-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DDYYSrjadnGcTVRFwYNoRD412CuH5uviATzn5FvSAULgApJ+EeuZJsZtDXB0BJzC x5P68g1/3urJmfK88zgLvw== 0001127855-04-000059.txt : 20040204 0001127855-04-000059.hdr.sgml : 20040204 20040204154242 ACCESSION NUMBER: 0001127855-04-000059 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040131 FILED AS OF DATE: 20040204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINOVAC BIOTECH LTD CENTRAL INDEX KEY: 0001084201 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 000000000 STATE OF INCORPORATION: B9 FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-29031 FILM NUMBER: 04566775 BUSINESS ADDRESS: STREET 1: SUITE #10-EPICUREAN, WOODS CENTRE STREET 2: P.O. BOX W-645 CITY: ST. JOHN'S STATE: B9 ZIP: 00000 BUSINESS PHONE: (268) 562-3452 MAIL ADDRESS: STREET 1: SUITE #10-EPICUREAN, WOODS CENTRE STREET 2: P.O. BOX W-645 CITY: ST. JOHN'S STATE: B9 FORMER COMPANY: FORMER CONFORMED NAME: NET FORCE SYSTEMS INC DATE OF NAME CHANGE: 19991110 6-K 1 sinovac6k013104.txt SINOVAC BIOTECH LTD. 6K, JANUARY 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 For the month of January, 2004. Commission File Number: 0-29031 SINOVAC BIOTECH LTD. (Name of Registrant in its charter) ANTIGUA and BARBUDA (State or other jurisdiction of incorporation or organization) Suite #10-Epicurean, Woods Centre P.O. Box W-645 St. John's, Antigua, West Indies (Address of principal executive offices and zip code) Tel: (268) 562-3452 Fax: (268) 562-3453 (Issuer's telephone and fax numbers) Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F Form 20-F X Form 40-F ----- ----- Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X ----- ----- If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ------ INDEX - ----- Item - ---- 1. Acquisition of Business 2. Other Material Events 3. Share Purchase Agreement - Exhibit 10.1 4. Financial Statements of Business Acquired - Exhibit 99.1 5. Pro Forma Financial Statements - Exhibit 99.2 6. Press Release dated January 30, 2004 - Exhibit 99.3 7. Press Release dated February 3, 2004 - Exhibit 99.4 8. Document from the Ministry of Science & Technology of the People's Republic of China - Exhibit 99.5 9. Test Reports of National Institute for the Control of Pharmaceutical & Biological Products - Exhibit 99.6 10. Certificate issued from the Food & Drug Administration of the PRC - Exhibit 99.7 Item 1. Acquisition of Business - -------------------------------- On January 26, 2004, Sinovac Biotech Ltd. (the "Company") entered into a formal share purchase agreement (the "Share Purchase Agreement") to acquire 100% of the issued and outstanding shares of Tangshan Yian Biological Engineering Co., Ltd. ("Tangshan Yian"), a corporation organized under the laws of the People's Republic of China, through the issuance of 3,500,000 shares of common stock of the Company plus US$2,200,000 in cash, which will be payable by the Company within 12 months from the date of entering into the Share Purchase Agreement, to Mr. He Ping Wang, the sole shareholder of Tangshan Yian and also a director of the Company. Mr. He Ping Wang now holds approximately 11.45% of the Company's outstanding shares of common stock. The Company's Board of Directors approved the entering into the letter of intent to acquire all of the issued and outstanding shares of Tangshan Yian on October 30, 2003. In addition, the Company's Board of Directors approved the entering into the Share Purchase Agreement to acquire all of the issued and outstanding shares of Tangshan Yian on January 26, 2004. As of January 30, 2004, all of the terms and conditions of the Share Purchase Agreement have been satisfied and the acquisition of Tangshan Yian by Sinovac is now completed. About Tangshan Yian Biological Engineering Co., Ltd. - ---------------------------------------------------- Tangshan Yian operates in the city of Tangshan, People's Republic of China. Since its inception in 1993, it has operated as an R & D and manufacturing company specializing in the development and manufacturing of various vaccines including flu, vaccines for Hepatitis A and Hepatitis A&B, and a potential vaccine for SARS. Tangshan Yian supplies these vaccines to the Company's subsidiary, Sinovac Biotech Co., Ltd. The operations of Tangshan Yian are expected to supply large-scale quantities of new and updated vaccines for the domestic Chinese and international markets. Tangshan Yian is located in the New Hi-tech Development Zone of Tangshan City, connected by superhighways to Beijing, 150 kilometers to the east. Tangshan Yian's plant was built in accordance with the Pharmaceutical Industrial Standards and Regulations of China, which are based on international standards. The plant itself is 4300 square meters, which includes a Biological Safety Laboratory, Cell Culturing Workshop, Pilot Trial Production Workshop, Reagents Manufacture Workshop, and Research Lab for R&D of the Split Flu Vaccine. Moreover, within the plant, there is reserved space of about 1500 square meters, which will be used as a vaccine manufacture workshop. The plant is situated on 20,000 square meters of land, and has reserved an additional 10,0000 square meters in anticipation of future expansion. The land is already facilitated with full amenities. Tangshan Yian provides the Company with a low-cost R & D and manufacturing base. The cost of Tangshan Yian's land is about 20% of its equivalent in Beijing while salaries are about 50% of those paid to equivalent personnel in Beijing. Furthermore, the acquisition of Tangshan Yian contributes talented management and scientists who will add significant value to the Company's progress in 2 vaccine development and manufacture. These favorable attributes are even further compounded with the addition of Tanshan Yian's state-of-the-art facilities and expanded manufacturing capabilities. These advantages could prove invaluable for enhancing the Company's competitive position in its progression towards large-scale flu and potentially SARS vaccine manufacture. The Company's Beijing operation has workshops for large-scale production of inactivated Hepatitis A vaccine and Hepatitis A & B combination vaccine. However, according to GMP regulations (government regulated standards called Good Manufacturing Practices), these workshops cannot be used for any other new vaccine development. Therefore, the research and pilot production activities for the flu vaccine and potential SARS vaccine actually take place inside Tangshan Yian. The Company's potential SARS vaccine has been approved for clinical trials by the Chinese FDA (SFDA). Tangshan Yian has produced 20,000 doses of this vaccine to date and has the ability and capacity to produce more of the SARS vaccine for use in these clinical trials. Tangshan Yian will thus be able to efficiently produce further required quantities of the vaccine in timely manner. Of particular note is Tangshan Yian's production-scaled Biological Safety Level 3 laboratory, which includes a negative pressure facility. These highly specialized, so-called P3 labs, are necessary for research on highly infectious and contagious viruses and production of their associated vaccines. There are only a few of these state-of-the-art labs in China. The Company has conducted clinical trials on its flu vaccine. In order to receive further approvals from the SFDA (Chinese Food and Drug Administration), a flu vaccine production line must be built and the resulting manufactured final product must meet SFDA standards. To achieve this production capability, the Company is building a large-scale flu vaccine production line at Tangshan Yian. A copy of the Share Purchase Agreement is attached hereto as Exhibit 10.1. Item 2. Other Material Events and Regulation FD Disclosure - ----------------------------------------------------------- This current report contains forward-looking statements regarding future events and future performance of the Company, including statements with respect to consummation of a proposed transaction and commercialization of products, all of which involve risks and uncertainties that could materially affect actual results. Such statements are based on Management's current expectations and actual results could differ materially. Investors should refer to documents that the Company files from time to time with the Securities and Exchange Commission for a description of certain factors that could cause the actual results to vary from current expectations and the forward-looking statements contained in the report. Such filing includes, without limitation, the Company's Form 20-F and Form 6-K reports. Item 3. Share Purchase Agreement - Exhibit 10.1 - ------------------------------------------------ Item 4. Financial Statements of Business Acquired - 99.1 - --------------------------------------------------------- Item 5. Pro Forma Financial Statements - 99.2 - ---------------------------------------------- Item 6. Press Release dated January 30, 2004 - 99.3 - ---------------------------------------------------- Item 7. Press Release dated February 3, 2004 - Exhibit 99.4 - ------------------------------------------------------------ Item 8. Document from the Ministry of Science & Technology of the People's - --------------------------------------------------------------------------- Republic of China - Exhibit 99.5 - -------------------------------- 3 Item 9. Test Reports of National Institute for the Control of Pharmaceutical & - ------------------------------------------------------------------------------- Biological Products - Exhibit 99.6 - ---------------------------------- Item 10. Certificate issued from the Food & Drug Administration of the PRC - - ----------------------------------------------------------------------------- Exhibit 99.7 - ------------ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SINOVAC BIOTECH LTD. Date: February 3, 2004 By: /s/ Lily Wang ---------------------------- Lily Wang, CFO and a Director 4 EX-10.1 3 sinovacsharepuragree.txt SINOVAC BIOTECH 6K, SHARE PURCHASE AGREEMENT EXHIBIT 10.1 - ------------ SHARE PURCAHSE AGREEMENT ------------------------ THIS SHARE PURCAHSE AGREEMENT is dated and made for reference -------------------------------- effective as fully executed on this 26th day of January, 2004. BETWEEN: - ------- SINOVAC BIOTECH LTD., a corporation organized under the laws -------------------- of Country of Antigua and having an address for notice and delivery located at Suite #10-Epicurean, Woods Centre, P.O. Box W-645, St. John's, Antigua, West Indies (the "Purchaser"); OF THE FIRST PART ----------------- AND: - --- TANGSHAN YIAN BIOLOGICAL ENGINEERING, CO., LTD., a -------------------------------------------------------- corporation organized under the laws of the People's Republic of China and having an address for notice and delivery located at 120 Huoju Rd., High Tech. Developing Zone Tangshan, Hbei Provence, 063000 P.R. China (the "Company"); OF THE SECOND PART ------------------ AND: - --- THE UNDERSIGNED SHAREHOLDER OF TANGSHAN YIAN BIOLOGICAL ------------------------------------------------------------ ENGINEERING CO., LTD., having an address for notice and ----------------------- delivery located at c/o 120 Huoju Rd., High Tech. Developing Zone Tangshan, Hbei Provence, 063000 P.R. China (such shareholder being hereinafter referred to as the "Vendor"); OF THE THIRD PART ----------------- (the Vendor, the Company and the Purchaser being hereinafter singularly also referred to as a "Party" and collectively referred to as the "Parties" as the context so requires). 2 WHEREAS: ------- A. The Company is a body corporate subsisting under and registered pursuant to the laws of the People's Republic of China; B. The Company is in the business of research and development specializing in the development and manufacturing of various vaccines including flu vaccines and vaccines for Hepatitis A (collectively, the "Company's Business"); C. The Vendor is the legal and beneficial owner of all of the issued and outstanding shares in the capital of the Company (each a "Purchased Share"); the particulars of the registered and beneficial ownership of such Purchased Shares being set forth in Schedule "A" which is attached hereto and which forms a material part hereof; and D. The Parties hereto have agreed to enter into this Share Purchase Agreement (the "Agreement") which formalizes, amends and replaces, in its entirety, the Letter of Intent, dated October 30, 2003 (the "Letter of Intent") as contemplated and required by the terms of such Letter of Intent, and which clarifies their respective duties and obligations in connection with the purchase by the Purchaser from the Vendor of all of the Purchased Shares together with the further development of the Company's Business as a consequence thereof; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the ---------------------------------------- mutual promises, covenants and agreements herein contained, THE PARTIES HERETO ------------------ COVENANT AND AGREE WITH EACH OTHER as follows: - ---------------------------------- Article 1 --------- DEFINITIONS ----------- 1.1 Definitions. For the purposes of this Agreement, except as otherwise ----------- expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: (a) "Agreement" means this "Share Purchase Agreement" as entered into among the Vendor, the Company and the Purchaser herein, together with any amendments thereto and any Schedules as attached thereto; (b) "Board of Directors" means, as applicable, the respective Board of Directors of each of the Parties hereto as duly constituted from time to time; 3 (c) "business day" means any day during which Canadian Chartered Banks are open for business in the City of Vancouver, Province of British Columbia; (d) "Business Documentation" means any and all records and other factual data and information relating to the Company's Business interests and assets and including, without limitation, all plans, agreements and records which are in the possession or control of Vendor or the Company in that respect; (e) "Closing" has the meaning ascribed to it in Article "6.1" hereinbelow; (f) "Closing Date" has the meaning ascribed to it in Article "6.1" hereinbelow; (g) "Commercial Arbitration Act" means the Arbitration Act of the Province of British Columbia, R.S.B.C. 1996, as amended from time to time, as set forth in Article "11" hereinbelow; (h) "Commissions" means the United States Securities and Exchange Commission; (i) "Common Shares" means the 3,500,000 shares of common stock of the Purchaser to be issued and delivered to the Vendor as part of the Purchase Price of the Purchased Shares; (j) "Company" means Tangshan Yian Biological Engineering Co., Ltd., a corporation organized under the laws of the People's Republic of China, or any successor company, however formed, whether as a result of merger, amalgamation or other action; (k) "Company's Assets" means all assets, contracts, equipment, goodwill, inventory and Intellectual Property of the Company; (l) "Company's Business" has the meaning ascribed to it in recital "B." hereinabove; (m) "Company's Financial Statements" has the meaning ascribed to it in Article "3.3(s)" hereinbelow; (n) "Defaulting Party" and "Non-Defaulting Party" have the meanings ascribed to them in Article "12" hereinbelow; (o) "Encumbrances" means mortgages, liens, charges, security interests, encumbrances and third party claims of any nature; (p) "Exchange" means the NASD Over-the-Counter Bulletin Board; (q) "Execution Date" means the actual date of the complete execution of this Agreement and any amendment thereto by all Parties hereto as set forth on the front page hereof; 4 (r) "Indemnified Party" and "Indemnified Parties" have the meanings ascribed to them in Article "7.1" hereinbelow; (s) "Intellectual Property" means, with respect to the Company, all right and interest to all patents, patents pending, inventions, know-how, any operating or identifying name or registered or unregistered trademarks and tradenames, all computer programs, licensed end-user software, source codes, products and applications (and related documentation and materials) and other works of authorship (including notes, reports, other documents and materials, magnetic, electronic, sound or video recordings and any other work in which copyright or similar right may subsist) and all copyrights (registered or unregistered) therein, industrial designs (registered or unregistered), franchises, licenses, authorities, restrictive covenants or other industrial or intellectual property used in or pertaining to the Company; (t) "Parties" or "Party" means, respectively, the Vendor, the Company and/or the Purchaser hereto, as the case may be, together with their respective successors and permitted assigns as the context so requires; (u) "person" or "persons" means an individual, corporation, partnership, party, trust, fund, association and any other organized group of persons and the personal or other legal representative of a person to whom the context can apply according to law; (v) "Purchased Shares" has the meaning ascribed to it in recital "C." hereinabove; the particulars of the registered and beneficial ownership of such Purchased Securities being set forth in Schedule "A" which is attached hereto; (w) "Purchase Price" has the meaning ascribed to it in Article "2.2" hereinbelow; (x) "Purchaser" means Sinovac Biotech Ltd., a corporation organized under the laws of the Country of Antigua, or any successor company, however formed, whether as a result of merger, amalgamation or other action; (y) "Purchaser's Initial Due Diligence" has the meaning ascribed to it in Article "5.1(b)" hereinbelow; (z) "Purchaser's Ratification" has the meaning ascribed to it in Article "5.1(a)" hereinbelow; (aa) "Takeover" means that transaction or series of transactions pursuant to which the Purchaser will acquire all of the Purchased Shares of the Company from the Vendor in exchange for the issuance from treasury by the Purchaser of the Common Shares and US$2,200,000 payable with 12 months of entering into this Share Purchase Agreement and all matters necessarily ancillary thereto; 5 (ab) "Time of Closing" means 2:00 o'clock, p.m. (Vancouver Time) on the Closing Date; (ac) "Transfer Agent" means Pacific Stock Transfer Company; and (ad) "Vendor" means the sole shareholder of the Company who has executed this Agreement as a Party hereto. 1.2 Schedules. For the purposes of this Agreement, except as otherwise --------- expressly provided or unless the context otherwise requires, the following shall represent the Schedules which are attached to this Agreement and which form a material part hereof: Schedule Description -------- ----------- Schedule "A": Purchased Shares and Vendor; and Schedule "B" Promissory Note issued by the Purchaser. 1.3 Interpretation. For the purposes of this Agreement, except as -------------- otherwise expressly provided or unless the context otherwise requires,: (a) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, section or other subdivision of this Agreement; (b) any reference to an entity shall include and shall be deemed to be a reference to any entity that is a permitted successor to such entity; and (c) words in the singular include the plural and words in the masculine gender include the feminine and neuter genders, and vice versa. Article 2 --------- PURCHASE AND SALE OF THE ALL OF THE PURCHASED SHARES ---------------------------------------------------- 2.1 Purchase and Sale. Subject to the terms and conditions hereof and ------------------ based upon the representations and warranties contained in Articles "3" and "4" hereinbelow and prior satisfaction of the conditions precedent which are set forth in Article "5" hereinbelow, the Vendor hereby agrees to assign, sell and transfer at the Closing Date (as hereinafter determined) all of his respective rights, entitlement and interest in and to the Purchased Shares to the Purchaser and the Purchaser hereby agrees to purchase all of the Purchased Shares from the Vendor on the terms and subject to the conditions contained in this Agreement. 6 2.2 Purchase Price. The total purchase price (the "Purchase Price") for --------------- all of the Purchased Shares will be satisfied by way of the issuance and delivery by the Purchaser to the Vendor, in accordance with section "2.3" hereinbelow, of an aggregate of 3,500,000 common shares in the capital of the Purchaser (each a "Common Share"), at a deemed issuance price of US$0.76 per Common Share and a promissory note issued by the Purchaser to the Vendor in the amount of US$2,200,000, which amount shall be due and payable within 12 months of the effective date of this Agreement, and which is attached hereto as Schedule "C". 2.3 Resale Restrictions. The Vendor hereby acknowledges and agrees that -------------------- the Purchaser makes no representations as to any resale or other restriction affecting the Common Shares and that it is presently contemplated that the Common Shares will be issued by the Purchaser to the Vendor in reliance upon the registration and prospectus exemptions contained in the United States Securities Act of 1933, as amended (the "Securities Act") or "Regulation S" promulgated under the Securities Act which will impose a trading restriction in the United States on the Common Shares for a period of at least 12 months from the Closing Date (as hereinafter determined). In addition, the obligation of the Purchaser to issue the Common Shares pursuant to section "2.2" hereinabove will be subject to the Purchaser being satisfied that an exemption from applicable registration and prospectus requirements is available under the Securities Act and all applicable securities laws, in respect of the Vendor and related Common Shares, and the Purchaser shall be relieved of any obligation whatsoever to purchase any Purchased Shares of the Vendor and to issue Common Shares in respect of the Vendor where the Purchaser reasonably determines that a suitable exemption is not available to it. Article 3 --------- REPRESENTATIONS, WARRANTIES AND COVENANTS ----------------------------------------- BY THE COMPANY AND THE VENDOR ----------------------------- 3.1 General Representations, Warranties and Covenants by the Company and ---------------------------------------------------------------------- Xianping Wang. In order to induce the Purchaser to enter into and consummate - -------------- this Agreement, the Company and Xianping Wang, jointly and severally, represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of each of Xianping Wang and the Company, after having made due inquiry: (a) if a corporation, it is duly organized under the laws of its respective jurisdiction of incorporation and is validly existing and in good standing with respect to all statutory filings required by the applicable corporate laws; (b) it is qualified to do business in those jurisdictions where it is necessary to fulfill its obligations under this Agreement and it has the full power and authority to enter into this Agreement and any agreement or instrument referred to or contemplated by this Agreement; (c) it has the requisite power, authority and capacity to own and use all of its respective business assets and to carry on its respective 7 business as presently conducted by it and to fulfill its respective obligations under this Agreement; (d) the execution and delivery of this Agreement and the agreements contemplated hereby have been duly authorized by all necessary action, corporate or otherwise, on its respective part; (e) there are no other consents, approvals or conditions precedent to the performance of this Agreement which have not been obtained; (f) this Agreement constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms, except as enforcement may be limited by laws of general application affecting the rights of creditors; (g) no proceedings are pending for, and it is unaware of, any basis for the institution of any proceedings leading to its respective dissolution or winding up, or the placing of it in bankruptcy or subject to any other laws governing the affairs of insolvent companies or persons; (h) the making of this Agreement and the completion of the transactions contemplated hereby and the performance of and compliance with the terms hereof does not and will not: (i) if a corporation, conflict with or result in a breach of or violate any of the terms, conditions or provisions of its respective constating documents; (ii) conflict with or result in a breach of or violate any of the terms, conditions or provisions of any law, judgment, order, injunction, decree, regulation or ruling of any Court or governmental authority, domestic or foreign, to which it is subject, or constitute or result in a default under any agreement, contract or commitment to which it is a party; (iii) give to any party the right of termination, cancellation or acceleration in or with respect to any agreement, contract or commitment to which it is a party; (iv) give to any government or governmental authority, or any municipality or any subdivision thereof, including any governmental department, commission, bureau, board or administration agency, any right of termination, cancellation or suspension of, or constitute a breach of or result in a default under, any permit, license, control or authority issued to it which is necessary or desirable in connection with the conduct and operations of its respective business and the ownership or leasing of its respective business assets; or (v) constitute a default by it, or any event which, with the giving of notice or lapse of time or both, might constitute 8 an event of default, under any agreement, contract, indenture or other instrument relating to any indebtedness of it which would give any party to that agreement, contract, indenture or other instrument the right to accelerate the maturity for the payment of any amount payable under that agreement, contract, indenture or other instrument; and (i) neither this Agreement nor any other document, certificate or statement furnished to the Purchaser by or on behalf of any of the Vendor or the Company in connection with the transactions contemplated hereby knowingly or negligently contains any untrue or incomplete statement of material fact or omits to state a material fact necessary in order to make the statements therein not misleading which would likely affect the decision of the Purchaser to enter into this Agreement. 3.2 Representations, Warranties and Covenants by the Vendor respecting the ---------------------------------------------------------------------- Purchased Shares and the Common Shares. In order to induce the Purchaser to - ---------------------------------------- enter into and consummate this Agreement, the Vendor hereby represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will also rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of the Vendor, after having made due inquiry: (a) save and except as set forth in Schedule "A" which is attached hereto, the Vendor has good and marketable title to and is the legal and beneficial owner of all of the Purchased Shares, and the Purchased Shares are fully paid and non-assessable and are free and clear of liens, charges, encumbrances, pledges, mortgages, hypothecations, security interests and adverse claims of any and all nature whatsoever and including, without limitation, options, pre-emptive rights and other rights of acquisition in favour of any person, whether conditional or absolute; (b) the Vendor has the power and capacity to own and dispose of the Purchased Shares, and the Purchased Shares are not subject to any voting or similar arrangement; (c) there are no actions, suits, proceedings or investigations (whether or not purportedly against or on behalf of the Vendor or the Company), pending or threatened, which may affect, without limitation, the rights of the Vendor to transfer any of the Purchased Shares to the Purchaser at law or in equity, or before or by any federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and, without limiting the generality of the foregoing, there are no claims or potential claims under any relevant family relations legislation or other equivalent legislation affecting the Purchased Shares. In addition, the Vendor is not now aware of any existing ground on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success; 9 (d) no other person, firm or corporation has any agreement, option or right capable of becoming an agreement for the purchase of any of the Purchased Shares; (e) the Vendor acknowledges that the Common Shares will be issued under certain exemptions from the registration and prospectus filing requirements otherwise applicable under the Securities Act, and that, as a result, the Vendor may be restricted from using most of the remedies that would otherwise be available to the Vendor, the Vendor will not receive information that would otherwise be required to be provided to the Vendor and the Purchaser is relieved from certain obligations that would otherwise apply to the Purchaser, in either case, under applicable securities legislation; (f) the Vendor has not received, nor has the Vendor requested or does the Vendor require to receive, any offering memorandum or a similar document describing the business and affairs of the Purchaser in order to assist the Vendor in entering into this Agreement and in consummating the transactions contemplated herein; (g) the Vendor acknowledges and agrees that the Common Shares have not been and will not be qualified or registered under the securities laws of the United States or any other jurisdiction and, as such, the Vendor may be restricted from selling or transferring such Common Shares under applicable law; (h) the Vendor is resident in the jurisdiction as set forth under the Vendor's address in Schedule "A" which is attached hereto, and that all negotiations and other acts in furtherance of the execution and delivery of this Agreement by the Vendor in connection with the transactions contemplated herein have taken place and will take place solely in such jurisdiction or in the "Country of Antigua; and (i) the Purchased Shares have been issued in accordance with all applicable securities and corporate legislation and policies. 3.3 Representations, Warranties and Covenants by the Company and the ---------------------------------------------------------------------- Vendor respecting the Company. In order to induce the Purchaser to enter into - ------------------------------- and consummate this Agreement, each of the Vendor and the Company hereby, jointly and severally, also represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will also rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of each of the Vendor and the Company, after having made due inquiry: Corporate Status of the Company ------------------------------- (a) the Company is a company with limited liability duly and properly organized and validly subsisting under the laws of the People's Republic of China being the only jurisdiction where it is required to 10 be registered for the purpose of enabling it to carry on its business and own its property as presently carried on and owned; (b) the Company has good and sufficient power, authority and right to own or lease its property, to enter into this Agreement and to perform its obligations hereunder; Authorization ------------- (c) this Agreement has been duly authorized, executed and delivered by the Vendor and the Company and is a legal, valid and binding obligation of the Vendor and the Company, enforceable against the Vendor and/or the Company, as the case may be, by the Purchaser in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction; No Other Agreements to Purchase ------------------------------- (d) no person other than the Purchaser has any written or oral agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, or option for the purchase or acquisition from the Vendor of any of the Purchased Shares; Options ------- (e) no person has any agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, including convertible securities, warrants or convertible obligations of any nature, for the purchase, subscription, allotment or issuance of any unissued shares or other securities of the Company; Title to Shares --------------- (f) the Purchased Shares are beneficially owned by the Vendor with good and marketable title thereto free of all Encumbrances and are registered in the books of the Company in the name of the Vendor and, without limitation thereto, none of the Purchased Shares are subject to any voting trust, unanimous shareholders agreement, other shareholders agreements, pooling agreements or voting agreements; (g) upon completion of the transactions contemplated by this Agreement, all of the Purchased Shares will be owned by the Purchaser as the beneficial owner of record, with good and marketable title thereto (except for such Encumbrances as may have been granted by the Purchaser); 11 Title to Personal Property and Other Property --------------------------------------------- (h) the property and assets of the Company are, and between the date hereof and the Closing Date (as hereinafter determined), will be, owned beneficially by the Company with a good and marketable title thereto, free and clear of all Encumbrances save as previously disclosed to the Purchaser; Intellectual Property --------------------- (i) the Company has provided the Purchaser with a complete and accurate list of all trade marks, trade names, business names, patents, inventions, know-how, copyrights, service marks, brand names, industrial designs and all other industrial or intellectual property owned or used by the Company in carrying on the Company's Business and all applications therefor and all goodwill connected therewith, including, without limitation, all licenses, registered user agreements and all like rights used by or granted to the Company in connection with the Company's Business and all right to register or otherwise apply for the protection on any of the foregoing (collectively, the "Intellectual Property"); (j) the Intellectual Property comprises all trade marks, trade names, business names, patents, inventions, know-how, copyrights, service marks, brand marks, industrial designs and all other industrial or intellectual property necessary to conduct the Company's Business; (k) the Company is the beneficial owner of the Intellectual Property, free and clear of all Encumbrances, and is not a party to or bound by any contract or other obligation whatsoever that limits or impairs its ability to sell, transfer, assign or convey, or that otherwise affects, the Intellectual Property; (l) no person has been granted any interest in or right to use all or any portion of the Intellectual Property; (m) neither the Vendor nor the Company are aware of a claim of any infringement or breach of any industrial or intellectual property rights of any other person by the Company, nor have the Vendor or the Company received any notice that the conduct of the Company's Business infringes or breaches any industrial or intellectual property rights of any other person, and neither the Vendor nor the Company, after due inquiry, have any knowledge of any infringement or violation of any of their rights or the rights of the Company in the Intellectual Property; (n) the conduct of the Company's Business does not infringe upon the patents, trade marks, licenses, trade names, business names, copyright or other industrial or intellectual property rights, domestic or foreign, of any other person; 12 (o) neither the Vendor nor the Company are aware of any state of facts that casts doubt on the validity or enforceability of any of the Intellectual Property; (p) the Company has provided to the Purchaser a true and complete copy of all Contracts and amendments thereto that comprise or relate to the Intellectual Property; Financial Statements -------------------- (q) the Company's Audited Financial Statements dated June 30, 2003, have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior periods, are correct and complete and present fairly the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of the Company as at the respective dates of and for the respective periods covered by the Company's Financial Statements; (r) for any period up to the Time of Closing the Company will not have any debts or liabilities whatsoever (whether accrued, absolute or contingent or otherwise), including any liabilities for federal, provincial, sales, excise, income, corporate or any other taxes of the Company except for; (i) the debts and liabilities disclosed on, provided for or included in the balance sheet forming a part of the most recent of the Company's Financial Statements; (ii) debts or liabilities disclosed in this Agreement or any Schedule hereto; and (iii) liabilities incurred by the Company in the ordinary course of the Company's Business subsequent to the date of the balance sheet referred to in the Company's Financial Statements; Books and Records ----------------- (s) the books and records of the Company fairly and correctly set out and disclose, in all material respects, in accordance with generally accepted accounting principles, consistently applied, the financial condition of the Company as of the date of this Master Agreement and all material financial transactions of the Company have been accurately recorded in such books and records; Corporate Records ----------------- (t) the Corporate records and minute books of the Company contain complete and accurate minutes, (duly signed by the chairman and/or secretary of the appropriate meeting) of all meetings of the directors and shareholders of the Company since its date of incorporation; 13 (u) the share certificate records, the securities register, the register of disclosures , the register of directors and officers for the Company are contained in the corporate minute book and are complete and accurate in all respects; Directors and Officers ---------------------- (v) the present directors and officers of the Company are as follows: Name Position ---- -------- Xianping Wang President and Director Accuracy of Warranties ---------------------- (w) neither this Agreement nor any document, schedule, list, certificate, declaration under oath or written statement now or hereafter furnished by the Vendor or the Company to the Purchaser in connection with the transactions contemplated by this Agreement contains or will contain any untrue statement or representation of a material fact on the part of the Vendor or the Company, or omits or will omit on behalf of the Vendor or the Company to state a material fact necessary to make any such statement or representation therein or herein contained not misleading; and Full Disclosure --------------- (x) the Vendor has no information or knowledge of any fact not communicated to the Purchaser and relating to the Company or to the Company's Business or to the Purchased Shares which, if known to the Purchaser, might reasonably be expected to deter the Purchaser from entering into this Agreement or from completing the transactions contemplated by this Agreement. 3.4 Survival of the Representations, Warranties and Covenants by each of ---------------------------------------------------------------------- the Vendor and the Company. To the extent they have not been fully performed at - -------------------------- or prior to the Time of Closing, each and every representation and warranty of the Vendor or the Company contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement shall: (a) be true and correct on and as of the Closing Date with the same force and effect as though made or given on the Closing Date; (b) remain in full force and effect notwithstanding any investigations conducted by or on behalf of the Purchaser; and (c) survive the completion of the transactions contemplated by this Agreement until the second anniversary of the Closing Date and shall continue in full force and effect for the benefit of the Purchaser during that period, except that: 14 (i) the representations and warranties set out in section 3.2(a) to and including 3.2(i) above shall survive and continue in full force and effect without limitation of time; and (ii) a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant hereto involving fraud or fraudulent misrepresentation may be made at any time following the Closing Date, subject only to applicable limitation periods imposed by law. (d) to the extent they have not been fully performed at or prior to the Time of Closing, each and every covenant of the Vendor contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement shall survive the completion of the transactions contemplated by this Agreement and, notwithstanding such completion, shall continue in full force and effect for the benefit of the Purchaser. Article 4 --------- WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE PURCHASER ---------------------------------------------------------- 4.1 Warranties, Representations and Covenants by the Purchaser. In order ----------------------------------------------------------- to induce the Vendor and the Company to enter into and consummate this Agreement, the Purchaser hereby warrants to, represents to and covenants with each of the Vendor and the Company, with the intent that each of the Vendor and the Company will rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of the Purchaser, after having made due inquiry: Corporate Status of the Purchaser --------------------------------- (a) the Purchaser is a company with limited liability duly and properly incorporated, organized and validly subsisting under the laws of the Country of Antigua being the only jurisdiction where it is required to be registered for the purpose of enabling it to carry on its business and own its property as presently carried on and owned; (b) the Purchaser has good and sufficient power, authority and right to own or lease its property, to enter into this Agreement and to perform its obligations hereunder; Authorization ------------- (c) this Agreement has been duly authorized, executed and delivered by the Purchaser and is a legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser, as the case may be, by the Vendor and/or the Company in accordance with its terms, except as 15 enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction; Share Capital ------------- (d) the authorized capital of the Purchaser consists of 100,000,000 shares of common stock of which 27,091,033 shares of common stock of the Purchaser have been duly issued and are outstanding as fully paid and non-assessable, and 50,000,000 shares of preferred stock of which no shares of preferred stock are issued and outstanding; (e) all of the issued and outstanding shares of the Purchaser are listed and posted for trading on the Exchange; (f) the Purchaser will allot and issue the Common Shares on the Closing Date in accordance with sections "2.2" and "2.3" hereinabove as fully paid and non-assessable in the capital of the Purchaser, free and clear of all actual or threatened liens, charges, security interests, options, encumbrances, voting agreements, voting trusts, demands, limitations and restrictions of any nature whatsoever, other than hold periods or other restrictions imposed under applicable securities legislation or by securities regulatory authorities; Options ------- (g) no person has any agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, including convertible securities, warrants or convertible obligations of any nature, for the purchase, subscription, allotment or issuance of any unissued shares or other securities of the Purchaser except for 3,000,000 stock options exercisable at US$1.31 per share which have been granted to directors, officers, employees and consultants of the Purchaser; Directors and Officers ---------------------- (h) the present directors and officers of the Purchaser are as follows: Name Position ---- -------- Wei Dong Yin Director, President and CEO; Lily Wang Director and CFO; He Ping Wang Director Kim Kiat Ong Director Full Disclosure --------------- (i) the Purchaser has no information or knowledge of any fact not communicated to the Vendor and the Company and relating to the Purchaser or to the Purchaser's business or to its issued and outstanding securities which, if known to the Vendor and/or the 16 Company, might reasonably be expected to deter the Vendor and/or the Company from entering into this Agreement or from completing the transactions contemplated by this Agreement. 4.2 Survival of the Representations, Warranties and Covenants by the ---------------------------------------------------------------------- Purchaser. To the extent they have not been fully performed at or prior to the - --------- Time of Closing, each representation and warranty of the Purchaser contained in this Agreement or in any document, instrument, certificate or undertaking given pursuant hereto shall: (a) be true and correct on and as of the Closing Date with the same force and effect as though made or given on the Closing Date; (b) remain in full force an effect notwithstanding any investigations conducted by or on behalf of the Purchaser, and (c) survive the completion of the transactions contemplated by this Agreement until the second anniversary of the Closing Date and shall continue in full force and effect for the benefit of the Vendor and the Company during that period, except that a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant hereto involving fraud or fraudulent misrepresentation may be made at any time following the Closing Date, subject only to applicable limitation periods imposed by law. (d) To the extent they have not been fully performed at or prior to the Time of Closing, each and every covenant of the Purchaser contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement shall survive the completion of the transactions contemplated by this Agreement and, notwithstanding such completion, shall continue in full force and effect for the benefit of the Vendor and the Company. Article 5 --------- CONDITIONS PRECEDENT TO CLOSING ------------------------------- 5.1 Parties' Conditions Precedent prior to the Closing Date. All of the ---------------------------------------------------------- rights, duties and obligations of each of the Parties hereto under this Agreement are subject to the following conditions precedent for the exclusive benefit of each of the Parties to be fulfilled in all material aspects in the reasonable opinion of each of the Parties or to be waived by each or any of the Parties, as the case may be, as soon as possible after the Execution Date; however, unless specifically indicated as otherwise, not later than the Time of Closing: (a) the specific ratification of the terms and conditions of this Agreement by the Board of Directors of the Purchaser within five business days of the due and complete execution of this Agreement by each of the Parties hereto (the "Purchaser's Ratification"); 17 (b) the completion by the Purchaser of an initial due diligence and operations review of the Company's Business and operations within five (5) calendar days of the prior satisfaction by the Purchaser of the Purchaser's Ratification (the "Purchaser's Initial Due Diligence"); 5.2 Parties' Waiver of Conditions Precedent. The conditions precedent set --------------------------------------- forth in section "5.1" hereinabove are for the exclusive benefit of each of the Parties hereto and may be waived by each of the Parties in writing and in whole or in part at or prior to the Time of Closing. 5.3 The Vendor's and the Company's Conditions Precedent. The purchase and --------------------------------------------------- sale of the Purchased Securities is subject to the following terms and conditions for the exclusive benefit of the Vendor and the Company, to be fulfilled or performed at or prior to the Time of Closing: (a) the representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (b) all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Purchaser at or before the Time of Closing shall have been complied with or performed in all material respects; (c) there shall have been obtained, from all appropriate federal, provincial, municipal or other governmental or administrative bodies, such licenses, permits, consents, approvals, certificates, registrations and authorizations as are required by law, if any, to be obtained by the Purchaser to permit the change of ownership of the Purchased Shares contemplated hereby, in each case in form and substance satisfactory to the Vendor and the Company, acting reasonably; (d) no legal or regulatory action or proceeding shall be pending or threatened by any person to enjoin, restrict or prohibit the purchase and sale of the Purchased Shares contemplated hereby; If any of the conditions contained in this section 5.3 shall not be performed or fulfilled at or prior to the Time of Closing to the satisfaction of the Vendor and the Company, acting reasonably, the Vendor and/or the Company may, by notice to the Purchaser, terminate this Agreement and the obligations of the Vendor, the Company and the Purchaser under this Agreement, other than the obligations contained in Article 8 hereinbelow, shall be terminated, provided that the Vendor and the Company may also bring an action pursuant to Article 7 against the Purchaser for damages suffered by the Vendor and/or the Company where the non-performance or non-fulfillment of the relevant condition is as a result of a breach of covenant, representation or warranty by the Purchaser. Any such condition may be waived in whole or in part by the Vendor and the Company in writing without prejudice to any claims it may have for breach of covenant, representation or warranty. 18 5.4 Purchaser's Conditions Precedent prior to the Closing Date. The sale ------------------------------------------------------------ and purchase of the Purchased Shares is subject to the following terms and conditions for the exclusive benefit of the Purchaser, to be fulfilled or performed at or prior to the Time of Closing: (a) the representations and warranties of the Vendor and the Company contained in this Agreement shall be true and correct at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (b) all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Vendor and the Company at or before the Time of Closing shall have been complied with or performed; (c) there shall have been obtained, from all appropriate federal, provincial, municipal or other governmental or administrative bodies, such licenses, permits, consents, approvals, certificates, registrations and authorizations as are required to be obtained, if any, by the Vendor and the Company to permit the change of ownership of the Purchased Shares contemplated hereby; (d) there shall have been no material adverse changes in the condition (financial or otherwise), assets, liabilities, operations, earnings, the Company's Business or prospects of the Company since the date of the Company's Financial Statements; (e) no legal or regulatory action or proceeding shall be pending or threatened by any person to enjoin, restrict or prohibit the purchase and sale of the Purchased Shares contemplated hereby; (f) no material damage by fire or other hazard to the whole or any material part of the property or assets of the Company shall have occurred from the date hereof to the Time of Closing; If any of the conditions contained in this section 5.4 shall not be performed or fulfilled at or prior to the Time of Closing to the satisfaction of the Purchaser, acting reasonably, the Purchaser may, by notice to the Vendor and the Company, terminate this Agreement and the obligations of the Vendor, the Company and the Purchaser under this Agreement, other than the obligations set forth in Article 8, shall be terminated, provided that the Purchaser may also bring an action pursuant to Article 7 against the Vendor and/or the Company for damages suffered by the Purchaser where the non-performance or non-fulfillment of the relevant condition is as a result of a breach of covenant, representation or warranty by the Vendor or the Company. Any such condition may be waived in whole or in part by the Purchaser without prejudice to any claims it may have for breach of covenant, representation or warranty. 19 Article 6 --------- CLOSING AND EVENTS OF CLOSING ----------------------------- 6.1 Closing and Closing Date. The closing (the "Closing") of the within ------------------------- purchase and delivery of the Purchased Shares, as contemplated in the manner as set forth in Article "2" hereinabove, together with all of the transactions contemplated by this Agreement shall occur on January 29, 2004 (the "Closing Date"), or on such earlier or later Closing Date as may be agreed to in advance and in writing by each of the Parties hereto, and will be closed at the offices of solicitors for the Purchaser, Devlin Jensen, Barristers and Solicitors, located at Suite 2550 - 555 W. Hastings St., Vancouver, B.C., V6B 4N5, at 2:00 p.m. (Vancouver time) on the Closing Date. 6.2 Latest Closing Date. If the Closing Date has not occurred by January --------------------- 31, 2004, subject to an extension as may be mutually agreed to by the Parties for a maximum of 14 days per extension, then the Purchaser and the Vendor shall each have the option to terminate this Agreement by delivery of written notice to the other Party. Upon delivery of such notice, this Agreement shall cease to be of any force and effect except for Article "8" hereinbelow, which shall remain in full force and effect notwithstanding the termination of this Agreement. 6.3 Documents to be delivered by the Company and the Vendor prior to the ---------------------------------------------------------------------- Closing Date. Not later than five calendar days prior to the Closing Date, and - ------------ in addition to the documentation which is required by the agreements and conditions precedent which are set forth hereinabove, the Company and the Vendor shall also execute and deliver or cause to be delivered to Purchaser's counsel all such other documents, resolutions and instruments as may be necessary, in the opinion of counsel for the Purchaser, acting reasonably, to complete all of the transactions contemplated by this Agreement and including, without limitation, the necessary transfer of all of the Purchased Shares to the Purchaser free and clear of all liens, security interests, charges and encumbrances, and in particular including, but not being limited to, the following materials: (a) all documentation as may be necessary and as may be required by the solicitors for the Purchaser, acting reasonably, to ensure that all of the Purchased Shares have been transferred, assigned and are registerable in the name of and for the benefit of the Purchaser under all applicable corporate and securities laws; (b) certificates representing the Purchased Shares registered in the name of the Vendor, duly endorsed for transfer to the Purchaser and/or irrevocable stock powers transferring the Purchased Shares to the Purchaser; (c) certificates representing the Purchased Shares registered in the name of the Purchaser; (d) a certified copy of the resolutions of the directors (and of the Vendor/shareholder, if necessary) of the Company authorizing the transfer by the Vendor to the Purchaser of the Purchased Shares; 20 (e) a copy of all corporate records and books of account of the Company and including, without limiting the generality of the foregoing, a copy of all minute books, share register books, share certificate books and annual reports of the Company; (f) all remaining Business Documentation; and (g) all such other documents and instruments as the Purchaser's solicitors may reasonably require. 6.4 Documents to be delivered by the Purchaser prior to the Closing Date. --------------------------------------------------------------------- Not later than the Closing Date, and in addition to the documentation which is required by the agreements and conditions precedent which are set forth hereinabove, the Purchaser shall also execute and deliver or cause to be delivered to the Company's and the Vendor's counsel, all such other documents, resolutions and instruments that may be necessary, in the opinion of counsel for the Company and the Vendor, acting reasonably, to complete all of the transactions contemplated by this Agreement and including, without limitation, the necessary acceptance of the transfer of all of the Purchased Shares to the Purchaser free and clear of all liens, charges and encumbrances, and in particular including, but not being limited to, the following materials: (a) a copy of the resolutions of the directors of the Purchaser providing for the approval of all of the transactions contemplated hereby; (b) an executed treasury order of the Purchaser providing for the due issuance of all of the Purchase Price Common Shares to the order and direction of the Vendor in accordance with section "2.2" and "2.3" hereinabove; and (c) all such other documents and instruments as the Company's and the Vendors' respective solicitors may reasonably require. Article 7 --------- INDEMNIFICATION AND LEGAL PROCEEDINGS ------------------------------------- 7.1 Indemnification. The Parties hereto agree to indemnify and save --------------- harmless the other Parties hereto and including, where applicable, their respective affiliates, directors, officers, employees and agents (each such party being an "Indemnified Party") harmless from and against and agree to be liable for any and all losses, claims, actions, suits, proceedings, damages, liabilities or expenses of whatever nature or kind, including any investigation expenses incurred by any Indemnified Party, to which an Indemnified Party may become subject by reason of the terms and conditions of this Agreement. 7.2 No Indemnification. This indemnity will not apply in respect of an ------------------- Indemnified Party in the event and to the extent that a court of competent 21 jurisdiction in a final judgment shall determine that the Indemnified Party was grossly negligent or guilty of willful misconduct. 7.3 Claim of Indemnification. The Parties hereto agree to waive any right ------------------------ they might have of first requiring the Indemnified Party to proceed against or enforce any other right, power, remedy, security or claim payment from any other person before claiming this indemnity. 7.4 Notice of Claim. In case any action is brought against an Indemnified --------------- Party in respect of which indemnity may be sought against any of the Parties hereto, the Indemnified Party will give the relevant Party hereto prompt written notice of any such action of which the Indemnified Party has knowledge and such Party will undertake the investigation and defense thereof on behalf of the Indemnified Party, including the prompt consulting of counsel acceptable to the Indemnified Party affected and the payment of all expenses. Failure by the Indemnified Party to so notify shall not relieve any Party hereto of such Party's obligation of indemnification hereunder unless (and only to the extent that) such failure results in a forfeiture by any Party hereto of substantive rights or defenses. 7.5 Settlement. No admission of liability and no settlement of any action ---------- shall be made without the consent of each of the Parties hereto and the consent of the Indemnified Party affected, such consent not to be unreasonably withheld. 7.6 Legal Proceedings. Notwithstanding that the relevant Party hereto will ----------------- undertake the investigation and defense of any action, an Indemnified Party will have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel will be at the expense of the Indemnified Party unless: (a) such counsel has been authorized by the relevant Party hereto; (b) the relevant Party hereto has not assumed the defense of the action within a reasonable period of time after receiving notice of the action; (c) the named parties to any such action include that any Party hereto and the Indemnified Party shall have been advised by counsel that there may be a conflict of interest between any Party hereto and the Indemnified Party; or (d) there are one or more legal defenses available to the Indemnified Party which are different from or in addition to those available to any Party hereto. 7.7 Contribution. If for any reason other than the gross negligence or bad ------------ faith of the Indemnified Party being the primary cause of the loss claim, damage, liability, cost or expense, the foregoing indemnification is unavailable to the Indemnified Party or insufficient to hold them harmless, the relevant 22 Party hereto shall contribute to the amount paid or payable by the Indemnified Party as a result of any and all such losses, claim, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by any Party hereto on the one hand and the Indemnified Party on the other, but also the relative fault of the Parties and other equitable considerations which may be relevant. Notwithstanding the foregoing, the relevant Party hereto shall in any event contribute to the amount paid or payable by the Indemnified Party, as a result of the loss, claim, damage, liability, cost or expense (other than a loss, claim, damage, liability, cost or expenses, the primary cause of which is the gross negligence or bad faith of the Indemnified Party), any excess of such amount over the amount of the fees actually received by the Indemnified Party hereunder. Article 8 --------- NON-DISCLOSURE -------------- 8.1 Public Announcements and Disclosure to Regulatory Authorities. All ---------------------------------------------------------------- information relating to the Agreement and the transaction contemplated therein shall be treated as confidential and no public disclosure shall be made by any Party without the prior approval of the Company and the Purchaser. Notwithstanding the provisions of this Article, the Parties hereto agree to make such public announcements and disclosure to the Regulatory Authorities of this Agreement promptly upon its execution all in accordance with the requirements of applicable securities legislation and regulations. Article 9 --------- ASSIGNMENT AND AMENDMENT ------------------------ 9.1 Assignment. Save and except as provided herein, no Party hereto may ---------- sell, assign, pledge or mortgage or otherwise encumber all or any part of its respective interest herein without the prior written consent of all of the other Parties hereto. 9.2 Amendment. This Agreement and any provision thereof may only be --------- amended in writing and only by duly authorized signatories of each of the respective Parties hereto. Article 10 ---------- FORCE MAJEURE ------------- 10.1 Events. If any Party hereto is at any time prevented or delayed in ------ complying with any provisions of this Agreement by reason of strikes, walk-outs, labour shortages, power shortages, fires, wars, acts of God, earthquakes, storms, floods, explosions, accidents, protests or demonstrations by environmental lobbyists or native rights groups, delays in transportation, breakdown of machinery, inability to obtain necessary materials in the open market, unavailability of equipment, governmental regulations restricting normal operations, shipping delays or any other reason or reasons beyond the control of that Party, then the time limited for the performance by that Party of its 23 respective obligations hereunder shall be extended by a period of time equal in length to the period of each such prevention or delay. 10.2 Notice. A Party shall, within seven calendar days, give notice to the ------ other Parties of each event of force majeure under section "10.1" hereinabove, and upon cessation of such event shall furnish the other Parties with notice of that event together with particulars of the number of days by which the obligations of that Party hereunder have been extended by virtue of such event of force majeure and all preceding events of force majeure. Article 11 ---------- ARBITRATION ----------- 11.1 Matters for Arbitration. The Parties agree that all questions or ------------------------ matters in dispute with respect to this Agreement shall be submitted to arbitration pursuant to the terms hereof. 11.2 Notice. It shall be a condition precedent to the right of any Party to ------ submit any matter to arbitration pursuant to the provisions hereof that any Party intending to refer any matter to arbitration shall have given not less than 10 calendar days' prior written notice of its intention to do so to the other Party together with particulars of the matter in dispute. On the expiration of such 10 calendar days the Party who gave such notice may proceed to refer the dispute to arbitration as provided in section "11.3" hereinbelow. 11.3 Appointments. The Party desiring arbitration shall appoint one ------------ arbitrator, and shall notify the other Party of such appointment, and the other Party shall, within two calendar days after receiving such notice, appoint an arbitrator, and the two arbitrators so named, before proceeding to act, shall, within 10 calendar days of the appointment of the last appointed arbitrator, unanimously agree on the appointment of a third arbitrator, to act with them and be chairman of the arbitration herein provided for. If the other Party shall fail to appoint an arbitrator within 10 calendar days after receiving notice of the appointment of the first arbitrator, and if the two arbitrators appointed by the Parties shall be unable to agree on the appointment of the chairman, the chairman shall be appointed under the provisions of the Commercial Arbitration Act (British Columbia) (the "Arbitration Act"). Except as specifically otherwise provided in this section, the arbitration herein provided for shall be conducted in accordance with such Arbitration Act. The chairman, or in the case where only one arbitrator is appointed, the single arbitrator, shall fix a time and place in Vancouver, British Columbia, for the purpose of hearing the evidence and representations of the Parties, and he shall preside over the arbitration and determine all questions of procedure not provided for under such Arbitration Act or this section. After hearing any evidence and representations that the Parties may submit, the single arbitrator, or the arbitrators, as the case may be, shall make an award and reduce the same to writing, and deliver one copy thereof to each of the Parties. The expense of the arbitration shall be paid as specified in the award. 24 11.4 Award. The Parties agree that the award of a majority of the ----- arbitrators, or in the case of a single arbitrator, of such arbitrator, shall be final and binding upon each of them. Article 12 ---------- DEFAULT AND TERMINATION ----------------------- 12.1 Default. The Parties hereto agree that if any Party hereto is in ------- default with respect to any of the provisions of this Agreement (herein called the "Defaulting Party"), the non-defaulting Party (herein called the "Non-Defaulting Party") shall give notice to the Defaulting Party designating such default, and within 10 calendar days after its receipt of such notice, the Defaulting Party shall either: (a) cure such default, or commence proceedings to cure such default and prosecute the same to completion without undue delay; or (b) give the Non-Defaulting Party notice that it denies that such default has occurred and that it is submitting the question to arbitration as herein provided. 12.2 Arbitration. If arbitration is sought, a Party shall not be deemed in ----------- default until the matter shall have been determined finally by appropriate arbitration under the provisions of Article "11" hereinabove. 12.3 Curing the Default. If: ------------------ (a) the default is not so cured or the Defaulting Party does not commence or diligently proceed to cure the default; or (b) arbitration is not so sought; or (c) the Defaulting Party is found in arbitration proceedings to be in default, and fails to cure it within five calendar days after the rendering of the arbitration award, the Non-Defaulting Party may, by written notice given to the Defaulting Party at any time while the default continues, terminate the interest of the Defaulting Party in and to this Agreement. 12.4 Termination. In addition to the foregoing it is hereby acknowledged ----------- and agreed by the Parties hereto that this Agreement will be terminated in the event that: 25 (a) the Purchaser's Ratification is not received within five business days of the due and complete execution of this Agreement by each of the Parties hereto; (b) the Purchaser fails to complete a successful and Purchaser's Initial Due Diligence review of the Company's business and operations within five (5) calendar days of the prior satisfaction by the Purchaser of the Purchaser's Ratification; (c) the conditions specified in section "5.1" hereinabove have not been satisfied at or prior to the Time of Closing; (d) either of the Parties hereto has not either satisfied or waived each of their respective conditions precedent at or prior to the Time of Closing in accordance with the provisions of Article "5" hereinabove; (e) either of the Parties hereto has failed to deliver or caused to be delivered any of their respective documents required to be delivered by Articles "5" and "6" hereinabove at or prior to the Time of Closing in accordance with the provisions of Articles "5" and "6"; or (f) by Closing has not occurred on or before January 31, 2004, or such later date, all in accordance with section "6.2" hereinabove; or (g) by agreement in writing by each of the Parties hereto; and in such event this Agreement will be terminated and be of no further force and effect other than the obligations under Article "8" hereinabove. Article 13 ---------- NOTICE ------ 13.1 Notice. Each notice, demand or other communication required or ------ permitted to be given under this Agreement shall be in writing and shall be sent by prepaid registered mail deposited in a post office addressed to the Party entitled to receive the same, or delivered to such Party, at the address for such Party specified above. The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the third calendar day after the same shall have been so mailed, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee. 13.2 Change of Address. Either Party may at any time and from time to time ----------------- notify the other Party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change. 26 Article 14 ---------- GENERAL PROVISIONS ------------------ 14.1 Entire Agreement. This Agreement constitutes the entire agreement to ---------------- date between the Parties hereto and supersedes every previous agreement, communication, expectation, negotiation, representation or understanding, whether oral or written, express or implied, statutory or otherwise, between the Parties with respect to the subject matter of this Agreement and including, without limitation, the agreement as between the Purchaser, the Vendor and the Company. 14.2 Enurement. This Agreement will enure to the benefit of and will be --------- binding upon the Parties hereto, their respective heirs, executors, administrators and assigns. 14.3 Schedules. The Schedules to this Agreement are hereby incorporated by --------- reference into this Agreement in its entirety. 14.4 Time of the Essence. Time will be of the essence of this Agreement. ------------------- 14.5 Representation and Costs. It is hereby acknowledged by each of the ------------------------- Parties hereto that, as between the Parties hereto, Devlin Jensen, Barristers and Solicitors, acts solely for the Purchaser, and that each of the Vendor and the Company have been advised by Devlin Jensen to obtain independent legal advice with respect to their respective reviews and execution of this Agreement. In addition, it is hereby further acknowledged and agreed by the Parties hereto that each Party to this Agreement will bear and pay its own costs, legal and otherwise, in connection with its respective preparation, review and execution of this Agreement, and, in particular, that the costs involved in the preparation of this Agreement, and all documentation necessarily involved thereto, by Devlin Jensen shall be at the cost of the Purchaser. 14.6 Applicable Law. The situs of this Agreement is Vancouver, British --------------- Columbia and for all purposes this Agreement will be governed exclusively by and construed and enforced in accordance with the laws and Courts prevailing in the Province of British Columbia. 14.7 Further Assurances. The Parties hereto hereby, jointly and severally, ------------------ covenant and agree to forthwith, upon request, execute and deliver, or cause to be executed and delivered, such further and other deeds, documents, assurances and instructions as may be required by the Parties hereto or their respective counsel in order to carry out the true nature and intent of this Agreement. 14.8 Severability and Construction. Each Article, section, paragraph, term ----------------------------- and provision of this Agreement, and any portion thereof, shall be considered 27 severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation in a final unappealable ruling issued by any court, agency or tribunal with valid jurisdiction in a proceeding to any of the Parties hereto is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the Parties and continue to be given full force and agreement as of the date upon which the ruling becomes final). 14.9 Captions. The captions, section numbers, Article numbers and Schedule -------- numbers appearing in this Agreement are inserted for convenience of reference only and shall in no way define, limit, construe or describe the scope or intent of this Agreement nor in any way affect this Agreement. 14.10 Currency. Unless otherwise stipulated, all references to money amounts -------- herein shall be in lawful money of the United States. 14.11 Counterparts. This Agreement may be signed by the Parties hereto in as ------------ many counterparts as may be necessary, and via facsimile if necessary, each of which so signed being deemed to be an original and such counterparts together constituting one and the same instrument and, notwithstanding the date of execution, being deemed to bear the effective Execution Date as set forth on the front page of this Agreement. 14.12 No Partnership or Agency. The Parties hereto have not created a -------------------------- partnership and nothing contained in this Agreement shall in any manner whatsoever constitute any Party the partner, agent or legal representative of any other Party, nor create any fiduciary relationship between them for any purpose whatsoever. No Party shall have any authority to act for, or to assume any obligations or responsibility on behalf of, any other party except as may be, from time to time, agreed upon in writing between the Parties or as otherwise expressly provided. 14.13 Consents and Waivers. No consent or waiver expressed or implied by ---------------------- either Party hereto in respect of any breach or default by any other Party in the performance by such other of its obligations hereunder shall: (a) be valid unless it is in writing and stated to be a consent or waiver pursuant to this section; (b) be relied upon as a consent to or waiver of any other breach or default of the same or any other obligation; (c) constitute a general waiver under this Agreement; or (d) eliminate or modify the need for a specific consent or waiver pursuant to this section in any other or subsequent instance. 28 IN WITNESS WHEREOF each of the Parties hereto has hereunto executed ------------------- this Agreement as of the Execution Date as set forth on the front page of this Agreement. SIGNED and DELIVERED by ) HE PING WANG, a Vendor ) - ------------ ) herein, in the presence of: ) ) ) Witness Signature ) /s/ He Ping Wang ) ------------------------------- ) HE PING WANG ) ------------ Witness Address ) ) ) Witness Name and Occupation ) TANGSHAN YIAN BIOLOGICAL ) - ------------------------ ) ENGINEERING CO., LTD., the Company ) - --------------------- ) herein, ) ) ) Per: /s/ Xianping Wang ) - ------------------------------------) Authorized Signatory ) SINOVAC BIOTECH LTD., the ) - -------------------- ) Purchaser herein, ) ) ) Per: /s/ Wei Dong Yin ) - ------------------------------------) Authorized Signatory ) 29 Schedule A ---------- This is Schedule "A" to that certain Share Purchase Agreement among Sinovac Biotech Ltd., Tangshan Yian Biological Engineering Co., Ltd. and the Vendor shareholder of Tangshan Yian Biological Engineering Co., Ltd. Purchased Securities and Vendors -------------------------------- Authorized Capital: unlimited common shares ------------------ Issued Capital: 9,335,435 common shares -------------- Vendor: ------ He Ping Wang: 9,335,435 common shares. ------------ C/o 120 Huoju Rd. High Tech. Developing Zone Tangshan, Hbei Provence 063000 P.R. China 30 Schedule B ---------- This is Schedule "B" to that certain Share Purchase Agreement among Sinovac Biotech Ltd., Tangshan Yian Biological Engineering Co., Ltd. and the Vendor shareholder of Tangshan Yian Biological Engineering Co., Ltd. Promissory Note Issued by Sinovac Biotech Ltd. to Tangshan Yian Biological -------------------------------------------------------------------------- Engineering Co., Ltd. --------------------- Refer to the materials attached hereto. -------------------------------------- ---------- 31 PROMISSORY NOTE --------------- Principal: US$2,200,000 Made and Dated at: Vancouver, B.C. Interest: 0% per annum Issuance Date: January 26, 2004 Maturity Date: January 26, 2005 Borrower: Sinovac Biotech Ltd. Lender: He Ping Wang FOR VALUABLE CONSIDERATION, receipt whereof is hereby acknowledged, the Borrower - -------------------------- hereby promises to pay to the Lender (also called the "holder"), or the authorized and registered subsequent holder of this promissory note (the "Note"), the principal sum of $2,200,000 in lawful money of the United States (hereinafter referred to as the "Principal Amount"), with no interest. The Principal Amount, as specified above, is due and payable by the Borrower on the Maturity Date. The Borrower may prepay any amount of the Principal Amount at any time prior to the Maturity Date without penalty and this Note shall be discharged in respect to the amount paid. If the Borrower fails to make payment of the Principal Amount on the Maturity Date, the balance of the Principal Amount under this Promissory Note will become immediately due and payable. To secure payment of the Principal Amount hereunder, the Borrower hereby irrevocably appoints and authorizes any representative of the holder to appear before a court of competent jurisdiction and enter judgment, without process, in favour of the holder for any unpaid Principal Amount, and the Borrower waives and releases all errors which may intervene and consents to immediate execution upon such judgment. The Borrower hereby waives demand, presentment for payment, notice of non-payment, and protest. If any provision of this Note is held to be invalid, illegal, or unenforceable, then such shall not affect or impair the validity, legality, or enforceability of the remaining provisions. WITNESS the hand and seal of the Borrower as of the 26th day of January, 2004. SINOVAC BIOTECH LTD. - -------------------- per: /s/ Wei Dong Yin - ------------------------------------ Authorized Signatory EX-99.1 4 sinovacfinancials.txt SINOVAC BIOTECH 6K, ACQUIRED BUSINESS FINANCIALS EXHIBIT 99.1 - ------------ TANGSHAN YIAN BIOLOGICAL ------------------------ ENGINEERING CO., LTD. --------------------- (A company incorporated in China) Financial Statements (Expressed in U.S. Dollars) June 30, 2003, December 31, 2002 and 2001 Index ----- Report of Independent Accountants Balance Sheets Statements of Stockholders' Equity (Deficiency) Statement of Operations Statements of Cash Flows Notes to Financial Statements F-1 MOORE STEPHENS ELLIS FOSTER LTD. - -------------------------------- CHARTERED ACCOUNTANTS - --------------------- 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 734-1112 Facsimile: (604) 714-5916 Website: www.ellisfoster.com - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - --------------------------------- To the Board of Directors and Stockholders of - --------------------------------------------- TANGSHAN YIAN BIOLOGICAL ENGINEERING CO., LTD. - ---------------------------------------------- We have audited the balance sheets of Tangshan Yian Biological Engineering Co., ------------------------------------------ Ltd. ("the Company") as at June 30, 2003, December 31, 2002 and 2001, and the - ---- related statements of stockholders' equity (deficiency), operations and cash flows for the six months ended June 30, 2003, the years ended December 31, 2002 and 2001. 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. Except as explained in the following paragraph, we conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Because we were not appointed as auditors of the Company until after December 31, 2002, we were not able to observe the counting of physical inventories as at January 1, 2001 and December 31, 2001, nor satisfy ourselves concerning those inventories quantities by alternative means. We were, therefore, unable to determine whether adjustments to inventories as at January 1, 2001 and December 31, 2001 might be necessary. Since beginning inventories enter into the determination of the results of operations and cash flows, we were unable to determine whether adjustments to cost of sales, net income (loss) for the year, beginning accumulated deficit and cash provided from operations for each of the years in the two-year period ended December 31, 2002 might be necessary. In our opinion, except for the effect of adjustments, if any, which we might have determined to be necessary had we been able to examine beginning inventory quantities as described in the preceding paragraph, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001, the result of its operations and its cash flows for each of the years in the two-year period ended December 31, 2002, in accordance with generally accepted accounting principles in the United States of America. Further, in our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2003 and December 31, 2002 and the results of its operations and its cash flows for the six months ended June 30, 2003 in conformity with generally accepted accounting principles in the United States of America. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." August 13, 2003, except as to Note 13 Chartered Accountants which is as of September 24, 2003 - -------------------------------------------------------------------------------- M S An independently owned and operated member of Moore Stephens North America, Inc. Members in principal cities throughout North America. Moore Stephens North America, Inc. is a member of Moore Stephens International Limited, members in principal cities throughout the world. F-2
TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Balance Sheets (Expressed in U.S. Dollars) ======================================================================================================================= June 30 December 31 December 31 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 17,263 $ 35,238 $ 142,827 Trade receivables, net of allowance of doubtful accounts 11,594 30,531 61,135 of $26,109 in 2003, $19,949 in 2002 and $13,657 in 2001 Other receivables, including related party receivables 17,191 14,770 8,614 of $6,321 in 2003, $5,439 in 2002 and $3,675 in 2001 Inventories 81,475 68,848 83,604 Deferred income taxes - 47,930 - - ----------------------------------------------------------------------------------------------------------------------- Total current assets 127,523 197,317 296,180 Deferred income taxes - - 47,930 Property, plant and equipment 1,894,958 1,950,772 2,051,294 Investment in Sinovac Biotech Co., Ltd. 532,139 523,932 722,950 - ----------------------------------------------------------------------------------------------------------------------- Total assets $ 2,554,620 $ 2,672,021 $ 3,118,354 ======================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities Loans payable $ 1,119,324 $ 1,115,097 $ 869,565 Accounts payable and accrued liabilities 705,990 1,454,493 815,427 Due to related parties 677,487 1,225,913 1,437,645 - ----------------------------------------------------------------------------------------------------------------------- Total current liabilities 2,502,801 3,795,503 3,122,637 - ----------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY (DEFICIENCY) Paid-in capital 1,130,198 132,850 132,850 Contributed surplus 85,176 79,098 66,912 Accumulated deficit (1,163,555) (1,335,430) (204,045) - ----------------------------------------------------------------------------------------------------------------------- Total stockholders' equity (deficiency) 51,819 (1,123,482) (4,283) - ----------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 2,554,620 $ 2,672,021 $ 3,118,354 =======================================================================================================================
The accompanying notes are an integral part of these financial statements. F-3
TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Statements of Stockholders' Equity (Deficiency) (Expressed in U.S. Dollars) ================================================================================================================ Total stockholders Paid-in Contributed Deficit equity capital surplus accumulated (deficiency) - ---------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 $ 132,850 $ 57,144 $ (418,890) $ (228,896) Imputed interest - 9,768 - 9,768 Comprehensive income (loss) - - Net income for the year - - 214,845 214,845 - ---------------------------------------------------------------------------------------------------------------- Balance, December 31, 2001 132,850 66,912 (204,045) (4,283) ================================================================================================================ Imputed interest - 12,186 - 12,186 Comprehensive income (loss) - - Net (loss) for the year - - (1,131,385) (1,131,385) - ---------------------------------------------------------------------------------------------------------------- Balance, December 31, 2002 132,850 79,098 (1,335,430) (1,123,482) ================================================================================================================ Imputed interest - 6,078 - 6,078 Debt exchange for shares (Note 10f) 997,348 - - 997,348 Comprehensive income (loss) - - Net income for the period - - 171,875 171,875 - ---------------------------------------------------------------------------------------------------------------- Balance, June 30, 2003 $ 1,130,198 $ 85,176 (1,163,555) $ 51,819 ================================================================================================================
The accompanying notes are an integral part of these financial statements. F-4
TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Statements of Operations (Expressed in U.S. Dollars) ====================================================================================================== Six months ended Year ended Year ended June 30 December 31 December 31 2003 2002 2001 - ------------------------------------------------------------------------------------------------------ Sales $ 21,903 $ 471,473 $ 101,107 Cost of sales 31,798 288,014 33,456 - ------------------------------------------------------------------------------------------------------ Gross profit (loss) (9,895) 183,459 67,651 - ------------------------------------------------------------------------------------------------------ Selling, general and administrative expenses 53,451 727,150 103,912 Research and development expenses 365 910,417 329,642 Interest and financing expenses 21,955 43,231 21,086 Depreciation of property, plant and equipment 10,812 21,770 9,356 Equity in net loss of Sinovac 24,134 118,812 18,578 - ------------------------------------------------------------------------------------------------------ 110,717 1,821,380 482,574 - ------------------------------------------------------------------------------------------------------ Operating (loss) (120,612) (1,637,921) (414,923) Gain on disposal of drug licenses 240,618 502,078 741,528 Dilution gain 98,698 - - Other income 1,101 4,458 3,210 - ------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 219,805 (1,131,385) 329,815 Deferred Income taxes 47,930 - 114,970 - ------------------------------------------------------------------------------------------------------ Net income (loss) for the period $ 171,875 $ (1,131,385) $ 214,845 ======================================================================================================
The accompanying notes are an integral part of these financial statements. F-5
TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Statements of Cash Flows (Expressed in U.S. Dollars) ============================================================================================================== Six months ended Year ended Year ended June 30 December 31 December 31 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------- Cash flows from (used in) operating activities Net income (loss) for the period $ 171,875 $ (1,131,385) $ 214,845 Adjustments for items not involving cash: - depreciation of property, plant and equipment 38,063 110,817 26,873 - provision for doubtful account 6,160 6,292 21,890 - imputed interest 6,078 12,186 9,768 - non-cash compensations - 582,285 - - loss on disposal of property, plant and equipment 210 481 - - gain on disposal of drug licenses (240,618) (502,078) (741,528) - dilution gain (98,698) - - - equity in net loss of Sinovac 24,134 118,812 18,578 - deferred income taxes 47,930 - 114,970 - -------------------------------------------------------------------------------------------------------------- (44,866) (802,590) (334,604) Change in non-cash working capital items: - accounts receivable and others 11,238 19,920 724,158 - inventories (12,627) 14,756 45,821 - accounts payable and accrued liabilities 5,107 639,066 499,582 - -------------------------------------------------------------------------------------------------------------- Net cash from (used in) operating activities (41,148) (128,848) 934,957 - -------------------------------------------------------------------------------------------------------------- Cash flows from (used in) financing activities Loans proceeds 4,227 245,532 869,565 Advances from (repayment to) related parties 18,946 (213,496) (518,316) - -------------------------------------------------------------------------------------------------------------- Net cash from financing activities 23,173 32,036 351,249 - -------------------------------------------------------------------------------------------------------------- Cash flows used in investing activities Acquisition of property, plant and equipment - (10,777) (1,310,247) - -------------------------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (17,975) (107,589) (24,041) Cash and cash equivalents, beginning of period 35,238 142,827 166,868 - -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 17,263 $ 35,238 $ 142,827 ==============================================================================================================
The accompanying notes are an integral part of these financial statements. F-6 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 1. Nature of Business - ----------------------- The Company was incorporated under the laws of China on February 9, 1993. Its business is in the research and development, production and sales of pharmaceutical products in China. 2. Currency of Presentation - ----------------------------- These financial statements have been prepared in Renminbi ("RMB"), which is the currency of the Company's functional and reporting currency. US dollars equivalent figures presented in these financial statements are determined by translating the amounts at the exchange rate of US$1 = RMB8.28 for the convenience of the readers. 3. Significant Accounting Policies - ------------------------------------ (a) Principles of Accounting These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. (b) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Cash and Cash Equivalents Cash equivalents usually consist of highly liquid investments that are readily convertible to cash with maturities of three months or less when purchased. As at June 30, 2003, December 31, 2002 and 2001, cash and cash equivalents consist of cash only. (d) Inventories Inventories are stated at the lower of cost or market with cost generally determined on a first-in, first-out basis. Cost includes direct material, direct labour and manufacturing overheads. F-7 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 3. Significant Accounting Policies (continued) - ------------------------------------ (e) Property, Plant and Equipment Property, plant and equipment are recorded at cost, including capitalized interest and internal engineering costs. Depreciation of property, plant and equipment generally is computed using the straight-line method based on the estimated useful lives of the assets as follows: Land-use rights 28 years Plant and building 30 years Machinery and equipment 8 - 10 years Motor vehicles 5 years Office equipment and furniture 5 years Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset's carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 144. This statement retains the requirements of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of " to recognize impairments on Property, Plant and Equipment, but removes goodwill from its scope. The adoption of SFAS No. 144 does not have impact on the Company's financial statements. (f) Income Taxes The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. (g) Revenue Recognition Sales revenue is recognized upon the delivery of goods to customers. F-8 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 3. Significant Accounting Policies (continued) - ------------------------------------ (h) Advertising Expenses Advertising costs are expensed as incurred and included in selling expenses. There were no advertising costs incurred for the six months ended June 30, 2003, years ended December 31, 2002 and 2001. (i) Research and Development Research and development costs are charged to operations as incurred. Research and development costs are listed as a separate line item on the Company's statements of operations. (j) Foreign Currency Transactions The Company's functional currency is Renminbi. The Company translates foreign currency transactions into its functional currency in the following manner: At the transaction date, each asset, liability, revenue and expense is translated into the functional currency by the use of the exchange rate in effect at that date. At the period end, foreign currency monetary assets, and liabilities are re-evaluated into the functional currency by using the exchange rate in effect at the balance sheet date. The resulting foreign exchange gains and losses are included in operations. (k) Stock-based Compensation The Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-based Compensation". SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. The Company does not have stock options outstanding as at June 30, 2003 and the years ended December 31, 2002 and 2001. (l) Comprehensive Income The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. F-9 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 3. Significant Accounting Policies (continued) - ------------------------------------ (m) Earnings Per Share Earnings per share number is not presented as the Company is a private corporation. (n) Financial Instruments and Concentration of Credit Risks Fair value of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values. The carrying value of cash and cash equivalents, trade receivables and other receivables, loans payable, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. The Company is operating in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between US dollars and the Chinese currency RMB. Financial instruments that potentially subject the Company to concentration of credit risks consist principally of cash and trade receivables, the balances of which are stated on the balance sheet. The Company places its cash in high credit quality financial institutions. The Company's customers are primarily pharmaceutical and biotechnology companies. Ongoing credit evaluations of customers' financial condition are performed and the Company maintains provision for potential credit losses if necessary. The Company does not require collateral or other security to support financial instruments subject to credit risks. The Company is not subject to significant interest risks. (o) Accounting for Derivative Instruments and Hedging Activities The Company has adopted the Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, which requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. The Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. The Company does not anticipate that the adoption of the statement will have a significant impact on its financial statements. F-10 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 3. Significant Accounting Policies (continued) - ------------------------------------ (p) New Accounting Pronouncements In December 2002, the Financial Accounting Standard Board issued Statement of Financial Accounting Standard No. 148 (SFAS 148), Accounting for Stock-based Compensation - Transition and Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-based Compensation, to provide alternative methods for voluntary transition to SFAS 123's fair value method of accounting for stock-based employee compensation. SFAS 148 also requires disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financial statements. SFAS 148 is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS 148 does not have an impact on the Company's financial statements. In November 2002, the Financial Accounting Standard Board issued FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of indebtedness of Others - An Interpretation of FASB Statements of No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. This interpretation clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. FIN 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee. FIN 45 is effective for guarantees entered into or modified after December 31, 2002. The adoption of FIN 45 does not have impact on the Company's financial statements. In January 2003, the Financial Accounting Standard Board issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities - An Interpretation of Accounting Research Bulletin (ARB) No. 51. This interpretation addressed the requirements for business enterprises to consolidate related entities in which they are determined to be the primary economic beneficiary as a result of their variable economic interest. The interpretation is intended to provide guidance in judging multiple economic interests in an entity and in determining the primary beneficiary. The interpretation outlines disclosure requirements for VIEs in existence prior to January 31, 2003, outlines consolidation requirements for VIEs created after January 31, 2003. The company has reviewed its major commercial relationship and its overall economic interests with other companies consisting of related parties, manufacture vendors, loan creditors and other suppliers to determine the extent of its variable economic interest in these parties. The review has not resulted in a determination that the Company would be judged to be the primary economic beneficiary in any material relationships, or that any material entities would be judged to be Variable Interest Entities of the Company. F-11 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 3. Significant Accounting Policies (continued) - ------------------------------------ (p) New Accounting Pronouncements (continued) In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 addresses certain accounting issues related to hedging activity and derivative instruments embedded in other contracts. In general, the amendments require contracts with comparable characteristics to be accounted for similarly. In addition, SFAS No. 149 provides guidance as to when a financing component of a derivative must be given special reporting treatment in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 does not have an impact on the Company's financial statements. In May 2003, the Financial Accounting Standards Board (FASB) approved SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how to classify and measure financial instruments with characteristics of both liabilities and equity. It requires financial instruments that fall within its scope to be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and, for pre-existing financial instruments, as of July 1, 2003. The Company does not have any financial instruments that fall under the guidance of SFAS No. 150 and, therefore, the adoption does not have an effect on the Company's financial statements. 4. Inventories - ---------------- June 30 December 31 December 31 2003 2002 2001 ------------------------------------------------------------------- Raw materials $ 14,275 $ 14,048 $ 26,868 Finished goods 67,200 54,800 56,736 ------------------------------------------------------------------- $ 81,475 $ 68,848 $ 83,604 =================================================================== F-12 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 5. Property, Plant and Equipment - ----------------------------------
June 30, 2003 ---------------------------------------------- Cost Accumulated Net book Amortization Value --------------------------------------------------------------------------------------------- Land-use rights $ 226,577 $ 17,533 $ 209,044 Plant and building 1,380,103 62,849 1,317,254 Machinery and equipment 497,373 146,235 351,138 Motor vehicles 48,175 43,309 4,866 Office equipment and furniture 35,964 23,308 12,656 --------------------------------------------------------------------------------------------- $ 2,188,192 $ 293,234 $ 1,894,958 =============================================================================================
December 31, 2002 ---------------------------------------------- Cost Accumulated Net book Amortization Value --------------------------------------------------------------------------------------------- Land-use rights $ 226,577 $ 13,487 $ 213,090 Plant and building 1,380,103 41,899 1,338,204 Machinery and equipment 497,373 118,659 378,714 Motor vehicles 48,175 43,268 4,907 Office equipment and furniture 38,422 22,565 15,857 --------------------------------------------------------------------------------------------- $ 2,190,650 $ 239,878 $ 1,950,772 =============================================================================================
December 31, 2001 ---------------------------------------------- Cost Accumulated Net book Amortization Value --------------------------------------------------------------------------------------------- Land-use rights $ 226,577 $ 5,395 $ 221,182 Plant and building, construction in progress 1,380,103 - 1,380,103 Machinery and equipment 491,202 63,840 427,362 Motor vehicles 48,175 43,185 4,990 Office equipment and furniture 37,018 19,361 17,657 --------------------------------------------------------------------------------------------- $ 2,183,075 $ 131,781 $ 2,051,294 =============================================================================================
Depreciation for the six months ended June 30, 2003, years ended December 31, 2002 and 2001 are $55,568, $110,817 and $26,873 respectively. F-13 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 6. Investment in Sinovac Biotech Co., Ltd. ("Sinovac") - -------------------------------------------------------- In April 2001, the Company acquired a 24% interest in Sinovac, a company incorporated in China and operating in the business of manufacturing and marketing pharmaceutical products. Consideration for the purchase consisted of the contribution of its inactive Hepatitis A drug license. This transaction was recorded as an investment and a gain on disposition of drug license in the amount of $741,528. In April 2002, the Company transferred 2.68% interest of Sinovac to Sino Pharmaceutics Co., Ltd. ("Sino Pharma") as a service compensation. This transaction was recorded as a compensation expense of $105,535 and a gain on the disposition of investment of $25,328. During the six-month period ended June 30, 2003, the Company's interest of Sinovac was diluted to 15.72% due to further share issuances by Sinovac. Asae result of this event, the Company recorded a dilution gain of $98,698. 7. Accounts Payable and Accrued Liabilities - ---------------------------------------------
June 30 December 31 December 31 2003 2002 2001 ---------------------------------------------------------------------------------------- Trade payables $ 579,401 $ 587,923 $ 653,267 Payroll and employee benefits 110,245 97,494 71,413 Bonuses - 753,610 88,517 Sundry 16,344 15,466 2,230 ---------------------------------------------------------------------------------------- $ 705 990 $ 1,454,493 $ 815,427 ========================================================================================
8. Loans Payable - ------------------
June 30 December 31 December 31 2003 2002 2001 ---------------------------------------------------------------------------------------- Loan payable to China High Technology Co., Ltd.: RMB 9,000,000 (2002 - RMB 9,000,000, 2001 - RMB 7,200,000), no stated interest rate and due on demand $ 1,086,957 $ 1,086,957 $ 869,565 Employees loan: RMB 268,000 (2002 - RMB 233,000, 2001 - Nil) bearing interest at 12% per annum and due on demand 32,367 28,140 - ---------------------------------------------------------------------------------------- $ 1,119,324 $ 1,115,097 $ 869,565 ========================================================================================
F-14 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 9. Income Taxes - ----------------- The Company is subject to income taxes in China on its taxable income as reported in its statutory accounts at a tax rate in accordance with the relevant income tax laws applicable to sino-foreign investment enterprises. Pursuant to the same income tax laws, the Company is exempt from income tax for two years starting from its first profit-making year followed by a 15% corporation income tax rate for the next three years. The tax effect of temporary differences that give rise to the Company's deferred tax assets (liabilities) are as follows: June 30 December 31 December 31 2003 2002 2001 --------------------------------------------------------------------------- Tax losses carried forward $ 416,500 $ 456,500 $ 83,200 Less: valuation allowance (416,500) (408,070) (35,270) --------------------------------------------------------------------------- Total deferred tax assets $ - $ 47,930 $ 47,930 =========================================================================== The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management's judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income. A reconciliation of the statutory income tax to the Company's effective income tax rate for the six months ended June 30, 2003 and years ended December 31, 2002 and 2001 are as follows: June 30 December 31 December 31 2003 2002 2001 --------------------------------------------------------------------------- Federal statutory income tax rate 33% 33% 33% Loss on equity accounted investment 4% - 2% Non-taxable gain (15%) - - Benefit of loss carry forward - (33%) - --------------------------------------------------------------------------- Effective income tax rate 22% - 35% =========================================================================== F-15 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 10. Related Party Transactions - ------------------------------- Related party transactions that have not been disclosed elsewhere in these financial statements are as follows: (a) Amounts due to related parties are unsecured and consist of the following:
June 30 December 31 December 31 2003 2002 2001 ----------------------------------------------------------------------------------- o Advances from Sinovac, bearing interest at 5% per annum, unsecured, with no stated terms of repayment $ 677,487 $ 982,175 $ 1,193,918 o Advances from Sino Pharma, the majority shareholder, non-interest bearing - 243,738 243,727 ----------------------------------------------------------------------------------- $ 677,487 $ 1,225,913 $ 1,437,645 ===================================================================================
(b) The Company entered into the following transactions with related parties:
Six months Year Year Ended Ended Ended June 30 December 31 December 31 2003 2002 2001 ------------------------------------------------------------------------------ Sales to Sinovac $ - $ 403,698 $ - Rental income from Tangshan Yikang Biomedical Co., Ltd., a shareholder $ 1,063 $ 2,127 $ 2,127 Interest expenses: - Sino Pharma $ 6,078 $ 12,186 $ 9,768 - Other shareholders of Sinovac $ 18,189 $ 35,223 $ 43,208 ------------------------------------------------------------------------------
(c) During the fiscal year 2002, the Company transferred its Recombinant Inactive Hepatitis A&B drug license to Beijing Keding Investment Co., Ltd. ("Beijing Keding"), a corporation controlled by the president (who is also a director) and two senior officers of the Company. The Company recorded compensation expenses and a gain on disposition of drug license of $476,750, being the estimated fair market value of drug license. (d) During the six months ended June 30, 2003, the Company sold its Influenza Virus HA Vaccine drug license to Sinovac for cash of $353,904, its estimated fair market value. The Company recognized a gain of $240,618 as a result of this transaction. F-16 TANGSHAN YIAN BIOLOGICAL - ------------------------ ENGINEERING CO., LTD. - --------------------- Notes to Financial Statements June 30, 2003, December 31, 2002 and 2001 (Expressed in U.S. Dollars) - -------------------------------------------------------------------------------- 10. Related Party Transactions (continued) - ------------------------------- (e) Pursuant to an operating lease agreement, the Company has leased a laboratory to Sinovac for an annual lease of $176,400 (RMB 1,460,400). The lease will commence on July 1, 2003 and has a term of five years. (f) On June 30, 2003, the Company issued shares for settlement of the debt owed to a shareholder and certain officers and employees of the Company totalling $997,348. 11. Segmented Information - -------------------------- The Company operates exclusively in the biotech sector. The Company's business is considered as operating in one segment based upon the Company's organizational structure, the way in which the operation is managed and evaluated, the availability of separate financial results and materiality considerations. All the Company's assets are located in China and all the revenues are generated in China. 12. Non-Cash Transactions - -------------------------- (a) In 2001, the Company contributed Inactive Hepatitis A drug license to Sinovac in exchange for ownership interest in Sinovac (see Note 6). (b) In 2002, the Company transferred the ownership interest of Recombinant Hepatitis A&B drug license to Beijing Keding (see Note 10c). (c) In 2003, the Company issued shares for debt settlement in the amount of $997,348 (see Note 10f) 13. Subsequent Event - --------------------- On September 24, 2003, the Company disposed of all its interest in Sinovac to an individual related to a director of the Company for cash of approximately $1.8 Million. The proceeds are due one year from the completion date. F-17 EX-99.2 5 sinovacproforma.txt SINOVAC BIOTECH 6K, PRO FORMA FINANCIALS EXHIBIT 99.2 - ------------ SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) (Unaudited - Prepared by Management) Pro-forma Consolidated Financial Statements June 30, 2003 Index - ----- Pro-forma Consolidated Balance Sheet Pro-Forma Consolidated Statement of Stockholders' Equity Pro-Forma Consolidated Statement of Operations Notes to Pro-forma Consolidated Financial Statements F-1
SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Pro-forma Consolidated Balance Sheet June 30, 2003 (Unaudited - Prepared by Management) (Expressed in U.S. Dollars) ================================================================================================================================== Sinovac Tangshan Yian Biotech Ltd. Biological June 30, 2003 Engineering Co., Pro-forma (Pro-forma) Ltd., June 30 adjustments Pro-forma (Note 1) 2003 (Note 3) consolidated - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents 730,250 $ 17,263 (a) $ 760,000 $ 1,507,513 Accounts receivable, net 1,020,096 28,785 - 1,048,881 Inventories 1,552,210 81,475 - 1,633,685 Prepaid expenses and deposits 12,990 - - 12,990 - ---------------------------------------------------------------------------------------------------------------------------------- Total current assets 3,315,546 127,523 760,000 4,203,069 - ---------------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment 7,706,783 1,894,958 9,601,741 Due from a related party 677,487 - (b) 1,800,000 1,800,000 (e) (677,487) Promissory note - secured, bearing interest at 8% - - (a) 1,793,996 1,793,996 Licenses, permits and other intangible asset 2,578,345 - - 2,578,345 Investment in Sinovac Biotech Co., Ltd. - 532,139 (b) (532,139) - - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $ 14,278,161 2,554,620 $ 3,144,370 $ 19,977,151 ================================================================================================================================== LIABILITIES Current liabilities - Loans payable 872,282 1,119,324 (c) $ (1,119,324) $ 872,282 Accounts payable and accrued liabilities 1,760,714 705,990 (d) 2,200,000 4,666,704 Due to related parties 1,246,344 677,487 (e) (677,487) 1,246,344 Deferred research grants 121,850 - - 121,850 - ---------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 4,001,190 2,502,801 403,189 6,907,180 - ---------------------------------------------------------------------------------------------------------------------------------- Unamortized finance charge on proceeds receivable on disposal of investment - - (b) 133,000 133,000 MINORITY INTEREST 5,035,667 - - 5,035,667 STOCKHOLDERS' EQUITY Preferred stock - - - - Authorized: 50,000,000 shares at par value of $0.001 each Issued and outstanding: nil Common stock 27,091 1,130,198 (a) 2,553,996 30,591 Authorized: 100,000,000 shares at par value of $0.001 each (c) 1,119,324 Issued and outstanding: 30,591,033 (d) (4,800,018) Additional paid-in capital 5,621,362 85,176 (d) 2,571,324 8,277,862 - Accumulated deficit (407,149) (1,163,555)(b) 1,134,861 (407,149) (d) 28,694 - ---------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 5,241,304 51,819 2,608,181 7,901,304 - ---------------------------------------------------------------------------------------------------------------------------------- 14,278,161 2,554,620 $ 3,144,370 $ 19,977,151 ==================================================================================================================================
The accompanying notes are an integral part of these financial statements. F-2
SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Pro-forma Consolidated Statement of Stockholders' Equity For the six months ended June 30, 2003 (Unaudited - Prepared by Management) (Expressed in U.S. Dollars) ====================================================================================================================== Total Common stock Additional Stock- --------------------------- paid-in Accumulated holders' Shares Amount capital deficit equity - ---------------------------------------------------------------------------------------------------------------------- Recapitalization as a result of acquisition of China Sinovac by Sinovac (Pro-forma) 27,091,033 $ 27,091 $ 5,621,362 $ (341,505) $ 5,306,948 Issuance of common stock to effect the acquisition of Tangshan Yian 3,500,000 3,500 2,656,500 - 2,660,000 Comprehensive income (loss) - - Net (loss) for the period - - - (65,644) (65,644) - ---------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2003 30,591,033 $ 30,591 $ 8,277,862 $ (407,149) $ 7,901,304 ======================================================================================================================
The accompanying notes are an integral part of these financial statements. F-3
SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Pro-Forma Consolidated Statement of Operations (Unaudited - Prepared by Management) (Expressed in U.S. Dollars) ============================================================================================================================== Sinovac Tangshan Yian Biotech Ltd. Biological Pro-forma (Proforma) Engineering adjustments Pro-forma (Note 1) Co., Ltd. (Note 3) Consolidated - ------------------------------------------------------------------------------------------------------------------------------ Six months Six months Ended Ended June 30 June 30 2003 2003 - ------------------------------------------------------------------------------------------------------------------------------ Sales $ 1,090,856 21,903 (d) $ (21,903) $ 1,090,856 Cost of sales 357,386 31,798 (d) (31,798) 357,386 - ------------------------------------------------------------------------------------------------------------------------------ Gross profit (loss) 733,470 (9,895) 9,895 733,470 - ------------------------------------------------------------------------------------------------------------------------------ Selling, general and administrative expenses 615,615 53,451 (d) (53,451) 615,615 Research and development expenses 18,099 365 (d) (365) 18,099 Interest and financing expenses 118,690 21,955 (d) (21,955) 118,690 Depreciation of property, plant and equipment and amortization of licenses and permits 132,994 10,812 (d) (10,812) 132,994 Equity in net loss of Sinovac - 24,134 (d) (24,134) - - ------------------------------------------------------------------------------------------------------------------------------ 885,398 110,717 (110,717) 885,398 - ------------------------------------------------------------------------------------------------------------------------------ Operating (loss) (151,928) (120,612) 120,612 (151,928) Gain on disposal of drug license - 240,618 (d) (240,618) - Dilution gain - 98,698 (d) (98,698) - Gain on disposal of investment - - (b) 1,134,861 - (d) (1,134,861) Interest income 23,214 1,101 (d) (1,101) 23,214 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) for the period before income taxes and minority interest (128,714) 219,805 (219,805) (128,714) Deferred income tax (expense) - (47,930) (d) 47,930 - Minority interest 63,070 - - 63,070 - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) for the period $ (65,644) 171,875 $ (171,875) $ (65,644) ==============================================================================================================================
The accompanying notes are an integral part of these financial statements. F-4 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Pro-forma Consolidated Financial Statements June 30, 2003 (Unaudited - Prepared by Management) (Expressed in U.S. Dollars) ================================================================================ 1. Basis of Presentation - -------------------------- These pro-forma consolidated financial statements have been prepared solely for submission to the U.S. Securities and Exchange Commission in connection with the acquisition of Tangshan Yian Biological Engineering Co., Ltd. ("Tangshan Yian"), a company incorporated in China and engaged in the research and development, production and sales of pharmaceutical products in China, by Sinovac Biotech Ltd. ("Sinovac"). A major shareholder and director of Sinovac is also a director and a minority shareholder of Tangshan Yian. These pro-forma consolidated financial statements are not necessarily indicative of the actual results which would have been attained had the combination been in effect on the date indicated or which may be attained in the future. These pro-forma consolidated financial statements have been prepared by management from information derived from the pro-forma consolidated financial statements of Sinovac as at June 30, 2003 (after the completion of its acquisition of Sinovac Biotech Co., Ltd.) and the audited financial statements of Tangshan Yian as at June 30, 2003. 2. Proposed Acquisition and Pro-forma Assumptions - --------------------------------------------------- (a) Letter Of Intent Pursuant to a letter of intent dated October 20, 2003, Sinovac will acquire 100% interest in Tangshan Yian by issuing 3,500,000 common stocks and paying $2.2 Million in cash, with a total approximate fair value of $4.8 Million, within twelve (12) months from the date of entering into a formal agreement. The acquisition is recorded by using the purchase method of accounting. (b) Disposal Of Long-term Investment On September 24, 2003, Tangshan Yian disposed all of its 16% interest in Sinovac Biotech Co, Ltd. ("China Sinovac"), a 51% owned subsidiary of Sinovac, to an individual related to a common director of Tangshan Yian and China Sinovac for cash of approximately $1.8 Million. Thangshan Yian also agreed that the proceeds do not have to be paid until one year after the completion of this transaction. The disposition is assumed to have taken effect on June 30, 2003 for the purpose of preparing these pro-forma financial statements. F-5 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Pro-forma Consolidated Financial Statements June 30, 2003 (Unaudited - Prepared by Management) (Expressed in U.S. Dollars) ================================================================================ 2. Proposed Acquisition and Pro-forma Assumptions (continued) - --------------------------------------------------- (c) Additional Capital Financing Tangshan Yian agreed to raise an approximately $2.6 Million equity ($760,000 cash and $1,793,996 promissory note) from an unrelated party immediately before the afore-mentioned proposed acquisition by Sinovac. The promissory note is secured, bearing interest at 8% per annum and has a one year term. The additional equity financing and the conversion of debt for equity as described in Note 2(d) will cause the change of control in Tangshan Yian. The approximate $2.6 Million equity capital financing is assumed to have taken effect on June 30, 2003 for the purpose of preparing these pro-forma financial statements. (d) Debt Exchange for Shares Creditors of Tangshan Yian have agreed to convert $1,119,324 of debt into equity in Tangshan Yian before the completion of the afore-mentioned proposed acquisition by Sinovac. The proposed debt for the equity is assumed to have taken effect on June 30, 2003 for the purpose of preparing these pro-forma financial statements. (e) The net assets acquired by Sinovac are summarized as follows: Cash and cash equivalents $ 777,263 Accounts receivable and others 28,785 Promissory note - secured and 8% interest rate 1,793,996 Due from a related party 1,800,000 Inventories 81,475 Property, Plant and equipment 1,894,958 Accounts payable and accrued liabilities (1,383,477) Unamortized finance charge (133,000) --------------------------------------------------------------------- $ 4,860,000 ===================================================================== F-6 SINOVAC BIOTECH LTD. - -------------------- (formerly Net-Force Systems Inc.) Notes to Pro-forma Consolidated Financial Statements June 30, 2003 (Unaudited - Prepared by Management) (Expressed in U.S. Dollars) ================================================================================ 3. Pro-forma Adjustments - -------------------------- (a) To record the proposed approximate additional $2.6 Million equity financing by Tangshan Yian. (b) To record the disposal of investment in China Sinovac by Tangshan Yian. (c) To record the conversion of $1,119,324 of debt for equity by Tangshan Yian. (d) To record the acquisition of Tangshan Yian by Sinovac. (e) To eliminate inter-company receivable and payable. F-7 EX-99.3 6 sinovacpressrel013004.txt SINOVAC BIOTECH 6K, PRESS RELEASE 01.30.04 EXHIBIT 99.3 - ------------ SINOVAC BIOTECH LTD. ANNOUNCES COMPLETION OF THE ACQUISITON OF TANGSHAN YIAN BIOLOGICAL ENGINEERING CO., LTD. BEIJING, January 30, 2004 - Sinovac Biotech Ltd. ("Sinovac") (NASD OTC-BB: SNVBF) is pleased to announce that on January 26, 2004, Sinovac executed the formal share purchase agreement (the "Share Purchase Agreement") between Sinovac, Tangshan Yian Biological Engineering Co., Ltd. ("Tangshan Yian"), a company organized under the laws of the People's Republic of China, and Mr. He Ping Wang, the sole shareholder of Tangshan Yian and also a director of Sinovac. The Share Purchase Agreement provides that Sinovac will acquire 100% of the issued and outstanding shares of Tangshan Yian in exchange for issuing 3,500,000 shares of common stock of Sinovac plus US$2,200,000 in cash, which will be payable by Sinovac within 12 months from the date of entering into the Share Purchase Agreement, to Mr. He Ping Wang. As of January 30, 2004, all of the terms and conditions of the Share Purchase Agreement have been satisfied and the acquisition of Tangshan Yian by Sinovac is now completed. Tangshan Yian operates in the city of Tangshan, People's Republic of China, as a research and development company specializing in the development and manufacturing of various vaccines including flu, and vaccines for Hepatitis A and Hepatitis A&B. Tangshan Yian supplies these vaccines to Sinovac's subsidiary, Sinovac Biotech Co., Ltd. The research and development operations of Tangshan Yian are expected to supply increased quantities of new and updated vaccines to the domestic Chinese and international markets. For further information please refer to the Company's filings with the SEC on EDGAR or refer to Sinovac's website at http://www.sinovac.com/. Contact: Graham Taylor at (888) 888 8312 or (604) 684-5990. MANAGEMENT OF SINOVAC WHO TAKE FULL RESPONSIBILITY FOR ITS CONTENTS HAS PREPARED THIS NEWS RELEASE. THIS NEWS RELEASE MAY INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE UNITED STATES SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, WITH RESPECT TO ACHIEVING CORPORATE OBJECTIVES, DEVELOPING ADDITIONAL PROJECT INTERESTS, SINOVAC'S ANALYSIS OF OPPORTUNITIES IN THE ACQUISITION AND DEVELOPMENT OF VARIOUS PROJECT INTERESTS AND CERTAIN OTHER MATTERS. THESE STATEMENTS ARE MADE UNDER THE "SAFE HARBOR" PROVISIONS OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN. THIS NEWS RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. EX-99.4 7 sinovacpressrel020304.txt SINOVAC BIOTECH 6K, PRESS RELEASE 02.03.04 EXHIBIT 99.4 - ------------ SINOVAC BIOTECH LTD. UPDATES FURTHER ON THE COMPLETION OF THE ACQUISITON OF TANGSHAN YIAN BIOLOGICAL ENGINEERING CO., LTD. BEIJING, February 3, 2004 - Sinovac Biotech Ltd. ("Sinovac") (NASD OTC-BB: SNVBF; Frankfurt: SVQ) wishes to further update the January 30, 2004 announcement of the completion of its acquisition of 100% of the issued and outstanding shares of Tangshan Yian Biological Engineering Co., Ltd. ("Tangshan Yian" or "the Company"). Tangshan Yian operates in the city of Tangshan, People's Republic of China. Since its inception in 1993, the Company has operated as an R & D and manufacturing company specializing in the development and manufacturing of various vaccines including flu, vaccines for Hepatitis A and Hepatitis A&B, and a potential vaccine for SARS. Tangshan Yian supplies these vaccines to Sinovac's subsidiary, Sinovac Biotech Co., Ltd. The operations of Tangshan Yian are expected to supply large-scale quantities of new and updated vaccines for the domestic Chinese and international markets. Tangshan Yian is located in the New Hi-tech Development Zone of Tangshan City, connected by superhighways to Beijing, 150 kilometers to the east. The Company's plant was built in accordance with the Pharmaceutical Industrial Standards and Regulations of China, which are based on international standards. The plant itself is 4300 square meters, which includes a Biological Safety Laboratory, Cell Culturing Workshop, Pilot Trial Production Workshop, Reagents Manufacture Workshop, and Research Lab for R&D of the Split Flu Vaccine. Moreover, within the plant, there is reserved space of about 1500 square meters, which will be used as a vaccine manufacture workshop. The plant is situated on 20,000 square meters of land, and has reserved an additional 10,0000 square meters in anticipation of future expansion. The land is already facilitated with full amenities. Tangshan Yian provides Sinovac with a low-cost R & D and manufacturing base. The cost of Tangshan Yian's land is about 20% of its equivalent in Beijing while salaries are about 50% of those paid to equivalent personnel in Beijing. Furthermore, the acquisition of Tangshan Yian contributes talented management and scientists who will add significant value to Sinovac's progress in vaccine development and manufacture. These favorable attributes are even further compounded with the addition of Tanshan Yian's state-of-the-art facilities and expanded manufacturing capabilities. These advantages could prove invaluable for enhancing Sinovac's competitive position in its progression towards large-scale flu and potentially SARS vaccine manufacture. Sinovac's Beijing operation has workshops for large-scale production of inactivated Hepatitis A vaccine and Hepatitis A & B combination vaccine. However, according to GMP regulations (government regulated standards called Good Manufacturing Practices), these workshops cannot be used for any other new vaccine development. Therefore, the research and pilot production activities for the flu vaccine and potential SARS vaccine actually take place inside Tangshan Yian. Sinovac's potential SARS vaccine has been approved for clinical trials by the Chinese FDA (SFDA). Tangshan Yian has produced 20,000 doses of this vaccine to date and has the ability and capacity to produce more of the SARS vaccine for use in these clinical trials. The Company will thus be able to efficiently produce further required quantities of the vaccine in timely manner. Of particular note is Tangshan Yian's production-scaled Biological Safety Level 3 laboratory, which includes a negative pressure facility. These highly specialized, so-called P3 labs, are necessary for research on highly infectious and contagious viruses and production of their associated vaccines. There are only a few of these state-of-the-art labs in China. Sinovac has conducted clinical trials on its flu vaccine. In order to receive further approvals from the SFDA (Chinese Food and Drug Administration), a flu vaccine production line must be built and the resulting manufactured final product must meet SFDA standards. To achieve this production capability, Sinovac is building a large-scale flu vaccine production line at Tangshan Yian. Sinovac is targeting to produce an initial 500,000 doses of flu vaccine for sale in the flu season of 2004/5. Actual production capacity is expected to be much greater than this quantity. Market demand for a high quality but low-cost inactivated flu vaccine in China is certainly expected to number in the millions each year. For further information please refer to the Company's 6K filing with the SEC on EDGAR or refer to Sinovac's website at http://www.sinovac.com/. ----------------------- Contact: Graham Taylor at (888) 888 8312 or (604) 684-5990. MANAGEMENT OF NET FORCE WHO TAKE FULL RESPONSIBILITY FOR ITS CONTENTS HAS PREPARED THIS NEWS RELEASE. THIS NEWS RELEASE MAY INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE UNITED STATES SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, WITH RESPECT TO ACHIEVING CORPORATE OBJECTIVES, DEVELOPING ADDITIONAL PROJECT INTERESTS, NET FORCE'S ANALYSIS OF OPPORTUNITIES IN THE ACQUISITION AND DEVELOPMENT OF VARIOUS PROJECT INTERESTS AND CERTAIN OTHER MATTERS. THESE STATEMENTS ARE MADE UNDER THE "SAFE HARBOR" PROVISIONS OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN. THIS NEWS RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. EX-99.5 8 sinovacmst.txt SINOVAC BIOTECH 6K, MINISTRY - SCIENCE & TECH DOC EXHIBIT 99.5 - ------------ Document from the Ministry of Science & Technology Guokefaji [2003] No.135 ------------------------------------------------------------------------ Re: "10th Five" Major Project of Plan 863. Official reply for launching the "Key Technology & Product R&D for SARS Prevention & Cure" Office of Plan 863, Biology & Modern Agriculture Technology, and other related Departments: Your request for launching the "Key Technology and Product R&D for SARS Prevention & Cure" of the "10th Five" Major Project of Plan 863 has been received. After studying your request, here is the reply for relevant tasks on launching the Project: 1. The major project of "Key Technology and Product R&D for SARS Prevention & Cure" was set up under a central plan by the National SARS Prevention & Cure Command, in accordance with the rapid response scheme of Plan 863. The Project is very important for rapidly identifying the origin and means of spreading of SARS; proposing effective means and methods to stop its spreading; developing specific treatment methods and drugs and prevention drugs; raising the cure rate and lowering the death rate; strengthening the self protection capability of the masses, especially that of the front line medical workers; completely blocking the spreading of the disease; bringing along related infrastructure and raising the nation's capability in effectively dealing with the sudden outburst of this kind of infectious diseases. -1- 2. We agree in principle to the mission and goals proposed by this Project. The Project will be assessed according to the following goals: i. Trace the origin of the virus; study the means and pattern in which SARS spreads and establish a model of prediction for the SARS Epidemiology. ii. Study and screen specific clinical treatment methods and provide systematic means of treatment especially for the purpose of lowering the death rate of the seriously ill. iii. Research and develop specific diagnostic reagents, effective prevention and treatment drugs for SARS. iv. Research and develop modern biological protective gears and equipment and disinfectants. v. Reinforce the development of preventive technology against the sudden outburst of SARS; effectively raising the nation's technological capability in dealing with sudden outburst of infectious diseases. 3. We agree in principle the direction in which the research will be carried out and its major contents and that tasks for research will be organized around the five areas of Epidemiological studies, clinical diagnosis and treatment, drug research and manufacturing, protective technology and the development of protection capability. 4. The financial allocation from the state for the Project is sixty million dollars 5. The Project's number is 2003AA208000. The implementation year of the Project is from 2003 to 2004. Please seriously organize and carry out the Project in accordance with the relevant regulations on the Administration of Plan 863, to ensure the realization of the goals of the Project. -2- Attachment: First list of Tasks for "Key Technology and Product R&D for SARS Prevention & Cure" of the "10th Five" Major Project of Plan 863. [Seal of the Ministry of Science & Technology of the People's Republic of China] - -------------------------------------------------------------------------------- May 9, 2003 Subject: Reply. SARS Project. Plan 863. - -------------------------------------------------------------------------------- Office of Ministry of Science & Technology. Sent May 9, 2003 - -------------------------------------------------------------------------------- -3- Attachment: First list of Tasks for ----------------------- "Key Technology and Product R&D for SARS Prevention and Cure" of the -------------------------------------------------------------------- "10th Five" Major Project of Plan 863. --------------------------------------
Number Task number Task name Unit in charge Person in charge - -------- -------------- --------------------------------------- ---------------------------------------------- ---------------- 1 2003AA208101 Clinical research on the treatment of Chinese Medicine Research Institute of Liu Baoyan. SARS with combined traditional China, Beijing You An Hospital, Beijing Chinese & Western medicine Ditan Hospital, Beijing Friendship Hospital, Tang Xudong Beijing Combined Traditional Chinese & Western Medicine Hospital. 2 2003AA208102 Treating & curing serious SARS Guangzhou Respiratory Disease Research Zhong Nanshan. patients Institute, Beijing Chaoyang Hospital. Wang Chen. 3 2003AA208103 Research of SARS clinical diagnosis Concord Hospital of the Chinese Medical Li Taisheng guide and treatment scheme Science Academy 4 2003AA208104 Preparation of pooled blood plasma Concord Medical University Liu Qian of recovered SARS patients & treatment research 5 2003AA208105 SARS pathological analysis, sample Medical Department of Beijing University Gu Jiang collection & study of pathological mechanism 6 2003AA208201 R&D of SARS vaccine inactivated Military Medical Science Academy, Beijing Qin Ede Sinovac Biotech Co. Ltd, Center for Disease Control of China, Huada Gene Research Yi Weidong Center, National Institute for the Control of Pharmaceutical & Biological Products.
-4- EX-99.6 9 sinovactestrpts.txt SINOVAC BIOTECH 6K, TEST REPORTS EXHIBIT 99.6 - ------------ (2002) Liangren (Guo) No.S0599 No.L0001 National Institute for the Control of Pharmaceutical & Biological Products -------------------------------------------------------------------------- TEST REPORT ----------- Report No.SH200301297 Name of test sample: SARS virus strain Sino1. Sample supplier: Beijing Sinovac Biotech Co. Ltd. Test purpose: Contract test. Basis for test: {{Main Technical Points for SARS Vaccine Inactivated Pre-Clinical Research}} {{Regulations for Biological Products of China>>2000 Edition}}
TEST REPORT FROM NATIONAL INSTITUTE FOR THE CONTROL OF PHARMACEUTICAL AND BIOLOGICAL PRODUCTS [Seal for test reports of National Institute for the Control of Pharmaceutical and Biological Products] Report No. SH200301297 Page 1 of 1 - ---------------------------------------------------------------------------------------------------- Name of Test Sample SARS virus strain Sino1 Test Sample Number SHBE200300674 Sample Supplier Beijing Sinovac Biotech Sample Series/Type / Co. Ltd. Sample Source / Test Sample State Liquid Test Purpose Contract test Test Sample Quantity 20ml Test Items Complete test Sample Reception Date October 8, 2003 Basis for test {{Main Technical Points for SARS Vaccine Inactivated Pre-Clinical Research}} {{Regulations for Biological Products of China}} 2000 Edition - ---------------------------------------------------------------------------------------------------- Test Item Standard Requirement Test Result - --------- -------------------- ----------- Virus titre (Cytopathy method) 7.0logCCID50/ml Virus titre (Plaque titration method) 6.48logPFU/ml Sterility test There should no growth of Satisfies the requirement bacteria and fungi Mycoplasma examination There should be no growth of Satisfies the requirement (Cultivation method) mycoplasmas Exogenous factor examination Blood absorption test No blood absorption Satisfies the requirement Non-blood absorption test No cytopathy Satisfies the requirement Exogenous factor examination on All animals should be alive Satisfies the requirement animals and healthy, chick embryo allantoic fluid agglutination test negative END - ---------------------------------------------------------------------------------------------------- Test Conclusion This sample was tested according to the {{Main Technical Points for SARS Vaccine Inactivated Pre-Clinical Research}} and the {{Regulations for Biological Products of China}} 2000 Edition and the results satisfy the requirements. Technology Officer [Signature] Date of Issue October 16, 2003 - ----------------------------------------------------------------------------------------------------
(2002) Liangren (Guo) No.S0599 No.L0001 National Institute for the Control of Pharmaceutical & Biological Products -------------------------------------------------------------------------- TEST REPORT ----------- Report No.SH200301298 Name of test sample: SARS virus strain Sino3. Sample supplier: Beijing Sinovac Biotech Co. Ltd. Purpose of certification: Contract test. Basis for test: {{Main Technical Points for SARS Vaccine Inactivated Pre-Clinical Research}} {{Regulations for Biological Products of China}} 2000 Edition
TEST REPORT FROM NATIONAL INSTITUTE FOR THE CONTROL OF PHARMACEUTICAL AND BIOLOGICAL PRODUCTS [Seal for test reports of National Institute for the Control of Pharmaceutical and Biological Products] Report No. SH200301298 Page 1 of 1 - ---------------------------------------------------------------------------------------------------- Name of Test Sample SARS virus strain Sino3 Test Sample Number SHBE200300675 Sample Supplier Beijing Sinovac Biotech Sample Series/Type / Co. Ltd. Sample Source / Test Sample State Liquid Test Purpose Contract test Test Sample Quantity 20ml Test Items Complete test Sample Reception Date October 8, 2003 Basis for test {{Main Technical Points for SARS Vaccine Inactivated Pre-Clinical Research}} {{Regulations for Biological Products of China}} 2000 Edition - ---------------------------------------------------------------------------------------------------- Test Item Standard Requirement Test Result - --------- -------------------- ----------- Virus titre (Plaque titration method) 6.95logPFU/ml Sterility test There should be no growth of Satisfies the requirement bacteria and fungi Mycoplasma examination There should be no growth of Satisfies the requirement (Cultivation method) mycoplasmas Exogenous factor examination Blood absorption test No blood absorption Satisfies the requirement Non-blood absorption test No cytopathy Satisfies the requirement Exogenous factor examination on All animals should be alive Satisfies the requirement animals and healthy, chick embryo allantoic fluid agglutination test negative END - ---------------------------------------------------------------------------------------------------- Test Conclusion This sample was tested according to the {{Main Technical Points for SARS Vaccine Inactivated Pre-Clinical Research}} and the {{Regulations for Biological Products of China}} 2000 Edition and the results satisfy the requirements. Technology Officer [Signature] Date of Issue October 16, 2003 - ----------------------------------------------------------------------------------------------------
(2002) Liangren (Guo) No.S0599 No.L0001 National Institute for the Control of Pharmaceutical & Biological Products -------------------------------------------------------------------------- TEST REPORT ----------- Report No.SZ200303628 Name of test sample: SARS Vaccine Inactivated. Sample supplier: Beijing Sinovac Biotech Co. Ltd. Purpose of certification: Registration testing. (Application for new drug clinical research) Basis for test: Regulations for Business Declaration. [Seal for Test Reports of National Institute for the Control of Pharmaceutical & - -------------------------------------------------------------------------------- Biological Products] - --------------------
TEST REPORT FROM NATIONAL INSTITUTE FOR THE CONTROL OF PHARMACEUTICAL AND BIOLOGICAL PRODUCTS [Seal for test reports of National Institute for the Control of Pharmaceutical and Biological Products] Report No. SZ200303628 Page 1 of 2 - ---------------------------------------------------------------------------------------------------------- Name of Test Sample SARS Vaccine Test Sample Number SZBE200305345 Inactivated Manufacturer Beijing Sinovac Biotech Lot Number 20030904 Co. Ltd. Sample Supplier Beijing Sinovac Biotech Specification 1.0ml/vial Co. Ltd. Test Purpose Registration test (New Dosage Form Liquid (water drug application for injection) clinical research) Test Items Complete test Packaging Specification / Sample Reception Date Oct. 20, 2003 Expiry Date August 2004 Test Quantity 55 vials Signed and Sealed Quantity / Basis for test Regulations for Business Declaration - ---------------------------------------------------------------------------------------------------------- Test Item Standard Requirement Test Result - --------- -------------------- ----------- Stock solution assay Protein content assay <=50ug/ml 5ug/ml Vero cell residual NDA content <=10ng/dosage <10ng/dosage assay Residual bovine serum protein content assay <=50ng/dosage <6ng/dosage Inactivation test Three generations of [one Satisfies the requirement character illegible] passage; fluorescence detection for each generation is negative Finished product assay Identification test Appearance Same effectiveness test Same effectiveness test No colour or light cream white Satisfies the requirement liquid with no foreign object pH value 6.5~8.0 7.3 Examination of toxin within less than 100EU/ml =>6<13EU/ml bacteria Sterility test There should be no growth of Satisfies the requirement bacteria or fungi Effectiveness test (Immune mouse To be determined Sino1 Strain - 1:275.9 method) (Original time vaccine); 1:240.0 (1:4 times vaccine); 1:105.4 (1:16 times vaccine); 1:45.4 (1:64 times vaccine) GZ01 Strain - =>1:495.2 (Original time vaccine); =>1:519.9 (1:4 times vaccine); 1:450.1 (1:16 times vaccine); 1:192.0 (1:64 times vaccine To be continued on the next page - ----------------------------------------------------------------------------------------------------------
No.L0001 National Institute for the Control of Pharmaceutical & Biological Products -------------------------------------------------------------------------- TEST REPORT ----------- Report No.SH200301357 Name of test sample: Vero Cell (Generation 143) Sample supplier: Beijing Sinovac Biotech Co. Ltd. Purpose of certification: Contract test. Basis for test: {{Regulations for Biological Products of China}} 2000 Edition [Seal for Test Reports of National Institute for the Control of Pharmaceutical & - -------------------------------------------------------------------------------- Biological Products] - --------------------
TEST REPORT FROM NATIONAL INSTITUTE FOR THE CONTROL OF PHARMACEUTICAL AND BIOLOGICAL PRODUCTS [Seal for test reports of National Institute for the Control of Pharmaceutical and Biological Products] Report No. SH200301357 Page 1 of 1 - ---------------------------------------------------------------------------------------------------- Name of Test Sample Vero Cell (Gen. 143) Test Sample Number SHBB200300556 Sample Supplier Beijing Sinovac Biotech Sample Series/Type / Co. Ltd. Sample Source Beijing Sinovac Biotech Test Sample State / Co. Ltd. Test Purpose Contract test Test Sample Quantity 5 bottles Test Items Complete test Sample Reception Date August 26, 2003 Basis for test {{Regulations for Biological Products of China}} 2000 Edition - ---------------------------------------------------------------------------------------------------- Test Item Standard Requirement Test Result - --------- -------------------- ----------- Sterility test No growth of bacteria Satisfies the requirement Mycoplasma examination Cultivation method Negative Satisfies the requirement DNA staining method Negative Satisfies the requirement Cell culture direct observation Normomorph Satisfies the requirement Examination of passage culture of different cells Monkey originated Vero cells Normomorph Satisfies the requirement Human originated 2B2 cells Normomorph Satisfies the requirement Same type of cells in Normomorph Satisfies the requirement different batches Red cell absorption test Negative Satisfies the requirement Animal and chick embryo examination (survival rate %) Suckling mouse Suckling mouse =>80% Suckling mouse 90% Adult mouse Adult mouse =>80% Adult mouse 100% Guinea pig Guinea pig =>80% Guinea pig 100% Rabbit Rabbit =>80% Rabbit 100% Chick embryo Chick embryo =>80% Chick embryo 100% Chick embryo allantoic fluid red cell Negative Satisfies the requirement agglutination test Oncogenic test No growth of tumour Satisfies the requirement Identification test Isozyme Monkey originated Satisfies the requirement Reverse transcription virus Negative Satisfies the requirement examination - ---------------------------------------------------------------------------------------------------- Test Conclusion This sample was tested according to the {{Regulations for Biological Products of China}} 2000 Edition and the results satisfy the requirements. Technology Officer [Signature] Date of Issue November 13, 2003 - ----------------------------------------------------------------------------------------------------
(2002) Liangren (Guo) No.S0599 No.L0001 National Institute for the Control of Pharmaceutical & Biological Products -------------------------------------------------------------------------- TEST REPORT ----------- Report No.SH200301352 Name of test sample: Vero Cell (Generation 160) Sample supplier: Beijing Sinovac Biotech Co. Ltd. Purpose of certification: Contract test. Basis for test: {{Regulations for Biological Products of China}} 2000 Edition [Seal for Test Reports of National Institute for the Control of Pharmaceutical & - -------------------------------------------------------------------------------- Biological Products] - --------------------
TEST REPORT FROM NATIONAL INSTITUTE FOR THE CONTROL OF PHARMACEUTICAL AND BIOLOGICAL PRODUCTS [Seal for test reports of National Institute for the Control of Pharmaceutical and Biological Products] Report No. SH200301352 Page 1 of 1 - ---------------------------------------------------------------------------------------------------- Name of Test Sample Vero Cell (Gen. 160) Test Sample Number SHBB200300626 Sample Supplier Beijing Sinovac Biotech Sample Series/Type / Co. Ltd. Sample Source Beijing Sinovac Biotech Test Sample State / Co. Ltd Test Purpose Contract test Test Sample Quantity 4 bottles Test Items Partial test Sample Reception Date September 16, 2003 Basis for test {{Regulations for Biological Products of China}} 2000 Edition - ---------------------------------------------------------------------------------------------------- Test Item Standard Requirement Test Result - --------- -------------------- ----------- Oncogenic test No growth of tumour Satisfies the requirement END - ---------------------------------------------------------------------------------------------------- Test Conclusion This sample was tested according to the {{Regulations for Biological Products of China}} 2000 Edition and the results satisfy the requirements. Technology Officer [Signature] Date of Issue November 12, 2003 - ----------------------------------------------------------------------------------------------------
EX-99.7 10 sinovaccert.txt SINOVAC BIOTECH 6K, FDA CERTIFICATION EXHIBIT 99.7 - ------------ (Translation)
State Food & Drug Administration -------------------------------- Approval for Drug Clinical Research ----------------------------------- Original No. Acceptance No.X0306208 Approval No.2004L00315 - ---------------------------------------------------------------------------------------------------------- Name of Drug SARS Vaccine Inactivated English/Latin Name SARS Vaccine Inactivated Form of Drug Water injection Matter under application New drug Specifications 1.0 ml/dose Registration Classification Type 1 of Preventive Biological Product Beijing Sinovac Biotech Co. Ltd, Laboratory Animal Research Institute of Chinese Applicants Medical Science Academy, Institute for Viral Disease Control of the Chinese Center for Disease Control In accordance with the {{Drug Control Act of the People's Republic of China}}, the product has been examined to conform to the regulations for approval for new drugs. Permission is hereby granted for one phase of clinical research. Conclusion Due to the specific characteristics of the SARS Vaccine Inactivated, the following steps must be taken besides meeting the requirements of GCP drug clinical research: 1. the clinical research scheme of this product must be examined and approved by the Ethics Committee before being carried out. 2. The research Subject should be selected from among healthy people in an area unaffected by SARS; results of physical exam and lab tests should be normal; SARS antibody must be negative; no past history of special or chronic diseases; no allergy; and are between 20-50 years of age. 3. In the Informed Consent, the Subject should be made fully aware of the risks associated with participating in the research. This product is being tested on a human body for the first time in the world and there has not been sufficient basic and animal test research. As a result, several kinds of harmful reactions may occur to the Subject after injection of this product, including seriously harmful reactions such as anaphylactic shock, allergy of the central nervous system, contracting SARS, or having immunopotentiative reaction when infected with the SARS virus. 4. Presently, there is no clear knowledge of what would happen after the clinical application of this product. Therefore, all Subjects must remain under the tight supervision of the Clinical Research Unit during the entire research period. In the event of infection, quarantine protective treatment should be initiated immediately. 5. For a certain period of time after the clinical research (before the specific antibody basically disappears), the Subject should be kept in touch and given follow-up visits. 6. Samples used in the clinical research must be approved by the National Institute for the Control of Pharmaceutical & Biological Products before being used. See Attachment for other research work to be performed during the Clinical Research period. Beijing Sinovac Biotech Co. Ltd, Laboratory Animal Research Institute of Chinese Original to: Medical Science Academy, Institute of Viral Disease Control of the Chinese Center for Disease Control Beijing Drug Administration Bureau, National Institute for the Control of Copy to: Pharmaceutical & Biological Products, Drug Testing Center of the State Food & Drug Administration Remark Attachment - ----------------------------------------------------------------------------------------------------------
[Drug Registration Seal of the State Food & Drug Administration] - ---------------------------------------------------------------- January 19, 2004 -----END PRIVACY-ENHANCED MESSAGE-----