United States


Securities and Exchange Commission


Washington, D.C.  20549


FORM 10-Q




x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 31, 2011





OR





 ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission File No: 09081





CYBRDI, INC.


(Exact name of registrant as specified in its charter)





CALIFORNIA
95-2461404(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer ID No)





No 29 Chang'An South Road Xi'an Shaanxi P.R. China 710061


(Address of principal executive office)  (Zip Code)





Registrant's telephone number: (011) 86-29-8237-3068





N/A


Former name, former address and former fiscal year,





(if changed since last report)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No  ̈





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 definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer  ̈

Accelerated filer  ̈

Non-accelerated filer  ̈

(Do not check if a smaller reporting

company)

Smaller reporting company x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈   No x





The number of shares of common stock, no par value per share, outstanding as of May 17, 2011 was  65,756,567.










CYBRDI, INC.


FORM 10-Q


QUARTERLY PERIOD ENDED March 31,2011


INDEX





TABLE OF CONTENTS





PagePART I – FINANCIAL INFORMATIONItem 1:
Financial Statements
3Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13Item 3:
Quantitative and Qualitative Disclosures About Market Risk
18Item 4T:
Controls and Procedures
18PART II – OTHER INFORMATIONItem 1:
Legal Proceedings
19Item 1A:
Risk Factors
19Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
19Item 3:
Defaults Upon Senior Securities
19Item 4:
Submission of Matters to a Vote of Security Holders
19Item 5:
Other Information
19Item 6:
Exhibits
19





2





PART I. FINANCIAL INFORMATION


Item 1 Financial Statements


CYBRDI, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS  March 31, 2011


December 31, 2010ASSETS

(Unaudited)


(Audited)CURRENT ASSETSCash and equivalents

$
426,654


$
585,020Inventories


1,106,776



1,090,154Due from related companies


335,965



204,474Loan to unaffiliated company,net


45,813



90,877Other receivables and prepaid expenses


93,686



96,949TOTAL CURRENT ASSETS


2,008,894



2,067,474PROPERTY, PLANT AND EQUIPMENT, NET


1,333,350



1,314,979CONSTRUCTION IN PROGRESS


6,010,764



6,557,391INTANGIBLE ASSETS, NET


839,252



226,219TOTAL ASSETS

$
10,192,260


$
10,166,063LIABILITIES AND EQUITYCURRENT LIABILITIESShort-term loan

$
1,603,470


$
1,590,355Accounts payable


5,807



4,609Accrued expenses


524,722



505,054Deferred revenue


23,415



21,749Customers deposits


152,668



150,522Due to related parties


2,185,459



2,023,674Deferred tax liabilities


9,893



9,812Other payables


43,876



77,209TOTAL CURRENT LIABILITIES


4,549,310



4,382,984CONSTRUCTION PAYABLE


815,093



808,427TOTAL LIABILITIES


5,364,403



5,191,411EQUITYPreferred Stock, $1.00 per value, 500,000 shares authorized,no shares issued and outstanding


-



-Common Stock, no par value, 150,000,000 shares authorized,65,756,567 shares issued and outstanding


3,877,864



3,877,864Reserve funds


336,885



336,885Accumulated deficit


(2,011,572
)


(1,847,882
)Accumulated other comprehensive income


1,329,642



1,287,737TOTAL STOCKHOLDERS’ EQUITY


3,532,819



3,654,604NONCONTROLLING INTEREST


1,295,038



1,320,048TOTAL EQUITY


4,827,857



4,974,652TOTAL LIABILITIES AND EQUITY

$
10,192,260


$
10,166,063See notes to consolidated financial statements.




3





CYBRDI, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)


Three Months Ended


Three Months EndedMarch 31, 2011


March 31, 2010RevenueHousing

$
-


$
94,614Commercial rental


-



-Tissue array products


113,811



97,830Total revenue


113,811



192,444Cost of SalesHousing


-



84,869Commercial rental


14,627



-Tissue array products


87,148



64,459Total cost of sales


101,775



149,328Gross Profit


12,036



43,116Operating Expenses:Professional fees


46,326



24,227Bad debt expense


45,604



-Salaries and wages


40,483



343,679Depreciation and amortization


36,272



35,358Other general and administrative expenses


26,355



6,053Selling and distribution expenses


6,425



6,576Research and development expenses


-



7,404Total Operating Expenses


201,465



423,297Loss from Operations


(189,429
)


(380,181
)Other IncomeInterest income


487



848Other income, net


243



27,089Total Other Income, Net


730



27,937Loss before Income Taxes


(188,699
)


(352,244
)Income Tax Benefit (Expense)


-



-Net loss


(188,699
)


(352,244
)Net loss attributable to the noncontrolling interest


(25,009
)


(104
)Net loss attributable to CYBRDI, INC. AND SUBSIDIARIES

$
(163,690
)

$
(352,140
)Net Loss Per Common ShareBasic and Diluted

$
(0.00
)

$
(0.01
)Weighted Average Number of Shares OutstandingBasic and Diluted


65,756,567



63,376,567See notes to consolidated financial statements.







4





CYBRDI INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


Three Months Ended


Three Months EndedMarch 31, 2011


March 31, 2010CASH FLOWS FROM OPERATING ACTIVITIESNet Loss

$
(163,690
)

$
(352,140
)Adjustments to Reconcile Net Loss to Net CashProvided by Operating Activities:Depreciation and amortization


65,698



48,164Bad debt expense


45,604



-Issuance of common shares for compensation


-



306,000Gain on sale of other assets


-



(28,161
)Minority interest


(25,009
)


(104
)Changes in Operating Assets and Liabilities:Accounts receivable


-



8,640Inventories


(7,598
)


100,400Other receivable and prepaid expenses


4,043



(26,663
)Accounts payable and other current liabilities


31,392



(187,961
)Deferred revenue


-



9,390Customer deposits


901



(1,465
)Net Cash Used in Operating Activities


(48,659
)


(123,900
)CASH FLOWS FROM INVESTING ACTIVITIESNet proceeds from disposal of other assets


-



66,789Advance for loan to affiliated companies


(130,997
)


-Purchase of property, plant, and equipment


(45,689
)


(20,790
)Payments for construction in progress


(37,920
)


(167,019
)Repayment proceeds from affiliated companies


-



3,797Net Cash Used in Investing Activities


(214,606
)


(117,223
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from loans from related companies


18,242



-Proceeds from shareholders/officers


82,595



29,069Repayments of loan from related companies


-



(2,840
)Net Cash Provided by Financing Activities


100,837



26,229NET DECREASE IN CASH & CASH EQUIVALENTS


(162,428
)


(214,893
)EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS


4,062



12,495CASH & CASH EQUIVALENTS, BEGINNING BALANCE


585,020



861,457CASH & CASH EQUIVALENTS, ENDING BALANCE

$
426,654


$
659,059See notes to consolidated financial statements.







5





CYBRDI, INC. AND SUBSIDIDARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





1. Interim Financial Statements





The unaudited consolidated financial statements of Cybrdi Inc. and subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet information as of December 31, 2010 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report.  Certain comparative amounts have been reclassified to conform to the current period's presentation.





The consolidated financial statements include the accounts of Cybrdi, Inc. and its wholly-owned subsidiaries and joint ventures. All material intercompany balances and transactions have been eliminated.





2. Description of Business





Cybrdi, Inc. (f/k/a Certron Corporation) (the “Company” or “Cybrdi”) was incorporated on August 1, 1966, under the laws of the State of California. Until around June 2004, the Company’s business consisted of the distribution of magnetic media products, primarily blank audio and video cassettes. Due to continuing intense price competition and technological changes in the marketplace for its products, the Company lost its remaining significant customers and disposed of or wrote off its remaining inventory. As a result of these occurrences, the Company concluded that its audio and videotape businesses were no longer viable and some of its product lines were obsolete.





On February 10, 2005, the Company, through a wholly-owned subsidiary, acquired all the ownership interest in Cybrdi, Inc., a privately held company incorporated in the State of Maryland ("Cybrdi Maryland"). As a result of the ownership interests of the former shareholders of Cybrdi Maryland, for financial statement reporting purposes, the transaction was treated as a reverse acquisition, with Cybrdi Maryland deemed the accounting acquirer and Certron Corporation deemed the accounting acquiree. Historical information of the surviving company is that of Cybrdi Maryland.





Cybrdi Maryland was established in 2001 to acquire an interest in biogenetic products commercialization and related services entities in Asia. On March 5, 2003, Cybrdi Maryland acquired an 80% interest in Shaanxi Chao Ying Biotechnology Co., Ltd. (“Chaoying Biotech”), a sino-foreign equity joint venture established in July 2000 in the People's Republic of China (“PRC”), through the exchange of 99% of the Company’s shares to the existing shareholders of Chaoying Biotech. For financial statement reporting purposes, the merger was treated as a reverse acquisition, with Chaoying Biotech deemed the accounting acquirer and Cybrdi Maryland deemed the accounting acquiree.




6





Chaoying Biotech is a sino-foreign equity joint venture between Shaanxi Chaoying Beauty & Cosmetics Group Co., Ltd. (the “Chinese Partner”, a PRC corporation) and Immuno-Onco Genomics Inc. (the “Foreign Partner”, a USA corporation).  The joint venture agreement has a 15 year operating period starting from its formation in July 2000 and it may be extendedupon mutual consent. The principal activities of Chaoying Biotech are research, manufacture and sale of various high-quality tissue arrays and the related services in the PRC.





Most of the Company’s activities are conducted through Chaoying Biotech. Chaoying Biotech, with its principal operations located in China, aims to take advantage of China's abundant scientific talent, low wage rates, less stringent biogenetic regulation, and the huge genetic population as it introduces its growing list of tissue micro array products.





On February 10, 2005, the Company completed the merger with Cybrdi Maryland and changed its name to Cybrdi, Inc.





On July 26 , 2007, Chaoying Biotech entered into an acquisition agreement with  its Chinese partner, which is a principal shareholder of the company, Mr. Bai, the Company’s chief executive officer and  a director is also a principal of its Chinese partner On July 28,2007, Chaoying Biotech invested RMB15 millions (equivalent to US$1,983,078) to acquire an 83.33% equity ownership of Shandong Chaoying Culture and Entertainment Co., Ltd. (“SD Chaoying”) from its Chinese partner, SD Chaoying is a corporation organized in Shandong Province P.R.China. On September 5, 2007, Shandong Commercial government had approved this acquisition and the ownership title of SD Chaoying had been transferred to Chaoying Biotech from its Chinese partner. The future business of SD Chaoying will primarily focus on culture and entertainment, including spa activities, cosmetic and personal care, body building, gambling, catering,  and lodging, etc. SD Chaoying will have a specific emphasis on  casino gambling, which has been approved by Shandong Administration for Civil Affairs. As of December 31, 2009, SD Chaoying had substantially completed the construction of two residential buildings and had recognized revenue from sales of housing for the year ended.  The main structure of the commercial entertainment center has also been completed, except for the exterior, rooftop, the surrounding supporting projects and the community landscaping, which are expected to be completed in the year 2010 prior to the commencement of operations by merchant tenants.





On March 10, 2007 the Company entered into a Sales Agency Agreement with BioMax, Ltd., a reseller located in USA. In addition, the Company terminated its branch office in USA to reduce the general and administrative costs of Cybrdi Maryland in October 2007.





3. Going Concern





The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred significant losses and has not demonstrated the ability to generate sufficient cash flows from operations to satisfy its liabilities and sustain operations.  The Company had an accumulated deficit of $2,011,572 and $1,847,882 as of March 31, 2011 and December 31, 2010, including net losses of $163,690 and $352,140 for the three months ended March 31, 2011 and 2010, respectively.  In addition, current liabilities exceeded current assets by $2,540,416 and $2,315,510 at March 31, 2011 and December 31, 2010, respectively.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.


The Company finances its operations primarily through short-term bank borrowings and advances from related parties and/or officers/shareholders.  In order to complete the construction of SD Chaoying cultural and entertainment center, approximately $2.8 million (equivalent to RMB 19 million) of capital is expected to be needed.  The Company, taking into account the available banking facilities, internal financial resource, and supports from related companies, believes it has sufficient working capital to meet its present obligation for at least the next twelve months.  Management is taking actions to address the company's financial condition and deteriorating liquidity position.  The following sets forth management’s plans for dealing with the adverse effects of the conditions:





7





(a)           Sale of housing inventories:  Proceeds to be received from the sale of the remaining housing of the two completed residential buildings are expected to amount to approximately $1.1 million.





(b)          Rental and management fee revenue from the cultural and entertainment center:  Annual rental revenue is estimated to be approximately $650,000 per year.  Management fee revenue will be charged to commercial tenants at 3% of annual gross revenue.





(c)           Additional advances from related companies and affiliates:  Mr. Bai, our Chief Executive Officer, advanced $52,116 to the Company in 2011 to finance operations and the costs to maintain the Company’s public status in the U.S.  In addition, Shaanxi Chaoying Beauty & Cosmetics Group, which is also an affiliate, is anticipated to provide up to $730,000 of capital to support operational use.  During the year 2011, Shaanxi Chaoying Beauty & Cosmetics Group advanced $18,242 to the Company to finance its operations.





The Company may require additional funds and may seek to raise such funds though public and private financings or from other sources.  There is no assurance that the above management’s plans will be realized or the additional financing will be available at all or that, if available, such financing will be obtainable on terms favorable to the Company or that any additional financing will not be dilutive.  The consolidated financial statements do not include any adjustments that might result from the outcome of those uncertainties.





4. Use of Estimates:





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.





5. Revenue Recognition





Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers and service income is recognized when services are provided. Deferred revenue represents the undelivered portion of invoiced value of goods sold to customers. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting.  Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as customer deposits.




8





6. Reverse Merger





On February 10, 2005, (the "Closing Date") the Company closed on an Agreement and Plan of Merger (the "Agreement") among Certron Corporation (“Certron”), a California corporation, Certron Acquisition Corp., a Maryland corporation and a wholly-owned subsidiary of Certron ("Acquisition Sub"), and Cybrdi, Inc., a Maryland corporation (“Cybrdi – Maryland”) relating to the acquisition by Certron of all of the issued and outstanding capital stock of Cybrdi -Maryland in exchange for shares of common stock of Certron that will aggregate approximately 93.8% of the issued and outstanding common stock of Certron. Pursuant to the terms of the Agreement, at the Closing Date (a) Acquisition Sub has been merged with and into Cybrdi - Maryland, with Cybrdi - Maryland being the surviving corporation, (b) the common stock of Cybrdi-Maryland has been cancelled and converted into the right to receive shares of the common stock of Certron at an exchange ratio of 1.566641609 per share. This resulted in the issuance of 47,328,263 shares of the Certron’s common stock, and (c) each share of the common stock of Acquisition Sub has been converted in to and become one share of the common stock of Cybrdi-Maryland. The share exchange has been accounted for as a reverse merger under the purchase method of accounting. Accordingly, Cybrdi, Inc. will be treated as the continuing entity for accounting purposes and the historical financial statements presented will be those of Cybrdi, Inc.




In connection with the Agreement, on February 10, 2005, the Company amended its articles of incorporation to authorize the issuance of 150 million shares of common stock no par value and 500,000 shares of preferred stock, $1.00 par value per share, none of which are issued or outstanding.




Concurrent with the filing of the Articles of Merger, all of the Company then existing officers and directors tendered their resignation and Yanbiao Bai was appointed as its Chairman of the Board of Directors.  Mr. Bai then nominated the balance of the Board of Directors.




7. Income Taxes





Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to the differences between the basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.





8. Recent Accounting Pronouncements





The Company has adopted all recently issued accounting pronouncements.  The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.




9





NOTE B – ASSETS





The March 31, 2011 balance sheet included total current assets of $2,008,894 and non-current assets of $8,183,366.  Of these amounts, $426,654 in cash and equivalents is planned for funding current operations and for future business expansion.
 
 Other current assets also included inventories, due from related companies, loan to unaffiliated company, and other receivables and prepaid expenses.  Inventories are mainly finished goods.  Other components of inventories include raw materials, work in process, packaging material and housing inventories. Inventories are stated at the lower of cost or market.  Cost of raw materials is determined on the basis of first in first out method (“FIFO”).  Finished goods are determined on the weighted average basis and are comprised of direct materials, direct labor, and an appropriate proportion of overhead.


The other primary assets included in current assets are loans to an unaffiliated company, QuanYe Security Co., Ltd (“QuanYe”), an unrelated PRC registered company located in Xian, PRC. QuanYe is engaged in the pawnshop business and its primary business is offering alternative financing sources to small, local companies. According to the loan agreement, QuanYe has received loans from Chaoying Biotech in a total amount of RMB 29.3 million (equivalent to $3,849,185) since January 2006.  A remaining balance of RMB 7.3 million (equivalent to $1,069,989) was extended to and expired on March 24, 2008.  As of March 31, 2011, the principal balance and interest receivable for this loan had been reduced to RMB 0.3 Million (equivalent to $45,813) and RMB 0, respectively, net of allowance of $45,813 and $174,882 for doubtful principal balance receivable and interest receivable after charging $45,604 of bad debt expense for the three-month period ended March 31, 2011.  The interest rate for these loans initially was initially 8% per year, and subsequently reduced to 5% since October 9, 2006.


The Company’s management believes and views QuanYe as suitable alternative financial institution and it is an optimal way to use its cash on hand.  The regular market interest rate in the PRC is proximately 0.72% per annum. The Company expects to obtain higher interest income for its unused fund through these types of loan arrangements.  However, these advances are unsecured and have a default risk higher than that associated with a bank deposit.




10





Included in non-current assets are property, plant and equipment, construction-in-progress and intangible assets.  Property, plant and equipment mainly consist of building, office equipments, motor vehicles, leasehold improvement, software-website, and machinery used for product manufacturing located in the People’s Republic of China (“PRC”).  Depreciation on property, plant and equipment is computed using the straight-line method over the estimated useful life of the assets.  The majority of the assets have estimated useful lives of 10 years. Building and office equipment have estimated useful lives of 20 and 5 years, respectively.  The “construction in progress” in the amount of $6,010,764 mainly consisted of land under development and construction of the entertainment, culture, and casino facility in Shandong Province, which will be transferred to fixed assets in SD Chaoying when construction is completed.As of March 31, 2011, construction-in-progress of $3.59 million and land use rights of $3.05 million of SD Chaoying were collateralized under a short-term loan from Changle Rural Credit Union.  For the $3.05 million land use rights, $2.42 million was classified under construction-in-progress for the commercial property and the remaining $0.63 million was classified under intangible assets subject to amortization.  Intangible assets included a tissue chip patent at Chaoying Biotech and $0.63 million of land use rights being put in operation for the partial completed commercial property at SD Chaoying.  Effective January 1, 2002, with the adoption of the accounting guidance for Goodwill and Other Intangible Assets, intangible assets with a definite life are amortized on a straight-line basis.  The patent is being amortized over its estimated life of 10 years.  The land use rights classified in intangible asset is being amortized over its estimated life of 36.9 years through the maturity of the land use rights for commercial use on November 6, 2047.


NOTE C - LIABILITIES





As of March 31, 2011, the balance sheet included total liabilities of $5,364,403 which consisted of current liabilities of $4,549,310 and construction payable of $815,093. Included in the current liabilities was short-term loan of $1,450,758 (equivalent to RMB9.5million) from Changle Rural Credit Union, which is a bank located in Shandong Province of the PRC.  This short-term loan had been secured by the Company’s land use right and construction-in-progress of SD Chaoying with a book value of $3.05 million (equivalent to RMB 20.03 million) and $3.59 million (equivalent to RMB 23.5 million) as of March 31, 2011, respectively.For the $3.05 million land use rights, $2.42 million was classified under construction-in-progress for the commercial property and the remaining $0.63 million was classified under intangible assets subject to amortization.  The original term of the loan was from August 25, 2009 to August 24, 2010 withaninterest rate of 7.965% per annum.  The Company renewed the loan with the bank for a new term from August 31, 2010 to August 25, 2011 (total of twelve months) withannualinterest rate at 9.558%.  Additionally, there is another short-term loan of $152,711 (equivalent to RMB1.0million) from Fengguo Liu, an unrelated party.  Also included in the current liabilities was $ 2,185,459 of loans from related companies, including Xi’an Yanfeng Biotechnology Co., Ltd., Shaanxi Yanfeng Real Estate Co. Ltd, Shaanxi Chaoying Beauty & Cosmetics Group Co., Ltd and the stockholders who are also the Company’s officers.  These entities were related to the Company through common ownership and principal officers.  These loans are non-interest bearing and have no set repayment terms.


NOTE D – STOCKHOLDERS’ EQUITY





As a result of the reverse merger (see Note A item 6), the common stock of Cybrdi-Maryland has been cancelled and converted into shares of common stock of Certron at an exchange ratio of 1.566641609 per share. This resulted in the issuance of 47,328,263 shares of Certron’s common stock to the Cybrdi shareholders. As of March 31, 2011 and December 31, 2010, the Company had 65,756,567 shares issued and outstanding.
 
 As of March 31, 2011, the balance sheet included total equity of $4,827,857, of which $1,295,038 was for non-controlling interest, representing 20% minority interest in Chaoying Biotech and 16.67% minority interest in SD Chaoying.


On January 15, 2010, the Board of Directors adopted resolutions that authorized incentive compensation to key management of the Company for services it has provided to the Company.  As set forth in the Board of Directors’ resolution dated January 15, 2010, the incentive compensation shall be paid by the issuance of 12,000,000 shares of common stock of the Company to Mr. Yanbiao Bai, Chief Executive Officer and President of the Company, and 3,300,000 shares of common stock of the Company to Ms. Xue Bu, Chief Financial and Operating Officer of the Company.  Compensation cost of $306,000 was recorded during the first quarter of 2010 at $0.02 per share, the market price of the Company’s common stock on January 15, 2010, the grant date.




11





NOTE E – INCOME TAXES





Under the Enterprise Income Tax (“EIT”) of the PRC, prior to 2007, Chinese enterprises are generally subject to an income tax at an effective rate of 33% (30% statutory income taxes plus 3% local income taxes) on income reported in the statutory financial statements after appropriate tax adjustments, unless the enterprise is located in a specially designated region for which more favorable effective tax rates are applicable.  Beginning on January 1, 2008, the new EIT law has replaced the existing laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”).  The new standard EIT rate of 25% will replace the 33% rate previously applicable to both DES and FIEs.  The two year tax exemption, six year 50% tax reduction and tax holiday for production-oriented FIEs will be eliminated.  According to the Western Developing Plan implemented by the PRC Government, Chaoying Biotech is entitled to a 50% reduction in EIT of preferential policy, but not less than 15%.  As a result, Chaoying Biotech’s effective EIT tax rate has been 15% since 2008.





The Company’s income tax expense includes U.S. and PRC income taxes.  There were no U.S. current taxes for the three months ended March 31, 2011 according to net loss incurred in the U.S. entity, which will not be anticipated to have any tax benefit in the future since no revenue is expected to be generated in the U.S as a result of discontinuing the U.S. operating company in Maryland in October 2007.  There were also no PRC current taxes for the three months ended March 31, 2011 due to net loss incurred.





Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation





The following discussion and analysis should be read in conjunction with the company’s Financial Statements and Notes thereto appearing elsewhere in this Report on Form 10-Q as well as the company’s other SEC filings, including our annual report on Form 10-K for the year ended December 31, 2010.





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





Certain statements in this quarterly report on Form 10-Q contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause its actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond its control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this quarterly report in its entirety, including but not limited to its financial statements and the notes thereto. Except for its ongoing obligations to disclose material information under the Federal securities laws, the Company undertakes no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.This report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "Cybrdi believes," "management believes" and similar language. The forward-looking statements are based on the current expectations of Cybrdi and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under "Description of Business" and "Management's Discussion and Analysis," including the discussion under "Risk Factors" thereunder. The actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.





12




PLAN OF OPERATIONS





The Company focuses on biogenetics commercialization and healthcare product applications. The Company’s primary business includes sales of tissue microarray products and services. Tissue chips, also called micro tissue arrays, provide high-throughput molecular profiling and parallel analysis of biological and molecular characteristics for hundreds of pathologically controlled tissue specimens. Tissue arrays can provide rapid and cost-effective localization and evaluation of proteins, RNA, or DNA molecules, which is particularly useful for functioning genomic studies. Cybrdi manufactures both human and animal tissue microarray for a wide variety of scientific uses, including drug discovery and development purposes.





The Company’s business strategy and focus in the near future include


·
Enhancing R&D in TMAs and technical service


·
Expanding its product portfolio and virtual tissue array data bank (vTMAB)


·
Launching the health diagnosis kit for obesity and skin disease


·
Participating in the culture and entertainment field





With its sophisticated research in genes, the Company can provide the professional health diagnostic service for its customers. The Company can check the reasons for obesity and other skin diseases like freckles by its genetic analysis, which offers more accurate and specialized diagnosis than other similar services in the current market.  Such information can be utilized to guide customers to set up the right health or fitness program.At present, the Company provide genetic test for the mechanism of obesity or skin diseases.




The Company will also explore other business development opportunities that can leverage its sales platform and relationship with affiliated companies. Until such time as the Company can identify attractive marketing opportunities, the Company will loan available cash on a short term unsecured basis to non-affiliated third parties in order to generate interest income.





Commencing in the third quarter of 2007, the Company developed a new genedetective tissue array, called New Kits, and began to offer them to its customers.





On July 28, 2007 the Company acquired an 83.33% equity ownership of SD Chaoying from its Chinese partner, which will be primarily engaged in developing and operating culture and entertainment business which is expected to open in 2010.  The culture and entertainment business will consist primarily of a spa activities, cosmetic personal care, hotel and casino. Its Chinese partner is a principal shareholder of the Company and Mr. Bai, its chief executive officer and a director is also a principal of its Chinese partner.  SD Chaoying began constructing the facility in September 2007.  The total useable land and net building area for the project consists of approximately 50,000 and 33,000 square meters, respectively of which 52% will constitute property for business use and 48% for residential use.  As of December 31, 2010, SD Chaoying had substantially completed the construction of two residential buildings and had recognized revenue from sales of housing units from these buildings for the year then ended.  The project includes four multi-family residential buildings (about 14,188 square meters), and two of them had been completed.  Approximately 20.88% of the cultural and entertainment part of the facility opened in January 2011 and the balance remains under construction, but which are expected to be completed in 2011 prior to the commencement of operations by merchant tenants. SD Chaoying intends to focus on Spa activities, cosmetic personal care, hotel and casino gambling, which has been approved by Shandong Administration for Civil Affairs.  In January 2011, SD Chaoying entered into a verbal agreement with Dongshan Victoria Spring Hotel (“Victoria”) allowing Victoria to manage and operate the SPA business at the completed section of the cultural and entertainment facility.  SD Chaoying agreed not to charge fees from Victoria during the first year of operation as the trial period.  As of March 31, 2011, the land use right and construction-in-progress with total book value of $6.65 million (equivalent to RMB 43.52 million) of SD Chaoying were collateralized under the short-term loan of $1,450,758 (equivalent to RMB9.5 million) from Changle Rural Credit Union.


13




RESULTS OF OPERATIONS




FOR THE THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THREE MONTHS ENDED MARCH 31, 2010





CONSOLIDATED STATEMENTS OF OPERATIONS




Three Months Ended


Three Months EndedMarch 31, 2011


March 31, 2010


$ Change


% ChangeRevenueHousing

$
-


$
94,614


$
(94,614
)


-100
%Commercial rental


-



-



-



-Tissue array products


113,811



97,830



15,981



16
%Total revenue


113,811



192,444



(78,633
)


-41
%Cost of SalesHousing


-



84,869



(84,869
)


-100
%Commercial rental


14,627



-



14,627



-Tissue array products


87,148



64,459



22,689



35
%Total cost of sales


101,775



149,328



(47,553
)


-32
%Gross Profit


12,036



43,116



(31,080
)


-72
%Operating Expenses:Professional fees


46,326



24,227



22,099



91
%Bad debt expense


45,604



-



45,604



-Salaries and wages


40,483



343,679



(303,196
)


-88
%Depreciation and amortization


36,272



35,358



914



3
%Other general and administrative expenses


26,355



6,053



20,302



335
%Selling and distribution expenses


6,425



6,576



(151
)


-2
%Research and development expenses


-



7,404



(7,404
)


-100
%Total Operating Expenses


201,465



423,297



(221,832
)


-52
%Loss from Operations


(189,429
)


(380,181
)


190,752



-50
%Other IncomeInterest income


487



848



(361
)


-43
%Other income, net


243



27,089



(26,846
)


-99
%Total Other Income, Net


730



27,937



(27,207
)


-97
%Loss before Income Taxes


(188,699
)


(352,244
)


163,545



-46
%Income Tax Benefit (Expense)


-



-



-



-Net loss


(188,699
)


(352,244
)


163,545



-46
%Net loss attributable to the noncontrolling interest


(25,009
)


(104
)


(24,905
)


23947
%Net loss attributable to CYBRDI, INC. AND SUBSIDIARIES

$
(163,690
)

$
(352,140
)

$
188,450



-54
%




Net Sales





Cybrdi generates two categories of revenues, including sales of tissue chip & kits products and residential housing.  The net sales decreased $78,633 to $113,811 for the three months ended March 31, 2011 from $192,444 for the three months ended March 31, 2010, a decrease of 40.86%.


Tissue Chip & Kit Products: The net sales increased $15,981 to $113,811 for the three months ended March 31, 2011 as compared to $97,830 for the three months ended March 31, 2010, an increase of 16.34%.The increase in net sales of tissue chip & kit product was primarily because we adjusted domestic market at the beginning of 2010. Our sole domestic sales representative in China is Xi’an AiLiNa Biotechnology Co., Ltd., and the only overseas sales representative is Biomax.  We mainly distribute our products through these two sales representatives.




14




Tissue product related services: No technical service order was received for the three months ended March 31, 2011 and 2010, resulting in no services revenues for the three months ended March 31, 2011 and 2010.This decrease was primarily attributable to reduced service demand in China.





Housing: No residential units were sold during the first quarter of 2011.  SD Chaoying completed the construction of the two six-story multi-family residential buildings with a total of 72 housing units last year, 9 and 37 of which qualified as being recognized as sales revenue aggregating $296,521 and $1,060,632 for the years ended December 31, 2010 and 2009.  Since SD Chaoying is required to continue its involvement with the property after the sale, including installations of utility systems, improvements and amenities, and community landscaping, profit from the sale was recognized using the percentage of completion method as required by ASC Topic 360-20, “Property, Plant, and Equipment – Real Estate Sales”.





Gross Margin





Gross margin as a percentage of sales decreased to 10.6% for the three months ended in March 31, 2011 from 22.4% for three months ended in March 31, 2010.  Gross profit for the three months ended in March 31, 2011 decreased $31,080 to $12,036 from $43,116 for the three months ended in March 31, 2010, a decrease of 72%.  The decrease in gross profit and margin was mainly due to weak sales in the residential housing segment, whereas in the commercial property segment, the commencement of the business has not generated revenue but has incurred costs directly associated with the business.





Operating Expenses





The Company’s operating expenses decreased $221,832 to $201,465 for the three months ended March 31, 2011 from $423,297 for the three months ended March 31, 2010, a decrease of 52%.  This was primarily due to a decrease in salaries and wages of $303,196 from $343,679 for the three months ended March 31, 2010 to $40,483 for the current quarter, partially offset by an increase of $45,604 bad debt from $0 for the first quarter prior year to $45,604 for the current quarter, an increase of $22,099 in professional fees from $24,227 for the first quarter prior year to $46,326 for the current quarter, and an increase of $20,302 in other general and administrative expenses from $6,053 for the first quarter prior year to $26,355 for the current quarter.





Other Income





Other income decreased by $27,207 to $730 for the three months ended March 31, 2011 as compared to $27,937 for the three months ended March 31, 2010, a decrease of 97%.  Other income was mainly comprised of $28,168 generated from the sale of non-operating real property of Chao Ying Biotech for the first quarter of 2010.  Thenet book value of non-operating real property was $38,636 and net proceeds from the sale amounted to $66,804.





Income Taxes





The Company did not record U.S. and PRC current income tax for three months ended March 31, 2011, and 2010, since there was no taxable income during these periods.





Net Loss




As a result of the above factors, our net loss before minority interests decreased $163,545, or 46%, from $352,244 for the three months ended March 31, 2010 to $188,699 for the three months ended March 31, 2011.


15




LIQUIDITY AND CAPITAL RESOURCES





Operating working capital deficit (total current asset deduct total current liabilities) increased by $224,906 from $(2,315,510) as of December 31, 2010 to $(2,540,416) as of March 31, 2011.  The increase was primarily due to decrease in cash and cash equivalents from $585,020 as of December 31, 2010 to $426,654 as of March 31,2011, and decrease in loan to unaffiliated company from $90,877 as of December 31, 2010 to $45,813 as of March 31, 2011, partially offset by increase in due from related companies from $204,474 as of December 31, 2010 to $335,965 as of March 31, 2011.  The $161,785 increase in due to related parties from $2,023,474 as of December 31, 2010 to $2,185,459 as of March 31, 2011 also caused the increase in working capital deficit.
 
 For investing activities, the Company incurred net cash outflow during the three months ended March 31, 2011.  The primary reason was due to the payment of $130,997 advance for loan to an affiliated company, $37,920 used in the construction in progress of the SD Chaoying project during the three months ended March 31, 2011, and $45,689 used in purchase of operating equipment.
 
 For financing activities, the Company obtained net proceeds of $100,837 from its related parties of the Company for the three months ended March  31, 2011.
 
 The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred significant losses and has not demonstrated the ability to generate sufficient cash flows from operations to satisfy its liabilities and sustain operations.  The Company had an accumulated deficit of $2,011,572 and $1,847,882 as of March 31, 2011 and December 31, 2010, including net losses of $163,690 and $352,140 for the three months ended March 31, 2011 and 2010, respectively.  In addition, current liabilities exceeded current assets by $2,540,416 and $2,315,510 at March 31, 2011 and December 31, 2010, respectively.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.
 
 The Company finances its operations primarily through short-term bank borrowings and advances from related parties and/or officers/shareholders.  In order to complete the construction of SD Chaoying cultural and entertainment center, approximately $2.8 million (equivalent to RMB 19 million) of capital is expected to be needed.  The Company, taking into accounts the available banking facilities, internal financial resource, and supports from related companies, believes it has sufficient working capital to meet its present obligation for at least the next twelve months.  Management is taking actions to address the company's financial condition and deteriorating liquidity position.  The following sets forth management’s plans for dealing with the adverse effects of the conditions:
 
 (a)           Sale of housing inventories:  Proceeds to be received from the sale of the remaining housing of the two completed residential buildings are expected to amount to approximately $1.1 million.
 
 (b)          Rental and management fee revenue from the cultural and entertainment center:  Annual rental revenue is estimated to be approximately $650,000 per year.  Management fee revenue will be charged to commercial tenants at 3% of annual gross revenue.
 
 (c)           Additional advances from related companies and affiliates:  Mr. Bai, our Chief Executive Officer, advanced $52,116 to the Company in 2011 to finance operations and the costs to maintain the Company’s public status in the U.S.  In addition, Shaanxi Chaoying Beauty & Cosmetics Group, which is also an affiliate, is anticipated to provide up to $730,000 of capital to support operational use.  During the year 2011, Shaanxi Chaoying Beauty & Cosmetics Group advanced $18,242 to the Company to finance its operations.
 
 The Company may require additional funds and may seek to raise such funds though public and private financings or from other sources.  There is no assurance that the above management’s plans will be realized or the additional financing will be available at all or that, if available, such financing will be obtainable on terms favorable to the Company or that any additional financing will not be dilutive.  The consolidated financial statements do not include any adjustments that might result from the outcome of those uncertainties.




INFLATION





Inflation has not had a material impact on our business.




16




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





Certain statements in this quarterly report on Form 10-Q contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause its actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond its control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this quarterly report in its entirety, including but not limited to its financial statements and the notes thereto. Except for its ongoing obligations to disclose material information under the Federal securities laws, the Company undertakes no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.




Item 3. Quantitative and Qualitative Disclosures about Market Risk




A smaller reporting company is not required to provide the information required by this Item.




Item 4. Controls and Procedures





Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer, Yanbiao Bai, and Principal Financial Officer, Xue Bu, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.





Changes in  Internal  Control  Over  Financial  Reporting.  During the most recent quarter ended March 31, 2011, there has been no change in our internal control over financial  reporting  (as defined in Rule  13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





17





PART II. OTHER INFORMATION





Item 1. Legal Proceedings





There are no material pending legal proceedings to which we are a party. We received a notice on June 6, 2000 to inform us that we may have a potential liability from waste disposal in the Casmalia Disposal Site at Santa Barbara County, California.  We were given a choice of either signing an agreement that would toll the statute of limitations for eighteen (18) months in order to allow us to resolve any liability with the government without incurring costs associated with being named a defendant in a lawsuit, or becoming an immediate defendant in a lawsuit. We signed the tolling agreement. On November 20, 2001, the tolling agreement was extended for an additional 18 months. On May 20, 2003 the tolling agreement was again extended for an additional 18 months and on November 24, 2004 the tolling agreement was again extended for additional 18 months. On June 29, 2004, we received a proposed settlement from the EPA in the amount of $21,131, which had been accrued as other payable. We are waiting for communication from the government concerning payment of the final settlement.  As of March 31, 2011 and subsequent to December 31, 2010, the Company had not received further correspondences from the EPA regarding this matter.




Item 1A.  Risk Factors





A smaller reporting company is not required to provide the information required by this Item.




Item 2. Unregistered Sales of Equity Securities and Use of Proceeds





None.





Item 3. Defaults Upon Senior Securities.





None.




Item 4. Submission of Matters to a Vote of Security Holders





None.





Item 5. Other Information





None





Item 6. Exhibits





31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





18





SIGNATURE




Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


CYBRDI, INC.DATE:  May 16, 2011
By
/s/  Yanbiao BaiYanbiao Bai, Chief Executive Officer and presidentBy:
/s/Xue BuXue Bu, Principal Financial Officer




19