================================================================================ UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(MARK ONE)----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
------------------March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No.No: 09081
CYBRDI, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2461404
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF---------- ----------
(State or other jurisdiction of (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
401 ROSEMONT AVE. FREDERICK, MD 21701
--------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (301) 644-3901
--------------
Certron Corporation
11845 W. Olympic Boulevard, Suite 1080,
Los Angeles, California 90064
(Prior year end October 31)
---------------------------------------------------------------------Employer ID No)
incorporation or organization)
No 29 Chang'An South Road Xi'an Shaanxi P.R. China 710061
---------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (011) 86-29-8237-3068
N/A
---
Former name, former address and former fiscal year,
(if changed since last report)
Indicate by a check mark whether the registrantregistrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]|X| No [x]|_|
Indicate by a check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer", "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate by a check mark whether the registrant is a shell Company (as defined
by Rule 12b-2 of the Act). Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate theThe number of shares outstanding of each of the issuer's classes of
Common Stockcommon stock, no par value per share, outstanding as of
the latest practicable date:
50,456,569 shares of Common Stock, without par value, as of December 6, 2005
================================================================================May 14, 2008 was 50,456,569.
CYBRDI, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED March 31, 2008
INDEX
TABLE OF CONTENTS
Page
PART I.I - FINANCIAL INFORMATION
Item 1.1: Financial Statements Condensed Consolidated Balance Sheets as at September 30, 2005
(unaudited) and December 31, 2004
Condensed Consolidated Statements of Income and Comprehensive
Income (unaudited) for three months ended September 30, 2005
and September 30, 2004; and for nine months ended September 30,
2005 and September 30, 2004.
Condensed Consolidated Statements of Cash Flow (unaudited) for
nine months ended September 30, 2005 and September 30, 2004
Notes to Condensed Consolidated Financial Statements1
Item 2.2: Management's Discussion and Analysis of Financial Condition
and Results of OperationOperations 8
Item 3.3: Quantitative and Qualitative Disclosures About Market Risk 13
Item 4.4T: Controls and Procedures 13
PART II.II - OTHER INFORMATION
Item 1.1: Legal Proceedings 14
Item 2.1A: Risk Factors 14
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3.3: Defaults upon senior securitiesUpon Senior Securities 14
Item 4.4: Submission of mattersMatters to a voteVote of security holdersSecurity Holders 14
Item 5.5: Other Information 14
Item 6: Exhibits and reports on Form 8-K14
PART I. FINANCIAL INFORMATION
ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS
CYBRDI, INC. AND SUBSIDIARY
CONDENSEDSUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004
- --------------------------------------------------------------------------------
(in thousands)
Sep 30, 2005 DecASSETS
MARCH 31, 2004
------------ ------------
ASSETS (unaudited)DECEMBER 31,
----------- -----------
2008 2007
----------- -----------
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 3,762852,048 $ 3,900637,056
Accounts receivable 603 25212,324 3,364
Inventories 264 265425,185 390,421
Loan to unaffiliated company 969,766 1,000,740
Other receivables and prepaid expenses 148 7
-------- --------138,592 145,805
----------- -----------
TOTAL CURRENT ASSETS 4,777 4,4242,397,915 2,177,386
PROPERTY, PLANT AND EQUIPMENT, NET 550 629498,216 493,273
CONSTRUCTION IN PROGRESS 2,566,812 1,929,002
INTANGIBLE ASSETS, (NET) 586 644
DEFERRED TAX ASSETS 41 40
-------- --------NET 3,826,504 3,700,195
----------- -----------
TOTAL ASSETS $ 5,954 $ 5,737
======== ========9,289,447 8,299,856
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10 $ --
Other payables 47 59
Customer4,019 3,917
Accrued expenses 1,248,321 1,700,363
Customers deposits 7 --
Dividends payable -- 13954,279 74,321
Loan from related company 285,225 274,175
Amount due to stockholders 660 555
-------- --------stockholders/officers 204,894 432,494
Other payables 37,111 45,826
----------- -----------
TOTAL CURRENT LIABILITITES 724 753LIABILITIES 1,833,849 2,531,096
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 1,354,820 --
MINORITY INTERESTS 967 884
-------- --------1,532,137 1,499,125
----------- -----------
TOTAL LIABILITIES 1,691 1,637
-------- --------
COMMITMENTS AND CONTINGENCIES4,720,807 4,030,221
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 per value, 500,000 shares authorized,
zero shares issued and outstanding -- --
Common Stock, no par value, in 2005 and $0.10 par value in 2004,
150,000,000 shares in 2005 and 30,210,000 shares in 2004 authorized,
50,456,569 shares in 2005 and 30,210,000 shares in 2004 issued and outstanding -- 3,021--
Additional paid-in capital 3,394 5733,571,864 3,571,864
Reserve funds 240 240
Retained earnings 539 266336,885 336,885
Accumulated deficit (262,115) (301,323)
Accumulated other comprehensive income 90 --
-------- --------922,007 662,209
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,263 4,1004,568,641 4,269,635
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,9549,289,447 $ 5,737
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
CYBRDI, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
- --------------------------------------------------------------------------------
(in thousands, except per share data)
Three months ended Three months ended Nine months ended Nine months ended
September 30, 2005 September 30, 2004 September 30, 2005 September 30, 2004
------------------ ------------------ ------------------ ------------------
Revenue
Products $ 281 $ 299 $ 957 $ 863
Service rendered 34 94 116 256
------- ------- ------- -------
Total revenue 315 393 1,073 1,119
------- ------- ------- -------
Cost of sales
Products 50 77 158 190
Service rendered 3 10 12 28
------- ------- ------- -------
Total cost of sales 53 87 170 218
------- ------- ------- -------
Gross profit 262 306 903 901
------- ------- ------- -------
Operating expenses:
Selling and distribution expenses 13 12 55 51
General and administrative expenses 189 136 511 424
------- ------- ------- -------
Total operating expenses 202 148 566 475
------- ------- ------- -------
Income from operations 60 158 337 426
------- ------- ------- -------
Other income/(expense)
Interest income -- 3 3 7
Other (expense)/income, net 53 9 51 14
------- ------- ------- -------
Total other (expense)/ income 53 12 54 21
------- ------- ------- -------
Income before income taxes 113 170 391 447
Income taxes 10 -- 35 --
------- ------- ------- -------
Income before minority interest 103 170 356 447
Minority Interest 23 41 83 107
------- ------- ------- -------
Net income 80 129 273 340
Other comprehensive loss:
Foreign currency translation gain 90 -- 90 --
------- ------- ------- -------
Comprehensive income $ 170 $ 129 $ 363 $ 340
======= ======= ======= =======
Weighted average number of shares outstanding 50,457 24,619 39,244 24,619
======= ======= ======= =======
Earnings per share, basic and diluted $ 0.00 $ 0.01 $ 0.01 $ 0.01
======= ======= ======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
CYBRDI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
- --------------------------------------------------------------------------------
(in thousands)
Nine months ended Nine months ended
September 30, 2005 September 30, 2004
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 273 $ 340
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 178 144
Minority interest's share of net income 83 107
Changes in operating assets and liabilities:
Accounts receivable, net (338) 101
Inventories 6 (99)
Other receivable and prepaid expenses (137) 289
Accrued interest receivable -- 7
Accounts payable and accrued expenses 10 54
Other payables and liabilities (13) (19)
Customer Deposit 7 1
------- -------
Net cash provided by operating activities 69 925
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (16) (9)
------- -------
Net cash (used in) investing activities (16) (9)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds advanced from shareholders 90 20
Payment of dividend (139) (158)
Payment for merger expenses (200) --
Payment for private placement costs -- (132)
------- -------
Net cash (used in) financing activities (249) (270)
------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (196) 646
Effect of exchange rate changes on cash 58 --
Cash and cash equivalents, at beginning of period 3,900 2,066
------- -------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 3,762 $ 2,712
======= =======8,299,856
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
51
CYBRDI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(UNAUDITED)
- --------------------------------------------------------------------------------
FOR THREE MONTHS ENDED
MARCH 31,
------------------------------
2008 2007
------------ ------------
(UNAUDITED) (UNAUDITED)
REVENUE
Products $ 118,019 $ 168,096
Service rendered 11,811 9,179
------------ ------------
TOTAL REVENUE 129,830 177,275
------------ ------------
COST OF SALES
Products 52,518 77,439
Service rendered -- 5
------------ ------------
TOTAL COST OF SALES 52,518 77,444
------------ ------------
GROSS PROFIT 77,312 99,831
------------ ------------
OPERATING EXPENSES:
Selling and distribution expenses 7,820 27,055
General and administrative expenses 132,324 164,674
------------ ------------
TOTAL OPERATING EXPENSES 140,144 191,729
------------ ------------
LOSS FROM OPERATIONS (62,832) (91,898)
------------ ------------
OTHER INCOME/(EXPENSE)
Interest income, net 13,363 43,019
Other income, net 121,688 3,587
------------ ------------
TOTAL OTHER INCOME 135,051 46,606
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 72,219 (45,292)
Income Taxes Expenses -- --
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST 72,219 (45,292)
Minority Interest 33,011 2,931
------------ ------------
NET INCOME ( LOSS) $ 39,208 $ (48,223)
============ ============
Other Comprehensive Income:
Foreign Currency Translation gain 259,798 38,355
------------ ------------
COMPREHENSIVE INCOME (LOSS) $ 299,006 $ (9,868)
============ ============
Net Loss Per Common Share
Basic and Diluted $ 0.00 $ (0.00)
============ ============
Weighted Average Number of Shares Outstanding
Basic and Diluted 50,456,569 50,456,569
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
2
CYBRDI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THREE MONTHS ENDED
MARCH 31,
----------------------------
2008 2007
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME( LOSS) $ 39,208 $ (48,223)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 41,882 42,106
Minority interest 33,011 2,931
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (8,482) 36,133
Inventories (18,292) (4,602)
Other receivable and prepaid expenses 12,582 (29,997)
Accounts payable (53) 1,320
Accrued expenses (500,402) --
Other payables (10,153) 6,917
Customer deposits (22,145) --
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (432,844) 6,585
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,024) (1,641)
Payment for construction in progress (563,919) --
Proceeds from repayment of loan to unaffiliated company 68,544 --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (500,399) (1,641)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-term debt 1,354,820 --
Proceeds from loan from related company 137,088 --
Repayment for loan from related company (137,088) --
Proceeds from shareholders/officers 9,445 3,323
Payment to shareholders/officers (229,679) (17,146)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,134,586 (13,823)
----------- -----------
NET DECREASE IN CASH AND EQUIVALENTS
Net Increase (Decrease) in Cash and Equivalents 201,343 (8,879)
Effect of Exchange Rate Changes on Cash and Equivalents 13,649 (14,678)
Cash and Equivalents, at Beginning of Period 637,056 782,899
----------- -----------
CASH AND EQUIVALENTS, AT END OF PERIOD $ 852,048 $ 759,342
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
3
CYBRDI, INC. AND SUBSIDIDARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED)
(DOLLAR IN THOUSAND, EXCEPT NOTED OTHERWISE)
NOTE A - BASIS OF PRESENTATION
Interim financial statements:1. INTERIM FINANCIAL STATEMENTS
The accompanyingunaudited consolidated financial statements of Cybrdi Inc. and footnotessubsidiaries
have been condensed and
therefore do not contain all disclosures required byprepared in accordance with U.S. generally accepted accounting
principles. Theprinciples for interim financial information and pursuant to the requirements
for reporting on Form 10-Q. Accordingly, they do not include all the information
and footnotes required by accounting principles generally accepted in the United
States of America for annual financial statements. However, the information
included in these interim financial statements reflects all adjustments
(consisting solely of normal recurring adjustments) which are, unaudited; however, in the opinion of
Cybrdi Inc. (the "Company"), the interim financial statements
include all adjustments, consisting only of normal recurring adjustments,management, necessary for athe fair statementpresentation of the consolidated financial
position and the consolidated results for the interim periods.of operations. Results shown for interim
periods are not necessarily indicative of thosethe results to be expectedobtained for thea full
year. It is suggested that these condensedThe consolidated balance sheet information as of December 31, 2007 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB. These interim financial statements
should be read in conjunction with the December 31, 2004 auditedthat report.
The consolidated financial statements andinclude the accompanying notes thereto.
Description of business and revenue recognition:
On April 2, 2005 the Company filed amendments to its articles of incorporation
to change its name from Certron Corporation to Cybrdi, Inc. The amendment was
approved by the required vote of shareholders in accordance with Section 902 and
Section 903 of the California Corporations Code.
Until its acquisitionaccounts of Cybrdi, Inc. and
its wholly-owned subsidiaries and joint ventures. All material intercompany
balances and transactions have been eliminated.
2. DESCRIPTION OF BUSINESS
Cybrdi, Inc. (f/k/a Certron Corporation) was incorporated on February 10, 2005,August 1, 1966,
under the laws of the State of California. Until June 2004, the Company's
business consisted primarily of the distribution of magnetic media products.
Withproducts,
primarily blank audio and video cassettes. Due to continuing intense price
competition and technological changes in the completionmarketplace for its products, the
Company lost its remaining significant customers and disposed of, or wrote off,
its remaining inventory. As a result of these occurrences, the Company concluded
that its audio and videotape businesses were no longer viable and some of its
product lines were obsolete. At that time, the Company placed its emphasis on
attempting to find a buyer for the Company.
In November 2004, the Company formed a wholly-owned subsidiary, Certron
Acquisition Corp., a Maryland corporation ("Acquisition Sub") to acquire all of
the ownership interests in Cybrdi, Inc., a privately held company incorporated
in the State of Maryland ("Cybrdi Maryland"). The Company acquired Cybrdi
Maryland in exchange for 47,328,263 shares of its common stock in a merger
transaction. As a result of the merger, all the magnetic media distribution business
activities have ceased and Certron's sole business is conducted through Cybrdi.
Cybrdi's focus isformer shareholders of Cybrdi
Maryland acquired approximately 93.8% of the field of biogenetics commercialization, specializing in
the rapid introduction of tissue microarray products and services in both the
international and Chinese markets.
Mostoutstanding shares of the Company's
activities are conducted through itscommon stock. As a result of the ownership interests of the former shareholders
of Cybrdi Maryland, for financial statement reporting purposes, the transaction
was treated as a reverse acquisition, with Cybrdi Maryland deemed the accounting
acquirer and Certron Corporation deemed the accounting acquiree. Historical
information of the surviving company is that of Cybrdi Maryland.
Cybrdi Maryland was established in 2001 to acquire an interest in biogenetic
products commercialization and related services entities in Asia. On March 5,
2003, Cybrdi Maryland acquired an 80% equity ownershipinterest in China Shaanxi Shaoying Bio-technologyChao Ying
Biotechnology Co., Ltd. ("Chaoying Biotech"), a sino-foreign equity joint
venture established in July 2000 in the People's Republic of China.China (the "PRC"),
through the exchange of 99% of the Company's shares to the existing shareholders
of Chaoying Biotech. For financial statement reporting purposes, the merger was
treated as a reverse acquisition, with Chaoying Biotech deemed the accounting
acquirer and Cybrdi Maryland deemed the accounting acquiree.
4
Chaoying Biotech is a sino-foreign equity joint venture between Shaanxi Chao
Ying Personal Care Group Ltd. (the "Chinese Partner"), a PRC corporation and
Immuno-OncoGenomics Inc. (the "Foreign Partner"), a US corporation. The Company,joint
venture agreement has a 15 year operating period starting from its formation in
July 2000 and may be extended upon mutual consent The principal activities of
Chaoying Biotech are the research, manufacture and sale of various high-quality
tissue arrays and related services, in the PRC.
Most of the Company's activities are conducted through Chaoying Biotech.
Chaoying Biotech, with its principal operations located in China, aims to take
advantage of China's abundant scientific talent, low wage rates, less stringent
biogenetic regulation, and the huge genetic population as it introduces its
growing list of tissue microarraymicro array products.
On February 10, 2005, the Company completed the merger with Cybrdi Maryland and
changed its name to Cybrdi, Inc.
On July 26, 2007, Chaoying Biotech entered into an acquisition agreement with
Shaanxi Chaoying Personal Care Group Co., Ltd, its Chinese partner, which is a
principal shareholder of the Company, Mr. Bai, the Company's chief executive
officer and a director is also a principal of its Chinese partner, On July 28,
2007, Chaoying Biotech invested RMB15 millions (equivalent to US$1,983,078) to
acquire an 83.33% equity ownership of Shandong Chaoying Culture and
Entertainment Co., Ltd ("SD Chaoying") from its Chinese Partner. SD Chaoying is
a corporation organized in the Shandong province of P.R.China. On September 5,
2007, Shandong Commercial government had approved this acquisition and ownership
title of SD Chaoying had been transferred to Chaoying Biotech from its Chinese
Partner. The future business of SD Chaoying will primarily be focused on culture
and entertainment, including Spa activities, cosmetic and personal care, body
building, gambling, catering, and lodging, SD Chaoying will have a specific
emphasis on casino gambling, which has been approved by Shandong Administration
for Civil Affairs. As of March 31, 2008, SD Chaoying was still in the
development stage and there is no actual business. The development and
construction of facility is anticipated to be completed in December 2008.
3. USE OF ESTIMATES:
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates.
4. REVENUE RECOGNITION
Revenue represents the invoiced value of goods sold recognized upon the delivery
of goods to customers and service income is recognized when services are
provided. Deferred revenue represents the undelivered portion of invoiced value
of goods sold to customers. Sales transactions not meeting all the conditions of
the full accrual method are accounted for using the deposit method of
accounting. Under the deposit method, all costs are capitalized as incurred, and
payments received from the buyer are recorded as customer deposits.
65
Reverse merger:5. REVERSE MERGER
On February 10, 2005, (the "Closing Date") the Company closed on an Agreement
and Plan of Merger (the "Agreement") among Certron Corporation ("Certron"), a
California corporation, Certron Acquisition Corp., a Maryland corporation and a
wholly-owned subsidiary of Certron ("Acquisition Sub"), and Cybrdi, Inc., a
Maryland corporation ("Cybrdi - Maryland") relating to the acquisition by
Certron of all of the issued and outstanding capital stock of Cybrdi - Maryland-Maryland
in exchange for shares of common stock of Certron that will aggregate
approximately 93.8% of the issued and outstanding common stock of Certron.
Pursuant to the terms of the Agreement, at the Closing Date (a) Acquisition Sub
has been merged with and into Cybrdi - Maryland, with Cybrdi - Maryland being
the surviving corporation, (b) the common stock of Cybrdi-Maryland has been
cancelled and converted into the right to receive shares of the common stock of
Certron at an exchange ratio of 1.566641609.1.566641609 per share. This resulted in the
issuance of 47,328,263 shares of the Certron's common stock, , and (c) each share
of the common stock of Acquisition Sub has been converted in to and become one
share of the common stock of Cybrdi-Maryland. The share exchange has been
accounted for as a reverse merger under the purchase method of accounting.
Accordingly, Cybrdi, Inc. will be treated as the continuing entity for
accounting purposes and the historical financial statements presented will be
those of Cybrdi, Inc.
In connection with the Agreement, , on February 10, 2005, the Company amended its
articles of incorporation to authorize the issuance of 150 million shares of
common stock no par value and 500,000 shares of preferred stock, $1.00 par value
per share, none of which are issued or outstanding.
Concurrent with the filing of the Articles of Merger, all of the Company'sCompany then
existing officers and directors tendered their resignation and Yanbiao Bai was
appointed as ourits Chairman of the Board of Directors. Mr. Bai then nominated the
following individuals to serve onbalance of the Board of Directors: Lei Liu, James Pan,
Xue Bu, Lieping ChenDirectors.
6. GOVERNMENT GRANT
During the first quarter of 2008, SD Chaoying had received $114,210 (equivalent
to RMB 818,000) from Shangdong Government for the Shandong Culture &
Entertainment Square project that SD Chaoying created during year 2007. The
Company included the government grants in the other income, net in the
accompanying statements of operations and MinMin Qin. The new Directors subsequently elected Dr.
Lei Liucomprehensive income/ (loss).
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 160, "Non-controlling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51" which clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as Chief Executive Officer, Mr. Yanbiao Bai as President, and Mrs. Xue
Bu as Secretary and Treasurer.
On March 31, 2005equity in the Company's Board of Directors changed its fiscal year end
from October 31 to December 31. Certron's fiscal year end was changed to
correspond with the fiscal year end of Cybrdi - Maryland.
Principles of consolidation:
The condensed consolidated financial statementsstatements. This statement also
changes the way the consolidated income statement is presented. It requires
consolidated net income to be reported at amounts that include the accounts of Cybrdi,
Inc.amounts
attributable to both the parent and its wholly-owned subsidiaries and joint ventures.
All significant intercompany balances and transactions have been eliminated.
Recent Accounting Pronouncements:the non-controlling interest. In May 2005,addition,
it requires disclosure, on the FASB issued Statement No. 154, "Accounting Changes and Error
Corrections" ("FAS 154"). FAS 154 generally require that accounting changes and
errors be applied retrospectively. FAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company does not expect FAS 154 to have a material impact on its
financial statements.
In March 2005, the FASB issued Statement of Financial Accounting Standards
Interpretation Number 47, "Accounting for Conditional Asset Retirement
Obligations" ("FIN 47"). FIN 47 provides clarification regarding the meaningface of the term "conditional asset retirement obligation" as used in FASB Statementconsolidated statement of income, of
the amounts of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS No. 143, "Accounting for Asset Retirement Obligations." FIN 47160 is effective for fiscal years, and
interim periods within those fiscal years beginning on or after December 15,
2005.2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier
adoption is prohibited. The company is currently in the process of evaluating
the effect, if any, the adoption of SFAS No. 160 will have on its consolidated
results of operations, financial position, and financial disclosure.
6
In December 2007, the financial Accounting Standard Board ("FASB") issued SFAS
No. 141R (revised 2007), "Business Combinations" which replaces FASB Statement
No. 141, "Business Combinations". The Statement 141R retains the fundamental
requirements in Statement 141 that the acquisition method of accounting (which
Statement 141 called the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. The
Statement 141R defines the acquirer as the entity that obtains control of one or
more businesses in the business combination and establishes the acquisition date
as date that the acquirer achieves control. Statement 141 did not define the
acquirer, although it included guidance on identifying the acquirer, as does in
Statement 141R. The scope of Statement 141R is broader than that of Statement
141, which applied only to business combinations in which control was obtained
by transferring consideration. By applying the same method accounting-the
acquisition method- to all transactions and other events in which on entity
obtains control over one or more other business, the Statement 141R improves the
comparability of the information about business combinations provided in
financial reports. SFAS No. 141R applies prospectively to business combinations
for which that acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The Company is currently in the process of evaluating
the impact of FIN 47 on its financial statements.
7
On December 16, 2004,effect, if any, for the future acquisition and combinations.
In February 2007, the Financial Accounting StandardsStandard Board ("FASB""FASB") publishedissued SFAS
No. 159, " The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115" which permits all
entities to choose to measure eligible items at fair value at specified election
dates. A business entity shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings (or another performance
indicator if the business entity does not report earnings) at each subsequent
reporting date. SFAS No.159 is effective as of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requiresthe beginning of an entity's
first fiscal year that compensation cost
related to share-based payment transactions be recognized inbegins after November 15, 2007. Early adoption is
permitted as of the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. This standard will be
effective for awards granted, modified or settled in fiscal years beginning
after June 15, 2005. Accordingly, the Company will implement the revised
standard in the first quarter of fiscal year 2006. Managementthat begins on or before November
15, 2007, provided the entity also elects to apply the provisions of FASB
Statement No. 157, "Fair Value Measurements". The Company is assessingcurrently in the
implicationsprocess of this revised standard, which may materially impactevaluating the Company'seffect, if any, the adoption of SFAS No 159 and 157
will have on its consolidated results of operations, in fiscal year 2006financial position, and
thereafter.cash flows
NOTE B - ASSETS
The September 30, 2005March 31, 2008 balance sheet included total current assets of $4,777$2,397,915 and
non-current assets of $1,177.$6,891,532. Of these amounts, approximately $3,762$852,048 in
cash isand $12,324 in accounts receivable are planned for funding current
operations and for future business expansion.
Other current assets also included inventories, thatloan to unaffiliated company,
and other receivable and prepaid expenses. Inventories are mainly finished goods
and very few raw materials.materials, work in process, packaging material. Inventories are
stated at the lower of cost or market. Cost of raw materials is determined on
the basis of first in first out method ("FIFO"). Finished goods are determined
on the weighted average basis and are comprised of direct materials, direct
labor and an appropriate proportion of overhead.
The other primary assets included in current assets are loan to unaffiliated
company.
Loan to unaffiliated company consists of loans to QuanYe Security Co., Ltd
("QuanYe"), an unrelated PRC registered company located in Xian, PRC. QuanYe is
engaged in the pawnshop business and their primary business is offering
alternative financing to small local companies. According to the loan agreement,
QuanYe has received loans from Chaoying Biotech of a total amount of RMB
29.3Million (equivalent to $3,849,185) since January 2006. As of March 31, 2008,
the loan balance had been reduced to RMB 6.8 Million (equivalent to $969,766).
The interest rate for these loans initially was 8% per year, and drop down to 5%
since October 9, 2006. The Company anticipates collect most of loan amount back
from QuanYe before the ended of June 2008.
7
Management believes and views QuanYe as an alternative financial institution and
believes it is an efficient way to use its cash on hand. The regular market
interest rate in the PRC is 0.72% per annum. Cybrdi expects to obtain higher
interest income for its unused fund through these types of loan arrangements.
However, these advances are unsecured and have a default risk higher than a bank
deposit.
Included in non-currentin-non-current assets are property, plant and equipment, construction
in process, and intangible assets. Property, plant and equipment mainly consistingconsist
of building, motor vehicles, leasehold improvement, software-website, and
machinery used for product manufacturing located in the People's Republic of
China ("PRC")., and office equipment located in PRC and United States.
Depreciation on property, plant and equipment is computed using the straight
- -line method over the estimated useful life of the assets. The majority of the
assets have estimated useful lives of 10 years. Building and office equipment
have estimated useful lives of 20 and 5 years, respectively. The "construction
in process" amount of $2,566,812 mainly consists of development and construction
of a casino in Shandong Province; which will be transferred to fixed assets in
SD Chaoying when it is finished. Intangible assets include a patent.tissue chip patent
and land use right. Effective January 1, 2002, with the adoption of SFAS No.
142, intangible assets with a definite life are amortized on a straight-line
basis. The patent is being amortized over its estimated life of 10 years. As of
March 31, 2008, SD Chaoying is still in the development stage, accordingly, the
land use right will be amortized in the estimated useful life from SD Chaoying
operating.
NOTE C - LIABILITIES
The September 30, 2005As of March 31, 2008, the balance sheet included total liabilities of
$1,691$4,720,807, of which $967$1,532,137 represents the 20% minority interest in Chaoying
Biotech.Biotech and 16.67% minority interest in SD Chaoying and which $1,354,820 was due
to long-term debt from Changle Rural Credit Union, which is a bank located in
Shandong Province of the PRC. This long-term debt had been pledged by the
Company's land use right in SD Chaoying which is worth approximately $3.1
million (equivalent to RMB22 million).The terms for this long-term debt were
from January 31, 2008 to May 30, 2009 (total sixteen months). The interest rate
for this debt will be 30% more than the basic financing rate from "The People's
Bank of China" in PRC. At the time of the filing of this Form 10Q, the basic
monthly financing rate in China is 6.3%. Included in the total liabilities
$660 wasis $204,894 due to stockholders who are also officers of the Company.Company's officers. The
amount isamounts were mainly an advance to the Company to assist with its operations in prior years.
This advance is non-interest bearing and has no set repayment terms. And
included in the total liabilities $285,225 was due to loan from an related
company, Shaanxi Chaoying Personal Care Group Ltd, and this loan is also
non-interest bearing and have no set repayment terms.
In accordance with the relevant tax laws and regulations of the PRC, Chaoying
Biotech is entitled to full exemption from Corporation Income Tax ("CIT") for
the first two years and a 50% reduction in CIT for the next three years,
commencing from the first profitable year after offsetting all tax losses
carried forward from the previous five years. As 2003 was Chaoying Biotech's
first profitable year, the Company beginsbegan to record 50% CIT provision for the
first quarter of 2005. EffectiveCommencing from January 2008, the Chinese government had
adjusted the CIT rate to 25% instead of 33%. The Company enjoys a 50% reduction
in preferential policy of CIT, according to Western Developing Plan of the PRC,
making the company's effective tax rate approximately 12.5% in the first quarter
of 2008. Since there is approximately 7.5% for the quarterno taxable income after offsetting all tax losses
carried forward, no income taxes provision is required as of March 31, 2008 and
nine months ended September 30, 2005.2007, respectively.
NOTE D - STOCKHOLDERS' EQUITY
As a result of the reverse merger (see Note A)A item 5), the common stock of
Cybrdi-Maryland has been cancelled and converted into the right to receive
shares of the common stock of
Certron at an exchange ratio of 1.566641609.1.566641609 per share. This resulted in the
issuance of 47,328,263 shares of Certron's common stock.stock to the Cybrdi
shareholders. As of September 30, 2005,March 31, 2008, the Company had 50,456,569 shares of common
stock issued and outstanding. Historical information of the surviving company is
that of Cybrdi - Maryland.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with the
company's Financial Statements and Notes thereto appearing elsewhere in this
Report on Form 10-QSB as well as the company's other SEC filings.
PLAN OF OPERATIONS
The Company focuses on biogenetics commercialization and healthcare product
applications. The Company's primary business includes sales of tissue microarray
products and services. Tissue chips, also called microtissue arrays, provide
high-throughput molecular profiling and parallel analysis of biological and
molecular characteristics for hundreds of pathologically controlled tissue
specimens. Tissue arrays can provide rapid and cost-effective localization and
evaluation of proteins, RNA, or DNA molecules, which is particularly useful for
functioning genomic studies. Cybrdi manufactures both human and animal tissue
microarray for a wide variety of scientific uses, including drug discovery and
development purposes.
The Company's business strategy and focus in the near future include
o Enhancing R&D in TMAs and technical service
o Expanding its product portfolio and virtual tissue array data
bank (vTMAB)
o Launch the health diagnosis kit for obesity and skin disease
o Participate in the culture and entertainment field
With its sophisticated research in genes, the Company can provide the
professional health diagnostic service for its customers. The Company can check
the reasons for obesity and other skin diseases like freckles by its genetic
analysis, which offers more accurate and specialized diagnosis than other
similar services in the current market. Such information can be utilized to
guide customers to set up the right health or fitness program. At present, the
Company provide genetic test for the mechanism of obesity or skin diseases.
The Company will also explore other business development opportunities that can
leverage its sales platform and relationship with affiliated companies. Until
such time as the Company can identify attractive marketing opportunities, the
Company will loan available cash on a short term unsecured basis to
non-affiliated third parties in order to generate interest income.
Commencing from the third quarter of year 2007, the Company had developed a new
genedetective tissue array, called New Kits, and started to offer them to its
customers.
On July 28, 2007 the Company acquired an 83.33% equity ownership of SD Chaoying
from its Chinese partner, which will be primarily engaged in developing and
operating culture and entertainment business since 2009, which will consist
primarily of a spa activities, cosmetic personal care, hotel and casino. Its
Chinese partner is a principal shareholder of the Company and Mr. Bai, its chief
executive officer and a director is also a principal of its Chinese partner.
Commencing in September 2007, SD Chaoying began constructing the facility, The
total useable land and net building area for the project consists of
approximately 50,000 and 33,000 square meters, respectively of which 52% will
constitute property for business use and 48% for residential use, The
construction is anticipated to be completed in December 2008, SD Chaoying
intends to focus on Spa activities, cosmetic personal care, hotel and casino
gambling, which has been approved by Shandong Administration for Civil Affairs.
9
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED March 31, 2008 COMPARED TO THREE MONTHS ENDED March
31, 2007
FOR THREE MONTHS ENDED MARCH 31, 2008 Vs 2007
-------------------------------- ---------------------
COST COST Increase/(decrease)
2008 % 2007 %
------------ -------------
(Unaudited) (Unaudited)
REVENUE
Products $ 118,019 $ 168,096 $ (50,077) -30%
Service rendered 11,811 9,179 2,632 29%
------------ ------------ ---------
TOTAL REVENUE 129,830 177,275 (47,445) -27%
------------ ------------ ---------
COST OF SALES
Products 52,518 44% 77,439 46% (24,921) -32%
Service rendered -- 0% 5 0.05% (5) -100%
------------ ------------ ---------
TOTAL COST OF SALES 52,518 77,444 (24,926) -32%
------------ ------------ ---------
GROSS PROFIT 77,312 60% 99,831 56% (22,519) -23%
------------ ------------ ---------
OPERATING EXPENSES:
Selling and distribution expenses 7,820 27,055 (19,235) -71%
General and administrative expenses 132,324 164,674 (32,350) -20%
------------ ------------ ---------
TOTAL OPERATING EXPENSES 140,144 191,729 (51,585) -27%
------------ ------------ ---------
LOSS FROM OPERATIONS (62,832) (91,898) 29,066 -32%
------------ ------------ ---------
OTHER INCOME/(EXPENSE)
Interest income 13,363 43,019 (29,656) -69%
Other income, net 121,688 3,587 118,101 3292%
------------ ------------ ---------
TOTAL OTHER INCOME 135,051 46,606 88,445 190%
------------ ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 72,219 (45,292) 117,511 -259%
Income Taxes Expenses -- -- --
------------ ------------ --------
Income (Loss) before Minority Interest 72,219 (45,292) 117,511 -259%
Minority Interest 33,011 2,931 30,080 1026%
------------ ------------ ---------
NET INCOME(LOSS) $ 39,208 $ (48,223) $ 87,431 -181%
10
NET SALES
The Company generated two categories of revenues: tissue chip & kits product and
services. The net sales decreased $47,445 to $129,830 for the three months ended
March 31, 2008 from $177,275 for the three months ended March 31, 2007.
Tissue Chip & Kit Product: The net sales decreased $50,077 to $118,019 for the
three months ended March 31, 2008 as compared to $168,096 for the three months
ended March 31, 2007. The decrease in net sales of tissue chip & kit product was
primarily attributable to the termination of Cybrdi - Maryland's operations on
October 2007. During the first quarter of 2007, the net sales of tissue chip &
chip product had included $51,099 product sales from Cybrdi - Maryland, but
there was none for the first quarter of 2008.
Services: A fewer technical service orders were received during the three months
of 2008 as compared to 2007 resulting in a increase in sales of $2,632 to
$11,811 from $9,179 for the three months ended March 31, 2008 as compared to
March 31, 2007. This increase was primarily attributable to service demand
increased in China.
GROSS MARGIN
Gross margin as a percentage of sales increased to 60% for the three months
ended March 31, 2008 from 56% for three months ended March 31, 2007. Gross
profit for the three months ended March 31, 2008 decreased $22,519 to $77,312
from $99,831 for the three months ended March 31, 2007. The reason for the
increase was primarily due to the increase in sales of tissue chip & kit product
with slightly lower individual cost during the first quarter of 2008 as compared
to the first quarter of 2007.
OPERATING EXPENSES
The Company's operating expenses decreased $51,585 to $140,144 for the three
months ended March 31, 2008 from $191,729 for the three months ended March 31,
2007. This was primarily due to a decrease in general and administrative
expenses of $32,350 to $132,324 for the three months ended March 31, 2008 from
$164,674 for the three months ended March 31, 2007, and a decrease in selling
and distribution expenses of $19,235 to $7,820 for the three months ended March
31, 2008 from $27,055 for the three months ended March 31, 2007. The decrease in
selling, and general and administrative expenses was primary due to the
termination of Cybrdi-Maryland operations in October 2007. For the three months
ended March 31, 2007, the selling, and general and administrative expenses had
included $11,834 and $41,932 expenditures from Cybrdi-Maryland, respectively,
but there were none of them for the three months ended March 31, 2008.
OTHER INCOME
Interest income decreased by $29,656 to $13,363 for the three months ended March
31, 2008 from $43,019 for the three months ended March 31, 2007. Most of the
interest income was earned from the loans to QuanYe. The repayment of the loans
by Quanye during year 2007 had reduced the Company's interest income
significantly.
Other income, net had been increased by $118,101 to $121,688 for the three
months ended March 31, 2008 from $3,587 for the three months ended March 31,
2007. The reason was primarily attributable to SD Chaoying received a government
grant $114,210 (equivalent to RMB 818,000) from Shandong government for the
Shandong Culture & Entertainment Square project that SD Chaoying created during
year 2007.
11
INCOME TAXES
The Company had not recorded a provision for income tax for the first quarter
ended March 31, 2008 and 2007, due to no taxable income after offsetting all
taxes losses carried forward from prior periods. In accordance with the relevant
tax laws and regulations of the People's Republic of China, Chaoying Biotech is
entitled to full exemption from Corporation Income Tax ("CIT") for the first two
years and a 50% reduction in CIT for the next three years, commencing from the
first profitable year after offsetting all tax losses carried forward from the
previous five years. As 2003 was Chaoying Biotech's first profitable year, the
Company began to record 50% CIT provision from the first quarter of 2005.
Commencing from January 2008, the Chinese government had adjusted the CIT rate
to 25% instead of 33%, and that the Company enjoy a 50% reduction in
preferential policy of CIT, according to Western Developing Plan of PRC , and
that The company's effective tax rate is approximately 12.5% in the first
quarter of 2008.
LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (total current asset deduct total current liabilities)
increased by $917,776 from $(353,710) as of December 31, 2007 to $564,066 as of
March 31, 2008. The increase was primarily due to accrued expenses and amount
due to stockholders/officers decreased $452,042 and $227,600 respectively.
Contrarily, cash and equivalents increased $214,992 as of March 31, 2008 as
compared to the amount on March 31, 2007.
For operating activities during the first quarter of 2008, since the Company had
paid out $500,402 for accrued expenses, the Company had negative balance for
cash used in operating activities.
For investing activities, the Company had negative balance for cash used in
investing activities. The primarily reason was due to the payment in amount of
$563,919 had used for construction in progress in SD Chaoying project during the
three months ended March 31, 2008.
For financing activities, the Company had got a long-term debt in amount of
$1,354,820 (equivalent to RMB9.5 million) during the first quarter of 2008 from
Changle Rural Credit Union, which is a bank located in Shandong province of PRC.
Accordingly, the Company had positive cash provided by financing activities for
the three months ended March 31, 2008.
With approximately $560,000 of net working capital (total current assets deduct
total current liabilities) as of March 31, 2008 and net increase in cash and
equivalents during the first quarter of 2008, the Company believes it will have
sufficient resources to finance its operations for the coming year.
Since the Company has a construction project in Shandong for SD Chaoying and
anticipate to be completed it at the end of year 2008. In order to financing
this project, the Company anticipate borrowing more money from related parties,
other banks, and utilize repayment of loan proceeds from Quan Ye. There can be
no assurance that the Company will be able to obtain the necessary financing for
the construction of the project.
12
CAUTIONARY NOTE E -REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause its actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors. Most of these factors are
difficult to predict accurately and are generally beyond its control. You should
consider the areas of risk described in connection with any forward-looking
statements that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Readers should carefully review this quarterly report in its
entirety, including but not limited to its financial statements and the notes
thereto. Except for its ongoing obligations to disclose material information
under the Federal securities laws, the Company undertakes no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. For any
forward-looking statements contained in any document, the Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required
by this Item.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the supervision and with
the participation of our management, including our Chief Executive Officer,
Yanbiao Bai, and Principal Financial Officer, Xue Bu, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act") as of the end of the period covered by
this report. Based upon that evaluation, our Chief Executive Officer and
Principal Financial Officer concluded that our disclosure controls and
procedures as of the end of the period covered by this report were effective
such that the information required to be disclosed by us in reports filed under
the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and (ii)
accumulated and communicated to our management to allow timely decisions
regarding disclosure. A controls system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting. During the most recent
quarter ended March 31, 2008, there has been no change in our internal control
over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act) ) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no material pending legal proceedings to which the Company is a party.
The Company was notified by a letter dated June 2, 2000 received June 6, 2000 that the Company may
have a potential liability from waste disposal in the Casmalia Disposal Site at
Santa Barbara County, California. The Company was given a choice of either
signing an agreement that would toll the statute of limitations for eighteen
(18) months in order to allow the Companycompany to resolve any liability with the
government without incurring costs associated with being named a defendant in a
lawsuit, or becoming an immediate defendant in a lawsuit. The Company signed the
tolling agreement. On November 20, 2001, the tolling agreement was extended for
an additional 18 months. On May 20, 2003 the tolling agreement was again
extended for an additional 18 months and on November 24, 2004 the tolling
agreement was again extended for additional 18 months. On June 29, 2004, the
Company received a proposed settlement from the EPA in the amount of $21,131.
The Company is waiting for communication from the government concerning payment
of the proposed settlement. As of September 30, 2005, theMarch 31, 2008, The Company has accrued a
sufficient amount to cover any potential liabilities from this matter.
9
ItemITEM 1A. RISK FACTORS
A smaller reporting company is not required to provide the information required
by this Item.
ITEM 2. Management's Discussion and AnalysisUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS
31.1 Certification of Financial Condition and Results
of Operation
The following discussion and analysis should be read in conjunction with our
Financial Statements and Notes thereto appearing elsewhere in this Report on
Form 10-QChief Executive Officer pursuant to 18 U.S.C. Section
1350, as well as our other SEC filings.
Plan of Operations
With the completionadopted pursuant to Section 302 of the merger, management determinedSarbanes-Oxley Act of
2002
31.2 Certification of Chief Financial Officer pursuant to discontinue
Certron's prior business operations, the sale of magnetic media distribution
tapes and products, and pursue business opportunities through Cybrdi, Inc. Most
of Cybrdi's activities are conducted through its 80% equity ownership in China
Shaanxi Shaoying Bio-technology Co., Ltd. ("Chaoying Biotech") a sino-foreign
equity joint venture established in July 2000 in the People's Republic of China.
Cybrdi became affiliated with Chaoying Biotech in March 2003. The Chaoying
Biotech joint venture agreement has a term of 15 years. The term of joint
venture may be extended upon the mutual consent18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the parties.
The Company focuses on biogenetics commercialization. The business includes
sales of tissue microarray products and services. Tissue chips, also called
microtissue arrays, represent a newly developed technology providing
high-throughput molecular profiling and parallel analysis of biological and
molecular characteristics for hundreds of pathologically controlled tissue
specimens. Tissue arrays can provide rapid and cost-effective localization and
evaluation of proteins, RNA, or DNA molecules, which is particularly useful for
functioning genomic studies. Cybrdi manufactures both human and animal tissue
microarrays for a wide variety of scientific uses, including drug discovery and
development purposes.
Our principal operations are located in Shaanxi China, where we aim to take
advantage of China's abundant scientific talent, low wage rates, less stringent
biogenetic regulation, and the huge genetic population as it introduces its
growing list of tissue microarray products.
10
RESULTS OF OPERATIONS
THE FOLLOWING TABLE SETS FORTH CERTAIN ITEMS IN OUR UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005
AND SEPTEMBER 30, 2004; AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND
SEPTEMBER 30, 2004:
(Dollar in thousand, except noted otherwise)
Three months ended Three months ended Nine months ended Nine months ended
September 30, 2005 September 30, 2004 September 30, 2005 September 30, 2004
------------------ ------------------ ------------------ ------------------
(in thousands, except per share data)
Revenue
Products $ 281 $ 299 $ 957 $ 863
Service rendered 34 94 116 256
------ ------ ------ ------
Total revenue 315 393 1,073 1,119
------ ------ ------ ------
Cost of sales
Products 50 77 158 190
Service rendered 3 10 12 28
------ ------ ------ ------
Total cost of sales 53 87 170 218
------ ------ ------ ------
Gross profit 262 306 903 901
------ ------ ------ ------
Operating expenses:
Selling and distribution expenses 13 12 55 51
General and administrative expenses 189 136 511 424
------ ------ ------ ------
Total operating expenses 202 148 566 475
------ ------ ------ ------
Income from operations 60 158 337 426
------ ------ ------ ------
Other income/(expense)
Interest income -- 3 3 7
Other (expense)/income, net 53 9 51 14
------ ------ ------ ------
Total other (expense)/ income 53 12 54 21
------ ------ ------ ------
Income before income taxes 113 170 391 447
Income taxes 10 -- 35 --
------ ------ ------ ------
Income before minority interest 103 170 356 447
Minority Interest 23 41 83 107
------ ------ ------ ------
Net income $ 80 $ 129 $ 273 $ 340
====== ====== ====== ======
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED
SEPTMEBER 30, 2004
Net Sales
Cybrdi generates two categories of revenues: tissue chip product and services.
The net sales decrease to $315,000 for the three months ended September 30, 2005
from $393,000 for the three months ended September 30, 2004.
11
Tissue Chip Product: sales increased along all product lines in the tissue chip
business. The net sales decreased approximately $18,000 to $281,000 for the
three months ended September 30, 2005 as compared to $299,000 for the three
months ended September 30, 2004. The decrease in net sales of our Tissue Chip
business is primarily attributable to the discontinuance in sales of some array
slides which are going to be replaced by new array lines during the next
quarter.
Services: Fewer technical service orders were received during the third quarter
of 2005 as compared to 2004 resulting in a decrease in sales of $60,000;
declining to $34,000 from $94,000 for the three months ended September 30, 2005
as compared to September 30, 2004.
Gross Margin
Gross margin as a percent of sales was 83% and 78% for the three months ended
September 30, 2005 and 2004, respectively. As a result of lower sales revenues
gross Profit for the three months ended September 30, 2005 decreased to $262
from $306 for the three months ended September 30, 2004. Our gross margin
increased as a result of increased operating efficiencies and an increase in
sales volume of higher gross margin biological chips products.
Operating Expenses
Our operating expenses increased to $202,000 for the three months ended
September 30, 2005 from $148,000 for the three months ended September 30, 2004.
This is primarily due to an increase in general and administrative expenses to
$189,000 for the three months ended September 30, 2005 from $136,000 for the
three months ended September 30, 2004. This increase was mainly attributable to
an increase in professional fees and administrative expenses which Cybrdi
incurred as a result of its acquisition by Certron.
Income Taxes
The Company has not recorded a provision for federal income tax for quarter
ended September 30, 2005 due to utilization of net operating loss carry forward
to offset taxable income in United States. In accordance with the relevant tax
laws and regulations of the People's Republic of China, Chaoying Biotech is
entitled to full exemption from Corporation Income Tax ("CIT") for the first two
years and a 50% reduction in CIT for the next three years, commencing from the
first profitable year after offsetting all tax losses carried forward from the
previous five years. As 2003 was Chaoying Biotech's first profitable year, the
Company begins to record 50% CIT provision from the first quarter of 2005.
Effective tax rate is approximately 7.5% for the quarter ended September 30,
2005.
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004
Net Sales
Cybrdi generates two categories of revenues: tissue chip product and services.
Our net sales decreased to $1,073,000 for the nine months ended September 30,
2005 from $1,119,000 for the nine months ended September 30, 2004.
Tissue Chip Product: sales increased along most product lines in the tissue chip
business. The net sales increased approximately $94,000 to $957,000 for the nine
months ended September 30, 2005 from $863,000 for the nine months ended
September 30, 2004. The increase in net sales of our Tissue Chip business is
primarily attributable to the stronger sales in our diabetes detection
biological chip during the first two quarters offset by a reduction in sales of
some discontinued array products during the third quarter.
12
Services: Fewer technical service orders were received during the first nine
months of 2005 as compared to 2004 resulting in a decrease in sales of $140,000
to $116,000 for the nine months ended September 30, 2005 from $256,000 for the
nine months ended September 30, 2004.
Gross Margin
Gross margin as a percent of sales was 84% and 81% for the nine months ended
September 30, 2005 and 2004, respectively. Gross Profit for the nine months
ended September 30, 2005 increased to $903,000 from $901,000 for the nine months
ended September 30, 2004. The gross margin increased as a result of operation
efficiency and increase in sales volume of higher gross margin biological chips
products.
Operating Expenses
The operating expenses increased to $566,000 for the nine months ended September
30, 2005 from $475,000 for the nine months ended September 30, 2004. This is
primarily due to the increase in general and administrative expenses to $511,000
for the nine months ended September 30, 2005 from $424,000 for the nine months
ended September 30, 2004, which was mainly attributable to an increase in
professional fees and administrative expenses as Cybrdi incurred additional
professional fees during the quarter ended March 31, 2005 as a result of Cybrdi,
Maryland being acquired by Certron. In addition, an increase in salespersons
also contributed to the increase in selling and distribution to $55,000 for the
nine months ended September 30, 2005 from $51,000 for the nine months ended
September 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
Operating working capital (accounts receivable plus inventory less accounts
payable) increased by $340,000 from $517,000 as of December 31, 2004 to $857,000
as of September 30, 2005. The increase was primarily due to an increase in
accounts receivable of $351,000 from $252,000 at December 31, 2004 to $603,000
at September 30, 2005, which was offset by an increase in accounts payable of
$10,000 from less than $1,000 at December 31, 2004 to $10 at September 30, 2005.
Inventory remains stable with a slight decrease of $1,000 from $265,000 at
December 31, 2004 to $264,000 at September 30, 2005. Increase in net sales on
Tissue Chip Product is attributable to the increase in account receivable and
accounts payables.
Cash provided by operating activities was $69,000 for the nine months ended
September 30, 2005 as compared to $925,000 provided for the nine months ended
September 30, 2004. The decrease in cash provided by operating activities for
the nine months ended September 30, 2005 reflected reduction of net income,
increased in accounts receivable and the increase of prepayment for professional
services.
The Company has $16,000 capital expenditure for the nine months ended September
30, 2005 as compared to a capital spending of $9,000 for the nine months ended
September 30, 2004. Financing activities for the nine months ended September 30,
2005 consumed $249, 000 reflecting dividend payments of $139,000 payment of
$200,000 associated with the reverse merger transaction and offset by a $90,000
advance from shareholders.
With approximately $4.0 million of net working capital as of September 30, 2005,
the Company believes it will have sufficient resources to finance its operations
for the coming year.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors. Most of these factors are
difficult to predict accurately and are generally beyond our control. You should
consider the areas of risk described in connection with any forward-looking
statements that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Readers should carefully review this quarterly report in its
entirety, including but not limited to our financial statements and the notes
thereto. Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. For any forward-looking
statements contained in any document, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
ReformSarbanes-Oxley Act of
1995.
Critical Accounting Policies
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
materially from those estimates.
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Revenue recognition: Revenue represents the invoiced value of goods sold
recognized upon the delivery of goods to customers and service income is
recognized when services are provided. Deferred revenue represents the
undelivered portion of invoiced value of goods sold to customers. Sales
transactions not meeting all the conditions of the full accrual method are
accounted for using the deposit method of accounting. Under the deposit method,
all costs are capitalized as incurred, and payments received from the buyer are
recorded as customer deposits.
14
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
The majority of our net sales, costs and expenses are priced in Chinese
renminbi. Our assets are predominantly located inside China. Since 1994, the
exchange rate for Renminbi against the United States dollar has remained
relatively stable, with an exchange rate approximately RMB8.28 to US$1.00. On
July 21, 2005, China announced a revaluation of RMB and dropped its peg to the
US dollar. China is planning to move to a managed float against a basket of
currencies. The exchange rate has been adjusted to approximately RMB8.11 to
US$1.00, or an appreciation of 2%, and has remained relatively stable since
then. However, there can be no assurance that Renminbi will not be subject to
devaluation. We may not be able to hedge effectively against Renminbi
devaluation, so there can be no assurance that future movements in the exchange
rate of Renminbi and other currencies will not have an adverse effect on our
financial condition.
Item 4. Controls and Procedures
An evaluation was carried out by the Company's chief executive officer and
treasurer of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rule 13a-15e or 15(d)-15(e) of the Securities Exchange
Act of 1934) as of September 30, 2005. Based upon that evaluation, the chief
executive officer and the treasurer concluded that the design and operation of
these disclosure controls and procedures were effective after giving affect to
the acquisition of Cybrdi, Inc. by the Company and its obligations to comply
with applicable accounting and disclosure requirements.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is no material pending legal proceedings to which the Company is a party.
The Company was notified by a letter dated June 2, 2000 that the Company may
have a potential liability from waste disposal in the Casmalia Disposal Site at
Santa Barbara County, California. The Company was given a choice of either
signing an agreement that would toll the statute of limitations for eighteen
(18) months in order to allow the Company to resolve any liability with the
government without incurring costs associated with being named a defendant in a
lawsuit, or becoming an immediate defendant in a lawsuit. The Company signed the
tolling agreement. On November 20, 2001, the tolling agreement was extended for
an additional 18 months. On May 20, 2003 the tolling agreement was again
extended for an additional 18 months and on November 24, 2004 the tolling
agreement was again extended for additional 18 months. On June 29, 2004, the
Company received a proposed settlement from the EPA in the amount of $21,131.
The Company is waiting for communication from the government concerning payment
of the proposed settlement. As of September 30, 2005, the Company has accrued a
sufficient amount to cover any potential liabilities from this matter.
Item 2. Unregistered Sales of Equity Securities,
None.
Item 3. Defaults upon senior securities.
None.
Item 4. Submission of matters to a vote of security holders.
None.
Item 5. Exhibits and Report on Form 8-K
(a) Exhibits:
31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification
31.2 Rule 13A-14(A)/15D-14(A) CERTIFICATION2002
32.1 Certification Underof Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification Underof Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K:
None
1614
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYBRDI, INC.
DATE: December 7, 2005May 14, 2008 By /s/ Larry Liu
-----------------------
Larry LiuYanbiao Bai
--------------------------------------------------
Yanbiao Bai, Chief Executive Officer 17and president
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