20-F 1 f20f-2005_chinp.txt FORM 20-F 2005 REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) [ ] Registration Statement Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 or [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ or [ ] Shell Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of event requiring this shell company report . . . . . . . . . Commission file number: 0-28879 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION (Exact name of Registrant as specified in its charter) CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION (Translation of Registrant's name into English) BRITISH VIRGIN ISLANDS (Jurisdiction of incorporation or organization) ROOM A, 22/F, NOBLE CENTER, 3RD FU ZHONG ROAD, FU TIAN DISTRICT 518026, SHEN ZHEN, GUANG DONG PROVINCE, CHINA (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. NONE Securities registered or to be registered pursuant to Section 12(g) of the Act. COMMON STOCK, NO PAR VALUE (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. NOT APPLICABLE (Title of Class) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 79,758,837 COMMON SHARES AS OF DECEMBER 31, 2005 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [ ] Yes [X] No Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [X] No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark which financial statement item the registrant has elected to follow. [ ] Item 17 [X] Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No GENERAL INFORMATION: UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN ARE TO US DOLLARS. FORWARD LOOKING STATEMENTS The Company cautions readers regarding forward looking statements found in the following discussion and elsewhere in this annual report and in any other statement made by, or on the behalf of the Company, whether or not in future filings with the Securities and Exchange Commission ("SEC"). Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. See "Item 3. Key Information - Risk Factors." These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by or on behalf of the Company. The Company disclaims any obligation to update forward looking statements. PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS. ================================================================================ Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE. ================================================================================ Not applicable. ITEM 3. KEY INFORMATION. ================================================================================ SELECTED FINANCIAL DATA The selected financial data of the Company for the year ended December 31, 2005 and the fifteen months ended December 31, 2004, was derived from the consolidated financial statements of the Company which have been audited by Bongiovanni & Associates, as indicated in their report which is included elsewhere in this report. The selected financial data set forth for the years ended September 30, 2003, 2002, 2001 and 2000 is derived from the Company's audited consolidated financial statements, not included herein. The information in the following table was extracted from the more detailed consolidated financial statements and related notes included herein and should be read in conjunction with such financial statements and with the information appearing under the heading "Item 5. Operating and Financial Review and Prospects."
------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED FIFTEEN DECEMBER 31, MONTHS ENDED 2003 2002 2001 2000 2005 2004 ------------------------------------------------------------------------------------------------------------------------------ Revenues $ - $ - $ 1,517,822 $ 2,014,696 $ 2,139,804 $ 665,075 ------------------------------------------------------------------------------------------------------------------------------ Loss from operations $ (714,335) $ (715,438) $ (699,856) $(1,115,911) $(2,211,204) $ (811,156) ------------------------------------------------------------------------------------------------------------------------------ Loss from continuing operations $ (714,335) $ (715,438) $ (699,856) $(1,115,911) $(2,211,204) $ (811,156) ------------------------------------------------------------------------------------------------------------------------------ Net loss $ (714,335) $ (715,438) $ (699,856) $(1,115,911) $(2,211,204) $ (811,156) ------------------------------------------------------------------------------------------------------------------------------ Comprehensive loss $ (714,335) $ (723,210) $ (726,809) $(1,099,915) $(2,211,204) $ (811,156) ------------------------------------------------------------------------------------------------------------------------------ Net loss per share $ (0.015) $ (0.026) $ (1.142) $ (4.22) $ (8.94) $ (294.17) ------------------------------------------------------------------------------------------------------------------------------ Total assets $ - $ 1,000 $ 318,808 $ 940,408 $ 1,465,659 $ 3,090,476 ------------------------------------------------------------------------------------------------------------------------------ 3 ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED FIFTEEN DECEMBER 31, MONTHS ENDED 2003 2002 2001 2000 2005 2004 ------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity (deficit) $(1,082,485) $ (886,540) $ (358,389) $ 37,714 $ 954,621 $ 2,814,075 ------------------------------------------------------------------------------------------------------------------------------ Weighted average number of Shares 47,973,021 28,249,500 636,514 260,633 247,279 3,973 ------------------------------------------------------------------------------------------------------------------------------ Dividends per share $ - $ - $ - $ - $ - $ - ------------------------------------------------------------------------------------------------------------------------------
RISK FACTORS THE COMPANY HAS LIMITED FINANCIAL RESOURCES AND IF THE COMPANY IS UNABLE TO SECURE ADDITIONAL FUNDING AND/OR A BUSINESS OPPORTUNITY, THE COMPANY MAY FAIL. As of December 31, 2005, the Company had no cash and a working capital deficit of $1,082,485. It currently has no business operations. Without additional funding and/or a business opportunity, the Company may not continue to exist. As a result, for the year ended December 31, 2005, the Company's auditors, in Note 2 of the Financial Statements, have noted that there is substantial doubt about the Company's ability to continue as a going concern. The Company's existence is dependent upon management funding operations and raising sufficient capital. At this point in time, it is impossible to state an amount of additional funding which the Company believes would remove the going concern opinion. IF THE COMPANY ISSUES SHARES OR OPTIONS TO ITS OFFICERS, DIRECTORS OR KEY EMPLOYEES, OR IF THE COMPANY OBTAINS FUNDING THROUGH THE SALE OF ADDITIONAL COMMON SHARES, THE SHAREHOLDERS WILL EXPERIENCE DILUTION. The Company may in the future grant to some or all of its directors, officers, insiders and key employees options to purchase the Company's common shares as non-cash incentives to those employees. Such options may be granted at exercise prices equal to market prices. To the extent that significant numbers of such options may be granted and exercised, the interests of then existing shareholders of the Company will be subject to additional dilution. The Company is currently without a source of revenue and will most likely be required to issue additional shares to finance its operations and acquire a business opportunity. The issuance of additional shares will cause the Company's existing shareholders to experience dilution of their ownership interests. THE PRICE OF THE COMPANY'S COMMON SHARES IS SUBJECT TO MARKET FLUCTUATIONS AND VOLATILITY WHICH MAY NOT BE RELATED TO THE COMPANY'S OPERATIONS AND SUCH FLUCTUATIONS MAY IMPACT THE COMPANY'S ABILITY TO COMPLETE EQUITY FINANCINGS; IF THE COMPANY CANNOT COMPLETE ADDITIONAL EQUITY FINANCINGS, IT MAY NOT BE ABLE TO CONTINUE ITS OPERATIONS. The trading volume of the Company's stock is low, thereby making the market price of the stock subject to wide fluctuations in price, which have not necessarily been related to the operating performance, underlying asset values or prospects of the company. In particular, the per share price of the Company's common shares fluctuated from a low of $0.02 to a high of $0.28 during the 12-month period ending June 30, 2006. Continued price fluctuations will have a significant impact on the Company's ability to complete equity financings. CONFLICTS OF INTEREST MAY ARISE AMONG THE MEMBERS OF THE COMPANY'S BOARD OF DIRECTORS AND SUCH CONFLICTS MAY CAUSE THE COMPANY TO ENTER INTO TRANSACTIONS ON TERMS, WHICH ARE NOT BENEFICIAL TO THE COMPANY. Several of the Company's directors are also directors, officers or shareholders of other companies. Some of the directors and officers are engaged and will continue to be engaged in the search for additional business opportunities on behalf of other corporations, and situations may arise where these directors and officers will be in direct competition with the Company. Such associations may give rise to conflicts of interest from time to time. Such a conflict poses the risk that the Company may enter into a transaction on terms that could place the Company in a worse position than if no conflict existed. Conflicts, if any, will be dealt with in accordance with the relevant provisions of the INTERNATIONAL BUSINESS COMPANIES ACT (British Virgin Islands). The directors of the Company are required by law to act honestly 4 and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the Company. However, each director has a similar obligation to other companies for which such director serves as an officer or director. THE COMPANY DOES NOT PAY DIVIDENDS ON ITS COMMON SHARES; THEREFORE, INVESTORS SEEKING DIVIDEND INCOME SHOULD NOT PURCHASE THE COMMON SHARES. The Company has never declared or paid cash dividends on its common shares and does not anticipate doing so in the foreseeable future. Additionally, the determination as to the declaration of dividends is within the discretion of the Company's Board of Directors, which may never declare cash dividends on the Company's common stock. Investors cannot expect to receive a dividend on the Company's common shares in the foreseeable future, if at all. THE COMPANY IS DEPENDENT UPON ITS MANAGEMENT AND THE LOSS OF ANY OF ITS MANAGEMENT AND/OR IF THE COMPANY IS UNABLE TO RECRUIT ADDITIONAL MANAGERS COULD NEGATIVELY IMPACT THE COMPANY'S ABILITY TO CONTINUE ITS OPERATIONS. The success of the operations and activities of the Company is dependent to a significant extent on the efforts and abilities of its key officer, Dr. FAN Di, a director, and President, Chief Executive Officer and acting Chief Financial Officer of the Company. The loss of services of Dr. Fan could have a material adverse effect on the Company. The Company has not obtained key-man life insurance on any of its officers or directors. The Company's ability to recruit and retain highly qualified management personnel is critical to its success; if it is unable to do so this may materially affect the Company's financial performance. THE COMPANY'S SHARES ARE SUBJECT TO THE SEC'S PENNY STOCK RULES, WHICH MAY RESTRICT THE ABILITY OF BROKERS TO SELL THE COMPANY'S COMMON STOCK AND MAY REDUCE THE SECONDARY MARKET FOR THE COMMON STOCK. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Generally, penny stocks are equity securities with a price of less than US $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). If the Company's shares are traded for less than US $5.00 per share, as they currently are, the shares will be subject to the SEC's penny stock rules unless (1) the Company's net tangible assets exceed US $5,000,000 during the Company's first three years of continuous operations or US $2,000,000 after the Company's first three years of continuous operations; or (2) the Company has had average revenue of at least US $6,000,000 for the last three years. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prescribed by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Since the Company's shares are traded for less than US $5.00 per share, the Company's common stock is subject to the penny stock rules. Therefore, the holders of the common stock may find it difficult to sell the common stock of the Company. These rules may restrict the ability of brokers to sell the common stock and may reduce the secondary market for the common stock. A limited secondary market may result in a decrease in the value of the shares and/or a partial or total loss of an investor's investment. THIS ANNUAL REPORT CONTAINS STATEMENTS ABOUT FUTURE EVENTS AND RESULTS THAT MAY NOT BE ACCURATE. Statements contained in this annual report that are not historical facts are forward-looking statements that involve risks and uncertainties. Such statements may not prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. INVESTORS IN THE UNITED STATES MAY NOT BE ABLE TO ENFORCE THEIR CIVIL LIABILITIES AGAINST THE COMPANY OR ITS DIRECTORS AND OFFICERS. 5 It may be difficult to bring and enforce suits against the Company. The Company is a corporation domiciled in British Virgin Islands. None of the Company's directors and officers is a resident of the United States, and all or a substantial portion of their assets are located outside of the United States. As a result, it may be difficult for U.S. holders of the Company's common shares to effect service of process on these persons within the United States or to enforce judgments obtained in the U.S. based on the civil liability provisions of the U.S. federal securities laws against the Company or its officers and directors. In addition, a shareholder should not assume that the courts outside the United States (i) would enforce judgments of U.S. courts obtained in actions against the Company, its officers or directors predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against the Company, its officers or directors predicated upon the U.S. federal securities laws or other laws of the United States. ITEM 4. INFORMATION ON THE COMPANY. ================================================================================ HISTORY AND DEVELOPMENT OF THE COMPANY The Company was incorporated in the State of Colorado on June 17, 1996, under the name Minas Novas Gold Corp., to engage in mining operations. From inception to January 1999, the Company obtained options to acquire various mining properties. On January 29, 1999, the Company abandoned all mining operations and proceeded to acquire all of the issued and outstanding capital stock of Cool Entertainment, Inc., a Washington corporation, in exchange solely for 65% of its outstanding common stock. The acquisition of the Washington corporation was completed March 1, 1999, and effective February 22, 1999, the Company changed its name to Cool Entertainment, Inc. From March 1, 1999 to November 2000, the Company was able to generate only a minimal amount of revenues. Realizing that it was undercapitalized and unable to market its services properly, the Company searched for another business opportunity. On February 21, 2001, the Company acquired all of the issued and outstanding capital stock of E-Trend Networks, Inc., a Nevada corporation, in exchange solely for approximately 92% of its common stock. The Company changed its name to E-Trend Networks, Inc., changed its domicile to Delaware, and effected a 1-for-100 reverse split of its issued and outstanding shares of common stock. On December 26, 2001, an agreement was reached whereby a new organization and management team led by eAngels Equity, LLC would acquire controlling interest in E-Trend Networks, Inc. Effective February 19, 2002, the Company changed its name to Wilmington Rexford, Inc. Prior to the fourth calendar quarter of 2003, the Company operated an online retail website www.EntertainMe.com and through its fulfillment and distribution subsidiary, Langara Entertainment, it offered distribution and fulfillment services to both traditional retail and online merchants. In October 2003, the Company entered into agreements to exchange its 100% ownership in Langara Entertainment, Inc. and EntertainMe.com for equity stakes in Langara Group, Inc. and Fly.com, Inc. On February 13, 2004, the Company entered into an agreement with China Merchants DiChain Investment Holdings Limited, pursuant to which the Company spun out shares of its wholly owned subsidiary, E-Trend Networks, Inc. as a dividend to the shareholders on a 1 for 1 share basis. The agreement provided for the acquisition of a company to be identified by China Merchants DiChain Investment Holdings Limited and a 1-for-20 reverse stock split. The reverse stock split and the change of the Company's name to China Pharmaceuticals Corporation were effected March 25, 2004. The distribution of Langara Entertainment, Inc., E-Trend Networks, Inc. and the discontinued operations of Wilmington Rexford, Inc. qualified for treatment as discontinued operations in accordance with FASB Statement No. 144 ("SFAS No. 144"), Accounting for the Impairment or Disposal of Long-Lived Assets. Because the operating results of Langara Entertainment, Inc., E-Trend Networks, Inc. and the discontinued operations of Wilmington Rexford, Inc. represent 100% of operations of the Company, they were included in results from continuing operations. On May 24, 2004, the Company closed its acquisition of 87.475% of Zhejiang University Pharmaceutical Co., Ltd., a Sino-foreign equity joint venture ("Zheda Pharmacy"), pursuant to the terms of an agreement dated as of May 24, 2004 with the owners of Sheung Tai Investments Limited. The Company issued 13,848,220 shares of its common stock to the owners of Sheung Tai Investments Limited for 100% ownership of that entity. Sheung Tai Investments Limited owned 87.475% of Zheda Pharmacy. 6 Also on May 24, 2004, the Company issued 31,151,780 shares to China Merchants DiChain Investment Holdings Limited and its designees for approximately $290,000 in debt conversion and assumption of costs of the transaction. Shortly after the acquisition of Zheda Pharmacy, the Company realized that management of Sheung Tai Investments refused to turn over day-to-day control of the operations of Zheda Pharmacy to management of the Company. The disputes between management of the Company and management of Sheung Tai Investment resulted in litigation and protracted negotiations. In January 2005, the Company relinquished its ownership of Sheung Tai Investments (and therefore Zheda Pharmacy) in exchange for the 13,848,220 shares of the Company's common stock that originally had been issued to the owners of Sheung Tai Investments. Effective August 26, 2004, the Company changed its domicile to the British Virgin Islands and its name to China Pharmaceuticals International Corporation. It is governed by the International Business Companies Act, Cap. 291, of the Territory of the British Virgin Islands. The Company's registered agent is Equity Trust (BVI) Ltd, Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands. Its principal business office has been located at Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China since October 1, 2005. The telephone number is 86.755. 3398 3366 and the facsimile number is 86.755.3398 3368. The Company does not have a registered agent in the United States. On September 21, 2005, the Company issued a total of 45,200,000 shares of its common stock to six buyers. As of the date of this filing, the buyers have not settled the subscription money and $452,000 is still owed to the Company. It is uncertain whether the Company will be able to collect the subscription money. As a result, management has recorded an allowance for doubtful stock subscriptions receivable of $452,000 to reflect this uncertainty. Pursuant to its Articles of Association, the Company may, upon written notice to the six buyers, treat the unpaid for shares as cancelled shares, but has not opted to do so as of the date of this filing. Furthermore, pursuant to the subscription agreements, the Company accrued interest on the Subscription Receivable at the rate of Hong Kong Prime plus 2% from September 28, 2005 through December 31, 2005, for a total of $11,350. However, in estimating uncollectible accounts, management recorded an allowance for doubtful accounts of $11,350. BUSINESS OVERVIEW For the financial years ended September 30, 2002 and 2003, the Company operated an online entertainment media retail website www.EntertainMe.com and through its fulfillment and distribution subsidiary, Langara Entertainment, it offered distribution and fulfillment services to both traditional retail and online merchants. Since October 2003, the Company has not engaged in business activities. As of the time of this filing, the Company has not created a plan for future operations. ORGANIZATIONAL STRUCTURE As of the date of this annual report, the Company has no subsidiaries. PROPERTY, PLANTS AND EQUIPMENT The Company's corporate office was located at Unit 3611, 36/F, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong from January 1, 2005 to September 30, 2005. The Company shared this office space with China Merchants DiChain and its portion of the monthly lease costs was HK$10,0000 (US$1,282 at August 15, 2005). There was no written agreement regarding this office sharing arrangement. Since October 1, 2005, the Company has maintained a corporate office located at Room A, F/22, Noble Center, 3rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China. The Company shares the offices of DC Capital Management, Inc. and is allocated HK$13,400 (US$1,718 as of October 1, 2005) as its pro rata share of the cost of the facility. 7 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS. ================================================================================ The following discussion of the results of operations of the Company for the year ended December 31, 2005 and the fifteen months ended December 31, 2004 should be read in conjunction with the consolidated financial statements of the Company and related notes included therein. From February 21, 2001 to October 2003, the Company operated an online entertainment media retail website www.EntertainMe.com and through its fulfillment and distribution subsidiary, Langara Entertainment, offered distribution and fulfillment services to both traditional retail and online merchants. In October 2003, the Company entered into agreements to exchange its 100% ownership in Langara Entertainment, Inc. and EntertainMe.com for an equity stakes in Langara Group, Inc. and Fly.com, Inc. On February 13, 2004, the Company entered into an agreement with China Merchants DiChain Investment Holdings Limited, pursuant to which the Company spun out shares of its wholly owned subsidiary, E-Trend Networks, Inc. as a dividend to the shareholders on a 1 for 1 share basis. The agreement provided for the acquisition of a company to be identified by China Merchants DiChain Investment Holdings Limited and a 1-for-20 reverse stock split. The reverse stock split and the change of the Company's name to China Pharmaceuticals Corporation were effected March 25, 2004. On February 20, 2004, the Company changed its fiscal year end to December 31. For the year ended December 31, 2005, the Company's auditors, in Note 2 of the Financial Statements, have noted that there is substantial doubt about the Company's ability to continue as a going concern. The Company's existence is dependent upon management funding operations and raising sufficient capital. At this point in time it is impossible to state an amount of additional funding which the Company believes would remove the going concern opinion. OPERATING RESULTS Retained deficit at October 1, 2003 has been restated to reflect an unrecorded note payable of $100,000 and interest expense of $3,753. Had the errors not been made, net loss for the year ended September 30, 2003 would have increased by $103,753. Basic and diluted net loss per share would have increased by ($0.003) to ($0.026). Retained deficit at January 1, 2004 has been restated to reflect the aggregate of the unrecorded note payable and interest expense from the year ended September 30, 2003, of interest expense of $50,045, legal expenses of $17,511, consulting expenses of $2,000, and promotion expenses of $1,046, foreign currency exchange adjustments of $1,010, other expenses of $279 and travel expenses of $99. Had the errors not been made, a net loss for the fifteen months ended December 31, 2004 would have increased by $71,990. Basic and fully diluted net loss per share for the same period would have increased by ($0.163) to ($1.142). YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE FIFTEEN MONTHS ENDED DECEMBER 31, 2004 The Company did not have any business operations during the twelve months ended December 31, 2005. Despite the disposition of these business operations, the Company continued to incur general and administrative expenses to maintain the Company's existence as a reporting company with the Securities and Exchange Commission whose stock is traded on the OTC Bulletin Board. In addition, legal expenses were incurred in connection with the issuance to shares to six independent companies on September 21, 2005. Total operating expenses and net loss were each $714,335 for the year ended December 31, 2005 versus $715,438 for the fifteen months ended December 31, 2004. FIFTEEN MONTHS ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED SEPTEMBER 30, 2003 Due to the disposal of Langara Entertainment, Inc. and EntertainMe.com in October 2003, the Company did not have any business operations during the fifteen months ended December 31, 2004. Despite the disposition of these business operations, the Company continued to incur general and administrative expenses to maintain the Company's existence as a reporting company with the Securities and Exchange Commission whose stock is traded on the OTC Bulletin Board. In addition, legal expenses were incurred in connection with the acquisition and subsequent disposition of 8 Sheung Tai Investments, as described in "Item 4. Information on the Company - History and Development of the Company." LIQUIDITY AND CAPITAL RESOURCES At December 31, 2005 and December 2004, respectively, the Company had no cash. The Company used cash of $126,347 for operating activities. Cash was provided by advances from related parties in the same amount. In comparison, operating activities used cash of $382,196 for the year ended December 31, 2004. The Company anticipates spending approximately $150,000 during fiscal 2006 for administrative and other operating expenditures. The Company intends to obtain advances from related parties to fund these expenditures; however, it is uncertain that the Company will be able to obtain sufficient financing to cover its administrative and operating expenditures. As of December 31, 2005, the Company owed a total of $100,000 on a note payable. The note bears interest at 10% per year and is in default. For the year ended December 31, 2005 and fifteen months ended December 31, 2004, accrued interest was $26,274 and $16,274, respectively. The Company has disputed their liability for this debt. There are no material commitments for capital expenditures during fiscal 2006. Other than the inter company advances from China Technology Global Corporation, China Merchants DiChain (Asia) Limited, DiChain Holdings Ltd and DC Capital Management, Inc. which have been made on an interest-free basis, with no fixed term or repayment date, there is no debt owed by the Company. TREND INFORMATION The Company is not aware of any trends that might affect its financial results or business. OFF BALANCE SHEET ARRANGEMENTS The Company does not have any material off balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. CONTRACTUAL OBLIGATIONS The Company does not have any contractual obligations. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. ================================================================================ DIRECTORS AND SENIOR MANAGEMENT The names, positions held with the Company and terms of office of each director and officer of the Company as of the date of this annual report, are as follows:
-------------------------------------------------------------------------------------------------------------------- NAME POSITION WITH THE COMPANY TERM OF OFFICE (FOR EACH OFFICE HELD) -------------------------------------------------------------------------------------------------------------------- FAN Di Chief Executive Officer July 2004 to present President Acting Chief Financial Officer August 2006 to present Director February 2004 to present -------------------------------------------------------------------------------------------------------------------- LI Xinggui Director August 2005 to present -------------------------------------------------------------------------------------------------------------------- TAI Ching Nam Executive Vice President August 2005 to present -------------------------------------------------------------------------------------------------------------------- FU Li Assistant President August 2005 to present Corporate Secretary July 2006 to present --------------------------------------------------------------------------------------------------------------------
9 Each officer's and director's term of office shall expire at the Company's next annual general meeting. The Company does not have an executive committee, audit committee, or a compensation committee. There are no family relationships between any directors or executive officers of the Company. To the best of the Company's knowledge, there are no arrangements or understandings with major shareholders or others, pursuant to which any of the Company's officers or directors was selected as an officer or director of the Company. Set forth below are brief descriptions of recent employment and business experience of the Company's officers and directors, each of whom devotes on average approximately 15 hours per week to the business of the Company. DR. FAN DI Since July 2004, Dr. Fan has served as the Company's President and Chief Executive Officer. He has been a Director since February 2004. Dr. Fan assumed the role of acting Chief Financial Officer in August 2006. Dr. Fan is responsible for overseeing the Company's strategic development. Since April 2003, Dr. Fan has served as the Chairman, Chief Executive Officer and an Executive Director of China Technology Global Corporation, a British Virgin Islands corporation whose stock is traded on the OTC Bulletin Board and registered under the Securities Exchange Act of 1934. Since April 2002, Dr. Fan has served as the Chairman and Chief Executive Officer of China Merchants DiChain (Asia) Limited, a company listed on the Stock Exchange of Hong Kong, Limited. From December 1999 to April 2002, he served as an Executive Director and Chief Financial Officer of China Merchants Group. Dr. Fan has substantial experience in financial management and business management. He holds a Ph.D. in Business Administration from the University of Southern California. MR. LI XINGGUI Since August 2005, Mr. Li has served as a Director of the Company. Since December 2000, Mr. Li has worked for China Merchants DiChain Group, which is the ultimate controlling shareholder of the Company, as the Executive Director and President. Prior to joining DICHAIN, Mr. Li was executive vice president of S-T Anda, the first modern logistics company in China serving Fortune Global 500 companies in China. He also served as Director of Enterprise Management at China Merchants Group. He has extensive operation management experience in China. Mr. Li has a Master's Degree in Economics from Sichuan University of China. TAI CHING NAM Since August 2005, Mr. Tai has served as Executive Vice President of the Company. Since August 2001, Mr. Tai has worked in China Merchants DiChain Group, which is the ultimate controlling shareholder of the Company. His previously experiences include: Senior Manager of China Merchants Group Research Department & Reform Center, Project Manager of China Merchants Group joint project with McKinsey & Company in corporate strategy development and transformation. Mr. Tai has a Master Degree of Business Economics from Chinese University of Hong Kong. FU LI Since August 2005, Ms. Fu has served as Assistant President of the Company. Ms. Fu has worked for China Merchants DiChain Group, which is the ultimate controlling shareholder of the Company since October, 2002. Since July 2006, she has served as the secretary of the Company, and she also served as the secretary of China Technology Global Corporation since July 2006. She obtained a Bachelors Degree and Masters Degree from the Foreign Language Institute of Newport University. COMPENSATION During the fiscal year ended December 31, 2005, the directors and officers of the Company, as a group, had received or charged the Company a total of $44,229 for services rendered by the directors and officers or companies owned by 10 the individuals. No amounts were set aside or accrued by the Company to provide pension, retirement or similar benefits. EMPLOYEES The Company shared the office staff of China Merchants DiChain (Asia) Ltd. from January 2005 to September 2005, and allocated HK$35,000 per month (US$4,478 as of August 15, 2005) as its pro rata share of the cost. There was no written agreement regarding this staff sharing arrangement. The Company shared the office staff of DC Capital Management, Inc. from October 2005 to December 2005, and allocated HK$10,000 per month (US$1,282 as of October 1, 2005) as its pro rata share of the cost. There was no written agreement regarding this office sharing arrangement. As at December 31, 2005, the Company had no full-time employees in the area of management and administration. SHARE OWNERSHIP The following table sets forth certain information regarding ownership of the Company's common shares by the Company's officers and directors as of July 31, 2006.
SHARES AND RIGHTS BENEFICIALLY TITLE OF CLASS NAME AND ADDRESS OF OWNER OWNED OR CONTROLLED (1) PERCENT OF CLASS (1) Common Stock FAN Di (2) 20,772,330 26.04% Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China Common Stock LI Xinggui -0- 0% Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China Common Stock TAI Ching Nam -0- 0% Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China Common Stock FU Li -0- 0% Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China ------------------------- (1) Where persons listed on this table have the right to obtain additional shares of common stock through the exercise of outstanding options or warrants within 60 days from July 31, 2006, these additional shares are deemed to be outstanding for the purpose of computing the percentage of common stock owned by such persons, but are not deemed to be outstanding for 11 the purpose of computing the percentage owned by any other person. Based on 79,758,837 shares of common stock outstanding as of July 31, 2006. (2) These shares are held of record by China Merchants DiChain Investment Holdings Limited. As Dr. FAN is a director of China Merchants DiChain Investment Holdings Limited and a director of the sole controlling shareholder of China Merchants DiChain Investment Holdings Limited, he is deemed to be the beneficial owner of these shares.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. ================================================================================ PRINCIPAL HOLDERS OF VOTING SECURITIES The following table sets forth certain information regarding ownership of the Company's common shares by the beneficial owners of 5% or more of each class of the Company's voting securities as of July 31, 2006.
SHARES AND RIGHTS BENEFICIALLY TITLE OF CLASS NAME AND ADDRESS OF OWNER OWNED OR CONTROLLED (1) PERCENT OF CLASS (1) Common Stock China Merchants DiChain Investment 20,772,330 26.04% Holdings Limited (2) Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China Common Stock Dr. FAN Di (2) 20,772,330 26.04% Room A, F/22, Noble Center, 3 rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China Common Stock Sino Castle Holdings Ltd 7,500,000 9.40% R2908, 29/F, Guo Ji Ming Yuan, You Yi Road, Luo Hu District, Shen Zhen Province, 518000, Guang Dong Province, P. R. China Common Stock Mart Burkit Limited 7,500,000 9.40% R2908, 29/F, Guo Ji Ming Yuan, You Yi Road, Luo Hu District, Shen Zhen Province, 518000, Guang Dong Province, P. R. China Common Stock Rich Gush Limited 7,500,000 9.40% R2908, 29/F, Guo Ji Ming Yuan, You Yi Road, Luo Hu District, Shen Zhen Province, 518000, Guang Dong Province, P. R. China Common Stock Mart Express Limited 7,500,000 9.40% R2908, 29/F, Guo Ji Ming Yuan, You Yi Road, Luo Hu District, Shen Zhen Province, 518000, Guang Dong Province, P. R. China 12 SHARES AND RIGHTS BENEFICIALLY TITLE OF CLASS NAME AND ADDRESS OF OWNER OWNED OR CONTROLLED (1) PERCENT OF CLASS (1) Common Stock Fivestar International Limited 7,700,000 9.65% R2908, 29/F, Guo Ji Ming Yuan, You Yi Road, Luo Hu District, Shen Zhen Province, 518000, Guang Dong Province, P. R. China Common Stock Global China Enterprises Limited 7,500,000 9.40% R2908, 29/F, Guo Ji Ming Yuan, You Yi Road, Luo Hu District, Shen Zhen Province, 518000, Guang Dong Province, P. R. China --------------------- (1) Where persons listed on this table have the right to obtain additional shares of common stock through the exercise of outstanding options or warrants within 60 days from July 31, 2006, these additional shares are deemed to be outstanding for the purpose of computing the percentage of common stock owned by such persons, but are not deemed to be outstanding for the purpose of computing the percentage owned by any other person. Based on 79,758,837 shares of common stock outstanding as of July 31, 2006. (2) These shares are held of record by China Merchants DiChain Investment Holdings Limited. As Dr. FAN is a director of China Merchants DiChain Investment Holdings Limited and a director of the sole controlling shareholder of China Merchants DiChain Investment Holdings Limited, he is deemed to be the beneficial owner of these shares.
CONTROL BY FOREIGN GOVERNMENT OR OTHER PERSONS As of July 31, 2006, the Company was 26.04% indirectly owned by DiChain Holdings Limited, an investment holding company located in Hong Kong. None of the Company's common shareholders has different voting rights than any of the Company's other common shareholders. CHANGES IN SHAREHOLDINGS On September 21, 2005, the Company issued a total of 45,200,000 shares of its common stock at US$0.01 to six companies. As a result, China Merchants DiChain Investment Holdings Limited's shareholding has been diluted to 26.04% from 64.3%. CHANGE OF CONTROL As of the date of this annual report, there are no arrangements known to the Company that may at a subsequent date result in a change of control of the Company UNITED STATES SHAREHOLDERS As of July 31, 2006, there were 79 registered holders of the Company's common shares in the United States, with combined holdings of 6,823,109 shares, representing 8.55% of the issued shares of the Company. In addition, CEDE & Co held 4,119,919 shares of record, representing 5.17% of the issued shares of the Company. The Company does not know how many beneficial shareholders it has in the United States, but management believes there are less than 300 such shareholders. RELATED PARTY TRANSACTIONS Other than as disclosed below, for the period from January 1, 2005 through December 31, 2005, the Company has not entered into any transactions or loans between the Company and any (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, the Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them 13 significant influence over the Company, and close members of any such individuals' family; (d) key management personnel and close members of such individuals' families; or (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence. The Company's corporate office is located at Room A, F/22, Noble Center, 3rd Fu Zhong Road, Fu Tian District, Shen Zhen, 518026, Guang Dong Province, P. R. China. The Company shared the offices of China Merchants DiChain (Asia) Ltd from January 2005 to September 2005, and was allocated HK$10,000 per month (US$1,282 as of August 15, 2005) as its pro rata share of the cost of the facility. There was no written agreement regarding this office sharing arrangement. The Company shared the offices of DC Capital Management, Inc. from October 2005 to December 2005, and was allocated HK$13,400 per month (US$1,718 as of October 1, 2005) as its pro rata share of the cost of the facility. There was no written agreement regarding this office sharing arrangement. The Company shared the office staff of China Merchants DiChain (Asia) Ltd. from January 2005 to September 2005, and allocated HK$35,000 per month (US$4,478 as of August 15, 2005) as its pro rata share of the cost. There was no written agreement regarding this staff sharing arrangement. The Company shared the office staff of DC Capital Management, Inc. from October 2005 to December 2005, and allocated HK$10,000 per month (US$1,282 as of October 1, 2005) as its pro rata share of the cost. There was no written agreement regarding this staff sharing arrangement. China Technology Global Corporation, a company indirectly owned by DiChain Holdings Limited, and China Merchants DiChain (Asia) Limited ("China Merchants DiChain") have advanced $205,708 and $87,059 to the Company, respectively, since October 1, 2003. These advances have been made on an interest-free basis, with no fixed term or repayment date. DiChain Holdings Limited and DC Capital Management, Inc., companies sharing mutual ownership with the Company, have advanced $26,790 and $9,000 to the Company, respectively, since January 1, 2005. These advances have been made on an interest-free basis, with no fixed term or repayment date. On May 24, 2004, the Company issued 31,151,780 shares of common stock to China Merchants DiChain Investment Holdings Limited and its designees for approximately $290,000 in debt conversion and assumption of costs of the transaction. INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND OTHER MANAGEMENT No executive officers, directors, employees or former executive officers and directors of the Company are indebted to the Company. No directors, executive officer or proposed nominee of neither the Company, nor any associate or affiliate of these individuals, is or has been indebted to the Company since January 1, 2005. ITEM 8. FINANCIAL INFORMATION. ================================================================================ CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION DESCRIPTION PAGE Audited Financial Statements for the Year Ended December 31, 2005, and the Fifteen Months Ended December 31, 2004 F-1 to F-19 LEGAL PROCEEDINGS The Company knows of no material, active or pending legal or arbitration proceedings against it; nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no legal or arbitration proceedings 14 (including governmental proceedings pending or known to be contemplated) which may have, or have had in the recent past, significant effects on the Company's financial position or profitability. DIVIDEND POLICY The Company has not paid any dividends on its common shares and does not intend to pay dividends on its common shares in the immediate future. Any decision to pay dividends on its common shares in the future will be made by the board of directors on the Company on the basis of earnings, financial requirements and other such conditions that may exist at that time. SIGNIFICANT CHANGES None. ITEM 9. THE OFFER AND LISTING. ================================================================================ PRICE HISTORY The common stock has been trading on the Over-The-Counter Bulletin Board ("OTCBB") since June 9, 1998 under the following symbols: o MNGD - June 9, 1998 to March 1, 1999; o CULE - March 1, 1999 to February 22, 2001; o ETDN - February 22, 2001 to February 19, 2002; o WREX - February 19, 2002 to March 25, 2004; o CPCL - March 25, 2004 to August 26, 2004; and o CPICF - since August 26, 2004. There have been no trading suspensions imposed by the OTCBB or any other regulatory authorities in the past three years. The following table sets forth the market price ranges and the aggregate volume of trading of the common shares of the Company on the OTCBB, and predecessor exchanges, for the periods indicated: OTCBB STOCK TRADING ACTIVITY SALES PRICE YEAR ENDED VOLUME HIGH LOW December 31, 2005 7,157,335 $0.60 $0.02 December 31, 2004 4,633,887 $8.95 $0.03 September 30, 2003* 936,022 $0.15 $0.02 September 30, 2002 3,645,100 $1.02 $0.10 September 30, 2001 6,107,200 $2.50 $0.02 September 30, 2000 40,835,000 $1.84 $0.08 ------------------ * Fifteen-months ended September 30, 2003 SALES PRICE QUARTER ENDED VOLUME HIGH LOW June 30, 2006 554,245 $0.17 $0.08 March 31, 2006 3,493,082 $0.28 $0.02 December 31, 2005 767,783 $0.05 $0.02 September 30, 2005 4,059,001 $0.15 $0.02 15 SALES PRICE QUARTER ENDED VOLUME HIGH LOW June 30, 2005 754,155 $0.15 $0.06 March 31, 2005 1,576,396 $0.60 $0.10 December 31, 2004 318,371 $3.90 $0.40 September 30, 2004 57,303 $3.25 $1.27 June 30, 2004 66,522 $6.75 $2.00 March 31, 2004 4,191,691 $8.95 $0.03 December 31, 2003 36,422 $0.03 $0.03 September 30, 2003 56,100 $0.05 $0.03 June 30, 2003 195,700 $0.11 $0.03 March 31, 2003 159,600 $0.04 $0.03 December 31, 2002 488,200 $0.15 $0.02 September 30, 2002 1,019,300 $0.29 $0.10 SALES PRICE MONTH ENDED VOLUME HIGH LOW July 31, 2006 26,750 $0.11 $0.06 June 30, 2006 61,385 $0.11 $0.08 May 31, 2006 301,086 $0.16 $0.11 April 30, 2006 191,774 $0.17 $0.12 March 31, 2006 3,206,101 $0.28 $0.03 February 28, 2006 98,829 $0.04 $0.03 January 31, 2006 188,152 $0.04 $0.02 December 31, 2005 121,775 $0.05 $0.02 November 30, 2005 382,235 $0.04 $0.02 October 31, 2005 263,773 $0.04 $0.02 September 30, 2005 3,520,496 $0.08 $0.02 August 31, 2005 524,905 $0.15 $0.03 July 31, 2005 13,600 $0.10 $0.05 These above quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not necessarily represent actual transactions. ITEM 10. ADDITIONAL INFORMATION. ================================================================================ MEMORANDUM AND ARTICLES OF ASSOCIATION The Company is incorporated in the Territory of the British Virgin Islands under the International Business Companies Act, Cap. 291, IBC No. 569163. The Company's objects and purposes, found in paragraph 4 of the Memorandum of Association, are general in nature and permit the Company to engage in any business, acts, or activities which are not prohibited under any law for the time being in force in the British Virgin Islands. There are no provisions in the Company's Articles of Association that limit a director's power to vote on a matter in which he is materially interested, to vote compensation to himself or any other director in the absence of an independent quorum, or to vote on matters regarding borrowings by the Company. There are no retirement age requirements, and there are no shareholding requirements to qualify as a director. The Company has only one class of stock: ordinary (or common) shares. The holders of ordinary shares do not have dividend rights, are entitled to one vote for each share held of record on all matters submitted to the stockholders, do not have rights to share in the Company's profits, have rights to share in any surplus in the event of liquidation, do not have redemption or sinking fund provisions, are not liable to further capital calls by the Company, and are not subject 16 to any provisions discriminating against any existing or prospective holder of such securities as a result of such shareholder owning a substantial number of shares. In order to change the rights of holders of any class of the Company's stock, the Memorandum of Association must be amended by a majority vote of the Company's shareholders and of the holders of any class of stock whose rights are changed. Annual or special meetings of the Company's shareholders are called by the directors at any time or place of their choosing and must be called upon the written request of shareholders holding ten percent (10%) or more of the outstanding shares of the Company's common stock. At least seven days notice of a shareholders' meeting must be given. A shareholder may be represented at a meeting by a proxy who may speak and vote on behalf of the shareholder. There are no limitations on the rights to own the Company's securities or the rights of non-residents or foreign shareholders to hold or exercise voting rights on the securities imposed by foreign law or the Company's constituent documents. There are no provisions in the Company's Memorandum or Articles of Association that would have an effect on delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries. There are no provisions in the Company's Articles of Association governing an ownership threshold above which shareholder ownership must be disclosed. With regard to the foregoing matters, the laws in the British Virgin Islands are not significantly different than those in the United States. There are no conditions in the Memorandum and Articles of Association governing changes in the Company's capital or changes in the rights of holders of any class of its stock that are more stringent than is required by law. MATERIAL CONTRACTS The following are material contracts entered into by the Company during the two years preceding the date of this annual report: 1. Share Exchange Agreement with China Merchants DiChain Investment Holdings Limited dated February 13, 2004, relating to the acquisition of 100% of a company to be approved by the Company's board of directors in exchange for 45,000,000 post-reverse split shares of the Company's common stock. 2. Sale and Purchase Agreement in relation to the entire issued share capital of Sheung Tai Investments Limited dated May 24, 2004, which provided for the acquisition of Sheung Tai Investments Limited by the Company in exchange for 13,848,220 post-reverse split shares of the Company's common stock. 3. Agreement dated January 19, 2005 Between Good Achieve Investments Limited, Profit Spring International Limited, Anmer Capital Limited, Dunkley International Limited, and Nation Express Limited (As Vendors); Han Hong Lu, Ma Leung, Alan Li, Chen Ming You, and Guo Jianjun (As Warrantors); China Pharmaceuticals International Corporation (As Purchaser); and DiChain Holdings Limited (As Guarantor), which provided for the sale of Sheung Tai Investments Limited back to the original owners thereof in exchange for the return of 13,848,220 post-reverse split shares of the Company's common stock. 4. Subscription Agreement dated September 21, 2005 between the Company and Global China Enterprises Limited for 7,500,000 shares of the Company. 5. Subscription Agreement dated September 21, 2005 between the Company and Fivestar International Limited for 7,700,000 shares of the Company. 17 6. Subscription Agreement dated September 21, 2005 between the Company and Mart Express Limited for 7,500,000 shares of the Company. 7. Subscription Agreement dated September 21, 2005 between the Company and Rich Gush Limited for 7,500,000 shares of the Company. 8. Subscription Agreement dated September 21, 2005 between the Company and Mart Burkit Limited for 7,500,000 shares of the Company. 9. Subscription Agreement dated September 21, 2005 between the Company and Sino Castle Holdings Limited for 7,500,000 shares of the Company. EXCHANGE CONTROLS The Company's business is conducted in and from Hong Kong and the People' Republic of China (the "PRC") in Hong Kong dollars and the PRC Renminbi. Periodic reports made to U.S. shareholders are expressed in U.S. dollars using the then-current exchange rates. The PRC Government imposes foreign currency control in part through direct regulation of the conversion of Renminbi into foreign exchange and through foreign trade restrictions. The conversion of the Renminbi into U.S. dollars must be based on the People's Bank of China ("PBOC") Rate. The PBOC Rate is set based on the previous day's PRC interbank foreign exchange market rate and with reference to current exchange rates on the world financial markets. In line with the unification of the two exchange rates, the Renminbi was revalued at HK$1.00=RMB1.12 and US$1.00=RMB8.70 on January 3, 1994. Since revaluation, the exchange rate has fluctuated between a range of US$1.00 = RMB7.90 and US$1.00 = RMB8.70. The Hong Kong dollar is freely convertible into the U.S. dollar. Since October 17, 1983, the Hong Kong dollar has been pegged to the U.S. dollar at HK$7.80 to US$1.00. The central element in the arrangements for the peg is an agreement between the Hong Kong government and the three Hong Kong banknote issuing banks, HSBC, Standard Chartered Bank and the Bank of China. Under the agreement, certificates of indebtedness, which are issued by the Hong Kong Government Exchange Fund to the banknote issuing bank to be held as cover for their banknote issues, are issued and redeemed only against payment in U.S. dollars, at the fixed exchange rate of US$1.00 = HK$7.80. When the bank notes are withdrawn from circulation, the banknote issuing banks surrender the certificates of indebtedness to the Hong Kong Government Exchange Fund and are paid the equivalent of U.S. dollars at the fixed rate. Exchange rates between the Hong Kong dollar and other currencies are influenced by the linked rate between the U.S. dollar and the Hong Kong dollar. The market exchange rate of the Hong Kong dollar against the U.S. dollar continues to be determined by the forces of supply and demand in the foreign exchange market. However, against the background of the fixed rate system which applies to the issue of Hong Kong currency in the form of bank notes, as described above, the market exchange rate has not deviated significantly from HK$7.80 to US$1.00. See "Selected Financial Data" in Item 3 of this annual report. The Hong Kong government has stated its intention to maintain the link at that rate. The Hong Kong government has stated that is has no intention of imposing exchange controls in Hong Kong and that the Hong Kong dollar will remain freely convertible into other currencies (including the U.S. dollar). The PRC and the United Kingdom agreed in 1984 pursuant to the Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong ("the Joint Declaration") that, after Hong Kong became a special administrative region of the PRC (the "SAR") on July 1, 1997, the Hong Kong dollar will continue to circulate and remain freely convertible. However, no assurance can be given that the SAR government will maintain the peg at HK$7.80 to US$1.00, if at all. TAXATION There are no British Virgin Islands ("BVI") governmental laws, decrees or regulations affecting the remittance of dividends or other payments to nonresident holders of the Company's securities. U.S. holders of the Company's securities are subject to no taxes or withholding provisions under existing BVI laws and regulations. By reason of the 18 fact that the Company conducts no business within the BVI, there are no applicable reciprocal tax treaties between the BVI and the U.S. that would affect the preceding statement that there are no BVI taxes, including withholding provisions, to which U.S. security holders are subject under existing laws and regulations of the BVI. DOCUMENTS ON DISPLAY The constituent documents concerning the Company may be inspected at the offices of its U.S. counsel, Dill Dill Carr Stonbraker & Hutchings, P.C., 455 Sherman Street, Suite 300, Denver, Colorado 80203, Attn.: Fay M. Matsukage, Esq. The Company's documents publicly filed with the Securities and Exchange Commission may also be viewed and inspected at the SEC's Public Reference Room located at 100 F Street, N.E., Room 1580, Washington, DC 20549. Copies may also be obtained from the SEC at prescribed rates. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ================================================================================ Not applicable. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. ================================================================================ Not applicable. PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. ================================================================================ Not applicable. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. ================================================================================ The Company changed its domicile effective August 26, 2004. See "Item 4. Information on the Company - History and Development of the Company", and "Item 10. Additional Information - Memorandum and Articles of Association." These actions have affected the rights of the Company's common shareholders. ITEM 15. CONTROLS AND PROCEDURES ================================================================================ An evaluation was performed under the supervision and with the participation of the Company's management, including Dr. FAN Di, the Company's Chief Executive Officer and acting Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act") as of December 31, 2005. Based upon that evaluation, Dr. Fan concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission's rules and forms. During the fiscal year ended December 31, 2005, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 19 ITEM 16. [RESERVED] ================================================================================ Not applicable. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT. ================================================================================ The Board of Directors has determined that the Company has at least one member who is a financial expert, Dr. Fan Di. Dr. Fan is not considered to be an "independent director" as that term is defined in Rule 4200(a) (15) of the National Association of Securities Dealers. ITEM 16B. CODE OF ETHICS. ================================================================================ The Company has not yet adopted a code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer, or controller, or persons performing similar functions. Given the Company's current operations, management does not believe a code of ethics is necessary at this stage of the Company's development. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ================================================================================ AUDIT FEES For the fiscal years ended December 31, 2004 and December 31, 2005, the Company's principal accountant billed $40,000 and $23,500, respectively, for the audit of the Company's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. AUDIT-RELATED FEES For the fiscal years ended December 31, 2004 and December 31, 2005, the Company's principal accountant billed $nil and $nil, respectively, for assurance and related services that were reasonably related to the performance of the audit or review of the Company's financial statements outside of those fees disclosed above under "Audit Fees". TAX FEES For the fiscal years ended December 31, 2004 and December 31, 2005, the Company's principal accountant billed $nil and $nil, respectively, for tax compliance, tax advice, and tax planning services. ALL OTHER FEES For the fiscal years ended December 31, 2004 and December 31, 2005, the Company's principal accountant billed $nil and $nil, respectively, for products and services other than those set forth above. PRE-APPROVAL POLICIES AND PROCEDURES Prior to engaging the Company's accountants to perform a particular service, the Company's board of directors obtains an estimate for the service to be performed. The Company's board of directors reviews and pre-approves all audit and audit-related services and the fees and other compensation related thereto, and any non-audit services provided by the Company's external auditors. The board of directors in accordance with procedures for the Company approved all of the services described above. 20 At no time since the commencement of the Company's most recently completed financial year has the Company relied on the waiver in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. PRINCIPAL ACCOUNTANT SERVICES To the best of the Company's knowledge, the percentage of hours expended on the Company's principal accountant's engagement to audit the Company's financial statements for the fiscal year ended December 31, 2005, that were attributed to work performed by persons other than the principal accountant's full-time permanent employees was less than fifty percent (50%). ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. ================================================================================ Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS. ================================================================================ Not applicable. PART III ITEM 17. FINANCIAL STATEMENTS. ================================================================================ Not applicable. ITEM 18. FINANCIAL STATEMENTS. ================================================================================ See pages F-1 to F-19. ITEM 19. EXHIBITS. ================================================================================ EXHIBIT NUMBER DESCRIPTION 1.1 Memorandum and Articles of Association (1) 4.1 Share Exchange Agreement with Langara Group, Inc. (2) 4.2 Share Exchange Agreement with Fly.com, Inc. for EntertainMe.com e-Commerce portal (2) 4.3 Share Exchange Agreement with China Merchants DiChain Investment Holdings Limited (2) 4.4 Sale and Purchase Agreement in relation to the entire issued share capital of Sheung Tai Investments Limited dated May 24, 2004 (3) 4.5 Form of Subscription Agreements dated September 21, 2005 between the Company and each of Global China Enterprises Limited, Fivestar International Limited, Mart Express Limited, Rich Gush Limited, Mart Burkit Limited and Sino Castle Holdings Limited. 12.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) 21 EXHIBIT NUMBER DESCRIPTION 13.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 -------------------- (1) Incorporated by reference to the exhibits to the registrant's definitive information statement filed July 20, 2004. (2) Incorporated by reference to the exhibits to the registrant's annual report on Form 10-KSB for the fiscal year ended September 30, 2003. (3) Incorporated by reference to the exhibits to the registrant's current report on Form 8-K dated May 24, 2004, filed May 27, 2004. 22 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION Dated: August 17, 2006 /s/ FAN DI --------------------------------------------- FAN Di Chief Executive Officer and Acting Chief Financial Officer 23 BONGIOVANNI & ASSOCIATES, P.A. 17111 KENTON DRIVE - SUITE 100-B CORNELIUS, NORTH CAROLINA 28031 ================================================================================ PHONE (704) 892-8733 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders: China Pharmaceuticals International Corporation Units 3207-8, 32/F West Tower, Shun Tak Centre 168-200 Connaught Road Central, Hong Kong We have audited the accompanying consolidated balance sheets of China Pharmaceuticals International Corporation (a British Virgin Islands corporation) as of December 31, 2004 and December 31, 2005 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' deficit, and cash flows for the year ended September 30, 2003, the fifteen months ended December 31, 2004 and the year ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Pharmaceuticals International Corporation as of December 31, 2004 and December 31, 2005, and the results of its operations and its cash flows for the year ended September 30, 2003, the fifteen months ended December 31, 2004 and the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ BONGIOVANNI & ASSOCIATES, P.A. Cornelius, NC July 7, 2006 F-1 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION BALANCE SHEETS
ASSETS December 31, -------------------------------------- 2004 2005 ------------------ ------------------ CURRENT ASSETS $ - $ - ------------------ ------------------ Investment 1,000 - ------------------ ------------------ TOTAL ASSETS $ 1,000 $ - ================== ================== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Other payables and accrued liabilities $ 475,262 $ 543,860 Advances from related parties 312,278 438,625 Note payable 100,000 100,000 ------------------ ------------------ TOTAL LIABILITIES 887,540 1,082,485 ------------------ ------------------ STOCKHOLDERS' DEFICIT Paid-in Capital, no par value, 500,000,000 shares authorized 46,160,733 and 79,758,837 shares issued and outstanding 4,912,289 5,430,679 Stock subscriptions receivable - (452,000) Allowance for doubtful stock subscriptions receivable - 452,000 Retained deficit (5,798,829) (6,513,164) ------------------ ------------------ TOTAL STOCKHOLDERS' DEFICIT (886,540) (1,082,485) ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,000 $ - ================== ==================
See accompanying notes to the financial statements. F-2 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEAR ENDED SEPTEMBER 30, 2003, FIFTEEN MONTHS ENDED DECEMBER 31, 2004 AND THE YEAR ENDED DECEMBER 31, 2005
2003 2004 2005 ----------------------------------------------------- SALES $ 1,517,822 $ - $ - COST OF SALES 1,172,590 - - --------------- --------------- --------------- GROSS PROFIT 345,232 - - --------------- --------------- --------------- OPERATING EXPENSES General and administrative expenses (857,189) (387,949) (214,804) Bad debts - - (463,350) Depreciation and amortization (98,672) (19,717) - Impairment of goodwill (135,638) - - Loss on disposal of subsidiaries - (257,727) - --------------- --------------- --------------- TOTAL OPERATING EXPENSES (1,091,499) (665,393) (678,154) --------------- --------------- --------------- INCOME FROM CONTINUING OPERATIONS (746,267) (665,393) (678,154) Interest and other (expense) income, net 46,411 (50,045) (36,181) --------------- --------------- --------------- NET LOSS $ (699,856) $ (715,438) $ (714,335) =============== =============== =============== OTHER COMPREHENSIVE (LOSS) INCOME Foreign currency translation adjustment $ (26,953) $ (7,772) $ - --------------- --------------- --------------- COMPREHENSIVE LOSS $ (726,809) $ (723,210) $ (714,335) =============== =============== =============== NET LOSS PER SHARE, BASIC AND DILUTED $ (1.142) $ (0.026) $ (0.015) =============== =============== =============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED 636,514 28,249,500 47,973,021 =============== =============== ===============
See accompanying notes to the financial statements. F-3 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) FOR THE YEAR ENDED SEPTEMBER 30, 2003, FIFTEEN MONTHS ENDED DECEMBER 31, 2004 AND THE YEAR ENDED DECEMBER 31, 2005
Allowance for Total Doubtful Stock- Stock Stock Sub- Cumulative holders' Common Stock Paid-in Supscriptions scriptions Retained Translation Equity Number Capital Receivable Receivable Deficit Adjustment (Deficit) BALANCES - SEPTEMBER 30, 2002 260,733 $ 4,421,249 $ - $ - $(4,348,810) $ (34,725) $ 37,714 Issuance of shares for exchange 500,000 200,000 - - - - 200,000 of note payable to stockholder Net loss for the year - - - - (726,809) - (726,809) Foreign currency translation adjustment - - - - - 26,953 26,953 ------------------------------------------------------------------------------------------------- - SEPTEMBER 30, 2003 760,733 $ 4,621,249 $ - $ - $(5,075,619) $ (7,772) $ (462,142) ================================================================================================= Foreign currency translation adjustment - - - 7,772 7,772 Issuance of shares for an investment 13,848,220 1,000 - - - - 1,000 Issuance of shares for exchange of related party payable to stockholder 31,151,780 290,000 - - - - 290,000 Issuance of shares 400,000 40 - - 40 Net loss for the fifteen months - - - - (723,210) - (723,210) ------------------------------------------------------------------------------------------------- BALANCES - DECEMBER 31, 2004 46,160,733 $ 4,912,289 $ - $ - $(5,798,829) $ - $ (886,540) ================================================================================================= Cancellation of shares on March 4, 2005 (13,848,220) (1,000) - - - - (1,000) Issuance of shares for payment of consulting services 2,246,324 67,390 - - - - 67,390 Common stock issued for stock 45,200,000 452,000 (452,000) 452,000 - - 452,000 Net loss for the year - - - - (714,335) - (714,335) BALANCES ------------------------------------------------------------------------------------------------- - DECEMBER 31, 2005 79,758,837 $ 5,430,679 $ (452,000) $ 452,000 $(6,513,164) $ - $(1,082,485) =================================================================================================
See accompanying notes to the financial statements. F-4 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003, FIFTEEN MONTHS ENDED DECEMBER 31, 2004 AND THE YEAR ENDED DECEMBER 31, 2005
2003 2004 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (726,809) $ (723,210) $ (714,335) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 98,672 19,717 - Bad debt - - 463,350 Interest income - - (11,350) Loss on disposal of subsidiaries - 257,727 - Issuance of common shares for consulting services rendered - - 67,390 Impairment to goodwill 135,638 - - Cumulative translation adjustment 26,953 7,772 - Changes in operating assets and liabilities: Accounts receivable (7,496) - - Due from related parties 121,890 - - Inventory 247,793 - - Prepaid expenses and other current assets 1,590 - - Accounts payable and accrued liabilities 214,019 55,798 68,598 ---------------- ------------------ ----------------- Total adjustments 839,059 341,014 587,988 ---------------- ------------------ ----------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 112,250 (382,196) (126,347) ---------------- ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (2,159) - - ---------------- ------------------ ----------------- NET CASH (USED IN) INVESTING ACTIVITIES (2,159) - - ---------------- ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable 100,000 - - Repayment on note payable - stockholder (235,827) - - Repayment to related parties - (163,859) - Advances from related parties - 545,529 126,347 ---------------- ------------------ ----------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (135,827) 381,670 126,347 ---------------- ------------------ ----------------- NET DECREASE IN CASH (25,736) (526) - CASH AT BEGINNING OF PERIOD 26,262 526 - ---------------- ------------------ ----------------- CASH AT END OF PERIOD $ 526 $ - $ - ================ ================== ================= SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Common stock issued for note payable-stockholder $ 200,000 $ - $ - ================ ================== ================= Common stock issued for related party payable $ - $ 290,000 $ - ================ ================== ================= Common stock issued for stock subscriptions receivable $ - $ - $ 452,000 ================ ================== ================= Common stock cancelled for reversal of investment $ - $ - $ 1,000 ================ ================== =================
See accompanying notes to the financial statements. F-5 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------------------------------------- BASIS OF PRESENTATION The audited financial statements include the accounts of China Pharmaceuticals International Corporation and its subsidiary prepared under the accrual basis of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. BUSINESS ACTIVITY China Pharmaceuticals International Corporation (the "Company") was incorporated on November 25, 2003 in the British Virgin Islands. On September 8, 2004, the Company merged with China Pharmaceuticals Corporation ("CPC") and the Company is the surviving company of the merger. CPC was incorporated on June 17, 1996 under the laws of the State of Colorado and changed its domicile in February 2001 to the State of Delaware. E-Trend Networks, Inc. (E-Trend) and its subsidiary Langara Entertainment, Inc. a former subsidiary was spun off by way of a dividend distribution to the shareholders of record on April 22, 2004 and now operates independent of the Company. This distribution has been accounted for as Discontinued Operations. (See NOTE 10. DISCONTINUED OPERATIONS.) E-Trend was incorporated on April 29, 1999 under the laws of the State of Nevada and is an online "entertainment superstore", specializing in the sale of movies, music, and electronics. The Company, at the completion of its recent reorganization, has changed its fiscal year end from September 30 to December 31. REVENUE RECOGNITION Revenues derived from product sales are recognized on delivery of the product. Wholesale sales are subject to potential returns by the customer; however any such returns can be passed back to the Company's supplier. Sales returns from retail customers are not significant. Revenue includes shipping charges billed to customers, which charges are based substantially on third-party shipping costs incurred. The Company derives revenues from providing consulting services to entities that are related by virtue of common control. The Company recognizes revenue from these services at such time the entity receiving the service has the ability to pay from funds generated from operations or received from independent sources and collection is reasonably assured. F-6 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -------------------------------------------------------------------------------- ACCOUNT RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible the Company's estimate of the allowance for doubtful accounts will change. For the period ended December 31, 2005 and 2004, accounts receivable of $11,350 and $0 are presented net of an allowance for doubtful accounts of $11,350 and $0, respectively. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. For the periods ended December 31, 2005 and 2004, all property and equipment has been fully depreciated. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs which do not extend the lives of the respective assets are charged to expense currently. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. DEPRECIATION AND AMORTIZATION Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements and property under capital leases is computed on a straight-line basis over the shorter of the estimated useful lives of the assets or the term of the lease. The range of useful lives is between 3 and 10 years. INCOME TAXES The Company accounts for income taxes according to Statement of Financial Accounting Standards No. 109, which requires a liability approach to calculating deferred income taxes. Under this method, the Company records deferred taxes based on temporary differences between the tax bases of the Company's assets and liabilities and their financial reporting bases. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. F-7 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -------------------------------------------------------------------------------- STOCK BASED COMPENSATION The Company accounts for stock-based compensation using the fair value method of Financial Accounting Standard No. 123R. Shares issued for services rendered by a third party are recorded at the fair value of the shares issued or services rendered, whichever is more readily determinable. The Company accounts for options and warrants under the same authoritative guidance using the Black-Scholes Option Pricing Model. The Company issued 2,246,324 shares of Common Stock, valued at $67,390, to a consultant in payment for consulting services performed during the period ended December 31, 2005. See NOTE 3. RELATED PARTY TRANSACTIONS and NOTE 4. INVESTMENT for a discussion of shares issued for the conversion of debt and for investment. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" requires that the Company disclose estimated fair values for its financial instruments. The following methods and assumptions were used by the Company in estimating the fair values of each class of financial instruments disclosed herein: CASH - The carrying amount approximates fair value because of the short maturity of those instruments. ADVANCES DUE FROM RELATED PARTIES - The fair value of advances from related parties are determined by calculating the present value of the instruments using a current market rate of interest as compared to the stated rate of interest and giving effect for the right to offset with the note payable to stockholder in the event of non-performance. At December 31, 2005, the fair value approximates the carrying value. CONCENTRATION OF REVENUE No revenues were recorded for the year ended December 31, 2005 since there was no business activity in 2005. No revenues were recorded for fifteen months ended December 31, 2004 since there was no business activity in 2004. F-8 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -------------------------------------------------------------------------------- NET LOSS PER SHARE The Company applies Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128) which requires dual presentation of net earnings (loss) per share: Basic and Diluted. Basic earnings (loss) per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period adjusted for the effect of dilutive outstanding options and warrants. Outstanding stock options and warrants were not considered in the calculation of diluted net loss per share, as their effect was anti-dilutive. The Company made adjustments to two prior reporting periods in this report (See NOTE 9. PRIOR PERIOD ADJUSTMENT for more information). The effect of these changes was to increase net loss by $103,753 and $71,990 for the periods ended September 30, 2003 and December 31, 2004, respectively. As a result of this adjustment, basic and diluted loss per share increased to ($1.142) and ($0.026) for the periods ended September 30, 2003 and December 31, 2004, respectively. The financial statements for these periods have been retroactively restated for the change, which resulted in the increased net loss per share. Retained deficit has been adjusted for the effect of retroactive application of the prior period adjustment. SEGMENT REPORTING The Company applies Financial Accounting Standards Boards ("FASB") statement No. 131, "Disclosure about Segments of an Enterprise and Related Information". Since there was no business activity in 2005 and 2004, the Company determined that it did not have any material, separately reportable operating segments as of December 31, 2005 and December 31, 2004. As such, the accompanying financial statements present information in a format that is consistent with the financial information used by management for internal use. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the respective reporting period. Actual results could differ from those estimates. F-9 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION The functional currency of the Company is the Hong Kong dollar. The functional currency of the former subsidiaries, E-Trend and Langara is the Canadian dollar. Accordingly all assets and liabilities are translated into United States ("US") dollars at the year-end exchange rate and revenues and expenses are translated at average exchange rates. Gains and losses arising from the translation of the financial statements of the Company are recorded in a "Cumulative Translation Adjustment" account in stockholders' equity. Transactions denominated in other than US dollars are translated at the exchange rate on the transaction date. Monetary assets and liabilities denominated in other than US dollars are translated at the exchange rate in effect on the balance sheet date. The resulting exchange gains and losses on these items are included in operations. CASH AND CASH EQUIVALENTS For purposes of the Statements of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. NEW ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based Compensation". SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SGAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. SFAS 123(R) shall be effective for the Company as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The adoption of this new accounting pronouncement is expected to have a material impact on the financial statements of the Company commencing with the third quarter of the year ending September 30, 2006. Small business issuers need not comply with the new standard until fiscal periods beginning after December 15, 2005. The Company already records the expense of employee stock options for annual and quarterly periods on fair value calculation according to SFAS No.123. F-10 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -------------------------------------------------------------------------------- NEW ACCOUNTING PRONOUNCEMENTS (CONT.) In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" (SFAS 151). This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred in fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a significant impact on its financial statements. In December 2003, the issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," rescinded the accounting guidance contained in SAB No. 101, "Revenue Recognition in Financial Statements," and incorporated the body of previously issued guidance related to multiple-element revenue arrangements. The Company's adoption of SAB No. 104 did not have any impact on its financial statements. In March 2004, the FASB ratified EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments" ("EITF 03-1"), but delayed the recognition and measurement provisions of EITF 03-1 in September 2004. For reporting periods beginning after June 14, 2004, only the disclosure requirements for available-for-sale securities and cost method investments are required. The Company's adoption of the requirements did not have a significant impact on the Company's disclosures. In July 2004, the FASB issued EITF Issue No. 02-14, "Whether an Investor Should Apply the Equity Method of Accounting to Investments Other than Common Stock" ("EITF 02-14"). EITF 02-14 requires application of the equity method of accounting when an investor is able to exert significant influence over operating and financial policies of an investee through ownership of common stock or in-substance common stock. EITF 02-14 is effective for reporting periods beginning after September 15, 2004. The adoption of EITF 02-14 will not have a significant impact on the Company's financial statements. F-11 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -------------------------------------------------------------------------------- NEW ACCOUNTING PRONOUNCEMENTS (CONT.) In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments." SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company's first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the Company's financial statements. In March 2006 FASB issued SFAS No. 156 "Accounting for Servicing of Financial Assets" this Statement amends SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement: 1. Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract. 2. Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. 3. Permits an entity to choose `Amortization method' or Fair value measurement method' for each class of separately recognized servicing assets and servicing liabilities. 4. At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under SFAS No. 115, provided that the F-12 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) -------------------------------------------------------------------------------- NEW ACCOUNTING PRONOUNCEMENTS (CONT.) available-for-sale securities are identified in some manner as offsetting the entity's exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value. 5. Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of the Company's first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the Company's financial statements. -------------------------------------------------------------------------------- NOTE 2. GOING CONCERN (LIQUIDITY AND CAPITAL RESOURCES) -------------------------------------------------------------------------------- The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Going concern assumes that the Company will continue in operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has incurred substantial losses and negative cash flows from inception through December 31, 2005. In the absence of achieving positive cash flows from operations or obtaining additional debt or equity financing, the Company may have difficulty meeting obligations as they become due, and may be forced to discontinue operations. -------------------------------------------------------------------------------- NOTE 3. RELATED PARTY TRANSACTIONS -------------------------------------------------------------------------------- RELATED PARTIES PAYABLE STOCKHOLDER China Technology Global Corporation, a company indirectly owned by DiChain Holdings Limited, and China Merchants DiChain (Asia) Limited ("China Merchants DiChain") have advanced $205,708 and $87,059 to the Company, respectively, since October 1, 2003. These advances have been made on an interest-free basis, with no fixed term or repayment date. DiChain Holdings Limited and DC Capital Management, Inc., companies sharing mutual ownership with the Company, have advanced $26,790 and $9,000 to the F-13 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED) -------------------------------------------------------------------------------- RELATED PARTIES PAYABLE STOCKHOLDER (CONT.) Company, respectively, since January 1, 2005. These advances have been made on an interest-free basis, with no fixed term or repayment date. On May 24, 2004, the Company issued 31,151,780 shares of common stock to China Merchants DiChain Investment Holdings Limited and its designees for approximately $290,000 in debt conversion and assumption of costs of the transaction. ACCOUNTS PAYABLE OFFICERS AND DIRECTORS At December 31, 2005 and 2004, no executive officers, directors, employees or former executive officers and directors of the Company are indebted to the Company. SHARE OF BUSINESS OFFICES The Company shared the offices of China Merchants DiChain (Asia) Ltd. from January 2005 to September 2005, and was allocated HK$10,000 per month (US$1,282 as of August 15, 2005) as its pro rata share of the cost of the facility. There was no written agreement regarding this office sharing arrangement. The Company shared the offices of DC Capital Management, Inc. from October 2005 to December 2005, and was allocated HK$13,400 per month (US$1,718 as of October 1, 2005) as its pro rata share of the cost of the facility. There was no written agreement regarding this office sharing arrangement. SHARE OF OFFICE STAFF The Company shared the office staff of China Merchants DiChain (Asia) Ltd. from January 2005 to September 2005, and was allocated HK$35,000 per month (US$4,478 as of August 15, 2005) as its pro rata share of the cost. There was no written agreement regarding this staff sharing arrangement. The Company shared the offices staff of DC Capital Management, Inc. from October 2005 to December 2005, and was allocated HK$10,000 per month (US$1,282 as of October 1, 2005) as its pro rata share of the cost. There was no written agreement regarding this office sharing arrangement. F-14 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 4. INVESTMENT -------------------------------------------------------------------------------- The Company's investment in Sheung Tai Investments Limited was originally recorded at $1,385, reflecting the 13,848,220 shares issued to acquire that company at $0.0001 per share. The Company later reduced this amount to $1,000 to reflect a write down to fair value of the transaction. On January 19, 2005, the Company entered into an agreement between Good Achieve Investments Limited, Profit Spring International Limited, Anmer Capital Limited, Dunkley International Limited, and Nation Express Limited (As Vendors); Han Hong Lu, Ma Leung, Alan Li, Chen Ming You, and Guo Jianjun (As Warrantors); China Pharmaceuticals International Corporation (As Purchaser); and Dichain Holdings Limited (As Guarantor), which provided for the sale of Sheung Tai Investments Limited back to the original owners thereof in exchange for the return of 13,848,220 post-reverse split shares of the Company's common stock. The transaction from 2004 was officially rescinded and control never actually occurred. -------------------------------------------------------------------------------- NOTE 5. CONTINGENCIES -------------------------------------------------------------------------------- As of December 31, 2005, the Company owed a total of $375,244 to eAngels EquiDebt Partners ("eAngels"). The balance due bears interest at 10% per year. For the year ended December 31, 2005 and fifteen months ended December 31, 2004, accrued interest was $75,049 and the $37,524, respectively. The Company has disputed their liability for this debt. As of December 31, 2005, the Company owed a total of $100,000 on a note payable. The note bears interest at 10% per year and is in default. For the year ended December 31, 2005 and fifteen months ended December 31, 2004, accrued interest was $26,274 and $16,274, respectively. The Company has disputed their liability for this debt. As of December 31, 2005, the Company owed a total of $2,000 for consulting services provided by FutureVest, Inc. The Company has disputed their liability for this amount. As of December 31, 2005, the Company owed a total of $24,000 for consulting services provided by Alexis Global, Inc. The Company has disputed their liability for this amount. -------------------------------------------------------------------------------- NOTE 6. NOTES PAYABLE -------------------------------------------------------------------------------- The Company has issued an unsecured note payable in the amount of $100,000 which bears interest of 10% with a maturity date of May 16, 2004. As of December 31, 2005 and 2004, the outstanding balance on the note is $100,000 with accrued interest of $26,274 and $16,274, respectively. F-15 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 7. STOCK SUBSCRIPTIONS RECEIVABLE -------------------------------------------------------------------------------- The Company issued 45,200,000 shares on September 21, 2005 at $0.01 per share as follows: COMPANY SHARES US$ --------------------------------- ----------- --------- Global China Enterprises Limited 7,500,000 75,000 Fivestar International Limited 7,700,000 77,000 Mart Express Limited 7,500,000 75,000 Rich Gush Limited 7,500,000 75,000 Mart Burkit Limited 7,500,000 75,000 Sino Castle Holdings Limited 7,500,000 75,000 ----------- ---------- TOTAL 45,200,000 452,000 As of December 31, 2005, the investing companies have not paid the subscription amount of $452,000. Pursuant to its Articles of Incorporation, the Company may, upon written notice to these investing companies, treat the unpaid shares as canceled shares, but has opted not to do so as of December 31, 2005. Furthermore, pursuant to the subscription agreements the Company accrued interest on the Subscription Receivable at the rate of Hong Kong Prime plus 2% from September 28, 2005 through December 31, 2005, or a total of $11,350. However, in estimating uncollectible accounts, management recorded an allowance for doubtful accounts of $11,350. -------------------------------------------------------------------------------- NOTE 8. INCOME TAXES -------------------------------------------------------------------------------- The components of income taxes were as follows: 2005 2004 ======================================================================= Income Tax Benefit Income tax benefit at combined statutory rate of 42.62% $ 111,807 $ 263,050 Change in Valuation Allowance ( 111,807) ( 263,050) ----------------------------------------------------------------------- Income Tax Benefit $ - $ - ======================================================================= The income tax benefit for the year ended December 31, 2005 and fifteen months ended December 31, 2004, differed from the combined federal and provincial statutory rates due principally to the decrease in the deferred tax asset valuation allowance. F-16 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 8. INCOME TAXES (CONTINUED) -------------------------------------------------------------------------------- Due to mainly operating losses and the inability to recognize an income tax benefit there from, there is no provision for current federal or state income taxes for the year ended December 31, 2005 and fifteen months ended December 31, 2004. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes. At December 31, 2005, the approximate deferred tax assets were as follows: Non-capital loss carryforwards $ 2,215,601 Capital assets 45,000 ----------------------------------------------------------------------- Total deferred tax assets 2,260,601 Less valuation allowance (2,260,601) ----------------------------------------------------------------------- $ - ======================================================================= -------------------------------------------------------------------------------- NOTE 9. PRIOR PERIOD ADJUSTMENTS -------------------------------------------------------------------------------- Retained deficit at October 1, 2003 has been restated to reflect an unrecorded note payable of $100,000 and interest expense of $3,753. Had the errors not been made, net loss for the year ended September 30, 2003 would have increased by $103,753. Basic and diluted net loss per share would have increased by ($0.003) to ($0.026). Retained deficit at January 1, 2004 has been restated to reflect the aggregate of the unrecorded note payable and interest expense from the year ended September 30, 2003, of interest expense of $50,045, legal expenses of $17,511, consulting expenses of $2,000, and promotion expenses of $1,046, foreign currency exchange adjustments of $1,010, other expenses of $279 and travel expenses of $99. Had the errors not been made, a net loss for the fifteen months ended December 31, 2004 would have increased by $71,990. Basic and fully diluted net loss per share for the same period would have increased by ($0.163) to ($1.142). F-17 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 10. DISCONTINUED OPERATIONS -------------------------------------------------------------------------------- In October 2003, E-Trend Networks, Inc., then a subsidiary of the Company, disposed of its operating subsidiary and asset, Langara Entertainment, Inc. and EntertainMe.com, for equity stakes in Langara Group, Inc. and Fly.com, Inc. In February 2004, the Company spun out as a dividend to the shareholders on 1-for-1 share basis shares of E-Trend Networks, Inc. On February 5, 2004, the Company entered into an agreement for the exchange of common stock whereby the Company would issue 45,000,000 new post reverse split common shares thus transferring majority control of the Company to the purchaser. The distribution of Langara Entertainment, Inc., E-Trend Networks, Inc. and the discontinued operations of Wilmington Rexford, Inc. qualified for treatment as discontinued operations in accordance with FASB Statement No. 144 ("SFAS No. 144"), Accounting for the Impairment or Disposal of Long-Lived Assets. Because the operating results of Langara Entertainment, Inc., E-Trend Networks, Inc. and the discontinued operations of Wilmington Rexford, Inc. represent 100% of operations of the Company, they were included in results from continuing operations. The following is a summary of the net liabilities distributed as of the end of the period immediately prior to the effective date of the Distribution Agreement:
September December December 30, 2003 31, 2004 31, 2005 ------------- ------------- ------------ Assets Distributed Cash and cash equivalents $ 526 $ - $ - Accounts receivable 24,926 - - Property and equipment, net 165,246 - - Advances due from related parties 128,110 - - ------------- ------------- ------------ Total assets of discontinued operations 318,808 - - ------------- ------------- ------------ Liabilities Distributed Accounts payable and accrued liabilities 440,754 - - Notes payable - related parties 236,443 - - ------------- ------------- ------------ Total liabilities of discontinued operations 677,197 - - ------------- ------------- ------------ Net liabilities of discontinued operations distributed $ (358,389) $ - $ - ============= ============= ============
F-18 CHINA PHARMACEUTICALS INTERNATIONAL CORPORATION NOTES TO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND DECEMBER 31, 2004 ================================================================================ -------------------------------------------------------------------------------- NOTE 10. DISCONTINUED OPERATIONS (CONTINUED) -------------------------------------------------------------------------------- Net (loss) from discontinued operations as reported on the statements of operations, including the (loss) on the distribution of discontinued operations, consists of the following:
For the year For the fifteen For the year ended months ended ended September 30, December 31, December 31, 2003 2004 2005 -------------------- ------------------ ------------------ Summary of (Loss) Revenues $ 1,517,822 $ - $ - Cost of revenues (1,172,590) - - -------------------- ------------------ ------------------ Gross profit 345,232 - - Total operating expenses (1,091,499) - - Total other (income) expenses 46,411 - - Foreign currency translation adjustment (26,953) - - Provision for income tax - - - Comprehensive loss, net of tax $ (729,809) $ - $ - ==================== ================== ================== Summary of (Loss) on Distribution Net liabilities distributed 358,389 - - Costs and expenses of distribution - - - -------------------- ------------------ ------------------ Gain on distribution of liabilities, net of tax $ 358,389 $ - $ - ==================== ================== ================== Net (loss) from discontinued operations $ (371,420) $ - $ - ==================== ================== ==================
As a result of the foregoing distribution of Langara Entertainment, Inc., E-Trend Networks, Inc. and the discontinued operations of Wilmington Rexford, Inc., the Company recognized a loss from discontinued operations for the fiscal year ended September 30, 2003 of $1,058,245. There were no sales from Langara Entertainment, Inc., E-Trend Networks, Inc. and Wilmington Rexford, Inc., included in the periods from October 1, 2003 to December 31, 2005. F-19