U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2011
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NO. 000-33195
XINHUA CHINA LTD.
(Name of small business issuer in its charter)
People’s Republic of China
(Address of principal executive offices)
86-10-64168816 or 86-10-64168916
(Issuer's telephone number)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.00001
(Title of Class)
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 403 of the Securities Act. o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. x Yes o No
Indicate by check mark whether the registrant has (i) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business of the registrant’s most recently completed second fiscal quarter: December 31, 2010 $-0-.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes o No o
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
Class Outstanding as of October 22, 2012 Common Stock, $0.00001 499,911,400 shares
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (i) any annual report to security holders; (ii) any proxy or information statement; and (iii) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (the "Securities Act"). The listed documents should be clearly described for identification purposes (e.g. annual reports to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one): Yes o No x
XINHUA CHINA LTD.
Statements made in this Form 10-K that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Xinhua China Ltd. files annual, quarterly, current reports, proxy statements, and other information with the Securities and Exchange Commission (the "Commission"). You may read and copy documents referred to in this Annual Report on Form 10-K that have been filed with the Commission at the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also obtain copies of our Commission filings by going to the Commission's website at http://www.sec.gov.
Xinhua China Ltd. was incorporated September 14, 1999 under the laws of the State of Nevada as Camden Mines Limited (“Camden”). Since its formation and up to September 4, 2004, Camden was considered an inactive development stage enterprise. On October 12, 2004, Camden changed its name from “Camden Mines Limited” to its current corporate name “Xinhua China Ltd.” The change in corporate name reflected our anticipation of acquiring an interest in the Chinese book distribution giant” Xinhua Circulation & Distribution (“Xinhua C&D”). Please note that throughout this Annual Report, and unless otherwise noted, the words “we,” “our,” “us,” or the “Company” refer to Xinhua China Ltd.
Pac-Poly Investments Limited
On September 14, 2004, we signed two separate share purchase agreements (collectively, the “Share Purchase Agreements”), whereby we issued 35,000,000 shares of our restricted common stock in exchange for a 100% interest in Pac-Poly Investments Limited, a company incorporated under the laws of the International Companies Business Act Cap 291 of British Virgin Islands (“Pac-Poly”), and a 95% interest in Beijing Boheng Investments Limited, a company incorporated under the laws of China (“Beijing Boheng”), respectively. The shareholders of Pac-Poly and Beijing Boheng received 16,387,000 and 18,613,000 shares of our restricted common stock, respectively. In accordance with the terms and provisions of the Share Purchase Agreement, one of our shareholders returned to us 35,000,000 shares of common stock held of record by such shareholder and the shares were cancelled and returned to treasury. Immediately prior to consummation of the respective Share Purchase Agreements, Pac-Poly and Beijing Boheng were under common control. Subsequently, Beijing Boheng spun off all of its business and net assets to its president and became a non-operating shell company. Pac-Poly had no significant operations since its inception.
On September 30, 2010, we sold our investment in Pac-Poly and Beijing Joannes Information Technology Co. Ltd. referenced below, which resulted in the recording of a loss of $6,363,912. Therefore, as of the date of this Annual Report, Pac-Poly is no longer our wholly-owned subsidiary.
Beijing Joannes Information Technology Co. Ltd
On May 9, 2006, we formed Beijing Joannes Information Technology Co. Ltd. (“Beijing Joannes”), as our Chinese wholly owned subsidiary, to launch a digital media content initiative. We hold of record 100% of the total issued and outstanding shares of Beijing Joannes. Beijing Joannes was formed for the purpose of launching a digital media content initiative with the web site branded www.geepip.com.
On September 30, 2010, we sold our investment in Beijing Joannes and Pac-Poly referenced above, which resulted in the record of a loss of $6,393,912. Therefore, as of the date of this Annual Report, Beijing Joannes is not longer our wholly-owned subsidiary.
CURRENT BUSINESS OPERATIONS
We are a company establishing ourselves as a leader in the digital media industry. As discussed below, we have refocused our strategic business operation plans to maximize our strategic position in the publishing industry. As of June 30, 2011, we had no working capital but current liabilities exceeding current assets by $2,551,022 and an accumulated deficit of $28,067,690 due to the fact that we continued to incur losses over the past several years. management has taken certain action and continues to implement changes designed to improve our financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including: (a) reduction in headcount and corporate overhead expenses; and (b) development of e-commerce business. Management believes that these actions will enable us to improve future profitability and cash flow in its continuing operations through June 30, 2012.
Divesture of Interest in Xinhua Circulation & Distribution
During September 2004, pursuant to the terms and provisions of an investment agreement (the “Investment Agreement”) among our two subsidiaries Pac-Poly and Beijing Boheng and Xinhua Bookstore (Main Store) (“Xinhua Bookstore”), we acquired a 57.67% interest in the publication distribution business in the People’s Republic of China. In accordance with the terms and provisions of the Investment Agreement, Xinhua Bookstore transferred the publication distribution business into a newly formed Chinese company called Xinhua Circulation & Distribution (“Xinhua C&D”). Xinhua C&D is presently primarily a book distribution enterprise.
As of May 31, 2006, we reduced our ownership interest in Xinhua C&D to 7.98%. We had originally intended to help guide Xinhua C&D through the modernization and growth of its systems and distribution strategies. Realizing the large investment in real estate, equipment, fixed assets requirements to achieve modernization and growth, as well as the shifting of reading habits to a digital format and a dynamic and growing digital youth (age 12-25) comprising over 50% of the population, our management, after very careful consideration, effective May 31, 2006, revised our business focus to instead concentrate on the growing opportunity in online content distribution, co-publishing, and digital rights management.
As a result of the decision to focus on digital media and co-publishing, we were able to renegotiate our financial commitment to Xinhua C&D and eliminate the requirement to invest a further $16,700,000 into Xinhua C&D. This change reduced our equity interest in Xinhua C&D to 7.98%. Xinhua C&D will remain focused on traditional distribution services for Chinese book publishers throughout China, and is expected to provide procurement services for our online e-commerce initiative.
Management of the Company believes that it will be able to establish itself as a leader in the digital media industry. In accordance with our refocused strategic plan, we intend to enter into certain contractual relationships. We are currently identifying prospective individuals and/or companies with which to acquire or enter into a joint venture relationships regarding their respective business operations to complement and enhance our intended future business operations.
RESEARCH AND DEVELOPMENT ACTIVITIES
No research and development expenditures have been incurred, either on our account or sponsored by customers, from the date of our inception.
We do not employ any persons on a full-time or on a part-time basis. We have one executive officer and director, Mr. Xianping Wang, who serves as our President/Chief Financial Officer and Treasurer/Chief Financial Officer. This individual is primarily responsible for all of our day-to-day operations. Other services may be provided by outsourcing and consultant and special purpose contracts.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this prospectus in evaluating our company and its business before purchasing shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are all of the material risks that we are currently aware of that are facing our company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.
WE HAVE INCURRED LOSSES AND SUBSTANTIAL DOUBT EXISTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We have a history of operating losses, expect to continue to incur losses, and may never be profitable. We have incurred a net loss of ($7,418,334) for fiscal year ended June 30, 2011. We had a working capital deficit of $2,551,022 and shareholders’ deficit of ($15,823,765) as of June 30, 2011. These factors raise substantial doubt about our ability to continue as a going concern. The auditors’ report in our financial statements as at June 30, 2011 and June 30, 2010 includes an explanatory paragraph that states that we have generated net losses and have a shareholders’ deficit factors which raise substantial doubt about our ability to continue as a going concern. We have been dependent on sales of our equity securities and debt financing to meet our cash requirements. Further, we do not expect positive cash flow from operations in the near term. There is no assurance that actual cash requirements will not exceed our estimates. In particular, additional capital may be required in the event that: (i) operating costs may be more than we currently anticipate; or (ii) we encounter greater costs associated with general and administrative expenses or offering costs.
WE WILL NEED TO RESTRUCTURE OUR BUSINESS TO MAXIMIZE OUR PROFITABILITY AND CASH FLOW.
We may experience significant fluctuations in our operating results and rate of growth. Due to our limited operating history and our evolving business model, and the unpredictability of the future of our industry, we may not be able to accurately forecast our rate of growth. We base our current and future expense levels and our investment plans on estimates of future net sales. Our expenses and investments are to a large extent fixed, and we may not be able to adjust our spending quickly enough if our net sales fall short of our expectations.
Our revenue and operating profit growth depends on the continued growth of demand for books offered by our customers and partners, and our business is affected by business conditions in China and, indirectly, worldwide. Revenue growth may not be sustainable and our company-wide percentage growth rate may decrease in the future.
WE ARE OPERATING IN A DEVELOPING MARKET AND THERE IS UNCERTAINTY AS TO MARKET ACCEPTANCE OUR TECHNOLOGY AND PRODUCTS.
We researched the markets for our products involving the digital media industry. We have conducted limited test marketing and thus have relatively little information on which to estimate our levels of sales, the amount of revenue our planned operations will generate and our operating and other expenses. There can be no assurance that we will be successful in our efforts to market our products or to develop our markets in the manner we contemplate within the digital media industry.
The markets for our products and technology are developing and rapidly evolving and are characterized by an increasing number of market entrants who have developed or are developing a wide variety of products and technologies, a number of which offer certain of the features that our products offer. Because of these factors, demand and market acceptance for new products are subject to a high level of uncertainty. There can be no assurance that our technology and products will become widely accepted. It is also difficult to predict with any assurance the future growth rate, if any, and size of the market. If a substantial market fails to develop, develops more slowly than expected or becomes saturated with competitors or if our products do not achieve market acceptance, our business, operating results and financial condition will be materially and adversely affected.
OUR DIGITAL MEDIA INDUSTRY AND MARKET IS CHARACTERISED BY NEW ENTRANTS AND RAPID TECHNOLOGICAL CHANGE.
The digital media industry and market for our products is characterized by rapidly changing technology and frequent new product introductions. Our success will depend in part on our ability to enhance our technologies and products and to introduce new products and technologies to meet changing customer requirements. We are currently devoting, and intend to continue to devote, significant resources toward the development of digital media technology and products. There can be no assurance that we will successfully complete the development of these technologies and related products in a timely fashion or that our current or future products will satisfy the needs of the digital media industry. There can also be no assurance that digital media products and technologies developed by others will not adversely affect our competitive position or render our products or technologies non-competitive or obsolete.
IF WE ARE UNABLE TO COMPETE IN THE DIGITAL MEDIA MARKET, YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
The digital media market is highly competitive and highly fragmented. Our competitors may have substantially greater financial, technological, marketing, personnel and research and development resources than we currently have. There are direct competitors who have competitive technology and products. Many of these competitors may have significant advantages over us, including greater financial, technical, marketing and manufacturing resources, more extensive distribution channels, larger customer bases and faster response times to adapt new or emerging technologies and changes in customer requirements. As a result, our competitors may develop superior products or beat us to market with products similar to ours. Further, there can be no assurance that new companies will not enter our markets in the future. Although we believe that our products will be distinguishable from those of our competitors on the basis of their technological features and functionality at an attractive value proposition, there can be no assurance that we will be able to penetrate any of our anticipated competitors’ portions of the market. There can be no assurance that we will be able to compete successfully against currently anticipated or future competitors or that competitive pressures will not have a material adverse effect on our business, operating results and financial condition. If we are not successful in competing against our current and future competitors, you could lose your entire investment.
Moreover, foreign direct investment in China has increased rapidly in the last twenty years and the investment environment has further improved to encourage foreign and local investors to invest in fields other than those considered by the government of the Peoples’ Republic of China to be sensitive. Distribution channels have been opened up to new foreign investment subject to Peoples’ Republic of China government guidelines. Many companies are involved in the electronic and traditional publishing and distribution of literary and entertainment material. There is no guarantee that other competitors will not become involved in business similar to ours. If this occurs, there may be competitors with greater financial resources and to the extent that such competitors compete on the basis of price, this could affect our results of operations and our ability to continue operations.
WE HAVE LIMITED MARKETING CAPABILITY.
We have limited marketing capabilities and resources. In order to achieve market penetration we will have to undertake significant efforts and expenditures to create awareness of, and demand for, our technology and products. Our ability to penetrate the market and build our customer base will be substantially dependent on our marketing efforts, including our ability to establish strategic marketing arrangements. No assurance can be given that we will be able to enter into any such arrangements or if entered into that they will be successful. Our failure to successfully develop our marketing capabilities, both internally and through third-party alliances, would have a material adverse effect on our business, operating results and financial condition. Further, there can be no assurance that, if developed, such marketing capabilities will lead to sales.
OUR BUSINESS IS EXPOSED TO RISKS ASSOCIATED WITH ONLINE COMMERCE SECURITY AND CREDIT CARD FRAUD WHICH COULD REDUCE OUR REVENUES.
A fundamental requirement for online commerce and communications is the secure transmission of confidential information, such as credit card numbers or other personal information, over public networks. Our security measures may be inadequate and, if any compromise of security were to occur, it could have a detrimental effect on our reputation and adversely affect our ability to maintain our existing travelers and/or attract new travelers.
Consumer concerns over the security of transactions conducted on the Internet or the privacy of users may inhibit the growth of the Internet and online commerce. To transmit confidential information such as customer credit card numbers securely, we rely on encryption and authentication technology. Unanticipated events or developments could result in a compromise or breach of the systems we use to protect customer transaction data. Our servers and those of our service providers may be vulnerable to viruses or other harmful code or activity transmitted over the Internet. A virus or other harmful activity could cause a service disruption.
In addition, we bear financial risk from products or services purchased with fraudulent credit card data. Although we have implemented anti-fraud measures, a failure to control fraudulent credit card transactions adequately could adversely affect our business. Because of our limited operating history, we cannot assure you that our anti-fraud measures are sufficient to prevent material financial loss. Since we cannot exert the same level of influence or control over our sales agents as we could were they our own employees, our sales agents could fail to comply with our policies and procedures, which could result in claims against us that could harm our financial condition and operating results. We are not in a position to directly provide the same direction, motivation and oversight for our sales agents as we would if such sales agents were our own employees. As a result, there can be no assurance that our sales agents will participate in our marketing strategies or plans, accept our introduction of new products and services, or comply with our policies and procedures.
Moreover, our processing, storage, use and disclosure of personal data could give rise to liabilities as a result of government regulation, conflicting legal requirements or differing views of personal privacy rights. In the processing of our traveler transactions, we receive and store a large volume of personally identifiable information. This information is also increasingly subject to legislation and regulations in numerous jurisdictions around the world. This government action is typically intended to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction. We could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, financial condition and results of operations. As privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities as a result of differing views on the privacy of travel data. These and other privacy developments that are difficult to anticipate could adversely affect our business, financial condition and results of operation.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, PARTICULARLY IN LIGHT OF CHINESE INTELLECTUAL PROPERTY LAWS.
Intellectual property rights are evolving in China, trending towards international norms, but are by no means fully developed. We have not had significant involvement in intellectual property to date. The application of intellectual property rights to protect our foreign clients’ and partners’ media will likely be necessary in the future. Protection is needed at a minimum against piracy; legal action may be needed and all legal action involves risk and expenses.
WE MAY NOT BE ABLE TO HIRE AND RETAIN THE PERSONNEL WE NEED TO SUSTAIN OUR BUSINESS.
We depend on the continued services of our executive officers and other key personnel. The loss of or failure to attract key personnel could significantly impede our financial plans, growth, and other objectives. We believe that our future success will depend in large part on our ability to attract and retain additional highly skilled and qualified personnel and to expand, train and manage our employee base. We may not continue to be successful in doing so, because the competition for qualified personnel in China is intense. If we are unable to attract and retain qualified personnel, we may never achieve profitability.
WE MAY NOT BE ABLE TO ENTER NEW MARKETS, WHICH MAY IMPAIR OUR ABILITY TO GROW.
Our ability to enter into new markets is dependent upon the availability of quality products and demand of these products in China. Thus, it is important for us to develop relationships with publishers and distributors of foreign (mainly English-language) books and media contents to expedite their import, translation and distribution through electronic and traditional channels nationwide in China. There is no guarantee that we can develop relationships with foreign publishers and distributors. Currently, foreign books and media contents are not commonly available in China, therefore, we are not able to quantify the demand of foreign books and media contents in China. As such we cannot predict our probability of success in this new market.
THE SUCCESS OF OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF ONLINE DIGITAL MEDIA PRODUCTS AND ATTRACTING CUSTOMERS IN A COST-EFFECTIVE MANNER.
Our sales and revenues will not grow as we plan if consumers do not purchase significantly more digital media products online than they currently do and if the use of the Internet as a medium of commerce for such products does not continue to grow or grows more slowly than expected. The success of our business is dependent on significant increase in the number of consumers who use the Internet to purchase digital media products.
Our business strategy depends on our ability to broaden the appeal of our website to consumers and business and to increase the overall number of consumer transactions conducted on our website in a cost-effective manner. In order to increase the number of consumer transactions, we must attract more visitors to our website and convert a larger number of these visitors into paying customers. Our ability to offer products and services that will attract a significant number of consumers to use our services is not certain. If it does not occur, our growth may be limited. It may be necessary to spend substantial amounts on marketing and advertising to enhance our brand recognition and attract new customers to our website, and to successfully convert these new visitors into paying customers. We cannot assure you that our marketing and advertising efforts will be effective to attract new customers. If we fail to attract customers and increase our overall number of consumer transactions in a cost-effective manner, our ability to grow and become profitable may be impaired.
Moreover, we rely on the Internet infrastructure which may be unable to support increased levels of demand. The internet infrastructure may not expand fast enough to meet the increased levels of demand. In particular, the expected benefits from our online operations may be reduced if internet usage does not continue to grow. In addition, activities that diminish the experience for internet users, such as spyware, spoof e-mails, viruses and spam directed at internet users, as well as viruses and "denial of service" attacks directed at internet companies and service providers, may discourage people from using the internet, including for commerce. If consumer use diminishes or grows at a slower rate, then our business and results of operations could be adversely affected.
WE HAVE SUBSTANTIAL DEBT OBLIGATIONS, INCLUDING CERTAIN DEBT OBLIGATIONS SECURED BY ALL OF OUR ASSETS. IF WE ARE UNABLE TO REPAY SUCH OBLIGATIONS, OUR BUSINESS WILL LIKELY FAIL.
Our current liabilities were $2,561,251 as of June 30, 2011 of which approximately $1,498,075 is due within the next year unless extended. Such substantial debt obligations could affect our status as a going concern and also represent a concentration of risk which could pose a serious concern. Our ability to repay debt will be dependent on cash flow from the business and our ability to raise new funds in the form of loans, debt or equity in the next year. We have $13,272,743 in long term debt of which $1,051,097 is due on or before November 23, 2010 and $2,000,000 is due on or before March 23, 2011 in connection with recent convertible debenture financings with Highgate House Funds, Ltd. and Cornell Capital Partners, LP. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Material Commitments.”
CHINESE TAX AND OTHER LAWS MAY NEGATIVELY IMPACT OUR BUSINESS RESULTS.
We conduct our business in China through our subsidiaries. China currently has a number of laws related to various taxes imposed by both federal and regional governmental authorities. Applicable taxes include value-added tax, corporate income tax, and payroll and worker and welfare taxes, along with others. Laws related to some of these taxes have not been in force for a significant period, in contrast to more developed market economies and regulations for their implementation are often unclear or incomplete. Often, differing opinions regarding legal interpretation exist both among and within government ministries and organizations; thus creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose severe fines, penalties and interest charges. These facts create tax risks in China substantially more significant than typically found in countries with more developed tax systems.
We believe that we are in substantial compliance with the tax laws affecting our operations; however, the risk remains that the relevant authorities could take differing positions with regard to interpretive issues and the effect could be significant. The fact that a year has been reviewed does not close that year, or any tax declaration applicable to that year, from further review.
Chinese company law as it applies to foreign invested corporations (our subsidiaries) requires them to maintain dedicated reserves which include a general reserve and a reserve for enterprise expansion. The dedicated reserves are appropriated from net income after taxes, determined under the relevant Chinese accounting regulations, at a rate set by the Board of Directors of the respective subsidiaries, and record as a component of shareholders’ equity. These reserves are not distributable, other than upon liquidation. No appropriation has been made for the year as our subsidiaries recorded losses.
Similar provisions of Chinese company law require our Board of Directors at their discretion to transfer a certain amount of their annual net income after taxes, as determined under the relevant Chinese accounting regulations, to a staff welfare and bonus fund. No such transfer was made for the fiscal period, as the subsidiaries recorded losses.
ELIMINATION OF TAX HOLIDAYS
Effective January 1, 2008, the People’s Republic of China implemented a new standard 25% tax rate for all business enterprises regardless of whether the enterprise is a domestic or foreign enterprise, without any tax holiday. The tax holiday is defined as “two-year exemption followed by three-year half exemption”, which had previously been enjoyed by tax payers within the People’s Republic of China. Therefore, as a result of the new tax law of a standard 25% tax rate, tax holidays terminated as of December 31, 2007. However, the People’s Republic of China has established a set of transition rules to allow business enterprises that had already commenced use of tax holidays before January 1, 2008, to continue enjoying the tax holidays until all tax holidays are fully utilized.
EXCHANGE RATE FLACTUATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.
Our reporting currency is the United States Dollar but our functional currency in China is the Renminbi. As such, rate fluctuations may have a material impact on our consolidated financial reporting and make realistic revenue projections difficult. Additionally, as Renminbi is the functional currency of Beijing Joannes, Xinhua C&D and Beijing Boheng, the fluctuation of exchange rates of Renminbi may have positive or negative impacts on our results of operations.
CHINESE FUNDS REMITTANCE POLICIES MAY NOT ALLOW US TO MAXIMIZE OUR PROFITABILITY.
Pursuant to Chinese company law applicable to foreign investment companies, such as our Chinese subsidiaries, as well as our minor interest in Xinhua C&D, are required to maintain dedicated reserves, which include a general reserve and an enterprise expansion reserve. The dedicated reserves are to be appropriated from net income after taxes, determined under the relevant Chinese accounting regulations at a rate determined by the board of directors of the respective subsidiaries, and recorded as a component of shareholders’ equity. The dedicated reserves are not distributable other than upon liquidation. As our Chinese subsidiaries and Xinhua C&D have recorded losses for the fiscal years ended June 30, 2010, 2009 and 2008, no appropriation to the dedicated reserves was made. Moreover, pursuant to the same Chinese company law, our Chinese subsidiaries are required to transfer at the discretion of their boards of directors, a certain amount of its annual net income after taxes as determined under the relevant Chinese accounting regulations to a staff welfare and bonus fund. Since our Chinese subsidiaries and Xinhua C&D have recorded losses for the fiscal years ended June 30, 2010, 2009 and 2008, no transfer to the staff welfare and bonus fund was made.
AS A RESULT OF OUR SOLE DIRECTOR AND OFFICER BEING A RESIDENT OF A COUNTRY OTHER THAN THE UNITED STATES, INVESTORS MAY FIND IT DIFFICULT TO ENFORCE WITHIN THE UNITED STATES ANY JUDGMENTS OBTAINED AGAINST US OR OUR DIRECTOR AND OFFICER.
We do not currently maintain a permanent place of business within the United States. In addition, our sole director and officer is a national and/or resident of a country other than the United States, and all or a substantial portion of such person’s assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our company or our sole officer or director, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
WE HAVE ONLY ONE OFFICER WHO IS A DIRECTORM WHICH COULD PRESENT POTENTIAL CONFLICTS OF INTEREST.
Our sole officer, Mr. Xianping Wang, also a director, may have potential conflicts of interest relating to transactions between us and our director. As of the date of this Annual Report, we do not have any other outside directors and, therefore, no effective way of insuring that potential conflicts of interest involving us and our director are resolved in favor of our minority shareholders. However, our director will act in the best interests of the company and its shareholders and within his respective fiduciary duties.
OUR OFFICER AND DIRECTOR WILL CONTROL US AND MAY MAKE DECISIONS IN HIS OWN INTEREST WHICH MAY CONFLICT WITH THE INTERESTS OF OUR MINORITY SHAREHOLDCERS.
Conflicts of interest may arise between the board of directors and us and our shareholders. These potential conflicts may relate to the divergent interests of these parties. Situations in which the interests of THE member of our board of directors may differ from interests of the shareholders include, among others, the following situations. Our board of directors has broad discretion in determining consummation of contractual arrangements and payment of dividends. Moreover, they are not prohibited from investing or engaging in other business activities that may compete with us. The board of directors will be in a position to significantly influence the company pertaining to entering into any corporate transaction and may be able to prevent any transaction that requires the approval of the shareholders regardless of whether the shareholders believe that any such transaction is in their best interests.
WE RELY ON MR. XIANPING WANG, OUR SOLE OFFICER AND DIRECTOR, WHOSE LOSS OF SERVICES WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR SUCCESS AND DEVELOPMENT.
Our success depends to a substantial degree upon Mr. Wang. This individual is a significant factor in our growth and success. The loss of the service of Mr. Wang could have a material adverse effect on us.
BECAUSE WE DO NOT HAVE AN AUDIT OR COMPENSATION COMMITTEE, SHAREHOLDERS WILL HAVE TO RELY ON OUR SOLE DIRECTOR, WHO IS NOT INDEPENDENT TO PERFORM THESE FUNCTIONS.
We do not have an audit or compensation committee comprised of independent directors. Indeed, we do not have any audit or compensation committee. These functions are performed by our sole director. Thus, there is a potential conflict of interest in that our director and officer have the authority to determine issues concerning management compensation and audit issues that my affect management decisions.
OUR INTERNAL CONTROLS MAY BE INADEQUATE, WHICH COULD CAUSE OUR FINANCIAL REPORTING TO BE UNRELIABLE AND LEAD TO MISINFORMATION BEING DISSEMINATED TO THE PUBLIC.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
NEVADA LAW AND OUR ARTICLES OF INCORPORATION MAY PROTECT OUR DIRECTOR FROM CERTAIN TYPES OF LAWSUITS.
Nevada law provides that our officer and director will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as officers and directors. Our Bylaws permit us broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our officer and director caused by his negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our officer and director against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
A DECLINE IN THE PRICE OF OUR SHARES OF COMMON STOCK COULD AFFECT OUR ABILITY TO RAISE FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR OPERATIONS.
A prolonged decline in the price of our shares of common stock could result in a reduction in the liquidity of our shares of common stock and a reduction in our ability to raise capital. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop our business and continue our current operations. If the stock price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations.
IF WE ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE, THIS MAY RESULT IN DILUTION TO OUR EXISTING STOCKHOLDERS.
Our articles of incorporation, as amended, authorize the issuance of 500,000,000 shares of common stock. As of the date of this Annual Report, our total issued and outstanding shares of common stock are 499,911,400. Therefore, we will need to obtain shareholder approval to amend our articles of incorporation to increase the total authorized capital in order to be able to issue sufficient shares in the future in accordance with our contractual obligations.. If we do not obtain shareholder approval to amend the articles of incorporation to increase the total authorized capital, we will not be able to consummate certain contractual relations, which may adversely affect our business operations. In the event our shareholders approve an amendment to our articles of incorporation to increase the total authorized capital, our board of directors has the authority to issue additional shares of common stock up to the authorized capital stated in the articles of incorporation. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. It will also cause a reduction in the proportionate ownership and voting power of all other stockholders. See “Item
BECAUSE OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES, THE LIQUIDITY OF YOUR INVESTMENT MAY BE RESTRICTED.
Our common stock is now, and may continue to be in the future, subject to the penny stock rules under the Securities Exchange Act of 1934. These rules regulate broker/dealer practices for transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker/dealers to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker/dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These additional penny stock disclosure requirements are burdensome and may reduce the trading activity in the market for our common stock. As long as the common stock is subject to the penny stock rules, holders of our common stock may find it more difficult to sell their securities.
NASD SALES PRACTIVE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER’S ABILITY TO BUY AND SELL OUR SHARES OF COMMON STOCK.
In addition to the “penny stock” rules described above, the National Association of Securities Dealers Inc. has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the National Association of Securities Dealers Inc. believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The National Association of Securities Dealers Inc. requirements make it more difficult for broker-dealers to recommend that their customers buy our shares of common stock, which may limit your ability to buy and sell our shares of common stock and have an adverse effect on the market for its shares.
TRADING ON THE OTC BULLETIN BOARD MAY BE SPORADIC BECAUSE IT IS NOT A STOCK EXCHANGE, AND STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.
Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with the Company’s operations or business prospects. The OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex. Accordingly, you may have difficulty reselling any of our shares you purchase.
ITEM 1B. UNRESLOVED STAFF COMMENTS
We received a comment letter from the Securities and Exchange Commission dated March 6, 2009 and November 3, 2009 (collectively, the “SEC Comment Letters”), providing comments to our Annual Report on Form 10-KSB, as amended, for fiscal year ended June 30, 2008 and our Annual Report on Form 10-K for fiscal year ended June 30, 2009. We are in the process of providing responses to the SEC Comment Letters and anticipate that such comments will be resolved in the near future.
We received a comment letter from the Securities and Exchange Commission dated January 26, 2010 (the “SEC Proxy Comment Letter”), providing comments to our Preliminary Proxy Statement on Form 14A. We do not intend to move forward with our Preliminary Proxy Statement.
ITEM 2. DESCRIPTION OF PROPERTY
We maintains our registered agent’s office at 101 Convention Center Drive, Suite 700, Las Vegas, Nevada 89109 and our principal executive office at B-26F, Oriental Kenzo Dongcheng District, Beijing 100027.
ITEM 3. LEGAL PROCEEDINGS.
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. None of our directors, officers or affiliates are (i) a party adverse to us in any legal proceedings, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON EQUITY
Shares of our common stock are traded on the OTC Bulletin Board under the symbol "XHUA.OB". The market for our common stock is limited and can be volatile. For the past two fiscal years, we have not had any trading volume in our shares of common stock. The following table sets forth the high and low sales prices relating to our common stock on a quarterly basis for the last two fiscal years as quoted by the NASDAQ. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.
As of June 30, 2011, we had 30 shareholders of record, which does not include shareholders whose shares are held in street or nominee names. We believe that there are approximately 1,000 beneficial owners of our common stock.
No dividends have ever been declared by the Board of Directors on our common stock. Our losses do not currently indicate the ability to pay any cash dividends, and we do not indicate the intention of paying cash dividends either on our common stock in the foreseeable future. There are no restrictions in our articles of incorporation or by-laws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We have one equity compensation plan, the Xinhua China Ltd. Stock Option Plan. On September 4, 2004, our Board of Directors unanimously approved and adopted, and on September 6, 2004 our shareholders holding a majority of our issued and outstanding common stock, approved a stock option and incentive plan (the “Stock Option Plan”). The purpose of the Stock Option Plan is to advance our interests and our shareholders by affording our key personnel an opportunity for investment and the incentive advantages inherent in stock ownership in us. Pursuant to the provisions of the Stock Option Plan, stock options, stock awards, cash awards or other incentives (the “Stock Options and Incentives”) will be granted only to our key personnel, generally defined as a person designated by the Board of Directors upon whose judgment, initiative and efforts we may rely including any of our directors, officers, employees, consultants or advisors. A maximum of 20,000,000 shares of common stock have been reserved under the Stock Option Plan. Options may be granted for a term not exceeding ten years from the date of grant. Under the Stock Option Plan, the Board of Directors previously authorized the grant of 4,255,000 Stock Options to our employees and consultants on September 23, 2004 and October 27, 2004, respectively. The entire 4,255,000 Stock Options have expired by their terms as of June 30, 2007.
The table set forth below presents the securities authorized for issuance with respect to the Stock Option Plan under which equity securities are authorized for issuance as of June 30, 2011:
Equity Compensation Plan Information
XINHUA CHINA LTD. STOCK OPTION PLAN
The Stock Option Plan is to be administered by our Board of Directors, which shall determine (i) the persons to be granted Stock Options and Incentives; (ii) the Fair Market Value of our shares; (iii) the exercise price per share of options to be granted; (iv) the number of shares to be represented by each option or incentive award; (v) the time or times at which options and incentive awards shall be granted; (vi) the interpretation of the Stock Option Plan; (vii) whether to prescribe, amend and rescind rules and regulations relating to the Stock Option Plan; (viii) the term and provisions or each option and incentive award granted (which need not be identical) and, with the consent of the grantee thereof, modify or amend such option or incentive award; (ix) whether to accelerate or defer (with the consent of the grantee) of the exercise date of any option or incentive award; (x) the person to execute on our behalf any instrument required to effectuate the grant of an option or incentive award previously granted by the Board; (xi) whether to accept or reject the election made by a grantee pursuant to Section 7.5 of the Stock Option Plan; and (xii) all other determinations deemed necessary or advisable for the administration of the Stock Option Plan. The Stock Option Plan provides authorization to the Board of Directors to grant Stock Options and Incentives to a total number of shares of our common stock, not to exceed Twenty Million (20,000,000) shares of our common stock as at the date of adoption by the Board of Directors of the Stock Option Plan.
In the event an optionee who is one of our directors, officers, employees (employee also encompasses consultants and advisors where such is appropriate or where such is intended by the Board or by a particular grant under the Stock Option Plan) (each an "Employee") has his employment terminated by us, except if such termination is voluntary or occurs due to retirement with the consent of the Board or due to death or disability, then the Stock Option, to the extent not exercised, shall terminate on the date on which the Employee's employment with us is terminated. If an Employee's termination is voluntary or occurs due to retirement with the consent of the Board, then the Employee may after the date such Employee ceases to be one of our employees, exercises his Stock Option at any time within three (3) months after the date he ceases to be one of our Employees, but only to the extent that he was entitled to exercise it on the date of such termination. To the extent that the Employee was not entitled to exercise the Stock Option at the date of such termination, or if he does not exercise such Stock Option option (which he was entitled to exercise) within the time specified herein, the option shall terminate. In no event may the period of exercise in the case of Incentive Options extend more than three (3) months beyond termination of employment.
In the event an Employee is unable to continue his employment with us as a result of his permanent and total disability (as defined in Section 22(e)(3) of the Internal Revenue Code), he may exercise his Stock Option at any time within six (6) months from the date of termination, but only to
the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Stock Option at the date of termination, or if he does not exercise such option (which he was entitled to exercise) within the time specified herein, the Stock Option shall terminate. In no event may the period of exercise in the case of an Incentive Option extend more than six (6) months beyond the date the Employee is unable to continue employment due to such disability.
In the event an optionee dies during the term of the Stock Option and is at the time of his death an Employee who shall have been in continuous status as an Employee since the date of grant of the option, the Stock Option may be exercised at any time within six (6) months following the date of death by the optionee's estate or by a person who acquired the right to exercise the Stock Option by bequest or inheritance, but only to the extent that an optionee was entitled to exercise the Stock Option on the date of death, or if the optionee's estate, or person who acquired the right to exercise the Stock Option by bequest or inheritance, does not exercise such Stock Option (which he was entitled to exercise) within the time specified herein, the Stock Option shall terminate. In no event may the period of exercise in the case of an Incentive Option extend more than six (6) months beyond the date of the Employee's death.
Except to the extent otherwise expressly provided in an award, the right to acquire shares or other assets under the Stock Option Plan may not be assigned, encumbered or otherwise transferred by an optionee and any attempt by an optionee to do so will be null and void. However Stock Options and Incentives granted under this Stock Option Plan may be transferred by an optionee by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder. Unless assigned in accordance with the terms of an award, options and other awards granted under this Stock Option Plan may not be exercised during an optionee's lifetime except by the optionee or, in the event of the optionee's legal incapacity, by his guardian or legal representative acting in a fiduciary capacity on behalf of the optionee under state law and court supervision.
Section 15(g) of the Securities Exchange Act of 1934
Our shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by this Section 15(g), the broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, Section 15(g) may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
RECENT SALES OF UNREGISTERED SECURITIES
As of the date of this Annual Report and during fiscal year ended June 30, 2011, to provide capital, we sold stock in private placement offerings, issued stock in exchange for our debts or pursuant to contractual agreements as set forth below.
Forbearance and Settlement Agreement
During fiscal year ended June 30, 2011, we did not issue any shares of our common stock.
ITEM 6. SELECTED FINANCIAL DATA
The summarized consolidated financial data set forth in the tables below and discussed in this section should be read in conjunction with our consolidated financial statements and related notes for fiscal years ended June 30, 2011 and 2010, which financial statements are included elsewhere in this Annual Report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATION
For Fiscal Year Ended June 30, 2011 Compared to Fiscal Year Ended June 30, 2010.
Revenues and Gross Margin
During fiscal year ended June 30, 2011, we had net revenue of $-0- as compared to net revenue of $-0- during fiscal year ended June 30, 2010.
Our total operating expenses were $564,859 for fiscal year ended June 30, 2011 as compared to total operating expenses of $742,802 for fiscal year ended June 30, 2010 (a decrease of $177,943). During fiscal year ended June 30, 2011, our selling, general and administrative expenses consisted of: (i) legal and professional fees of $32,791 (2010: $80,552); (ii) office expenses of $12,109 (2010: $160,220); (iii) salaries and benefits of $186,680 (2010: $268,739); (iv) management fees of $112,836 (2010: $120,000); (v) vehicle expense of $33,623 (2010: $31,291); and (vii) other expenses of $186,820 (2010: $82,000). The decrease in operating expenses during fiscal year ended June 30, 2011 as compared June 30, 2010 was due to the decrease in scope and scale of business operations involving the divesture of our subsidiaries.
Selling, general and administrative expenses primarily decreased based on a decrease of $148,111 in office expenses to $160,220 and a decrease of $82,059 in salaries and benefits to $268,739. These expenses increased because after we moved office location, we sold our subsidiaries and decreased personnel.
We incurred ($489,564) in interest expense during fiscal year ended June 30, 2011 as compared to ($465,346) incurred as interest expense during fiscal year ended June 30, 2010. Interest expense of ($489,564) incurred during fiscal year ended June 30, 2011 consisted of: (i) $438,243 (2010: $412,611) in imputed interest charged on loans from shareholders; (ii) $51,321 (2010: $51,350) imputed interest charged on loans from related parties; and (iii) $-0- (2010: $1,949) in interest paid in cash
Loss on Sale of Investment
During fiscal year ended June 30, 2011, we sold our long-term investment in Beijing Joannes and Pac-Poly, which resulted in realization of a loss of $6,363,912. During fiscal year ended June 30, 2010, we sold our long-term investment in Xinhua C&D and Beijing Boheng Investments, which resulted in realization of a loss of $2,800,000.
Our net loss during fiscal year ended June 30, 2011 was ($7,418,334) compared to a net loss of ($4,007,374) for fiscal year ended June 30, 2010. Net loss during fiscal year ended June 30, 2011 increased from net loss during fiscal year ended June 30, 2010 primarily relating to the loss on sale of investment of $6,853,475.
During fiscal year ended June 30, 2011, we recorded a foreign currency translation loss of ($70,541) compared to a foreign current translation gain of $1,393 during fiscal year ended June 30, 2010.
Thus, our comprehensive loss during fiscal year ended June 30, 2011 was ($7,488,857 or ($0.000 per share) compared to a net loss of ($4,005,981) or ($0.000 per share). The weighted average number of shares outstanding was 499,911,400 at June 30, 2011 compared to 499,930,841 at June 30, 2010.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal Year Ended June 30, 2011
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
As at fiscal year ended June 30, 2011, our current assets were $10,229 and our current liabilities were $2,561,251, resulting in a working capital deficit of $2,551,022. As at fiscal year ended June 30, 2011, current assets were comprised of $10,229 in net accounts receivable. As at fiscal year ended June 30, 2010, our current assets were $572,288 comprised of: (i) $255,810 in cash and cash equivalents; (ii) $75,125 in net accounts receivable; and (iii) $241,353 in other receivables and prepayments.
As at fiscal year ended June 30, 2011, our total assets were $10,229 comprised entirely of current assets. As at fiscal year ended June 30, 2010, our total assets were $854,592 of: (i) $572,288 in current assets; (ii) $204,062 in net property, plant and equipment; and (iii) $78,242 in intangible assets. The decrease in total assets during fiscal year ended June 30, 2011 from fiscal year ended June 30, 2010 was primarily due to the decrease in cash and cash equivalents and other receivables and prepayments and the decrease in property, plant and equipment based upon the divestiture of our subsidiaries.
As at fiscal year ended June 30, 2011, our current liabilities were $2,561,251. As at fiscal year ended June 30, 2010, our current liabilities were $2,043,145). As at fiscal year ended June 30, 2011, current liabilities were comprised of: (i) $1,063,176 (2010: $570,834) in accounts payable and accrued liabilities; and (ii) $1,498,075 (2010: $1,472,311) in current portion of loans payable.
As at fiscal year ended June 30, 2011, our total liabilities were $15,833,994. As at fiscal year ended June 30, 2010, our total liabilities were $13,277,932. As at fiscal year ended June 30, 2011, total liabilities were comprised of: (i) $2,561,251 (2010: $2,043,145) in current liabilities; (ii) $1,058,261 (2009: $1,058,261) in loans payable; and (iii) $12,221,646 (2010: $10,176,526) in loans from shareholders. The increase in total liabilities during fiscal year ended June 30, 2011 from fiscal year ended June 30, 2010 was primarily due to the increase in loans from shareholders.
Stockholders’ deficit increased from ($12,423,340) for June 30, 2010 to ($15,823,765) for June 30, 2011.
We have not generated positive cash flows from operating activities. During fiscal year ended June 30, 2011, net cash flow used in operating activities was ($2,717,520) compared to net cash flow used in operating activities of ($3,765,105) during fiscal year ended June 30, 2010. Net cash flow used in operating activities during fiscal year ended June 30, 2010 consisted primarily of a net loss of ($7,418,334) adjusted by $3,650,207 to retained earnings from deconsolidation and $607,137 in imputed interest expense. Changes in assets and liabilities consisted of a decrease of $430,699 in accounts payable and accrued liabilities and of $12,771 in accounts receivable..
Net cash flows used in operating activities during fiscal year ended June 30, 2010 consisted primarily of a net loss of ($4,007,374) adjusted by $463,397 in imputed interest expense, $2,442 in amortization and $28,000 in depreciation. Changes in assets and liabilities consisted of an increase of $897 in accounts receivable, $16,696 in deferred revenue and $233,976 in accounts payable and accrued liabilities.
During fiscal year ended June 30, 2011, net cash flow used in investing activities was $399,805 compared to net cash flow sourced from investing activities of ($257,591) for fiscal year ended June 30, 2010. Net cash flow sourced in investing activities during fiscal year ended June 30, 2011 consisted of changes in assets and liabilities from disposal of our subsidiaries: (i) $52,125 in decrease in accounts receivable; (ii) $241,352 in decrease in other receivables and prepayments; (iii) $204,062 in decrease in plant and equipment; (iv) $78,242 in decrease in intangible assets; (v) $107,251 in decrease in accounts payable and accrued liabilities; and (vi) $68,725 in decrease in loans from shareholders.
Net cash flows sourced from investing activities during fiscal year ended June 30, 2010 consisted of: (i) $176,906 in purchase of plant and equipment; and (ii) $80,685 in purchase of intangible assets.
During fiscal year ended June 30, 2011, net cash flow sourced from financing activities was $2,132,444 compared to net cash flow sourced from financing activities of $4,228,186 for fiscal year ended June 30, 2010. Net cash flow from financing activities during fiscal year ended June 30, 2011 consisted of $2,132,444 in loans from shareholders. Net cash flow from financing activities during fiscal year ended June 30, 2010 consisted of: (i) $4,228,186 in loans from shareholders; (ii) $11,340 in additional paid-in capital; and (iii) $96 in proceeds from convertible debenture, which was offset by $11,436 in repayment of loan payable.
PLAN OF OPERATION
The local and regional distribution business for books is competitive and fragmented in the People’s Republic of China. Estimates range up to 500 as to the number of entrants in this field. It is our plan that economy of scale, relationships with Chinese publishers and also with sub-distributors and retailers and our nationwide scope which allows us the flexibility to distribute books in any region will assist us in maintaining and enhancing our competitive position.
Although we have divested our subsidiary, Beijing Joannes. which we intended to be our digital media company and distribute all digital content, we continue with our goal to expand our business to include electronic sales, delivery and distribution of media contents. We also plan to partner with foreign publishers to provide foreign media contents in China. We seek to achieve our goal on a national scale to maximize opportunities in one of the largest and fastest growing economies in the world.
Existing working capital, further advances and possible debt instruments, warrant exercises, further private placements, monetization of existing assets, and anticipated cash flow are expected to be adequate to fund our operations over the next two months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt securities and loans from our shareholders. In connection with our business plan, management will delay additional increases in operating expenses and capital expenditures. We intend to utilize our best efforts to settle current finance accounts payables and liabilities with further issuances of securities, debt and or advances, monetization of existing assets, and revenues from operations. We will need to raise additional capital and increase revenues to meet both short term and long-term operating requirements.
We have undertaken certain actions and continue to implement changes designed to improve our financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including divesture of our subsidiaries and reductions in headcounts. Furthermore, the restructure of debt pertaining to Cornell and Highgate has been advantageous to our over financial outlook. Ultimately, we have released the burden on cash flow for further contribution and intend to put our resources in co-publishing and e-commerce business opportunities.
The report of the independent registered public accounting firm that accompanies our June 30, 2011 and June 30, 2010 consolidated financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The consolidated financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Loans Payable/Convertible Debenture
During 2010/11, a material commitment for us relates to the Forbearance and Settlement Agreement with Cornell and Highgate. On December 29, 2006, we completed the debt restructuring with Cornell and Highgate under the Forbearance and Settlement Agreement. Pursuant to the Forbearance and Settlement Agreement, we agreed to make certain payments to Cornell and Highgate with respect to the Securities Purchase Agreement previously entered into by us with Cornell and Highgate dated November 23, 2005 and amended on March 23, 2006, and the two convertible debentures in the amounts of $1,250,000 to Highgate dated November 23, 2005 and $2,000,000 to Cornell dated March 23, 2006 (collectively, the “Convertible Debentures”) in accordance with the terms and conditions set forth in the Forbearance and Settlement Agreement.
In further accordance with the Forbearance and Settlement Agreement, we agreed to use the proceeds from the disposal of Beijing Boheng to repay the principal and interest due to Cornell and Highgate under the Convertible Debentures in exchange for the agreement of Cornell and Highgate to: (i) waive on a one-time basis only any accrued liquidated damages owing to Cornell and Highgate; (ii) no application of the redemption premium on the scheduled repayments; (iii) conversion of the Convertible Debentures in an amount equal to at least the amount of a scheduled repayment subject to certain conditions; (iv) no additional liquidated damages accruing during the term of the Forbearance and Settlement Agreement; (v) permitting us to withdraw the registration statement filed on March 28, 2006 with the Securities and Exchange Commission in connection with the Convertible Debentures; (vi) during the term of the Forbearance and Settlement Agreement, waiving the requirement for us to receive written consent of Cornell and Highgate for any organizational change (as defined in the Securities Purchase Agreement) to be directly or indirectly consummated by us, and that we will not effectuate any stock splits for at least nine months without the consent of Cornell and Highgate; and (vii) terminating the provisions for security shares as set forth in Section 9 of the Securities Purchase Agreement and in Section 2 of the transfer agent instructions upon receipt by Cornell and Highgate of the first scheduled repayment amount.
The payment plan under the Forbearance and Settlement Agreement is as follows:
As of June 30, 2007, we paid $250,000 for the payment due March 10, 2007 and issued 100,000 shares and 125,000 shares of our common stock on March 1, 2007 and April 18, 2007, respectively, pursuant to exercise rights. During fiscal years ended June 30, 2009 and June 30, 2008, Cornell and Highgate converted an aggregate of 266,655,668 and 44,016,843 shares, respectively, against the outstanding amount at a total conversion price of $144,532 and $152,200, respectively. During fiscal year ended June 30, 2010, Cornell and Highgate converted an aggregate of 9,600,000 shares against the outstanding amount at a total conversion price of $11,436.
During fiscal year ended June 30, 2011, Cornell and Highgate did not convert any of the outstanding amount. Therefore, as at June 30, 2011, $2,549,172 was due and owing of which $1,498,075 and $1,051,097 were attributed to current portion and long-term portion of liabilities on the balance sheet, respectively.
LOANS FROM SHAREHOLDERS
During fiscal year 2011/12, a material commitment for us relates to the loans from shareholders. The outstanding amount of $12,221,616 represents cash advanced to us from our shareholders. These shareholder loans are unsecured, interest-free and not repayable within the next twelve months. For fiscal years ended June 30, 2011 and June 30, 2019, we calculated imputed interest expense of $438,243 and $419,775, respectively, in relation to interest-free shareholders loans at its effective interest rate and accounted for it in the consolidated financial statements. During fiscal year ended June 30, 2009, the shareholders converted an aggregate of 125,000,000 shares against the shareholders’ loan at a total conversion price of $12,500. During fiscal year ended June 30, 2010 and 2011, none of the shareholders converted any debt due and owing into shares of common stock.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve months.
The independent auditors' report accompanying our December 31, 2011 and December 31, 2010 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations and have a working capital deficit. These factors raise substantial doubt about our ability to continue as a going concern.
RECENT ACCOUNTING PRONOUNCEMENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Xinhua China Ltd.
Audited Financial Statements
June 30, 2011 and 2010
(Stated in US Dollars)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM DATED
September 21, 2012.
Board of Directors and Stockholders
Xinhua China Ltd.
Report of Registered Independent Public Accounting Firm
We have audited the accompanying balance sheets of Xinhua China Ltd. and its subsidiaries (“the Company”) as of June 30, 2011 and 2010, and the related statements of income, stockholders’ equity and comprehensive income and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company’s internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2011 and 2010 and the consolidated results of operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred substantial losses and has a working capital deficit, all of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
BALANCE SHEETS AS AT JUNE 30, 2011 AND JUNE 30, 2010.
See Accompanying Notes to the Financial Statements.
STATEMENTS OF INCOME FOR FISCAL YEARS ENDED JUNE 30, 2011 AND JUNE 30, 2010
See Accompanying Notes to the Financial Statements
STATEMENT OF STOCKHOLDERS' EQUITY FOR FISCAL YEARS ENDED JUNE 30, 2011 AND JUNE 30, 2010.
See Accompanying Notes to the Financial Statements
STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED JUNE 30, 2011 AND JUNE 30, 2010.
See Accompanying Notes to the Financial Statements
NOTES TO FINANCIAL STATEMENTS.
Xinhua China Ltd. (the “Company”, formerly Camden Mines Limited) was incorporated in the State of Nevada, United States of America, on September 14, 1999. Until September 2004, the Company was a non-operating shell company and considered as a development stage enterprise since its inception. Effective from October 12, 2004, the Company changed to its current name. The Company established an office in Vancouver, Canada; however, this office was closed down in December 2006. The Company established its principal executive office at B26-F, Oriental Kenzo, No. 48 Dongzhimenwai Street, Dongcheng District, Beijing 100027 People’s Republic of China.
As of May 31, 2006, the Company reduced its equity interest in Xinhua C&D from 56.14% to 7.98%. Subsequent to the deconsolidation of Xinhua C&D, the Company commenced the internet book distribution business through Beijing Joannes Information Technology Co., Ltd. (“Joannes”).
As of September 30, 2010, the Company sold its investment in Pac-Poly Investments Ltd. and Beijing Joannes Information Technology Co., Ltd. at a loss, refer to Note 15.
As of June 30, 2011, the Company does not have any direct or indirect interest in any investments that would require consolidating financial statements.
These financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of June 30, 2011, the Company had no working capital but current liabilities exceeding current assets by $2,551,022 and an accumulated deficit of $28,067,690 due to the fact that the Company continued to incur losses over the past several years. Management has taken certain action and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including (a) reductions in headcount and corporate overhead expenses; and (b) development of e-commerce business. Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations through June 30, 2012. As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these Estimates.
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business, but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness, and the economic environment.
Property, plant, and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational.
Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of property, plant, and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statement of income.
In accordance with SFAS No. 121, “Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of’, a long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. The Company reviews long-lived assets, if any, to determine whether the carrying values are not impaired.
Sales revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and final, delivery has occurred and there is reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price and considers delivery to have occurred when the customer takes possession of the products. Net sales incorporate offsets for discounts and sales returns. Revenue is recognized upon delivery, risk and ownership of the title is transferred and a reserve for sales returns is recorded even though invoicing may not be completed. The Company has demonstrated the ability to make reasonable and reliable estimates of products returns in accordance with SFAS No. 48, “Revenue Recognition When Right of Return Exists”.
Shipping and handling fees billed to customers are included in sales. Costs related to shipping and handling are part of selling, general, and administrative expenses in the consolidated statements of income. EITF No. 00-10, “Accounting for Shipping and Handling Fees and Costs” allows for the presentation of shipping and handling expenses in line items other than cost of sales. For the year ended June 30, 2011, there were no shipping and handling costs included in selling, general and administrative expenses in the accompanying consolidated statements of income.
Cost of sales includes depreciation of property, plant, and equipment and purchase costs to publishers.
The Company is subject to value added tax (“VAT”) imposed by the PRC on sales. The output VAT is charged to customers who purchase books from the Company and the input VAT is paid when the Company purchases books from publishers. The VAT rate is 13%. The input VAT can be offset against the output VAT.
The Company expenses advertising costs as incurred in accordance with the ASC No. 35, “Advertising Costs”. For the period ended June 30, 2011, advertising expenses amount to zero.
ASC No. 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components, and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statement of changes in owners’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
The Company uses the accrual method of accounting to determine and report its taxable reduction of income taxes for the year in which they are available. The Company has implemented Statement of Financial Accounting Standards ASC Topic 740, “Accounting for Income Taxes”. Income tax liabilities computed according to the United States and People’s Republic of China (PRC) tax laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either 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. A valuation allowance is created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.
The Company is subject to United States Tax according to Internal Revenue Code Sections 951 and 957. Corporate income tax is imposed on progressive rates in the range of:
Based on the consolidated net loss for the year ended June 30, 2011, the Company shall not be subject to income tax.
The Company calculates loss per share in accordance with SFAS No. 128, “Earnings per Share”. Basic loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive. The effect of outstanding stock options, stock purchase warrants and convertible debenture, which could result in the issuance of 499,911,400 of common stock at June 30, 2011 is anti-dilutive. As a result, diluted loss per share data does not include the assumed exercise of outstanding stock options, stock purchase warrants, or conversion of convertible debenture and has been presented jointly with basic loss per share.
The functional and reporting currency of the Company is the United States dollars (“U.S. dollars”). The accompanying consolidated financial statements have been expressed in U.S. dollars.
The functional currency of the Company’s foreign subsidiaries is the Renminbi Yuan (“RMB”). The balance sheet is translated into United States dollars based on the rates of exchange ruling at the balance sheet date. The statement of income is translated using a weighted average rate for the year. Translation adjustments are reflected as cumulative translation adjustments in stockholders’ equity.
For certain of the Company’s financial instruments, including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
As of June 30, 2012 and 2011, the Company did not identify any assets and liabilities that were required to be presented on the balance sheet at fair value.
For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.
All material related party transactions have been disclosed.
The Company accounts for the issuance of and modifications to the convertible debt issued with stock purchase warrants in accordance with APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants , EITF No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments and SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings.
Due to the indeterminate number of shares, which might be issued under the embedded convertible host debt conversion feature of these debentures, the Company is required to record a liability relating to both the detachable warrants and embedded convertible feature of the notes payable (included in the liabilities as a "derivative liability").
The accompanying financial statements comply with current requirements relating to warrants and embedded derivatives as described in SFAS 133 as follows:
In January 2011, the FASB issued an Accounting Standard Update (“ASU”) No. 2011-01, “Receivables Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings in Update 2010-20. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. This new accounting is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.
In June 2011, the FASB issued an Accounting Standard Update (“ASU” No. 2011-05, “Comprehensive Income (Topic 220). Under the amendments to Topic 220, Comprehensive Income, entities have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This new accounting is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.
The carrying amounts of prepayments approximate their fair value.
Property, plant, and equipment as of June 30, 2011 and 2010 consists of the following:
Depreciation expense for 2011 and 2010 was zero and $28,000.
On November 23, 2005, the Company entered into a debt financing agreement (the “Agreement”) with an institutional investor, and on March 23, 2006, the Agreement was modified to include an additional institutional investor, who is an affiliate of the original institutional investor (both institutional investors collectively referred to as “the Investors”). The Investors committed to purchase up to $4,000,000 of a secured convertible debenture (“the debenture”) that shall be convertible into shares of the Company’s common stock.
After two closings on December 13, 2005 and March 23, 2006, the Company received gross proceeds of $3,250,000 (net proceeds $2,989,460) for the secured convertible debenture. The Company and debenture-holders entered into a Forbearance and Settlement Agreement on December 29, 2006 because of default in debt service, whereby the Company agreed to make cash payment and to grant rights to the creditors to cashless purchase the Company’s common stock by exercising the warrant at 200,000 shares in every three month period beginning on December 29, 2006 according to the following payment plan:
The Company paid $250,000 for the payment due March 10, 2007 and the debenture holders exercised 100,000 shares and 125,000 shares on March 1, 2007 and April 18, 2007, respectively. For the year ended June 30, 2011, there were no conversions of shares against outstanding loan. For the year ended June 30, 2010, the debenture holders converted 9,600,000 shares against outstanding loan at a total conversion price of $11,436.
Loans Payable outstanding as of June 30, 2011 amount to $2,549,172 of which $1,498,075 and $1,051,097 were attributed to current portion and long-term, respectively.
Loans Payable outstanding as of June 30, 2010 amount to $2,530,572 of which $1,472,311 and $1,058,261 were attributed to current portion and long-term, respectively.
The total outstanding amount of $12,221,616 represents cash advanced from shareholders of the Company.
These shareholders’ loans are unsecured and not repayable within the next twelve months. For the year ended June 30, 2011 and 2010, there was $438,243 and $419,775 imputed interest, at 6.00% per annum, recorded.
During 2005, the authorized capital stock of the Company increased from $1,000 consisting of 100,000,000 shares of common stock of par value $0.00001 each to $5,000 consisting of 500,000,000 shares of common stock of par value $0.00001 each.
The warrant shares shall have an exercise price of $4.50 per warrant share for the first twelve months, and if still available after twelve months, the warrant shares shall have an exercise price of $4.60 per warrant share starting on the first day of the second twelve month period and increasing by $0.10 on the first day of each subsequent month thereafter until expiration of the warrants.
On December 13, 2005, the Company issued to the holder of the convertible debenture 1,035,000 warrants. One share purchase warrants is exercisable for one common share at $0.00001 per share, until expiration on November 22, 2010. As of June 30, 2008, 835,000 warrants issued to convertible debenture holders were outstanding which will lead to the issuance of a total of 213,554,987 additional shares of common stock if fully exercised at June 30, 2008.
On May 1, 2006, the Company issued 100,000 warrants at $1.47 per share to Mr. Peter Shandro, the VP Business Strategy of the Company, in association with the planning and execution of the on-line ecommerce initiative of the Company. Compensation expense of $94,775 was recorded with the issuance of these warrants.
Full-time employees of the Company are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a China government-mandated multi-employer defined contribution plan. The Company is required to accrue for these benefits based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were $81,417 and $99,075 for the years ended 2011 and 2010, respectively.
The Company is subject to U.S. corporate taxes at a rate of 35%. Pac-Poly is a BVI company and is not subject to income taxes. Pursuant to the PRC Income Tax Laws, the PRC subsidiaries are generally subject to enterprise income tax (“EIT”) at a statutory rate of 33% (30% national income tax plus 3% local income tax). Effective January 1, 2008, PRC government adopted a new uniform tax rate of 25% applicable to domestic and foreign enterprise.
Neither the Company nor its subsidiaries had any assessable income for the period and so neither provision nor benefit for EIT was recorded for the year ended June 30, 2011 and 2010.
Subject to the approval of the relevant tax authorities, the Company had tax losses carry-forward against future years’ taxable income.
As of June 30, 2011 and 2010, valuation allowances of $7,418,334 and $4,007,374 were provided to the deferred tax assets due to the uncertainty surrounding their realization.
(A). Major Customers and Vendors
100% of the Company’s revenues were derived from customers located in the PRC, and there are no customers and vendors who account for 10% or more of revenues and purchases. The Company’s assets are all located in the PRC.
(B). Credit Risk
There are no concentrations of credit risk because the Company, while in operation, entered into large number of cash sale transactions without deploying financial instruments, which may potentially drive to significant concentrations.
For the year ended June 30, 2011, the Company sold its long-term investment in Beijing Joannes Information Technology and Pac-Poly Investments Inc. during the year and resulted in a loss of $6,363,912, which is reflected in the Income Statement.
For the year ended June 30, 2010, the Company sold its long-term investment in Xinhua C&D and Beijing Boheng Investments and Management Co., Ltd. during the year and resulted in a loss of $2,800,000, which is reflected in the Income Statement.
Basic net loss per share is computed using the weighted average number of the ordinary shares outstanding during the year. Diluted net loss per share is computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during the year.
The following table sets forth the computation of basic and diluted net loss per share for the year indicated:
For the year ended June 30, 2011 in which the Company had a net loss, inclusion of warrants outstanding would have been anti-dilutive and therefore not included in the computation of diluted losses per share.
Certain amounts included in prior years' consolidated balance sheet and the consolidated statements of operations and cash flows have been reclassified to conform to the current year's presentation. These reclassifications had no effect on reported total assets, liabilities, stockholders' equity, or net income.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective on July 25, 2007, our Board of Directors appointed Samuel H. Wong & Co., LLP (“Wong & Co.”) as our principal independent registered public accounting firm. Wong & Co. recently changed its name to WWC, Professional Corporation.
The report of Wong & Co. on our financial statements for fiscal years ended June 30, 2010 and June 30, 2009 did not contain an adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit scope or accounting principles, other than to state that there is substantial doubt as to our ability to continue as a going concern. During our fiscal years ended June 30, 2010 and June 30, 2009, there were no disagreements between us and Wong & Co., whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Wong & Co., would have caused Wong & Co. to make reference thereto in their reports on our audited consolidated financial statements.
In connection with our appointment of Wong & Co. as our principal registered accounting firm, we have not consulted with Wong & Co. on any matter relating to the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit opinion that might be rendered on our financial statements.
The address and telephone number of our principal registered accounting firm is: WWC Professional Corporation, Certified Public Accountants, 2010 Pioneer Court, San Mateo, California 94403, telephone 650.638.0808, fax 650.638.0878
ITEM 9A. CONTROLS AND PROCEDURES
FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer/Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based on that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officers also confirmed that there was no change in our internal control over financial reporting during the year ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer/Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the "Evaluation"), under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls") as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. The evaluation of our disclosure controls and procedures included a review of the disclosure controls' and procedures' objectives, design, implementation and the effect of the controls and procedures on the information generated for use in this report. In the course of our evaluation, we sought to identify data errors, control problems or acts of fraud and to confirm the appropriate corrective actions, if any, including process improvements, were being undertaken. Our Chief Executive Officer/Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and were operating at the reasonable assurance level.
Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rules 13a-15(f) promulgated under the Exchange Act. The term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Our management, including our chief executive officer and chief financial officer, does expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Our management, with the participation of the chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of June 30, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in INTERNAL CONTROL-INTEGRATED FRAMEWORK. Our management has concluded that, as of June 30, 2011, our internal control over financial reporting is effective.
This Annual Rport does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this Annual Report.
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.
As of the date of this Annual Report our directors and executive officers, their ages, positions held are as follows:
Background of our Officers and Directors
Xianping Wang. Mr. Wang has been one of our directors since August 5, 2004 and has been our President and Chief Executive Officer since September 4, 2004. He has been our Chief Financial Officer since August 7, 2007. In addition, Mr. Wang is the President of Asia-Durable (Beijing) Investments Co., Ltd. from 2002 to 2004, which is a company that has successfully invested in construction and development projects as well as biotechnology research. From 1997 to 2002, Mr. Wang was the President of Beijing New Fortune Investment Co., Ltd., which is a company that has invested in real estate and other profitable projects such as Chongqing Wanli Storage Battery Co., Ltd. and Shenzhen Technology Co., Ltd. Mr. Wang helped Chongqing Wanli Storage Battery Co., Ltd. and Shenzhen Technology Co., Ltd. to become publicly listed companies on Chinese stock markets in Shanghai and Shenzhen. Mr. Wang received an Engineering Bachelor Degree from Navy Engineering Institute in 1978 and an Economics Master Degree from Tsinghua University in 1990.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
To our knowledge, during the past five years, no present or former director or executive officer: (1) filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or present of such a person, or any partnership in which he was a general partner at or within two yeas before the time of such filing, or any corporation or business association of which he was an executive officer within two years before the time of such filing; (2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodity laws; (4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity; (5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law and the judgment in subsequently reversed, suspended or vacate; (6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors and officers, and the persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the reports received by us and on the representations of the reporting persons, we believe that these persons have complied with all applicable filing requirements during the fiscal year ended June 30, 2011.
COMMITTEES OF THE BOARD OF DIRECTORS
As of the date of this Annual Report, we do not have any members on our audit committee. We have not appointed additional members to the Board of Directors and, therefore, the respective role of an audit committee has been conducted by our Board of Directors. When new members are to be appointed to the audit committee, the audit committee's primary function will be to provide advice with respect to our financial matters and to assist our board of directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our quarterly financial performance as well as our compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and the board of directors.
Our Board of Directors has considered whether the provision of such non-audit services would be compatible with maintaining the principal independent accountant's independence. Our Board of Directors considered whether our principal independent accountant was independent, and concluded that the auditor for the fiscal year ended June 30, 2011 was independent.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
Disclosure Committee and Charter
We have a disclosure committee and disclosure committee charter. Our disclosure committee is comprised of our officers and directors. The purpose of the committee is to provide assistance to the Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation paid by us to the Chief Executive Officer and the other highest paid executive officers (the Named Executive Officer) during the three most recent fiscal years.
SUMMARY COMPENSATION TABLE
(1) Mr. Xianping Wang was appointed as a director on August 5, 2004 and as our President and Chief Executive Officer on September 4, 2004.
(2) Mr. Xianping Wang was to receive $10,000 per month starting Feb. 2005. However, this amount has been accrued by Mr. Wang. Therefore, for the fiscal years ended June 30, 2011 and 2009, we have outstanding obligations of $120,000 owing to Mr. Wang for each year.
No long term incentive plan awards were made to any executive officer during the fiscal years ended June 30, 2011 and June 30, 2010.
Our officers and directors may be reimbursed for any out-of-pocket expenses incurred by them on our behalf. As of the date of this Annual Report, none of our officers or directors are a party to employment agreements with us. We presently have no pension, health, annuity, insurance, profit sharing or similar benefit plans.
There were no formal arrangements under which our directors were compensated by us during the most recently completed fiscal year for their services solely as directors.
STOCK OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED JUNE 30, 2011
The following table sets forth information as at June 30, 2011 relating to options that have been granted to the Named Executive Officers during fiscal year ended June 30, 2011:
The following table sets forth information relating to compensation paid to our directors during fiscal year ended June 30, 2011:
DIRECTOR COMPENSATION TABLE
Pursuant to the articles of incorporation and bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. In certain cases, we may advance expenses incurred in defending any such proceeding. To the extent that the officer or director is successful on the merits in any such proceeding as to which such person is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the state of Nevada.
Regarding indemnification for liabilities arising under the Securities Act of 1933 which may be permitted to directors or officers pursuant to the foregoing provisions, we are informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy, as expressed in the Act and is, therefore unenforceable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. As of the date of this Annual Report, there are 490,311,400 shares of common stock issued and outstanding.
(1) These are restricted shares of common stock. Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of shares of common stock actually outstanding as of the date of this Annual Report. As of the date of this Annual Report, there are 499,911,400 shares issued and outstanding.
CHANGES IN CONTROL
We are unaware of any contract, or other arrangement or provision, the operation of which may at a subsequent date result in a change of control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR COMPENSATION
None of our directors, officers or principal stockholders, nor any associate or affiliate of the foregoing, have any interest, direct or indirect, in any transaction to the date of this Annual Report, or in any proposed transactions, which has materially affected or will materially affect us.
It is possible, however, that debts owed to Mr. Wang, our President/Chief Executive Officer and sole director, could be demanded and cause us serious harm if we are unable to pay and must settle in some manner. The aggregate amount owed to Mr. Wang up to June 30, 2011 is $5,945,061 (not including his salary of $120,000 in 2010, 2009 and 2008 which remains accrued and unpaid). The shareholders loan is interest free, but the loan accrues interest at the rate of 6% annually and has been recorded as additional paid in capital. Adjustments, conversions or other action could be taken as to his debt, including the recent conversion of $12,500.00 into 125,000,000 shares of common stock by the Assignee. Moreover, Mr. Wang was to receive $10,000 per month starting Feb. 2005. However, this amount has been accrued and is due and owing to Mr. Wang. Therefore, for fiscal years ended June 30, 2010 and June 30, 2009, we have outstanding obligations of $120,000 owing to Mr. Wang.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements for fiscal year ended June 30, 2011 and review of our financial statements for quarters ended September 30, 2010, December 31, 2010 and March 31, 2011 or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was $50,000 to Wong & Co.
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements for fiscal year ended June 30, 2010 and review of our financial statements for quarters ended September 30, 2009, December 31, 2009 and March 31, 2010 or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was $50,000 to Wong & Co.
AUDIT RELATED FEES
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph was $-0- to Wong & Co.
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was $-0- to Wong & Co.
ALL OTHER FEES
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was $-0- to Wong & Co.
When existing , our audit committee's pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.
The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full time, permanent employees was 0%.
ITEM 15. EXHIBITS
The following exhibits are filed with this Annual Report on Form 10-K:
ITEM 15. EXHIBITS
The following exhibits are filed as part of this Annual Report:
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities.