Unassociated Document
As
filed
with the Securities and Exchange Commission on February 16, 2007
Registration
No. 333 -
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-8
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
CHINA
MEDICINE CORPORATION
(Exact
name of registrant as specified in its charter)
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Delaware
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51-0539830
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|
| |
(State
or other jurisdiction of
incorporation
or organization)
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|
(I.R.S.
Employer
Identification
No.)
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24A
Jefferson Plaza, Princeton, NJ 08540
(Address
of Principal Executive Offices)
2006
Long-Term Incentive Plan
(Full
Title of Plan)
Asher
S. Levitsky P.C.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York, New York 10018
(212)
981-6767
Fax:
(212) 930-9725
(Name,
address and telephone number, including area code, of agent for
service)
Copies
to:
Mr.
Senshan Yang, Chief Executive Officer
China
Medicine Corporation
24A
Jefferson Plaza, Princeton, NJ 08540
(732)
438-8866
Fax:
(732) 438-8867
CALCULATION
OF REGISTRATION FEE
|
Title
of securities
to
be
Registered
|
Amount
to be
registered
|
Proposed
maximum
offering
price
per
unit1
|
Proposed
maximum
aggregate
offering
price1
|
Amount
of
registration
fee
|
|
Common
Stock, par value $.0001 per share
|
1,575,000
shares2
|
$1.478
|
$2,327,500
|
$249.60
|
| 1 |
Estimated
solely for the purpose of calculating the registration fee, in accordance
with Rule 457 under the Securities Act of 1933, as amended, based
on the
most recent price at which securities were sold. The fee is based
on the
exercise price of $1.25 per share with respect to outstanding options
to
purchase 1,370,000 shares of common stock, and $3.00 per share, being
the
last sale price of the common stock on the OTC Bulletin Board on
February
15, 2007, with respect to options to purchase 205,000 shares which
are
available for grant under the plan.
|
| 2 |
Pursuant
to Rule 416, there are also being registered such additional shares
of
common stock as may be required pursuant to the anti-dilution provisions
of the plan.
|
PART
I
INFORMATION
REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item
1.
Plan
Information.
The
documents containing the information specified in this Item 1 will be sent
or
given to employees, directors or other participants in the 2006 Long-Term
Incentive Plan, as specified by Rule 428(b)(1) under the Securities Act of
1933,
as amended. In accordance with the rules and regulations of the Securities
and
Exchange Commission and the instructions to Form S-8, such documents are not
being filed with the Commission either as part of this registration statement
or
as prospectuses or prospectus supplements pursuant to Rule 424 under the
Securities Act.
Item
2.
Registrant
Information and Employee Plan Annual Information.
The
documents containing the information specified in this Item 2 will be sent
or
given to employees, directors or other participants in the plan as specified
by
Rule 428(b)(1) under the Securities Act. These documents are not being filed
with the Commission either as part of this registration statement or as
prospectuses or prospectus supplements pursuant to Rule 424 under the Securities
Act.
PROSPECTUS
1,110,000
Shares
CHINA
MEDICINE CORPORATION
Common
Stock
OTCBB
Trading Symbol: CHME
The
selling stockholders may offer and sell from time to time up to an aggregate
of
1,110,000 shares of our common stock that may acquire from us pursuant to stock
options granted pursuant to our 2006 long-term incentive plan. For information
concerning the selling stockholders and the manner in which they may offer
and
sell shares of our common stock, see “Selling Stockholders” and “Plan of
Distribution” in this prospectus.
No
selling stockholder may sell, in any three month period, more than the number
of
shares which he or she could sell pursuant to Rule 144(e) of the SEC. Rule
144(e) limits sales in any three-month period to 1% of the outstanding shares
of
common stock. As of the date of this prospectus, there were 8,104,750 shares
of
common stock outstanding. Thus, none of the selling stockholders can sell more
than 81,047 shares in any three-month period. If we issue additional shares,
the
number of shares which any selling stockholder may sell during any three month
period will also increase.
We
will
not receive any proceeds from the sale by the selling stockholders of their
shares of common stock other than the exercise price of the outstanding options
if and when the options are exercised. We will pay the cost of the preparation
of this prospectus, which is estimated at $5,000.
Investing
in shares of our common stock involves a high degree of risk. You should
purchase our common stock only if you can afford to lose your entire investment.
See “Risk Factors,” which begins on page 2.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined whether this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The
selling stockholders have not engaged any underwriter in connection with the
sale of their shares of common stock.
The
date
of this Prospectus is February 16, 2007
TABLE
OF
CONTENTS
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Page
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Risk
Factors
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2
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Forward
Looking Statements
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16
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Use
of Proceeds
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16
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|
Selling
Stockholders
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16
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|
Plan
of Distribution
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17
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|
Market
for Common Stock
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19
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|
Available
Information
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19
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|
Incorporation
of Certain Documents by Reference
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20
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|
Legal
Matters
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20
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Experts
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20
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SEC
Policy on Indemnification
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20
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RISK
FACTORS
An
investment in our securities involves a high degree of risk. In determining
whether to purchase our securities, you should carefully consider all of the
material risks described below, together with the other information contained
in
this prospectus before making a decision to purchase our securities. You should
only purchase our securities if you can afford to suffer the loss of your entire
investment.
Risks
Associated with Companies Conducting Business in the PRC
Because
the scope of our business license is limited, we may need government approval
to
expand our business.
We
are a
wholly-owned foreign enterprise, commonly known as a WOFE. The scope of our
business is narrowly defined for all businesses in China and the WOFE can only
conduct business within its approved business scope, which ultimately appears
on
the business license. Our license permits us to operate as a distributor of
drugs. Any amendment to the scope of our business requires further application
and government approval. Inevitably, there is a negotiation with the authorities
to approve as broad a business scope as is permitted, and we cannot assure
you
that we will be able to obtain the necessary government approval for any change
or expansion of our business.
If
we are not be able to protect our intellectual property rights, our business
may
be impaired.
We
have
developed proprietary products, which are based on formulation and know-how
developed by us, either by ourselves or pursuant to agreements with others.
All
of our products are manufactured by others. The protection of intellectual
property in the PRC is weak, and we cannot give any assurance that we will
be
able to protect our intellectual property rights. The value of our proprietary
products, and our ability to generate revenue from these products, would be
severely impaired if we are not able to protect our rights in these
products.
If
the PRC enacts regulations which forbid or restrict foreign investment, our
ability to grow may be severely impaired.
We
intend
to expand our business both by increasing our product range and making
acquisitions of companies primarily in the pharmaceutical and related
industries. In addition, we may seek to manufacture our own products. Many
of
the rules and regulations that we would face are not explicitly communicated,
and we may be subject to rules that would affect our ability to grow, either
internally or through acquisition of other Chinese or foreign companies. There
are also substantial uncertainties regarding the proper interpretation of
current laws and regulations of the PRC. New laws or regulations that forbid
foreign investment could severely impair our businesses and prospects.
Additionally, if the relevant authorities find us in violation of PRC laws
or
regulations, they would have broad discretion in dealing with such a violation,
including, without limitation:
| • |
revoking
our business and other licenses;
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| • |
requiring
that we restructure our ownership or operations;
and
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requiring
that we discontinue any portion or all of our Internet related
business.
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Any
deterioration of political relations between the United States and the PRC
could
impair our operations.
The
relationship between the United States and the PRC is subject to sudden
fluctuation and periodic tension. Changes in political conditions in the PRC
and
changes in the state of Sino-U.S. relations are difficult to predict and could
adversely affect our operations or cause potential acquisition candidates or
their goods and services to become less attractive. Such a change could lead
to
a decline in our profitability. Any weakening of relations between the United
States and the PRC could have a material adverse effect on our
operations.
Our
operations and assets in the PRC are subject to significant political and
economic uncertainties.
Although
the government of the PRC has been pursuing economic reform policies, government
policies are subject to rapid change and the government may adopt policies
which
have the effect of hindering private economic activity and greater economic
decentralization. There is no assurance that the government of the PRC will
not
significantly alter its policies from time to time without notice in a manner
with reduces or eliminates any benefits from its present policies of economic
reform. In addition, a substantial portion of productive assets in the PRC
remains government-owned. For instance, all lands are state owned and leased
to
business entities or individuals through governmental granting of State-owned
Land Use Rights. The granting process is typically based on government policies
at the time of granting, which could be lengthy and complex. This process may
adversely affect our future expansion, especially if we seek to commence
manufacturing operations. The government of the PRC also exercises significant
control over China’s economic growth through the allocation of resources,
controlling payment of foreign currency and providing preferential treatment
to
particular industries or companies. Uncertainties may arise with changing of
governmental policies and measures. In addition, changes in laws and
regulations, or their interpretation, or the imposition of confiscatory
taxation, restrictions on currency conversion, imports and sources of supply,
devaluations of currency or the nationalization or other expropriation of
private enterprises could have a material adverse effect on our business,
results of operations and financial condition.
Price
controls may affect both our revenues and net income.
The
laws
of the PRC provide for the government to fix and adjust prices. During 2006,
some of our products became subject to price controls which affected our gross
profit, gross margin and net income for the nine months
ended September 30, 2006. It is possible that additional products may be
subject to price control. To the extent that we are subject to price control,
our revenue, gross profit, gross margin and net income will be affected since
the revenue we derive from our sales will be limited and we may face no
limitation on our costs. Further, if price controls affect both our revenue
and
our costs, our ability to be profitable and the extent of our profitability
will
be effectively subject to determination by the applicable regulatory authorities
in the PRC.
Our
operations may not develop in the same way or at the same rate as might be
expected if the PRC economy were similar to the market-oriented economies of
OECD member countries.
The
economy of the PRC has historically been a nationalistic, “planned economy,”
meaning it functions and produces according to governmental plans and pre-set
targets or quotas and price controls. We cannot predict the future direction
of
these economic reforms or the effects these measures may have. The economy
of
the PRC also differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, an international group
of
member countries sharing a commitment to democratic government and market
economy. For instance:
| • |
the
level of state-owned enterprises in the PRC, as well as the level
of
governmental control over the allocation of resources is greater
than in
most of the countries belonging to the
OECD;
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| • |
the
level of capital reinvestment is lower in the PRC than in other countries
that are members of the OECD;
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| • |
the
government of the PRC has a greater involvement in general in the
economy
and the economic structure of industries within the PRC than other
countries belonging to the OECD;
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the
government of the PRC imposes price controls on certain products
and our
products may become subject to additional price controls;
and
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| • |
the
PRC has various impediments in place that make it difficult for foreign
firms to obtain local currency, as opposed to other countries belonging
to
the OECD where exchange of currencies is generally free from
restriction.
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As
a
result of these differences, our business may not develop in the same way or
at
the same rate as might be expected if the economy of the PRC were similar to
those of the OECD member countries.
Because
our directors and some of our officers reside outside of the United States,
it
may be difficult for you to enforce your rights against them or enforce United
States court judgments against them in the PRC.
Our
directors and our senior executive officers, including our chief executive
officer and chief financial officer, reside in the PRC and substantially all
of
our assets are located in the PRC. It may therefore be difficult for United
States investors to enforce their legal rights, to effect service of process
upon our directors or officers or to enforce judgments of United States courts
predicated upon civil liabilities and criminal penalties of our directors and
officers under federal securities laws. Further, it is unclear if extradition
treaties now in effect between the United States and the PRC would permit
effective enforcement of criminal penalties of the federal securities
laws.
We
may have limited legal recourse under Chinese law if disputes arise under
contracts with third parties.
Almost
all of our agreements with our employees and third parties, including our
supplier and customers, are governed by the laws of the PRC. The legal system
in
the PRC is a civil law system based on written statutes. Unlike common law
systems, such as we have in the United States, it is a system in which decided
legal cases have little precedential value. The government of the PRC has
enacted some laws and regulations dealing with matters such as corporate
organization and governance, foreign investment, commerce, taxation and trade.
However, their experience in implementing, interpreting and enforcing these
laws
and regulations is limited, and our ability to enforce commercial claims or
to
resolve commercial disputes is unpredictable. The resolution of these matters
may be subject to the exercise of considerable discretion by agencies of the
PRC, and forces unrelated to the legal merits of a particular matter or dispute
may influence their determination. Any rights we may have to specific
performance or to seek an injunction under Chinese law are severely limited,
and
without a means of recourse by virtue of the Chinese legal system, we may be
unable to prevent these situations from occurring. The occurrence of any such
events could have a material adverse effect on our business, financial condition
and results of operations.
Because
we may not be able to obtain business insurance in the PRC, we may not be
protected from risks that are customarily covered by insurance in the United
States.
Business
insurance is not readily available in the PRC. To the extent that we suffer
a
loss of a type which would normally be covered by insurance in the United
States, such as product liability and general liability insurance, we would
incur significant expenses in both defending any action and in paying any claims
that result from a settlement or judgment. Since our products are taken as
medicine, any damages which we sustain could be material to our assets and
earnings. If the nature or amount of any uninsured loss is significant, we
may
be unable to continue in business.
Because
our funds are held in banks which do not provide insurance, the failure of
any
bank in which we deposit our funds could affect our ability to continue in
business.
Banks
and
other financial institutions in the PRC do not provide insurance for funds
held
on deposit. As a result, in the event of a bank failure, we may not have access
to funds on deposit. Depending upon the amount of money we maintain in a bank
that fails, our inability to have access to our cash could impair our
operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue in business.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject
us
to penalties and other adverse consequences.
We
are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Foreign companies, including some that may compete with us, are not
subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices occur from time-to-time in the PRC. We can make
no assurance, however, that our employees or other agents will not engage in
such conduct for which we might be held responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse effect on
our
business, financial condition and results of operations.
If
the United States imposes trade sanctions on the PRC due to its current
currency, export or other policies, our ability to succeed in the international
markets may be diminished.
The
PRC
currently “pegs” its currency to a basket of currencies, including United States
dollar. This means that each unit of Chinese currency has a set ratio for which
it may be exchanged for United States currency, as opposed to having a floating
value like other countries’ currencies. This policy is currently under review by
policy makers in the United States. Trade groups in the United States have
blamed the cheap value of the Chinese currency for causing job losses in
American factories, giving exporters an unfair advantage and making its imports
expensive. There is increasing pressure for the PRC to change its currency
policies to provide for its currency to float freely on international markets.
As a result, Congress is considering the enacting legislation which could result
in the imposition of quotas and tariffs. If the PRC changes its existing
currency policies or if the United States or other countries enact laws to
penalize the PRC for its existing currency policies, our business may be
adversely affected, even though we do not sell outside of the PRC. Further,
we
cannot predict what action the PRC may take in the event that the United States
imposes tariffs, quotas or other sanctions on Chinese products. Even though
we
do not sell products into the United States market, it is possible that such
action by the PRC may nonetheless affect our business since we are a United
States company, although we cannot predict the nature or extent
thereof.
Exchange
controls that exist in the PRC may limit our ability to utilize our cash flow
effectively.
We
are
subject to the PRC’s rules and regulations on currency conversion. Although, as
a WOFE, we are permitted to convert Chinese currency, the Renminbi (People’s
currency) into United States dollars for remittance to our United States parent,
we cannot assure you that we will continue to have government approval to remit
United States dollars to our United States parent. Any restrictions on currency
exchanges may limit our ability to use our cash flow for the distribution of
dividends to our stockholders or to fund operations we may have outside of
the
PRC. Conversion of Renminbi for capital account items, including direct
investment and loans, is subject to governmental approval in the PRC, and
companies are required to open and maintain separate foreign exchange accounts
for capital account items. We cannot be certain that the regulatory authorities
of the PRC will not impose more stringent restrictions on the convertibility
of
the Renminbi, especially with respect to foreign exchange
transactions.
Fluctuations
in the exchange rate could have a material adverse effect upon our
business.
We
conduct our business in the Renminbi. To the extent our future revenue are
denominated in currencies other the United States dollars, we would be subject
to increased risks relating to foreign currency exchange rate fluctuations
which
could have a material adverse affect on our financial condition and operating
results since our operating results are reported in United States dollars and
significant changes in the exchange rate could materially impact our reported
earnings.
A
downturn in the economy of the PRC may slow our growth and
profitability.
The
growth of the Chinese economy has been uneven across geographic regions and
economic sectors. There can be no assurance that growth of the Chinese economy
will be steady or that any downturn will not have a negative effect on our
business especially if it results in either a decreased use of products such
as
ours or in pressure on us to lower our prices.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, such as bird flu, could adversely affect our
business.
A
renewed
outbreak of SARS or another widespread public health problem, including bird
flu, in China, where all of our revenues are derived, could have a negative
effect on our operations. Our operations may be impacted by a number of
health-related factors, including the following:
| • |
quarantines
or closures of some of our offices which would severely disrupt our
operations,
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| • |
the
sickness or death of our key officers and employees,
and
|
| • |
a
general slowdown in the economy of the
PRC.
|
Any
of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our business and results of operations.
If
certain tax exemptions within the PRC regarding withholding taxes are removed,
we may be required to deduct corporate withholding taxes from any dividends
we
may pay in the future.
Under
the
PRC’s current tax laws, regulations and rulings, companies are exempt from
paying withholding taxes with respect dividends paid to stockholders outside
of
the PRC. However, if the foregoing exemption is removed, we may be required
to
deduct certain amounts from any dividends we pay to our
stockholders.
Risks
Associated with our Business
Because
we are dependent upon a small number of suppliers or customers, the loss of
a
major supplier or customer could impair our ability to operate
profitably.
Our
five
largest suppliers accounted for 63% of our purchases in the nine months ended
September 30, 2006 and 74% of our purchases in each of the years ended December
31, 2005 and 2004 and. Our
five
largest customers accounted for 52%
of our
revenue in the nine months ended September 30, 2006, 88%
of
our revenue for the year ended December 31, 2005 and 37% of our revenue for
the
year ended December 31, 2004. Our agreements with our suppliers and customers
generally have a term of not more than one year. None of our supply agreements
has any minimum purchase requirements on our part. Our contracts with our
customers do not provide for minimum purchases, and our customers are not
restricted from purchasing competitive products from others. As a result, the
loss of any significant supplier or customer could materially impair our ability
to operate profitably.
Because
a significant portion of the accounts receivable are generated by a small number
of customers, the failure of one of these customers could impair our financial
condition.
Because
a
substantial portion of our sales are made to a small number of customers, our
accounts receivable from a small number of customers may represent a large
percentage of our accounts receivable and assets. Our largest account receivable
at September 30, 2006 was $706,000, representing 5.5% of our total assets and
7.1% of our working capital, and our three largest accounts receivable were
approximately $1.3 million, representing 9.8% of our total assets and 12.7%
of
our working capital. This concentration of accounts receivable represents a
significant credit risk. The failure of any of these customers to pay their
obligations to us in a timely manner could have a material adverse effect upon
our financial condition.
Because
of the long period that our receivables are outstanding and the payment
requirements of our suppliers, we may require additional cash for our business,
regardless of whether our sales increase.
The
collection period for our accounts receivable typically range from three months
to one year, and we are required to pay our suppliers in advance for a
significant portion of the purchase price and we have to maintain deposits
with
some of our suppliers. Further, it generally takes our suppliers one to two
months to deliver products pursuant to our purchase orders. As a result, our
business is very cash intensive. We do not have an account receivable or
inventory based credit facility. To the extent that we continue to experience
a
long collection period and our suppliers require advance payments, we may not
have sufficient cash to enable us to carry our receivable and pay our suppliers.
To the extent that we cannot satisfy our cash needs, whether from operations
or
from a financing source, our business would be impaired in that it may be
difficult for us to obtain products which could, in turn, impair our ability
to
generate sales.
We
may face liability claims from users of our products.
As
the
distributor of drugs and other medical products, we may be subject both to
liability in the event that people who use our products suffer side effects
for
the use of our products and to any government requirement that we recall one
or
more of our products, either of which could result in expenses that could result
of our inability to operate profitably.
We
have significant financial commitment under a joint venture agreement with
no
assurance that a marketable product can or will be
developed.
Pursuant
to a July 2006 agreement, we have a funding obligation of approximately $2.2
million, of which $625,000 has been paid and the balance is payable over a
two
year period, pursuant to a research and development joint venture agreement.
Pursuant to this agreement, we are committing significant funding to the project
with no assurance that we will develop a marketable product or that even if
it
is marketable, that it will be profitable. We may enter into other research
and
development agreements in the future in which we undertake funding obligations
with no assurance that a profitable product will be developed.
The
increased expenses resulting from our status as a public company may impair
our
ability to operate profitably.
As
a
result of the reverse acquisition, our ongoing expenses have increased
significantly, including expenses in compensation to our officers, additional
expenses relating to the anticipated hiring of a chief financial officer who
is
familiar with United States GAAP, ongoing public company expenses, including
increased legal and accounting expenses as a result of our status as a reporting
company and the requirement that we register the shares of common stock covered
by this prospectus, expenses incurred in complying with the internal controls
requirements of the Sarbanes-Oxley Act, and obligations incurred in connection
with the reverse acquisition. Our failure to generate sufficient revenue and
gross profit could result in reduced profits of losses as a result of the
additional expenses.
Because
we are dependent on our management, the loss of key executive officers or a
key
consultant and the failure to hire additional qualified key personnel could
harm
our business.
Our
business is largely dependent upon the continued efforts of our chief executive
officer, Senshan Yang, and our executive vice president, Minhua Liu, both of
whom are also directors. We do not have a long-term contract with any of our
officers except other than Ms. Liu. The loss of either of these officers could
have a material adverse effect upon our ability to operate profitably.
We
may not be able to continue to grow through
acquisitions.
An
important part of our growth strategy is to expand our business and to acquire
other businesses. Such acquisitions may be made with cash or our securities
or a
combination of cash and securities. If our stock price is less than the exercise
price of the outstanding warrants, it is not likely that that warrants will
be
exercised. To the extent that we require cash, we may have to borrow the funds
or sell equity securities. The issuance of equity, if available, would result
in
dilution to our stockholders. We have no commitments from any financing source
and we may not be able to raise any cash necessary to complete an acquisition.
If we fail to make any acquisitions, our future growth may be limited. As of
the
date of this prospectus, we do not have any agreement or understanding, either
formal or informal, as to any acquisition. Further, any acquisition may be
subject to government regulations and approval in the PRC.
If
we make any acquisitions, they may disrupt or have a negative impact on our
business.
If
we
make acquisitions, we could have difficulty integrating the acquired companies’
personnel and operations with our own. In addition, the key personnel of the
acquired business may not be willing to work for us. We cannot predict the
effect that expansion may have on our core business. Acquisitions are
accompanied by a number of inherent risks, including, without limitation, the
following:
| • |
the
difficulty of integrating acquired products, services or
operations;
|
| • |
the
potential disruption of the ongoing businesses and distraction of
our
management and the management of acquired companies;
|
| • |
the
difficulty of incorporating acquired rights or products into our
existing
business;
|
| • |
difficulties
in disposing of the excess or idle facilities of an acquired company
or
business and expenses in maintaining such facilities;
|
| • |
difficulties
in maintaining uniform standards, controls, procedures and policies;
|
| • |
the
potential impairment of relationships with employees and customers
as a
result of any integration of new management
personnel;
|
| • |
the
potential inability or failure to achieve additional sales and enhance
our
customer base through cross-marketing of the products to new and
existing
customers;
|
| • |
the
effect of any government regulations which relate to the business
acquired;
|
| • |
potential
unknown liabilities associated with acquired businesses or product
lines,
or the need to spend significant amounts to retool, reposition or
modify
the marketing and sales of acquired products or the defense of any
litigation, whether of not successful, resulting from actions of
the
acquired company prior to our acquisition.
|
Our
business could be severely impaired if and to the extent that we are unable
to
succeed in addressing any of these risks or other problems encountered in
connection with these acquisitions, many of which cannot be presently
identified, these risks and problems could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations.
Our
operating results in future periods may vary from quarter to quarter, and,
as a
result, we may fail to meet the expectations of our investors and analysts,
which may cause our stock price to fluctuate or
decline.
Our
revenue and operating results have fluctuated from quarter to quarter
significantly in the past. We expect that fluctuations in both revenue and
net
income will continue due to a variety of factors, many of which are outside
of
our control, and include factors which are described in these Risk Factors,
including the needs of our customers, competitive products offered by others,
consumer preferences for medical products and the extent of our research and
development activities. Due to the risks discussed in this prospectus, you
should not rely on period-to-period comparisons of our results of operations
as
an indication of future performance.
Certain
of our stockholders control a significant amount of our common
stock.
Approximately
80.6% of our outstanding common stock is owned by the former owners of Konzern.
Senshan Yang, our chief executive officer and a director, owns 40.3% of our
stock, Minhua Liu, our executive vice president and a director, owns 32.2%,
and
Junhua Liu, the brother of Minhua Liu, owns 8.1%. They presently have the voting
power to elect all of the directors and approve any transaction requiring
stockholder approval and can take action by stockholder consent without a
stockholders’ meeting.
Efforts
to comply with recently enacted changes in securities laws and regulations
will
increase our costs and require additional management resources, and we still
may
fail to comply.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted
rules
requiring public companies to include a report of management on the company’s
internal controls over financial reporting in their annual reports on Form
10-KSB. In addition, the public accounting firm auditing the company’s financial
statements must attest to and report on management’s assessment of the
effectiveness of the company’s internal controls over financial reporting. These
requirements are not presently applicable to us. If and when these regulations
become applicable to us, and if we are unable to conclude that we have effective
internal controls over financial reporting or if our independent auditors are
unable to provide us with an unqualified report as to the effectiveness of
our
internal controls over financial reporting as required by Section 404 of the
Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability
of our financial statements, which could result in a decrease in the value
of
our securities. We have not yet begun a formal process to evaluate our internal
controls over financial reporting. Given the status of our efforts, coupled
with
the fact that guidance from regulatory authorities in the area of internal
controls continues to evolve, substantial uncertainty exists regarding our
ability to comply by applicable deadlines.
The
terms on which we may raise additional capital may result in significant
dilution and may impair our stock price.
Because
of both the limited nature of the public market for our common stock, the terms
of our February 2006 private placement and the number of outstanding warrants
and the exercise price and other terms on which we may issue common stock upon
exercise of the warrants, it may be difficult for us to raise additional capital
if required for our present business and for any planned expansion. We cannot
assure you that we will be able to get additional financing on any terms, and,
if we are able to raise funds, it may be necessary for us to sell our securities
at a price which is at a significant discount from the market price and on
other
terms which may be disadvantageous to us. In connection with any such financing,
we may be required to provide registration rights to the investors and pay
damages to the investor in the event that the registration statement is not
filed or declared effective by specified dates. The price and terms of any
financing which would be available to us could result in both the issuance
of a
significant number of shares and significant downward pressure on our stock
price and could result in an increase in the number of shares of common stock
issuable upon conversion of our series A preferred stock. At present, each
share
of series A preferred stock is convertible into one share of common
stock.
If
we fail to achieve certain financial results, we will be required to issue
more
shares of common stock upon conversion of the series A preferred stock or
exercise of the warrants.
Both
the
series A preferred stock and the warrants issued in the February 2006 private
placement have anti-dilution provisions which increase the number of shares
issuable upon conversion of the series A preferred stock and reduce the exercise
price of the warrants if we issue common stock at a price which is less than
the
conversion price of the series A preferred stock or the exercise price of the
warrants or if we fail to meet full-diluted net income per share targets set
forth in the purchase agreement. The target for pre-tax income for 2006 is
$.40
per share, representing an increase of $.103 per share more than the pre-tax
income, computed as provided in the purchase agreement. If this adjustment
is
triggered, the investors in the February 2006 private placement will receive,
on
such exercise or conversion, a larger number of shares of common stock, which
will increase their percentage interest in our stock. We cannot assure you
that
there will not be such an adjustment. The maximum adjustment would result in
(i)
the issuance of 3,120,000 additional shares of common stock upon conversion
of
the series A preferred stock, thereby increasing the total number of shares
of
common stock issuable upon such conversion from 3,120,000 shares to 6,240,000
shares, (ii) a reduction of the exercise price of the $1.75 warrant from $1.75
to $.875, and (iii) a reduction in the exercise price of the $2.50 warrant
from
$2.50 to $1.25.
We
may be required to pay liquidated damages if we do not maintain a board
consisting of a majority of independent directors and because of delays in
the
effectiveness of a registration statement for the investors in our February
2006
private placement.
The
purchase agreement relating to the February 2006 private placement requires
us
to maintain a board of directors on which a majority of directors are
independent directors and an audit committee composed solely of independent
directors and the compensation committee with a majority of independent
directors. Our failure to continue to meet these requirements could result
in
our payment of liquidated damages that could be payable in cash or by the
issuance of additional shares of series A preferred stock, as the investors
shall determine.
Our
agreement with the investors in the February 2006 private placement required
us
to meet certain deadlines for filing a registration statement covering the
shares of common stock issuable upon conversion of the series A preferred stock
or exercise of the warrants issued in the private placement. As of the date
of
this prospectus we have reserved a $44,003 liability, representing an estimate
of the value of the shares which we may be required to issue, however, as of
the
date of this prospectus, we have not issued any shares.
Risks
Associated with Investing in our Common Stock
There
is only a limited trading market for our common stock.
Although
our common stock is registered pursuant to the Securities Exchange Act of 1934,
there is only a limited market for our common stock and we cannot give any
assurance that there will ever be a significant market for our common stock.
There is a significant risk that our stock price may fluctuate dramatically
in
the future in response to any of the following factors, some of which are beyond
our control:
| • |
variations
in our quarterly operating results;
|
| • |
announcements
that our revenue or income are below analysts’
expectations;
|
| • |
general
economic slowdowns;
|
| • |
matters
affecting the economy of the PRC and the relationship between the
United
States and the PRC;
|
| • |
changes
in market valuations of both similar companies and companies whose
business is primarily or exclusively in the
PRC;
|
| • |
sales
of large blocks of our common
stock;
|
| • |
announcements
by us or our competitors of significant contracts, acquisitions,
strategic
partnerships, joint ventures or capital
commitments;
|
| • |
fluctuations
in stock market prices and volumes, which are particularly common
among
highly volatile securities of internationally-based
companies.
|
| • |
concern
by potential investors that the large number of shares of common
stock
which may be sold pursuant to this prospectus may have a downward
effect
upon the market price of the stock.
|
| • |
the
effect of sales pursuant to this prospectus on the trading volume
of our
common stock.
|
The
rights of the holders of common stock may be impaired by the potential issuance
of preferred stock.
Our
certificate of incorporation gives our board of directors the right to create
new series of preferred stock. As a result, the board of directors has and
in
the future may, without stockholder approval, issue preferred stock with voting,
dividend, conversion, liquidation or other rights which could adversely affect
the voting power and equity interest of the holders of common stock. Preferred
stock, which could be issued with the right to more than one vote per share,
could be utilized as a method of discouraging, delaying or preventing a change
of control. The possible impact on takeover attempts could adversely affect
the
price of our common stock. Although we have no present intention to issue any
additional shares of preferred stock or to create any new series of preferred
stock and the certificate of designation relating to the series A restricts
our
ability to issue additional series of preferred stock, we may issue such shares
in the future.
Shares
may be issued pursuant to our stock plans which may affect the market price
of
our common stock.
We
may
issue stock upon the exercise of options or pursuant to stock grants covering
a
total of 1,575,000 shares of common stock pursuant to our 2006 long-term
incentive plan, under which options to purchase 1,370,000 shares of common
stock
at $1.25 per share are outstanding. The exercise of these options and the sale
of the underlying shares of common stock and the sale of stock issued pursuant
to stock grants may have an adverse effect upon the price of our stock. If
we
issue all of the shares of common stock issuable pursuant to the plan, these
shares will represent approximately 16.3% of the outstanding common stock,
based
on the presently outstanding shares of common stock.
Because
we are not subject to compliance with rules requiring the adoption of certain
corporate governance measures, our stockholders have limited protections against
interested director transactions, conflicts of interest and similar
matters.
The
Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by
the
SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market
as a
result of Sarbanes-Oxley require the implementation of various measures relating
to corporate governance. These measures are designed to enhance the integrity
of
corporate management and the securities markets and apply to securities which
are listed on those exchanges or the Nasdaq Stock Market. Because we are not
presently required to comply with many of the corporate governance provisions
and because we chose to avoid incurring the substantial additional costs
associated with such compliance any sooner than necessary, we have not yet
adopted all of these measures. We also are not in compliance with requirements
relating to the distribution of annual and interim reports, the holding of
stockholders meetings and solicitation of proxies for such meeting and
requirements for stockholder approval for certain corporate actions. Until
we
comply with such corporate governance measures, regardless of whether such
compliance is required, the absence of such standards of corporate governance
may leave our stockholders without protections against interested director
transactions, conflicts of interest and similar matters and investors may be
reluctant to provide us with funds necessary to expand our
operations.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business and operating results and stockholders could lose confidence in our
financial reporting.
Effective
internal controls are necessary for us to provide reliable financial reports
and
effectively prevent fraud. If we cannot provide reliable financial reports
or
prevent fraud, our operating results could be harmed. We may be required to
document and test our internal control procedures in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act, which requires increased
control over financial reporting requirements, including annual management
assessments of the effectiveness of such internal controls and a report by
our
independent certified public accounting firm addressing these assessments.
Failure to achieve and maintain an effective internal control environment,
regardless of whether we are required to maintain such controls, could also
cause investors to lose confidence in our reported financial information, which
could have a material adverse effect on our stock price.
Because
of our cash requirements and restrictions in our preferred stock purchase
agreement we may be unable to pay dividends.
We
expect
to retain any earnings to finance the growth of our business. Further, we are
prohibited from paying dividends on our common stock while the series A
preferred stock is outstanding.
Because
we are subject to the “penny stock” rules, you may have difficulty in selling
our common stock.
Our
stock
is subject to the SEC’s penny stock rules, which impose additional sales
practice requirements and restrictions on broker-dealers that sell our stock
to
persons other than established customers and institutional accredited investors.
The application of these rules may affect the ability of broker-dealers to
sell
our common stock and may affect your ability to sell any common stock you may
own.
According
to the SEC, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
| • |
Control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer;
|
| • |
Manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press releases;
|
| • |
“Boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
| • |
Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
| • |
The
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the
inevitable collapse of those prices with consequent investor
losses.
|
As
an issuer of “penny stock” the protection provided by the federal securities
laws relating to forward looking statements does not apply to
us.
Although
the federal securities law provide a safe harbor for forward-looking statements
made by a public company that files reports under the federal securities laws,
this safe harbor is not available to issuers of penny stocks. As a result,
if we
are a penny stock we will not have the benefit of this safe harbor protection
in
the event of any claim based upon the material provided by us contained a
material misstatement of fact or was misleading in any material respect because
of our failure to include any statements necessary to make the statements not
misleading.
Fluctuations
in our operating results and announcements and developments concerning our
business affect our stock price.
The
success of our business is based upon our ability to offer products to meet
the
perceived medical needs in China. To this end, we market a broad range of
existing products and are engaged in the development of new products. Further,
we may also establish our own manufacturing facilities. Our major customers
are
wholesale drug companies. Our operating results are subject to numerous factors,
including purchasing policies and requirements of our customers, our research
and development and product development activities, the effects of price
controls on our revenues and costs, and any expenses and capital expenditure
which we incur in manufacturing products. These factors, along with other
factors described under “Risk Factors” may affect our operating results and may
result in fluctuations in our quarterly results all of which could affect our
stock price or could result in volatility in our stock price.
Our
stock price may be affected by our failure to meet projections and estimates
of
earnings developed either by us or by independent securities
analysts.
Although
we do not make projections relating to our future operating results, our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would likely
be
materially adversely affected.
The
registration and potential sale by our stockholders of a significant number
of
shares could encourage short sales by third parties.
There
may
be significant downward pressure on our stock price caused by the sale or
potential sale of a significant number of shares pursuant to this prospectus
and
pursuant to a prospectus relating to the sale by the investors in our February
2006 private placement of the shares of common stock issuable upon conversion
of
the series A preferred stock and exercise of the warrants issued in the February
2006 private placement, which could allow short sellers of our stock an
opportunity to take advantage of any decrease in the value of our stock. The
presence of short sellers in our common stock may further depress the price
of
our common stock.
Because
the purchasers of our series A preferred stock have a right of first refusal
for
future offering of our stock, we may have difficulty in raising additional
funds
if required for our business.
The
investors in our February 2006 private placement, have the right to participate
in any future funding. These provisions may prevent us from raising additional
funds.
If
the holders of our warrants exercise cashless exercise rights, we may not
receive proceeds from the exercise of the outstanding warrants if the underlying
shares are not registered.
The
holders of the warrants issued in the February 2006 private placement cashless
exercise rights, which provide them with the ability to receive common stock
with a value equal to the appreciation in the stock price over the exercise
price of the warrants being exercised. This right is not exercisable during
the
first twelve months that the warrants are outstanding and thereafter if the
underlying shares are subject to an effective registration statement. To the
extent that the holders of the warrants have the right to make a cashless
exercise of their warrants and they exercise this right, we will not receive
proceeds from such exercise.
The
issuance and sale of the common stock upon exercise of our outstanding warrants
and conversion of our outstanding preferred stock result in a change of
control.
If
we
issue all of the 10,609,476 shares issuable upon conversion of our series A
preferred stock and exercise of the warrants issued in our February 2006 private
placement, the 10,609,476 shares of common stock offered by the selling
stockholders would constitute 53% of our then outstanding common stock, based
on
the presently outstanding common stock. The percentage would increase to the
extent that we are required to issue any additional shares of common stock
become upon conversion of the series A preferred stock pursuant to the
anti-dilution and adjustment provisions. Any sale of all or a significant
percentage of those shares to a person or group could result in a change of
control.
FORWARD-LOOKING
STATEMENTS
Statements
in this prospectus may be “forward-looking statements.” Forward-looking
statements include, but are not limited to, statements that express our
intentions, beliefs, expectations, strategies, predictions or any other
statements relating to our future activities or other future events or
conditions. These statements are based on current expectations, estimates and
projections about our business based, in part, on assumptions made by
management. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may, and are likely to, differ materially
from what is expressed or forecasted in the forward-looking statements due
to
numerous factors, including those described above and those risks discussed
from
time to time in this prospectus, including the risks described under “Risk
Factors,” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in this prospectus and in other documents which we file
with the Securities and Exchange Commission. In addition, such statements could
be affected by risks and uncertainties related to product demand, our ability
to
develop, obtain rights to or acquire new products and successfully market the
products, market and customer acceptance, our ability to raise any financing
which we may require for our operations, competition, government regulations
and
requirements, particularly regulations and policies affecting the relationship
between the United State and the PRC, pricing and development difficulties,
our
ability to make acquisitions and successfully integrate those acquisitions
with
our business, as well as general industry and market conditions and growth
rates, and general economic conditions. Any forward-looking statements speak
only as of the date on which they are made, and we do not undertake any
obligation to update any forward-looking statement to reflect events or
circumstances after the date of this prospectus.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of the shares. If, and to the extent
that, options are exercised, we will receive the exercise price of the
options.
SELLING
STOCKHOLDERS
The
following table and discussion sets forth:
| · |
the
name of each selling stockholder,
|
| · |
the
nature of any position, office or other material relationship, if
any,
which the selling stockholder has had with us or any of our affiliates
within the last three years,
|
| · |
the
number of shares of common stock beneficially owned by each selling
stockholder as of December 31,
2006;
|
| · |
the
number of shares of common stock offered for each selling stockholder’s
account, and
|
| · |
the
percentage owned by each selling stockholder after completion of
the
offering.
|
|
Selling
Stockholder
|
|
Shares
of Common Stock Beneficially Owned Prior
to
Offering
|
|
Shares
of Common Stock Offered by Selling Stockholder
|
|
Shares
of Common Stock Owned
After
Offering
|
|
Percentage
Owned After Offering
|
|
|
Meiyi
Xia
|
|
|
720,000
|
|
|
570,000
|
|
|
150,000
|
|
|
1.8
|
%
|
|
Lin
Li
|
|
|
487,500
|
|
|
450,000
|
|
|
37,500
|
|
|
*
|
|
|
Robert
Adler
|
|
|
30,000
|
|
|
30,000
|
|
|
-0-
|
|
|
-0-
|
|
|
Rachel
Gong
|
|
|
30,000
|
|
|
30,000
|
|
|
-0-
|
|
|
-0-
|
|
|
Yanfang
Chen
|
|
|
30,000
|
|
|
30,000
|
|
|
-0-
|
|
|
-0-
|
|
* Less
than
1%
The
shares offered by the selling stockholders represent shares of common stock
issuable upon exercise of options granted pursuant to the 2006 long-term
incentive plan, regardless of whether the options are currently
exercisable.
Ms.
Meiyi
Xia has been vice president since March 22, 2006, having served as our president
and from February 7, 2006 until March 21, 2006, and a director from February
7
through February 10, 2006. We granted Ms. Xia options to purchase 570,000 shares
of common stock at $1.25 per share pursuant to the plan. In February 2006,
we
also issued 150,000 shares of common stock to Ms. Xia for services
rendered.
Ms.
Lin
Li has been vice president and secretary since February 8, 2006. We granted
Ms.
Li options to purchase 450,000 shares of common stock at $1.25 per share
pursuant to the plan. In February 2006, we also issued 37,500 shares of common
stock to Ms. Li for services rendered.
Mr.
Robert Adler, Ms. Rachel Gong and Dr. Yanfang Chen were elected as directors
on
May 9, 2006. The plan provides that each independent director receives an option
to purchase 30,000 shares of common stock on the date of his or her initial
election. Pursuant to this provision, each of these directors received an
automatic grant of an option to purchase 30,000 shares of common stock at $1.25
per share on May 9, 2006.
PLAN
OF DISTRIBUTION
The
options held by the selling stockholders may only be exercised by them or,
in
the event of their death or legal incompetence, by their legal representative.
The selling stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock issued upon exercise of the options on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions or by gift. These sales may be made at fixed or negotiated prices.
The selling stockholders may use any one or more of the following methods when
selling or otherwise transferring shares:
| • |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| • |
block
trades in which a 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;
|
| • |
sales
to a broker-dealer as principal and the resale by the broker-dealer
of the
shares for its account;
|
| • |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| • |
privately
negotiated transactions, including
gifts;
|
| • |
covering
short sales made after the date of this
prospectus.
|
| • |
pursuant
to an arrangement or agreement with a broker-dealer to sell a specified
number of such shares at a stipulated price per
share;
|
| • |
a
combination of any such methods of sale;
and
|
| • |
any
other method of sale permitted pursuant to applicable:
law.
|
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.
A
selling
stockholder may from time to time pledge or grant a security interest in some
or
all of the shares or common stock or warrant owned by them and, if the selling
stockholder defaults in the performance of the secured obligations, the pledgees
or secured parties may offer and sell the 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 pledgees, transferees or other
successors in interest as selling stockholders under this
prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions which may in turn engage in short sales of our common
stock in the course of hedging the positions they assume. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
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.
No
selling stockholder may sell, in any three month period, more than the number
of
shares which he or she could sell pursuant to Rule 144(e) of the SEC. Rule
144(e) limits sales in any three-month period to 1% of the outstanding shares
of
common stock. As of the date of this prospectus, there were 8,104,750 shares
of
common stock outstanding. Thus, none of the selling stockholders can sell more
than 81,047 shares of common stock in any three-month period. If we issue
additional shares, the number of shares which any selling stockholder may sell
during any three month period will also increase.
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. The selling stockholders have informed
us
that they do not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock. To the extent that the selling
stockholders may be deemed to be “underwriters” within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements
of
the Securities Act. Federal securities laws, including Regulation M, may
restrict the timing of purchases and sales of our common stock by the selling
stockholders and any other persons who are involved in the distribution of
the
shares of common stock pursuant to this prospectus.
MARKET
FOR COMMON STOCK
Our
common stock has been quoted on the OTC Bulletin Board under the symbol CHME
since December 14, 2006. During the period from December 14, 2006 until February
2, 2007, the high bid price was $3.66 and the low bid price was $2.75, as quoted
by the Bloomberg. Such quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not represent actual
transactions.
On
February 5, 2007, the closing bid price of our common stock was $3.30 per
share.
As
of
January 31, 2007, we had approximately 53 record holders of our common
stock.
We
have
not paid dividends on our common stock, and the terms of certificate of
designation relating to the creation of the series A preferred stock prohibit
us
from paying dividends. We plan to retain future earnings, if any, for use in
our
business. We do not anticipate paying dividends on our common stock in the
foreseeable future.
AVAILABLE
INFORMATION
We
file
annual, quarter and periodic reports, proxy statements and other information
with the Securities and Exchange Commission using the Commission’s EDGAR system.
You may inspect these documents and copy information from them at the
Commission’s public reference room at 100 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference
room
by calling the SEC at 1-800-SEC-0330. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http//www.sec.gov.
We
have
filed a registration statement with the Commission relating to the offering
of
the shares. The registration statement contains information which is not
included in this prospectus. You may inspect or copy the registration statement
at the Commission’s public reference facilities or its website.
We
furnish our stockholders with annual reports containing audited financial
statements and with such other periodic reports as we from time to time deems
appropriate or as may be required by law. We use the calendar year as our fiscal
year.
You
should rely only on the information contained in this prospectus and the
information that we have referred you to. We have not authorized any person
to
provide you with any information that is different.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
We
have
filed the following documents with the Commission. We are incorporating these
documents in this prospectus, and they are a part of this
prospectus.
(1)
Our
annual report on Form 10-KSB for the year ended December 31, 2005;
(2)
Our
quarterly report on Form 10-QSB for the quarter ended September 30,
2006;
(3)
Our
information statement dated April 26, 2004;
(4)
All
other reports filed by the Company pursuant to Section 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), since December
31, 2005; and
(5)
The
description of the Company’s common stock contained in the Company’s
Registration Statement on Form 10-SB/A, which was filed with the Commission
on
July 14, 2005.
We
are
also incorporating by reference in this prospectus all documents which we file
pursuant to Section 13(a), 13(c), 14 or 15 of the Exchange Act after the date
of
this prospectus. Such documents are incorporated by reference in this prospectus
and are a part this prospectus from the date we file the documents with the
Commission.
If
we
file any document with the Commission that contains information which is
different from the information contained in this prospectus, you may rely only
on the most recent information which we have filed with the
Commission.
We
will
provide a copy of the documents referred to above without charge if you request
the information from us. However, we may charge you for the cost of providing
any exhibits to any of these documents unless we specifically incorporate the
exhibits in this prospectus. You should contact Ms. Lin Li, Vice President
and
Secretary, China Medicine Corporation, 24A Jefferson Plaza, Princeton, NJ 8540,
telephone (732)
438-8866,
if you
wish to receive any of such material.
LEGAL
MATTERS
The
validity of the common stock offered hereby has been passed upon by our counsel,
Sichenzia Ross Friedman Ference, LLP. Asher S. Levitsky, who, through Asher
S.
Levitsky P.C., is of counsel to Sichenzia Ross Friedman Ference, LLP, holds
options to purchase 40,000 shares of our common stock.
EXPERTS
The
financial statements of China Medicine Corporation at December 31, 2005 and
for
the two years in the period then ended, incorporated by reference in this
prospectus, to the extent and for the periods indicated in its report, have
been
audited by Moore Stephens Wurth Frazer and Torbet, LLP, independent registered
public accountants, and are included herein in reliance upon the authority
of
such firm as an expert in accounting and auditing in giving such
report.
SEC
POLICY ON INDEMNIFICATION
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, offices or controlling persons, pursuant to the
statutory provisions or provisions in our certificate of incorporation or
by-laws, 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, and is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities (other
than
the payment by us of expenses incurred or paid by any director, officer or
controlling person 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 hereunder, we 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 and will be governed
by
the final adjudication of such issue.
PART
II
INFORMATION
REQUESTED IN THE REGISTRATION STATEMENT
Item
3. Incorporation
of Documents by Relevance.
The
following documents have been filed by China Medicine Corporation (the
“Company”) with the Securities and Exchange Commission (the “Commission”) and
are incorporated herein by reference:
(1)
The
Company’s Annual Report on Form 10-KSB for the year ended December 31,
2005;
(2)
All
other
reports filed by the Company pursuant to Section 13(a) and 15(d) of the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”), since
December 31, 2005; and
(3)
The
description of the Company’s common stock contained in the Company’s
Registration Statement on Form 10-SB/A, which was filed with the Commission
on
July 14, 2005.
All
documents subsequently filed pursuant to Sections 13(a), 13(c), 14 and 15 of
the
Exchange Act prior to the filing of a post-effective amendment which indicates
that all securities hereby have been sold or which deregisters securities then
remaining unsold shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof from the date of filing of such
documents.
The
exhibit index appears on page II-2 of this Registration Statement.
Item
4. Description
of Securities.
Not
applicable.
Item
5. Interests
of Named Experts and Counsel.
Asher
S.
Levitsky, who, through Asher S. Levitsky PC, is of counsel to Sichenzia Ross
Friedman Ference LLP, holds an option to purchase 40,000 shares of common stock
pursuant to the 2006 Long-Term Incentive Plan.
Item
6. Indemnification
of Officers and Directors.
The
Company’s certificate of incorporation provide that the liability of the
directors of the corporation for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law and provides for indemnification
to the extent permitted by Delaware law.
The
Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for any breach
of the director’s duty of loyalty to the corporation or its stockholders; acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; payments of unlawful dividends or unlawful stock
repurchases or redemptions, or any transaction from which the director derived
an improper personal benefit.
Section 145
of the Delaware General Corporation Law provides that a corporation may
indemnify directors and officers as well as other employees and individuals
against expenses including attorneys’ fees, judgments, fines and amounts paid in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or
in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys’ fees
incurred in connection with the defense or settlement of such actions, and
the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation.
The
statute provides that it is not exclusive of other indemnification that may
be
granted by a corporation’s certificate of incorporation, bylaws, agreement, a
vote of stockholders or disinterested directors or otherwise.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, offices or controlling persons of the Company, pursuant
to the foregoing provisions, or otherwise, the Company has been advised that,
in
the opinion of the Securities and Exchange Commission, such indemnification
is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid
by a director, officer or controlling person of the Company 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
hereunder, the Company 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 and will be governed by the final
adjudication of such issue.
Item
7. Exemption
from Registration Claimed.
N.A.
Item
8. Exhibits
4.1
2006
Long-Term Incentive Plan1
5.1 Opinion
of Sichenzia Ross Friedman Ference LLP
23.1 Consent
of Moore Stephens Wurth Frazer and Torbet, LLP
23.2 Consent
of Sichenzia Ross Friedman Ference LLP (contained in Exhibit 5.1
hereto).
24.1 Power
of
Attorney (included on the signature page).
|
1
|
Filed
as an exhibit to the Company’s current report on Form 8-K which was filed
with the Commission on February 14, 2006, and incorporated herein
by
reference.
|
Item
9. Undertakings.
(a) The
undersigned registrant hereby undertakes:
| 1. |
To
file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to include
any
additional or changed material information on the plan of distribution.
|
| 2. |
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered,
and
the offering of the securities at that time to be the initial bona
fide
offering.
|
| 3. |
File
a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the
offering.
|
| 4. |
For
determining liability of the undersigned small business issuer under
the
Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that
in a
primary offering of securities of the undersigned small business
issuer
pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities
are
offered or sold to such purchaser by means of any of the following
communications, the undersigned small business issuer will be a seller
to
the purchaser and will be considered to offer or sell such securities
to
such purchaser:
|
| i. |
Any
preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to
Rule
424;
|
| ii. |
Any
free writing prospectus relating to the offering prepared by or on
behalf
of the undersigned small business issuer or used or referred to by
the
undersigned small business issuer;
|
| iii. |
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned
small
business issuer; and
|
| iv. |
Any
other communication that is an offer in the offering made by the
undersigned small business issuer to the
purchaser.
|
(b) The
undersigned registrant hereby undertakes that, for purposes of determining
any
liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
(c) Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer 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 small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the in the City of Guangzhou in the People’s Republic of China on
this 16th
day of
February, 2007.
| |
|
|
| |
CHINA
MEDICINE
CORPORATION |
|
|
|
| |
By: |
/s/ Senshen
Yang |
| |
Senshen
Yang, CEO |
| |
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes Senshen Yang as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign
any
and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
s/
Senshen Yang
|
|
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
|
February
16, 2007
|
|
Senshen
Yang.
|
| |
|
|
|
|
|
s/
Huizhen Yu
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
|
February 16,
2007
|
|
Huizhen
Yu
|
| |
|
|
|
|
|
s/
Minhua Liu
|
|
Director
|
|
|
|
Minhua
Liu
|
| |
|
|
|
|
|
|
|
Director
|
|
|
|
Robert
Adler
|
| |
|
|
|
|
|
|
|
Director
|
|
|
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Rachel
Gong
|
| |
|
|
|
|
|
s/
Yanfang Chen
|
|
Director
|
|
|
|
Yanfang
Chen
|