PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
shareholders. The shares of common stock may be sold in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market prices, at varying prices determined at the
time of sale, or at negotiated prices. These sales may be affected at various
times in one or more of the following transactions, or in other kinds of
transactions:
o transactions on any national securities exchange or U.S. inter-dealer
system of a registered national securities association on which the
common stock may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in private transactions and transactions otherwise than on these
exchanges or systems or in the over-the-counter market;
o in connection with short sales of the shares;
o by pledge to secure or in payment of debt and other obligations;
o through the writing of options, whether the options are listed on an
options exchange or otherwise;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options; or
o through a combination of any of the above transactions.
Each selling shareholder and its successors, including its transferees,
pledgees or donees or their successors, may sell the common stock directly to
the purchaser or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholder or the purchaser. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be in
excess of those customary in the types of transactions involved.
The selling security holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales. In that event, any
commissions received by these broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.
13
We have entered into registration rights agreements for the benefit of
the selling shareholders to register the common stock under applicable federal
and state securities laws. The registration rights agreements provide for
cross-indemnification of the selling shareholders and us and our respective
directors, officers and controlling persons against specific liabilities in
connection with the offer and sale of the common stock, including liabilities
under the Securities Act. We will pay substantially all of the expenses incurred
by the selling shareholders incident to the registration of the offering and
sale of the common stock.
14
THE PHARMACEUTICAL MARKET
IN THE PEOPLE'S REPUBLIC OF CHINA
The Peoples Republic of China is one of the world's major producers of
pharmaceuticals. According to IMS Market Research Consulting (Shanghai)
currently there are approximately 6,000 pharmaceutical manufacturers operating
in The Peoples Republic of China, with the capacity to produce 1,350 ethical
drugs and more than 8,000 traditional Chinese medicines. In 2000, the The
Peoples Republic of China's pharmaceutical industry had aggregate sales of
US$28.2 billion, which represented a 22% increase over aggregate sales in
1999.(1)
Impact of Accession to World Trade Organization. Due in part to the
relaxation of trade barriers following The Peoples Republic of China's accession
to the World Trade Organization in January 2002, we believe The Peoples Republic
of China will become one of the world's largest pharmaceutical markets by the
middle of the twenty-first century. As a result, we believe the Chinese market
presents a significant opportunity for both domestic and foreign drug
manufacturers. With the Chinese accession to the World Trade Organization, the
Chinese pharmaceutical industry is gearing up to face the new patent regime that
is required by World Trade Organization regulation, and the Chinese government
has begun to reduce its average tariff on pharmaceuticals. The Peoples Republic
of China has also agreed that foreign companies will be allowed to import most
products, including pharmaceuticals, into any part of The Peoples Republic of
China. Current trading rights and distribution restrictions are to be phased out
over a three-year period. In the sensitive area of intellectual property rights,
The Peoples Republic of China has agreed to implement the trade-related
intellectual property agreement of the Uruguay Round. There can be no assurances
that The Peoples Republic of China will implement any or all of the requirements
of its membership in the World Trade Organization in a timely manner, if at all.
The Peoples Republic of China's pharmaceutical industry was opened to
outside markets earlier than other industrial sectors. With the reduction of
tariffs, The Peoples Republic of China will not only be able to import advanced
drugs, but many small and medium-sized foreign companies with independent
patents will also be able to enter the market. Since The Peoples Republic of
China's entry into the World Trade Organization, international pharmaceutical
companies are now able to acquire a large share of the Chinese pharmaceutical
market. These companies may be able to gain total control over their
distribution networks and not have to rely on the complex and costly Chinese
supply network. An open market will give international companies a better
opportunity of having their products included on The Peoples Republic of
China's provincial and municipal lists of drugs that are subject to state
reimbursement. In addition, the intellectual property rights of foreign
manufacturers may be better protected.
Traditional Chinese medicines are likely to be less affected by The
Peoples Republic of China's World Trade Organization accession. However, it is
expected that The Peoples Republic of China will have to develop and utilize
modern laboratory methods to demonstrate the efficacy of Traditional Chinese
medicines. In addition, The Peoples Republic of China is requiring manufacturers
of Western prescription and over-the-counter medicines that conform to new
international standards of quality and efficacy. The Chinese government is
determined to nurture its own large pharmaceutical companies, while reducing the
number of small companies. It is anticipated that this government determination
will boost the quality of Chinese medicine and enhance The Peoples Republic of
China's ability to compete in world markets.
Foreign drug companies are expected to benefit from The Peoples
Republic of China's World Trade Organization accession in three significant
areas: First, they will be able to acquire a larger share of the Chinese market;
open competition will give foreign drug companies a better chance of having
their products included on The Peoples Republic of China's provincial and
municipal lists of drugs that are subject to state reimbursement. Second, they
may be able to gain increased control over their distribution networks and may
not have to rely on the complex and costly Chinese supply network. Finally, the
intellectual property rights of foreign drug companies will be accorded enhanced
protection. However, given The Peoples Republic of China's past performance in
adhering to international agreements, there can be no assurance that any or all
of these benefits will be achieved.
Regional Industry Development. The eastern coastal areas of
The Peoples Republic of China are still the source of the greatest sales growth
of The Peoples Republic of China's pharmaceutical industry. The value added of
(1) The statistics and market data regarding the Pharmaceutical Market in the
Peoples Republic of China was based upon the report titled "IMS Market Research
Consulting (Shanghai), Market Prognosis Asia, 2003-2007, China Report," prepared
by IMS Market Research Consulting (Shanghai) is a subsidiary IMS Health (NYSE:
RX) ("IMS"), a global pharmaceutical market research company, operating in
China.
15
the 12 coastal economically-developed provinces and municipalities, including
Jiangsu, Zhejiang, Shandong, Guangdong, Liaoning, Shanghai and Beijing,
comprised approximately 64% of the total sales growth over the period from 2000
to 2002. Seven of the 16 Chinese provinces, municipalities and autonomous
regions reported a 20% or more growth rate from 2000 to 2002.
THE PEOPLES REPUBLIC OF CHINA'S OVER-THE-COUNTER MARKET DRIVERS
We believe the following factors are the key market-driving forces in
the projected growth of The Peoples Republic of China's over-the-counter
pharmaceutical industry:
Government Policy. The State Food and Drug Administration of The
Peoples Republic of China set up an administrative system in 1999 for the
classification of pharmaceutical products into the categories of prescription
and over-the-counter drugs. Since then, the State Food and Drug Administration
has issued a series of guidelines on the interpretation of the new
classification system on labeling, usage instructions and packaging of
over-the-counter products. . At present, there are approximately 700
over-the-counter drugs classified by the State Food and Drug Administration. A
second group of over-the-counter drugs is under consideration by the State Food
and Drug Administration in consultation with the Chinese pharmaceutical
industry. According to the State Food and Drug Administration's plan, it is
estimated that approximately 70% of registered drugs will be classified as
over-the-counter.
Economic and Social Development. In The Peoples Republic of China,
awareness is increasing about health care and the importance of self-medication.
The rapid rise in living standards and disposable income has made possible
self-medication on a continued basis for a large number of people. We believe
achievement of satisfactory results through such easy self-health management is
winning over an increasingly large number of people across age groups. The
domestic over-the-counter market is also expanding as a result of rapid growth
in target urban consumer populations. Currently, the total number of
non-state-owned-enterprise workers (workers who are not covered by state health
insurance) has overtaken that of state-owned-enterprise employees. Increased
levels of international exchange and commercial activity have greatly added to
the number of tourists and mobile populations, which, compared with other
populations, tend to have higher incomes. The ongoing and proposed future
reforms to the healthcare insurance system should divert more of the population
to self-medication and over-the-counter consumption. Rural areas likely will
become large potential markets for over-the-counter drugs. We believe the
relative safety, low toxicity, efficacy, ease of use, and reasonable pricing of
most over-the-counter drugs will make many over-the-counter drugs a preferred
choice for the rural healthcare market in which medical services are scarce and
virtually non-existent in remote locations.
Technical Development. Adjustment in drug usage patterns should also
push the over-the-counter market forward. In recent years, the conversion from
prescription to over-the-counter drugs has become more frequent, which has
resulted in a widening range of diseases and symptoms for which over-the-counter
drugs are available. Consumption of nutritional supplements and medicated
cosmetics in the over-the-counter sector is increasing, which should further
enlarge the scope of over-the-counter application.
The Peoples Republic of China's Drugstore Development. The development
of the retail drugstore sector in The Peoples Republic of China since the most
recent round of healthcare reforms began in 1998 has been rapid. Chain
drugstores soon followed; since the promulgation of Chain Drugstores Regulations
in 1998, more than 260 companies have been approved by the State Food and Drug
Administration as chain drugstores. Of the roughly 120,000 Chinese retail
pharmacies as of December 2002, 260 were chain drugstore enterprises that
managed in the aggregate 5,096 retail outlets. According to recent industry
figures, there are an average of 26 retail drugstores for each chain; and the
largest chain had a total of 231 interregional retail outlets. As of December
2002, the largest retail sales of a chain drugstore in The Peoples Republic of
China amounted to RMB300.0 million, or US$36.59 million.
Chinese Consumers Trends. Recent consumer studies indicate that 86% of
drug stores in Beijing carry promotional advertising inside the retail outlet,
while another 59% use advertisements for external window displays. Seventy-one
of the 100 drug stores surveyed also hosted on-site promotional events conducted
by drug manufacturers. Television and radio commercials, pamphlets, journal and
newsletter advertising, billboards and medical information hotlines are also
used by manufacturers to promote their drug products to the public. Although
more than half of the average urban consumers in The Peoples Republic of China
know the brand names of commonly advertised over-the-counter products, only 16%
are influenced by advertising to buy these products. The caution of Chinese
16
consumers may stem from years of exposure to aggressive but medically
unsubstantiated claims of efficacy advertised by some Chinese manufacturers,
especially those dealing with herbal medicines. Although the State Food and Drug
Administration's "truth in advertising" regulations have sought to curtail the
advertising of cure-all products, the tendency of medically unsubstantiated
claims persists among some Chinese manufacturers and the State Food and Drug
Administration is unable to police all violations. In addition, recent studies
show that the drug store sales clerks play a major role in influencing the
consumer in his or her drug purchases. Sales clerk input and on-site educational
promotion of products accounted for 58% of consumer selection, while counter
displays attracted another 25.8%. We believe retail drug store outlets should
play a powerful role in the development of The Peoples Republic of China's
pharmaceutical market for prescription and non-prescription pharmaceutical
products. Barring radical changes in The Peoples Republic of China's medical
reform policies, the average consumer will increasingly be buying medication at
retail drug stores.
THE PEOPLES REPUBLIC OF CHINA'S OVER-THE-COUNTER MARKET CHARACTERISTICS
The following are the three key market characteristics of the Chinese
over-the-counter pharmaceutical marketplace.
Production and Price. Relatively simple off-patent technology makes
entry barriers low. Brand sensitivity is much stronger than price sensitivity
due to low price elasticity. It is very important to build branding and consumer
awareness because of the fragmentation of production and low price elasticity.
Promotion and Advertising. Typically, promotion and advertising
expenditure account for approximately 20-25% of the total sales turnover of
over-the-counter drugs. Advertising expenditure on television dominates. Other
promotional tools include point-of-purchase displays and medical magazines.
Distribution Channels. Distribution channels for over-the-counter drugs
include chain pharmacies, hospitals, direct sales, department stores and
supermarkets. For decades, the government has controlled The Peoples Republic of
China's drug distribution industry, and chain pharmacies have appeared only in
the past five years. The increase in over-the-counter sales has led to the rapid
development of chain pharmacies in Chinese cities. In 2000, there were over 200
intra-province chain pharmacies, with approximately 5,000 stores nation-wide.
GENERAL CHINESE MARKET STATISTICS
The Peoples Republic of China is one of the largest markets in the
world and we believe the growth potential is significant. The country has a
massive population of approximately 1.4 billion people. According to the Chinese
Statistics Bureau, at December 31, 2000, the Chinese market had the following
growth factors:
a. Gross Domestic Product ("GDP") growth rate: 9.6%;
b. Urban growth rate: 10% - 30%;
c. Urban per capital income: RMB 8,596 (US$1,036);
d. Retail sales: RMB 2,098 billion (US$253 billion);
e. Population: 1.4 billion;
f. Area: 9.6 million square km;
g. Key cities: 1,000; and
h. Urban dwellers: 27% (329 million).
FOREIGN INVESTMENT IN THE PEOPLES REPUBLIC OF CHINA'S PHARMACEUTICAL INDUSTRY
Pharmaceuticals produced by Sino-foreign joint ventures in The Peoples
Republic of China and imported drugs account for one third of the Chinese
market. As of December 2000, approximately 1,700 pharmaceutical joint ventures
had been established in The Peoples Republic of China, with investment totaling
approximately US$2 billion and 40% of all Chinese pharmaceutical enterprises
having utilized overseas capital. Of the 25 largest multinational pharmaceutical
companies, 20 had established a presence in The Peoples Republic of China, with
40 of the 50 most popular branded drugs in The Peoples Republic of China
produced by Sino-foreign joint ventures. In terms of sales volume, the leading
joint venture is Xi'an-Janssen Pharmaceutical, a collaboration between Johnson &
Johnson and the Shanxi Provincial Corporation of Pharmaceutical Industries.
Tanjin Smith Kline & French Laboratories, which is owned 55% by SmithKline
Beecham, leads the over-the-counter market, and Shanghai Squibb Pharmaceuticals
Products, which is partly owned by Bristol-Myers Squibb, has been successful in
17
both urban hospitals and the over-the-counter market. A recent joint venture
includes Shanghai Sankyo Pharmaceutical, a joint venture between Sankyo Seiyaku,
a Japanese company that is the 95% owner, and Shanghai Zhangjiang Science and
Technology Park Development, which markets six of Sankyo's products.
The rate at which foreign companies are establishing joint ventures
with Chinese enterprises and increasing their financial investment has
significantly increased in the last two years. In 2000, Celera Genomics, a U.S.
company, acquired a 47.5% stake in Shanghai GeneCore BioTechnologies, with a
view to expanding globally and gaining access to new sources of genetic
information. Nutricia, a Dutch company, has invested US$20 million to form a
wholly-owned subsidiary, Nutricia Pharmaceutical (Wuxi), to produce proprietary
nutritional products.
The Chinese market is highly fragmented with a large number of
manufacturers and distributors. There are over 6,000 pharmaceutical firms in The
Peoples Republic of China, many of which are small local enterprises. In a move
to improve the competitive edge of The Peoples Republic of China's
pharmaceutical industry in the international market, in 2000, the Ministry of
Commerce announced plans to consolidate nearly 5,000 state owned firms into 12
large pharmaceutical firms to compete with the world's leading drug producers.
During the next five years, the Ministry of Commerce expects these 12 large
pharmaceutical firms to play a significant role in the domestic and
international arena, and they will be granted priority for technical renovation
and research and development. The Peoples Republic of China has set up over 200
research institutes for biotechnology and more than 140 enterprises are engaged
in related development and production. The Ministry of Commerce also supports
foreign pharmaceutical companies in expanding their businesses and in setting up
research centers to develop new products. Foreign-funded research centers would
be exempt from import tariff and custom taxes; business taxes would also be
exempt if foreign companies transfer technology to Chinese-based entities.
Difficulties faced by foreign firms entering the Chinese market include
the lack of protection of intellectual property rights, drug counterfeiting,
price controls, limited social security, medical insurance and prescription
coverage. See "Risk Factors - Risks Relating to the Pharmaceutical Industry in
The People's Republic of China."
BUSINESS
OVERVIEW
We are a China-based pharmaceutical company that, through our
wholly-owned subsidiary, Werke Pharmaceuticals, Inc. owns 100% of AXM Shenyang,
a Wholly Foreign Owned Enterprise organized under the laws of The Peoples
Republic of China.
Werke Pharmaceuticals was organized on November 29, 2000, in order to
enter the Chinese Pharmaeutical Industry. Werke had the capability to organize
and expand an existing China-based Pharmaceutical company, as the Chinese
industry accelerated the process of privatization of State Owned Pharmaceutical
Companies. Toward that end, on January 26, 2001, Werke Pharmaceuticals entered
into an equity joint venture with Shenyang Tianwei Pharmaceutical Factory, Ltd.,
a Chinese company that manufactured and marketed pharmaceuticals in The Peoples
Republic of China, which contributed its assets and operations to the joint
venture. The equity joint venture was organized under the name Shenyang Tianwei
Werke Pharmaceuticals Co., Ltd., which was changed to AXM Pharma Shenyang, Inc.
in April 2004. The shareholders of Shenyang Tianwei Pharmaceutical Factory later
converted their interest in the equity joint venture into shares of Werke
Pharmaceuticals in anticipation of Werke Pharmaceuticals' reverse acquisition of
Wickliffe International Corporation. Upon the conversion of the interest of the
shareholders of Shenyang Tianwei Pharmaceutical Factory into shares of Werke
Pharmaceuticals, the joint venture was granted permission and rights to become a
Wholly Foreign Owned Enterprise. As a result of the change of status of Shenyang
Tiawei Werke Pharmaceutical Factory from an equity joint venture to a Wholly
Foreign Owned Enterprise, AXM Shenyang became the wholly owned operating
subsidiary of Werke. Immediately prior to its reverse acquisition of Wickliffe
International, Werke's sole business was conducted through its wholly owned
subsidiary Shenyang Tianwei Werke Pharmaceuticals. Wickliffe International had
no operations immediately prior to its business combination with Werke.
Following the reverse acquisition of Wickliffe International, Wickliffe
International became the parent of Werke Pharmaceuticals and AXM Shenyang. Also
following the reverse acquisition Wickliffe International Corporation changed
its name to Axiom Pharmaceuticals, Inc., and subsequently to AXM Pharma, Inc.
Our subsidiary, AXM Shenyang, is classified under Chinese Company Law as a
18
Wholly Foreign Owned Enterprise. Wholly Foreign Owned Enterprises have recently
become the investment vehicle of choice for foreign investors who wish to
manufacture, process, or assemble products in China. Wholly Foreign Owned
Enterprises are limited liability companies established under Chinese Company
Law, which are owned exclusively by one or more foreign investors and thus offer
controls over the company's management, technology, and finances that the
typical foreign investor requires. From a foreign investors' point of view, the
advantages of establishing a Wholly Foreign Owned Enterprise include:
o Independence and freedom to implement the worldwide strategies of its
parent company without having to consider the involvement of a Chinese
partner;
o Ability to carry on business rather than just a representative office
function;
o Ability to issue invoices to their customers in Renminbi (Chinese
Currency) and receive Renminbi revenues;
o Ability to convert Renminbi profits to US dollars for remittance to
their parent company outside China;
o Ability to employ staff directly within China;
o Protection of intellectual know-how technology;
o Greater efficiency in its operations, management and future
development; and
o No requirement to share profits with another party.
In summary, the key differences between a Wholly Foreign Owned
Enterprise and an equity or cooperative joint venture are that the joint venture
business structure requires profit sharing between the stake holders,
significant involvement in operational and business matters by the Chinese stake
holders, indirect representation in business matters and much less effective and
efficient cooperation between the stake holders. Typically, the foreign party to
a Chinese joint venture experiences significantly less control over the business
structure than if the foreign party forms a Wholly Foreign Owned Enterprise or
converts an existing joint venture into a Wholly Foreign Owned Enterprise.
There may of course be disadvantages to operating as a Wholly Foreign
Owned Enterprise. For example, should we become subject to liabilities that
arise from our operations in The Peoples Republic of China, we would be wholly
responsible for such liabilities. In a joint venture, the foreign investor would
only be liable for that portion of the liability, which corresponds to its
ownership in the joint venture. Also, as a result of our wholly foreign
ownership, we may receive less favorable treatment from governmental agencies in
The Peoples Republic of China and other Chinese companies than we would receive
if we had a Chinese Partner. To date we have not experienced any such
disadvantages in operating our business as a Wholly Foreign Owned Enterprise.
Despite the possible disadvantages to operating as a Wholly Foreign
Owned Enterprise, we feel that the advantages outweigh the disadvantages. With
regard to AXM Pharma, the advantage of being able to own 100% of our Chinese
operating subsidiary is particularly important because of our status as a U.S.
public company. We believe that newly formed businesses will also see the
advantages to operating as a Wholly Foreign Owned Enterprise and that most such
businesses will, if permitted by the Chinese government, choose the use of the
Wholly Foreign Owned Enterprise structure over the joint venture structure. It
is also anticipated that many existing joint ventures are likely to migrate
their corporate structures to Wholly Foreign Owned Enterprises over the next
five years.
AXM Shenyang is located in the City of Shenyang, which is in the
Province of Liaoning in the Northeastern section of The Peoples Republic of
China. AXM Shenyang and its predecessor company, Shenyang Tianwei Pharmaceutical
Factory, Ltd. have an operating history of approximately 10 years. AXM Shenyang
historically has been a manufacturer and distributor of proprietary and generic
pharmaceutical products, which include injectables, capsules, tablets, liquids
and medicated skin products for export and domestic Chinese sales. The products
produced by AXM Shenyang in the past three years have focused on relief of
selective symptoms of upper respiratory infection, skin irritation and rash,
infectious disease. We currently own 43 product permits, of which only four
permits are currently commercialized. AXM Shenyang's Shenyang plant was
decommissioned in 2002 due to the significant growth of the population of
Shenyang that caused the surrounding area to change from a city-edge industrial
19
area to a city-center, non-industrial urban residential neighborhood. As part of
a broad-based corporate development strategy, the Shenyang plant is anticipated
to be contributed to a city sponsored commercial/residential real estate
development. However, since we did not own the land upon which the old factory
was located, we do not anticipate receiving any material reimbursement for our
contribution of the plant. Furthermore, the compensation we may receive, if any,
is not expected to have a material affect on our results of operations or
financial condition. AXM Shenyang currently utilizes a third-party original
equipment manufacturing pharmaceutical plant to produce all of its products and
distributes its products only through third-party distributors. AXM Pharma has a
marketing field force of 22 persons.
We are utilizing a portion of the net proceeds from our sale of the
Preferred Stock to build a modern production and distribution facility, which we
plan to qualify under United States Good Manufacturing Practice regulations. The
site of our new plant is located in a special economic zone located several
kilometers from the old plant. We have engaged Liaoning Pharmaceutical Design &
Engineering Company as our design company. Liaoning Pharmaceutical Design &
Engineering Company has provided us with the following estimates in its report
to us titled the " Basis for Design":
o Construction and installation of equipment: December 2003-July 2004
o Trial batch production: August 2004-September 2004
o Chinese Good Manufacturing Practices licensing: October 2004-November
2004
o US Food and Drug and Administration inspection and certification: to
be scheduled
Prior to closing the old plant, we had approximately 320 employees. By
utilizing third-party original equipment manufacturing manufacturing
relationships, our head count has dropped to approximately 35 employees. We
anticipate that when the new facility is certified and becomes operational our
total headcount will likely approach the former number of employees and selected
third-party original equipment manufacturing production will be discontinued.
AXM Shenyang has chosen to locate its new production facility in the
Shenyang Hunnan National New & High-Tech Industrial Development District. This
special economic district is located at the southern part of the city of
Shenyang with a total area of approximately 120 square kilometers. The
development and construction of the High-Tech Industrial Development District is
a major step for Shenyang's economic and social development. We expect to
complete the construction and governmental approval process for the new facility
by the fourth quarter of fiscal 2004. We believe construction of the new
facility will provide us with the ability to meet current demand within The
Peoples Republic of China and with the flexibility to add production capacity to
meet future product requirements both within The Peoples Republic of China and
for potential export markets. We believe construction of the new facility will
provide significant operational and financial benefits as a result of our
ability to implement operational effectiveness as well as offer greater control
over quality assurance and production scheduling and capacity.
The new Shenyang facility is designed to meet stringent U.S. Good
Manufacturing Practice protocols. By meeting such protocols, we believe we will
be in a position to expand our marketing and sales activities to include exports
to neighboring Asia-Pacific countries, as well as North America, Europe and
Africa. In addition, we believe we will be better positioned to actively seek
and engage foreign ethical and over-the-counter drug manufacturers that are
searching for high-quality, low-cost manufacturing capabilities for their high
demand medications.
The High-Tech Industrial Development District was established in May of
1988 order to accelerate the development and industrialization of high-tech
industries in the North-Eastern portion of the Peoples Republic of China. After
thirteen years of development, it has successfully attracted various high-tech
industries, including: biotechnology, pharmaceuticals, software, digital
technology, robots, nano-materials and a distribution center for IT products.
Currently, over 480 foreign enterprises including General Motors, Toshiba and LG
that have set up offices or manufacturing facilities in the High-Tech Industrial
Development District.
In order to create unique incentives for companies to locate in the
High-Tech Industrial Development District, favorable corporate income rates have
been established. The income tax rate for those companies that have chosen to
locate in the High-Tech Industrial Development District will be levied at 15
percent annually. Newly founded high-tech enterprises, including AXM Shenyang,
will enjoy exemption from income tax for 2 years from the first year of
operation.
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GROWTH STRATEGY
We believe we have a low risk corporate development strategy in that we
intend to organically grow our operational revenue using currently profitable
products commercializing products for which permits are issued. Our strategy
includes a focus on branding and marketing. We plan to attract unique molecules
from large pharmaceutical and drug discovery companies through license
agreements. We will continue to sell in the Peoples Republic of China. The
addition of revenues through international sales of our products and/or
acquisitions will only be considered if they are deemed to enhance our revenue
and profitability. Utilizing our low risk growth strategy, however, we believe
that we can become a leading China-based, current Good Manufacturing
Practice-qualified pharmaceutical manufacturer and distributor, with
certification from the U.S. Food and Drug Administration and the Chinese State
Food and Drug Administration. To reach our goals, we intend to implement the
following strategy:
Construction of US Good Manufacturing Practice-qualified Manufacturing
Facility. We began construction in January 2004 of a new U.S. Good Manufacturing
Practice-qualified pharmaceutical manufacturing facility in the special economic
zone in Shenyang. The Good Manufacturing Practice Regulations are promulgated by
the United States Food and Drug Administration under the authority of the
Federal Food, Drug and Cosmetic Act. These regulations, which have the force of
law, require that manufacturers, processors and packagers of drugs, medical
devices, some foods, and blood take proactive steps to ensure their products are
safe, pure and effective. Good Manufacturing Practices regulations require a
quality approach to manufacturing, enabling companies to minimize or eliminate
instances of contamination, mix-ups and errors. Failure of firms to comply with
Good Manufacturing Practices regulations can result in serious penalties,
including recall, seizure, fine and imprisonment. We expect to complete the
construction and governmental approval process by the fourth quarter of fiscal
2004. We believe construction of the new plant will provide us with the ability
to meet current demand within The Peoples Republic of China and with the
flexibility to add production capacity to meet future product requirements both
within The Peoples Republic of China and for potential export markets. We
believe construction of the new plant will provide significant operational and
financial benefits as a result of our ability to implement operational
effectiveness as well as offer greater control over quality assurance and
production scheduling and capacity.
The new Shenyang facility has been designed to meet stringent U.S. Good
Manufacturing Practice protocols. By meeting such protocols, we believe we will
be in a position to expand our marketing and sales activities to include exports
to neighboring Asia-Pacific countries, as well as North America, Europe and
Africa. In addition, we believe we will be better positioned to actively seek
and engage foreign ethical and over-the-counter drug manufacturers that are
searching for high-quality, low-cost manufacturing capabilities for their high
demand medications.
Product Range Expansion. Anticipating completion of our new
manufacturing facility, we are undertaking to expand our existing product line
by exploiting our existing base of licensed products, internal research and
development of new formulas, as well as acquiring new ethical and
over-the-counter pharmaceutical products licensed from drug manufacturers based
in North America, Europe and Japan. Initially, selection of new products will be
determined by criteria such as: (a) molecules that can achieve a unique or
competitive positioning in the market relative to the competition in selected
therapeutic categories, (b) the size of the market, (c) the price premium
available based on the government's pricing mechanism in force at the time and
the projected profit margins, and (d) The opportunity available at the time to
market the products and have the product purchased through channels other than
government hospital tender purchasing. Our objective will be to maximize return
on investment and still benefit from proposed collaborative partners. We believe
cancer, respiratory disease, diabetes, cardiovascular and infectious diseases
represent significant therapeutic opportunities. In addition, we intend to focus
on products developed from original molecules that work in unique ways compared
to the competition, that have large potential markets and can be further
differentiated through effective branding strategies. This strategy should
greatly limit the number of potential competitors and help us maintain higher
profit margins. We anticipate attempting to develop a portfolio of molecules and
brands in selected therapeutic categories and introduce new products each year,
that have significant intellectual property protection. Toward this end, in
January 2004, we entered into a licensing agreement to manufacture, market and
sell certain vitamin and vitamin supplements in The Peoples Republic of China
under the Sunkist brand name and trademark. The agreement grants AXM Pharma
exclusive rights in The Peoples Republic of China, excluding Macao and Hong
Kong, for use of the Sunkist brand name for AXM Pharma's range of vitamin and
vitamin supplements (excluding vitamin-fortified confections). The agreement
also grants AXM Pharma a right of first refusal for any territory in the rest of
Asia where Sunkist does not currently license the product categories covered by
their agreement with AXM Pharma. Under the terms of the agreement, we are
required to achieve certain sales targets each year, for each category of
product licensed under the agreement. If we fail to achieve the agreed upon
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sales targets for any two consecutive years, the agreement may be terminated
with regard to such product category by Sunkist in its discretion. Supporting
the license, we are entering into agreements to secure the transfer of new
manufacturing methods for traditional product forms and for product forms that
will be new in China. Additionally, advances in manufacturing methods will be
deployed in the manufacture of the product Qiyao, an adjunctive therapy for the
treatment of type II diabetes, the rights to which we recently acquired.
Expand Marketing and Sales. As we build and commission a factory
achieving current Good Manufacturing Practice standards, we intend to expand our
marketing and sales capabilities, first in The Peoples Republic of China, then
internationally. We anticipate that initially we will seek to expand our current
domestic distribution capabilities beyond the regions in which we currently
sell. To achieve this goal, we expect to expand the current successful in-house
marketing and sales capacity, as well as to engage additional domestic
third-party distributors to penetrate new markets. We are also developing more
extensive educational programs for hospitals, doctors, clinics and distributors
with respect to our product lines. We expect these educational programs to
significantly improve the sell through and promotion of our products.
PRODUCTS
Licensing and Intellectual Property
The State Food and Drug Administration of the Government of The Peoples
Republic of China issues the licenses and permits for permission to market and
manufacture pharmaceutical products in The Peoples Republic of China. Generally,
licenses and permits issued by the State Food and Drug Administration are
revocable by the State Food and Drug Administration at any time, with or without
cause. AXM Shenyang has been granted 43 product licenses and permits, of which
only four licenses currently are commercialized. AXM Shenyang will likely
undertake a selection process to decide which of its remaining licenses, if any,
will be commercialized, and to determine the timeframe for such
commercialization over the next 10 years. AXM Shenyang operates in both the
over-the-counter and the prescription pharmaceutical product market segments.
None of our registered products are currently patented nor do we have any
patents pending before the government of The Peoples Republic of China or any
other government.
Current Product Line
The five compounds we currently manufacture are listed below. Note of
the five compounds listed, four are commercialized, Lifupeng is available upon
request from government hospitals only, as a service item.
Asarone, which is manufactured in tablet form, is indicated for
bronchial infection and bronchial constriction (symptoms of upper respiratory
infection).
Weifukang is an antiseptic cream for cleansing acne and for relieving
the symptoms of eczema, psoriasis and other skin irritations, such as contact
dermatitis.
Cefalexine, Cefalexine is a broad-spectrum antibiotic. It has high
sensitivity to staphylococcus, streptococcus, pneumococcus, gonococcus,
diplococcus meningitis and others. Cephalexine is approved for and registered
for the treatment of respiratory infections; genitourinary tract infections;
skin and soft tissue infections; abdominal (gastric) infections; and oral
infections.
Norfloxacin is a medium spectrum antibiotic that is primarily
positioned for gastric and urinary infection.
Lifupeng, Rifampicin is used for treatment of tuberculosis.
We currently manufacture five products, which include:
REGISTRATION STATUS DISTRIBUTION CHANNEL SALES (%RX,
PRODUCT (RX OR OTC) % OTC)
------- ------------------- --------------------------------
Cafalexine, an antibiotic Rx 100%Rx
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Weifukang skin cream OTC 100% OTC
Norfloxacin, an antibiotic Rx 100% Rx
Lifupeng (Rifampacin) for Rx 100% Rx
Tuberculosis
Asarone alpha (tablets) OTC/Rx 33% OTC/67%Rx
We recently made a strategic decision to cease sales of our Cefalexin
and Norflexin antibiotic products due to their significantly decreasing gross
profit margins. Antibiotic pricing is under significant pressure from government
hospital purchasers who are reducing the price they are willing to pay for
antibiotics by up to 20% per year.
Total Permitted and Licensed Products
The following table lists all of the compounds for which AXM Shenyang
has permits to manufacture and market. We currently only produce and market the
five products listed above. To date we have not commercialized any of the other
compounds listed below because our strategy is to focus on branding and brand
development prior to introducing new product lines. At present our focus is on
establishing and expanding sales of the brands which we have already launched.
However, we plan to introduce two new products in 2004 and two additional
products in each subsequent year. We have not yet determined which products we
will introduce in 2004. The State Food and Drug Administration has recently
ordered pharmaceutical companies in The Peoples Republic of China to stop
producing two of the 43 products listed below, Meleumcyin Tablets and Arsoer
Tabellae for Common Cold. As a result, the State Food and Drug Administration
will not renew these licenses in the future. However, we do not feel that this
will have an adverse effect on our business since we are not currently
commercializing these two products.
NAME
Tabellae Asarone
Compoint Sulfamethoxazole
Tabellae Amidopyririni Et Caffeini
Pharacetamol
Amidopyrini Et Paracetamoli Compositae
Metamizole Sodium
Tabellae Acidi Acetysalicylici Compositae
Erythromycin
Erthromycin Ethylsuccinate
Acetylspiramycini
Inosini
Chloramphenicol
Berberine Hydrochloride
Fenofibrate
Meleumycin
Tabellae Natril Bicarbonatis Cum Rheo Et
Gentiana
Tabellae Acetamidopyrrolidoni
Vitamin C
Cyproheptadine Hydrochloride
Arsoer Tabellae for Common Cold
Atenolol
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NAME
Lid Tabellae for Stomach-Regulating
Glucosum Pro Orale
Norfloxacin
Norflaxacin
Ke Kuai Hao for treating Cough
Fu Pai Shuan
Nifedipine
Tolperisoni Hydrochloridi
Cefalexini Compositum
Rifampicin
Indometacin
Acetamidopyrrolidoni
Pipemidic Acid
Paracetamoli Compositae
Capsules for Removing Erethism
Albendazol
Xiaoling for Common Cold
Weifukang Cream
Weifukang Cream
Anti-Chap Skin Cream
Unguentum Griseofulrini Compositum
Unguentum Methylis Salicylatis Compositum
Compound Zinc Undecylenate, Ointment
Cremor Crotamitoni
Clycerol
In addition to the licenses for the products listed above, we acquired the
rights to Qiyao, an adjunctive therapy for Type II diabetes, Sunkist Vitamin
Range and Whisper Feminine Hygiene Wash. We intend to manufacture, market and
sell these products.
CURRENT THIRD PARTY ORIGINAL EQUIPMENT MANUFACTURING
Qiqihaer Pharmaceutical Factory 2 of Heilong Group, which is located in
the City of Qiqihaer, Heilonjiang Province, manufactures the following products
pursuant to an original equipment manufacturing agreement. These products
constitute all of the products sold by AXM Pharma at this time.
o Asarone Tablets
o Cefalexine Capsules
o Norfloxacin Capsules
o Weifukang Antiseptic Cream
o Lifupeng Granules.
Our agreement with Qiqihaer Pharmaceutical Factory 2, which we entered
into in September 2002, requires Qiqihaer Pharmaceutical Factory 2 to
manufacture those products that we designate. Under the agreement, Qiqihaer
Pharmaceutical Factory 2 must manufacture our products based on quality control
variables and timetables supplied by us. We are obligated to pay Qiqihaer
Pharmaceutical Factory 2 for product at the time of the completion of the
manufacturing process. Qiqihaer Pharmaceutical Factory 2 is prohibited from
selling any of our products. Qiqihaer Pharmaceutical Factory 2 is a medium-sized
pharmaceutical factory with approximately 600 employees and over 34 years of
operating history. It manufactures injectables, tablets, capsules and other
pharmaceutical products for itself and unaffiliated third parties. In 2000
Qiqihaer Pharmaceutical Factory 2 received a Certificate of Good Manufacturing
Practices for Human Drugs from the State Food and Drug Administration. The
certification remains valid until 2008. Our agreement with Qiqihaer
Pharmaceutical Factory 2 expires in September 2004. We anticipate that most of
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the products that are currently manufactured for us by Qiqihaer Pharmaceutical
Factory 2 will be manufactured in our new factory in Shenyang, which is
currently under construction. We have, however, begun discussions with other
third-party manufacturers whom we may employ if our new facility is not complete
prior to the expiration of our agreement with Qiqihaer Pharmaceutical Factory 2
or in the event that it is more cost-effective to continue third-party
production of certain products. Until the opening of our new manufacturing
facility, we willsupport the launch of the new product ranges by entering into a
repackaging agreement to increase manufacturing capacity.
CURRENT SALES AND MARKETING
Our products are currently sold and distributed through only one
third-party pharmaceutical distributor, Liaoning Weikang Medicine Co. Pursuant
to an agreement between our predecessor company, Shenyang Tianwei Pharmaceutical
Factory and Liaoning Weikang Medicine Co., we have granted Liaoning Weikang
Medicine Co. exclusive rights to distribute our products in Shenyang. Under
terms of our agreement with Liaoning Weikang Medicine Co., our prices must be
competitive with other suppliers. Due to the exclusive nature of our agreement
with Liaoning Weikang Medicine Co., we are not permitted to sell our products to
other customers in Shenyang. Liaoning Weikang Medicine Co. is required to pay
for our products in cash at the time of sale. Also, pursuant to an oral
agreement, we permit Liaoning Weikang Medicine. Co. to sell our products through
sub-distributors in seven territories, including Guangdong, Heilongjiang, Jilin,
Fujian, Liaoning and Inner Mongolia and the city of Shanghai. Its
sub-distributors include Shanghai Shenwei Drug Co., Guangzhou Kangning Drug Co.,
and Guangzhou Mingsheng Drug Co. We believe other distributor relationships will
be available on comparable terms should any of our existing sales and marketing
relationships be terminated. Our agreement with Liaoning Weikang Medicine. Co.
expires in March 2004. Liaoning Weikang Medicine. Co. has verbally agreed to
continue its distribution relationship with us and we anticipate renewing our
relationship with Liaoning Weikang Medicine. Co. for distribution in Liaoning
Province. Additionally, we are currently negotiating with several other
distributors for distribution of our products in additional provinces in the
Peoples Republic of China.
COMPETITION
At present, we do not have a single main competitor. Rather, we compete
with different companies in different therapeutic categories. For example, with
regard to Asarone Tablets, the product from which we derive the most revenue, we
compete with Liuzhou Pharmaceutical Factory, located in Liuzhou City, Guang Xi
Autonomous Region. AXM and Liuzhou are the only two companies approved by the
State Food and Drug Administration to manufacture Asarone Tablets. However
because Liuzhou distributes its Asarone tablets mainly in Southern China and AXM
distributes its products mainly in Northern China, the two companies do not
really compete head to head in their respective markets. We compete with two
companies for distribution of our product Weifukang herbal antiseptic skin
cream, Zhejiang Wenzhou Pharmaceutical Factory and Ying Kou Biochemical
Pharmaceutical Factory. However, one of these competitors, Zhejiang Wenzhou,
targets its product to pubic bath houses, and does not compete in the
pharmaeutical distribution segments in which AXM sells Weifukang. Ying Kou
Biochemical Pharmaceutical Factory's main business focus is its bulk
bioprocessing business. Their herbal antiseptic product is a minor line. Our
largest competitor for both Cefaxlin Capsules and Norfloxacin Capsules is
Yanfeng Pharmaceutical in Shenyang. As a company in the same city, they are
considered to be a direct competitor. Yanfeng Pharmaceutical Company is a
recently privatized State Owned Enterprise They employ approximately 400
persons. Their sales territory focus is in Shenyang city and although market
share information is not available we consider Yanfeng Pharmaceutical Company to
be a major competitor.
INDUSTRY TAXES AND COSTS
The Chinese government currently imposes a sales tariff of
approximately 9.6% on imported pharmaceuticals, plus a 17% value-added tax
charge, customs clearing charges and drug inspection costs. The prices of
imported pharmaceuticals are further inflated by high distribution costs and
hospital mark-ups. The retail prices paid by hospitals can be as much as 10
times higher than the manufacturer's price. In addition, only those drugs that
appear on the provincial and municipal reimbursement lists are covered by the
national medical insurance system, which naturally favors locally-manufactured
products. Since according to IMS Market Research Consulting (Shanghai) in its
report titled "IMS Market Research Consulting (Shanghai), Market Prognosis Asia,
2003-2007, China Report" approximately 80% of all drugs sold in The Peoples
Republic of China are sold through hospital pharmacies, exclusion from these
lists may result in huge losses in sales. We believe Chinese industry regulators
are concerned about the surging drug costs for the national health care system,
which accounts for about 70% of the total healthcare expenditure. Consequently,
the government has initiated new plans to separate medical consulting from
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medical prescription. The State Development Planning Commission of The Peoples
Republic of China has announced its intention to re-examine the pricing of drugs
in The Peoples Republic of China, as well as to decrease the cost of
"over-supplied drugs," according to the IMS Market Prognosis Asia 2003-2004,
China Report.
RESEARCH AND DEVELOPMENT
Our research and development activities have focused on quality and
laboratory testing of compounds developed by others, and administration of the
testing process and the negotiations for rights to the compounds. In this
effort, we have developed working relationships with Shenyang Medical University
and the Liaoning Research Institute for Traditional Chinese Medicine and Beijing
Shiehe Medical University. As a result of our cooperative work with our research
partners, we have expended only a nominal amount (relating only to analytical
testing, travel and meeting expenses) on research and development during the
year ended December 31, 2002.
EMPLOYEES
At June 25, 2004, we had two employees in our U.S.-based headquarters
and 35 full-time employees at our facilities located in The Peoples Republic of
China. Until our new factory is completed we intend to hire additional employees
on a part-time or independent contractor basis in connection with certain
projects in The Peoples Republic of China. We also intend to hire up to two
additional employees to serve in administrative positions at our U.S.-based
headquarters in the near future.
Once our new factory is completed, our forecast for staffing includes:
o approximately 200 full time employees in manufacturing, management
administration and marketing/sales
o approximately 10 independent contractors assigned to market research
and market analysis
o approximately 90 sales persons assigned to in-store promotion at the
retail pharmacy level
o approximately 10 medical doctors employed part time to write technical
briefs for products and diseases of interest
None of our current employees is represented by a labor union and we
consider our relationships with our employees to be good.
REGULATORY ENVIRONMENT
Effect of Government Regulation
The modernization of regulations for the pharmaceutical industry is
relatively new in the The Peoples Republic of China and the manner and extent to
which it is regulated will continue to evolve. As a pharmaceutical company, we
are subject to the Pharmaceutical Administrative Law, which governs the
licensing, manufacture, marketing and distribution of pharmaceutical products in
the Peoples Republic China for the and sets penalty provisions for violations of
provisions of the Pharmaceutical Administrative Law. In addition as a Wholly
Foreign Owned Enterprise we are subject to the Foreign Company provisions of the
Company Law of the Peoples Republic of China, which governs the conduct of our
wholly owned subsidiary, AXM Shenyang and its officers and directors. Changes in
these laws or new interpretations of existing laws may have a significant impact
on our methods and our costs of doing business.
Additionally, we will be subject to varying degrees of regulation and
permitting by governmental agencies in The Peoples Republic of China. For
example, in 1999, the State Food and Drug Administration of The Peoples Republic
of China set up an administrative system for the classification of prescription
and over-the-counter drugs. Since then, the State Food and Drug Administration
has issued a series of guidelines on interpretation of the new classification
system in such areas as labeling, usage instructions and packaging of
over-the-counter products.
Recently, the State Food and Drug Administration implemented new Good
Manufacturing Practices guidelines for licensing of pharmaceutical products. We
will be required to comply with these new guidelines by December 31, 2004, in
order for our current licenses to be renewed. Since we are constructing our new
factory in Shenyang to meet more stringent U.S. Good Manufacturing Practices
requirements, we believe that we will satisfy the new guidelines and that our
current licenses will be renewed. Failure to satisfy these new guidelines would
have a material adverse effect our business.
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In 2003, the government implemented a new regulatory regime for
registration of prescription and over the counter pharmaceutical products. The
legislation requires a change in registration status from provincial government
approval to national government approval. We do not anticipate difficulties with
this transition, however any delays in government review as a result of the
recent changes, could impact our ability to gain approval for new or existing
products.
There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on our business,
that regulators or third parties will not raise material issues with regard to
our business and operations or our compliance or non-compliance with applicable
regulations or that any changes in applicable laws or regulations will not have
a material adverse effect on AXM Pharma.
Compliance With Environmental Laws
We are subject to the environmental laws of The Peoples Republic of
China and its local governments. However, because we currently outsource
manufacturing of our proprietary licensed products, we do not incur significant
expense related to compliance with such laws nor do we expect to be affected
significantly by compliance with such laws.
Compliance with Registered Capital Requirements
Pursuant to the Company Law of The Peoples Republic of China, we are
required to contribute a certain amount of "registered capital" to our wholly
owned subsidiary, AXM Shenyang. AXM Shenyang's current registered capital
requirement is US $10,000,000, of which we have contributed $8,579,181. Since
AXM Shenyang is classified as a Wholly Foreign Owned Enterprise, pursuant to the
Law on Foreign Capital Enterprises of The Peoples Republic of China, as well as
its implementation rules (also known of the "Wholly Foreign Owned Enterprise
Law"), we were not required to contribute all of our registered capital at the
time AXM Shenyang was issued its business license. We are, however, expected to
fully satisfy this registered capital requirement within a reasonable time
period. We plan to satisfy this requirement through the completion of our new
factory in Shenyang, the value of which will exceed the current shortfall in
registered capital. Since we have been informed by our legal counsel in The
Peoples Republic of China that they are not aware of any instance where the
business license of a Wholly Foreign Owned Enterprise has been revoked due to
failure to satisfy the registered capital requirement within a stipulated time
period when most of its registered capital has been contributed, we do not
believe that the current shortfall presents material risk to our business in The
Peoples Republic of China. Moreover, we currently have sufficient funds
available to satisfy the registered capital requirement if necessary. However,
our management has determined that we will only contribute the funds to AXM
Shenyang as they are needed to accomplish construction of the new factory or for
other valid corporate purposes in The Peoples Republic of China. In February and
March 2004, we transferred an additional $1,500,000 to AXM Shenyang, which, once
the appropriate regulatory authorities accept it, will fully satisfy AXM
Shenyang's registered capital requirement.
CORPORATE HISTORY
We were incorporated under the laws of the State of Nevada on June 30,
1999, with the name Wholesale on the Net, Inc. Our original business purpose was
to develop and sell business products over the Internet. In April 2001, we
entered into a stock purchase agreement to acquire certain trademarks and
control of a hotel and changed our named to Wickliffe International Corporation.
We planned to operate hotels and resorts under the mark "Wickliffe." We never
completed the planned stock purchase agreement.
In April 2001, we began searching for hospitality properties to
acquire. However, because of the deteriorating market, in January 2002, we
determined that we would search for an ongoing business that we could purchase
solely for stock rather than having to raise capital to offer cash for an
existing business enterprise. On December 12, 2002, we entered into a share
exchange agreement to acquire Werke Pharmaceuticals, Inc., together with its
wholly-owned subsidiary AXM Shenyang. The transaction contemplated by our share
exchange agreement with the shareholders of Werke Pharmaceuticals, Inc. closed
on March 14, 2003, at which time Werke Pharmaceuticals, Inc. became our
wholly-owned subsidiary and the shareholders of Werke Pharmaceuticals, Inc.
27
acquired approximately 88.89% of our voting stock. In connection with such
acquisition , we commenced operations in our current line of business and
changed our name to AXM Pharma
DESCRIPTION OF PROPERTY
Our corporate and United States offices are located at 3960 Howard
Hughes Parkway, Suite 500, Las Vegas, Nevada. The current rent for these
premises is $200.00 per month. Our lease expires on February 28, 2005. Our
United States marketing office is located at 4695 McArthur Court, 11th Floor,
Newport Beach, California 92660. The current rent for these premises is
$2,647.94 per month. Our lease expires in September 30, 2004.
Our principal administrative, sales and marketing facilities are
located at No. F.3004 Sankei Torch Bldg, 262A Shifu Road, Shenyang City,
Liaoning Province, The People's Republic of The Peoples Republic of China. The
current rent for these facilities is US$2,916.66 per month and our lease expires
in October 2007.