UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
_________________
Amendment No. 3
to
FORM
S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
_________________
CHINA SHESAYS MEDICAL COSMETOLOGY
INC.
(Exact name of registrant as specified in its
charter)
_________________
Nevada
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7389
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01-0660195
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(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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incorporation or organization)
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Classification Code Number)
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Identification Number)
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Sichuan SHESAYS Cosmetology Hospital Co., Ltd
New No. 83,
Xinnan Road, Wuhou District
Chengdu City, Sichuan Province, P.R. China
610041
00-86-028-85482277
(Address, including zip code, and
telephone number, including area code, of registrants principal executive
offices)
Yixiang Zhang
Chief Executive Officer
Sichuan
SHESAYS Cosmetology Hospital Co., Ltd
New No. 83, Xinnan Road, Wuhou
District
Chengdu City, Sichuan Province, P.R. China 610041
00-86-028-85482277
(Name, address, including zip
code, and telephone number, including area code, of agent for service)
______________
With Copies to:
Jie Xiu, Esq.
Troutman Sanders LLP
The Chrysler
Building
405 Lexington Ave
New York, NY 10174-0700
Tel: (212)
704-6018
Fax: (212) 704-5904
1
From time to time after the effective date of this
registration statement
(Approximate date of commencement of proposed
sale to the public)
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 check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) 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 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 post-effective amendment filed pursuant to
Rule 462(d) 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. [_]
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 of the
Securities Exchange Act of 1934.
Large accelerated filer [_]
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Accelerated filer [_]
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|
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Non-accelerated filer [_]
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Smaller reporting company [X]
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(Do not check if a smaller reporting company)
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CALCULATION OF REGISTRATION FEE
Title of each class of securities to be
registered
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Amount to be
registered(1)
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Proposed
maximum
offering price
per
share(2)
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Proposed
maximum
aggregate
offering price
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Amount of
registration fee
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Shares of common stock, par value $0.001 per share
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600,000 shares(3)
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$2.00
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$1,200,000
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$139.32
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Shares of common stock, par value $0.001 per share, to be
issued upon the exercise of warrants
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48,000 shares(4)
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$2.00
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$96,000
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$11.15
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Total
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648,000 shares
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$1,296,000
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$150.47
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(1) Pursuant to Rule 416 under the Securities Act of 1933, as
amended (the Securities Act), there is also being registered hereby such
indeterminate number of additional shares of common stock of China SHESAYS
Medical Cosmetology Inc. (the Company) as may be issued or issuable because of
stock splits, stock dividends, stock distributions and similar transactions, or
changes in the exercise price of the warrants.
(2) Estimated solely for the
purpose of calculating the registration fee pursuant to Rule 457(c) under the
Securities Act. The proposed maximum offering price is determined by the
offering price of the common shares in the private placement completed on
November 12, 2010.
(3) Represents shares of common stock, par value $0.001
per share, that the Company issued to the investors in the private placement
completed on November 12, 2010.
(4) Represents shares of common stock
underlying the warrant at an exercise price of $2.00 per share that the Company
issued to Chief Capital Limited as Chief Capital Limiteds compensation for
services in connection with the private placement completed on November 12,
2010.
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 of 1933, as amended, or until the
registration statement shall become effective on such date as the Securities and
Exchange Commission (the SEC), acting pursuant to said Section 8(a), may
determine.
2
The information in this prospectus is
not complete and may be changed. The selling stockholders may not sell these
securities 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 AUGUST 15, 2011
PROSPECTUS
648,000 Shares of Common Stock
This prospectus relates to the offering by certain selling
stockholders of China SHESAYS Medical Cosmetology Inc. of 648,000
shares
of common stock, par value $0.001 per share, of which 600,000 shares were issued
to certain of the selling stockholders in connection with an offshore private
placement under Regulation S promulgated under the Securities Act of 1933, as
amended, completed on November 12, 2010 (the Private Placement), and 48,000
shares of common stock are issuable upon exercise of the warrants that were
issued to Chief Capital Limited as part of Chief Capital Limiteds compensation
for services in connection with the Private Placement.
Unless otherwise noted, the terms the Company, our Company,
we, us and our refer to China SHESAYS Medical Cosmetology Inc. and its
subsidiaries.
The selling stockholders have advised us that they will sell
the shares of common stock from time to time in the open market, on the
Over-the-Counter Bulletin Board (the OTC Bulletin Board),
in privately
negotiated transactions or a combination of these methods, at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices or at negotiated prices.
We will not receive any proceeds from the sale of common stock
by the selling stockholders. If any warrants are exercised (excluding warrants
exercised on a cashless basis), we will receive the exercise price of the
warrants at $2 per share, or an aggregate of $96,000 if all of the 48,000
warrants are so exercised.
Our common stock is quoted on the OTC Bulletin Board under the
symbol CSAY.OB. On the last available trading day July 27, 2011, the closing
price of our common stock was $0.40 per share.
Investing in our common stock involves a high degree of
risk. Before making any investment in our common stock, you should read and
carefully consider the risks described in this prospectus under Risk Factors
beginning on page 9 of this prospectus.
You should rely only on the information contained in this
prospectus or any prospectus supplement or amendment thereto. We have not
authorized anyone to provide you with different information.
Neither the Securities and Exchange Commission (SEC) nor
any state securities commission has approved or disapproved of these securities
or determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
This prospectus is dated August 15, 2011
3
TABLE OF CONTENTS
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Page
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ABOUT THIS PROSPECTUS
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4
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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5
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PROSPECTUS SUMMARY
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6
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RISK FACTORS
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9
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SELLING STOCKHOLDERS
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21
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DETERMINATION OF OFFERING PRICE
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23
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PLAN OF DISTRIBUTION
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23
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USE OF PROCEEDS
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24
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MARKET PRICE OF AND DIVIDENDS ON COMMON
STOCK AND RELATED MATTERS
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25
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BUSINESS
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26
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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34
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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50
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CONTROLS AND PROCEDURES
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51
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
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52
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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54
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EXECUTIVE COMPENSATION
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55
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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57
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DESCRIPTION OF SECURITIES
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58
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LEGAL MATTERS
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60
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EXPERTS
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60
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WHERE YOU CAN FIND MORE INFORMATION
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60
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LIABILITY AND INDEMNIFICATION OF DIRECTORS
AND OFFICERS
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61
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FINANCIAL STATEMENTS DECEMBER 31, 2010
AND 2009
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F-1
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FINANCIAL STATEMENTS - MARCH 31, 2011
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F-23
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You should only rely on the information contained in this
prospectus. We have not, and the selling shareholders have not, authorized any
other person to provide you with different information. This prospectus is not
an offer to sell, nor is it seeking an offer to buy, these securities in any
state where the offer or sale is not permitted. The information in this
prospectus is accurate only as of the date on the front cover, but the
information may have changed since that date.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the SEC using the SECs registration rules for a delayed or
continuous offering and sale of securities. Under the registration rules, using
this prospectus and, if required, one or more prospectus supplements, the
selling stockholders named herein may distribute the shares of common stock
covered by this prospectus. This prospectus also covers any shares of common
stock that may become issuable as a result of stock splits, stock dividends or
similar transactions, or changes in the exercise price of the warrants. A
prospectus supplement may add, update or change information contained in this
prospectus. We recommend that you read carefully this entire prospectus,
especially the section entitled Risk Factors beginning on page 9, and any
supplements before making a decision to invest in our common stock.
Certain financial information included in this prospectus has
been derived from data originally prepared in Renminbi (RMB or Renminbi),
the currency of the Peoples Republic of China (China or PRC). For purposes
of this prospectus, U.S. dollar amounts for the fiscal year ended December 31,
2010 are based on conversion at year-end exchange rates of US$1.00 to RMB 6.591
for assets and liabilities, and a weighted-average of US$1.00 to RMB 6.7599 for revenue and expenses in the fiscal year ended
December 31, 2010. U.S. dollar amounts for the year ended December 31, 2009 are
based on conversion at year-end exchange rates of US$1.00 to RMB 6.8372 for
assets and liabilities, and a weighted-average of US$1.00 to RMB 6.8409 for
revenue and expenses for the year ended December 31, 2009. There is no assurance
that RMB amounts could have been or could be converted into U.S. dollars at such
rates.
4
As used in this prospectus, unless the context requires
otherwise, China SHESAYS, we, us, our and the Company refers to China
SHESAYS Medical Cosmetology Inc., a Nevada corporation, and where applicable,
its direct and indirect wholly owned subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act). These forward-looking statements are contained principally in
the sections titled Risk Factors, Managements Discussion and Analysis of
Financial Condition and Results of Operations and Business, and are generally
identifiable by use of the words may, will, should, expect,
anticipate, estimate, believe, intend or project or the negative of
these words or other variations on these words or comparable terminology.
The forward-looking statements herein represent our
expectations, beliefs, plans, intentions or strategies concerning future events,
including, but not limited to: our future financial performance; the
continuation of historical trends; the sufficiency of our cash balances for
future needs; our future operations; our sales and revenue levels and gross
margins, costs and expenses; the relative cost of our operation methods as
compared to our competitors; new product/service introduction, entry and
expansion into new markets and utilization of new sales channels and sales
agents; improvements in, and the relative quality of, our technologies and the
ability of our competitors to copy such technologies; acquisition of additional
equipment and facilities, the cost associated therewith and sources of financing
for such acquisitions; achieving status as an industry leader; our competitive
technological advantages over our competitors; brand image, customer loyalty and
expanding our client base; our ability to meet market demands; government
regulations and incentives related to cosmetology services; the sufficiency of
our resources in funding our operations; our intention to engage in mergers and
acquisitions, technology licensing and cooperation arrangements; and our
liquidity and capital needs.
Our forward-looking statements are based on assumptions that
may be incorrect, and there can be no assurance that any projections or other
expectations included in any forward-looking statements will come to pass.
Moreover, our forward-looking statements are subject to various known and
unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from future
results, performance or achievements expressed or implied by any forward-looking
statements. These risks, uncertainties and other factors include but are not
limited to:
-
Uncertainties regarding the growth or sustainability of the market for
cosmetology services.
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The risk that we may not be able to achieve or maintain a technological
advantage over any of our competitors.
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Risks relating to protection of our intellectual property.
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Changes in consumer preferences.
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The risks of limited management, labor and financial resources.
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Risk of doing business in China, including currency value fluctuations,
restrictions on remitting income to the United States and risks of diplomatic
tensions between China and the United States.
Except as required by applicable laws, we undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the
future.
5
PROSPECTUS SUMMARY
This prospectus summary does not contain all of the
information that should be considered before investing in our common stock.
Investors should read the entire prospectus carefully, including the more
detailed information regarding our business, the risks of purchasing our common
stock discussed in this prospectus under Risk Factors beginning on page 9 of
this prospectus and our financial statements and the accompanying notes
beginning on page F-1 of this prospectus.
Our Company
We are a Nevada holding company operating in the cosmetology
industry. Substantially all of our operations are conducted in China through
Chengdu BOAN Investment Management Co., Ltd ("BOAN"), our wholly-owned
subsidiary in China, and through our contractual arrangements with several of
our consolidated affiliated entities in China, including Sichuan SHESAYS
Cosmetology Hospital Co., Ltd. ("SHESAYS") and its subsidiaries.
SHESAYS was established in May 2005. Over the past five years,
we have achieved a rapid growth of our cosmetology business in Sichuan province.
The headquarter hospital of SHESAYS has 297 employees, occupying premises of
approximately 36,324 square feet and receiving more than 20,000 customers each
year over the past two years.
SHESAYS specializes in cosmetology treatments, integrating
medical treatment and education. At present, we have such core clinical
departments as cosmetic surgery, cosmetic dermatology, cosmetic dentistry,
cosmetic Traditional Chinese Medicine ("TCM"). Services provided in cosmetic
surgery include eye shaping, facial contour, rhinoplasty, face shaping, wrinkles
elimination, breast surgery, chiloplasty, liposuction slimming, ear reshaping,
gynecology / male plastic surgery. Cosmetic dermatology department provides such
services as laser depilation, acne/pock removal, facelift and wrinkle decrease
of Cutera Titan, laser whitening, pore minimizing, skin rejuvenation. Cosmetic
dentistry includes the services of optical fluoride whitening, repair of uneven
denture, porcelain teeth /cercon, orthodontic treatment, comfortable painless
teeth cleaning, complex tooth extraction face-lift surgery, orthodontic
caries-prevention and correction for children, adult orthodontics invisible.
Traditional Chinese Medicine, also known as TCM, is the medical theory and
practices of Chinese culture, especially herbal medicine, acupuncture and
osteopathy, for preventing or treating illness, or promoting health and
well-being. Cosmetic TCM is to use traditional Chinese Medicine, such as
acupuncture and moxibustion, to provide cosmetic service, such as to dispel
freckle, lose weight, as well as to enhance the endocrine system. The major
difference of Chinese medicine from Western medicine is that it focuses on
"health" rather than on "healing" because Chinese medicine promotes overall
wellness of an individual, as opposed to the approach of Western medicine in
treating the symptoms of an illness.
Headquartered in Chengdu, Sichuan province, P.R. China, SHESAYS
aims to expand its business outside of Chengdu. In 2010, SHESAYS established
three new outpatient clinics in the cities of Yibin, Leshan and Zigong, Sichuan
province, and is constructing the second flagship store, a comprehensive
cosmetology hospital in Chengdu.
For the fiscal year ended December 31, 2009, we generated
revenue of $8,834,673 and achieved a net income of $1,766,442, which represents
a growth of 98% and 27,517% compared to the previous fiscal year respectively.
This increase is attributed to our increased sale to the existing and new
customers in 2009. Our sales network has been expanded quickly and our customer
base continues to increase. For the fiscal year ended December 31, 2010, we
generated revenue of $12,173,231 which represents a growth of 37.8% compared to
$8,834,673 in the previous fiscal year. This increase in revenue is attributed
to our increased sale to the existing and new customers in 2010.We serviced
25,682 customers in 2010 compared to 20,514 in 2009. However, our net income
attributable to SHESAYS common stockholders decreased from $1,766,442 for 2009 to $544,567 for 2010, a
69.2% decline. The
decrease in net income attributable to SHESAYS common stockholders was mainly due to our increased expense related to
listing on OTCBB. Our customers are mainly individual consumers and we do not rely on any of them. The
number of our customers increased approximately 25.0% to 25,682 in 2010 from
20,514 in 2009. In 2010, we served 1,960 male customers and 23,722 female
customers, compared to 1,996 male customers and 18,518 female customers in 2009.
A majority of our customers are in their 20s. In 2010, we sponsored several big
events such as Global Final of Miss International. We enhanced our cooperation
with traditional media such as TV stations, and built strategic cooperation
partnership with Chengdu TV Station. In addition, we used new media such as
mobile phones as well as web marketing to enhance our brand name. These
marketing methods contributed to the high level of growth of revenue in
2010.
6
Our shares are quoted on the OTC Bulletin Board of the NASD
under the symbol of CSAY.OB. Our principal executive offices are located at
Sichuan SHESAYS Cosmetology Hospital Co., Ltd, New No. 83, Xinnan Road, Wuhou
District, Chengdu City, Sichuan Province, P.R. China 610041. The telephone
number at our principal executive offices is 00-86-028-85482277. Our website
address is http://www.Chinashesays.com. Information contained on our website is
not deemed part of this prospectus.
Corporate History and Organizational Structure
We are a holding company operating through our wholly-owned
subsidiary, BOAN, located in Chengdu, Sichuan Province, PR China.
We were incorporated on January 18, 2002 in Nevada under the
original name Klean Kast Solutions, Inc. On April 22, 2007, we filed amended
and restated articles and changed our name to SN Strategies Corp. Prior to the
consummation of the business combination described below, we were a shell
company with nominal operations and nominal assets.
On June 7, 2010, we acquired all of the issued and outstanding
common stock of Perfect Support Limited, which we refer to as Perfect Support
(the June 2010 Business Combination). Perfect Support was incorporated in the
British Virgin Islands on January 15, 2010 and is the owner of all of the issued
and outstanding registered capital of BOAN. BOAN was organized under the laws of
the PRC as a wholly-owned foreign enterprise on April 27, 2010. On April 27,
2010, BOAN entered into a series of contractual agreements with SHESAYS and the
stockholders of SHESAYS in which BOAN provides management and consulting
services to SHESAYS and its subsidiaries in exchange for service fees. SHESAYS
and its subsidiaries agreed to pay 100% of its residual return to BOAN. Based on
these contractual arrangements, Perfect Support, through BOAN, becomes the
primary beneficiary of SHESAYS and its subsidiaries.
In connection with the June 2010 Business Combination, our name
was changed to China SHESAYS Medical Cosmetology Inc. to better align our name
with our cosmetology business.
The Offering
This prospectus relates to the resale from time to time by the
selling stockholders identified in this prospectus of 648,000
shares of
our common stock, par value $0.001 per share, of which 600,000 shares were
issued to certain of the selling stockholders in connection with an offshore
private placement under Regulation S completed on November 12, 2010 (the
Private Placement), and 48,000 shares of common stock are issuable upon
exercise of warrants that were issued to Chief Capital Limited as Chief Capital
Limiteds compensation for services in connection with the Private Placement. No
shares are being offered for sale by our Company.
Common stock outstanding prior to offering
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18,600,012(1)
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Common stock offered by the selling stockholders
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648,000 (2)
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Common stock to be outstanding after the
offering
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18,648,012(3)
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7
Use of Proceeds
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We will not receive any
proceeds from the sale of common stock offered by the selling stockholders
under this prospectus. If any warrants are exercised (excluding warrants
exercised on a cashless basis), we will receive the exercise price of the
warrants, which will be used for working capital and general corporate
purposes.
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OTC Bulletin Board Symbol
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CSAY.OB
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Risk Factors
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The securities offered by this
prospectus are speculative and involve a high degree of risk and investors
purchasing securities should not purchase the securities unless they can
afford the loss of their entire investment. See Risk Factors beginning
on page 9.
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(1) As of May 10, 2011.
(2) This prospectus relates to the resale by the selling of
648,000
shares of our common stock, par value $0.001 per share, of which
600,000 shares were issued to certain of the selling stockholders in connection
with the Private Placement, and 48,000 shares of common stock are issuable upon
exercise of warrants that were issued to Chief Capital Limited as Chief Capital
Limiteds compensation for services in connection with the offshore Private
Placement.
(3) Assumes the full exercise of the warrants, on a cash basis,
held by Chief Capital Limited to acquire 48,000 shares of common stock.
Background
On November 5, 2010, we entered into a Securities Purchase
Agreement (the Securities Purchase Agreement) with certain investors relating
to the issuance and sale of 600,000 shares (the Shares) of the Companys
common stock, par value $0.001 per share (the Common Stock), at a price of
$2.00 per share, in a private placement transaction. The aggregate purchase
price for the Shares was $1,200,000. The sale of the Shares to the investors
closed on November 12, 2010. The aggregate gross proceeds received by our
company were $1,200,000. Net proceeds received from the Private Placement may be
used for working capital and other general corporate purposes.
Under the Securities Purchase Agreement, we have made certain
customary representations, warranties and covenants. Additionally, we have
granted registration rights to the investors whereby we have agreed to file,
within 60 days of the closing (the Required Filing Date), a registration
statement with the Securities and Exchange Commission (the Commission) to
register the Shares for resale, and to used our best efforts to cause such
registration statement to become effective. If a registration statement is not
filed before the Required Filing Date, then we must pay liquidated damages to
the investors in an amount equal to 1.0% of the amount subscribed for by the
investors per month until such registration statement is filed with the
Commission.
In addition, for a period of three years after the closing, if
we issues any shares of Common Stock for less than $2.00 per share or for no
consideration (the Additional Shares), then the per share price under the
Securities Purchase Agreement shall be reduced to the lowest price per share at
which such Additional Shares are issued, granted or sold.
Under the Securities Purchase Agreement, if our after-tax net
income for the fiscal year ending December 31, 2011 is less than our after-tax
net income for the fiscal year ending December 31, 2010, or if any Chinese
governmental agency challenges or otherwise takes any action that adversely
affects our listing of securities and we are unable to address such adverse effect to the reasonable
satisfaction of the investors, then we must pay to each investor, as liquidated
damages, an amount equal to that investors purchase price plus compound
interest at a rate of 8%.
8
Techno Meg Limited, an affiliate of the Company (the Make Good
Pledgor), also has agreed to transfer to the investors, on a pro rata basis,
600,000 shares of the Companys Common Stock owned by the Make Good Pledgor in
the event the Companys consolidated financial statements reflect less than
$6,400,000 of after-tax net income for the fiscal year ended December 31, 2011.
Pursuant to a Financial Advisory Services Agreement entered
into between SHESAYS, and Chief Capital Limited, a Hong Kong licensed corporate
finance advisor, on November 12, 2010, the Company issued to Chief Capital
Limited a warrant to purchase 48,000 shares of Common Stock as part of Chief
Capital Limiteds compensation for services in connection with the Private
Placement. The warrants are exercisable for a period of two years from June 7,
2010 at a price of $2 per share.
The common stock and the warrant issued in the Private
Placement are being offered and sold to investors without registration under the
Securities Act or any state securities laws. The Company is relying upon the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the Securities Act) provided by Section 4(2) of the Securities Act
and Regulation S promulgated thereunder (Regulation S).
Plan of Distribution
This offering is not being underwritten. The selling
stockholders will sell their shares of our common stock at prevailing market
prices or privately negotiated prices. The selling stockholders themselves
directly, or through their agents, or through their brokers or dealers, may sell
their shares from time to time, in (i) privately negotiated transactions, (ii)
in one or more transactions, including block transactions in accordance with the
applicable rules of the OTC Bulletin Board or (iii) otherwise in accordance with
the section of this prospectus entitled Plan of Distribution. To the extent
required, the specific shares to be sold, the names of the selling stockholders,
the respective purchase prices and public offering prices, the names of any
agent, broker or dealer and any applicable commission or discounts with respect
to a particular offer will be described in an accompanying prospectus. In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus.
For additional information on the methods of sale, you should
refer to the section of this prospectus entitled Plan of Distribution,
beginning on page 23.
RISK FACTORS
Investing in our common stock involves a high degree of risk.
Before making an investment decision, you should carefully consider the risks
described below as well as the other information in this prospectus and in any
accompanying prospectus supplement. Any of these risks could materially and
adversely affect our business, results of operations and financial condition,
which in turn could materially and adversely affect the trading price of our
common stock. You should not invest in our securities unless you can afford to
lose all of your investment.
Risks Relating to Our Business and Industry
Product liability claims or treatment malpractice claims
could harm our business, financial condition and results of
operations.
We face an inherent business risk of exposure to product
liability claims in the event that the use of our products is alleged to have
resulted in adverse effects or our treatments or procedures are claimed to be
malpractice. While we take what we believe are appropriate precautions, we may
not be able to avoid significant product liability exposure. We currently do not
have product liability insurance or malpractice insurance. Although we have yet
to face a product liability claim or a treatment malpractice claim, the assertion
of this type of claim could have a material adverse affect on our business,
financial condition and results of operations.
9
We have a limited operating history, which may make it
difficult for you to evaluate our business and prospects.
We began our current business operations in May 2005.
Accordingly, we have a limited operating history for our current operations upon
which you can evaluate the viability and sustainability of our business and its
acceptance by consumers. It is also difficult to evaluate the viability of our
business model because we do not have sufficient experience to address the risks
frequently encountered by every level of branches newly established and when
entering new regional markets. These circumstances may make it difficult for you
to evaluate our business and prospects.
Our senior management and employees have worked together
for a short period of time, which may make it difficult for you to evaluate
their effectiveness and ability to address challenges.
Due to our limited operating history and recent additions to
our management team, certain of our senior management and employees have worked
together at our company for only a relatively short period of time. As a result,
it may be difficult for you to evaluate the effectiveness of our senior
management and other key employees and their ability to address future
challenges to our business. Mr. Zhang, the Chairman and CEO of the Company,
founded SHESAYS in 2005. Mr. Wenhui Shao, the President of the Company, the
President and Board of Director of SHESAYS, joined SHESAYS in 2005. Mr. Xingwang
Pu, Chief Technology Officer of the Company, the Board of Director and President
in the Technology Department of SHESAYS, joined SHESAYS in 2005. Ms. Wenbin Zhu,
Chief Financial Officer of the Company, joined SHESAYS in 2007. Since 2010, we
added two new members to our management team of SHESAYS. Meng Hu joined us on
November 11, 2010 and serves as administration director in Cosmetic Surgery
Department. Yan Deng joined the Company on September 1, 2010 and serves as
manager in Customer Service Department.
Our medical care personnel may have errors in plastic
surgery operation, which would cause clinic incidents and adversely affect our
ability to generate revenue from our cosmetology services, and our financial
condition and results of operations.
Medical care personnel may have errors in plastic surgery
operation, and clinical test products may be risky. If a serious medical
negligence/malpractice happened, our brand image would be severely impaired,
which would affect our ability to generate revenue from our cosmetology
services, and our financial condition and results of operations.
There may be more advanced appliances and equipment or
diagnosis and treatment methods which may constitute challenge against SHESAYS.
We need to upgrade our techniques and equipment continuously to
keep our technique advantage. In respect of external environment, there may be
more advanced appliances and equipment or diagnosis and treatment methods which
may constitute challenge against SHESAYS. In response to such challenge, we will
continue to strengthen employee training to enhance professional abilities and
also continue to raise our research level, operative skills and update equipment
to maintain our leading status in cosmetology techniques in the region.
Our revenue is particularly
sensitive to changes in economic conditions and cosmetology trends.
Demand for our cosmetology services, and the resulting
cosmetology spending by our clients, is particularly sensitive to changes in
general economic conditions and their disposable income. During periods of
economic downturn, people may reduce the money they spend on cosmetology, which
would materially and adversely affect our ability to generate revenue from our
cosmetology services, and our financial condition and results of operations.
A substantial majority of our revenue are currently
concentrated in Chengdu. If the city experiences an event negatively affecting
its cosmetology industry, our ability to generate adequate cash flow would be
materially and adversely affected.
10
Though we will expand our business across Sichuan Province,
substantial majority of our revenue are currently concentrated in Chengdu, from
where 96% of the total revenue in 2010 were generated. We expect Chengdu to
continue to be the important sources of our revenue. If the city experiences an
event negatively affecting its cosmetology industry, such as a serious clinical
incident, negative changes in government policy, a natural disaster, our ability
to generate adequate cash flow would be materially and adversely affected.
We may not be able to successfully expand our business
network into new regions which could harm or reverse our growth potential and
our ability to increase our revenue, or even result in a decrease in
revenues.
We are pursuing a strategy to expand our service network into
new regions. Based on the Chengdu headquarters, we aim to expand our business
into other cities of Sichuan province and nation wide. As of date, we have
established a comprehensive cosmetology hospital, three new outpatient clinics
in Yibin city, Leshan city and Zigong city, and are planning to set up the
second flagship hospital in Chengdu.
In the new cities, we may compete with local competitors and
encounter new difficulties, which could harm or reverse our growth potential and
our ability to increase our revenue, or even result in a decrease in revenue.
We face intensive competition, and if we do not compete
successfully against new and existing competitors, we may lose our market share,
and our profitability may be adversely affected.
We compete with some of the largest cosmetology hospitals such
as Huamei Zixin Medical Cosmetology Hospital, Chengdu Dahua Medical Plastic
Hospital in southwest China. We compete for plastic surgery clients primarily on
the basis of network size and coverage, location, price, technique level, the
range and the quality of services that we offer and our brand name. We also
compete for such business as esthetic dentistry, gynecology / male plastic
surgery with private dental clinics and cosmetology departments in regular
public hospitals. Increased competition could reduce our operating margins and
profitability and result in a loss of market share. Some of our existing and
potential competitors may have competitive advantages, such as significantly
greater financial, marketing or other resources and may be able to mimic and
adopt our business model. We cannot assure you that we will be able to
successfully compete against new or existing competitors.
We depend on the leadership and services of Mr. Yixiang
Zhang, who is our founder, chairman, and our largest shareholder, and our
business and growth prospects may be severely disrupted if we lose his
services.
Our future success is dependent upon the continued service of
Mr. Yixiang Zhang, our founder and chairman and largest shareholder (pursuant to
an agreement Mr. Zhang signed with a major shareholder of the Company on April
27, 2010, Mr. Zhang is able to purchase 8,970,012 shares of the common stock of
our company for a nominal price within 5 years from the execution date of such
agreement and become the largest shareholder of the Company). We rely on his
industry expertise and experience in our business operations, and in particular,
his business vision, management skills, and working relationships with our
employees, our other major shareholders and many of our customers. If he was
unable or unwilling to continue in his present position, or if he joins a
competitor or forms a competing company in violation of his employment agreement
and non-compete agreement, we may not be able to replace him easily or at all.
As a result, our business and growth prospects may be severely disrupted if we
lose his services.
Our expansion plan would be restricted by the need of
updating our management systems and shortage of human resources.
With the expansion of our business, our management systems and
shortage of human resources may become factors restricting our companys
development. We expand our business with a rapid speed, and our current
management systems may not be timely updated and there might not be enough
talents to be recruited. We will continue to establish and improve our
management systems such as counter-crisis plans and organization & position
design systems. We will also continue to enhance our medical care personnels
training and continue our efforts in recruiting high-quality employees. We
expect a budget of $150,000 to enhance our management systems in 2011. We will
also continue to enhance our medical care personnels training system and
continue our efforts in recruiting high-quality employees with $150,000 estimate
expenditure in 2011. The total estimate amount spent on enhancing the management systems as well as on training and recruitment over
next fiscal year is $300,000. We will pay for the budget from our net earnings
and working capital during 2011.
11
If we do not continue to expand and maintain an effective
sales and marketing team, it will cause short-term disruptions of our
operations, restrict our sales efforts and negatively affect our cosmetology
services revenue.
Many of our sales and marketing personnel have only worked for
us for a short period of time. We depend on our marketing staff to explain and
introduce our service offerings to our existing and potential customers. We will
need to further increase the size of our sales and marketing staff as our
business continues to grow. We may not be able to hire, retain, integrate or
continue to motivate our current or new marketing personnel which would cause
short-term disruptions of our operations, restrict our sales efforts and
negatively affect our cosmetology services revenue. In 2009 and 2010, we have
recruited 6 and 11 sales and marketing staff respectively. For the members of
sales team recruited in 2010, the average time of employment is 7 months. For
those recruited in 2009, the average time of employment is 18 months. We expect
to hire additional 10-15 sales employees in 2011.
We may need additional capital and we may not be able to
obtain it, which could adversely affect our liquidity and financial
position.
To further expand our business into other cities, we have
recently opened three new outpatient clinics in Leshan, Yibin and Zigong cities
in Sichuan province. The 9,263 square feet clinic in Leshan, the 8,851 square
feet clinic in Yibin and the 13,912 square feet clinic in Zigong primarily
provide a range of customized services including medical cosmetology, cosmetic
surgery, cosmetic dentistry, and cosmetic dermatology. In the future, we plan to
set up more new hospitals and outpatient clinics nation wide. As a result, we
may require additional cash resources. We expect to need approximately $30.5
million to realize our plans for expansion in the next 3 years. If these sources
are insufficient to satisfy our cash requirements, we may seek to sell
additional equity or debt securities or obtain a credit facility. The sale of
convertible debt securities or additional equity securities could result in
additional dilution to our shareholders. The incurrence of indebtedness would
result in increased debt service obligations and could result in operating and
financing covenants that would restrict our operations and liquidity.
Our ability to obtain additional capital on acceptable terms is
subject to a variety of uncertainties, including:
-
investors perception of, and demand for, securities of alternative
cosmetology hospital;
-
conditions of the U.S. and other capital markets in which we may seek to
raise funds;
-
our future results of operations, financial condition and cash flows;
-
PRC governmental regulation of foreign investment in cosmetology hospitals
in China;
-
economic, political and other conditions in China; and
-
PRC governmental policies relating to foreign currency borrowings.
We cannot assure you that financing will be available in
amounts or on terms acceptable to us, if at all. Any failure by us to raise
additional funds on terms favorable to us could have a material adverse effect
on our liquidity and financial condition.
Our liquidity may be negatively affected by the waiver of
payment of management and service fee for the term of three years.
Pursuant to the contractual arrangements between our
subsidiary, BOAN with SHESAYS and its stockholders, BOAN provides management and
consulting services to SHESAYS and its subsidiaries in exchange for service
fees. The service fees shall be equal to 100% of the residual return of SHESAYS
and its subsidiaries which can be waived by BOAN from time to time at its sole
discretion. Pursuant to the Supplementary Agreement to the Exclusive Service
Agreement on March 22, 2011, BOAN and SHESAYS reached an agreement that, in
order to support the strategic expansion plan of SHESAYS in China, BOAN agreed to waive the
service fees to be paid by SHESAYS for three years commencing from April 27,
2010 so that SHESAYS can execute its business expansion plan, launch the
flagship hospital in Chengdu and establish the cosmetology hospitals in various
locations in China. As we do not have any other assets and any revenue from
other sources other than our interest in the agreements, our liquidity could be
negatively affected by the waiver of payment of management and service fee. BOAN
and our company have never received any service fee from SHESAYS, the operating
company and we expect to receive service fees commencing on April 28, 2013. Boan
and we do not expect to declare any dividend before April 27, 2013, nor is any
other amount expected to be due prior to April 27, 2013. However, if there is
any amount occurred and need to be paid during the period, we can borrow from
SHESAYS to settle such amount.
12
Currently we do not maintain an effective system of
internal controls and may be unable to accurately report our financial results
or prevent fraud, and investor confidence and the market price of our stock may
be adversely impacted.
Our reporting obligations as a public company will place a
significant strain on our management, operational and financial resources and
systems for the foreseeable future. If we fail to maintain an effective system
of internal controls in the future, we may be unable to accurately report our
financial results or prevent fraud and investor confidence and the market price
of our stock may be adversely impacted. Prior to the consummation of the
business combination on June 7, 2010, we were a shell company with nominal
operations and nominal assets. We declared in 2009 10-K that the internal
controls was ineffective due to lack of proper segregation of functions, duties
and responsibilities with respect to our cash and controls over the
disbursements related thereto due to our very limited staff, including our
accounting personnel. After the restructuring of the company, our internal
controls have been improved with new business and operation. We maintain a
system of internal controls and procedures and prepare our financial reports
according to US GAAP. However, the Company currently does not have an US GAAP
expert in its staff and does not have an audit committee, independent directors,
and has not established independent oversight over our management and internal
controls. Thus we believe our internal controls over financial reporting were
not effective as of December 31, 2010. Since December 2010, we have been working
to take corrective steps. Our CFO and accounting staff regularly supplement
their knowledge related to U.S. GAAP and receive updates regarding changes to or
developments in U.S. GAAP via the Internet. Also, we plan to hire experienced
professionals, independent directors and set up audit committee when appropriate
candidates are identified and sufficient funds are available to us. As we
currently do not maintain an effective system of internal controls, we may be
unable to accurately report our financial results or prevent fraud, and
investors confidence and the market price of our stock may be adversely
impacted.
Risks Relating to Regulation of Our Business and to Our
Structure
If the PRC government finds that the agreements that
establish the structure for operating our China business do not comply with PRC
governmental restrictions on foreign investment in the medical industry, we
could be subject to severe penalties.
Substantially all of our operations are or will be conducted
through our indirectly wholly-owned operating subsidiaries in China, which we
collectively refer to as our PRC operating subsidiaries, and through our
contractual arrangements with our consolidated affiliated entities in China. PRC
regulations require any foreign entities that invest directly in the medical
services industry to have direct operations in the medical industry outside of
China. In addition, foreign entity is not allowed in China to set up
wholly-owned medical institute although the foreign entity is permitted to set
up a joint venture medical institute with Chinese entities. Foreign investors
are permitted to hold shares of the joint venture medical institute at maximum
of 70%.
We do not currently directly operate medical services outside
of China and cannot qualify under PRC regulations before we commence any such
operations outside of China or until we acquire a company that has directly
operated a medical services business outside of China. Accordingly, since we
have not been involved in the direct operation of medical services business
outside of China, our domestic PRC subsidiary, BOAN, which is considered
foreign-invested, is currently ineligible to apply for the required medical
services licenses in China. While our indirect PRC operating subsidiaries are
eligible for the required licenses for providing medical services in China and
some of our indirect PRC operating subsidiaries have obtained such licenses, we
have been using and are expected to continue to use PRC operating affiliates and
their subsidiaries to operate a significant portion of our medical business for
the foreseeable future. We have entered into contractual
arrangements with PRC operating affiliates and their respective subsidiaries,
pursuant to which we, through our PRC operating subsidiaries or non-PRC
subsidiaries, provide technical support and consulting services to our PRC
operating affiliates and their subsidiaries. In addition, we have entered into
agreements with our PRC operating affiliates and each of their stockholders
which provide us with the substantial ability to control these affiliates and
their existing and future subsidiaries.
13
If we, our existing or future PRC operating subsidiaries and
affiliates are found to be in violation of any existing or future PRC laws or
regulations or fail to obtain or maintain any of the required permits or
approvals, the relevant PRC regulatory authorities, including the State
Administration for Industry and Commerce, or SAIC, which regulates cosmetology
hospitals, would have broad discretion in dealing with such violations,
including:
-
revoking the business and operating licenses of our PRC subsidiaries and
affiliates;
-
discontinuing or restricting our PRC subsidiaries and affiliates
operations;
-
imposing conditions or requirements with which we or our PRC subsidiaries
and affiliates may not be able to comply;
-
requiring us or our PRC subsidiaries and affiliates to restructure the
relevant ownership structure or operations; or
-
restricting or prohibiting our use of the proceeds of this offering to
finance our business and operations in China.
The imposition of any of these penalties would result in a
material and adverse effect on our ability to conduct our business.
We rely on contractual arrangements with SHESAYS and its
subsidiaries and shareholders for a substantial portion of our China operations,
which may not be as effective in providing operational control as direct
ownership.
We rely on contractual arrangements with SHESAYS and its
subsidiaries and shareholders to operate our medical business. For a description
of these contractual arrangements, see PRC Structure. These contractual
arrangements may not be as effective in providing us with control over SHESAYS
as direct ownership. If we had direct ownership of SHESAYS, we would be able to
exercise our rights as a shareholder to effect changes in the board of directors
of SHESAYS which in turn could effect changes, subject to any applicable
fiduciary obligations, at the management level. However, under the current
contractual arrangements, as a legal matter, if SHESAYS or any of its
subsidiaries and shareholders fails to perform its or his respective obligations
under these contractual arrangements, we may have to incur substantial costs and
resources to enforce such arrangements, and rely on legal remedies under PRC
law, including seeking specific performance or injunctive relief, and claiming
damages, which we cannot assure you to be effective.
Many of these contractual arrangements are governed by PRC law
and provide for the resolution of disputes through either arbitration or
litigation in the PRC. Accordingly, these contracts would be interpreted in
accordance with PRC law and any disputes would be resolved in accordance with
PRC legal procedures. The legal environment in the PRC is not as developed as in
other jurisdictions, such as the United States. As a result, uncertainties in
the PRC legal system could limit our ability to enforce these contractual
arrangements. In the event we are unable to enforce these contractual
arrangements, we may not be able to exert effective control over our operating
entities, and our ability to conduct our business may be negatively affected.
Unaffiliated stockholders may have limited recourse
against our affiliates if they do not abide by or terminate the contractual
arrangements that govern our operations, and these relationships may present
potential conflicts of interest.
There are affiliates on both sides of the contractual
agreements. For example, Mr. Zhang is our Chairman and Chief Executive Officer
and may become our largest stockholder (pursuant to an agreement Mr. Zhang
signed with a major stockholder of the Company on April 27, 2010, Mr. Zhang
is able to purchase 8,970,012 shares of the common stock of our company for a
nominal price within 5 years from the execution date of such agreement and then
becomes the largest stockholder of the Company). At the same time, Mr. Zhang is
the CEO and chairman of the board of our Chinese operating company SHESAYS and
hold 45% of equity of SHESAYS.
14
Since affiliates stand on both sides of the agreements which
are critical to our business operations, it would be easy to terminate or modify
these agreements. As a result, since these agreements and our affiliates are
governed by PRC law, our unaffiliated investors would have little or no recourse
since all of the assets of our operating entities are located in China and we do
not have any other assets an any revenue from other sources other than our
interest in the agreements. Under PRC law, disputes under contractual
arrangements are often resolved through arbitration or litigation. Affected
stockholders may be limited to seeking damages as PRC courts may be reluctant to
order specific performance.
In addition, these relationships may pose potential conflicts
of interest. When the interests of these affiliates diverge from our interests,
they may be required to exercise their influence in the best interests of both
us (or our stockholders) and another related entity and their owners. Some
decisions concerning our operations or finances may present conflicts of
interest between us and the other entity or person or its affiliates. There is
no mechanism in place to resolve these conflicts of interest, and applicable law
may also prohibit a stockholder from successfully challenging a transaction with
an affiliate if the transaction received the requisite vote of our disinterested
directors who received full disclosure of the existence and nature of the
conflict.
Contractual arrangements we have entered into among our
subsidiaries and affiliated entities may be subject to scrutiny by the PRC tax
authorities and a finding that we owe additional taxes or are ineligible for our
tax exemption, or both, could substantially increase our taxes owed, and reduce
our net income and the value of your investment.
Under PRC law, arrangements and transactions among related
parties may be subject to audit or challenge by the PRC tax authorities. If any
of the transactions we have entered into among our subsidiaries and affiliated
entities are found not to be on an arms-length basis, or to result in an
unreasonable reduction in tax under PRC law, the PRC tax authorities have the
authority to disallow our tax savings, adjust the profits and losses of our
respective PRC entities and assess late payment interest and penalties. We did
not obtain any tax savings from the contractual arrangements we entered into
amongst our subsidiaries and affiliated entities. We do not expect there will be
any tax saving in the future.
Our business operations may be affected by legislative or
regulatory changes.
The regulatory department of the government may issue new rules
and regulations which may raise higher requirements for operation,
qualifications of employees and hardware levels. Changes in laws and regulations
or the enactment of new laws and regulations governing plastic surgery, our
business licenses or otherwise affecting our business in China may materially
and adversely affect our business prospects and results of operations.
Substantially all of our assets are located in China and substantially all of
our revenue are derived from our operations in China. Accordingly, our
business, financial condition, results of operations and prospects are subject,
to a significant extent, to economic, political and legal developments in China.
The PRCs economic, political and social conditions, as
well as governmental policies, could affect the financial markets in China and
our liquidity and access to capital and our ability to operate our
business.
The PRC economy differs from the economies of most developed
countries in many respects, including the amount of government involvement,
level of development, growth rate, control of foreign exchange and allocation of
resources. While the PRC economy has experienced significant growth over the
past, 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. For
example, under current PRC regulations, PRC regulations require any foreign
entities that invest directly in the medical services industry to have direct
operations in the medical industry outside of China. In addition, foreign entity
is not allowed in China to set up wholly-owned medical institute although the foreign entity is permitted to set up a joint
venture medical institute with Chinese entities. Foreign investors are permitted
to hold shares of the joint venture medical institute at maximum of 70%.
Moreover, our financial condition and results of operations may be adversely
affected by government control over capital investments or changes in tax
regulations that are applicable to us.
15
The PRC economy has been transitioning from a planned economy
to a more market-oriented economy. Although the PRC government has implemented
measures since the late 1970s emphasizing the utilization of market forces for
economic reform, the reduction of state ownership of productive assets and the
establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in China 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. The PRC
government also exercises significant control over Chinas 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. Since late 2003, the PRC
government implemented a number of measures, such as raising bank reserves
against deposit rates to place additional limitations on the ability of
commercial banks to make loans and raise interest rates, in order to slow down
specific segments of Chinas economy which it believed to be overheating. These
actions, as well as future actions and policies of the PRC government, could
materially affect our liquidity and access to capital and our ability to operate
our business.
The PRC legal system embodies uncertainties which could
limit the legal protections available to you and us.
The PRC legal system is 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 over the past 30 years has
significantly enhanced the protections afforded to various forms of foreign
investment in China. Our PRC operating subsidiary, BOAN, is a wholly
foreign-owned enterprise which is an enterprise incorporated in China and
wholly-owned by foreign investors. BOAN is subject to laws and regulations
applicable to foreign investment in China in general and laws and regulations
applicable to wholly foreign-owned enterprises in particular. However, these
laws, regulations and legal requirements 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 in more developed legal systems. For example,
these uncertainties may impede our ability to enforce the contracts we have
entered into with SHESAYS and its subsidiaries. In addition, such uncertainties,
including the inability to enforce our contracts, could materially and adversely
affect our business and operation. In addition, intellectual property rights and
confidentiality protections in China may not be as effective as in the United
States or other countries. Accordingly, we cannot predict the effect of future
developments in the PRC legal system, particularly with regard to the medical
industry, 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, including our ability to enforce our agreements
with SHESAYS and its subsidiaries, and other foreign investors.
Recent regulations relating to offshore investment
activities by PRC residents may increase the administrative burden we face and
create regulatory uncertainties that could restrict our overseas and
cross-border investment activity, and a failure by our shareholders who are PRC
residents to make any required applications and filings pursuant to such
regulations may prevent us from being able to distribute profits and could
expose us and our PRC resident shareholders to liability under PRC law.
The PRC National Development and Reform Commission, or NDRC,
and SAFE recently promulgated regulations that require PRC residents and PRC
corporate entities to register with and obtain approvals from relevant PRC
government authorities in connection with their direct or indirect offshore
investment activities. These regulations apply to our shareholders who are PRC
residents and may apply to any offshore acquisitions that we make in the future.
16
Under the SAFE regulations, PRC residents who make, or have
previously made, direct or indirect investments in offshore companies will be
required to register those investments. In addition, any PRC resident who is a
direct or indirect stockholder of an offshore company is required to file with
the local branch of SAFE, with respect to that offshore company, any material
change involving capital variation, such as an increase or decrease in capital,
transfer or swap of shares, merger, division, long term equity or debt
investment or creation of any security interest over the assets located in
China. If any PRC stockholder fails to make the required SAFE registration, the
PRC subsidiaries of that offshore parent company may be prohibited from
distributing their profits and the proceeds from any reduction in capital, share
transfer or liquidation, to their offshore parent company, and the offshore
parent company may also be prohibited from injecting additional capital into
their PRC subsidiaries. Moreover, failure to comply with the various SAFE
registration requirements described above could result in liability under PRC
laws for evasion of applicable foreign exchange restrictions.
We cannot assure you that all of our stockholders who are PRC
residents will comply with our request to make or obtain any registrations or
approvals required under these regulations or other related legislation.
Furthermore, as the regulations are relatively new, the PRC government has yet
to publish implementing rules, and much uncertainty remains concerning the
reconciliation of the new regulations with other approval requirements. It is
unclear how these regulations, and any future legislation concerning offshore or
cross-border transactions, will be interpreted, amended and implemented by the
relevant government authorities. The failure or inability of our PRC resident
shareholders to comply with these regulations may subject us to fines and legal
sanctions, restrict our overseas or cross-border investment activities, limit
our ability to inject additional capital into our PRC subsidiaries and the
ability of our PRC subsidiaries to make distributions or pay dividends, or
materially and adversely affect our ownership structure. If any of the foregoing
events occur, our acquisition strategy and business operations and our ability
to distribute profits to you could be materially and adversely affected.
The PRC tax authorities may require us to pay additional
taxes in connection with our acquisitions of offshore entities that conducted
their PRC operations through their affiliates in China.
Our operations and transactions are subject to review by the
PRC tax authorities pursuant to relevant PRC laws and regulations. However,
these laws, regulations and legal requirements change frequently, and their
interpretation and enforcement involve uncertainties. For example, in the case
of some of our acquisitions of offshore entities that conducted their PRC
operations through their affiliates in China, we cannot assure you that the PRC
tax authorities will not require us to pay additional taxes in relation to such
acquisitions. In the event that the sellers failed to pay any taxes required
under PRC law in connection with these transactions, the PRC tax authorities
might require us to pay taxes, together with late-payment interest and
penalties.
If any of our PRC affiliates becomes the subject of a
bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy
those assets, which could reduce the size of our cosmetology services network and
materially and adversely affect our business, ability to generate revenue and
the market price of our stock.
To comply with PRC laws and regulations relating to foreign
ownership restrictions in the medical business, we currently conduct our
operations in China through contractual arrangements with SHESAYS, its
shareholders and subsidiaries. As part of these arrangements, SHESAYS and its
subsidiaries hold certain of the assets that are important to the operation of
our business. If any of these entities goes bankrupt and all or part of their
assets become subject to liens or rights of third-party creditors, we may be
unable to continue some or all of our business activities, which could
materially and adversely affect our business, financial condition and results of
operations. If any of SHESAYS and its subsidiaries undergoes a voluntary or
involuntary liquidation proceeding, its shareholders or unrelated third-party
creditors may claim rights to some or all of these assets, thereby hindering our
ability to operate our business, which could materially and adversely affect our
business, our ability to generate revenue and the market price of our stock.
Restrictions on currency exchange may limit our ability
to utilize our revenue effectively.
17
Substantially all of our revenue and operating expenses are
denominated in Renminbi. The Renminbi is currently convertible under the
current account, which includes dividends, trade and service-related foreign
exchange transactions, but not under the capital account, which includes
foreign direct investment and loans. Currently, BOAN may purchase foreign
exchange for settlement of current account transactions, including payment of
dividends to us, without the approval of the State Administration of Foreign
Exchange. However, we cannot assure you that the relevant PRC governmental
authorities will not limit or eliminate our ability to purchase foreign
currencies in the future. Since a significant amount of our future revenue will
be denominated in Renminbi, any existing and future restrictions on currency
exchange may limit our ability to utilize revenue generated in Renminbi to fund
our business activities outside China, if any, or expenditures denominated in
foreign currencies. Foreign exchange transactions under the capital account are
still subject to limitations and require approvals from, or registration with,
the State Administration of Foreign Exchange and other relevant PRC governmental
authorities. This could affect BOANs ability to obtain foreign exchange through
debt or equity financing, including by means of loans or capital contributions
from us.
Fluctuations in exchange rates could result in foreign
currency exchange losses.
Because our earnings and cash and cash equivalent assets are
denominated in Renminbi fluctuations in exchange rates between the U.S. dollars
and Renminbi will affect the relative purchasing power of our revenue and our
balance sheet and earnings per share in U.S. dollars. In addition, appreciation
or depreciation in the value of the Renminbi relative to the U.S. dollar would
affect our financial results reported in U.S. dollar terms without giving effect
to any underlying change in our business or results of operations. Since July
2005 the Renminbi is no longer pegged solely to the U.S. dollar. Instead, it is
reported to be pegged against a basket of currencies, determined by the Peoples
Bank of China, against which it can rise or fall by as much as 0.3% each day.
This change in policy has resulted in the gradual increase in the value of the
Renminbi against the U.S. dollar over time. Between July 2005, when China began
its Renminbi exchange rate reform, and the end of 2009, the value of the
Renminbi has appreciated by 21.21 percent against the U.S. dollar and up by 2.21
percent against the Euro. The Renminbi may appreciate or depreciate
significantly in value against the U.S. dollar in the long term, depending on
the fluctuation of the basket of currencies against which it is currently valued
or it may be permitted to enter into a full float, which may also result in a
significant appreciation or depreciation of the Renminbi against the U.S.
dollar. Fluctuations in the exchange rate will also affect the relative value of
any dividend we might issue in the future which will be exchanged into U.S.
dollars and earnings from and the value of any U.S. dollar-denominated
investments we make in the future.
Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions in an effort to reduce our exposure to foreign
currency exchange risk. We do not intend to enter into any hedging transactions.
Even if we may decide to enter into hedging transactions in the future, the
availability and effectiveness of these hedges may be limited and we may not be
able to successfully hedge our exposure at all. In addition, our currency
exchange losses may be magnified by PRC exchange control regulations that
restrict our ability to convert Renminbi into foreign currency.
Because our funds are held in banks in uninsured PRC bank
accounts, the failure of any bank in which we deposit our funds could affect our
ability to continue our business.
Funds on deposit at banks and other financial institutions in
the PRC are often uninsured. A portion of our assets are in the form of cash
deposited with banks in the PRC, and in the event of a bank failure, we may not
have access to our funds on deposit. Depending upon the amount of money we
maintain in a bank that fails, our inability to have access to our cash could
impair our operations, and, if we are not able to access funds to pay our
suppliers, employees and other creditors, we may be unable to continue in
business. At the end of 2010, our deposit of fund in three banks, including Bank
of Chengdu, Citic Bank, Shenzhen Development Bank, Bank of China and Agriculture
Bank of China, is 0.45% of our total assets. There is low possibility that these
banks fails, and we believe the failure of any single bank could not affect our
ability to continue our business as our business has little accounts payable and
has great capability to generate cash revenue on a day-to-day basis.
Failure to comply with the U.S. foreign corrupt practices
act and Chinese anti-corruption laws could subject us to penalties and other
adverse consequences.
18
Our executive officers, employees and other agents may violate
applicable law in connection with the marketing or sale of our products,
including Chinas anti-corruption laws and the U.S. Foreign Corrupt Practices
Act, or the FCPA, which generally prohibits United States companies from
engaging in bribery or other prohibited payments to foreign officials for the
purpose of obtaining or retaining business. In addition, we are required to
maintain records that accurately and fairly represent our transactions and have
an adequate system of internal accounting controls. Foreign companies, including
some that may compete with us, are not subject to these prohibitions, and
therefore may have a competitive advantage over us. The PRC also strictly
prohibits bribery of government officials. However, corruption, extortion,
bribery, pay-offs, theft and other fraudulent practices occur from time-to-time
in the PRC.
While we intend to implement measures to ensure compliance with
the FCPA and Chinas anti-corruption laws by all individuals involved with our
company, our employees or other agents may 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. In addition, our brand and reputation, our
sales activities or our stock price could be adversely affected if we become the
target of any negative publicity as a result of actions taken by our employees
or other agents.
Risks Relating to Regulation of Our Common Stock
Insiders have substantial control over us, and they could
delay or prevent a change in our corporate control even if our other
stockholders wanted it to occur.
Mr. Yixiang Zhang is our chief executive officer and currently,
the sole member on the Board of Directors. Pursuant to an agreement Mr. Zhang
signed with a major shareholder of the Company on April 27, 2010, Mr. Zhang is
able to purchase 8,970,012 shares of the common stock of our company for a
nominal price within 5 years from the execution date of such agreement and
become the largest shareholder of the Company. See Certain Relationships and
Related Transactions. Accordingly, Mr. Zhang and other executive officers who
hold the Companys common stock are able to control all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This could delay or prevent an outside party
from acquiring or merging with us even if our other stockholders wanted it to
occur.
There is currently a very limited trading market for our
common stock.
The market for our common stock is limited and we cannot assure
you that a larger market will ever be developed or maintained. Currently, our
common stock is traded on the Over-The-Counter Bulletin Board. Securities traded
on the OTC Bulletin Board typically have low trading volumes. Market
fluctuations and volatility, as well as general economic, market and political
conditions, could reduce our market price. As a result, this may make it
difficult or impossible for our shareholders to sell our common stock. Prior to
the fourth quarter ended December 31, 2010, there was no trading activity of our
common stock on the Over-The-Counter Bulletin Board.
We do not intend to pay cash dividends in the foreseeable
future.
We currently intend to retain all future earnings for use in
the operation and expansion of our business. We do not intend to pay any cash
dividends in the foreseeable future but will review this policy as circumstances
dictate. Should we decide in the future to do so, as a holding company, our
ability to pay dividends and meet other obligations depends upon the receipt of
dividends or other payments from our operating subsidiaries based in the PRC.
Our operating subsidiaries, from time to time, may be subject to restrictions on
its ability to make distributions to us, including restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions. See Risks relating to Regulation of Our Business and
to Our Structure above.
Our common stock is subject to the Penny Stock
Regulations.
19
Our common stock is, and will continue to be subject to the
SECs penny stock rules to the extent that the price remains less than $5.00.
Those rules, which require delivery of a schedule explaining the penny stock
market and the associated risks before any sale, may further limit your ability
to sell your shares.
The SEC has adopted regulations which generally define penny
stock to be an equity security that has a market price of less than $5.00 per
share. Our common stock, when and if a trading market develops, may fall within
the definition of penny stock and subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000, or annual incomes exceeding $200,000 or
$300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of such securities and
have received the purchasers prior written consent to the transaction.
Additionally, for any transaction, other than exempt transactions, involving a
penny stock, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealers presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the penny stock rules may
restrict the ability of broker-dealers to sell our common stock and may affect
the ability of investors to sell their common stock in the secondary market.
Our common stock is illiquid and subject to price
volatility unrelated to our operations.
The market price of our common stock could fluctuate
substantially due to a variety of factors, including market perception of our
ability to achieve our planned growth, quarterly operating results of other
companies in the same industry, trading volume in our common stock, changes in
general conditions in the economy and the financial markets or other
developments affecting our competitors or us. In addition, the stock market is
subject to extreme price and volume fluctuations. This volatility has had a
significant effect on the market price of securities issued by many companies
for reasons unrelated to their operating performance and could have the same
effect on our common stock.
A large number of shares of common stock will be issuable for
future sale which will dilute the ownership percentage of our current holders of
common stock. The availability for public resale of those shares may depress our
stock price.
Also as a result, there will be a significant number of new
shares of common stock on the market in addition to the current public float.
Sales of substantial amounts of common stock, or the perception that such sales
could occur, and the existence of warrants to purchase shares of common stock at
prices that may be below the then current market price of the common stock,
could adversely affect the market price of our common stock and could impair our
ability to raise capital through the sale of our equity securities.
Enforcement against us or our directors and officers may
be difficult.
Because our principal assets are located outside of the U.S.
and a majority of our directors and officers, both present and future, reside
outside of the U.S., it may be difficult for you to enforce your rights based on
U.S. federal securities laws against us and our officers and directors or to
enforce a U.S. court judgment against us or them in the PRC.
In addition, our operating company is located in the PRC and
substantially all of its assets are located outside of the U.S. It may therefore
be difficult for investors in the U.S. to enforce their legal rights based on
the civil liability provisions of the U.S. Federal securities laws against us in
the courts of either the U.S. or the PRC and, even if civil judgments are
obtained in U.S. courts, to enforce such judgments in PRC courts. Further, it is
unclear if extradition treaties now in effect between the U.S. and the PRC would
permit effective enforcement against us or our officers and directors of
criminal penalties under the U.S. Federal securities laws or otherwise.
20
SELLING STOCKHOLDERS
This prospectus covers the resale from time to time by the
selling stockholders identified in the table below of up to 648,000
shares of our common stock, of which 600,000 shares were issued to certain
of the selling stockholders in connection with the Private Placement and 48,000
shares of common stock are issuable upon exercise of warrants that were issued
to Chief Capital Limited as part of Chief Capital Limiteds compensation for
services in connection with the Private Placement. The shares were issued in
accordance with the exemption from the registration provisions of the Securities
Act of 1933, as amended, provided by Section 4(2) of such Act for issuances not
involving any public offering and the Regulation S promulgated thereunder. We
are registering the shares to permit the selling stockholders and any of their
pledgees, donees, transferees, assignees and successors-in-interest to, from
time to time, sell any or all of their shares of common stock on any stock
exchange, market or trading facility on which the shares are traded or in
private transactions when and as they deem appropriate in the manner described
in the Plan of Distribution. As of the date of this prospectus there are
18,600,012 shares of our common stock issued and outstanding.
The following table sets forth, as of November 29, 2010, the
name of each selling stockholder, the number and percentage of shares of our
common stock beneficially owned by each selling stockholder prior to the
offering for resale of the shares under this prospectus, the number of shares of
our common stock beneficially owned by each selling stockholder that may be
offered from time to time under this prospectus, and the number and percentage
of shares of our common stock beneficially owned by the selling stockholder
after the offering of the shares (assuming all of the offered shares are sold by
the selling stockholder.
Pursuant to a Financial Advisory Services Agreement entered
into between SHESAYS, and Chief Capital Limited, the Company issued to Chief
Capital Limited a warrant to purchase 48,000 shares of our common stock as Chief
Capital Limiteds compensation for services in connection with the Private
Placement.
None of the selling stockholders is a broker dealer.
Beneficial ownership is determined in accordance with the rules
of the SEC, and includes any shares of common stock as to which a person has
sole or shared voting power or investment power and any shares of common stock
which the person has the right to acquire within 60 days through the exercise of
any option, warrant or right, through conversion of any security or pursuant to
the automatic termination of a power of attorney or revocation of a trust,
discretionary account or similar arrangement. Shares of common stock subject to
warrants that are currently exercisable within 2 years after June 7, 2010 are
deemed to be beneficially owned by the person holding those securities for the
purpose of computing the percentage ownership of that person but are not treated
as outstanding for the purpose of computing the percentage ownership of any
other shareholder.
|
|
Shares Beneficially
|
|
|
Number
|
|
|
Shares Beneficially
|
|
|
|
Owned Prior to the
|
|
|
of
|
|
|
Owned After the
|
|
|
|
Offering (1
)
|
|
|
Shares
|
|
|
Offering
|
|
Name
|
|
|
|
|
|
|
|
Being
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Percent
|
|
|
Offered (2
)
|
|
|
Number(3
)
|
|
|
Percent
|
|
Ling Fung Au Yeung
|
|
6,000
|
|
|
*
|
|
|
6,000
|
|
|
0
|
|
|
0%
|
|
Shouying Bing
|
|
6,500
|
|
|
*
|
|
|
6,500
|
|
|
0
|
|
|
0%
|
|
Xingliang Cao
|
|
4,000
|
|
|
*
|
|
|
4,000
|
|
|
0
|
|
|
0%
|
|
Hoi Ki Katy Chan
|
|
400
|
|
|
*
|
|
|
400
|
|
|
0
|
|
|
0%
|
|
Ka Man Chan
|
|
200
|
|
|
*
|
|
|
200
|
|
|
0
|
|
|
0%
|
|
Ka Wa Chan
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Stanley Kam Wai Chan
|
|
1,000
|
|
|
*
|
|
|
1,000
|
|
|
0
|
|
|
0%
|
|
Tsan Yu Chan
|
|
1,800
|
|
|
*
|
|
|
1,800
|
|
|
0
|
|
|
0%
|
|
Uen Kwan Chan
|
|
400
|
|
|
*
|
|
|
400
|
|
|
0
|
|
|
0%
|
|
Hongqin Chen
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Yanhui Chen
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
0%
|
|
Zuoqiu Chen
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Chief Capital Limited
|
|
48,000
|
(4)
|
|
*
|
|
|
48,000
|
|
|
0
|
|
|
0%
|
|
Chi Kuen Choi
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
0%
|
|
Chi Ho Chong
|
|
3,000
|
|
|
*
|
|
|
3,000
|
|
|
0
|
|
|
0%
|
|
Shun Chong
|
|
223,600
|
|
|
1.2%
|
|
|
223,600
|
|
|
0
|
|
|
0%
|
|
Weng Nin Chu and Yuen Han Liu
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Gangling Gong
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Yunfei He
|
|
15,000
|
|
|
*
|
|
|
15,000
|
|
|
0
|
|
|
0%
|
|
Yi Hu
|
|
38,000
|
|
|
*
|
|
|
38,000
|
|
|
0
|
|
|
0%
|
|
Yunjian Hu
|
|
3,500
|
|
|
*
|
|
|
3,500
|
|
|
0
|
|
|
0%
|
|
Big Fong Hung
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Liqiang Jia
|
|
3,700
|
|
|
*
|
|
|
3,700
|
|
|
0
|
|
|
0%
|
|
Hiumei Keung
|
|
18,000
|
|
|
*
|
|
|
18,000
|
|
|
0
|
|
|
0%
|
|
Kei Kwan
|
|
400
|
|
|
*
|
|
|
400
|
|
|
0
|
|
|
0%
|
|
21
|
|
Shares Beneficially
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
Owned Prior to the
|
|
|
Number of
|
|
|
Owned After the
|
|
|
|
Offering (1)
|
|
|
Shares
|
|
|
Offering
|
|
Name
|
|
|
|
|
|
|
|
Being
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Percent
|
|
|
Offered (2)
|
|
|
Number(3)
|
|
|
Percent
|
|
Lim Pong Kwan
|
|
200
|
|
|
*
|
|
|
200
|
|
|
0
|
|
|
0%
|
|
Kin Pan Lam
|
|
1,000
|
|
|
*
|
|
|
1,000
|
|
|
0
|
|
|
0%
|
|
Ka Man Lau
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
0%
|
|
Dayin Li
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Hua Li
|
|
30,000
|
|
|
*
|
|
|
30,000
|
|
|
0
|
|
|
0%
|
|
Qiongya Li
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Lixin Liu
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Cheng Chang Lu
|
|
13,000
|
|
|
*
|
|
|
13,000
|
|
|
0
|
|
|
0%
|
|
Zhaoxian Luo
|
|
3,500
|
|
|
*
|
|
|
3,500
|
|
|
0
|
|
|
0%
|
|
Po Yee Ng
|
|
400
|
|
|
*
|
|
|
400
|
|
|
0
|
|
|
0%
|
|
Jing Ning
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Wei Ning
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Tsit Pang
|
|
16,000
|
|
|
*
|
|
|
16,000
|
|
|
0
|
|
|
0%
|
|
Yanmei Peng
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Chen Qian
|
|
15,000
|
|
|
*
|
|
|
15,000
|
|
|
0
|
|
|
0%
|
|
Wing Kit Shek
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Chungui Su
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Qian Su
|
|
25,000
|
|
|
*
|
|
|
25,000
|
|
|
0
|
|
|
0%
|
|
Pulin Sun
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
0%
|
|
Lixian Tan
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Yuanyuan Tan
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Rong Tang
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Feng Tao
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
0%
|
|
Hong Tian
|
|
4,000
|
|
|
*
|
|
|
4,000
|
|
|
0
|
|
|
0%
|
|
Tong Tong
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Siu Yuen Tse
|
|
600
|
|
|
*
|
|
|
600
|
|
|
0
|
|
|
0%
|
|
Jia Qing Tu
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Linzhang Wang
|
|
200
|
|
|
*
|
|
|
200
|
|
|
0
|
|
|
0%
|
|
Ho Yin Wong
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Siu Man Mannie Wong
|
|
2,000
|
|
|
*
|
|
|
2,000
|
|
|
0
|
|
|
0%
|
|
Cheuk Wa Wu
|
|
400
|
|
|
*
|
|
|
400
|
|
|
0
|
|
|
0%
|
|
Dan Yang
|
|
1,000
|
|
|
*
|
|
|
1,000
|
|
|
0
|
|
|
0%
|
|
Chongyuan Yin
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Kelai Yin
|
|
5,800
|
|
|
*
|
|
|
5,800
|
|
|
0
|
|
|
0%
|
|
Lei Yu
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Xiaofa Zeng
|
|
3,000
|
|
|
*
|
|
|
3,000
|
|
|
0
|
|
|
0%
|
|
Li Zhang
|
|
15,000
|
|
|
*
|
|
|
15,000
|
|
|
0
|
|
|
0%
|
|
Quanan Zhang
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
0%
|
|
Songtao Zhang
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
0%
|
|
Zhe Zhang
|
|
1,500
|
|
|
*
|
|
|
1,500
|
|
|
0
|
|
|
0%
|
|
Zunxia Zhang
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
Laibin Zhou
|
|
100
|
|
|
*
|
|
|
100
|
|
|
0
|
|
|
0%
|
|
22
* Represents less than one percent (1%)
(1) Unless otherwise noted, the selling stockholder became one
of our shareholders pursuant to the Private Placement.
(2) This number represents all of the securities the selling
stockholders received in the Private Placement, which we agreed to register in
this Registration Statement.
(3) Since we do not have the ability to control how many, if
any, of their shares each of the selling stockholders listed above will sell, we
have assumed that the selling stockholders will sell all of the shares offered
herein for purposes of determining how many shares they will own after the
offering and their percentage of ownership following the offering.
(4) Consists of 48,000 shares of our common stock underlying
warrants which may be exercised through June 7, 2012 at an exercise price of
$2.00 per share. Such warrants were issued to Chief Capital Limited as Chief
Capital Limiteds compensation for services in connection with the Private
Placement. The address for Chief Capital Limited is 14/F Man Yee Building, 68
Des Voeux Rd, Central, Hong Kong.
DETERMINATION OF OFFERING PRICE
The selling stockholders will determine at what price they may
sell the shares of common stock offered by this prospectus, and such sales may
be made at prevailing market prices, or at privately negotiated prices.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, donees,
transferees, assignees and successors-in-interest may, from time to time, sell
any or all of their shares of common stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The selling stockholders may
use any one or more of the following methods when selling shares:
-
ordinary brokerage transactions and transactions in which the
broker-dealer solicits investors;
-
block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
-
purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
-
an exchange distribution in accordance with the rules of the applicable
exchange;
-
privately negotiated transactions;
-
to cover short sales made after the date that this registration statement
is declared effective by the SEC;
-
broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
-
through the distribution of common stock by any selling stockholder to its
partners, members or stockholders;
-
any other method permitted pursuant to applicable law; and
-
a combination of any such methods of sale.
The selling stockholders may also sell shares under Rule 144
under the Securities Act, if available, rather than under this prospectus.
23
Broker-dealers engaged by the selling stockholders may arrange
for other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders may from time to time pledge or grant
a security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell shares of common stock from time
to time under this prospectus, or under an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act amending the
list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.
Upon a selling stockholders notification to us that any
material arrangement has been entered into with a broker-dealer for the sale of
such stockholders common stock through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer, a supplement to this prospectus will be filed, if required, pursuant to
Rule 424(b) under the Securities Act disclosing (i) the name of each such
selling stockholder and of the participating broker-dealer(s), (ii) the number
of shares involved, (iii) the price at which such shares of common stock were
sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the transaction.
In addition, upon our being notified in writing by a selling stockholder that a
donee or pledgee intends to sell more than 500 shares of common stock, a
supplement to this prospectus will be filed if then required in accordance with
applicable securities law.
The selling stockholders also may transfer the shares of common
stock in other circumstances, in which case the donees, assignees, transferees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus and may sell the shares of common stock from
time to time under this prospectus after we have filed any necessary supplements
to this prospectus under Rule 424(b), or other applicable provisions of the
Securities Act, supplementing or amending the list of selling stockholders to
include such donee, assignee, transferee, pledgee, or other
successor-in-interest as a selling stockholder under this prospectus.
In the event that the selling stockholders are deemed to be
underwriters, any broker-dealers or agents that are involved in selling the
shares will be deemed to be underwriters within the meaning of the Securities
Act, in connection with such sales. In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Discounts, concessions, commissions and similar
selling expenses, if any, that can be attributed to the sale of the shares of
common stock will be paid by the selling stockholder and/or the purchasers. Each
selling stockholder has represented and warranted to us that it acquired the
securities subject to this registration statement for his/her own account for
investment and not for the benefit of any other person and not with a view to
distribute or sell in violation of the Securities Act or any state securities
laws or rules and regulations promulgated thereunder.
If a selling stockholder uses this prospectus for any sale of
the common stock, it will be subject to the prospectus delivery requirements of
the Securities Act. The selling stockholders will be responsible to comply with
the applicable provisions of the Securities Act and the Exchange Act, and the
rules and regulations thereunder promulgated, including, without limitation,
Regulation M, as applicable to such selling stockholders in connection with
resales of their respective shares under this registration statement.
We are required to pay all fees and expenses incident to the
registration of the shares, but we will not receive any proceeds from the sale
of the common stock. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
USE OF PROCEEDS
We will not receive proceeds from the sale of common stock
under this prospectus. We will, however, receive approximately $96,000 from
certain selling stockholders if they exercise their warrants in full, on a cash
basis, which we will use for working capital and general corporate purposes.
The warrant holders may exercise their warrants at any time until their
expiration, as further described under Description of Securities. Because the
warrant holders may exercise the warrants in their own discretion, if at all, as
well as on a cashless exercise basis in their own discretion, we cannot plan on
specific uses of the proceeds beyond application of proceeds to general
corporate purposes. We have agreed to bear the expenses (other than any
underwriting discounts or commissions or agents commissions) in connection with
the registration of the common stock being offered hereby by the selling
stockholders.
24
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED
MATTERS
Trading Information
Our common stock is currently quoted on the OTC Bulletin Board
maintained by the NASD under the symbol CSAY.OB. The transfer agent for our
common stock is Island Stock Transfer at 100 Second Avenue, South Suite 705S,
St. Petersburg, FL 33701.
The following table sets forth the high and low closing bid
prices for our common stock for the fiscal quarters indicated as reported on the
OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
2011
|
|
High
|
|
|
Low
|
|
First Quarter ended March 31, 2011
|
$
|
2.50
|
|
$
|
1.01
|
|
Our common stock is thinly traded and any reported sale prices
may not be a true market-based valuation of our common stock. Prior to the
fourth quarter ended December 31, 2010, there was no trading activity of our
common stock quoted on the OTC Bulletin Board.
Pursuant to a Financial Advisory Agreement, we agreed to issue
warrants to purchase 48,000 shares of our common stock to Chief Capital Limited
in the Private Placement. The warrants are exercisable for a period of 2 years
from the date of reverse merger on June 7, 2010, with issuance price of $2.0 per
share (subject to certain adjustments including a full ratchet anti-dilution
adjustment in the case of certain issuances of shares of common stock at a price
below the current exercise price), with cashless exercise rights.
As of August 10, 2011, there were approximately
257 owners of
record of our common stock.
Trades in our common stock may be subject to Rule 15g-9 under
the Exchange Act, which imposes requirements on broker-dealers who sell
securities subject to the rule to persons other than established customers and
accredited investors. For transactions covered by the rule, broker-dealers must
make a special suitability determination for purchasers of the securities and
receive the purchasers written agreement to the transaction before the
sale.
Our shares are subject to rules applicable to penny stock
which pertain to any equity security with a market price less than $5.00 per
share or an exercise price of less than $5.00 per share. Penny stock rules
require a broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure document prepared by the SEC, which specifies
information about penny stocks and the nature and significance of risks of the
penny stock market. A broker-dealer must also provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-dealer, and
sales person in the transaction, and monthly account statements indicating the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that, prior to a transaction in a penny stock not
otherwise exempt from those rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the trading activity in
our shares.
25
Dividend Policy
We have not paid or declared any cash dividends on our common
stock within the past three years and do not foresee doing so in the foreseeable
future. We intend to retain any future earnings for the operation and expansion
of our business. Any decision as to future payment of dividends will depend on
the available earnings, the capital requirements of our Company, our general
financial condition and other factors deemed pertinent by our Board of
Directors.
Securities Authorized for Issuance under Equity Compensation
Plans
We do not have any equity compensation plans. Our Board of
Directors may adopt one or more equity compensation plan in the future.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
We did not repurchase any of our equity securities that were
registered under Section 12 of the Exchange Act during the fiscal year ended
December 31, 2010 and the first quarter ended March 31, 2011.
BUSINESS
Overview
We are a Nevada holding company operating in the cosmetology
industry. Substantially all of our operations are conducted in China through
Chengdu BOAN Investment Management Co., Ltd ("BOAN"), our wholly-owned
subsidiary in China, and through our contractual arrangements with several of
our consolidated affiliated entities in China, including Sichuan SHESAYS
Cosmetology Hospital Co., Ltd. ("SHESAYS") and its subsidiaries.
SHESAYS was established in May 2005. Over the past five years,
we have achieved a rapid growth of our cosmetology business in Sichuan province.
The headquarter hospital of SHESAYS has 297 employees, occupying premises of
approximately 36,324 square feet and receiving more than 20,000 customers over
the past two years.
SHESAYS specializes in cosmetology treatments, integrating
medical treatment and education. At present, we have such core clinical
departments as cosmetic surgery, cosmetic dermatology, cosmetic dentistry,
cosmetic Traditional Chinese Medicine ("TCM"). Services provided in cosmetic
surgery include eye shaping, facial contour, rhinoplasty, face shaping, wrinkles
elimination, breast surgery,
chiloplasty, liposuction slimming, ear
reshaping, gynecology / male plastic surgery. Cosmetic dermatology department
provides such services as laser depilation, acne/pock removal, facelift and
wrinkle decrease of Cutera Titan, laser whitening, pore minimizing, skin
rejuvenation. Cosmetic dentistry includes the services of optical fluoride
whitening, repair of uneven denture, porcelain teeth /cercon, orthodontic
treatment, comfortable painless teeth cleaning, complex tooth extraction
face-lift surgery, orthodontic caries-prevention and correction for children,
adult orthodontics invisible. Traditional Chinese Medicine, also known as TCM,
is the medical theory and practices of Chinese culture, especially herbal
medicine, acupuncture and osteopathy, for preventing or treating illness, or
promoting health and well-being. Cosmetic TCM is to use traditional Chinese
Medicine, such as acupuncture and moxibustion, to provide cosmetic services, such
as to dispel freckle, lose weight, as well as to enhance the endocrine system.
The major difference of Chinese medicine from Western medicine is that it
focuses on "health" rather than on "healing" because Chinese medicine promotes
overall wellness of an individual, as opposed to the approach of Western
medicine in treating the symptoms of an illness.
Headquartered in Chengdu, Sichuan province, P.R. China, SHESAYS
aims to expand its business outside of Chengdu. In 2010, SHESAYS established
three new outpatient clinics in Yibin, Leshan and Zigong City, Sichuan province,
and is constructing the second flagship store, a comprehensive cosmetology
hospital in Chengdu, Sichuan province.
26
For the fiscal year ended December 31, 2009, we generated
revenue of $8,834,673 and achieved a net income attributed to SHESAYS common
stockholders of $1,766,442, which represents
a growth of 98% and 27,517% compared to the previous fiscal year respectively.
This increase is attributed to our increased sale to the existing and new
customers in 2009. Our sales network has been expanded quickly and our client
base continues to increase. For the fiscal year ended December 31, 2010, we
generated revenue of $12,173,231which represents a growth of 37.8% compared to
$8,834,673 in the previous fiscal year. This increase in revenue is attributed
to our increased sale to the existing and new customers in 2010.We serviced
25,682 customers in 2010 compared to 20,514 in 2009. However, our net income
attributable to SHESAYS common stockholders decreased from $1,766,442 for 2009 to $544,567 for 2010, a 69.2% decline. The
decrease in net income was mainly due to our increased expense related to
listing on OTCBB.
Our customers are mainly individual consumers and we do not
rely on any of them. The number of our customers increased approximately 25% to
25,682 in 2010 from 20,514 in 2009. In 2010, we served 1,960 male customers and
23,722 female customers, compared to 1,996 male customers and 18,518 female
customers in 2009. A majority of our customers are in their 20s. In 2010, we
sponsored several big events such as Global Final of Miss International. We
enhanced our cooperation with traditional media such as TV stations, and built
strategic cooperation partnership with Chengdu TV Station. In addition, we used
new media such as mobile phones as well as web marketing to enhance our brand
name. These marketing methods contributed to the high level of growth of revenue
in 2010.
Our raw materials include plastic surgery materials, cosmetics,
medicine, and dental materials. We have two major suppliers to supply us with
botox and prosthesis. Botox injection is one of the most effective Rhytidectomy
that is commonly used in cosmetology. Prosthesis is used in the breast implants
as the stuffing. We purchase Botox from Sichuan Hengda Biology Products Limited
and Mcghan prosthesis from Shanghai Yinuo Medical Products Limited. Each
supplier accounted for 12% of our total purchase amount in 2010. We do not rely
on Shanghai Yinuo Medical Products Limited as the prosthesis is easily
accessible and we can easily find substitute supply in the market. As to botox,
we rely on Sichuan Hengda Biology Products Limited as it is the only agent of
botox in Sichuan. We do not have purchase agreements with Hengda Biology
Products Limited and we purchase the botox at their retail store. However, we
have a good cooperation with it for a long time and we believe there is no
reason they will stop supplying us with botox. We do not have principal
suppliers for other materials.
Factors Affecting Our Results of Operations
The increase in our operating results in the last two years is
attributable to a number of factors, including the substantial increase of
domestic cosmetology demand and successful brand promotion. We expect our
business to continue to be driven by the following factors:
Increasing domestic spending in Cosmetology
The demand for our cosmetology services is directly related to
consumers cosmetology spending, which is largely determined by the economic
conditions and disposable income of consumers. According to the statistics
released by National Bureau of Statistics of China, Chinas economy has
experienced a rapid growth in the last thirty years. The annual growth rate has
been in the range of 9% to 13% in the last five years. Chinas GDP per capita
has been over $3,000 since 2007, which marks a new starting point in terms of
consumption. With economic growth of a country with 1.3 billion people, Chinas
increased consumption has upgraded many traditional consumption industries and
accelerated development of many new industries, such as medical cosmetic
industry. The national medical cosmetic market reached approximately $439
million last year but compared with $60 billion in the United States, there is
still a huge gap. We believe that the domestic spending in cosmetology will
continue to increase at a fast rate within the next five years as consumers
disposable income continues to grow.
Successful Promotion of Our Brand Name
Mr. Yixiang Zhang, our CEO, owned a trademark registered at the
State Administration for Industry and Commerce of China, namely,
西婵
(translated as SHESAYS in English). Mr. Zhang has entered into an agreement
with SHESAYS to allow SHESAYS to use the trademark without charge. SHESAYS
will appear as our core brand. In addition, SHESAYS registered a trademark at
the State Administration for Industry and Commerce of China, namely,
钧阁
(translated as Junge in English). Junge will appear in our clinics and
skincare centers.
27
The logo combined the names
of two of the four great beauties in ancient China, Xi Shi and Diao Chan, and
embodies grace and joy, stimulating the people to pursue beauty. The logo
conceives rich visual impact and imagination, which contains profound cultural
connotations and is easy to promote.
Corporate History
We are a Nevada corporation incorporated on January 18, 2002,
under the name Klean Kast Solutions, Inc. In April 2007, we filed amended and
restated articles and changed our name to SN Strategies Corp. On July 6, 2010,
we changed our name from SN Strategies Corp. to China SHESAYS Medical
Cosmetology Inc in connection with the June 2010 Business Combination.
References herein to "we, "us" "our" or the "Company" refer to China SHESAYS
Medical Cosmetology Inc., and where applicable, its direct and indirect wholly
owned subsidiaries. Our shares are quoted on the OTC Bulletin Board of the NASD,
under the symbol CSAY.OB, whereas before our name change, our shares were quoted
under the symbol SNGI.OB.
On June 7, 2010, we acquired all of the outstanding common
stock of Perfect Support through the merger with China SHESAYS Medical
Cosmetology Inc., a Nevada corporation (the Merger Sub), wholly owned by the
Company. Perfect Support is a holding company whose only asset is 100% of the
registered capital of BOAN. Substantially all of Perfect Support's operations
are conducted in China through BOAN, and through contractual arrangements with
BOANs consolidated affiliated entity in China, SHESAYS. Immediately before our
June 2010 Business Combination, we had no material assets and no material
operations and therefore we were considered a shell company (as defined by
Rule 12b-2 of the Exchange Act). As consideration for the acquisition of Perfect
Support and SHESAYS, of the total 18,000,012 Company common stock issued and
outstanding post the merger, 13,500,012 shares were issued to the stockholders
of Perfect Support and their designees respectively as new issuance at merger,
4,230,000 shares were purchased by Techno Meg Limited, a majority stockholder of
Perfect Support, and Leading Pioneer Limited, a minority stockholder of Perfect
Support, from certain original stockholders of the Company subject to and in
conjunction with and immediately after the closing of the merger, and 270,000
shares were held by the original stockholders of the Company.
PRC Structure
Substantially all of our operations are conducted in China
through BOAN, our wholly-owned subsidiary in China, and through our contractual
arrangements with several of our consolidated affiliated entities in China,
including SHESAYS and its subsidiaries.
PRC regulations require any foreign entities that invest
directly in the medical services industry to have direct operations in the
medical industry outside of China. No foreign entity is allowed in China to set
up a wholly-owned medical institute. However, a foreign entity is permitted to
set up a joint venture medical institute with Chinese entities. Foreign
investors are permitted to hold shares of the joint venture medical institute at
maximum of 70%.
We do not currently directly operate medical services outside
of China and cannot qualify under PRC regulations. Since we have not been
involved in the direct operation of medical services business outside of China,
our domestic PRC subsidiary, BOAN, which is considered foreign-invested, is
currently ineligible to apply for the required medical services licenses in
China. Our medical services business is currently provided through contractual
arrangements with our consolidated affiliated entities in China, including
SHESAYS and its subsidiaries. SHESAYS is owned by 5 PRC citizens, including
Yixiang Zhang, Wenhui Shao, Xingwang Pu, Ning Liu and Bing Fang , with
shareholdings in SHESAYS of 45%, 15%, 15%, 15% and 10%, respectively. Currently,
Yixiang Zhang holds the position of Chairman and General Manager of SHESAYS and
Chairman and CEO of the Company. Wenhui Shao is Director and President of
SHESAYS and President of the Company. Xingwang Pu holds the position of Director
and Technology President of SHESAYS and Chief Technology Officer of the Company.
Ning Liu and Bing Fang hold the positions of Directors of SHESAYS. SHESAYS and
several of its subsidiaries hold the requisite licenses to provide medical
services in China.
28
SHESAYS and its subsidiaries directly operate our cosmetology
hospitals. We expect to continue to depend on SHESAYS and its subsidiaries to
operate our medical services until we qualify for direct ownership of a medical
business in China under PRC laws and regulations and acquire SHESAYS and its
subsidiaries as our direct, wholly-owned subsidiaries, as described below. BOAN
has entered into contractual arrangements with SHESAYS and shareholders,
pursuant to which, we are able to exert effective control over SHESAYS and its
subsidiaries; a substantial portion of the economic benefits of SHESAYS and its
subsidiaries will be transferred to us; and BOAN or its designee has an
exclusive option to purchase all or part of the equity interests in SHESAYS, all
or part of the equity interests in SHESAYSs subsidiaries that are owned by
SHESAYS or its nominee holders, or all or part of the assets of SHESAYS, in each
case when and to the extent permitted by PRC law.
In connection with its entry into the World Trade Organization,
China is required to relax restrictions on foreign investment in the medical
industry in China. We do not currently know how or when we will be able to
qualify under these regulations. Even if we do qualify in the future, it may be
burdensome or not cost effective for us to meet the required criteria for direct
ownership. If and when we qualify for direct ownership, we intend to explore the
commercial feasibility of changing our current structure, including possibly
direct ownership of SHESAYS and its subsidiaries, taking into consideration of
relevant cost, market, competitive and other factors. In the event we take such
steps, we cannot assure you that we will be able to identify or acquire a
qualified foreign company for a possible future restructuring or any
restructuring we may undertake to facilitate direct ownership will be
successful.
Agreements that Transfer Economic Benefits to Us
Pursuant to our contractual arrangements with SHESAYS and its
subsidiaries, BOAN provides management and consulting services to SHESAYS and
its subsidiaries in exchange for service fees. The service fees shall equal to
100% of the residual return of SHESAYS and its subsidiaries which can be waived
by BOAN from time to time in its sole discretion. Pursuant to the Supplementary
Agreement to the Exclusive Service Agreement on March 22, 2011, BOAN and SHESAYS
reached an agreement that, in order to support the strategic expansion plan of
SHESAYS in China, BOAN agreed to waive the service fees to be paid by SHESAYS
for three years commencing from April 27, 2010 so that SHESAYS can execute its
business expansion plan, launch the flagship hospital in Chengdu and establish
the cosmetology hospitals in various locations in China.
Agreements that Provide Effective Control over Sichuan
SHESAYS and its future Subsidiaries
We have entered into the following agreements with SHESAYS and
its subsidiaries that provide us with effective control over SHESAYS and its
subsidiaries:
(i) an exclusive service agreement, pursuant to which SHESAYS
and its subsidiaries irrevocably entrust to BOAN the right of management and
operation of SHESAYS and its subsidiaries and the responsibilities and
authorities of their shareholders and directors of SHESAYS and its subsidiaries.
Under the agreement, without the prior consent in writing by BOAN, none of the
SHESAYS and its subsidiaries may accept any management and consulting services
from any other third parties. Also, BOAN shall no longer provide any other
cosmetology hospitals at the local places of the SHESAYS and its subsidiaries
with management and consulting services similar to those hereunder. However,
this article does not restrict BOAN from providing such similar services to
SHESAYS and its subsidiaries in other cities. Unless terminated earlier by the
Parties in writing, the agreement shall be valid for a term of ten (10) years
starting from the date April 27, 2010.
(ii) a voting rights proxy agreement, pursuant to which the
shareholder of SHESAYS and its subsidiaries have granted the personnel
designated by BOAN the right to appoint directors and senior management of
SHESAYS and its subsidiaries and to exercise all of their other voting rights as
shareholders of SHESAYS and its subsidiaries, as the case may be, as provided
under the articles of association of each such entity. This agreement, dated
April 27, 2010, takes effect from the date of due execution of all the Parties,
with the valid term of twenty (20) years, unless terminated in advance by
written agreement of all the Parties or according to Article 8.1 of this
Agreement. This Agreement shall automatically renew for another one (1) year
when the term (whether original or extended, if applicable) of this Agreement is
due, unless BOAN gives a thirty-day notice in writing to the other Parties of
the cancellation of such renewal.
29
(iii) a call option agreement, pursuant to which:
(a) neither SHESAYS nor any of its subsidiaries may enter into
any transaction that could materially affect its assets, liabilities, equity or
operations without the prior written consent of BOAN;
(b) neither SHESAYS nor any of its subsidiaries will distribute
any dividends without the prior written consent of BOAN and
(c) BOAN or its designee has an exclusive option to purchase
all or part of the equity interests in SHESAYS, all or part of the equity
interests in SHESAYS subsidiaries owned by SHESAYS or its nominee holders, or
all or part of the assets of SHESAYS, in each case when and to the extent
permitted by PRC law. In case of BOAN exercising the call option in its sole
discretion upon the occurrence of the situation in which such call option
exercise become feasible under the relevant laws in PRC, any additional
consideration paid other than the $1.00 which may be required under the laws of
China to effect such purchase to comply with such legal formalities shall be
either cancelled or returned to SHESAYS immediately with no additional
compensation to the owners. This agreement, dated April 27, 2010, shall take
effect as of the date of formal execution by the Parties. For each Shareholder,
this Agreement shall terminate in respect to such Shareholder when all the
Option Equity of all the Target Company held by him is legally transferred under
the name of BOAN and/or other entity or individual designated by it in
accordance with the provisions of this agreement; and
(iv) an equity pledge agreement pursuant to which each of
shareholders of SHESAYS has pledged his or her equity interest in SHESAYS and
its subsidiaries, as the case may be, to BOAN to secure their obligations under
the relevant contractual control agreements, including but not limited to, the
obligations of SHESAYS and its subsidiaries under the exclusive services
agreement, the call option agreement, the voting rights proxy agreement
described above, and each of them has agreed not to transfer, sell, pledge,
dispose of or create any encumbrance on their equity interest in SHESAYS or its
subsidiaries without the prior written consent of BOAN.
This agreement shall become effective upon the satisfaction of
all of the following conditions:
(1) This agreement is duly executed; and
(2) The equity pledge hereunder has been legally recorded in
the shareholders' register of the SHESAYS and/or SHESAYS subsidiaries
SHESAYSs and/or SHESAYS subsidiaries stockholders shall
provide the registration certification of the Equity Pledge being recorded in
the shareholders' register as mentioned above to BOAN in a way satisfactory to
BOAN
This Agreement shall have its valid term until the full
performance of the obligations under the relevant contractual control agreements
or the full repayment of the guaranteed liabilities, all direct, indirect and
consequential losses and losses of foreseeable profits suffered by BOAN due to
any breach events, and all fees incurred by BOAN for the enforcement of the
obligations of SHESAYS and/or SHESAYS subsidiaries.
See Related Party Transactions for further information on our
contractual arrangements with these parties.
Pursuant to the opinion of our PRC legal counsel:
-
the ownership structures of BOAN, SHESAYS and its subsidiaries, both
currently and after giving effect to this merger, are in compliance with
existing PRC laws and regulations;
-
the contractual arrangements among BOAN, SHESAYS and its subsidiaries
governed by PRC law are valid, binding and enforceable, and will not result in
any violation of PRC laws or regulations currently in effect; and
-
the business operations of BOAN and SHESAYS and their respective
subsidiaries, as described in this Form S-1, are in compliance with existing
PRC laws and regulations in all material respects.
30
However, in spite of the above, there are substantial
uncertainties regarding the interpretation and application of current and future
PRC laws and regulations. Accordingly, there can be no assurance that the PRC
regulatory authorities, in particular the SAIC which regulates medical
institutes, will not in the future take a view that is contrary to the above
opinion of our PRC legal counsel. If the PRC government finds that the
agreements that establish the structure for operating our PRC medical business
do not comply with PRC government restrictions on foreign investment in medical
businesses, we could be subject to severe penalties. See Risk Factors If the
PRC government finds that the agreements that establish the structure for
operating our China business do not comply with PRC governmental restrictions on
foreign investment in the medical industry, we could be subject to severe
penalties, Our business operations may be affected by legislative or
regulatory changes and The PRC legal system embodies uncertainties which
could limit the legal protections available to you and us.
Intellectual Property
Mr. Yixiang Zhang, our CEO, owned a trademark registered at the
State Administration for Industry and Commerce of China, namely, 西婵
(translated as SHESAYS in English). Mr. Zhang has entered into an agreement
with SHESAYS to allow SHESAYS to use the trademark for ten years from December
8, 2006 to December 7, 2016. The agreement could be renewed for extension upon
expiration. According to the agreement, there is no cash or non-cash
consideration that CEO received or to be received in return for allowing SHESAYS
to use the trademark. The CEO authorized SHESAYS to use the trademark without
charge.
SHESAYS will appear as our core brand and its registration will expire in
2017.
In addition, SHESAYS registered two trademarks with the State
Administration for Industry and Commerce of China, namely, "SHESAYS" and 钧阁, the latter of which is translated as "Junge" in English and will
appear in our clinics and skincare centers.. The registration of "SHESAYS" and
钧阁 will both expire in 2020. Generally, we can renew our registration when
the registration of the trademarks expires
.
Marketing
We market our cosmetology services directly to the customers.
Our marketing strategy consists of the following five sub-strategies:
promotions, advertisements, internet marketing, three-level cosmetic service
model and membership management system.
Promotions
Our promotions mainly include:
-
General sales promotion: general discount for group buy, coupons and
promotions;
-
Promotion for specific treatments: group buy of specific treatments such
as depilation, spot-removing and teeth-whitening procedures; Large-scale
promotion activities during holiday seasons; Large-scale marketing activities.
Advertisements
Based on our marketing analysis, our advertisements target
female customers from 20 to 35 years old and we advertise on different media. In
terms of advertisements, we follow the following principles:
-
Combination of traditional media and interaction media;
-
Advertisement coverage on major media;
-
Increasing exposure on high-end media to obtain new customers from higher
segment markets.
31
Internet Marketing
Our internet marketing is also one of the important components
in our brand strategy and plays a vital role in our brand development. With our
official website (
www.chinashesays.com
), we
carry out experience marketing and consultation marketing on the
internet.
-
Internet experience marketing: it mainly promotes our services, medical
experts, advanced equipments and hospital information by text, graphics, audio
and video so that the potential customers on the internet can understand the
scope of our services and our hospital.
-
Internet interaction marketing: we apply comprehensive internet marketing
strategies and professional internet marketing technology. The potential
customers and our medical consultants can communicate with each other through
multiple real-time communication tools. Users can see the contact information
of the consultants on each page. They can communicate through text, video and
audio chat, which enable us to timely communicate with customers and establish
our brand name for our business.
Three-level Cosmetic Service Model of SHESAYS
We have developed a business plan of three-level model and
began its execution since the year of 2010. We expect to establish and complete
the three-level service mode in the next 3 years.
Three-level service model is an important component of our
marketing strategy. At the first level of the service model, through specialty
medical cosmetology hospitals, we mainly provide advanced medical cosmetic
services including comprehensive plastic surgery services, and large operation
projects. At the second level, through clinics/outpatient departments in second
or third-tier cities, we will focus on relatively simple cosmetic operations,
and laser skincare procedures. At the third level, through skincare centers, we
will provide daily skincare, consultancy, regular experts diagnosis and other
daily beauty services.
Hospitals will be established in regional central cities such
as Chengdu, Chongqing, Guiyang and Kunming. These comprehensive cosmetic surgery
hospitals will provide all-round plastic surgery services for SHESAYSs
customers in these regions, including a full range of cosmetic services such as
plastic surgery, skin care, cosmetic dentistry and TCM cosmetic services,
especially major, complex and sophisticated plastic surgeries.
Simple cosmetic operations services, such as non-invasive
surgery services, will be provided by clinics/outpatient departments established
in second or third-tier cities. With the advantages of laser application,
non-invasive surgery can be completed in these clinics/outpatient departments,
while those major, sophisticated and high-end operations will be transferred to
our specialty hospitals.
SHESAYS will also establish skincare centers in most cities in
Sichuan and offer daily skincare, consultancy, regular experts diagnosis and
other daily beauty services in the skincare centers. Through these skincare
centers, we can attract more consumers with professional services and periodic
expert diagnosis activities, and establish a large membership database, which
provides a potential customer foundation for the cosmetic surgery hospitals and
medical cosmetic clinics /outpatient departments.
Three-level service model allows the Company to focus its
resources at different level of the facilities, cater to the needs and spending
habits of different areas, and benefit from long-term customer relationships
cultivated though skincare centers.
Membership Management System
According to the three-level service model, we will establish
cosmetic clinics and skincare centers in most cities in Sichuan. The skincare
centers not only carry out brand promotion activities of SHESAYS, but also
provide member database for our flagship hospital and secondary cosmetic
clinics.
32
Competition
We compete with some of the largest cosmetology hospitals such
as Huamei Zixin Medical Cosmetology Hospital, Chengdu Dahua Medical Plastic
Hospital in southwest China. We compete for plastic surgery and other services
primarily on the basis of location, price, technique level, the range and the
quality of services and our brand name.
Compared to our competitors, we have the following competitive
advantages:
Personnel advantage: in order to ensure access to qualified
doctors and personnel, we cooperate with medical schools in Sichuan, Jiangxi and
Shanxi to provide internship opportunities for future professionals and build a
talent pipeline for senior doctors and general practitioners. As the service
industry, the experienced personnel could deliver high quality service to our
customers. The cooperation with medical schools to provide internship could help
us identify the most qualified personnel to supplement our team and we also have
lots of training to enhance their skills.
Management advantage: Our senior management is comprised of
marketing experts in medical industry and qualified experts and talents in
cosmetic surgery industry. With our experience management team, we set up
efficient management system to guarantee our target customers could find us, and
the quality of the surgery could satisfy our customers needs. We have the
marketing management team to launch promotion activities and the quality
management system to follow up our customers before and after the surgery to
make sure they are satisfied with our services.
Equipment advantage: Our main medical equipments were imported
from the world-class manufacturers such as U.S.-based Candela, Cynosure, and
Cutera, and Germany-based Fotona. Our equipments are of higher quality and
stability to ensure surgerys safety.
We also compete for such business as esthetic dentistry,
gynecology/male plastic surgery with private dental clinics and cosmetology
departments in regular public hospitals. Our esthetic dentistry department has
technologic advantage over typically small private dental clinics in China as we
are focusing on teeth whitening and Orthodontic brace and equipped with advanced
equipment. With regard to the cosmetology departments in regular public
hospitals, we believe our quality of services differentiates us from regular
public hospitals because these public hospitals are state-owned non-profit
organization in China and usually have less motivation to provide high quality
medical services for the patients.
We believe the above advantages distinguish us from other
competitors. This is solely our opinion and there is no third-party report or
statistics to support or substantiate it.
Employees
We have 313 full-time employees as of December 31, 2010,
including 127 in administration, finance, marketing and other supporting
departments, and 186 in medical service business departments.
Properties
Properties in the headquarters
Our headquarters hospital and principal executive offices are
located at new No. 83, Xinnan Road, Wuhou District, Chengdu City, Sichuan
Province, P.R. China, 610041.The first and second floor of this building occupy
approximately 11,024 square feet which we leased from Sichuan Yanhua-Zhixin
Industrial Group Co. Ltd., for approximately $139,524 a year on average. The
lease term will end in year 2018. The rest floors of the building occupy
approximately 24,649 square feet which we leased from 33 home owners and 650
square feet owned by us.
Properties in new flagship shop
33
Our new flagship hospital is located at No. 28, Chuangye Road,
Hi-tech Zone, Chengdu City, Sichuan Province, P.R. China. The building consists
of approximately 195,269 square feet which we leased from Sichuan Enwei
Investment Group Co. ltd., for approximately $1,301,494 per year. The lease term
will end in year 2016.
Properties in other cities
Address
|
Area
square feet
|
Lease Term
|
Leshan City
|
9,263
|
March 2010February
2015
|
Zigong City
|
13,912
|
April 2010March 2015
|
Six properties in Cuiping District, Yibin
City
|
8,851
|
March 2010April 2015
|
Legal Proceedings
Currently there are no legal proceedings pending or threatened
against us. However, from time to time, we may become involved in various
lawsuits and legal proceedings which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our business.
MANAGEMENTS DISCUSSION AND ANALYSIS
This discussion should be read in conjunction with the other
sections of this prospectus, including the related exhibits. The various
sections of this discussion contain a number of forward-looking statements, all
of which are based on our current expectations and could be affected by the
uncertainties and risk factors described throughout this prospectus. See Risk
Factors. Our actual results may differ materially.
Overview
We are a Nevada holding company operating in the cosmetology
industry. Substantially all of our operations are conducted in China through
BOAN, our wholly-owned subsidiary in China, and through our contractual
arrangements with several of our consolidated affiliated entities in China,
including SHESAYS and its subsidiaries.
SHESAYS was established in May 2005 and specializes in
cosmetology treatments, integrating medical treatment and education. At present,
we have such core clinical departments as cosmetic surgery, cosmetic
dermatology, cosmetic dentistry, cosmetic Traditional Chinese Medicine (TCM).
Services provided in cosmetic surgery include eye shaping, facial contour,
rhinoplasty, face shaping, wrinkles elimination, breast surgery, chiloplasty,
liposuction slimming, ear reshaping, gynecology / male plastic surgery. Cosmetic
dermatology department provides services of laser depilation, acne/pock removal,
facelift and wrinkle decrease of Cutera Titan, laser whitening, pore minimizing,
skin rejuvenation etc. Cosmetic dentistry includes the services of optical
fluoride whitening, repair of uneven denture, porcelain teeth / cercon,
orthodontic treatment, comfortable painless teeth cleaning, complex tooth
extraction face-lift surgery, orthodontic caries-prevention and correction for
children, adult orthodontics invisible. Traditional Chinese Medicine, also known
as TCM, is the medical theory and practices of Chinese culture, especially
herbal medicine, acupuncture and osteopathy, for preventing or treating illness,
or promoting health and well-being. Cosmetic TCM is to use traditional Chinese
Medicine, such as acupuncture and moxibustion, to provide cosmetic services, such
as to dispel freckle, lose weight, as well as to enhance the endocrine system.
The major difference of Chinese medicine from Western medicine is that it
focuses on "health" rather than on "healing" because Chinese medicine promotes
overall wellness of an individual, as opposed to the approach of Western
medicine in treating the symptoms of an illness.
Restatement of Financial Statements
34
On July 15, 2011, as a result of the preparation of the
responses to comments the Company received from the Securities and Exchange
Commission (the SEC) in connection with the SECs review of the Companys
Amendment No. 2 to the Registration Statement on Form S-1 filed on May 13, 2011,
after its communications with the Companys auditors, the Company determined
that the Companys financial statements for the year ended December 31, 2010,
and the three months period ended March 31, 2011 should no longer be relied upon
as a result of certain errors regarding: (i) pre-operating expenses wrongly
recorded as other current assets; (ii) under-provisions of rental expenses for
clinics that had not yet commenced business; (iii) income tax expense for the
above items; (iv) foreign currency translation gain or loss for the above items;
and (v) an over statement of payments to acquire property and equipment in cash
flows from investing activities and increases in other payables and accrued
liabilities included in cash flows from operating activities in the statement of
cash flows for the year ended December 31, 2010. The Company has restated the
financial statements for the year ended December 31, 2010, and the three months
period ended March 31, 2011. An explanation of the error and its impact on the
Company's financial statements is contained in Note 3 to the financial
statements contained in Part II of this report.
Results of Operations
Three Months Ended March 31, 2011, Compared to the Three
Months Ended March 31, 2010:
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
$
|
|
|
%
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Change
|
|
Revenue
|
$
|
3,575,129
|
|
$
|
3,247,925
|
|
$
|
327,204
|
|
|
10.1%
|
|
Cost of revenue
|
|
929,473
|
|
|
732,458
|
|
|
197,015
|
|
|
26.9%
|
|
Gross profit
|
|
2,645,656
|
|
|
2,515,467
|
|
|
130,189
|
|
|
5.2%
|
|
Operation expenses
|
|
1,693,239
|
|
|
919,108
|
|
|
774,131
|
|
|
84.2%
|
|
Total other income (expenses)
|
|
(31,044
|
)
|
|
(57,575
|
)
|
|
26,531
|
|
|
-46.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before tax
|
|
921,373
|
|
|
1,538,784
|
|
|
(617,411
|
)
|
|
-40.1%
|
|
Income tax expenses
|
|
297,542
|
|
|
405,120
|
|
|
(107,578
|
)
|
|
-26.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SHESAYS stockholders
|
|
633,170
|
|
|
1,133,664
|
|
|
(500,494
|
)
|
|
-44.1%
|
|
Foreign currency translation gain
|
|
15,720
|
|
|
399
|
|
|
15,321
|
|
|
3,839.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to
SHESAYS stockholders
|
|
648,918
|
|
|
1,134,063
|
|
|
(485,145
|
)
|
|
-42.8%
|
|
Total Revenue
Total revenue for the three months ended March 31, 2011
increased by approximately $0.3 million or 10.1% to $3.6 million as compared to
$3.2 million for the three months ended March 31, 2010. Our revenue growth was
driven by continued efforts to attract new customers at three clinics in Leshan,
Yibin and Zigong. We did not increase our prices from period to period.
Compared to the same period of 2010, cosmetic surgery services
revenue increased 4.3% to $1.7 million, professional medical beauty services
revenue increased 19.1% to $1.6 million, cosmetic dentistry services revenue
decreased 80.5% to $27,509 and sales of goods increased 91.3% to $0.2 million. We have been enhancing marketing of professional
medical beauty services as well as efforts on sales of goods which have higher
year-over-year increases.
35
REVENUE
|
|
Three Months Ended March 31
|
|
|
|
2011
|
|
|
2010
|
|
|
Increase/
|
|
|
%
|
|
(in US dollars)
|
|
|
|
|
|
|
|
(Decrease)
|
|
|
Change
|
|
Cosmetic surgery services
|
$
|
1,693,758
|
|
$
|
1,623,430
|
|
$
|
70,328
|
|
|
4.3%
|
|
Professional medical beauty services
|
|
1,623,916
|
|
|
1,363,437
|
|
|
260,479
|
|
|
19.1%
|
|
Cosmetic dentistry services
|
|
27,509
|
|
|
140,853
|
|
|
(113,344
|
)
|
|
-80.5%
|
|
Sales of goods
|
|
229,946
|
|
|
120,205
|
|
|
109,741
|
|
|
91.3%
|
|
Total revenue
|
$
|
3,575,129
|
|
$
|
3,247,925
|
|
$
|
327,204
|
|
|
10.1%
|
|
For the first quarter of 2011, revenue of our current
headquarter hospital increased by 0.7% to $3.3 million, from $3.2 million in the
first quarter of 2010. Three new clinics launched in the second half of 2010
contributed approximately $0.3 million to revenue.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Location
|
|
|
|
|
|
|
|
|
|
|
|
|
Sichuan Shesays
|
$
|
3,269,864
|
|
|
91.5%
|
|
$
|
3,247,925
|
|
|
100.0%
|
|
Leshan Jiazhou Shesays
|
|
129,673
|
|
|
3.6%
|
|
|
-
|
|
|
-
|
|
Yibin Shesays
|
|
96,978
|
|
|
2.7%
|
|
|
-
|
|
|
-
|
|
Zigong Shesays
|
|
78,614
|
|
|
2.2%
|
|
|
-
|
|
|
-
|
|
Total revenue
|
$
|
3,575,129
|
|
|
100.0%
|
|
$
|
3,247,925
|
|
|
100.0%
|
|
Cost of Revenue
Our cost of revenue for the three months ended March 31, 2011
was $0.9 million, an increase of $0.2 million, or 26.9% from $0.7 million for
the three months ended March 31, 2010. The increase in cost of revenue in 2010
was due to the increase in customer service revenue. In addition, we had a
promotion for a specific medical beauty service during the first quarter of 2011
which has higher costs of revenue compared to other services. Cost of revenue as
a percentage of revenue increased from 22.6% to 26.0% as compared to the prior
comparative period due to cost of revenue for professional medical beauty
services increased by $0.2 million or 136.5% from $0.1 million to $0.3 million.
Gross Profit
Our gross profit for the three months ended March 31, 2011 was
$2.6 million, an increase of $0.1 million or 5.2% from $2.5 million for the
three months ended March 31, 2010. The increase in gross profit in the first
quarter of 2011 was due to the increase in total revenue. Our overall gross
profit margin as a percentage of revenue was 74.0% for the three months ended
March 31, 2011 compared to 77.4% of the same period of the previous year. The
gross margin was slightly lower in the first quarter of 2011 due to the increase
in costs of professional medical beauty services.
36
Operating Expenses
Our operating expenses increased by approximately $0.8 million
to $1.7 million for the three months ended March 31, 2011 from $0.9 million for
the same period of the previous year. This 84.2% increase was mainly
attributable to the increase in the expense associated with advertising
activities and professional and consultant fees related to the listing on OTCBB,
as well as pre-operating expenses of our new flagship hospital.
Other Income (Expense):
Other expense for the three months ended March 31, 2011 was
$31,044 compared to other expenses of $57,575 for the same period of the
previous year. The decrease was mainly due to the bank charges of $23,460 for
the loan we secured in the first quarter of 2010.
Net Income attributable to the Company
As a result of the factors described above, we had net income
attributable to the Company
in the amount of $0.6 million for the three
months ended March 31, 2011, as compared with $1.1 million for the three months
ended March 31, 2010. The decrease in net income was mainly attributed to the
significant increase of operating expenses in the three months ended March 31,
2011.
Foreign currency translation gains
Our business operates primarily in Chinese Renminbi (RMB),
but we report our results in U.S. Dollars. The conversion of our accounts from
RMB to U.S. Dollars results in translation adjustments. As a result of a
currency translation adjustment gain, our other comprehensive income was $15,720
for the three months ended March 31, 2011, as compared with $399 for the three
months ended March 31, 2010. The increase is due to currency exchange
fluctuation of Chinese RMB to US Dollars for the period.
Comprehensive Income attributable to the common stockholders
As a result of the factors described above, we had
comprehensive income attributable to the common stockholders in the amount of
$0.6 million for the three months ended March 31, 2011, as compared with $1.1
million for the three months ended March 31, 2010.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements during the three
months ended March 31, 2011, that have, or are reasonably likely to have, a
current or future affect on our financial condition, revenue or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to our interests.
Liquidity and Capital Resources
As of March 31, 2011, we had cash and cash equivalents of $1.7
million. We had a working capital deficit of $1.8 million, that is, our current
assets were $2.9 million and our current liabilities were $4.7 million as of
March 31, 2011. Our net working capital deficit may initially raise substantial
doubt as to our ability to continue as a going concern. However, we believe that
our strong net cash flow from operating activities, cost reduction and delay on capital expenditure will provide sufficient liquidity to
finance our anticipated working capital and capital expenditure requirements for
the next 12 months.
37
Total stockholders' equity as of March 31, 2011 was $5.1
million. The following table provides detailed information regarding our net
cash flow for all financial statement periods presented in this report.
|
|
March 31,
|
|
(in US dollars)
|
|
2011
|
|
|
2010
|
|
Net cash provided by operating activities
|
$
|
1,244,428
|
|
$
|
1,308,488
|
|
Net cash used in investing activities
|
|
(660,239
|
)
|
|
(1,216,492
|
)
|
Net cash provided by financing activities
|
|
81,899
|
|
|
858,649
|
|
Effect of exchange rates on cash
|
|
(617
|
)
|
|
210
|
|
Net increase in cash and cash equivalents
|
|
665,471
|
|
|
950,855
|
|
Cash and cash equivalents beginning of period
|
|
1,029,280
|
|
|
1,371,732
|
|
Cash and cash equivalents end of period
|
|
1,694,751
|
|
|
2,322,587
|
|
Operating Activities
Cash provided by operating activities totaled $1.2 million for
the three months ended March 31, 2011 as compared with $1.3 million provided by
operating activities for the three months ended March 31, 2010. Compared with
the same period in 2010, the slight decrease in net cash provided by operating
activities was primarily due to the decrease in net income.
Investing Activities
Cash used in investing activities was $0.7 million for the
three months ended March 31, 2011 as compared to $1.2 million used for the three
months ended March 31, 2010. The decrease in cash used in investing activities
is mainly because we have decreased our investment in property and equipment in
the first quarter of 2011 by $0.2 million as compared to the first quarter of
2010, as well as a proceed from disposal of property and equipment of $129,171
in the first quarter of 2011.
Financing Activities
Cash provided in financing activities was $81,899 for the three
months ended March 31, 2011 as compared to $0.9 million provided by financing
activities for the three months ended March 31, 2010. The decrease was mainly
due to a bank loan of $0.9 million was secured in the first quarter of 2010
while there was no new bank loan obtained in the first quarter of 2011.
Based on our current operating plan, we believe that our
existing resources, including cash generated from operations, as well as bank
loans, will be sufficient to meet our working capital requirement for our
current operations. However, in order to fully implement our business plan and
continue our growth, we will require additional capital either from our
stockholders or from outside sources.
38
Year Ended December 31, 2010 Compared with Year Ended
December 31, 2009
The following table summarizes the results of our operations in
dollar amounts and percentage of increase (decrease) over previous year during
the fiscal years ended on December 31, 2010 and 2009.
All amounts, other than percentages, in U.S. dollars
|
|
Year ended December
31,
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
All
Amounts
|
|
|
As a
percentage
of net
revenue
|
|
|
All
Amounts
|
|
|
As
percentage
of net
revenue
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cosmetic surgery services
|
$
|
6,195,516
|
|
|
50.9%
|
|
$
|
4,835,389
|
|
|
54.7%
|
|
Professional medical beauty services
|
|
4,940,433
|
|
|
40.6%
|
|
|
2,998,806
|
|
|
33.9%
|
|
Cosmetic dentistry services
|
|
427,427
|
|
|
3.5%
|
|
|
579,822
|
|
|
6.6%
|
|
Sales of goods
|
|
609,855
|
|
|
5.0%
|
|
|
420,656
|
|
|
4.8%
|
|
Total Revenue
|
|
12,173,231
|
|
|
100.0%
|
|
|
8,834,673
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Cosmetic surgery services
|
|
(1,762,733
|
)
|
|
-14.5%
|
|
|
(1,536,779
|
)
|
|
-17.4%
|
|
Professional medical beauty services
|
|
(847,827
|
)
|
|
-7.0%
|
|
|
(517,428
|
)
|
|
-5.9%
|
|
Cosmetic dentistry services
|
|
(164,928
|
)
|
|
-1.4%
|
|
|
(168,547
|
)
|
|
-1.9%
|
|
Cost of goods sold
|
|
(228,078
|
)
|
|
-1.9%
|
|
|
(162,705
|
)
|
|
-1.8%
|
|
Depreciation
|
|
(349,328
|
)
|
|
-2.9%
|
|
|
(206,831
|
)
|
|
-2.3%
|
|
Total Cost of Revenue
|
|
(3,352,894
|
)
|
|
-27.5%
|
|
|
(2,592,290
|
)
|
|
-29.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
8,820,337
|
|
|
72.5%
|
|
|
6,242,383
|
|
|
70.7%
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
3,860,858
|
|
|
31.7%
|
|
|
2,680,577
|
|
|
30.3%
|
|
Advertising costs
|
|
3,014,871
|
|
|
24.8%
|
|
|
1,290,545
|
|
|
14.6%
|
|
Professional and consultant fees
|
|
716,910
|
|
|
5.9%
|
|
|
138,292
|
|
|
1.6%
|
|
Depreciation
|
|
197,071
|
|
|
1.6%
|
|
|
125,768
|
|
|
1.4%
|
|
Total Operating Expenses
|
|
7,789,710
|
|
|
64.0%
|
|
|
4,235,182
|
|
|
47.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
1,030,627
|
|
|
8.5%
|
|
|
2,007,201
|
|
|
22.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
4,574
|
|
|
0.0%
|
|
|
52,714
|
|
|
0.6%
|
|
Interest income
|
|
5,128
|
|
|
0.0%
|
|
|
3,383
|
|
|
0.0%
|
|
Interest expenses
|
|
(48,852
|
)
|
|
-0.4%
|
|
|
(3,224
|
)
|
|
-0.0%
|
|
Imputed interest
|
|
(250
|
)
|
|
0.0%
|
|
|
(1,027
|
)
|
|
-0.0%
|
|
Other expenses
|
|
(41,530
|
)
|
|
-0.3%
|
|
|
(66,489
|
)
|
|
-0.8%
|
|
Total Other Expenses, net
|
|
(80,930
|
)
|
|
-0.7%
|
|
|
(14,643
|
)
|
|
-0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
949,697
|
|
|
7.8%
|
|
|
1,992,558
|
|
|
22.6%
|
|
Add (less):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
(424,737
|
)
|
|
-3.5%
|
|
|
(226,116
|
)
|
|
-2.6%
|
|
NET INCOME
|
|
524,960
|
|
|
4.3%
|
|
|
1,766,442
|
|
|
20.0%
|
|
Net loss attributable to noncontrolling
interest
|
|
19,607
|
|
|
0.2%
|
|
|
-
|
|
|
0.0%
|
|
NET INCOME ATTRIBUTABLE TO
CHINA SHESAYS COMMON STOCKHOLDERS
|
|
544,567
|
|
|
4.5%
|
|
|
1,766,442
|
|
|
20.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign currency translation gain
|
|
108,972
|
|
|
0.9%
|
|
|
1,073
|
|
|
0.0%
|
|
Add: foreign currency
translation loss attributable to noncontrolling interest
|
|
502
|
|
|
0.0%
|
|
|
-
|
|
|
0.0%
|
|
Foreign currency translation gains
attributable to China Shesays common stockholders
|
|
109,474
|
|
|
0.9%
|
|
|
1,073
|
|
|
0.0%
|
|
COMPREHENSIVE INCOME
ATTRIBUTABLE TO CHINA SHESAYS COMMON STOCKHOLDERS
|
$
|
654,041
|
|
|
5.4%
|
|
$
|
1,767,515
|
|
|
20.0%
|
|
39
Total revenue.
Total revenue increased by approximately
$3.3 million or 37.8% to approximately $12.2 million in 2010 from approximately
$8.8 million in 2009. Our sales growth was driven by sales from our new
outpatient clinics in Leshan, Yibin and Zigong, and our continued efforts to
attract new customers in the headquarter hospital. We serviced approximately
25,682 customers in the headquarter hospital and three clinics in 2010 compared
to approximately 20,514 customers in 2009.
The following table sets the revenue generated from each of our
cosmetology categories for the periods indicated.
REVENUE
|
|
For the year ended December 31,
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
(Decrease)
|
|
|
Change
|
|
Cosmetic surgery services
|
$
|
6,195,516
|
|
$
|
4,835,389
|
|
$
|
1,360,127
|
|
|
28.1%
|
|
Professional medical beauty services
|
|
4,940,433
|
|
|
2,998,806
|
|
|
1,941,627
|
|
|
64.7%
|
|
Cosmetic dentistry services
|
|
427,427
|
|
|
579,822
|
|
|
(152,395
|
)
|
|
-26.3%
|
|
Sales of goods
|
|
609,855
|
|
|
420,656
|
|
|
189,199
|
|
|
45.0%
|
|
Total revenue
|
$
|
12,173,231
|
|
$
|
8,834,673
|
|
$
|
3,338,558
|
|
|
37.8%
|
|
Revenue generated from Cosmetic Surgery Services increased
28.1% to $6.2 million in 2010, mainly due to enhanced marketing activities and
increase in number of cosmetic surgery customers. Revenue generated from
Professional Medical Beauty Services increased 64.7% to $4.9 million in 2010 as
we increased investment in advertising for these services during 2010. Revenue
generated from Cosmetic Dentistry Services decreased 26.3% to $0.4 million in
2010. The decrease was primarily due to our strategy in 2010 focusing on
cosmetic surgery services and professional medical beauty services. Revenue
generated from Sales of Goods increased 45.0% to $0.6 million due to increased
efforts of our staff to sell cosmetic products when servicing customers.
40
For 2010, revenue of our current headquarter hospital increased
by 32.2% to $11.7 million, from $8.8 million in 2009. Three new clinics launched
in 2010 contributed approximately $0.5 million to revenue.
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Location
|
|
|
|
|
|
|
|
|
|
|
|
|
Sichuan Shesays
|
|
11,676,294
|
|
|
96.0%
|
|
|
8,834,673
|
|
|
100.0%
|
|
Leshan Jiazhou Shesays
|
|
272,412
|
|
|
2.2%
|
|
|
-
|
|
|
|
|
Yibin Shesays
|
|
158,336
|
|
|
1.3%
|
|
|
-
|
|
|
|
|
Zigong Shesays
|
|
66,189
|
|
|
0.5%
|
|
|
-
|
|
|
|
|
Total sales
|
|
12,173,231
|
|
|
100.0%
|
|
|
8,834,673
|
|
|
100.0%
|
|
Cost of revenue.
Our cost of revenue, which includes
cost of service revenue, cost of goods sold and depreciation, increased by
approximately $0.8 million, or 29.3% to approximately $3.4 million in 2010 from
approximately $2.6 million in 2009. As a percentage of net revenue, the cost of
goods sold decreased approximately by 1.8% to 27.5% in 2010, from 29.3% in 2009.
The increase in cost of sales was mainly due to the increase in revenue during
the year.
COST OF REVENUE
|
For the year ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
(Increase)/Decrease
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Cosmetic surgery services
|
|
(1,762,733
|
)
|
|
(1,536,779
|
)
|
|
(225,954
|
)
|
|
14.7%
|
|
Professional medical beauty services
|
|
(847,827
|
)
|
|
(517,428
|
)
|
|
(330,399
|
)
|
|
63.9%
|
|
Cosmetic dentistry services
|
|
(164,928
|
)
|
|
(168,547
|
)
|
|
3,619
|
|
|
-2.1%
|
|
Sales of goods
|
|
(228,078
|
)
|
|
(162,705
|
)
|
|
(65,373
|
)
|
|
40.2%
|
|
Depreciation
|
|
(349,328
|
)
|
|
(206,831
|
)
|
|
(142,497
|
)
|
|
68.9%
|
|
Total cost of revenue
|
$
|
(3,352,894
|
)
|
$
|
(2,592,290
|
)
|
$
|
(760,604
|
)
|
|
29.3%
|
|
Gross profit.
Our gross profit increased by
approximately $2.6 million, or 41.3% to approximately $8.8 million in 2010 from
approximately $6.2 million in 2009. Gross profit as a percentage of net revenue
increased by 1.8% to 72.5% in 2010 as compared to 70.7% in 2009, mainly due to
the increased revenue during the period. Our higher gross margin was primarily
due to economies of scale obtained from business expansion.
Total Operating Expenses.
Our total operating expenses
increased by approximately $3.6 million or 83.9% to approximately $7.8 million
in 2010 from approximately $4.2 million in 2009. As a percentage of net revenue,
total operating expenses increased from 47.9% in 2009 to 64.0% in 2010. The
increase in our total operating expenses was mainly attributed to the increase
of $1.2 million in selling, general and administrative expenses, the increase of
$1.7 million of advertising costs, as well as the increase of $0.6 million in
professional and consultant fees.
Selling, general and administrative expenses.
Our
selling, general and administrative expenses increased by approximately $1.2
million, or 44.0% to approximately $3.9 million in 2010 from approximately $2.7
million in 2009. As a percentage of net revenue, selling, general and
administrative expenses increased by 1.4% to 31.7% in 2010, as compared to 30.3%
in 2009. The increase in expenses was mainly due to the increase in salary cost,
leasing expenses of three new clinics and current headquarter hospital and
pre-operating expenses related to the planned opening of our new flagship
hospital.
Advertising costs.
Our advertising costs increased by
approximately $1.7 million or 133.6% to approximately $3.0 million in 2010 from
approximately $1.3 million in 2009. Advertising costs as a percentage of net
revenue increased by 10.2% to 24.8% in 2010 as compared to 14.6% in 2009. The
increase in our advertising expenses was mainly contributable to the increase in marketing expenses and
promotion of the brand name of SHESAYS in Sichuans cosmetology market.
41
Professional and consultant fees.
Our professional and
consultant fees increased by approximately $0.6 million or 418.4% to
approximately $0.7 million in 2010 from approximately $0.1 million in 2009. As a
percentage of net revenue, professional and consultant fees were increased from
1.6% in 2009 to 5.9% in 2010. The significant increase in our professional and
consultant fees was mainly attributed to expenses incurred related to being a
public company.
Income from operations.
Our income from operating
decreased by approximately $1.0 million or 48.7% to approximately $1.0 million
in 2010 from approximately $2.0 million in 2009. As a percentage of net revenue,
our income from operations was 8.5% in 2010 and 22.7% in 2009. This decrease in
income from operations was primarily due to the increase in operating expenses
offset by the increase in revenue.
Other Income (Expenses).
Other income (expenses),
consisting primarily of interest income, interest expenses, imputed interest,
and other miscellaneous expenses, increased by $66,287 to $80,930 expenses in
2010 from $14,643 expenses in 2009. The increase was primarily due to the
increase in interest expenses as a result of the short term loan of $0.9 million
obtained from Bank of Chengdu in 2010.
Income before taxes.
Our income before income
taxes decreased by approximately $1.0 million or 52.3% to approximately $0.9
million in 2010 from approximately $2.0 million in 2009. As a percentage of net
revenue, our income before income taxes decreased by 14.8% to 7.8% in 2010, as
compared to 22.6% in 2009. This decrease of income before income taxes was
primarily attributable to the increase in operating expenses in 2010.
Income taxes.
We incurred income taxes of approximately
$0.4 million in 2010, with an increase of approximately $0.2 million or 87.8%
over approximately $0.2 million in 2009. The increase was mainly due to the
expiration of the special income tax assessment basis which was calculated based
on the net income for income tax purpose assessed at 10% of services revenue
with the applicable tax rate of 25% in 2009. From 2010 onwards, China SHESAYS
has an income tax rate of 25%.
Net income.
Net income decreased by approximately $1.2
million or 70.3% to approximately $0.5 million in 2010 from approximately $1.8
million in 2009, due to our 83.9% increase in operating expenses, coupled with
our 87.8% increase in income tax expenses.
Liquidity and Capital Resources
As of December 31, 2010, we had cash and cash equivalents of
$1.0 million. We had a working capital deficit of $1.9 million, that is, our
current assets were $2.2 million and our current liabilities were $4.1 million
as of December 31, 2010. Our net working capital deficit may initially raise
substantial doubt as to our ability to continue as a going concern. However, we
believe that our strong net cash flow from operating activities, cost reduction
and delay on capital expenditure will provide sufficient liquidity to finance
our anticipated working capital and capital expenditure requirements for the
next 12 months. Total equity as of December 31, 2010, was $4.5 million.
Pursuant to our BOANs contractual arrangements with SHESAYS,
BOAN provides management and consulting services to SHESAYS and its subsidiaries
in exchange for service fees, which shall be equal to 100% of the residual
return of SHESAYS and its subsidiaries and can be waived by BOAN from time to
time at its sole discretion.
BOAN and SHESAYS reached an agreement that, in order to support
the strategic expansion plan of SHESAYS in China, BOAN waived the service fees
to be paid by SHESAYS for three years commencing from April 27, 2010 so that
SHESAYS can execute its business expansion plan, launch the flagship hospital in Chengdu and establish the cosmetology hospitals in
various locations in China. Therefore, no service fees have been paid to BOAN by
SHESAYS up to date. Based on our expansion plan and past experience with respect
to the new clinics launched in 2010, we believe that we need to retain our
existing cash reserves and cash flow from operations in SHESAYS to support
annual growth in the number of customers and number of new outpatient clinics
and our planed new flagship hospital openings in fiscal 2011. BOAN and our
company have never received any service fee from SHESAYS, the operating company
and we expect to receive service fees commencing on April 28, 2013. Boan and we
do not expect to declare any dividend before the April 27, 2013, nor settle any
other amount prior to April 27, 2013. However, if there is any amount incurred and need to be paid during the period, we can borrow from SHESAYS to settle such amount.
42
The following table provides detailed information regarding our
net cash flow for all financial statement periods presented in this report.
|
|
December 31,
|
|
(in US dollars)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
1,983,221
|
|
|
2,116,493
|
|
Net cash used in investing activities
|
|
(4,469,361
|
)
|
|
(747,484
|
)
|
Net cash provided by (used in) financing
activities
|
|
2,129,555
|
|
|
(38,107
|
)
|
Effect of foreign currency translation on cash and cash
equivalents
|
|
14,133
|
|
|
419
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
(342,452
|
)
|
|
1,331,321
|
|
Cash and cash equivalents beginning of year
|
|
1,371,732
|
|
|
40,411
|
|
Cash and cash equivalents end of year
|
|
1,029,280
|
|
|
1,371,732
|
|
Pursuant to our BOANs contractual arrangements with SHESAYS,
BOAN provides management and consulting services to SHESAYS and its subsidiaries
in exchange for service fees, which shall be equal to 100% of the residual
return of SHESAYS and its subsidiaries and can be waived by BOAN from time to
time at its sole discretion.
BOAN and SHESAYS reached an agreement that, in order to support
the strategic expansion plan of SHESAYS in China, BOAN waived the service fees
to be paid by SHESAYS for three years commencing from April 27, 2010 so that
SHESAYS can execute its business expansion plan, launch the flagship hospital in
Chengdu and establish the cosmetology hospitals in various locations in China.
Therefore, no service fees have been paid to BOAN by SHESAYS up to date. Based
on our expansion plan and past experience with respect to the new clinics
launched in 2010, we believe that we need to retain our existing cash reserves
and cash flow from operations in SHESAYS to support annual growth in the number
of customers and number of new outpatient clinics and our planed new flagship
hospital openings in fiscal 2011. BOAN and our company have never received any
service fee from SHESAYS, the operating company and we expect to receive service
fees commencing on April 28, 2013. Boan and we dont expect to declare any
dividend before the April 27, 2013, nor does any other amount expected to due
prior to April 27, 2013. However, if there is extra expense occurred and need to
be paid during the period, we can borrow from SHESAYS to settle such amount.
In addition, according to Article 19 of the Law of the Peoples
Republic of China on Foreign-Investment Enterprises, foreign investors may remit
abroad profits that are lawfully earned from a foreign-Investment enterprise, as
well as other lawful earnings and any funds remaining after the enterprise is
liquidated. Therefore, there is no restriction on our ability to obtain cash
from our operations in China and to pay interest and principle o debt or
dividends on our equity at the parent level.
At present, the Company does not have any problems with its
ability to obtain cash from operations in China and to pay interest and
principal on debt or dividends on our equity at the parent level, but there are
certain risks relating to regulations of our business and to our structure that
may impact our ability in the future. For details of these risks, please see
Recent regulations relating to offshore investment activities by PRC
residents may increase the administrative burden we face and create regulatory
uncertainties that could restrict our overseas and cross-border investment
activity, and a failure by our shareholders who are PRC residents to make any
required applications and filings pursuant to such regulations may prevent us
from being able to distribute profits and could expose us and our PRC resident
shareholders to liability under PRC law
on page 16 and
We do not
intend to pay cash dividends in the foreseeable future
on page 19.
43
Operating Activities
Net cash provided by operating activities in 2010 amounted to
$2.0 million, with a decrease of $0.1 million from net cash inflows from
operating activities of $2.1 million in 2009. The slight decrease in our cash
provided by operations was primarily due to a decrease in net income, offsetting
by an increase in our income tax payable and other payables and accrued
liabilities .
Inventories. Our inventories increased by approximately $0.19
million or 55.17% to approximately $0.52 million in 2010 from approximately
$0.34 million in 2009. The increase in our inventory was mainly attributed to
our increase in revenue and customers.
Other current assets and prepaid expenses. Our other current
assets and prepaid expense increased by 19% from $527 thousand in 2009 to $627
thousand in 2010. The increase was mainly due to the increase in rental deposits
and prepayments, which we prepaid for leasing premises for our new clinics in
Leshan, Yibin and Zigong.
Income tax payable. Our income tax payable increased by 1,198%
from $54,428 to $706,450. The increase was mainly due to the difference in
income tax assessment method. In 2009, the tax bureau approved Sichuan Shesays
to assess its income tax based on the 10% of its revenue generated. In 2010,
Sichuan Shesays need to assess its income tax based on 25% applicable tax rate
on its assessable net income.
Other Payables and accrued Liabilities. Our
other payables and
accrued liabilities increased from $0.7 million in 2009 to $1.8 million in 2010,
which was 168.0% increase in percentage. The increase was mainly due to $0.5
million increase in other payables, which were the equipment and renovation
costs owed to suppliers due to our opening of 3 clinics as well as the beginning
of the renovation of flagship hospital, and $0.5 million increase in accrued
liabilities, which consists of the accrued advertising expense and accrued
rental expense of flagship hospital as well as accrued professional expense
related to listing.
Other payables and accrued liabilities at December 31, 2010 and
2009 consisted of the following:
|
|
2010
|
|
|
2009
|
|
|
|
(Restated)
|
|
|
|
|
|
|
(consolidated)
|
|
|
(combined)
|
|
|
|
|
|
|
|
|
Other payables
|
$
|
599,724
|
|
$
|
62,615
|
|
Deposits from customers
|
|
231,390
|
|
|
215,618
|
|
Deposits from membership
reward program
|
|
277,010
|
|
|
221,059
|
|
Accrued liability for membership reward
program
|
|
18,586
|
|
|
56,497
|
|
Accrued liabilities
|
|
631,265
|
|
|
100,124
|
|
|
$
|
1,757,975
|
|
$
|
655,913
|
|
Investing Activities
Net cash used in investing activities in the year 2010 was $4.5
million, with a significant increase of $3.7 million from net cash used in
investing activities of $0.7 million in 2009. We invested $4.4 million in
purchase of property and equipment for 2010 as compared to $0.8 million in 2009.
The investments were a part of our development plans, which include continuous
expansion of our cosmetic services and expansion of new chain clinics. We paid
$2.7 million cash for renovation and equipment for three new clinics
launched in late 2010. For the year 2010, $0.9 million was paid for new
equipment at existing headquarter hospital compared to $0.8 million for the year
2009. In addition, $0.9 million was paid for renovation of the new flagship
hospital in Chengdu in 2010.
44
Financing Activities
Net cash provided by financing activities was $2.1 million in
2010, compared to net cash used in financing activities of $38,107 in 2009. On
November 5, 2010, we entered into a Stock Purchase Agreement with certain
institutional and accredited investors relating to a private placement of
600,000 shares of our common stock, for net proceeds of approximately $1.1
million.
Loan Facilities
As of December 31, 2010, the Company and its subsidiaries have
the following credit facilities with the following terms:
All amounts, other than percentages, are in
U.S. dollars
|
No
|
.
|
Type
|
|
Contracting Party
|
|
Valid Date
|
|
Duration
|
|
Amount
|
1
|
|
Loan
|
|
Bank of Chengdu
|
|
February 10, 2010
|
|
1 year
|
|
$0.46 million
|
2
|
|
Loan
|
|
Bank of Chengdu
|
|
February 23, 2010
|
|
1 year
|
|
$0.46 million
|
We have approximately $0.9 million in
total loans: $0.46 million matured on or before February 9, 2011 and $0.46
million matured
on or before February 22, 2011. On these maturity dates, we have repaid the
loans with our working capital.
Interest expense paid for the above short term loans totaled
$48,852 and $3,224 for 2010 and 2009, respectively. There is no default in
payment in respect of all of our obligations under the terms of the outstanding
loan facilities and we have not breached any covenant thereof.
Critical Accounting Policies
Managements discussion and analysis of results of operations
and financial condition are based upon our consolidated financial statements.
These statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. These principles require
management to make certain estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes.
The most significant estimates and assumptions include
valuation of inventories, provisions for income taxes, allowance for doubtful
accounts, and the recoverability of the long-lived assets. Actual results could
differ from these estimates. Periodically, we review all significant estimates
and assumptions affecting the financial statements and record the effect of any
necessary adjustments.
The following critical accounting policies rely upon
assumptions and estimates and were used in the preparation of our consolidated
financial statements:
Revenue recognition
The Company recognizes revenue in the period in which the
services are performed. The Company recognizes revenue under the provisions of ASC 605, Revenue Recognition when all of the following have occurred: persuasive
evidence of arrangement with the customer, services has been performed, fees are
fixed or determinable and collectibility of the fees is reasonably assured.
These criteria as related to the Companys revenue are considered to have been
met as follows:
45
Services fees
Revenue from rendering of services is recognized when the
services are rendered. Fees received in advance for prepaid service packages are
recorded as deferred revenue under current liabilities and are recognized on a
systematic basis in accordance with service usage. As the Company is primarily
engaged in providing professional medical beauty and cosmetic services, the
Company is subject to claims from customers, usually in form of demand for
refund of service fee paid. The Companys policy allows for refund only upon the
Companys authorization for reasonable demand. Based on the past experience on
refunds incurred, the Company considers that amount is not material to the
Companys operation. Pursuant to FASB ASC 954-605-25, the Company recognized
refunds and discounts on an accrual basis and deducted from gross service
revenue to determine net service revenue. During the years ended December 31,
2010 and 2009, the amount of refund of service fee was $31,393 and $24,130
respectively.
The service usage is measured by the percentage of service
rendered based on the content of package. For example, if the service package
composed of 3 injections of Botox, the usage of service will be 1/3 when each
injection is applied and the payment rates are determined prospectively.
Sales of goods
The Company recognizes revenue on sales of goods when the goods
are delivered and title to the goods passes to the customers provided that: (i)
there are no uncertainties regarding customer acceptance; persuasive evidence of
an arrangement exists; (ii) the sales price is fixed and determinable; and (iii)
collectability is deemed probable. It is the Companys policy not to allow
return of goods once the goods are inspected by and delivered to the customer.
Accordingly, the Company makes no allowance for potential losses arising from
sales return.
Accrued liability for customer reward program
The Company establishes a membership reward program of which
the membership is free of charge. Under the membership reward program, members
enjoy high discounts on services and accumulate membership credit points that
vary depending on the services rendered. Members are eligible to redeem credit
points to reduce the fees for services rendered by the Company and these credit
points do not have any expiry date. The costs associated with these incentives
are included in deductions from revenue and accrued for as a current liability
as members accumulate credit points. As members redeem credit points, the
accrued liability is reduced correspondingly. As of December 2010 and 2009, the
Companys accrued liability for its customers reward program amounted to $18,586
and $56,497 respectively, based on the estimated liabilities under the customer
reward program.
Cash Coupons
Third parties and the Companys customers may be awarded cash
coupons. The coupons are distributed on a random and discretionary basis to
induce future services and treatments and are redeemable within a short time
period. The cash coupons cannot be renewed or extended. No liability is recorded
when the coupons are distributed, except where redemption of the coupons will
result in the services being sold at a loss. The Company recognizes a reduction
in revenue as a promotional allowance for these cash coupons at the later date
at which the related revenue is recognized or the date at which the coupons are
distributed in accordance with ASC 605-50-25-3. No cash coupons were issued
during 2010.
Cash and cash equivalents
For purpose of the statements of cash flows, cash and cash
equivalents include cash on hand and demand deposits with a bank with a maturity
of less than three months.
Inventories
Inventories represent medical materials and finished goods
merchandise and are stated at the lower of cost or market. Cost represents
invoices value on purchases and is being calculated on the weighted average
basis.
46
We provided inventory allowances based on excess and obsolete
inventories determined principally by demand for these products.
Property and equipment
Property and equipment are stated at cost, less accumulated
depreciation. Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged to expense
as incurred.
Depreciation is provided on a straight-line basis, less
estimated residual value over the assets estimated useful lives. The estimated
useful lives are as follows:
Buildings
|
20 Years
|
Leasehold improvements
|
5 Years
|
Medical equipment
|
3 to 10 Years
|
Motor vehicles
|
5 Years
|
Office equipment
|
3 to 10 Years
|
Income taxes
The Company accounts for income taxes under the FASB
Codification Topic 740-10-25 (ASC 740-10-25). Under ASC 740-10-25, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized as income in the period
included the enactment date.
On January 1, 2007, the Company adopted the provisions of ASC
740-10-25, Accounting for Uncertainty in Income Taxes. ASC 740-10-25
prescribes a more-likely-than-not threshold for financial statement recognition
and measurement of a tax position taken (or expected to be taken) in a tax
return. This Interpretation also provides guidance on derecognition of income
tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures. The adoption of ASC 740-10-25 has not resulted in any material
impact on the Companys financial position or results.
The Company was incorporated in the PRC and is subject to PRC
income tax which is computed according to the relevant laws and regulations in
the PRC. The applicable tax rates for 2010 and 2009 are 25%. Prior to 2009,
income tax was calculated by net income with the applicable tax rate. In 2009,
the Company elected to have its net income for income tax purpose assessed at
10% of services revenue and the election was approved by the local tax bureau,
income tax was therefore calculated by 10% of services revenue with the
applicable tax rate. From 2010 onwards, Sichuan Shesayss income tax will be
assessed at the applicable tax rate of 25% on its net income.
Foreign currency transactions
The functional currency of the Company is Renminbi (RMB).
Foreign currency transactions during the year are translated to the functional
currency at the approximate rates of exchange on the dates of transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are translated at the approximate rates of exchange at that date.
Non-monetary assets and liabilities are translated at the rates of exchange
prevailing at the time the asset or liability was acquired. Exchange gains or
losses are recorded in the statement of operations.
The financial statements are translated into United States
Dollars (US$) using the closing rate method. The balance sheet items are
translated into US$ using the exchange rates at the respective balance sheet
dates. The capital and various reserves are translated at historical exchange
rates prevailing at the time of the transactions while income and expenses items
are translated at the average exchange rate for the year. All exchange
differences are recorded within equity.
47
No presentation is made that RMB amounts have been, or would
be, converted into US$ at the above rates. Although the Chinese government
regulations now allow convertibility of RMB for current account transactions,
significant restrictions still remain. Hence, such translations should not be
construed as representations that RMB could be converted into US$ at that rate
or any other rate.
The value of RMB against US$ and other currencies may fluctuate
and is affected by, among other things, changes in Chinas political and
economic conditions, Any significant revaluation of RMB may materially affect
the Companys financial condition in terms of US$ reporting.
Variable Interest Entities
The Company accounts for Variable Interest Entities (VIE) in
accordance with ASC 810. As a result of the adoption of ASU 2009-17,
consolidations (Topic 810) Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities, effective January 1, 2010, ASC 810
requires the consolidation of VIEs in which a company has both the power to
direct the activities of the VIEs that most significantly impact the VIEs
economic performance and the obligation to absorb losses or the right to receive
the benefits from the VIEs that could potentially be significant to the VIEs.
The Company has applied the requirements of ASC 810 on a prospective basis from
the date of adoption.
The Company assesses all newly created entities and those with
which the Company becomes involved to determine whether such entities are VIEs
and, if so, whether or not the Company is their primary beneficiary.
On April 27, 2010, the Company through its PRC subsidiary,
Chengdu Boan entered into a series of contractual arrangements consisting of
four agreements with Sichuan Shesays and the stockholders of Sichuan Shesays.
Those four agreements and their consequences are described below.
|
(i)
|
an exclusive service agreement, pursuant to which Sichuan
Shesays and its subsidiaries irrevocably entrust to Chengdu Boan the right
of management and operation of Sichuan Shesays and its subsidiaries and
the responsibilities and authorities of their stockholders and directors
of Sichuan Shesays and its subsidiaries. In return, Sichuan Shesays and
its subsidiaries agreed to pay 100% of its residual return, if any, from
time to time, as management fee to Chengdu Boan.
|
|
|
|
|
|
(ii)
|
a voting rights proxy agreement, pursuant to which the
stockholders of Sichuan Shesays and its subsidiaries have granted the
personnel designated by Chengdu Boan the right to appoint directors and
senior management of Sichuan Shesays and its subsidiaries and to exercise
all of their other voting rights as stockholders of Sichuan Shesays and
its subsidiaries, as the case may be, as provided under the articles of
association of each such entity;
|
|
|
|
|
|
(iii)
|
a call option agreement, pursuant to which:
|
|
|
|
|
|
|
(a)
|
neither Sichuan Shesays nor any of its subsidiaries may
enter into any transaction that could materially affect its assets,
liabilities, equity or operations without the prior written consent of
Chengdu Boan;
|
|
|
|
|
|
|
(b)
|
neither Sichuan Shesays nor any of its subsidiaries will
distribute any dividends without the prior written consent of Chengdu
Boan; and
|
|
|
|
|
|
|
(c)
|
Chengdu Boan or its designee has an exclusive option to
purchase all or part of the equity interests in Sichuan Shesays, all or
part of the equity interests in subsidiaries owned by Sichuan Shesays or
its nominee holders, or all or part of the assets of Sichuan Shesays, in
each case when and to the extent permitted by PRC law. In case of Chengdu
Boan exercising the call option in its sole discretion upon the occurrence
of the situation in which such call option exercise become feasible under
the relevant laws in PRC, any additional consideration paid other than $1
which may be required under the laws of PRC to effect such purchase to
comply with such legal formalities shall be either cancelled or returned
to Sichuan Shesays immediately with no additional compensation to the
owners; and
|
48
|
(iv)
|
an equity pledge agreement pursuant to which each of
stockholders of Sichuan Shesays has pledged his or her equity interest in
Sichuan Shesays and its subsidiaries, as the case may be,to Chengdu Boan
to secure their obligations under the relevant contractual control
agreements, including but not limited to, the obligations of Sichuan
Shesays and its subsidiaries under the exclusive services agreement, the
call option agreement, the voting rights proxy agreement described above,
and each of them has agreed not to transfer, sell, pledge, dispose of or
create any encumbrance on their equity interest in Sichuan Shesays or its
subsidiaries without the prior written consent of Chengdu
Boan.
|
In the PRC restructuring transaction described above, the
Company gained indirect control of Sichuan Shesays and its subsidiaries and
Sichuan Shesays and its subsidiaries are considered VIEs of the Company.
As required by ASC 810-10, the Company performs a qualitative
assessment to determine whether the Company is the primary beneficiary of
Sichuan Shesays and its subsidiaries which are identified as VIEs of the
Company. A quality assessment begins with an understanding of the nature of the
risks in the entity as well as the nature of the entitys activities including
terms of the contracts entered into by the entity, ownership interests issued by
the entity and the parties involved in the design of the entity. The Companys
assessment on the involvement with Sichuan Shesays and its subsidiaries reveals
that the Company has the absolute power to direct the most significant
activities that impact the economic performance of Sichuan Shesays and its
subsidiaries. Under the accounting guidance, the Company is deemed to be the
primary beneficiary of Sichuan Shesays and its subsidiaries and the results of
Sichuan Shesays and its subsidiaries are consolidated in the Companys
consolidated financial statements for financial reporting purposes. As of
December 31, 2010, Sichuan Shesays and its subsidiaries had total assets of
$7,621,593 (restated) and total liabilities of $4,059,585 (restated). As of
December 31, 2009, Sichuan Shesays had total assets of $3,863,832 and total
liabilities of $1,313,712.
As of December 31, 2010, the Company agreed to waive the
management fee to be payable by Sichuan Shesays and its subsidiaries for a
period of 3 years from April 27, 2010 to April 26, 2013 due to lack of liquidity
as Sichuan Shesays is launching a new comprehensive hospital in Chengdu City,
Sichuan Province.
Recent Accounting Pronouncements
In December 2010, FASB issued ASU 2010-29 Business Combinations
(Topic 805)-Disclosure of Supplementary Pro Forma Information for Business
Combinations. The objective of this Update is to address diversity in practice
about the interpretation of the pro forma revenue and earnings disclosure
requirements for business combinations. The amendments in this Update specify
that if a public entity presents comparative financial statements, the entity
should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of
the beginning of the comparable prior annual reporting period only. The
amendments also expand the supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination included in the
reported pro forma revenue and earnings. The amendments in this Update are
effective prospectively for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2010. Early adoption is permitted. Management is currently
evaluating the potential impact of ASU 2010-18 on the Companys consolidated
financial statements.
In February 2010, FASB issued ASU 2010-9 Subsequent Events
(Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU
2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An
entity that is an SEC filer is not required to disclose the date through which
subsequent events have been evaluated. This change alleviates potential
conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is
effective for interim and annual periods ending after June 15, 2010. The Company
does not expect the standard to have any impact on the Companys consolidated
financial position.
In October 2009, the FASB issued ASU 2009-13,
Multiple-Deliverable Revenue Arrangements, now codified under FASB ASC Topic
605, Revenue Recognition, (ASU 2009-13). ASU 2009-13 requires entities to
allocate revenue in an arrangement using estimated selling prices of the
delivered goods and services based on a selling price hierarchy. The amendments
eliminate the residual method of revenue allocation and require revenue to be
allocated using the relative selling price method. ASU 2009-13 should be
applied on a prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The Company does not expect the standard to have any
impact on the Companys consolidated financial position.
49
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On June 6, 2010, the Companys Board of Directors approved the
change of its principal independent accountants. On such date, Q Accountancy
Corporation was dismissed from serving as the Companys principal independent
accountants and on the same day, Baker Tilly Hong Kong Limited was engaged as
the Companys new principal independent accountants.
The Dismissal of Q Accountancy Corporation
Q Accountancy Corporation was the independent registered public
accounting firm for the Company from March 30, 2010 to June 6, 2010. None of Q
Accountancy Corporations reports on the Companys financial statements,
including its report on the Companys most recent fiscal year ended December 31,
2009, contained an adverse opinion or disclaimer of opinion or was qualified or
modified as to audit scope, or accounting principles, but did contain an
uncertainty as to the Companys ability to continue as a going concern
During the Companys most recent fiscal year ended December 31,
2009 and through the dismissal date of June 6, 2010, there were no disagreements
with Q Accountancy Corporation, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Q Accountancy Corporation,
would have caused it to make reference to the subject matter of the
disagreements in connection with its reports. None of the reportable events set
forth in Item 304(a)(1)(v) of Regulation S-K occurred during the period in which
Q Accountancy Corporation served as the Companys principal independent
accountants.
In accordance with Item 304(a)(3), the Company has provided Q
Accountancy Corporation with a copy of this disclosure and has requested that Q
Accountancy Corporation furnish it with a letter addressed to the U.S.
Securities and Exchange Commission stating whether it agrees with the above
statements, and if not, stating the respects in which it does not agree. A copy
of the letter from Q Accountancy Corporation addressed to the U.S. Securities
and Exchange Commission is filed as Exhibit 16.1 to our Current Report on Form
8-K that we filed on June 7, 2010.
The Engagement of Baker Tilly Hong Kong Limited
During the Companys two most recent fiscal years ended
December 31, 2009 and December 31, 2008 and through June 6, 2010, the date when
the Company engaged Baker Tilly Hong Kong Limited as its principal independent
accountants:
(1) The Company did not consult Baker Tilly Hong Kong Limited
regarding either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on Companys financial statements;
(2) Neither a written report nor oral advice was provided to
the Company by Baker Tilly Hong Kong Limited in which they concluded was an
important factor considered by the Company in reaching a decision as to the
accounting, auditing or financial reporting issue; and
(3) The Company did not consult Baker Tilly Hong Kong Limited
regarding any matter that was either the subject of a disagreement (as defined
in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or any of
the reportable events set forth in Item 304(a)(1)(v) of Regulation S-K.
50
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rules 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including to the Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
As required by Rule 13a-15 under the Exchange Act, our
management, including our Chairman, Chief Executive Officer and President,
Yixiang Zhang, and Chief Financial Officer, Wenbin Zhu, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2010. Based on our assessment, Mr. Zhang and Ms.
Zhu determined that, as of December 31, 2010, the evaluation of the
effectiveness of our disclosure controls and procedures was completed, and
because of the material weaknesses in our internal controls over financial
reporting described below, our disclosure controls and procedures were not
effective.
Notwithstanding managements assessment that our internal
controls over financial reporting was ineffective as of December 31, 2010 due to
the material weakness described below, we believe that, the financial statements
included in this Resistration Statement on Form S-1 present fairly our financial
condition, results of operations and cash flows for the fiscal years covered
thereby in all material respects.
Internal Controls over Financial Reporting
Our Management is responsible for establishing and maintaining
adequate internal controls over financial reporting for the Company. Internal
controls over financial reporting refers to the process designed by, or under
the supervision of Mr. Zhang and Ms. Zhu, and effected by our board of
directors, currently consisting of one director, management and other personnel,
to provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. GAAP, and includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of our
assets;
(2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with
U.S. GAAP, and that our receipts and expenditures are being made only in
accordance with the authorization of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Our management assessed the effectiveness of our internal
controls over financial reporting as of December 31, 2010. In making this
assessment, management used the framework set forth in the report entitled
Internal Controls Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. Based on that evaluation, our
management concluded that our internal controls over financial reporting was not
effective, as of December 31, 2010, because of the material weaknesses in our
internal controls over financial reporting described below.
During its evaluation of the effectiveness of internal controls
over financial reporting as of December 31, 2010, management identified the
following material weaknesses: (i) lack of sufficient accounting personnel with
appropriate understanding of U.S. GAAP and SEC reporting requirements; (ii) lack
of standard chart of accounts and written accounting manual and closing
procedures to facilitate preparation of financial statements under U.S. GAAP for financial reporting processes; (iii) lack of an audit committee
or other independent oversight over our management and internal controls; and
(iv) lack of independent directors.
51
After the restructuring of the company, our internal controls
have been improved with new business and operation. We maintain a system of
internal controls and procedures and prepare our financial reporting according
to US GAAP. However, the Company currently does not have an US GAAP expert on
its staff and does not has an audit committee, independent directors, and not
established independent oversight over our management and internal controls.
Thus we believe our internal controls over financial reporting were not
effective in 2010.
Since December 2010, we have been working to take corrective
steps. Our CFO and accounting staff regularly supplement their knowledge related
to U.S. GAAP and receive updates regarding changes to or developments in U.S.
GAAP via the Internet. Also, we plan to hire experienced professionals,
independent directors and set up audit committee when appropriate candidates are
identified and sufficient funds are available to us. As we currently do not
maintain an effective system of internal controls, we may be unable to
accurately report our financial results or prevent fraud, and investor
confidence and the market price of our stock may be adversely impacted. No
assurance can be given that we have identified all the material and significant
internal controls weakness and we will be able to adequately remediate existing
deficiencies in our internal controls. We may be required to expend additional
resources to identify, assess and correct any additional weaknesses in
disclosure or internal controls and to otherwise comply with the internal
controls rules under Section 404(a) of the Sarbanes-Oxley Act.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over
financial reporting during the fourth quarter of fiscal year 2010 that have
materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table and text set forth the names and ages of
all directors and executive officers as of January 6, 2011. All of the directors
will serve until the next annual meeting of shareholders and until their
successors are elected and qualified, or until their earlier death, retirement,
resignation or removal. Also provided herein are brief descriptions of the
business experience of each director, executive officer and advisor during the
past five years.
As of the closing of the June 2010 Business Combination, Mr.
Michael Hawks resigned as President, Secretary, Treasurer and CFO, effective
immediately. Our Board of Directors appointed Yixiang Zhang to serve as Chairman
of the Board and Chief Executive Officer, Mr. Wenhui Shao as President, Mr.
Wenbin Zhu as Chief Financial Officer, and Mr. Xingwang Pu, as Chief Technology
Officer, effective immediately at the closing of the June 2010 Business
Combination. Prior to the consummation of the June 2010 Business Combination,
our Board of Directors was comprised of one director, Mr. Michael Hawks. Mr.
Michael Hawks resigned as a member of the board on July 19, 2010.
Set forth below is information regarding our current directors
and executive officers.
Name
|
Age
|
Position with the Company
|
Board
Member Since
|
Yixiang Zhang
|
37
|
Chairman of the Board & CEO
|
June 7, 2010
|
Wenhui Shao
|
46
|
President
|
|
Xingwang Pu
|
42
|
Chief Technology Officer
|
|
Wenbin Zhu
|
40
|
Chief Financial Officer
|
|
Wei Chen
|
31
|
Chief Marketing Officer
|
|
Yixiang Zhang,
37, Chairman of the Board and Chief
Executive Officer. Mr. Zhang founded SHESAYS in 2005 with 10 years of working
experiences in pharmaceutical and medical care industry. He has strong expertise
in chain operation and brand management. From 1998 to 2000, Mr. Zhang was the
sales manager and investment manager of the chain drugstores in 999 Group, one of the leading
enterprises in the field of pharmaceutics in China. In 2005, he established
SHESAYS Cosmetic Surgery Hospital and has been the CEO and chairman of the board
since then. Mr. Zhang graduated from Huaxi Medical School of Sichuan University
with a bachelors degree in public health. He is a member of Chengdu Youth
Federation and tutor of Youth Business China (the YBC). Mr. Zhang is the sole
director of the Company. Mr. Zhang has been included in the board as he is the
founder of SHESAYS, the chairman of the board and the CEO of the Company, and
has extensive experience in the cosmetology business and management.
52
Wenhui Shao,
46, President and Board of Director of
SHESAYS. Mr. Shao is a professor of Jiangxi Yichun Medical College and Institute
of Cosmetics of Southeast University, member in the Plastic Surgery team in
Medical Aesthetics and Cosmetology Subcommittee of China Medical Association,
member of subcommittee of Medical Aesthetics and Cosmetology in China
Association of Traditional and Western Medicine, the initiator of the public
welfare campaign Care Breast in China and a volunteer of the medical team of
Smile Angle Foundation. Professor Shao has over 20 years working experience in
the field of plastics and cosmetics. In 1990, he established the Guizhou
plastics and cosmetics surgery hospital. In 1997, he established the
subcommittee of Medical Aesthetics and Cosmetology of the Medical Association of
Guizhou Province. In 1998, he was awarded the title of Advanced Worker of
Guiyang City and was conferred the National Labor Medal. In August 2004, he was
offered the expert allowance by Guizhou provincial government. In 2005, he was
chosen as the influential figure in the field of plastics and cosmetics in China
in the past 20 years. He has compiled 9 monographs on medical cosmetology and
published over 20 theses in this field. He had conducted over 40,000 plastics
and cosmetics surgeries particularly in nose hump, breast implants, pouch
removal surgery, double-folds eyelid surgery, one-time eyebrow change surgery,
face plastic surgery, minimally invasive or noninvasive face outline change,
tissue engineering plastic surgery. Mr. Shao received a diploma in cosmetic
dermatology from Guiyang Medical College in 2003, and a diploma in medical
aesthetics from Nanjing Southeastern University in 2005.
Xingwang Pu,
42, Chief Technology Officer and Board of
Director of SHESAYS. Professor Pu possesses 20 years expertise in the field of
plastics and cosmetics and is a professor of Jiangxi Yichun Medical College. He
is the leader of the medical team (southwest china sector) of Smile Angel
Foundation, Director of the international exchange center of Medical Aesthetics
and Cosmetology Subcommittee of China Medical Association, and a member of the
Plastic Surgery team in the Medical Aesthetics and Cosmetology Subcommittee of
China Medical Association. Professor Pu studied in Huaxi Medical School of
Sichuan University, Liaoning Provincial Peoples Hospital, and the Fourth
Military Medical University. He is one of the first doctors who had applied the
tissue engineering techniques to clinical operation. He has compiled 4
monographs on medical cosmetology and published over 20 academic theses. He
specializes in the breast implants, face plastic surgery, body plastic surgery,
arms and legs plastics surgery, tissue engineering surgery, cleft palate repair
surgery and other congenital malformation repair surgery and the repair surgery
of the failed plastics surgeries. Professor Pu graduated from Guiyang Medical
College.
Wenbin Zhu,
40, Chief Financial Officer. Ms. Zhu joined
SHESAYS in 2007 with 20 years of experience in finance. She is a certified
public accountant in China. Ms. Zhu graduated from Southwestern University of
Finance and Economics majoring in accounting.
With rich experiences in financial management for state-owned
enterprises and private enterprises, Ms. Zhu is experienced in the financial
management and internal control of medical services industry. Ms. Zhu has served
as a finance manager for many years and has served as assistant of finance
director of Sichuan Xiongfei Group Co., Ltd. from 2002 to 2006. She is capable
of establishing collectivized financial management system and internal control.
She is experienced in the related policies and rules of China and is skilled at
taxation and financial risk management. She joined Sichuan SHESAYS Cosmetology
Hospital Co., Ltd in 2007.
Wei Chen,
31, Chief Marketing Officer. Mrs. Chen joined
SHESAYS in 2005. She has worked in the cosmetology industry since 1999. In 2006,
she attended advanced study program on medical skin beautification at Zunyi
Medical College. In 2007, she attended advanced study program from the
Australasian College of Cosmetic Surgery in Australia and was awarded
certificate of qualification for operation of laser for medical purpose by the
University of Australia. She jointed skin beautification department of Sichuan
SHESAYS Cosmetology Hospital Co., Ltd. in 2005 and served as operator of laser
for beautification, consultant and administrative director of the skin
beautification department. She served as marketing director general of SHESAYS
since July 2009.
53
Ms. Chen has 10 years of experiences in the cosmetology
industry and is deeply knowledgeable of the current situation and trends in the
development of medical skin beautification industry in China. Ms. Chen graduated
from Chengdu University with a B.A degree in accounting and later received a
EMBA degree from Southwest Jiaotong University.
Board Committees
Our Board of Directors has not yet appointed an audit
committee, a compensation committee, or a nominating and corporate governance
committee due to the small size of our Board. Our Board does not currently have
any member who qualifies as an audit committee financial expert, given that
certain members of our current management took control of our Company in June
2010. We are planning to establish an independent audit committee, compensation
committee and corporate governance committee in 2011.
Code of Ethics
We do not currently have a Code of Ethics that applies to
employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. We plan to adopt a Code of Ethics in near future.
Section 16(a) Beneficial Ownership Reporting
Compliance
Pursuant to Section 16(a) of the Exchange Act and the rules
issued thereunder, our directors and executive officers and any persons holding
more than 10% of our common stock are required to file with the SEC reports of
their initial ownership of our common stock and any changes in ownership of such
common stock. Copies of such reports are required to be furnished to us. We are
not aware of any instances during the fiscal year ended December 31, 2009 where
an executive officer, director or any owner of more than 10% of the outstanding
shares of our common stock failed to comply with the reporting requirements of
Section 16(a) of the Exchange Act
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth certain information regarding
the beneficial ownership of our common stock by (i) each person who, to our
knowledge, owns more than 5% of our common stock, (ii) each of our directors and
executive officers, and (iii) all of our executive officers and directors as a
group. Unless otherwise indicated in the footnotes to the following table, each
person named in the table has sole voting and investment power and that persons
address is: c/o Sichuan SHESAYS Cosmetology Hospital Co., Ltd, New No. 83,
Xinnan Road, Wuhou District, Chengdu City, Sichuan Province, P.R. China,
610041.
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Percentage
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
Name of Beneficial Owner
|
|
Owned
(1)(2)
|
|
|
Owned
(1)(2)
|
|
Yixiang Zhang (3)
|
|
0
|
|
|
-
|
|
Wenbin Zhu
|
|
95,240
|
|
|
*
|
|
Wenhui Shao (4)
|
|
0
|
|
|
-
|
|
Xingwang Pu (5)
|
|
0
|
|
|
-
|
|
Wei Chen
|
|
180,515
|
|
|
*
|
|
Directors and Executive Officers as a Group (5 persons)
|
|
275,755
|
|
|
1.5%
|
|
Five Percent Shareholders (other than
directors and named executive officers)
|
|
|
|
|
|
|
Kwai Man Yip (3)(4)(5)(6)(7)(8)
|
|
16,699,932
|
|
|
89.8%
|
|
(*) Represents less than one percent (1%)
54
(1) Based on 18,600,012 shares of our common stock issued and
outstanding as of August 10, 2011.
(2) All shares are owned of record and beneficially except as
otherwise noted. Except as otherwise noted, each shareholders address is c/o
Sichuan SHESAYS Cosmetology Hospital Co., Ltd, New No. 83, Xinnan Road, Wuhou
District, Chengdu City, Sichuan Province, P.R. China, 610041.
(3) Mr. Yixiang Zhang and Ms. Kwai Man Yip, the sole
shareholder of Bondy Nominees Limited, a Hong Kong corporation (the Bondy),
which Bondy is the sole shareholder of Techno and Pioneer, which Techno is the
80% shareholder of Perfect Support prior to the Merger and 77.94% shareholder of
the Company post Merger, and Pioneer is the 19% shareholder of Perfect Support
prior to the Merger and 14.83% shareholder of the Company post Merger, have
entered into an agreement dated as of April 27, 2010, pursuant to which Mr.
Yixiang Zhang may purchase 8,970,012 shares of the common stock of our Company
for a nominal price from Ms. Kwai Man Yip within 5 years from the execution date
of such agreement.
(4) Mr. Wenhui Shao and Ms. Kwai Man Yip, the sole shareholder
of Bondy, have entered into an agreement dated as of April 27, 2010, pursuant to
which Mr. Wenhui Shao may purchase 2,108,160 shares of the common stock of our
Company for a nominal price from Ms. Kwai Man Yip within 5 years from the
execution date of such agreement.
(5) Mr. Xingwang Pu and Ms. Kwai Man Yip, the sole shareholder
of Bondy, have entered into an agreement dated as of April 27, 2010, pursuant to
which Mr. Xingwang Pu may purchase 2,108,160 shares of the common stock of our
Company for a nominal price from Ms. Kwai Man Yip within 5 years from the
execution date of such agreement.
(6) Mr. Ning Liu and Ms. Kwai Man Yip, the sole shareholder of
Bondy, have entered into an agreement dated as of April 27, 2010, pursuant to
which Mr. Ning Liu may purchase 2,108,160 shares of the common stock of our
Company for a nominal price from Ms. Kwai Man Yip within 5 years from the
execution date of such agreement.
(7) Mr. Bing Fang and Ms. Kwai Man Yip, the sole shareholder of
Bondy, have entered into an agreement dated as of April 27, 2010, pursuant to
which Mr. Bing Fang may purchase 1,405,440 shares of the common stock of our
Company for a nominal price from Ms. Kwai Man Yip within 5 years from the
execution date of such agreement.
(8) Beneficially owns the shares as indicated, which are owned
of record by Techno and Pioneer, our principal shareholders.
EXECUTIVE COMPENSATION
Cash Compensation
The following table shows the total compensation paid or earned
for the years ended December 31, 2009 and 2010 by our Chief Executive Officer.
No person had compensation in excess of $100,000 during 2010. Also shown is the
compensation awarded to or earned by our former President due to the fact that
he held such positions during a portion of fiscal 2010.
55
Summary Compensation Table
Name
and
Principal
Position
|
Year
|
Salary
($)(1)(2)
|
Bonus
($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Non-qualified
Deferred
Compensation Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
Yixiang Zhang
Chief
Executive
Officer
|
2010
|
35,503
|
0
|
0
|
0
|
0
|
0
|
0
|
35,503
|
2009
|
35,087
|
0
|
0
|
0
|
0
|
0
|
0
|
35,087
|
Wenbin Zhu
Chief
Financial
Officer
|
2010
|
14,793
|
0
|
0
|
0
|
0
|
0
|
0
|
14,793
|
2009
|
14,620
|
0
|
0
|
0
|
0
|
0
|
0
|
14,620
|
(1) The Company pays salaries in RMB to all executive officers
every month. The RMB amount is translated into USD when the Company files SEC
documents. The exchange rates used were the average rates of 2010 and 2009. They
were 6.76 and 6.84, respectively.
Employment Agreements
SHESAYS has entered into an employment agreement with each of
its executive officers. Each employment agreement with regular employees has a
term of five years, while the employment agreement with the executive officers
has a term of eight years. Except for the salary, the terms of the employment
agreements are substantially identical, and reflect employment standards common
in China as a result of PRC law or custom in China.
Mr. Yixiang Zhang entered into his employment agreement with
SHESAYS on January 1, 2010, pursuant to which Mr. Zhang was employed as Chief
Executive Officer of SHESAYS for a period of eight year for a monthly salary of
30,300 RMB (approximately $4,537). Mr. Zhang is entitled to basic pension,
medical, unemployment, work injury and maternity insurance premium pursuant to
relevant national, provincial and municipal regulations or rules.
Base Salaries
At present, our compensation consists solely of base salaries.
In China, it is not uncommon for private companies to have base salaries as the
sole form of compensation. The base salaries of the executive officers were
determined and approved by the Board of SHESAYS based on the general
considerations of the level of responsibilities, the experience and tenure of
the individual and the current and potential contributions of the individual.
We plan to implement in the future a more comprehensive
compensation program, which takes into account other elements of compensation,
including, without limitation, short and long term compensation, cash and
non-cash, and other equity-based compensation such as stock options, to retain
and attract talented individuals. We will also establish a compensation
committee to oversee the compensation of our named executive officers. The
majority of the members of the compensation committee will be independent
directors.
Outstanding Equity Awards
We do not have any equity compensation plans and therefore no
equity awards are outstanding as of our year fiscal year end.
Employee Benefit Plans
We do not have employee benefit plans and do not offer
termination benefits.
Director Compensation
Due to the small size of our Company, none of the members of
our Board of Directors receive any compensation for serving on the Board of
Directors.
56
Bonuses and Deferred Compensation
We do not have any bonus, deferred compensation or retirement
plan. All decisions regarding compensation are determined by our Board of
Directors.
Payment of Post-Termination Compensation
The Company does not have change-in-control agreements with any
of its directors or executive officers, and the Company is not obligated to pay
severance or other enhanced benefits to executive officers upon termination of
their employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Make-Good Escrow Agreement
In connection with the November 2010 Private Placement, Techno
Meg Limited, an affiliate of the Company (the Make Good Pledgor), agreed to
transfer to the investors, on a pro rata basis, 600,000 shares of the Companys
common stock owned by the Make Good Pledgor in the event the Companys
consolidated financial statements reflect less than $6,400,000 of after-tax net
income for the fiscal year ending December 31, 2011.
PRC Structure
Affliates in Both Sides of the Contractual Arrangement (See the
Sections of Corporate History and PRC Structure under Item 1 Business for the
details of the contractual arrangements)
Substantially all of our operations are conducted in China
through BOAN, our wholly-owned subsidiary in China, and through our contractual
arrangements with several of our consolidated affiliated entities in China,
including SHESAYS and its subsidiaries. SHESAYS and its subsidiaries directly
operate our cosmetology hospitals. Pursuant to the contractual agreement, BOAN
provides management and consulting services to SHESAYS and its subsidiaries in
exchange for service fees. SHESAYS and its subsidiaries agreed to pay 100% of
its residual return to BOAN. Based on these contractual arrangements, Perfect
Support, through BOAN, becomes the primary beneficiary of SHESAYS and its
subsidiaries.
SHESAYS is owned by 5 PRC citizens, including Yixiang Zhang,
Wenhui Shao, Xingwang Pu, Ning Liu and Bing Fang, with shareholdings in SHESAYS
of 45%, 15%, 15%, 15% and 10%, respectively. Currently, Yixiang Zhang holds the
position of Chairman and General Manager of SHESAYS and Chairman and CEO of the
Company. Wenhui Shao is Director and President of SHESAYS and President of the
Company. Xingwang Pu holds the position of Director and Technology President of
SHESAYS and Chief Technology Officer of the Company. Ning Liu and Bing Fang hold
the positions of Directors of SHESAYS.
Mr. Yixiang Zhang, our chairman of the board and chief
executive officer, and Ms. Kwai Man Yip, the sole shareholder of Bondy Nominees
Limited, a Hong Kong corporation (the Bondy), which Bondy is the sole
shareholder of Techno and Pioneer, which Techno is the 80% shareholder of
Perfect Support prior to the Merger and 77.94% shareholder of the Company post
Merger, and Pioneer is the 19% shareholder of Perfect Support prior to the
Merger and 14.83% shareholder of the Company post Merger, have entered into an
agreement dated as of April 27, 2010, pursuant to which Mr. Yixiang Zhang may
purchase 8,970,012 shares of the common stock of our company for a nominal price
from Ms. Kwai Man Yip within 5 years from the execution date of such
agreement.
Mr. Wenhui Shao, our president, and Ms. Kwai Man Yip have
entered into an agreement dated as of April 27, 2010, pursuant to which Mr.
Wenhui Shao may purchase 2,108,160 shares of the common stock of our Company for
a nominal price from Ms. Kwai Man Yip within 5 years from the execution date of
such agreement.
57
Mr. Xingwang Pu, our chief technology officer, and Ms. Kwai Man
Yip have entered into an agreement dated as of April 27, 2010, pursuant to which
Mr. Xingwang Pu may purchase 2,108,160 shares of the common stock of our Company
for a nominal price from Ms. Kwai Man Yip within 5 years from the execution date
of such agreement.
Mr. Ning Liu and Ms. Kwai Man Yip have entered into an
agreement dated as of April 27, 2010, pursuant to which Mr. Ning Liu may
purchase 2,108,160 shares of the common stock of our Company for a nominal price
from Ms. Kwai Man Yip within 5 years from the execution date of such
agreement.
Mr. Bing Fang and Ms. Kwai Man Yip have entered into an
agreement dated as of April 27, 2010, pursuant to which Mr. Bing Fang may
purchase 1,405,440 shares of the common stock of our Company for a nominal price
from Ms. Kwai Man Yip within 5 years from the execution date of such
agreement.
Revenue related to Smile Angel Foundation
Smile Angel Foundation is a Beijing based charity founded in
2006 by Yapeng Li and Faye Wang, a couple of superstars with a child suffering
from cheiloschisis. The Foundation is under the support and management of
Chinese Red Cross Foundation aiming at helping patients with cheiloschisis and
palatoschisis in poor families. SHESAYS is the exclusive private hospital
selected by the foundation to provide surgery to the children sponsored by Smile
Angel Foundation, and Xingwang Pu is the leader of the foundation project in
SHESAYS. The revenue received from the Foundation in 2010 and 2009 were $34,320
and $22,365 respectively, accounted for 0.28% and 0.25% of our total
revenue.
Review, Approval and Ratification of Related Party
Transaction
Given our small size and limited financial resources, we had
not adopted formal policies and procedure for the review, approval or
ratification of transactions, such as those described above, with our executive
officers, directors and significant shareholders. However, we intend that such
transactions will, on a going-forward basis, be subject to the review, approval
or ratification of our board of directors, or an appropriate committee thereof.
Compensation Arrangements
See Executive Compensation, above for information about
employment agreements and other compensation arrangements between our Company
and our executive officers and directors.
Director Independence
None of the members of our Board of Directors is independent,
as independent is defined in the rules of the NASDAQ National Market System.
Our Board of Directors intends to appoint additional members who will satisfy
such independence requirements.
DESCRIPTION OF SECURITIES
Authorized Capital Stock
We are authorized to issue 65,849,200 shares of $.001 par value
common stock and 5,000,000 shares of $.001 par value preferred stock.
Capital Stock Issued and Outstanding
As of August 10, 2011 there were issued and outstanding:
58
-
18,600,012 shares of common stock, including 600,000 shares issued to
investors in the Private Placement;
-
No shares of preferred stock;
-
No options to purchase shares of common stock; and
-
Warrants exercisable for 48,000 shares of our common stock through June 7,
2012 at a price of $2 per share issued to Chief Capital Limited in the Private
Placement.
Description of Common Stock
Each shareholder of our common stock is entitled to a pro rata
share of cash distributions made to shareholders, including dividend payments.
The holders of our common stock are entitled to one vote for each share of
record on all matters to be voted on by shareholders. There is no cumulative
voting with respect to the election of our directors or any other matter.
Therefore, the holders of more than 50% of the shares voted for the election of
those directors can elect all of the directors. The holders of our common stock
are entitled to receive dividends when, as and if declared by our Board of
Directors from funds legally available therefore. Cash dividends are at the sole
discretion of our Board of Directors. In the event of our liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of our liabilities and after provision has been made for each class of stock, if
any, having any preference in relation to our common stock. Holders of shares of
our common stock have no conversion, preemptive or other subscription rights,
and there are no redemption provisions applicable to our common stock.
Description of Preferred Stock
We have not designated the right and preferences of our
preferred stock. The availability or issuance of these shares could delay,
defer, discourage or prevent a change in control.
Our Articles of Incorporation and our Bylaws do not contain any
provisions which were included to delay, defer, discourage or prevent a change
in control.
Description of Warrant
The Company issued to Chief Capital Limited a warrant to
purchase 48,000 shares of our common stock as part of Chief Capital Limiteds
compensation for services in connection with the Private Placement. The warrant
is exercisable for 48,000 shares of our common stock through June7, 2012 at a
price of $2 per share.
Anti-Takeover Effects of Provisions of Nevada State Law
In the future we may become subject to Nevadas control share
law. A corporation is subject to Nevadas control share law if it has more than
200 stockholders of record, at least 100 of whom are residents of Nevada, and if
the corporation does business in Nevada directly or through an affiliated
corporation.
The law focuses on the acquisition of a controlling interest
which means the ownership of outstanding voting shares is sufficient, but for
the control share law, to enable the acquiring person to exercise the following
proportions of the voting power of the corporation in the election of directors:
(1) one-fifth or more but less than one-third, (2) one-third or more but less
than a majority, or (3) a majority or more. The ability to exercise voting power
may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that the acquiring
person, and those acting in association with that person, obtain only voting
rights in the control shares as are conferred by a resolution of the
stockholders of the corporation, approved at a special or annual meeting of
stockholders. The control share law contemplates that voting rights will be
considered only once by the other stockholders. Thus, there is no authority to
take away voting rights from the control shares of an acquiring person once
those rights have been approved. If the stockholders do not grant voting rights
to the control shares acquired by an acquiring person, those shares do not
become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of
those shares themselves do not acquire a controlling interest, their shares do
not become governed by the control share law.
59
If control shares are accorded full voting rights and the
acquiring person has acquired control shares with a majority or more of the
voting power, any stockholder of record, other than an acquiring person, who has
not voted in favor of approval of voting rights is entitled to demand fair value
for the stockholders shares.
Nevadas control share law may have the effect of discouraging
corporate takeovers.
In addition to the control share law, Nevada has a business
combination law, which prohibits some business combinations between Nevada
corporations and interested stockholders for three years after the interested
stockholder first becomes an interested stockholder unless the corporations
board of directors approves the combination in advance. For purposes of Nevada
law, an interested stockholder is any person who is (1) the beneficial owner,
directly or indirectly, of ten percent or more of the voting power of the
outstanding voting shares of the corporation, or (2) an affiliate or associate
of the corporation and at any time within the three previous years was the
beneficial owner, directly or indirectly, of ten percent or more of the voting
power of the then outstanding shares of the corporation. The definition of the
term combination is sufficiently broad to cover virtually any kind of
transaction that would allow a potential acquirer to use the corporations
assets to finance the acquisition or otherwise to benefit its own interests
rather than the interests of the corporation and its other stockholders.
The effect of Nevadas business combination law is to
potentially discourage parties interested in taking control of our Company from
doing so if it cannot obtain the approval of our Board of Directors.
Transfer Agent
The transfer agent for our common stock is Island Stock
Transfer. The transfer agents address is 100 Second Avenue, South, Suite 705S,
St. Petersburg, FL 33701, and its telephone number is (727-289-0010).
LEGAL MATTERS
The validity of the common stock being offered hereby has been
passed upon by Lionel Sawyer & Collins.
EXPERTS
Baker Tilly Hong Kong Limited, an independent registered public
accounting firm, has audited the financial statements for the years ended
December 31, 2010 and 2009 for SHESAYS, as stated in their report appearing
herein, and has been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, current reports,
proxy statements and other information with the SEC. You may read or obtain a
copy of these reports at the SECs Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549, on official business days during the hours of 10:00 am
to 3:00 pm. You may obtain information on the operation of the Public Reference
Room and its copy charges by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains registration statements, reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. The address of such website is http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the shares of common stock being
offered by this prospectus. This prospectus is part of that registration
statement. This prospectus does not contain all of the information set forth in
the registration statement or the exhibits to the registration statement. For
further information with respect to our Company and the shares of common stock
we are offering pursuant to this prospectus, you should refer to the
registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete, and you should refer to
the copy of that contract or other documents filed as an exhibit to the
registration statement. You may read or obtain a copy of the registration
statement at the SECs Public Reference Room and website referred to above.
60
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada Revised Statutes (NRS) Sections 78.7502 and 78.751
provide us with the power to indemnify any of our directors, officers, employees
and agents. The person entitled to indemnification must have conducted himself
in good faith, and must reasonably believe that his conduct was in, or not
opposed to, our best interests. In a criminal action, the director, officer,
employee or agent must not have had reasonable cause to believe that his conduct
was unlawful.
Under NRS Section 78.751 and our by-laws, advances for expenses
may be made if the director or officer affirms in writing that he has met the
standards for indemnification and will personally repay the expenses if it is
determined that such officer or director did not meet those standards.
Our by-laws include an indemnification provision under which we
have the power to indemnify, to the extent permitted under Nevada law, our
current and former directors and officers, or any person who serves or served at
our request for our benefit as a director or officer of another corporation or
our representative in a partnership, joint venture, trust or other enterprise,
against all expenses, liabilities and losses reasonably incurred by reason of
being or having been a director, officer or representative of ours or any of our
subsidiaries. We may make advances for expenses upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he/she is not
entitled to be indemnified by us.
Our articles of incorporation provide a limitation of liability
such that no director or officer shall be personally liable to us or any of our
stockholders for damages for breach of fiduciary duty as a director or officer,
involving any act or omission of any such director or officer, provided there
was no intentional misconduct, fraud or a knowing violation of the law, or
payment of dividends in violation of NRS Section 78.300.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of ours pursuant to the foregoing provisions or otherwise, we have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
PROSPECTUS
648,000 shares of common stock, par value $0.001 per share
August 15, 2011
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
61
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except for registration fees,
which are actual) of the approximate amount of the fees and expenses payable by
us in connection with the issuance and distribution of the shares of common
stock.
EXPENSE
|
|
AMOUNT
|
|
|
|
|
|
Registration Fees
|
$
|
150.47
|
|
Costs of Printing and Engraving
|
|
1,000
|
|
Legal Fees
|
|
20,000
|
|
Accounting Fees
|
|
3,000
|
|
Miscellaneous Fees and Expenses
|
|
5,000
|
|
|
|
|
|
Total
|
$
|
29,150.47
|
|
Item 14. Indemnification of Directors and Officers.
Nevada Revised Statutes (NRS) Sections 78.7502 and 78.751
provide us with the power to indemnify any of our directors, officers, employees
and agents. The person entitled to indemnification must have conducted himself
in good faith, and must reasonably believe that his conduct was in, or not
opposed to, our best interests. In a criminal action, the director, officer,
employee or agent must not have had reasonable cause to believe that his conduct
was unlawful.
Under NRS Section 78.751 and our by-laws, advances for expenses
may be made if the director or officer affirms in writing that he has met the
standards for indemnification and will personally repay the expenses if it is
determined that such officer or director did not meet those standards.
Our by-laws include an indemnification provision under which we
have the power to indemnify, to the extent permitted under Nevada law, our
current and former directors and officers, or any person who serves or served at
our request for our benefit as a director or officer of another corporation or
our representative in a partnership, joint venture, trust or other enterprise,
against all expenses, liabilities and losses reasonably incurred by reason of
being or having been a director, officer or representative of ours or any of our
subsidiaries. We may make advances for expenses upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he/she is not
entitled to be indemnified by us.
Our articles of incorporation provide a limitation of liability
such that no director or officer shall be personally liable to us or any of our
stockholders for damages for breach of fiduciary duty as a director or officer,
involving any act or omission of any such director or officer, provided there
was no intentional misconduct, fraud or a knowing violation of the law, or
payment of dividends in violation of NRS Section 78.300.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of ours pursuant to the foregoing provisions or otherwise, we have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities.
During the past three years, we effected the following
transactions in reliance upon exemptions from registration under the Securities
Act as amended:
62
From May to June 2007, we issued 925,000 shares of our common
stock to thirteen investors for $0.08 per share for gross proceeds of $74,000.
The shares were issued in a transaction which we believe satisfies the
requirements of that exemption from the registration and prospectus delivery
requirements of the Securities Act of 1933, which exemption is specified by the
provisions of Section 4(2) of that act and Rule 506 of Regulation D promulgated
pursuant to that act by the Securities and Exchange Commission.
On June 19, 2009, the holders of certain promissory notes
surrendered the notes and converted all unpaid principal and unpaid accrued
interest due under the notes into shares of our $.001 par value common stock as
provided in the notes. As of June 19, 2009, the total unpaid principal and
unpaid accrued interest due under the notes was approximately $43,272, which the
holders of the notes converted into 540,898 shares of common stock at a
conversion price of $0.08 per share. We issued the shares to the holders of the
notes in a transaction which we believe satisfies the conditions for the
exemption from registration and prospectus delivery requirements of the
Securities Act of 1933 (Act), which exemption is specified by the provisions
of Section 4(2) of that Act.
In connection with the June 2010 Business Combination, on June
7, 2010, we issued an aggregate of 13,500,012 shares of our common stock to the
shareholders of Perfect Support. We received in exchange from Perfect Support
100% of the issued and outstanding shares of Perfect Support, which exchange
resulted in Perfect Support becoming our wholly-owned subsidiary. The issuance
of such securities was exempt from registration pursuant to Section 4(2) of and
Regulation D and/or Regulation S promulgated under the Securities Act of 1933,
as amended.
On November 12, 2010, we consummated the Private Placement for
the issuance and sale of 600,000 shares of our common stock, par value $0.001
per share, at a price of $2.00 per share. The shares were issued in accordance
with the exemption from registration pursuant to Regulation S promulgated under
the Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statement Schedules
Financial Statement Schedules
63
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2010
(CONSOLIDATED) (RESTATED)
AND 2009 (COMBINED)
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
We have audited the accompanying balance sheets of China
Shesays Medical Cosmetology Inc. and subsidiaries as of December 31, 2010
(consolidated) (restated) and 2009 (combined) and the related statements of
operations and comprehensive income, stockholders equity and cash flows for the
years ended December 31, 2010 (consolidated) (restated) and 2009 (combined).
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits of the financial statements provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of China
Shesays Medical Cosmetology Inc. and subsidiaries as of December 31, 2010
(consolidated) (restated) and 2009 (combined), and the results of its operations
and its cash flows for the years ended December 31, 2010 (consolidated)
(restated) and 2009 (combined), in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 3 to the consolidated financial
statements, the accompanying consolidated financial statements have been
restated.
Date: March 25, 2011 (except for Notes 1, 2, 6, 8, 10, 13 and 16, and the
effects of the restatement discussed in Note 3, as to which the date is August 2, 2011)
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND
SUBSIDIARIES
BALANCE SHEETS
The accompanying notes are an integral part of these
consolidated financial statements
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND
SUBSIDIARIES
STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND
SUBSIDIARIES
STATEMENTS OF CASH FLOWS
$354,255 and $5,847 of purchases of property and equipment
represent payables to vendors. These transactions are considered as major
non-cash transactions for the year ended December 31, 2010 and 2009,
respectively.
The accompanying notes are an integral part of these
consolidated financial statements
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND
SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these
consolidated financial statements
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
In the PRC restructuring transaction
described above, the Company gained indirect control of Sichuan Shesays and its
subsidiaries and Sichuan Shesays and its subsidiaries are considered VIEs of the
Company.
As required by ASC 810-10, the Company
performs a qualitative assessment to determine whether the Company is the
primary beneficiary of Sichuan Shesays and its subsidiaries which are identified
as VIEs of the Company. A quality assessment begins with an understanding of the
nature of the risks in the entity as well as the nature of the entitys
activities including terms of the contracts entered into by the entity,
ownership interests issued by the entity and the parties involved in the design
of the entity. The Companys assessment on the involvement with Sichuan Shesays
and its subsidiaries reveals that the Company has the
absolute power to direct the most significant activities that impact the economic performance of Sichuan Shesays and its subsidiaries. Under the accounting guidance, the Company is deemed to be the primary beneficiary of Sichuan Shesays and its
subsidiaries and the results of Sichuan Shesays and its subsidiaries are consolidated in the Company’s consolidated financial statements for financial reporting purposes. As of December 31, 2010, Sichuan Shesays and its subsidiaries had total
assets of $7,621,593 (restated) and total liabilities of $4,059,585 (restated). As of December 31, 2009, Sichuan Shesays had total assets of $3,863,832 and total liabilities of $1,313,712.
As of December 31, 2010, the Company agreed to waive the management fee to be payable by Sichuan Shesays and its subsidiaries for a period of 3 years from April 27, 2010 to April 26, 2013 due to lack of liquidity as Sichuan Shesays is launching a
new comprehensive hospital in Chengdu City, Sichuan Province.
Depreciation expenses for the years
ended December 31, 2010 and 2009 were $546,399 and $332,599 respectively.
As of December 31, 2010 and 2009, included in deposits paid for property and equipment are advance payment of renovation cost paid on behalf of the subsidiary which is still in the process of incorporation amounting to $1,482,309 and $0
respectively.
The tax effects of significant items
comprising deferred tax assets as of December 31, 2010 and 2009 are as follows:
The reconciliation of income taxes
computed at the statutory income tax rate to total income taxes for the years
ended December 31, 2010 and 2009 is as follows:
The Company’s PRC subsidiaries are required to make appropriation to the statutory surplus reserve at 10% of the after-tax net income annually until the total contributions equal to 50% of the entities’ registered capital. The statutory
reserve funds are restricted for use to set off against prior period losses, expansion of production and operations or for the increase in the registered capital of the respective companies. This reserve is therefore not available for distribution
except in liquidation.
During 2010 and 2009, the Company appropriated $278,282 and $151,284 respectively to the reserves funds based on its net income in accordance with the laws and regulations of the PRC.
The following table reconciles
reportable segment profit to the Companys consolidated income before taxes for
the years ended December 31, 2010 and 2009:
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
AND SUBSIDIARIES
CONTENTS
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these condensed
consolidated financial statements
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND
SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE
INCOME (UNAUDITED)
The accompanying notes are an integral part of these condensed
consolidated financial statements
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND
SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
The accompanying notes are an integral part of these condensed
consolidated financial statements
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
AND
SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
On June 6, 2010, SN Strategies Corp.,
the Parent, China Shesays Medical Cosmetology Inc., the Merger Sub, a Nevada
corporation, wholly owned by the Parent and incorporated on May 20, 2010,
Perfect Support, known as the Acquired Sub, and the stockholders of the Acquired
Sub, entered into an Agreement and Plan of Merger pursuant to which the Merger
Sub agreed to acquire 100% of the common stock of the Acquired Sub. In
connection with the merger, the Merger Sub issued to the stockholders of the
Acquired Sub 10 shares of its common stock of $0.001 each amounting to $0.01 for
50,000 shares of the Acquired Subs common stock of $1 each amounting to $50,000
which represents 100% of the outstanding shares of the Acquired Subs common
stock. The 10 shares of common stock of the Merger Sub were subsequently
converted to 13,500,012 shares of common stock of the Parent Company.
Concurrent with the merger, the Merger
Sub merged with and into the Parent at the effective time of the merger. The Merger Sub no longer exists, and the
Parents name was subsequently changed to the Merger Subs name.
For financial reporting purposes, the
merger has been accounted for as a recapitalization of the Parent whereby the
historical financial statements and operations of the Acquired Sub become the
historical financial statements of the Company, with no adjustments to the
carrying values of the assets and liabilities. Share and per share amounts
reflect the effects of the recapitalization for all periods presented. In
addition, the presentation for all periods includes equity transactions of the
Acquired Sub as adjusted for the effects of the recapitalization.
On July 8, 2010, Sichuan Shesays
established a PRC limited liability company, Leshan Jiazhou Shesays Junge
Cosmetology Company Limited (Leshan Jiazhou Shesays) with a registered capital
of $736,594 to which Sichuan Shesays contributed $265,984 in cash and a set of
machinery totaling $470,610 in lieu of cash. Leshan Jiazhou Shesays is a clinic
for providing professional medical beauty services and cosmetic surgery services
to customers in PRC. In accordance with its business permit, the Companys right
of operation expires on June 17, 2014.
On August 18, 2010, Sichuan Shesays
together with a third party established a PRC limited liability company, Yibin
Shesays Junge Cosmetology Clinic Company Limited (Yibin Shesays) with a
registered capital of $734,981. Sichuan Shesays contributed $587,985 in cash to
the registered capital of Yibin Shesays, representing 80% of the equity of Yibin
Shesays. Yibin Shesays is a clinic for providing professional medical beauty
services and cosmetic surgery services to customers in PRC. In accordance with
its business permit, the Companys right of operation expires on December 31,
2014.
On October 20, 2010, Sichuan Shesays
established a PRC limited liability company, Zigong Shesays Junge Cosmetology
Clinic Company Limited (Zigong Shesays) with a registered capital of $751,213.
Sichuan Shesays contributed $244,219 in cash and a set of machinery totaling
$506,994 in lieu of cash. Zigong Shesays is a clinic for providing professional
medical beauty services and cosmetic surgery services to customers in PRC. In
accordance with its business permit, the Companys right of operation expires on
October 19, 2014.
China Shesays, Perfect Support,
Chengdu Boan, Sichuan Shesays, Leshan Jiazhou Shesays, Yibin Shesays and Zigong
Shesays are hereinafter referred to as (the Company).
On April 27, 2010, the Company through
its PRC subsidiary, Chengdu Boan entered into a series of contractual
arrangements consisting of four agreements with Sichuan Shesays and the
stockholders of Sichuan Shesays. Those four agreements and their consequences
are described below.
In the PRC restructuring transaction
described above, the Company gained indirect control of Sichuan Shesays and its
subsidiaries and Sichuan Shesays and its subsidiaries are considered VIEs of the
Company.
As required by ASC 810-10, the Company
performs a qualitative assessment to determine whether the Company is the
primary beneficiary of Sichuan Shesays and its subsidiaries which are identified
as VIEs of the Company. A quality assessment begins with an understanding of the
nature of the risks in the entity as well as the nature of the entitys
activities including terms of the contracts entered into by the entity,
ownership interests issued by the entity and the parties involved in the design
of the entity. The Companys assessment on the involvement with Sichuan Shesays
and its subsidiaries reveals that the Company has the absolute power to direct
the most significant activities that impact the economic performance of Sichuan
Shesays and its subsidiaries. Under the accounting guidance, the Company is
deemed to be the primary beneficiary of Sichuan Shesays and its subsidiaries and
the results of Sichuan Shesays and its subsidiaries are consolidated in the
Companys consolidated financial statements for financial reporting purposes. As
of March 31, 2011, Sichuan Shesays and
its subsidiaries had total assets of $9,605,885 (restated) and total liabilities
of $5,305,554 (restated). As of December 31, 2010, Sichuan Shesays and its
subsidiaries had total assets of $7,621,593 (restated) and total liabilities of
$4,059,585 (restated).
Depreciation expenses for the three
months ended March 31, 2011 and 2010 were $215,190 and $108,539 respectively.
As of March 31, 2011 and December 31,
2010, included in deposits paid for property and equipment are advance payments
of renovation costs paid on behalf of the subsidiary which is still in the
process of incorporation amounting to $2,298,250 and $1,482,309 respectively.
The income tax expenses for the three
months ended 2011 and 2010 are summarized as follows:
The tax effects of significant items
comprising deferred tax assets as of March 31, 2011 and December 31, 2010 are as
follows:
The reconciliation of income taxes
computed at the statutory income tax rate to total income taxes for the three
months ended March 31, 2011 and 2010 is as follows:
On November 12, 2010, the Company
issued 48,000 warrants with an exercise price of $2 per share in conjunction
with the issuance of 600,000 shares of common stock in a private placement to a
professional service provider pursuant to a Financial Advisory Service Agreement
entered into on June 12, 2010. The warrants are exercisable at any time from
June 12, 2010 to June 12, 2012. As of March 31, 2011, no warrants have been
exercised or cancelled.
The Company evaluates these warrants
provided in connection with the private placement in accordance with ASC 815 and
has concluded that equity classification is appropriate for these warrants, due
to the fact that these warrants are required to be physically settled in shares
of the common stock of the Company and there are no provisions that could
require net-cash settlement. Accordingly, the fair value of the warrants of
$7,911 was recognized as additional paid-in capital and as a reduction of
additional paid-in capital at the date of grant. The fair value of the warrants
was estimated using Black-Scholes Option Pricing Model.
The following assumptions are used to
calculate the fair value of the warrants:
As of March 31, 2011, the total amount
owed to those suppliers was $34,418.
No single customer accounted for more
than 10% of the service revenue for the three months ended March 31, 2011 and
2010.
The following Exhibits are being filed with this registration
statement on Form S-1.
* Filed herewith.
+ Indicates a management contract or compensatory plan or
arrangement.
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth 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 SEC 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; and
(iii) To include any material information with respect to 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 any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of the 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) For the purpose of determining liability under the
Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A (§ 230.430A of this chapter), shall be deemed to be part
of and included in the registration statement as of the date it is first used
after effectiveness.
Provided, however
, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the initial distribution
of the securities:
The undersigned registrant undertakes that 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.
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 SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the 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 Act and will be governed by the final adjudication of
such issue.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Chengdu City, Sichuan
Province, P.R. China, on August 15, 2011.
CHINA SHESAYS MEDICAL COSMETOLOGY INC.
Each person whose signature appears below hereby constitutes
and appoints Yixiang Zhang and Wenbin Zhu, and each of them singly (with full
power to each of them to act alone), as his or her true and lawful
attorneys−in−fact and agents, with full power of substitution and resubstitution
in each of them for him or her and in his or her name, place and stead, and in
any and all capacities, to sign for him or her and in his or her name in his or
her capacity as a director and officer of the Company, as applicable, any and
all amendments (including post−effective amendments) to this registration
statement on Form S−1 (or any other registration statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, as amended), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys−in−fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys−in−fact and agents or any of them, or
their or his or her 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 below by the following persons in
the capacities and on the dates indicated.