,822.21/
$1,547,489
|
11.18%
|
Xi’an
Jinqiao Plastics Plant
|
3,477,394.40/
$508,391
|
3.67%
|
Xi’an
Xinping Industry &Trade Co. Ltd
|
3,094,685.36/ $452,430
|
3.27%
|
Xi’an
Shengxing Traditional Chinese Medicine Co. Ltd
|
63,562.50/
$9,293
|
0.07%
|
Aggregate
sum of raw materials purchased in FY 2008
|
68,700,445.29/
$10,043,925
|
|
Aggregate
sum of packaging material purchased in FY 2008
|
25,966,877.33/
$3,796,328
|
|
Product | Competitors | |
Xin
Ao Xing Oleanlic Acid Capsule
|
Potential
competitors are Wulanhaote Zhong Meng pharmaceutical Co., Ltd, Yang Ling
Mai Di Sen Pharmaceutical Co., Ltd and other suppliers of prescription
medicines that are used for hepatitis treatment
|
|
Compound
Paracetamol and Amantadine Hydrochloride Capsule
|
Jiang
Xi Ren He Pharmaceuticals, Inc.
Hainan
Asia Pharmaceuticals, Inc.
|
|
Danshen
granule
|
Yun
Nan Yong An Pharmaceuticals, Inc.
Hai
Nan Min Hai Pharmaceuticals, Ltd
|
|
Pediatrics
Medicine
|
Shandong
Bai Cao Pharmaceuticals, Ltd,
Chang
Chun Ren Min Pharmaceuticals, Ltd
|
|
Tianqi
Dysmenorrhea Capsule
|
Yun
Nan Yu Xi city Wei He Pharmaceutical, Ltd,
Shandong
Phoenix Pharmaceuticals, Ltd
|
|
Nutrients
|
Traditional
Chinese herbal suppliers
|
Trademark
|
International Class
|
Registration
|
Issuing Authority
|
Term
|
“Bai
Ying Shen” & device
(Certificate
No. 1196275)
|
5
|
Aoxing
Pharmaceutical
Note: This
trademark was first registered by Shaanxi Xianyang Pharmaceutical
Baiyingshen Drug Centre, and was transferred to us on March 14, 2001. The
transfer was duly recorded in the Trademark Certificate.
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
August 7, 1998 to August 6, 2008 and is in the process of
renewal
|
“Yi
Wen Ling” & device
(Certificate:
No. 1044573)
|
5
|
Aoxing
Pharmaceutical
Note:
This trade mark was first registered by Shaanxi Xianyang Pharmaceutical
Baiyingshen Drug Centre, and then was transferred to the Company on April
12, 2002. The transfer was duly recorded in the Trademark
Certificate.
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
May 21, 2007 to May 20, 2017
|
“Zhong
Ao” & device. (Certificate: No. 1728599)
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
March 14, 2002 to March 13, 2012
|
“Xin
Tai Ke” & device (Certificate:
No.
1908333)
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
September 28, 2002 to September 27, 2012
|
“Gan
Wang” & device
(Certificate:
No. 3001006)
|
5
|
Aoxing
Pharmaceutical
Note:
This trade mark was first registered by Xianyang Aotong Baojian Technology
Limited, and then was transferred to us on August 14, 2003. The transfer
was duly recorded in the Trademark Certificate.
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
November 14, 2002 to November 13, 2012
|
“Hei
Gen” (Certificate: No. 3168882)
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
July 7, 2003 to July 6, 2013
|
“Shi
Li Ming” (Certificate: No. 3180355)
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
August 7, 2003 to August 6, 2013
|
“Aoxing
No.1” (Certificate: No. 3168883)
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
February 21, 2004 to February 20, 2014
|
“Dan
Shen” (Certificate: No. 1908335)
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
October 7, 2002 to October 6, 2012
|
“Cha
Ge De Ri” & device (Certificate: No. 1624463)
|
5
|
Aoxing
Pharmaceutical
Note:
This trademark was first registered by Wulanhaote Zhongmeng Pharmaceutical
Limited, and then was transferred to us on May 30, 2002. The transfer was
duly recorded in the Trademark Certificate.
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
Auguast 28, 2001 to August 27 2011
|
“Mei
Bi De” & device (Certificate: No. 1330246 )
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
November 7, 1999 to November 6, 2009
|
“Ao
Xing Xin Le” & device (Certificate: No. 4319027)
|
5
|
Aoxing
Pharmaceutical
|
Trademark
Bureau of State Administration for Industry and Commerce
|
From
November 28, 2007 to November 27,
2017
|
Drug
Administration Law of the PRC was promulgated by the Standing
Committee of National People’s Congress on February 28, 2001 and effective
as of December 1, 2001, and its implementing guidelines were promulgated
by the State Council on August 4, 2004 and effective as of September 15,
2002. According to Drug Administration Law of the PRC and its implementing
guidelines, a pharmaceutical manufacturer is required to obtain a
Pharmaceutical Manufacturing Permit and Drug Approval Number for each
manufactured drug from the relevant SFDA’s provincial branch, which will
be valid for five years and is renewable upon application before
expiration. Accordingly, we are required to apply for these approvals and
any extensions thereof for each of our
products.
|
Administration
Regulations for Drug Registration was promulgated by the SFDA on
July 10, 2007, and was effective as of October 1, 2007. The
Administration Regulations for Drug Registration specifies the
requirements and procedure for obtaining a Drug Approval Number for a new
drug. It includes the requirements for clinical trial of new
drugs, procedure for registering imported medicine and reporting and
approval procedure for generic medicine. The Drug Approval
Number is valid for five years and can be re-registered upon expiration.
We are required to obtain a Drug Approval Number for each of our new drugs
and reapply for an extension prior to the expiration date the
drugs.
|
Good
Manufacturing Practices (GMP) for Pharmaceutical Products, as
revised in 1998 was promulgated by the SFDA on June 18, 1999 and became
effective as of August 1, 1999, and the Authentication
Regulations for Drug GMP was promulgated by the SFDA on September
7, 2005 and became effective on October 1, 2005. A pharmaceutical
manufacturer must meet the GMP standards and obtain the GMP Certificate
with a five-year validity period from SFDA. Before the GMP Certification
expires, the pharmaceutical manufacturer must apply again and complete the
relevant procedures, which may take about 120 working days, to obtain a
new GMP Certificate. On October 24, 2007, the SFDA issued new guidelines
for authentication standards of GMP, effective as of January 1, 2008. The
new guideline may result in a rise of cost for a pharmaceutical
manufacturer to meet the new standards in order to maintain the GMP
qualification. If a pharmaceutical manufacturer fails to obtain or
maintain GMP Certification and still carries on production of its drugs,
it will be fined and its Pharmaceutical Manufacturing Permit may be
revoked under serious circumstances. We are required to apply for a GMP
certificate for each of our products and reapply prior to the expiration
date and maintain our Pharmaceutical Manufacturing
Permit.
|
Administration
Regulations for Drug Call-back was promulgated by the SFDA on
December 10, 2007 and effective on the same day. According to the
Administration Regulations for Drug Call-back, the pharmaceutical
manufacturer should establish a drug call-back system and collect
information regarding the drug safety. If a manufacturer discovers any
unreasonable danger of drug that threatens people’s safety and health, it
should immediately stop the manufacturing and sale of such drug, notify
the distributors and report to the branch of the SFDA. This regulation
also stipulates the procedures of drug call-back and danger valuation
standards established and maintain a drug call back system in conformance
the regulations.
|
Administration
Regulations for Drug Instructions and Labels was promulgated by the
SFDA on March 15, 2006 and was effective as of June 1, 2006. According to
Administration Regulations for Drug Instructions and Labels, the contents
of instructions and labels of each drug must be approved by the SFDA, and
the smallest packing unit of drug shall be attached with
instruction. We have developed, received approval and maintain
drug labeling in conformance with the regulations for our existing
products and must do so for new
products.
|
Supervision
Administration Regulations for Drug Distribution was promulgated by
the SFDA on January 31, 2007 and effective as of May 1, 2007. According to
Supervision Administration Regulations for Drug Distribution, a
pharmaceutical manufacturer can only sell drugs produced by itself, and it
shall not sell drugs produced by other manufacturers or produced by itself
but for commissioning manufacturing purposes. We do not resell drugs from
any other pharmaceutical
manufacturers.
|
Regulations
for Drug Advertisement Censoring was promulgated by
the SFDA and State Administration for Industry and Commerce (the “SAIC”)
on March 13, 2007 and effective as of May 1, 2007. The Standards for Drug
Advertisement Censoring and Publication was promulgated by the SFDA
and the SAIC on March 3, 2007
and made effective as of May 1, 2007. According to Regulations for Drug
Advertisement Censoring, a pharmaceutical manufacturer must obtain a Drug
Advertisement Approval Number from the provincial branch of the SFDA which
is valid period of one year if the drug advertisement describes the
functions or benefits of a drug. However, if an over the counter drug
advertisement in any media, or a prescription drug advertisement in
professional medical magazine, only refers to the name of the drug,
including the general name and commercial name, without any other addition
promotional information, the advertisement does not need to be censored or
approved. We have obtained a Drug Advertisement Approval Number
for all our drugs and review all of our OTC drug advertisements so that
they are in conformance with the regulations relating to advertising these
products.
|
· raise
adequate capital for expansion and operations;
· implement
our business model and strategy and adapt and modify them as
needed;
· increase
awareness of our brand name, protect our reputation and develop
customer loyalty;
· manage
our expanding operations and service offerings, including the integration
of any future acquisitions;
· maintain
adequate control of our expenses;
· anticipate
and adapt to changing conditions in the medical over the counter,
pharmaceutical and nutritional supplement markets in which we operate
as well as the impact of any changes in government regulations, mergers
and acquisitions involving our competitors, technological
developments and other significant competitive and market
dynamics
|
·
|
issue
equity securities which would dilute current stockholders’ percentage
ownership;
|
·
|
incur
substantial debt;
|
·
|
assume
contingent liabilities; or
|
·
|
expend
significant cash.
|
·
|
difficulties
in the assimilation of acquired operations, technologies and/or
products;
|
·
|
unanticipated
costs associated with the acquisition or investment
transaction;
|
·
|
the
diversion of management’s attention from other business
concerns;
|
·
|
adverse
effects on existing business relationships with suppliers and
customers;
|
· |
risks
associated with entering markets in which Aoxing Pharmaceutical has
no or limited prior experience;
|
· | the potential loss of key employees of acquired organizations; and |
· | substantial charges for the amortization of certain purchased intangible assets, deferred stock compensation or similar items. |
·
|
the
costs of pharmaceutical products and
development;
|
·
|
the
relative speed and success with which we can obtain and maintain
customers, merchants and vendors for our
products;
|
·
|
capital
expenditure for equipment;
|
·
|
marketing
and promotional activities and other
costs;
|
·
|
changes
in our pricing policies, suppliers and
competitors;
|
·
|
the
ability of our suppliers to provide products in a timely manner
to their customers;
|
·
|
changes
in operating expenses;
|
·
|
increased
competition in the pharmaceutical markets;
and
|
·
|
other
general economic and seasonal
factors.
|
·
|
require
us to incur substantial expense, even if covered by insurance or are
successful in the litigation;
|
·
|
require
us to divert significant time and effort of our technical and
management personnel;
|
·
|
result
in the loss of our rights to develop or make certain products;
and
|
·
|
require
us to pay substantial monetary damages or royalties in order to license
proprietary rights from third
parties.
|
Pharmaceutical
Products
|
Expires
on
|
|
Xin
Ao Xing Oleanlic Acid Capsule
|
January
28, 2013
|
|
Ganwang
(Compound Paracetamol Capsule)
|
October
15, 2012
|
|
Danshen
granule
|
October
15, 2012
|
|
Taohuasan
(Pediatric Medicine)
|
September
12, 2012
|
|
Tianqi
Dysmenorrhea Capsule
|
September
12, 2012
|
Health
Food
|
Expires
on
|
|
Ao
Xing No.1
|
August
24, 2010
|
|
Yanshuang
|
August
4, 2010
|
|
New
Chakederi
|
October
16, 2010
|
|
Tiantianle
|
June
28, 2010
|
|
AoXing
Gan Bao
|
June
28, 2010
|
|
Fengningdan
|
April
8, 2011
|
|
Hengen
|
May
28, 2010
|
|
Baitongning
|
July
14, 2010
|
|
Sukang
Capsule
|
July
28, 2010
|
|
Aoxing
Ointment
|
September
14, 2010
|
·
|
producing
counterfeit medicine;
|
·
|
producing
inferior quality products;
|
·
|
failing
to meet the drug GMP standards;
|
·
|
purchasing
medical ingredients used in the production of products sources that do not
have Pharmaceutical Manufacturing Permit or Pharmaceutical
Trade Permit;
|
·
|
fraudulent
reporting of results or product samples in application
process;
|
·
|
failing
to meet drug labeling and direction
standards;
|
·
|
bribing
doctors or hospital personnel to entice them to use
products,
|
·
|
producing
pharmaceuticals for use or resale by companies that are not approved by
the SFDA, or
|
·
|
the
approved drug has a serious side
effect.
|
·
|
the
safety and quality of our products and
ingredients;
|
·
|
the
safety and quality of similar products and ingredients distributed by
other companies; and
|
·
|
our sales
force.
|
·
|
levying
fines;
|
·
|
revoking Aoxing
Pharmaceutical’s business and other
licenses;
|
·
|
requiring
that we restructure our ownership or operations;
and
|
·
|
requiring
that we discontinue any portion or all of our
business.
|
·
|
If
penny stocks are sold in violation of the investor's rights listed above,
or other federal or state securities laws, the investor may be able to
cancel his purchase and get his money
back;
|
·
|
If
the stocks are sold in a fraudulent manner, the investor may be able to
sue the persons and firms that caused the fraud for
damages;
|
·
|
If
the investor has signed an arbitration agreement, however, s/he may have
to pursue a claim through
arbitration.
|
As
of and for the Year Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Sales
|
$ | 33,910,922 | $ | 15,887,486 | ||||
Income
from operations
|
$ | 7,761,642 | $ | 4,845,763 | ||||
Net
income
|
$ | 6,690,542 | $ | 3,963,524 | ||||
Total
assets
|
$ | 28,997,639 | $ | 20,246,679 | ||||
Total
liabilities
|
$ | 5,724,534 | $ | 3,955,291 |
§
|
Xin
AoXing Oleanolic Acid Capsule: an over-the-counter (“OTC”) drug that
treats chronic hepatitis B disease.
|
§
|
Compound
Paracetamol & Amantadine Hydrochloride Capsule: an OTC drug that
treats common cold.
|
§
|
Danshen
Granule: a prescription drug treating coronary heart disease, myocardditis
and angina pectoris.
|
§
|
Pediatrics
Medicine: a prescription drug used for treating children’s cough and
respiratory tract infection.
|
§
|
Tianqi
Dysmenorrhea: an OTC traditional Chinese medicine for treating
dysmenorrhea.
|
Year
Ended December 31,
|
%
of
|
|||||||||||||||||||
2008
|
2007
|
change
|
||||||||||||||||||
Xin
Aoxing Oleanolic Acid Capsule
|
$ | 18,636,885 | 56 | % | $ | 10,299,338 | 65 | % | 81 | % | ||||||||||
Taohuasan
Pediatrics Medicine
|
4,315,558 | 13 | % | 1,883,121 | 12 | % | 129 | % | ||||||||||||
Gan
Wang Compound Paracetamol Capsule
|
3,671,955 | 11 | % | 1,251,032 | 8 | % | 194 | % | ||||||||||||
Tianqi
Dysmenorrhea Capsule
|
3,815,790 | 11 | % | 1,340,675 | 8 | % | 185 | % | ||||||||||||
Danshen
Granule
|
3,364,667 | 10 | % | 1,113,320 | 7 | % | 202 | % | ||||||||||||
Healthcare
supplement products
|
106,067 | - | - | - | n/a | |||||||||||||||
Total
net sales
|
$ | 33,910,922 | 101 | % | $ | 15,887,486 | 100 | % | 113 | % |
Year
Ended December 31,
|
%
of
|
|||||||||||||||||||
2008
|
2007
|
change
|
||||||||||||||||||
Xin
Aoxing Oleanolic Acid Capsule
|
$ | 5,298,354 | 38 | % | $ | 2,822,910 | 54 | % | 88 | % | ||||||||||
Taohuasan
Pediatrics Medicine
|
1,468,654 | 10 | % | 585,693 | 11 | % | 151 | % | ||||||||||||
Gan
Wang Compound Paracetamol Capsule
|
2,138,676 | 15 | % | 391,836 | 8 | % | 446 | % | ||||||||||||
Tianqi
Dysmenorrhea Capsule
|
1,504,485 | 11 | % | 949,552 | 18 | % | 58 | % | ||||||||||||
Danshen
Granule
|
3,505,778 | 25 | % | 474,565 | 9 | % | 639 | % | ||||||||||||
Healthcare
supplement products
|
143,396 | 1 | % | - | - | n/a | ||||||||||||||
Total
cost of sales
|
$ | 14,059,343 | 100 | % | $ | 5,224,556 | 100 | % | 169 | % |
Year
Ended December 31,
|
||||||||||||||||||||
2008
|
2007
|
|||||||||||||||||||
gross
profit
|
gross
profit
|
%
of
|
||||||||||||||||||
margin
|
margin
|
change
|
||||||||||||||||||
Xin
Aoxing Oleanolic Acid Capsule
|
$ | 13,338,531 | 72 | % | $ | 7,476,428 | 73 | % | 78 | % | ||||||||||
Taohuasan
Pediatrics Medicine
|
2,846,904 | 66 | % | 1,297,428 | 69 | % | 119 | % | ||||||||||||
Gan
Wang Compound Paracetamol Capsule
|
1,533,279 | 42 | % | 859,196 | 69 | % | 78 | % | ||||||||||||
Tianqi
Dysmenorrhea Capsule
|
2,311,305 | 61 | % | 391,123 | 29 | % | 491 | % | ||||||||||||
Danshen
Granule
|
(141,111 | ) | -4 | % | 638,755 | 57 | % | -122 | % | |||||||||||
Healthcare
supplement products
|
(37,329 | ) | -35 | % | - | - | n/a | |||||||||||||
Total
|
$ | 19,851,579 | 59 | % | $ | 10,662,930 | 67 | % | 86 | % |
Year
Ended December 31,
|
||||||||||||||||||||
2008
|
2007
|
|||||||||||||||||||
%
of total
|
%
of total
|
%
of
|
||||||||||||||||||
net
sales
|
net
sales
|
change
|
||||||||||||||||||
Selling,
general and administrative expenses
|
$ | 12,089,937 | 36 | % | $ | 5,817,167 | 37 | % | 108 | % |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Provision
for income taxes
|
$ | 1,033,402 | $ | 821,436 | ||||
Effective
tax rate
|
13 | % | 17 | % |
Accounts
Receivable Aging
|
Total
|
1-30
days
|
31-60
days
|
61-90
days
|
91-120
days
|
121-365 days |
>
365 days
|
||||||||||||||||||||
As
of December 31, 2008
|
$ | 11,835,630 | $ | 3,627,709 | $ | 4,102,305 | $ | 2,807,852 | $ | 887,760 | $ |
$408,638
|
$ | 1,366 | |||||||||||||
As
of December 31, 2007
|
$ | 4,249,448 | $ | 1,975,938 | $ | 1,378,157 | $ | 781,628 | $ | 113,725 | $ | - | $ | - |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Days
sales outstanding
|
124 | 92 |
1.
|
If
after taking legal action, it appears that the accounts receivable are not
likely to become collectible, the accounts receivable will be written off
if more than two years old.
|
2.
|
If
during the collection period, the customer provides bankruptcy or other
insolvency documentation, the accounts receivable will be written
off.
|
3.
|
If
we are no longer able to locate a particular customer in order for us to
take any collection or legal actions, the accounts receivable will be
written off if more than two years
old.
|
Payments
due by period
|
||||||||||||||||||||
Total
|
Within
1 year
|
1–3
years
|
3–5
years
|
5+
years
|
||||||||||||||||
Advisory
services payment obligation
|
$ | 109,422 | $ | 109,422 | $ | - | $ | - | $ | - | ||||||||||
Total
contractual obligations
|
$ | 109,422 | $ | 109,422 | $ | - | $ | - | $ | - |
Page(s)
|
|
Financial
Statements
|
|
F-1
|
|
F-2
|
|
F-3
|
|
F-4
|
|
F-5
|
BIOSTAR PHARMACEUTICALS, INC.
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 758,316 | $ | 2,286,419 | ||||
Accounts
receivable
|
11,700,841 | 4,123,135 | ||||||
Inventories
|
315,745 | 207,895 | ||||||
Prepaid
expenses and other receivables
|
2,926,505 | 18,225 | ||||||
Total
Current Assets
|
15,701,407 | 6,635,674 | ||||||
Property
and equipment, net
|
5,930,467 | 6,206,994 | ||||||
Intangible
assets, net
|
7,365,765 | 7,404,011 | ||||||
Total
Assets
|
$ | 28,997,639 | $ | 20,246,679 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 2,191,976 | $ | 537,780 | ||||
Customer
advances
|
2,592,250 | 2,412,846 | ||||||
Short-term
bank loan
|
- | 519,544 | ||||||
Value-added
tax payable
|
527,103 | 298,032 | ||||||
Income
tax payable
|
413,205 | 187,089 | ||||||
Total
Current Liabilities
|
5,724,534 | 3,955,291 | ||||||
Commitment
|
||||||||
Stockholders'
Equity
|
||||||||
Series
A, convertible preferred stock, $0.001 par value, 5,000,000 shares
authorized,
|
||||||||
0
and 72,500 shares issued and outstanding at December 31, 2008 and
2007
|
- | 725,000 | ||||||
Undesignated
preferred stock, $.001 par value, 5,000,000 shares
authorized,
|
||||||||
none
issued and outstanding
|
- | - | ||||||
Common
stock, $.001 par value, 100,000,000 shares authorized,
|
||||||||
23,240,899
shares issued and outstanding at December 31, 2008 and
2007
|
23,241 | 22,152 | ||||||
Additional
paid-in capital
|
10,430,168 | 8,244,017 | ||||||
Statutory
reserves
|
1,585,383 | 902,113 | ||||||
Retained
earnings
|
10,996,655 | 6,451,623 | ||||||
Accumulated
other comprehensive income (loss)
|
237,658 | (53,517 | ) | |||||
Total
Stockholders' Equity
|
23,273,105 | 16,291,388 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 28,997,639 | $ | 20,246,679 |
BIOSTAR PHARMACEUTICALS, INC.
|
||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||
Year
Ended
|
||||||||
December
31,
|
||||||||
2008
|
2007
|
|||||||
Sales,
net
|
$ | 33,910,922 | $ | 15,887,486 | ||||
Cost
of sales
|
14,059,343 | 5,224,556 | ||||||
Gross
profit
|
19,851,579 | 10,662,930 | ||||||
Selling,
general and administrative expenses
|
12,089,937 | 5,817,167 | ||||||
Income
from operations
|
7,761,642 | 4,845,763 | ||||||
Other
Income (Expense)
|
||||||||
Interest income
|
2,911 | 3,492 | ||||||
Interest expense
|
(40,615 | ) | (60,292 | ) | ||||
Other
|
6 | (33 | ) | |||||
Foreign
exchange loss
|
- | (3,970 | ) | |||||
Total
other Income (Expense)
|
(37,698 | ) | (60,803 | ) | ||||
Income
before income taxes
|
7,723,944 | 4,784,960 | ||||||
Provision
for income taxes
|
1,033,402 | 821,436 | ||||||
Net
income
|
$ | 6,690,542 | $ | 3,963,524 | ||||
Deemed
dividend from beneficial conversion feature of Series A preferred
stock
|
(1,462,240 | ) | - | |||||
Net
income applicable to common shareholders
|
$ | 5,228,302 | $ | 3,963,524 | ||||
Net
income per common share
|
||||||||
Basic
|
$ | 0.23 | $ | 0.20 | ||||
Diluted
|
$ | 0.22 | $ | 0.19 | ||||
Weighted
average common shares outstanding
|
||||||||
Basic
|
22,369,434 | 20,220,037 | ||||||
Diluted
|
23,257,470 | 20,858,278 |
BIOSTAR PHARMACEUTICALS, INC.
|
||||||||||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||||||||||
Capital
Stock
|
Preferred
Stock
|
Paid-in
|
Statutory
|
Retained
|
Comprehensive
|
Stockholders'
|
||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Reserve
|
Earnings
|
Income
(Loss)
|
Equity
|
||||||||||||||||||||||||||||
BALANCE,
JANUARY 1, 2007
|
19,832,311 | $ | 19,832 | - | $ | - | $ | 8,246,337 | $ | 510,348 | $ | 2,879,864 | $ | (94,161 | ) | $ | 11,562,220 | |||||||||||||||||||
Issuance
of preferred stock
|
- | - | 72,500 | 725,000 | - | - | - | - | 725,000 | |||||||||||||||||||||||||||
Issuance
of common stock in reverse acquisition
|
2,320,000 | 2,320 | - | - | (2,320 | ) | - | - | - | - | ||||||||||||||||||||||||||
Transfer
to statutory reserve
|
- | - | - | - | - | 391,765 | (391,765 | ) | - | - | ||||||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | 3,963,524 | - | 3,963,524 | |||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | - | - | - | 40,644 | 40,644 | |||||||||||||||||||||||||||
BALANCE,
DECEMBER 31, 2007
|
22,152,311 | 22,152 | 72,500 | 725,000 | 8,244,017 | 902,113 | 6,451,623 | (53,517 | ) | 16,291,388 | ||||||||||||||||||||||||||
Conversion
of Series A preferred stock
|
1,088,588 | 1,089 | (72,500 | ) | (725,000 | ) | 723,911 | - | - | - | - | |||||||||||||||||||||||||
Deemed
dividend on preferred stock
|
- | - | - | - | 1,462,240 | - | (1,462,240 | ) | - | - | ||||||||||||||||||||||||||
Transfer
to statutory reserve
|
- | - | - | - | - | 683,270 | (683,270 | ) | - | - | ||||||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | 6,690,542 | - | 6,690,542 | |||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | - | - | - | 291,175 | 291,175 | |||||||||||||||||||||||||||
BALANCE,
DECEMBER 31, 2008
|
23,240,899 | $ | 23,241 | - | $ | - | $ | 10,430,168 | $ | 1,585,383 | $ | 10,996,655 | $ | 237,658 | $ | 23,273,105 |
BIOSTAR PHARMACEUTICALS, INC.
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
Year
Ended
|
||||||||
December
31,
|
||||||||
2008
|
2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
income
|
$ | 6,690,542 | $ | 3,963,524 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation
and amortization
|
645,846 | 589,872 | ||||||
Provision
for doubtful accounts
|
- | 109,234 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(7,187,746 | ) | (3,677,867 | ) | ||||
Inventories
|
(92,443 | ) | (46,322 | ) | ||||
Prepaid
expenses and other receivables
|
(2,861,941 | ) | (2,997 | ) | ||||
Accounts
payable and accrued expenses
|
1,593,000 | 244,219 | ||||||
Customer
advances
|
17,236 | (1,278 | ) | |||||
VAT
tax payable
|
205,829 | (47,540 | ) | |||||
Income
tax payable
|
210,249 | 179,644 | ||||||
Net
cash provided by (used in) operating activities
|
(779,428 | ) | 1,310,489 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchase
of property and equipment
|
(51,770 | ) | (86,339 | ) | ||||
Acquisitions
of land use right
|
(276,531 | ) | - | |||||
Net
cash provided by (used in) Investing activities
|
(328,301 | ) | (86,339 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Borrowings
from short-term bank loan
|
- | 498,871 | ||||||
Repayment
of short-term bank loan
|
(545,801 | ) | (262,564 | ) | ||||
Proceeds
from issuance of preferred stock
|
- | 725,000 | ||||||
Net
cash provided by (used in) financing activities
|
(545,801 | ) | 961,307 | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
125,427 | 89,028 | ||||||
Net
Increase (Decrease) in cash and cash equivalents
|
(1,528,103 | ) | 2,274,485 | |||||
Cash
and cash equivalents, beginning balance
|
2,286,419 | 11,934 | ||||||
Cash
and cash equivalents, ending balance
|
$ | 758,316 | $ | 2,286,419 | ||||
SUPPLEMENTAL
DISCLOSURES:
|
||||||||
Interest
payments
|
$ | 40,615 | $ | 60,292 | ||||
Income
tax payments
|
$ | 823,153 | $ | 641,792 | ||||
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
||||||||
Conversion
of preferred stock to common stock
|
$ | 725,000 | $ | - |
·
|
Shaanxi
Biostar has the full right to control and administrate the financial
affairs and daily operation of Aoxing Pharmaceutical and has the right to
manage and control all assets of Aoxing Pharmaceutical. The equity holders
of Aoxing Pharmaceutical as a group have no right to make any decision
about Aoxing Pharmaceutical’s activities without the consent of Shaanxi
Biostar.
|
·
|
Shaanxi
Biostar was assigned all voting rights of Aoxing Pharmaceutical and has
the right to appoint all directors and senior management personnel of
Aoxing Pharmaceutical. The equity holders of Aoxing Pharmaceutical possess
no substantive voting rights.
|
·
|
Shaanxi
Biostar will provide financial support if Aoxing Pharmaceutical requires
additional funds to maintain its operations and to repay its
debts.
|
·
|
Shaanxi
Biostar should be paid a management fee equal to Aoxing Pharmaceutical’s
net profits and should assume all operation risks of Aoxing Pharmaceutical
and bear all losses of Aoxing Pharmaceutical. Therefore,
Shaanxi Biostar is the primary beneficiary of Aoxing
Pharmaceutical.
|
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Raw
materials
|
$ | 29,387 | $ | 110,946 | ||||
Work
in process
|
8,597 | 8,445 | ||||||
Finished
goods
|
277,761 | 88,504 | ||||||
$ | 315,745 | $ | 207,895 |
Real
property
|
50
years
|
Machinery
& equipment
|
15
years
|
Leasehold
improvements
|
10
years
|
Computers
& office equipment
|
5
years
|
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Real
property
|
$ | 4,393,371 | $ | 4,393,372 | ||||
Machinery
& equipment
|
541,063 | 508,353 | ||||||
Leasehold
improvements
|
1,946,831 | 1,946,831 | ||||||
Furniture
& fixtures
|
62,982 | 62,981 | ||||||
Vehicle
|
19,437 | - | ||||||
6,963,684 | 6,911,537 | |||||||
Less:
Accumulated depreciation
|
(1,033,217 | ) | (704,543 | ) | ||||
$ | 5,930,467 | $ | 6,206,994 |
Land
use right
|
50
years
|
Proprietary
technologies
|
10
years
|
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Land
use right
|
$ | 6,478,769 | $ | 6,202,238 | ||||
Proprietary
technologies
|
1,511,544 | 1,511,544 | ||||||
7,990,313 | 7,713,782 | |||||||
Less:
Accumulated amortization
|
(624,548 | ) | (309,771 | ) | ||||
$ | 7,365,765 | $ | 7,404,011 |
Years
Ending December 31,
|
||||
2009
|
326,500 | |||
2010
|
326,500 | |||
2011
|
326,500 | |||
2012
|
326,500 | |||
2013
|
326,500 | |||
Thereafter
|
5,733,265 |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Basic
net income per share:
|
||||||||
Numerator:
|
||||||||
Net
income used in computing basic net income per share
|
$ | 6,690,542 | $ | 3,963,524 | ||||
Deemed
dividend from beneficial conversion feature of preferred
stock
|
(1,462,240 | ) | - | |||||
Net
income applicable to common shareholders
|
$ | 5,228,302 | $ | 3,963,524 | ||||
Denominator:
|
||||||||
Weighted
average common shares outstanding
|
22,369,434 | 20,220,037 | ||||||
Basic
net income per share
|
$ | 0.23 | $ | 0.20 | ||||
Diluted
net income per share:
|
||||||||
Numerator:
|
||||||||
Net
income used in computing diluted net income per share
|
$ | 6,690,542 | $ | 3,963,524 | ||||
Deemed
dividend from beneficial conversion feature of preferred
stock
|
(1,462,240 | ) | - | |||||
Net
income applicable to common shareholders
|
$ | 5,228,302 | $ | 3,963,524 | ||||
Denominator:
|
||||||||
Weighted
average common shares outstanding
|
22,369,434 | 20,220,037 | ||||||
Weighted
average effect of dilutive securities:
|
||||||||
Convertible
preferred stocks
|
871,465 | 638,241 | ||||||
Stock
warrants
|
16,571 | - | ||||||
Shares
used in computing diluted net income per share
|
23,257,470 | 20,858,278 | ||||||
Diluted
net income per share
|
$ | 0.22 | $ | 0.19 |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryforwards
|
$ | 50,200 | $ | 32,900 | ||||
Total
deferred tax assets
|
50,200 | 32,900 | ||||||
Less:
valuation allowance
|
(50,200 | ) | (32,900 | ) | ||||
Net
deferred tax assets
|
$ | - | $ | - |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Income
tax provision
|
$ | 1,033,402 | $ | 821,436 | ||||
Change
in deferred tax assets
|
- | - | ||||||
Change
in valuation allowance
|
- | - | ||||||
Income
tax expenses
|
$ | 1,033,402 | $ | 821,436 |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Accumulated
other comprehensive loss, beginning of period
|
$ | (53,517 | ) | $ | (94,161 | ) | ||
Change
in cumulative translation adjustment
|
291,175 | 40,644 | ||||||
Accumulated
other comprehensive income (loss), end of period
|
$ | 237,658 | $ | (53,517 | ) |
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Xin
Aoxing Oleanolic Acid Capsule
|
$ | 18,636,885 | $ | 10,299,338 | ||||
Taohuasan
Pediatrics Medicine
|
4,315,558 | 1,883,121 | ||||||
Gan
Wang Compound Paracetamol Capsule
|
3,671,955 | 1,251,032 | ||||||
Tianqi
Dysmenorrhea Capsule
|
3,815,790 | 1,340,675 | ||||||
Danshen
Granule
|
3,364,667 | 1,113,320 | ||||||
Healthcare
supplement products
|
106,067 | - | ||||||
$ | 33,910,922 | $ | 15,887,486 |
§
|
The
Company may not be able to adequately protect and maintain its
intellectual property.
|
§
|
The
Company may not be able to obtain regulatory approvals for its
products.
|
§
|
The
Company may have difficulty competing with larger and better financed
companies in the same sector. New legislative or regulatory requirements
may adversely affect the Company’s business and operations. The Company is
dependant on certain key existing and future
personnel.
|
§
|
The
Company’s growth is dependent on its ability to successfully develop,
market, or acquire new drugs. The Company may be subject to product
liability claims in the future.
|
§
|
Changes
in the laws and regulations in the PRC may adversely affect the Company’s
ability to conduct its business.
|
§
|
The
Company may experience barriers to conducting business due to governmental
policy.
|
§
|
Capital
outflow policies in the PRC may hamper the Company’s ability to remit
income to the United States.
|
§
|
Fluctuation
of the Renminbi could materially affect the Company’s financial condition
and results of operations.
|
§
|
The
Company may face obstacles from the communist system in the
PRC.
|
§
|
The
Company may have difficulty establishing adequate management, legal and
financial controls in the PRC.
|
§
|
Trade
barriers and taxes may have an adverse affect on the Company’s business
and operations.
|
§
|
There
may not be sufficient liquidity in the market for the Company’s securities
in order for investors to sell their
securities.
|
Name
|
Position
|
Age
|
||
|
|
|||
Ronghua
Wang
|
Chairman of Board, President, CEO
|
53
|
||
|
||||
Michael
Segal
|
Director
|
64
|
||
|
||||
Qinghua
Liu
|
Director
|
41
|
||
|
||||
Haipeng
Wu
|
Director
|
51
|
||
|
||||
Xifeng
Nie
|
Director
|
53
|
||
Elaine
Lanfeng Zhao
|
Chief Financial Officer
|
35
|
||
Shuang
Gong
|
Secretary
|
40
|
||
|
||||
Amei
Zhang
|
Chief Operating Officer
|
34
|
●
|
Had
a bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that
time.
|
●
|
Been
convicted in a criminal proceeding or been subject to a pending criminal
proceeding, excluding traffic violations and other minor
offenses.
|
●
|
Been
subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking
activities.
|
●
|
Been
found by a court of competent jurisdiction (in a civil action), the SEC,
or the Commodities Futures Trading Commission to have violated a federal
or state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
|
Audit
Committee Financial Expert
|
Compensation
Committee
|
Nominating
Committee
|
Compliance
with Section 16(a) of Exchange Act
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Non-
Qualified
Deferred Compensation Earnings
($)
|
All Other
Compensation ($)
|
Total
($)
|
|||||||||||||||
Ronghua
Wang CEO, President (1)
|
2008
2007
|
8,640
8,640
|
13,000
13,000
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
21,640
21,640
|
|||||||||||||||
Elaine
Zhao CFO (2)
|
2008
2007
|
45,000
22,500
|
—
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
45,000
22,500
|
(1)
|
Mr.
Ronghua Wang was appointed our President and CEO on November 1, 2007. Mr.
Wang received the compensation set forth above from Aoxing Pharmaceutical
and he received no compensation from Biostar Pharmaceuticals, Inc. in 2007
or 2008.
|
(2)
|
Mrs.
Elaine Zhao was appointed our CFO on July 1, 2007. Mrs. Zhao received the
compensation set forth above from Biostar Pharmaceuticals,
Inc.
|
Title
of
Class
|
Name
and
Address
of
Beneficial Owner
|
Nature
of
Beneficial
Owner (1)
|
Percent of
Class (2)
|
|||||||
Common
Stock
|
Ronghua
Wang, Chairman of Board, President, CEO (3) Shiji Avenue, Xianyang City,
Shaanxi province, PRC, 712000
|
8,966,974
|
40.48
|
%
|
||||||
|
||||||||||
Common
Stock
|
Michael
Segal, Director 11 East 86th Street, Suite 19 B New York, NY
10028
|
104,400
|
0.47
|
%
|
||||||
Common
Stock
|
Qinghua
Liu, Director Shiji Avenue, Xianyang City, Shaanxi province, PRC
712000
|
3,000
|
0.01
|
%
|
||||||
|
||||||||||
Common
Stock
|
Haipeng
Wu, Director Shiji Avenue, Xianyang City, Shaanxi province, PRC
712000
|
0
|
-
|
|||||||
|
||||||||||
Common
Stock
|
Xifeng
Nie, Director Shiji Avenue, Xianyang City, Shaanxi province, PRC
712000
|
3,000
|
0.01
|
%
|
||||||
|
||||||||||
Common
Stock
|
Elaine
Lanfeng Zhao, CFO 20955 Pathfinder Road, Suite 100, Diamond Bar, CA
91765
|
3,000
|
0.01
|
%
|
||||||
Common
Stock
|
Amei
Zhang, Chief Operating Officer Shiji Avenue, Xianyang City, Shaanxi
province, PRC 712000
|
3,000
|
0.01
|
%
|
||||||
Common
Stock
|
Shuang
Gong, Secretary Shiji Avenue, Xianyang City, Shaanxi province, PRC
712000
|
3,000
|
0.01
|
%
|
||||||
Common
Stock
|
All
Directors and Officers of the Company as a group
|
9,086,374
|
41.02
|
%
|
||||||
Common
Stock
|
Yan
Wang, Shiji Avenue, Xianyang City, Shaanxi province, PRC
712000
|
1,152,897
|
5.20
|
%
|
||||||
Common
Stock
|
Rongfa
Wang, Shiji Avenue, Xianyang City, Shaanxi province, PRC
712000
|
1,152,897
|
5.20
|
%
|
||||||
Common
Stock
|
Rangmei
Wang, Shiji Avenue, Xianyang City, Shaanxi province, PRC
712000
|
1,152,897
|
5.20
|
%
|
(1)
|
As
of the date of this prospectus, none of the beneficial owners listed in
the table holds any option, warrant or other right to acquire any shares
of our common stock within 60 days.
|
(2)
|
As
of March 24, 2009, we had 23,240,899 outstanding shares of common stock.
Because none of the beneficial owners listed in the table holds any
option, warrant or other right to acquire any shares of our common within
60 days of the date of this prospectus, the calculation of percentage of
class held by each owner does not include any such
shares.
|
2008
|
2007
|
|||||||
Audit
Fees
|
$ | 76,707 | $ | 99,608 | ||||
Audit
Related Fees
|
- | - | ||||||
Tax
Fees
|
- | - | ||||||
All
Other Fees
|
- | - |
3.1
|
Articles
of Incorporation filed with the Secretary of State of the State of
Maryland on March 27, 2007. (1)
|
3.2
|
Articles
of Amendment filed with the Secretary of State of the State of Maryland on
August 1, 2007. (1)
|
3.3
|
Articles
of Amendment filed with the Secretary of State of the State of Maryland on
September 14, 2007.(1)
|
3.4
|
Bylaws
of the Company.(1)
|
4.1
|
Form
of $1.00 Common Stock Warrant.(1)
|
10.1
|
Amended
and Restated Entrusted Management Agreement, dated May 6, 2008, entered
into by and between Shaanxi Aoxing Pharmaceutical Co., Ltd its
shareholders and Shaanxi Biostar Biotech Ltd.(4)
|
10.2
|
Form
of Preferred Stock and Warrant Purchase Agreement between the Company and
the purchasers of the Series A Convertible Preferred
Stock.(1)
|
10.3
|
Form
of Amendment No. 1 to the Preferred Stock and Warrant Purchase Agreement
between the Company and the purchasers of the Series A Convertible
Preferred Stock.(1)
|
10.4
|
Exclusive
Option Agreement (the “Agreement”) by and among Shaanxi Biostar Biotech
Ltd., Wang Ronghua, Wang Yan, Wang Rongfa, Wang Rangmei, Cao Xuezhu,
Wang Yuxing, An Xiaoru, Ao Quanfang, Tang Wenying, Qin Hongxia, Wu Gang,
Wu Weiping, Bai Rong, Wu Jin and Shaanxi Aoxing Pharmaceutical Co.,
Ltd.(2)
|
10.5
|
Share
Pledge Agreement by and among Wang Ronghua, Wang
Yan, Wang Rongfa, Wang Rangmei, Cao Xuezhu, Wang Yuxing, An Xiaoru, Ao
Quanfang, Tang Wenying, Qin Hongxia, Wu Gang, Wu Weiping, Bai Rong, Wu
Jin, and Shaanxi Biostar Biotech Ltd.(2)
|
10.6
|
Shareholders’
Voting Proxy Agreement by and among Shaanxi Biostar Biotech Ltd, Wang
Ronghua, Wang Yan, Wang Rongfa, Wang Rangmei, Cao Xuezhu, Wang Yuxing, An
Xiaoru, Ao Quanfang, Tang Wenying, Qin Hongxia, Wu Gang, Wu Weiping, Bai
Rong and Wu Jin.(2)
|
10.7
|
Cooperation
Agreement between Shaanxi Aoxing Pharmaceutical Co., Ltd. and Xianyang
Material Medical Institute.(3)
|
10.8
|
Technological
Cooperation Agreement between Shaanxi Aoxing Pharmaceutical Co., Ltd. and
Shaanxi University of Science and Technology.(3)
|
10.9
|
Drug
Supply and Marketing Contract between Shaanxi Aoxing Pharmaceutical Co.,
Ltd. and Guangdong Runtai Pharmaceutical Co., Ltd.(2)
|
10.10
|
Purchase
Contract between Shaanxi Aoxing Pharmaceutical Co., Ltd. and Xi'an
Chemical Industry Medicine Supply and Marketing
Company.(2)
|
10.11
|
Labor
Contract between Shaanxi Aoxing Pharmaceutical Co., Ltd. and Shuang Gong
dated June 10, 2006.(2)
|
10.12
|
Labor
Contract between Shaanxi Aoxing Pharmaceutical Co., Ltd. and Jianmin Du
dated January 2, 2006.(2)
|
10.13
|
Labor
Contract between Shaanxi Aoxing Pharmaceutical Co., Ltd. and Ame Zhang
dated July 7, 2007.(2)
|
10.14
|
Corporate
Finance Advisory Agreement between Friedland Capital Inc. and Shaanxi
Aoxing Pharmacy Co., Ltd., dated March 8 , 2007.(2)
|
10.15
|
Entrust
Agreement for Land Acquisition.(2)
|
10.16
|
Land
use right.(2)
|
10.17
|
Purchase
Contract between Shaanxi Aoxing Pharmaceutical Co., Ltd. and Xi’an Chinese
Drug Tablet Factory.(2)
|
10.18
|
Loan
Agreement between Shaanxi Aoxing Pharmaceutical Co., Ltd and Qindu
District Rural Credit Cooperative (Fengxi Branch) dated February 13, 2008.
(3)
|
10.19
|
Technological
Cooperation Agreement between Shaanxi Aoxing Pharmaceutical Co., Ltd and
College of Life Sciences of Northwest University, dated September 10,
2006. (3)
|
10.20
|
Preliminary
Employment Agreement between Biostar Pharmaceuticals, Inc. and Elaine
Zhao, dated June 25, 2007.
|
21.1 |
List
of subsidiaries.(1)
|
31.1
|
Certification
of the Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
31.2
|
Certification
of the Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1 | Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
99.1 | Consent of Global Law Office to the use of our reference to their opinion concerning legality and enforceability of the Management Entrustment Agreement under PRC law. (4) |
99.2 | Form of BVI Trust Agreement.(4) |
(1)
|
Previously
filed as an exhibit to the Company’s Registration Statement on Form SB-2
(File No. 333-147363) filed with the SEC on November 13,
2007.
|
(2)
|
Previously
filed as an exhibit to the Company’s Registration Statement on Form S-1A
(File No. 333-147363) filed with the SEC on February 25,
2008.
|
(3)
|
Previously
filed as an exhibit to the Company’s Registration Statement on Form S-1A
(File No. 333-147363) filed with the SEC on May 9,
2008.
|
(4)
|
Previously
filed as an exhibit to the Company’s Registration Statement on Form S-1A
(File No. 333-147363) filed with the SEC on June 12,
2008.
|
BIOSTAR
PHARMACEUTICALS, INC.
|
|||
Date:
March 30, 2009
|
By:
|
/s/ Ronghua Wang | |
Ronghua Wang | |||
Chief Executive Officer, President and Director (principal executive officer) | |||
Date:
March 30, 2009
|
/s/ Elaine Zhao | ||
Elaine Zhao | |||
Chief Financial Officer and principal accounting and financial officer) |
Name
and Title
|
Date
|
|
/s/
Ronghua Wang
|
March 30,
2009
|
|
By:
Ronghua Wang
|
||
Chief
Executive Officer, President and Director
|
||
(principal
executive officer)
|
||
/s/
Elaine Zhao
|
March 30,
2009
|
|
By:
Elaine Zhao,
|
||
Chief
Financial Officer and principal
|
||
accounting
and financial officer
|
||
/s/
Qinghua Liu
|
March 30,
2009
|
|
By:
Qinghua Liu
|
||
Director
|
||
/s/
Michael Segal
|
March 30,
2009
|
|
By:
Michael Segal
|
||
Director
|
||
/s/
Haipeng Wu
|
March 30,
2009
|
|
By:
Haipeng Wu
|
||
Director
|
||
/s/
Xifeng Nie
|
March 30, 2009
|
|
By:
Xifeng Nie
|
||
Director
|