Unassociated Document
As filed
with the Securities and Exchange Commission on September 29, 2010
Registration
No. 333-__________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
________________
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CHINA
SKY ONE MEDICAL, INC.
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(Exact
name of registrant as specified in its charter)
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_______________
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Nevada
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No.
2158, North Xiang An Road, Song Bei District,
Harbin,
People’s Republic of China 150028
86-451-87032617
(China)
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87-0430322
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(State
or other
jurisdiction
of
incorporation
or
organization)
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(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
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(IRS
employer
identification
number)
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(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
___________________
Copy
to:
Jeffrey
A. Rinde, Esq.
Blank
Rome LLP
The
Chrysler Building
405
Lexington Avenue
New York,
New York 10174
Telephone:
(212) 885-5000
Facsimile:
(212) 885-5001
Approximate date of commencement of
proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. ¨
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. þ
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. ¨
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 under the
Securities Exchange Act of 1934:
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Large
accelerated filer ¨
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Accelerated
filer x
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Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
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Smaller
reporting company ¨
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CALCULATION
OF REGISTRATION FEE
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Title of each
class of securities
to be registered
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Amount
to be
registered
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Proposed
maximum
offering price
per unit(2)
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Proposed
maximum
aggregate offering
price(2)
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Amount of
registration fee
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Common
stock, par value $0.001 per share (1)
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1,597,809 |
(3) |
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$ |
6.54 |
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$ |
10,449,671 |
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$ |
745.06 |
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Total
Fee
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$ |
745.06 |
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(1) Includes
593,800 shares of common stock issuable upon exercise of warrants.
(2) Estimated
solely for the purpose of calculating the registration fee pursuant to Rule
457(c) of the Securities Act of 1933, based upon the average of the high and low
sales prices of the common stock as reported on the Nasdaq Global Select Market
on September 22, 2010.
(3) Pursuant
to Rule 416 of the Securities Act of 1933, there are also being registered
hereunder additional shares of common stock as may be issued to the selling
stockholders because of any future stock dividends, stock distributions, stock
splits or similar capital readjustments or other similar
transactions.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
The
information in this prospectus is not complete and may be
changed. Securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION
DATED
SEPTEMBER 29, 2010
CHINA
SKY ONE MEDICAL, INC.
1,597,809
SHARES OF COMMON STOCK
This prospectus relates to up to
1,597,809 shares of the common stock of China Sky One Medical, Inc. (“China Sky
One”), which have been registered for resale by some of China Sky One’s
securityholders pursuant to this prospectus. The shares of common
stock may be offered and sold to the public from time to time.
The common stock may be offered from
time to time by the selling securityholders through ordinary brokerage
transactions in the over-the-counter markets, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices and in other ways as described in the “Plan of Distribution.” The shares
of common stock being offered include an aggregate of up to 593,800 shares of
common stock issuable upon exercise of outstanding warrants issued in the
private placement China Sky One consummated in January 2008. China
Sky One will not receive any of the proceeds from any sale of common stock by
the selling securityholders. China Sky One will, however, receive
proceeds from any cash exercise of the warrants.
The common stock is listed for trading
on the Nasdaq Global Select Market under the symbol “CSKI”. On
September 28, 2010, the closing sale price of the common stock as reported by
the Nasdaq Global Select Market was $6.97.
An investment in the common stock is
speculative and involves a high degree of risk. See “Risk Factors”
beginning on Page 3.
NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date
of this Prospectus is __________, 2010.
TABLE
OF CONTENTS
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Page
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Forward-looking
Statements
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1
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The
Company
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1
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Risk
Factors
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3
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Use
of Proceeds
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17
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Selling
Securityholders
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18
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Plan
of Distribution
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21
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Legal
Matters
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22
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Experts
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22
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Where
You Can Find More Information
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23
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Incorporation
of Certain Documents by Reference
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23
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FORWARD-LOOKING
STATEMENTS
Certain statements in this prospectus
and in the documents incorporated by reference herein constitute forward-looking
statements within the meaning of the securities
laws. Forward-looking statements include all
statements that do not relate solely to the historical or current facts, and can
be identified by the use of forward looking words such as "may", "believe",
"will", “would”, “could”, “should”, "expect", "project", “predict”,
"anticipate", “estimate", "plans", "strategy", "target", "prospects"
or "continue" or other comparable terminology or the
negative of any such term. These forward looking statements are based
on the current plans and expectations of our management and are subject to a
number of uncertainties and risks that could significantly affect our current
plans and expectations, as well as future results of operations and financial
condition and may cause our actual results, performances or achievements to be
materially different from any future results, performances or achievements
expressed or implied by such forward-looking statements. Important
factors that could cause our actual results to differ materially from our
expectations include, among others, those set forth under the caption "Risk
Factors." In making these forward-looking statements, we claim the
protection of the safe-harbor for forward-looking statements contained in the
Private Securities Reform Act of 1995. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to have been
correct. We do not assume any obligation to update these
forward-looking statements to reflect actual results, changes in assumptions, or
changes in other factors affecting such forward-looking statements.
The registration statement containing
this prospectus, including exhibits to the registration statement, provides
additional information about us and the common stock offered under this
prospectus. The registration statement can be read at the SEC web site or at the
SEC offices mentioned under the heading "Where You Can Find More
Information."
THE
COMPANY
China Sky One is a Nevada corporation
formed on February 7, 1986, formerly known as Comet Technologies,
Inc. Through its China based indirect subsidiaries, China Sky One is
engaged in the development, manufacture, marketing and sale of over-the-counter
branded nutritional supplements and over-the-counter plant and herb based
pharmaceutical and medicinal products. We have evolved into an
integrated manufacturer, marketer and distributor of external use Chinese
medicine products sold primarily in the People’s Republic of China (“PRC” or
“China”) and through PRC domestic pharmaceutical chains.
China Sky One’s principal products are
external use Traditional Chinese Herbal Remedies/Medicines, commonly referred to
in the industry as “TCM.” Using various formulas, we produce a number
of TCM products with several forms of delivery including ointments, sprays,
medicated skin patches, injections, capsules, suppositories, tablets and
granules.
China Sky
One’s corporate headquarters are located at No. 2158, North Xiang An Road, Song
Bei District, Harbin, People’s Republic of China 150028, telephone number
86-451-87032617 (China).
THE
OFFERING
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Common
Stock Offered by the Company
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None
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Common
Stock Offered by the
Selling
Stockholders
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Up
to 1,597,809 shares of our common stock, including: (i) up to 1,004,009
shares of issued and outstanding common stock held by the selling
stockholders, (ii) up to 593,800 shares issuable upon exercise of warrants
held by the selling stockholders, at an exercise price of $12.50 per
share.
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Common
Stock Outstanding Prior to this
Offering
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16,790,851
shares
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Use
of Proceeds
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We
will not receive any proceeds from the shares sold in this
offering. We will receive proceeds from any warrants exercised
for cash.
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Symbol
for our Common Stock
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“CSKI”
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RISK
FACTORS
We urge you to read the "Risk Factors"
section beginning on page 3 of this prospectus so that you understand the risks
associated with an investment in our common stock.
RISK
FACTORS
Risks
Related to Our Business
Adverse
economic conditions may harm our business.
In 2008,
general worldwide economic conditions declined due to sequential effects of the
sub prime lending crisis, general credit market crisis, collateral effects on
the finance and banking industries, concerns about inflation, slower economic
activity, decreased consumer confidence, reduced corporate profits and capital
spending, adverse business conditions and liquidity concerns. This
global economic downturn poses a risk as consumers and businesses may postpone
spending, or seek new ways to eliminate spending, in response to these uncertain
and challenging economic conditions. In addition, there could be a
number of follow-on effects including foreign currency exchange rate
fluctuations, insolvency of key suppliers and customer
insolvencies. We cannot predict the timing or duration of any
economic slowdown or recession or the timing or strength of a subsequent
recovery, worldwide, or in the specific markets we serve. If the
markets for our products significantly deteriorate due to these economic
effects, our business, financial condition and results of operations may be
materially and adversely affected.
Certain officers
and directors have significant control over our company.
Liu
Yan-qing and Han Xiao-yan, who are officers and directors of ours, also serve as
officers and directors of ACPG, TDR and its subsidiaries. As of the
date hereof, Dr. Liu and Ms. Han own, in the aggregate, approximately 36.5% of
the issued and outstanding shares of our common stock. As a result,
these shareholders are effectively able to control certain corporate governance
matters requiring shareholders’ approval. Such matters may include
transactions in which they have an interest other than as a shareholder of ours,
the approval of significant corporate transactions such as increasing the
authorized number of our shares to complete acquisitions or raise capital, if
necessary, and any other transactions requiring a majority vote without seeking
other shareholders’ approval. These persons also have the ability to
control other matters requiring shareholder approval including our election of
directors which could result in the entrenchment of management.
We
depend on our key management personnel and the loss of their services could
adversely affect our business.
We place
substantial reliance upon the efforts and abilities of our executive officers,
Liu Yan-qing, President, Chief Executive Officer and Chairman of the Board, Han
Xiao-yan, Vice Chairman, and Zhang Yu-Kun, Chief Accounting
Officer. We do not have employment agreements with these members of
management. Accordingly, if any of these persons should leave the
company, we would have no remedy or protections in place and would not be able
to prevent them from competing with us or working for
competitors. The loss of the services of any of these executive
officers could have a material adverse effect on our business, operations,
revenues or prospects. In addition, we do not maintain key man life
insurance on the lives of these individuals.
Our
expansion plan may not be successful.
Part of
our strategy is to continue our growth through increasing the distribution and
sales of our products by penetrating existing markets in the PRC, and entering
new geographic markets in the PRC as well as Asia, the United States and other
countries. However, many obstacles to entering such new markets exist,
including, but not limited to, international trade and tariff barriers,
regulatory constraints, product liability concerns, shipping and delivery costs,
costs associated with marketing efforts abroad and maintaining attractive
foreign exchange ratios. Moreover, our expansion strategy may be
based on incorrect assumptions and may be flawed, and may even damage our
performance, competitive position in the market and, ultimately, even our
ability to survive in the marketplace. We cannot, therefore, assure
shareholders that we will be able to successfully overcome such obstacles and
establish our products in any additional markets. Our inability to
implement this growth strategy successfully may have a negative impact on our
growth, future financial condition, results of operations or cash
flows.
There are many safety risks involved in
our products and services that could expose us to liability or inhibit our
ability to secure insurance.
Our
products and services involve direct or indirect impact on human health and
life. The products we manufacture and sell may be flawed and cause
dangerous side effects, and even fatality in certain cases, leading to major
business losses and legal and other liabilities and damages to our
company. In the event that any of our products are alleged to have
adverse side effects, we could be subject to product liability
claims. In addition to the threat of liability, there may be
insurance costs if we enter into certain markets or may not be able to obtain
insurance for certain products in some countries. Some distributors
may refuse to sell our products in certain countries if they perceive such
products to have a high risk or to be uninsurable.
We do not maintain any insurance and
are exposed to all risks of loss, including resulting from product liability,
property loss or damages, or other harm that we may cause to customers, vendors,
suppliers and other third parties, or securities law claims.
We do not
maintain liability or property insurance coverage or director and officer
insurance coverage and, therefore, we are self-insured for all risks of
loss. Although we seek to reduce potential liability through measures
such as contractual indemnification provisions with distributors and suppliers,
we cannot assure you that such measures will be enforced or
effective. Our policy is to record losses associated with our lack of
insurance coverage at such time as realized loss is incurred. Historically, we
have not had any material losses in connection with our lack of insurance
coverage and are not party to any material pending legal proceedings as of the
date of this report. Management’s intention is to use our working
capital to fund any such losses incurred due to our exposure to inadequate
insurance coverage. Our operating results could be materially and
adversely affected if we were to pay significant damages or incur significant
defense costs in connection with a claim.
We are highly dependent upon the public
perception and quality of our products. Additionally, anti-corruption
measures taken by the government to correct corruptive practices in the
pharmaceutical industry could adversely affect our sales and
reputation.
We are
highly dependent upon consumers’ perception of the safety and quality of our
products as well as similar products distributed by other
companies. Thus, the mere publication of reports asserting that such
products may be harmful could have a material adverse effect on our business,
regardless of whether these reports are scientifically supported.
The PRC
government has recently taken anti-corruption measures to correct corrupt
practices. In the pharmaceutical industry, such practices include,
among other things, acceptance of kickbacks, bribery or other illegal gains or
benefits by the hospitals and medical practitioners from pharmaceutical
distributors in connection with the prescription of a certain
drug. Substantially all of our sales to our ultimate customers are
conducted through third-party distributors. We have no control over
our third-party distributors, who may engage in corrupt practices to promote our
products. While we maintain strict anti-corruption policies
applicable to our internal sales force and third-party distributors, these
policies may not be effective. If any of our third-party distributors
engage in such practices and the government takes enforcement action, our
products may be seized and our own practices, and involvement in the
distributors’ practices may be investigated. If this occurs, our
sales and reputation may be materially and adversely affected.
Our
success will depend on our research and the ability to develop new
products.
Our
growth depends on our ability to consistently discover, develop and
commercialize new products, and find new and improve on existing technologies,
platforms and products. As such, if we fail to make sufficient
investments in research, to be attentive to consumer needs, or fail to focus on
the most advanced technologies, our current and future products could be
surpassed by more effective or advanced products of other
companies.
We
currently rely on third parties to supply the key raw materials we use to
produce our products.
Our
business depends upon the availability of key raw materials. We rely
on only external suppliers for these raw materials. In fiscal year
2009, Harbin Zhong Jia Medicine Company and Heilongjiang Kangda Medicine Company
accounted for approximately 16% and 42% of our total inventory purchases,
respectively. Heilongjiang Kangda Medicine Company accounted for
approximately 33% of our total inventory purchases for the year ended December
31, 2008. For the 2010 fiscal year, we expect that our raw material
suppliers will be substantially similar to last year and the amount of raw
materials will increase commensurate with the increase in the demand of our
products. If any of our major suppliers were to default or become
unable to deliver the raw materials in sufficient quantities, we may be
unable to purchase these raw materials from alternative sources on the same or
similar terms, which could result in a significant increase in our operating
costs. In addition, any disruption in the supply of our raw materials
could cause delay in the delivery of our products which would be harmful to our
sales reputation and business. If supply is disrupted the increased
amount we have to pay for raw materials could negatively impact our margins,
cause us to cease production if an alternate supplier cannot be
found. If we are unable to procure replacement supplies, our ability
to meet the production demands of our customers could cause the loss of
costumers and/or market share. Our financial results could be
negatively impacted by the lost sales or decreased margins.
We are dependent on a limited number of
customers for a significant portion of our revenues and accounts receivable and
this dependence is likely to continue.
We have
been dependent on a limited number of customers for a significant portion of our
revenue. For the year ended December 31, 2009, sales to Harbin Shiji
Baolong Medicine Company and Shanxi Xintai Medicine Company accounted for
approximately 16% and 11% of total revenues, respectively. For the
year ended December 31, 2008, sales to Shanxi Xintai and Harbin Shiji Baolong
accounted for 15% and 12% of our total revenues, respectively. For
the year ended December 31, 2007, sales to Ning BoYue Hua Trading Company and
Guang Zhou Xing He Trading Company accounted for approximately 14% and 11% of
our total revenues, respectively. Dependence on a few customers could
make it difficult to negotiate attractive prices for our products and could
expose us to the risk of substantial losses if any such customer stops
purchasing our products. Two of
our largest customers recently terminated their business relationships with
us. As a result, we expect our revenues and income to decline for the
second half of 2010. If we are unable to replace these customers our
results of operations will be materially adversely affected.
We expect
that a limited number of customers will continue to contribute to a significant
portion of our sales in the near future. Our ability to maintain close
relationships with these top customers is essential to the growth and
profitability of our business. If we fail to sell our products
to our other large customers in any particular period, or
if other large customers purchase fewer of our products, defer orders or
fail to place additional orders with us, or if we fail to develop additional
major customers, our revenue would likely decline and our results of operations
would be adversely affected.
In
addition, our accounts receivable are concentrated among a small number of our
customers. Harbin Bao Da Medicine Company and Harbin Shiji Baolong
Medicine Company accounted for approximately 16% and 14% of our accounts
receivable in 2009, respectively. Harbin Shiji Baolong and Shanxi
Xintai accounted for approximately 29% and 11% of our accounts receivable in
2008, respectively. Hua Li Jiu Zhou Company accounted for
approximately 11% of our accounts receivable in 2007. If any our customers fail
to pay us on a timely basis, or do not pay us at all, our business, cash flow,
financial condition and results of operations may be materially and adversely
affected.
Significant
competition from existing and new entities could adversely affect revenues and
profitability.
We
compete with other companies, many of which are developing and/or offering, or
can be expected to develop and offer, products similar to ours. Our
market is a large market with many competitors. Many of our
competitors are more established than we are, and have significantly greater
financial, technical, marketing and other resources than us. Some of
our competitors have greater name recognition and a larger customer
base. These competitors may be able to respond more quickly to new or
changing opportunities and customer requirements and may be able to undertake
more extensive promotional activities, offer more attractive terms to customers,
and adopt more aggressive pricing policies. We cannot assure
investors that we will be able to compete effectively with current or future
competitors or that the competitive pressures we face will not harm our
business.
We
are subject to market and channel risks.
In fiscal
year 2009, over 92% of our sales were made in the PRC, where we primarily sell
our products through drug chain stores. Because of this, we are
dependent to a large degree upon the success of our PRC-based distribution
channel, as well as the success of specific retailers in the distribution
channel. We rely on these distribution channels to purchase, market,
and sell our products. Our success is dependent, to a large degree,
on the growth and success of the drug stores, which may be outside our
control. There can be no assurance that the drug store distribution
channels will be able to grow or prosper as they faces price and service
pressure from other channels, including the mass market. There can be
no assurance that retailers in the drug store distribution channel, in the
aggregate, will respond or continue to respond to our marketing commitment in
these channels.
We
may have difficulty in defending intellectual property rights from
infringement.
Our TCM
products are generally not protected by patents but by trade
secrets. Certain TCM license agreements are made on a non-exclusive
basis. Our success depends, in large part, on our ability to protect
current and future technologies and products and to defend our intellectual
property rights. If we fail to protect our intellectual property
adequately, competitors may manufacture and market similar
products. We have filed patent applications seeking to protect newly
developed and/or technologies. Some patent applications in the PRC
are maintained in secrecy until the patent is issued. Because the
publication of discoveries tends to follow their actual discovery by many
months, we may not be the first to invent, or file patent applications on any of
its discoveries. Patents may not be issued with respect to any of our
patent applications and existing or future patents issued to or licensed by us
may not provide competitive advantages for its products. Patents that
are issued may be challenged, invalidated or circumvented by
competitors. Furthermore, our patent rights may not prevent our
competitors from developing, using or commercializing products that are similar
or functionally equivalent to our products.
To the
extent that we market products in other countries, we may have to take
additional action to protect our intellectual property. The measures
we take to protect our proprietary rights may be inadequate, and we cannot
provide any assurance that our competitors will not independently develop
formulations and processes that are substantially equivalent or superior to our
products or copy our products.
We also
rely on trade secrets, non-patented proprietary expertise and continuing
technological innovation that we seek to protect, in part, by entering into
confidentiality agreements with licensees, suppliers, employees and
consultants. These agreements may be breached and there may not be
adequate remedies in the event of a breach. Disputes may arise
concerning the ownership of intellectual property or the applicability of
confidentiality agreements. Moreover, trade secrets and proprietary
technologies may otherwise become known or be independently developed by
competitors. If patents are not issued with respect to products
arising from research, we may not be able to maintain the confidentiality
of information relating to these products.
We will be subject to risks relating to
third parties that may claim that we infringe on their proprietary rights and
may prevent us from manufacturing and selling certain of our
products.
There has
been substantial litigation in the pharmaceutical and nutraceutical industries
with respect to the manufacturing, use and sale of new
products. These lawsuits relate to the validity and infringement of
patents or proprietary rights of third parties. We may be required to
commence or defend against charges relating to the infringement of patent or
proprietary rights. Any such litigation could involve or result
in:
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the
incurrence of substantial expense, even if we are successful in the
litigation;
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a
diversion of significant time and effort of technical and management
personnel;
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the
loss of our rights to develop or make certain products;
and
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the
payment of substantial monetary damages or royalties in order to license
proprietary rights from third
parties.
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Although
patent and intellectual property disputes within these industries have often
been settled through licensing or similar arrangements, costs associated with
these arrangements may be substantial and could include the long-term payment of
royalties. These arrangements may be investigated by regulatory
agencies and, if improper, may be invalidated. Also, the required
licenses may not be made available to us on acceptable
terms. Accordingly, an adverse determination in a judicial or
administrative proceeding or a failure to obtain necessary licenses could
prevent our company from manufacturing and selling some of our products or
increase costs to market these products.
In
addition, when seeking regulatory approval for some of our products, we are
required to certify to regulatory authorities, including the SFDA that such
products do not infringe upon third party patent rights. Filing a
certification against a patent gives the patent holder the right to bring a
patent infringement lawsuit against us. Any lawsuit would delay
regulatory approval by the SFDA. A claim of infringement and the
resulting delay could result in substantial expenses and even prevent us from
manufacturing and selling certain of our products.
The
launch of a product prior to a final court decision or the expiration of a
patent held by a third party may result in substantial damages to
us. Depending upon the circumstances, a court may award the patent
holder damages equal to three times their loss of income. If we
are found to infringe a patent held by a third party and become subject to such
treble damages, these damages could have a material adverse effect on our
results of operations and financial condition.
Our failure to comply with accounting
policies and regulations in making reasonable estimates and judgments could
negatively impact our financial position and results of operation.
We are
subject to critical accounting policies and actual results may vary from
estimates. We have followed, and will continue to follow, generally
accepted accounting principles for the United States in preparing financial
statements. As part of this work, we must make many estimates and
judgments concerning future events. These affect the value of the
assets and liabilities, contingent assets and liabilities, and revenue and
expenses reported in such financial statements. We believe that
these estimates and judgments are reasonable, and we have made them in
accordance with accounting policies based on information available at the
time. However, actual results could differ from estimates, and this
could require us to record adjustments to expenses or revenues that could be
material to our financial position and results of operations in the
future.
Our
business is subject to many governmental regulatory and policy
risks.
Our
business must be conducted in compliance with various government regulations and
in particular, the SFDA’s regulations. Government regulations may
have material impact on our operations, increase costs and could prevent or
delay the manufacturing and selling of our products. Research,
development, testing, manufacturing and marketing activities are subject to
various governmental regulations in China, including health and drug
regulations. Government regulations, among other things, cover the
inspection of and controls over testing, manufacturing, safety and environmental
considerations, efficacy, labeling, advertising, promotion, record keeping and
sale and distribution of pharmaceutical products. We will not be able
to license, manufacture, sell and distribute the vast majority of our products
without a proper approval from government agencies and in particular the
SFDA. This approval process is lengthy, with approvals for TCM
products typically occurring 18-24 months after the application is initially
filed. There is no assurance that we will obtain such approvals on a
timely basis, or at all. Delays in obtaining approvals will delay our
ability to market products and denial of approval for a specific product will
result in our inability to market the product and recoup the expenses incurred
in that products development and testing.
In
addition, delays or rejections may be encountered based upon additional
government regulation from future legislation, administrative action or changes
in governmental policy and interpretation during the period of product
development and product assessment. Although we have, so far,
obtained the rights to sell our products in the PRC, we may not continue to
receive and maintain regulatory approvals for the sales of these
products. Our marketing activities are also subject to government
regulations with respect to the prices that it intends to charge or any other
marketing and promotional related activities. Government regulations
may substantially increase the costs for developing, licensing, manufacturing
and selling products, impacting negatively our operations, revenue, income and
cash flow.
There could be changes in government
regulations towards the pharmaceutical and nutraceutical industries that may
adversely affect our business.
The
manufacture and sale of pharmaceutical and nutraceutical products in the PRC is
heavily regulated by many state, provincial and local
authorities. These regulations significantly increased the difficulty
and costs involved in obtaining and maintaining regulatory approvals for
marketing new and existing products. Our future growth and
profitability depends to a large extent on our ability to obtain regulatory
approvals.
The SFDA
has implemented new guidelines for licensing of pharmaceutical
products. All existing manufacturers with licenses, which are
currently valid under the previous guidelines, were required to apply for the
GMP certifications by June 30, 2004, and to receive approvals by December 31,
2004. We received certifications for our current
products. However, should we fail to maintain the GMP certifications
under the new guidelines in the future, or for new products, our businesses
would be materially and adversely affected.
Moreover,
the laws and regulations regarding acquisitions of the pharmaceutical and
nutraceutical industries in the PRC may also change and may significantly impact
our ability to grow through acquisitions.
We
need to manage growth in operations to maximize our potential growth and achieve
our expected revenues.
Our
success depends on our ability to achieve continued growth. In order
to maximize potential growth in current and potential markets, we believe that
we must expand our manufacturing and marketing operations. This
expansion will place a significant strain on management and operational,
accounting and information systems and will require substantial additional
capital. We will need to continue to improve financial controls,
operating procedures, and management information systems if and as we
grow. We will also need to effectively train, motivate, and manage
our employees. A failure to manage our growth could disrupt
operations and ultimately prevent us from generating the revenues we
expect.
International
operations require our company to comply with a number of U.S. and international
regulations.
We are
required to comply with a number of international regulations in countries
outside of the United States. In addition, we must comply with the
Foreign Corrupt Practices Act, or FCPA, which prohibits U.S. companies or their
agents and employees from providing anything of value to a foreign official for
the purposes of influencing any act or decision of these individuals in their
official capacity to help obtain or retain business, direct business to any
person or corporate entity or obtain any unfair advantage. Any
failure to adopt appropriate compliance procedures and ensure that our employees
and agents comply with the FCPA and applicable laws and regulations in
foreign jurisdictions could result in substantial penalties and/or restrictions
in our ability to conduct business in certain foreign
jurisdictions. The U.S. Department of The Treasury’s Office of
Foreign Asset Control, or OFAC, administers and enforces economic and trade
sanctions against targeted foreign countries, entities and individuals based on
U.S. foreign policy and national security goals. As a result, we are
restricted from entering into transactions with certain targeted foreign
countries, entities and individuals except as permitted by OFAC which may reduce
our future growth.
We may incur significant costs to
ensure compliance with U.S. corporate governance and accounting
requirements.
We are a
public reporting company, and, as such, we will incur significant costs
associated with public company reporting requirements, costs associated with
newly applicable corporate governance requirements, including requirements under
the Sarbanes-Oxley Act of 2002 and other rules implemented by the U.S.
Securities and Exchange Commission (“SEC”). All of these applicable rules and
regulations can be expected to increase legal and financial compliance costs and
to make some activities more time consuming and costly. Management
also expects that these applicable rules and regulations may make it more
difficult and more expensive to obtain director and officer liability insurance
and we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As
a result, it may be more difficult for us to attract and retain qualified
individuals to serve on our board of directors or as executive
officers.
In recent
years, the securities markets in the U.S. have experienced a high level of price
and volume volatility, and the market price of securities of many companies have
experienced wide fluctuations that have not necessarily been related to the
operations, performances, underlying asset values or prospects of such
companies. For these reasons, our shares of common stock can also be
expected to be subject to volatility resulting from purely market forces over
which we will have no control. If our business development plans are
successful, we may require additional financing to continue to develop and
exploit existing and new technologies and to expand into new
markets. The exploitation of existing and new technologies may,
therefore, be dependent upon our ability to obtain financing through debt and
equity or other means.
We
are obligated to indemnify our officers and directors for certain losses they
suffer.
To the
fullest extent permitted by Chapter 78 of the Nevada Revised Statues, we may, if
and to the extent authorized by our board of directors, indemnify our officers
and any other persons who we have power to indemnify against liability,
reasonable expense or other matter whatsoever. If we are required to
indemnify any persons under this policy, we may have to pay indemnity in a
substantial amount which we may be unable to recover at all.
We
are the subject of a formal SEC order of investigation which, if not favorably
resolved, could have material adverse consequences to us.
On
September 4, 2009, the SEC issued a formal order of investigation relating to,
among other things, certain of our accounting, record-keeping and disclosure
practices. We have received document and testimonial subpoenas from
the SEC and have complied with all requests for information received
to date. We cannot assure you that we will be able to resolve this
investigation favorably, or that we will not be materially adversely effected by
this investigation or its outcome.
Risks
Related to Doing Business in China
Our business will be affected by the
government regulation and Chinese economic environment because most of our sales
will be in the China market.
In 2009,
2008, and 2007, approximately 92%, 92% and 75% of our total revenues,
respectively, were from sales in the PRC. The manufacture and sale of
pharmaceutical products in China is heavily regulated by many state, provincial
and local authorities. The SFDA requires pharmaceutical manufacturers
to obtain GMP certifications. We currently have the certifications
needed for our current operations. However, should we fail to receive
or maintain the GMP certifications in the future, we would no longer be able to
manufacture pharmaceuticals in China, and our businesses would be materially and
adversely affected. These regulations significantly increase the
difficulty and costs involved in obtaining and maintaining regulatory approvals
for marketing new and existing products. Our future growth and
profitability depend to a large extent on our ability to obtain regulatory
approvals. Additionally, the law could change so as to prohibit the
use of certain pharmaceuticals. If one of our products becomes
prohibited, this change would cease the productivity of that
product. The China National Development and Reform Commission
(“CNDRC”), has recently implemented price adjustments on many marketed
pharmaceutical products. We have no control over such governmental
policies, which may impact the pricing and profitability of our
products.
Although
we have started exporting products to other countries, most of our sales are in
the PRC. It is anticipated that our products in the PRC will continue
to represent a significant portion of sales in the near future. As a
result of our reliance on the PRC markets, our operating results and financial
performance could be affected by any adverse changes in economic, political
and social conditions in the PRC.
The
modernization of regulations for the pharmaceutical industry is relatively new
in the PRC, and the manner and extent to which it is regulated will continue to
evolve. As a pharmaceutical company, we are subject to the
Pharmaceutical Administrative Law, which governs the licensing, manufacture,
marketing and distribution of pharmaceutical products in the PRC, and sets
penalty provisions for violations of provisions of the Pharmaceutical
Administrative Law. In addition as a “Foreign Owned
Enterprise,” we will be subject to the Foreign Company provisions of the Company
Law of the PRC. Changes in these laws or new interpretations of
existing laws may have a significant impact on our methods and our cost of
doing business. For example, if legislative proposals for
pharmaceutical product pricing, reimbursement levels, approval criteria or
manufacturing requirements should be proposed and adopted, such new legislation
or regulatory requirements may have a material adverse effect on our financial
condition, results of operations or cash flows. In addition, we are
subject to varying degrees of regulation and licensing by governmental agencies
in China. At this time, we are unaware of any China legislative proposals that
could adversely affect our business. There can be no assurance that future
regulatory, judicial and legislative changes will not have a material adverse
effect on our operations, that regulators or third parties will not raise
material issues with regard to compliance or non-compliance with applicable laws
or regulations, or that any changes in applicable laws or regulations will not
have a material adverse effect on our business.
Certain
political and economic considerations relating to China could adversely affect
us.
China is
transitioning from a planned economy to a market economy. While the
PRC government has pursued economic reforms since its adoption of the open-door
policy in 1978, a large portion of the Chinese economy is still operating under
five-year plans and annual state plans. Through these plans and other
economic measures, such as control on foreign exchange, taxation and
restrictions on foreign participation in the domestic market of various
industries, the PRC government exerts considerable direct and indirect influence
on the economy. Many of the economic reforms carried out by the PRC
government are unprecedented or experimental, and are expected to be refined and
improved. Other political, economic and social factors can also lead
to further readjustment of such reforms. This refining and
readjustment process may not necessarily have a positive effect on our
operations or future business development. Our operating results may
be adversely affected by changes in China’s economic and social conditions as
well as by changes in the policies of the PRC government, such as changes in
laws and regulations, or the official interpretation thereof, which may be
introduced to control inflation, changes in the interest rate or method of
taxation, and the imposition of additional restrictions on currency
conversion.
Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.
There
are risks inherent in doing business in China.
The PRC
is a developing country with a young market economic system overshadowed by the
state under heavy regulation and scrutiny. Its political and economic
systems are very different from the more developed countries. China
also faces many social, economic and political challenges that may produce major
shocks and instabilities and even crises, in both its domestic arena and in its
relationship with other countries, including but not limited to the United
States. Such shocks, instabilities and crises may in turn
significantly and adversely affect our performance.
The recent nature and uncertain
application of many PRC laws applicable to our company create an uncertain
environment for business operations and they could have a negative effect on our
business and operations.
The PRC
legal system is a civil law system. Unlike the common law system, the
civil law system is based on written statutes in which decided legal cases have
little value as precedents. In 1979, the PRC began to promulgate a
comprehensive system of laws and has since introduced many laws and regulations
to provide general guidance on economic and business practices in the PRC and to
regulate foreign investment. Progress has been made in the
promulgation of laws and regulations dealing with economic matters such as
corporate organization and governance, foreign investment, commerce, taxation
and trade. However, there are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including, but not
limited to, the laws and regulations governing our business. In addition, the
effectiveness of newly-enacted laws, regulations or amendments may be
delayed, resulting in detrimental reliance by investors. New laws and
regulations that affect existing and proposed future businesses may also be
applied retroactively. The promulgation of new laws, changes of existing laws
and the abrogation of local regulations by national laws could have a negative
impact on our business, business prospects and operations. In
addition, as these laws, regulations and legal requirements are relatively
recent, their interpretation and enforcement involve significant
uncertainty.
Our business may be affected by
unexpected changes in regulatory requirements in the jurisdictions in which we
operate.
Our
company, and its subsidiaries, are subject to many general regulations governing
business entities and their behavior in China and in other jurisdictions in
which we and our subsidiaries have, or plan to have, operations and market
products. In particular, we are subject to laws and regulations
covering food, dietary supplements and pharmaceutical
products. Such regulations typically deal with licensing,
approvals and permits. Any change in product licensing may make our
products more or less available on the market. Such changes may have
a positive or negative impact on the sale of our products and may directly
impact the associated costs in compliance and our operational and financial
viability. Such regulatory environment also covers any existing or
potential trade barriers in the form of import tariff and taxes that may make it
difficult for us to import our products to certain countries and regions, such
as Hong Kong, which would limit its international expansion.
A slowdown or other adverse
developments in the PRC economy may materially and adversely affect our
customers, demand for our services and our business.
All of
our operations are conducted in the PRC and almost all of our revenues are
generated from sales in the PRC. Although the PRC economy has grown
significantly in recent years, we cannot assure you that such growth will
continue. According to the PRC National Bureau of Statistics, the
PRC’s economy expanded 6.8% from a year earlier in the fourth quarter of 2008,
which means that a full-year growth for 2008 was 9.0%. It is the
first time since 2002 that the PRC has expanded by less than 10%
annually. A number of factors have contributed to this slow-down,
including appreciation of the RMB, which has adversely affected the PRC’s
exports. In addition, the slow-down has been exacerbated by the recent global
crisis in the financial services and credit markets, which has resulted in
significant volatility and dislocation in the global capital markets. It is
uncertain how long the global crisis in the financial services and credit
markets will continue and how much adverse impact it will have on the global
economy in general or the PRC economy in particular. We do not know
how sensitive we are to a slowdown in economic growth or other adverse changes
in the PRC economy which may affect demand for our products. A
slowdown in overall economic growth, an economic downturn or recession or other
adverse economic developments in the PRC may materially reduce the demand for
our products and materially and adversely affect our business.
Inflation
in the PRC could negatively affect our profitability and growth.
While the
PRC economy has experienced rapid growth, it has been uneven among various
sectors of the economy and in different geographical areas of the country. Rapid
economic growth can lead to growth in the money supply and rising inflation. If
prices for our products do not rise at a rate that is sufficient to fully
absorb inflation-driven increases in our costs of supplies, our profitability
can be adversely affected.
During
the past ten years, the rate of inflation in the PRC has been as high as 20.7%
and as low as 2.2%. These factors have led to the adoption by the Chinese
government, from time to time, of various corrective measures designed to
restrict the availability of credit or regulate growth and contain inflation. In
order to control inflation in the past, the PRC government has imposed controls
on bank credits, limits on loans for fixed assets and restrictions on state bank
lending. The implementation of these and other similar policies can impede
economic growth and thereby harm the market for our products.
Substantially all of our assets are
located in the PRC and all of our revenues are derived from our operations in
the PRC. Accordingly, our results of operations and prospects are
subject, to a significant extent, to the economic, political and legal
developments in the PRC.
Substantially
all of our assets are located in the PRC and all of our revenues are derived
from our operations in the PRC. Accordingly, our results of
operations and prospects are subject, to a significant extent, on the economic,
political and legal developments in the PRC. The PRC economy differs
from the economies of most developed countries in many
respects.
Since
1978, the PRC has been one of the world’s fastest-growing economies in terms of
gross domestic product, or GDP growth. We cannot assure you, however, that such
growth will be sustained in the future. If, in the future, the PRC’s economy
experiences a downturn or grows at a slower rate than expected, there may be
less demand for spending in certain industries.
Our
ability to implement our business plan is based on the assumption that the
Chinese economy will continue to grow. The PRC’s economic growth has been
uneven, both geographically and among various sectors of the economy. The PRC
government has implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures benefit the overall
PRC economy, but may also have a negative effect on us.
The PRC
economy has been transitioning from a planned economy to a more market-oriented
economy. Although in recent years the PRC government has implemented measures
emphasizing the use of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of productive assets
in the PRC is still owned by the PRC government. In addition, the PRC government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over PRC
economic growth through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies. We cannot assure
you that changes in the PRC’s economic, political or legal systems will not
detrimentally affect our business, prospects, financial conditions and results
of operations.
We
may have difficulty attracting talent in foreign countries.
Currently,
over 92% of our sales are in the PRC. We are in the process of
attempting to establish marketing and sales presence in the U.S. and other
countries. We expect to establish an office in the U.S. for investor
relations. In the future, we may explore expanding its operations in
other countries throughout the world. Upon effecting any such
expansion, we may not be able to identify and retain qualified personnel due to
its lack of understanding of different cultures and lack of local
contacts. This may impede international expansion.
Currency conversion and exchange rate
volatility could adversely affect our financial condition, by making
acquisitions in China or of Chinese products more expensive.
The PRC
government imposes control over the conversion of Renminbi (“RMB”), the currency
of China, into foreign currencies. Under the current unified floating
exchange rate system, the People’s Bank of China publishes an exchange rate,
referred to as the PBOC exchange rate, based on the previous day’s dealings
in the inter-bank foreign exchange market. Financial institutions
authorized to deal in foreign currency may enter into foreign exchange
transactions at exchange rates within an authorized range above or below the
PBOC exchange rate according to market conditions.
Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of RMB into foreign exchange by Foreign Investment Enterprises (“FIEs”), for use
on current account items, including the distribution of dividends and profits to
foreign investors, is permissible. FIEs are permitted to convert
their after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in the PRC.
Conversion
of RMB into foreign currencies for capital account items, including direct
investment, loans, and security investment, is still subject to certain
restrictions. On January 14, 1997, the State Council amended the
Foreign Exchange Control Regulations and added, among other things, an important
provision, which provides that the PRC government shall not impose restrictions
on recurring international payments and transfers under current account
items. These rules are subject to change.
Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange (“SAFE”) effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by
providing valid receipts and proofs.
Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.
Our
company is a FIE to which the Foreign Exchange Control Regulations are
applicable. There can be no assurance that we will be able to obtain
sufficient foreign exchange to pay dividends or satisfy other foreign exchange
requirements in the future.
Since
1994, the exchange rate for RMB against the U.S. dollar has remained relatively
stable, most of the time in the region of approximately RMB 8.00 to
U.S.$1.00. However, in 2005, the Chinese government announced that
would begin pegging the exchange rate of the Chinese RMB against a number of
currencies, rather than just the U.S. dollar. Currently, exchange
rates are approximately RMB 6.84 to U.S.$1.00 resulting in the increase in price
of Chinese products to U.S. purchasers. As our operations are
primarily in China, any significant revaluation of the Chinese RMB may
materially and adversely affect cash flows, revenues and financial
condition. For example, to the extent that we need to convert United
States dollars into Chinese RMB for operations, appreciation of this currency
against the U.S. dollar could have a material adverse effect on our business,
financial condition and results of operations. Conversely, if we
decide to convert Chinese RMB into U.S. dollars for other business purposes and
the U.S. dollar appreciates against this currency, the U.S. dollar equivalent of
the Chinese RMB that we convert would be reduced.
Restrictions on currency exchange may
limit our ability to utilize our revenues effectively and the ability of the PRC
entities to obtain financing.
Substantially
all of our revenues and operating expenses are denominated in Renminbi.
Restrictions on currency exchange imposed by the PRC government may limit our
ability to utilize revenues generated in Renminbi to fund our business
activities outside the PRC, if any, or expenditures denominated in foreign
currencies. Under current PRC regulations, Renminbi may be freely converted into
foreign currency for payments relating to “current account transactions,” which
include among other things dividend payments and payments for the import of
goods and services, by complying with certain procedural requirements. The PRC
entities may also retain foreign exchange in their respective current account
bank accounts, subject to a cap set by the State Administration for Foreign
Exchange, or SAFE, or its local counterpart, for use in payment of international
current account transactions. However, conversion of Renminbi into foreign
currencies, and of foreign currencies into Renminbi, for payments relating
to “capital account transactions,” which principally includes investments
and loans, generally requires the approval of SAFE and other relevant PRC
governmental authorities. Restrictions on the convertibility of the Renminbi for
capital account transactions could affect the ability of the PRC entities to
make investments overseas or to obtain foreign exchange through debt or equity
financing, including by means of loans or capital contributions from the parent
entity.
Any
existing and future restrictions on currency exchange may affect the ability of
the PRC entities or an affiliated entity to obtain foreign currencies, limit our
ability to utilize revenues generated in Renminbi to fund any business
activities outside the PRC that are denominated in foreign currencies, or
otherwise materially and adversely affect our business.
We
are required to be in compliance with the registered capital requirements of the
PRC.
Under the
Company Law of the PRC, we are required to contribute a certain amount
of “registered capital” to our wholly owned subsidiary. By
law, our subsidiaries are required to contribute at least 10% of after tax net
income (as determined in accordance with Chinese GAAP) into a statutory surplus
reserve until the reserve is equal to 50% of our and our subsidiaries’
registered capital, and between 5% and 10% of its after tax net income, as
determined by our board of directors, into a public welfare
fund. These reserve funds are recorded as part of shareholders’
equity but are not available for distribution to shareholders other than in the
case of liquidation. As a result of this requirement, the amount of
net income available for distribution to shareholders will be
limited.
Dividends
we receive from our subsidiaries located in the PRC may be subject to PRC
withholding tax.
The PRC’s
Enterprise Income Tax Law (“EIT Law”) provides that an income tax rate of 10%
may be applicable to dividends payable to non-PRC investors that are
“non-resident enterprises.” Non-resident enterprises refer to enterprises which
do not have an establishment or place of business in the PRC, or which have such
establishment or place of business in the PRC but the relevant income is not
effectively connected with the establishment or place of business, to the extent
such dividends are derived from sources within the PRC. The income tax for the
non-resident enterprises shall be subject to withholding at income source with
the payer acting as the obligatory withholder under the EIT Law, and therefore,
such income tax is generally called “withholding tax” in practice. It
is currently unclear in what circumstances a source will be considered as
located within the PRC. As a U.S. holding company and substantially
all of our income will be derived from dividends we receive from our PRC
operating subsidiaries. Thus, if we are considered as a “non-resident
enterprise” under the EIT Law and the dividends paid to us by our PRC operating
subsidiaries are considered income sourced within the PRC, such dividends may be
subject to a 10% withholding tax. No dividends were paid to us by our
PRC operating subsidiaries in 2007, 2008 or 2009.
Deterioration of the PRC’s political
relations with the U.S., Europe, or other nations could make Chinese businesses
less attractive to Western investors.
The
relationship between the U.S. and the PRC is subject to sudden fluctuation and
periodic tension. Changes in political conditions in the PRC and changes in the
state of Sino-foreign relations are difficult to predict and could materially
adversely affect our operations or cause potential target businesses or services
to become less attractive. This could lead to a decline in our profitability.
Any weakening of relations between the U.S., Europe, or other nations and the
PRC could have a material adverse effect on our operations or our ability
to raise additional capital.
The discontinuation of any of the
preferential tax treatments currently available to the PRC entities could
materially increase our tax liabilities.
The rate
of income tax on companies in China may vary depending on the availability of
preferential tax treatment or subsidies based on their industry or location. The
current maximum corporate income tax rate is 33%. The new Enterprise Income Tax
Law became effective as of January 1, 2008, pursuant to which, an enterprise
income tax of 25% applies to any enterprise. Although we were approved by the
local tax authority to be exempted from the enterprise income tax for a
five-year period commencing in 2007 and ending in 2012, we do not know whether
such new law will change the preferential treatment that was granted to us. Any
loss or substantial reduction of the tax benefits enjoyed by us would reduce our
net profit.
Because PRC law governs almost all of
our operating subsidiaries’ material agreements, we may not be able to enforce
our rights within the PRC or elsewhere, which could result in a significant loss
of business, business opportunities or capital.
PRC law
governs almost all of the material agreements of our subsidiaries. We cannot
assure you that we will be able to enforce any of our material agreements or
that remedies will be available outside of the PRC. The Chinese legal
system is similar to a civil law system based on written statutes. Unlike common
law systems, it is a system in which decided legal cases have little
precedential value. In 1979, the PRC government began to promulgate a
comprehensive system of laws and regulations governing economic matters in
general. The overall effect of legislation since then has been to
significantly enhance the protections afforded to various forms of foreign
investment in the PRC. Certain of our subsidiaries are wholly
foreign-owned enterprises, and are subject to laws and regulations applicable to
foreign investment in the PRC in general and laws and regulations applicable to
wholly foreign-owned enterprises in particular. Relevant PRC laws,
regulations and legal requirements may change frequently, and their
interpretation and enforcement involve uncertainties. For example, we
may have to resort to administrative and court proceedings to enforce the
legal protection that we enjoy either by law or contract. However, since PRC
administrative and court authorities have significant discretion in interpreting
and implementing statutory and contractual terms, it may be more difficult to
evaluate the outcome of administrative and court proceedings and the level of
legal protection we enjoy than under more developed legal
systems. Such uncertainties, including the inability to enforce our
contracts, could materially and adversely affect our business and
operations. In addition, confidentiality protections in the PRC may
not be as effective as in the U.S. or other countries. Accordingly,
we cannot predict the effect of future developments in the PRC legal system,
particularly with respect to financing sectors, including the promulgation of
new laws, changes to existing laws or the interpretation or enforcement thereof,
or the preemption of local regulations by national laws. These
uncertainties could limit the legal protections available to us and other
foreign investors.
Our PRC subsidiaries are obligated to
withhold and pay PRC individual income tax on behalf of our employees who are
subject to PRC individual income tax. If we fail to withhold or pay such
individual income tax in accordance with applicable PRC regulations, we may be
subject to certain sanctions and other penalties and may become subject to
liability under PRC laws.
Under PRC
laws, our PRC subsidiaries are obligated to withhold and pay individual income
tax on behalf of our employees who are subject to PRC individual income tax. If
we fail to withhold and/or pay such individual income tax in accordance with PRC
laws, we may be subject to certain sanctions and other penalties and may become
subject to liability under PRC laws.
In
addition, the State Administration of Taxation has issued several circulars
concerning employee stock options. Under these circulars, our employees working
in the PRC (which could include both PRC employees and expatriate employees
subject to PRC individual income tax) who exercise stock options will be subject
to PRC individual income tax. Our PRC subsidiaries have obligations to file
documents related to employee stock options with relevant tax authorities and
withhold and pay individual income taxes for those employees who exercise their
stock options. While tax authorities may advise us that our policy is compliant,
they may change their policy, and we could be subject to sanctions.
Failure
to comply with the U.S. Foreign Corrupt Practices Act could subject us to
penalties and other adverse consequences.
We are
required to comply with the U.S. Foreign Corrupt Practices Act, which generally
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business. Foreign
companies, including some that may compete with us, are not subject to these
prohibitions, and therefore may have a competitive advantage over us.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices
may occur in the PRC. If our competitors engage in these practices
they may receive preferential treatment, giving our competitors an advantage in
securing business, which would put us at a disadvantage. We can make no
assurance that our employees or other agents will not engage in such conduct for
which we might be held responsible. If our employees or other agents are found
to have engaged in such practices, we could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations.
We
face risks related to health epidemics and outbreak of contagious
disease.
Our
business could be materially and adversely affected by the effects of H1N1 Flu,
Avian Flu, Severe Acute Respiratory Syndrome (“SARS”) or other epidemics or
outbreaks. In April 2009, an outbreak of H1N1 Flu first occurred in
Mexico and quickly spread to other countries, including the U.S. and the PRC.
In the last decade, the PRC has suffered health epidemics related to the
outbreak of Avian Flu and SARS. Any prolonged occurrence or
recurrence of H1N1 Flu , Avian Flu, SARS or other adverse public health
developments in the PRC may have a material adverse effect on our business and
operations. These health epidemics could result in severe travel
restrictions and closures that would restrict our ability to ship our
products. Potential outbreaks could also lead to temporary closure of
our manufacturing facilities, our suppliers’ facilities and/or our end-user
customers’ facilities, leading to reduced production, delayed or cancelled
orders, and decrease in demand for our products. Any future health epidemic or
outbreaks that could disrupt our operations and/or restrict our shipping
abilities may have a material adverse effect on our business and results of
operations.
Risks
Relating to the Market for Our Common Stock and our Capital
Structure
Application of guidance related to the
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock has negatively impacted
our statement of operations for the year ended December 31, 2009
(restated) and could continue to negatively impact our statement of
operations.
For the
year ended December 31, 2009 (restated), we reported an unrealized loss on
derivatives in the consolidated statements of operations of $4,807,000 as a
result of the change in fair value of derivative warrant liability relating to
the outstanding warrants issued in our January 2008 private
placement. Our comprehensive income will continue to fluctuate as a
result of the impact of such warrants and will be adversely effected in each
reporting period in which the fair value of the warrants that remain outstanding
continue to increase.
Our
stock price is likely to be highly volatile.
The
trading price of our common stock has been highly volatile. Failure
to meet market expectations in our financial results could cause our stock price
to decline. Moreover, factors that are not related to our operating
performance could cause our stock price to decline. The stock market
has recently experienced significant price and volume fluctuations that have
affected the market prices for securities of technology and communications
companies. Consequently, you may experience a decrease in the market
value of your common stock, regardless of our operating performance or
prospects.
We do not plan to declare or pay any
dividends to our shareholders in the near future and would need regulatory
approval to do so.
We have
not declared any dividends in the past, and we do not intend to distribute
dividends in the near future. The declaration, payment and amount of
any future dividends will be made at the discretion of the board of directors
and subject to PRC law, and will depend upon, among other things, the results of
operations, cash flows and financial condition, operating and capital
requirements, and other factors as the board of directors considers
relevant. There is no assurance that future dividends will be paid,
and if dividends are paid, there is no assurance with respect to the amount of
any such dividend.
We have the right to issue up to
5,000,000 shares of "blank check" preferred stock, which may
adversely affect the voting power of the holders of other of our securities and
may deter hostile takeovers or delay changes in management control.
Our
articles of incorporation provides that we may issue up to 5,000,000 shares of
preferred stock from time to time in one or more series, and with such rights,
preferences and designations as our board of directors may determinate from time
to time. Our board of directors, without further approval of our
common stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any series of our preferred stock.
Issuances of shares of preferred stock could, among other things, adversely
affect the voting power of the holders of other of our securities and may, under
certain circumstances, have the effect of deterring hostile takeovers or
delaying changes in management control. Such an issuance would dilute
existing stockholders, and the securities issued could have rights, preferences
and designations superior to our common stock.
Sales of our
common stock may have an adverse effect on the market price of our common
stock. Additionally, we may issue shares upon exercise of outstanding
warrants that are exercisable at prices that are below current market prices
which will be dilutive to the common stock.
As of
September 29, 2010, we had 16,790,851 shares of common stock outstanding, many
of which are freely transferable under Rule 144. The sale of these
shares may have an adverse effect on the market price for our common
stock.
In addition, as of September 29, 2010,
we had issued and outstanding warrants to purchase an aggregate of 593,800
shares of our common stock, which are exercisable at a price of $12.50 per
share. Our issuance of additional shares of common stock upon
exercise of our outstanding warrants will reduce the percentage equity ownership
of holders of shares of our common stock. Further, the exercise of a significant
number of warrants, and subsequent sale of shares of common stock received
upon such exercise, could cause a sharp decline in the market price of our
common stock.
USE
OF PROCEEDS
The shares of common stock covered by
this prospectus are, either issued and outstanding, or issuable upon exercise of
common stock purchase warrants owned by the selling
stockholders. Each of the selling stockholders will receive all of
the net proceeds from the sale of shares by that stockholder. China
Sky One will not receive any of the proceeds from the sale or other disposition
of the shares common stock covered by this prospectus. However, upon
the exercise of warrants by payments of cash, China Sky One will receive
$7,422,500, in the aggregate, assuming all of the warrants are
exercised. To the extent that China Sky One receives cash upon the
exercise of the warrants, management expects to use that cash for general
corporate purposes.
SELLING
SECURITYHOLDERS
The following table sets forth
information as of September 29, 2010, with respect to the securityholders for
which shares are being registered for sale. All of the shares
registered for resale by the selling securityholders set forth in the table
below were acquired by such selling securityholders in the private placement the
China Sky One consummated on January 31, 2008. As of the date hereof,
we have 16,790,851 shares of common stock outstanding. The table below lists the
selling stockholders and other information regarding the beneficial ownership of
the shares of common stock by each of the selling stockholders. The
second column lists the number of shares of common stock beneficially owned by
each selling stockholder as of the date hereof, assuming exercise of all of the
warrants held by the selling stockholders on that date, without regard to any
limitations on conversion or exercise. The third column lists the shares of
common stock covered by this prospectus that may be disposed of by each of the
selling stockholders. The fourth column lists the number of shares that will be
beneficially owned by the selling stockholders assuming all of the shares
covered by this prospectus are sold.
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Common stock beneficially
owned
after the offering
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|
Name of selling security holder
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|
Number of
shares
beneficially
owned prior to
the offering(1)
|
|
|
Number of
shares being
offered
|
|
|
Number of
shares
|
|
|
Percentage of
outstanding
shares
|
|
|
Fred
L. Astman
Wedbush
Securities Inc. Cust IRA R/O
Holding
10/13/92
|
|
|
10,000 |
|
|
|
9,000 |
(2) |
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|
1,000 |
|
|
|
* |
|
|
Clearview
Investments Ltd.
|
|
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15,000 |
|
|
|
15,000 |
(3) |
|
|
0 |
|
|
|
* |
|
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Gregory
Cook
Wedbush
Morgan Sec Inc. CTDN IRA
Contributory
1/16/02
|
|
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1,500 |
|
|
|
1,500 |
(4) |
|
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0 |
|
|
|
* |
|
|
George
Loxsom
Wedbush
Securities Inc. Cust IRA
SEP
12/16/92
|
|
|
1,500 |
|
|
|
1,500 |
(5) |
|
|
0 |
|
|
|
* |
|
|
Guerilla
Partners LP
|
|
|
91,578 |
|
|
|
91,578 |
(6) |
|
|
0 |
|
|
|
* |
|
|
Hua-Mei
21st
Century Partners, LP
|
|
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149,705 |
|
|
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149,705 |
(7) |
|
|
0 |
|
|
|
* |
|
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Iroquois
Master Fund, Ltd.
|
|
|
15,000 |
|
|
|
15,000 |
(8) |
|
|
0 |
|
|
|
* |
|
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OTA
LLC
|
|
|
4,300 |
|
|
|
4,300 |
(9) |
|
|
0 |
|
|
|
* |
|
|
NTC
& Co. F/B/O Paul Masters IRA
|
|
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1,500 |
|
|
|
1,500 |
(10) |
|
|
0 |
|
|
|
* |
|
|
Jason
C. Pettigrew
|
|
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3,000 |
|
|
|
3,000 |
(11) |
|
|
0 |
|
|
|
* |
|
|
Pope
Investment II LLC
|
|
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1,047,226 |
|
|
|
1,047,226 |
(12) |
|
|
0 |
|
|
|
* |
|
|
Professional
Offshore Opportunity Fund, Ltd.
|
|
|
45,000 |
|
|
|
45,000 |
(13) |
|
|
0 |
|
|
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* |
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|
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|
|
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Common stock beneficially
owned
after the offering
|
|
|
Name of selling security holder
|
|
Number of
shares
beneficially
owned prior to
the offering(1)
|
|
|
Number of
shares being
offered
|
|
|
Number of
shares
|
|
|
Percentage of
outstanding
shares
|
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|
John
Peter Selda
Wedbush
Securities Inc. CTDN IRA
Cont
8/27/96
|
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3,000 |
|
|
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3,000 |
(14) |
|
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0 |
|
|
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* |
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Straus
Partners LP
|
|
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59,000 |
|
|
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59,000 |
(15) |
|
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0 |
|
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* |
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Warrant
Strategies Fund, LLC
|
|
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151,500 |
|
|
|
151,500 |
(16) |
|
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0 |
|
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* |
|
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Total
Shares Registered for Selling Stockholders:
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1,597,809 |
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(1) Beneficial
ownership is determined in accordance with the Rule 13d-3(a) of the Exchange
Act, and generally includes voting or investment power with respect to
securities. Pursuant to the rules and regulations of the SEC, shares of our
common stock that an individual or group has a right to acquire within sixty
(60) days pursuant to the exercise of options or warrants, or the conversion of
preferred stock are deemed to be outstanding for the purposes of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of any other
person shown in the table. Except as subject to community property laws, where
applicable, the person named above has sole voting and investment power with
respect to all shares of our common stock shown as beneficially owned by
him.
(2) Consists
of 9,000 shares of common stock issuable upon exercise of currently exercisable
warrants held by Mr. Astman.
(3) Consists
of 15,000 shares of common stock issuable upon exercise of currently exercisable
warrants held by Clearview Investments Ltd. Michael Starcher is the
President of Clearview Investments Ltd., and has sole voting and investment
power over the shares owned thereby. Mr. Starcher disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest therein.
(4) Consists
of 1,500 shares of common stock issuable upon exercise of currently exercisable
warrants held by Mr. Cook.
(5) Consists
of 1,500 shares of common stock issuable upon exercise of currently exercisable
warrants held by Mr. Loxsom.
(6) Peter
Siris and Leigh S. Curry are the Managing Directors of Guerilla Partners LP, and
have shared voting and investment power over the shares owned
thereby. Mr. Siris and Ms. Curry disclaim beneficial ownership of
these shares, except to the extent of their pecuniary interest
therein.
(7) Peter
Siris and Leigh S. Curry are the Managing Directors of Hua-Mei 21st Century
Partners, LP, and have shared voting and investment power over the shares owned
thereby. Mr. Siris and Ms. Curry disclaim beneficial ownership of
these shares, except to the extent of their pecuniary interest
therein.
(8) Consists
of 15,000 shares of common stock issuable upon exercise of currently exercisable
warrants held by Iroquois Master Fund, Ltd. Iroquois Capital
Management L.L.C. (“Iroquois Capital”) is the investment manager of Iroquois
Master Fund, Ltd. (“IMF”). Joshua Silverman and Richard Abbe are
Managing Members of Iroquois Capital, and have shared voting and investment
power over the shares owned by IMF. Mr. Silverman and Mr. Abbe
disclaim beneficial ownership of these shares, except to the extent of their
pecuniary interest therein.
(9) Consists
of 4,300 shares of common stock issuable upon exercise of currently exercisable
warrants held by OTA LLC. Ira M. Leventhal is the Senior Managing
Director of OTA LLC, and has sole voting and investment power over the shares
owned thereby. Mr. Leventhal disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest therein.
(10) Consists
of 1,500 shares of common stock issuable upon exercise of currently exercisable
warrants held by Mr. Masters.
(11) Consists
of 3,000 shares of common stock issuable upon exercise of currently exercisable
warrants held by Mr. Pettigrew.
(12) Includes
321,000 shares of common stock issuable upon exercise of currently exercisable
warrants held by Pope Investment II LLC. William P. Wells
is the Managing Member of Pope Investment II LLC, and has sole voting and
investment power over the shares owned thereby. Mr, Wells disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest therein.
(13) Consists
of 45,000 shares of common stock issuable upon exercise of currently exercisable
warrants held by Professional Offshore Opportunity Fund, Ltd. Gregory
Goldberg and Howard Berger are the Managers of Professional Offshore Opportunity
Fund, Ltd., and have shared voting and investment power over the shares owned
thereby. Mr. Goldberg and Mr. Berger disclaim beneficial ownership of
these shares, except to the extent of their pecuniary interest
therein.
(14) Consists
of 3,000 shares of common stock issuable upon exercise of currently exercisable
warrants held by Mr. Selda.
(15) Includes
22,500 shares of common stock issuable upon exercise of currently exercisable
warrants held by Straus Partners LP. Melville Straus
is the Managing Principal of Straus Partners LP, and has sole voting and
investment power over the shares owned thereby. Mr. Straus disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest therein.
(16)
Consists of 151,500 shares of common stock issuable upon exercise of currently
exercisable warrants held by Warrant Strategies Fund, LLC. J. Mitchel
Hull is the Managing Member of Warrant Strategies Fund, LLC, and has sole voting
and investment power over the shares owned thereby. Mr. Hull
disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest therein.
PLAN
OF DISTRIBUTION
We have
been advised that the selling stockholders, which may include pledgees, donees,
transferees or other successors-in-interest who have received shares from the
selling stockholders after the date of this prospectus, may from time to time,
sell all or a portion of the shares offered hereby in privately negotiated
transactions or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to these market prices or at
negotiated prices.
All
costs, expenses and fees in connection with the registration of the shares
offered by this prospectus other than those of any counsel for the selling
stockholders, shall be borne by us. Brokerage costs, if any, attributable to the
sale of the selling stockholders’ shares will be borne by the selling
stockholders.
The
shares may be sold by the selling stockholders by one or more of the following
methods:
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·
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block
trades in which the broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the shares as
principal to facilitate the
transaction;
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·
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purchases
by a broker or dealer as principal and resale by such broker dealer for
its account;
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·
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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·
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over-the
counter distribution in accordance with the rules of the Nasdaq Global
Select Market;
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·
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ordinary
brokerage transactions and transactions in which the broker solicits
purchasers;
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·
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through
the writing of put or call options on the shares or other hedging
transactions (including the issuance of derivative securities), whether
the options or other derivative securities are listed on an option or
other exchange or otherwise;
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·
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privately
negotiated transactions;
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·
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a
combination of any such methods of sale;
and
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·
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any
other method permitted pursuant to applicable
law.
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The
transactions described above may or may not involve brokers or
dealers.
The
selling stockholders will not be restricted as to the price or prices at which
the selling stockholders may sell their shares. Sales of shares by
the selling stockholders may depress the market price of our common stock since
the number of shares which may be sold by the selling stockholders may be
relatively large compared to the historical average weekly trading of our common
stock. Accordingly, if the selling stockholders were to sell, or
attempt to sell, all of such shares at once or during a short time period, we
believe such a transaction could adversely affect the market price of our common
stock.
From time
to time the selling stockholders may pledge their shares under margin provisions
of customer agreements with its brokers or under loans or other arrangements
with third parties. Upon a default by the selling stockholders, the
broker or such third party may offer and sell any pledged shares from time to
time.
In
effecting sales, brokers and dealers engaged by a selling stockholder may
arrange for other brokers or dealers to participate in the sales as agents or
principals. Brokers or dealers may receive commissions or discounts
from the selling stockholder or, if the broker-dealer acts as agent for the
purchaser of such shares, from the purchaser in amounts to be negotiated, which
compensation as to a particular broker dealer might be in excess of customary
commissions which are not expected to exceed those customary in the types of
transactions involved. Broker-dealers may agree with the selling
stockholders to sell a specified number of such shares at a stipulated price per
share, and to the extent the broker-dealer is unable to do so acting as agent
for a selling stockholder, to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer commitment to such selling
stockholders. Broker-dealers who acquire shares as principal may then
resell those shares from time to time in transactions:
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·
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in
the over-the counter market or
otherwise;
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·
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at
prices and on terms prevailing at the time of
sale;
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·
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at
prices related to the then-current market price;
or
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·
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in
negotiated transactions.
|
These
resales may involve block transactions or sales to and through other
broker-dealers, including any of the transactions described above. In
connection with these sales, these broker-dealers may pay to or receive from the
purchasers of those shares commissions as described above. A selling
stockholder may also sell the shares in open market transactions under Rule 144
under the Securities Act, rather than under this prospectus.
A selling
stockholder and any broker-dealers or agents that participate with a selling
stockholder in sales of the shares may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with these sales. In this
event, any commissions received by these broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We have
agreed to indemnify the initial selling stockholders named in this prospectus
against certain liabilities under the Securities Act. A selling stockholder may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act.
Any
selling stockholder of the shares being offered under this prospectus are
subject to applicable provisions of the Securities Exchange Act of 1934 or
Exchange Act, and the SEC’s rules and regulations, including Regulation M, which
provisions may limit the timing of purchases and sales of the shares by the
selling stockholders.
In order
to comply with certain states’ securities laws, if applicable, the shares may be
sold in those jurisdictions only through registered or licensed brokers or
dealers. In certain states the shares may not be sold unless the
shares have been registered or qualified for sale in such state, or unless an
exemption from registration or qualification is available and is
obtained.
LEGAL
MATTERS
The legality of the shares of common
stock offered hereby was passed upon for China Sky One by Snell & Wilmer
LLP.
EXPERTS
The consolidated financial statements
and schedule of China Sky One appearing in China Sky One’s Annual Report on Form
10-K for the years ended December 31, 2009, as amended, and December 31, 2008,
and the effectiveness of China Sky One’s internal control over financial
reporting appearing in China Sky One’s Annual Report on Form 10-K for the year
ended December 31, 2009, as amended, have been audited by MSPC, independent
registered public accounting firm, as set forth in their reports thereon,
included therein, and incorporated herein by reference. The
consolidated financial statements of China Sky One as of and for the year ended
December 31, 2007 have been audited by Sherb & Co., LLP, registered public
accounting firm, as set forth in their reports thereon, included therein, and
incorporated herein by reference. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance upon
such reports given on the authority of such firms as experts in accounting and
auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We are subject to the informational
requirements of the Securities Exchange Act of 1934 and we file reports and
other information with the SEC.
You may read and copy any of the
reports, statements, or other information we file with the SEC at the SEC's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a
Web site at http://www.sec.gov that contains reports, proxy statements and other
information regarding issuers that file electronically with the
SEC. The Nasdaq Stock Market maintains a Web site at
http://www.nasdaq.com that contains reports, proxy statements and other
information filed by us.
INFORMATION
INCORPORATED BY REFERENCE
`The SEC allows us to “incorporate by
reference” into this prospectus the information we file with them. This means
that we may disclose important information to you by referring you to other
documents filed separately with the SEC. The information we incorporate by
reference into this prospectus is legally deemed to be a part of this
prospectus, except for any information superseded by other information contained
in, or incorporated by reference into, this prospectus. Our SEC file number for
documents we file under the Exchange Act is 001-10593.
The
following documents filed by us with the SEC are hereby incorporated by
reference in this prospectus:
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·
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Current
Report on Form 8-K filed with the SEC on September 3,
2010;
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·
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Quarterly
Report on Form 10-Q for the fiscal period ended June 30, 2010, filed with
the SEC on August 9, 2010;
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·
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Current
Report on Form 8-K filed with the SEC on June 24,
2010;
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·
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Quarterly
Report on Form 10-Q for the fiscal period ended March 31, 2010, filed with
the SEC on May 17, 2010, as amended on July 23,
2010;
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·
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Current
Report on Form 8-K filed with the SEC on May 11, 2010, as amended on May
24, 2010;
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·
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Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, filed
with the SEC on March 16, 2010, as amended on March 17, 2010 and July 23,
2010;
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·
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all
documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of the initial registration
statement of which this prospectus forms a part;
and
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·
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the
description of the Company’s securities included in the Current Report on
Form 8-K filed with the SEC on May 15, 2006, as amended by any
amendment or report filed for the purpose of updating such
description.
|
All
reports and other documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this prospectus and to be part hereof from the dates of filing of
such reports and other documents; provided, however, that we are not
incorporating any information furnished under either Item 2.02 or Item 7.01 of
any Current Report on Form 8-K.
We hereby
undertake to provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon written or oral
request of any such person, a copy of any and all of the information that has
been or may be incorporated by reference in this prospectus, other than exhibits
to such documents, unless the exhibits are specifically incorporated by
reference into the documents that this prospectus incorporates. Requests for
such copies should be directed to our corporate secretary, at the following
address or by calling the following telephone number:
China Sky
One Medical, Inc.
No. 2158,
North Xiang An Road, Song Bei District,
Harbin,
People’s Republic of China
Attn.:
Corporate Secretary
Tel:
86-451-87032617 (China)
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution*.
The
following are the estimated expenses of the issuance and distribution of the
securities being registered, all of which will be paid by the
Registrant:
|
SEC
registration fee
|
|
$ |
745.06 |
|
|
Legal
fees and expenses
|
|
|
25,000.00 |
|
|
Accounting
fees and expenses
|
|
|
10,000.00 |
|
|
Miscellaneous
|
|
$ |
5,000.00 |
|
|
Total
|
|
$ |
40,745.06 |
|
*
All amounts are estimated except the first item.
Item 15. Indemnification
of Directors and Officers.
Our
officers and directors are indemnified as provided by the Nevada Revised
Statutes ("NRS") and our Articles of Incorporation.
NRS
Chapter 78 provides that:
(i) Chapter
78 of the Nevada Revised Statutes (“NRS”) provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise (each
a “Covered Person”), against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he is not liable pursuant to
NRS Section 78.138 or acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
(ii) NRS
Chapter 78 further provides that a corporation similarly may indemnify a Covered
Person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by on in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a Covered Person, against expenses (including amounts
paid in settlement and attorneys’ fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit if he is not
liable pursuant to NRS 78.138 or acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation unless and only to the extent that the court in
which the action or suit was brought or other court of competent jurisdiction
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
(iii) NRS
Chapter 78 also includes other provisions related to indemnification, including
provisions that permit a corporation, in certain circumstances set forth in NRS
Chapter 78, (i) to advance the expenses incurred by a director or officer in
advance of the final disposition of an action, suit or proceeding and (ii)
obtain insurance or make other financial arrangements on behalf of a Covered
Person.
(iv) NRS
Chapter 78 also provides that any indemnification or advancement of expenses
made pursuant to NRS Chapter 78 does not exclude any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
the corporation’s articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, except that
indemnification or the advancement of expenses, unless ordered by a court, may
not be made to or on behalf of any director or officer if a final adjudication
establishes that (i) his acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and (ii) was material to the cause of
action.
Article
VII of our articles of incorporation provides as follows:
The
Company shall indemnify any and all persons who may serve or who have served at
any time as directors or officers or who at the request of the Board of
Directors of the Company, may serve or any time have served as directors or
officers of another corporation in which the Company at such time owned or may
own shares of stock or of which it was or may be a creditor, and their
respective heirs, administrators, successors and assigns, against any and all
expenses, including amounts paid upon judgments, counsel fees and amounts paid
in settlement (before or after suit is commenced), actually and necessarily by
such persons in connection with the defense or settlement of any claim, action,
suit or proceeding in which they, or any of them, are made parties, or a party,
or which may be asserted against them or any of them, by reason of being or
having been directors or officers of the Company, or of such other corporation,
except in relation to matters as to which any such director or officer of the
Company, or of such other corporation or former director or officer or person
shall be adjudged in any action, suit or proceeding to be liable for his own
negligence or misconduct in the performance of his duty. Such indemnification
shall be in addition to any other rights to which those indemnified may be
entitled under any law, by law, agreement, vote of shareholder or
otherwise.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Item
16. Exhibits.
(a) Exhibits
|
Exhibit Number
|
|
Description
|
|
|
|
|
|
5.1
|
|
Opinion
of Snell & Wilmer LLP as to the legality of the securities being
registered
|
|
|
|
|
|
23.1
|
|
Consent
of MSPC
|
|
|
|
|
|
23.2
|
|
Consent
of Sherb & Co.
|
|
|
|
|
|
23.3
|
|
Consent
of Snell & Wilmer LLP, included in opinion filed as Exhibit
5.1
|
|
|
|
|
|
24.1
|
|
Power
of Attorney, included in the signature page of this Registration
Statement
|
Item
17. Undertakings.
(a) The
undersigned Registrant hereby undertakes to:
(1) File,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i) Include any prospectus
required by Section 10(a)(3) of the Securities Act.
(ii) Reflect in the
prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement.
(iii) Include any additional
or changed material information on the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That,
for the purpose of determining liability under the Securities Act, each
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered that remain unsold at the termination of the
offering.
(4) That
for the purpose of determining any liability under the Securities Act of 1933 in
a primary offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(b) The
undersigned registrant hereby undertakes that, of purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to Section 13(a) or 15(b) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan’s annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements of
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, in Harbin City, PRC, on the 29th day of
September, 2010.
|
CHINA
SKY ONE MEDICAL, INC.
|
|
|
|
|
|
|
By:
|
/s/ Liu Yan-qing
|
|
|
Liu
Yan-qing
|
|
|
President
and Chief Executive Officer
|
|
POWER OF
ATTORNEY
Each person whose signature appears
below constitutes and appoints Liu Yan-qing his true and lawful attorney-in-fact
and agent with full powers of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated:
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
President,
Chief Executive Officer
|
|
September
29, 2010
|
|
Liu
Yan-qing
|
|
and
Director (Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Accounting Officer
|
|
September
29, 2010
|
|
Zhang
Yu-kun
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
Vice
Chairman and Director
|
|
September
29, 2010
|
|
Han
Xiao-yan
|
|
(Principal
Operating Officer)
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
September
29, 2010
|
|
Song
Chun-fang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
September
29, 2010
|
|
William
Wei Lee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
September
29, 2010
|
|
Zhao
Jie
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
September
29, 2010
|
|
Qian
Xu-feng
|
|
|
|
|