ITEM 1. FINANCIAL STATEMENTS.
UNI CORE HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
Mar 31, 2013
|
|
|
June 30, 2012
|
|
|
|
USD
|
|
|
USD
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
116,702
|
|
|
$
|
506,647
|
|
Accounts receivable, net
|
|
|
1,694,204
|
|
|
|
6,412,599
|
|
Deposits, prepayment and other receivables
|
|
|
513,979
|
|
|
|
1,821,609
|
|
Amount due from related company
|
|
|
653,930
|
|
|
|
649,767
|
|
Other loan receivables
|
|
|
102,735
|
|
|
|
105,531
|
|
Inventory
|
|
|
497,096
|
|
|
|
1,532,384
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
3,578,646
|
|
|
$
|
11,028,537
|
|
Unlisted investment
|
|
|
285,953
|
|
|
|
295,587
|
|
Investment in associated companies
|
|
|
-
|
|
|
|
-
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
Plant and equipment, net
|
|
|
3,504,611
|
|
|
|
6,653,927
|
|
Intangible assets, net
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
7,369,210
|
|
|
$
|
17,978,051
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,425,671
|
|
|
$
|
5,306,612
|
|
Accrued liabilities and other payable
|
|
|
2,967,622
|
|
|
|
2,961,858
|
|
Customers deposits
|
|
|
-
|
|
|
|
-
|
|
Advance from a shareholder
|
|
|
341,956
|
|
|
|
1,101,273
|
|
Convertible promissory notes
|
|
|
368,622
|
|
|
|
322,851
|
|
Short term loan
|
|
|
5,352,918
|
|
|
|
6,911,174
|
|
Business and other taxes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
12,456,789
|
|
|
$
|
16,603,768
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
12,456,789
|
|
|
$
|
16,603,768
|
|
See accompanying notes to consolidated
financial statements
UNI CORE HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
Mar 31, 2013
|
|
|
June 30, 2012
|
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock at $0.001 par value, 5,000,000 shares authorized, Nil (June
30, 2012:Nil) shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common stock at $0.001 par value,
10,000,000,000
shares authorized,
6,505,607,614 (June30, 2012: 1,514,035,427) shares issued and
outstanding
|
|
|
6,505,608
|
|
|
|
1,514,036
|
|
Additional paid-in capital
|
|
|
54,847,999
|
|
|
|
58,822,870
|
|
Accumulated deficit
|
|
|
(67,998,204
|
)
|
|
|
(61,228,904
|
)
|
Non-control interest
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
1,557,018
|
|
|
|
2,266,281
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,087,579
|
)
|
|
$
|
1,374,283
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
7,369,210
|
|
|
$
|
17,978,051
|
|
See accompanying notes to consolidated financial
statements
UNI CORE HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three months ended Mar 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
USD
|
|
|
USD
|
|
Net revenue
|
|
|
1,537,980
|
|
|
|
5,458,042
|
|
Cost of revenues
|
|
|
(1,278,218
|
)
|
|
|
(5,037,058
|
)
|
Gross profit
|
|
|
259,762
|
|
|
|
420,984
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(382,323
|
)
|
|
|
(2,029,905
|
)
|
Impairment of goodwill
|
|
|
0
|
|
|
|
0
|
|
Exchange differences
|
|
|
(171
|
)
|
|
|
(14,734
|
)
|
Amortization of intangible assets
|
|
|
0
|
|
|
|
(7,409
|
)
|
Total costs and expenses
|
|
|
(382,494
|
)
|
|
|
(2,052,048
|
)
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(122,732
|
)
|
|
|
(1,631,064
|
)
|
Interest income
|
|
|
4
|
|
|
|
29,944
|
|
Interest expenses
|
|
|
(110,126
|
)
|
|
|
(201,363
|
)
|
Bad debts recovery
|
|
|
|
|
|
|
|
|
Other income (loss), net
|
|
|
(4,845
|
)
|
|
|
68,784
|
|
Loss before income taxes, minority interests and equity in earnings of associated companies
|
|
|
(237,699
|
)
|
|
|
(1,733,699
|
)
|
Loss on disposal of subsidaries
|
|
|
(6,613
|
)
|
|
|
|
|
Income taxes
|
|
|
0
|
|
|
|
0
|
|
Loss before minority interests and equity in earnings of associated companies
|
|
|
(244,312
|
)
|
|
|
(1,733,699
|
)
|
Minority interests
|
|
|
|
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(244,312
|
)
|
|
|
(1,731,961
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share-basic and diluted
|
|
|
(0.0000462
|
)
|
|
|
(0.0024
|
)
|
Weighted average number of common shares outstanding-basic and diluted
|
|
|
5,288,027,383
|
|
|
|
727,408,496
|
|
UNI CORE HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Nine months ended Mar 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
USD
|
|
|
USD
|
|
Net revenue
|
|
|
8,309,745
|
|
|
|
18,105,618
|
|
Cost of revenues
|
|
|
(7,857,609
|
)
|
|
|
(16,736,000
|
)
|
Gross profit
|
|
|
452,136
|
|
|
|
1,369,618
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(2,031,816
|
)
|
|
|
(4,849,465
|
)
|
Impairment of goodwill
|
|
|
0
|
|
|
|
0
|
|
Exchange differences
|
|
|
(28,251
|
)
|
|
|
68,438
|
|
Amortization of intangible assets
|
|
|
0
|
|
|
|
(25,016
|
)
|
Total costs and expenses
|
|
|
(2,060,067
|
)
|
|
|
(4,806,043
|
)
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,607,931
|
)
|
|
|
(3,436,425
|
)
|
Interest income
|
|
|
(16,361
|
)
|
|
|
44,831
|
|
Interest expenses
|
|
|
(419,933
|
)
|
|
|
(599,506
|
)
|
Bad debts recovery
|
|
|
|
|
|
|
|
|
Other income (loss), net
|
|
|
(140,277
|
)
|
|
|
203,716
|
|
Loss before income taxes, minority interests and equity in earnings of associated companies
|
|
|
(2,184,502
|
)
|
|
|
(3,787,384
|
)
|
Loss on disposal of subsidaries
|
|
|
(4,584,798
|
)
|
|
|
|
|
Income taxes
|
|
|
0
|
|
|
|
0
|
|
Loss before minority interests and equity in earnings of associated companies
|
|
|
(6,769,300
|
)
|
|
|
(3,787,384
|
)
|
Minority interests
|
|
|
|
|
|
|
138,162
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(6,769,300
|
)
|
|
|
(3,649,222
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share-basic and diluted
|
|
|
(0.0013
|
)
|
|
|
(0.0051
|
)
|
Weighted average number of common shares outstanding-basic and diluted
|
|
|
5,288,027,383
|
|
|
|
714,025,592
|
|
UNI CORE HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited)
|
|
Nine months ended Mar 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
USD
|
|
|
USD
|
|
Cash flows from operating activites
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(6,769,300
|
)
|
|
|
(3,649,222
|
)
|
Amortization of intangible assets
|
|
|
|
|
|
|
25,016
|
|
Depreciation
|
|
|
3,176,120
|
|
|
|
486,543
|
|
Loss on disposal of fixed assets
|
|
|
2,707
|
|
|
|
2,703
|
|
Non-control interests
|
|
|
|
|
|
|
(629,954
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:-
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
4,739,915
|
|
|
|
(1,129,255
|
)
|
Inventories
|
|
|
1,040,809
|
|
|
|
84,693
|
|
Deposits, prepayments and other receivables
|
|
|
1,313,877
|
|
|
|
797,963
|
|
Accounts payable
|
|
|
(1,907,070
|
)
|
|
|
412,484
|
|
Accrued liabilities
|
|
|
(13,159
|
)
|
|
|
319,652
|
|
Cutomer deposits
|
|
|
|
|
|
|
127
|
|
Business taxes and government surcharges payable
|
|
|
|
|
|
|
4,220
|
|
Net cash generated from/(used in) operating activities
|
|
|
1,583,899
|
|
|
|
(3,275,030
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of plant and equipment
|
|
|
|
|
|
|
(79,764
|
)
|
Net cash used in investing activities
|
|
|
|
|
|
|
(79,764
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Advances from related parties
|
|
|
0
|
|
|
|
0
|
|
Bank loan
|
|
|
(1,595,950
|
)
|
|
|
1,028,315
|
|
Advance from director
|
|
|
(763,222
|
)
|
|
|
126,253
|
|
Convertible loan stock
|
|
|
43,523
|
|
|
|
1,208,149
|
|
Net proceeds from issuance of common stock
|
|
|
931,029
|
|
|
|
473,843
|
|
Net cash generated from/(used in) financing activities
|
|
|
(1,384,620
|
)
|
|
|
2,836,560
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
199,279
|
|
|
|
(518,234
|
)
|
Accumulated other comprehensive loss
|
|
|
(589,224
|
)
|
|
|
19
|
|
Balance at beginning of period
|
|
|
506,647
|
|
|
|
2,177,729
|
|
Balance at end of period
|
|
|
116,702
|
|
|
|
1,659,514
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest received
|
|
|
16,361
|
|
|
|
44,831
|
|
Interest expenses
|
|
|
(419,933
|
)
|
|
|
(599,506
|
)
|
The accompanying notes are an integral part
of these condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
NINE MONTHS ENDED MAR 31, 2013 AND 2012
1. ORGANIZATION AND BASIS OF PRESENTATION
The condensed consolidated financial statements
include the accounts of Uni Core Holdings Corporation (formerly known as Intermost Corporation) (the "Company") and its
majority-owned subsidiaries, of which the Company has the ability to exercise control and direct operations and the minority interests
do not possess participatory rights. All material intercompany balances and transactions have been eliminated on consolidation.
The condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles in the United States of America.
The condensed consolidated financial statements
are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments,
necessary to present fairly the financial position at March 31, 2013, the results of operations for the nine months ended March
31, 2013 and 2012, and the cash flows for the nine months ended March 31, 2013 and 2012. The balance sheet as of June 30, 2012
is derived from the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for
the fiscal year ended June 30, 2012.
Certain information and footnote disclosures
normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management
of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented
therein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company’s
Annual Report on Form 10-K for the fiscal year ended June 30, 2012, as filed with the Securities and Exchange Commission.
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The results of operations for the nine
months ended March 31, 2013 are not necessarily indicative of the results of operations to be expected for the full fiscal year
ending June 30, 2013.
2. NET INCOME (LOSS)
PER COMMON SHARE
Statement of Financial Accounting Standards
No. 128, “Earnings per Share,” requires presentation of basic earnings per share (“Basic EPS”) and diluted
earnings per share (“Diluted EPS”). Basic earnings (loss) per share is computed by dividing earnings (loss) available
to common stockholders by the weighted average number of common shares outstanding (including shares reserved for issuance) during
the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. The
Company did not have any potentially dilutive securities outstanding during the nine months ended March 31, 2013 and 2012. Accordingly,
basic and diluted earnings per share are the same for all periods presented.
3. FOREIGN CURRENCY
TRANSLATION
The Company maintains its books and records
in Renminbi (“Rmb”), the currency of the People’s Republic of China (the “PRC”). The Rmb is the Company's
functional currency, as the Company's business activities are located in the PRC and denominated in Rmb. Translation of amounts
into United States dollars ("US$") has been made at the rate of Rmb6.2741 to US$1.00. The translation of the financial
statements of subsidiaries whose functional currencies are other than Rmb into Rmb is performed for balance sheet accounts using
closing exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate
during each reporting period. The gains or losses resulting from translation are included in stockholders' equity separately as
accumulated other comprehensive loss. For further information, refer to the Note 6.
Transactions in currencies other than functional
currencies during the period are translated into the respective functional currencies at the applicable rates of exchange prevailing
at the time of the transactions. Monetary assets and liabilities denominated in currencies other than functional currencies are
translated into the respective functional currencies at the applicable rates of exchange in effect at the balance sheet date. Exchange
gains and losses are included in the statement of operations. On July 21, 2005, Rmb was revalued from Rmb8.28 to Rmb8.11 for US$1
following the removal of the peg to the US dollar and pressure for the United States. The Rmb continuously appreciated to Rmb6.3143
for US$1 at June 30, 2012. And the Rmb further appreciated to Rmb6.2741 for US$1 at this quarter ended March 31, 2013.
The Rmb is not readily convertible into
US$ or other foreign currencies. Translation of amounts from Rmb into US$ is for the convenience of readers. No representation
is made that the Rmb amounts could have been, or could be, converted into US$ at that rate or at any other rate.
For the purposes of financial statements
presentation, the United States dollars equivalents of the all numbers are translated at the rate of USD$1 to Rmb6.2741.
4. STOCK-BASED COMPENSATION
The Company may periodically issue shares
of common stock for services rendered or for financing costs. Such shares are valued based on the market price of the shares on
the transaction date.
The Company may periodically issue stock
options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing
costs.
ASC 718 "Compensation - Stock Compensation" formerly
SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options,
restricted stock, employee stock purchase plans and stock appreciation rights. may be classified as either equity or liabilities.
The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists.
A present obligation to settle in cash or other assets exists if: (
a
) the option to settle by issuing equity instruments
lacks commercial substance or (
b
) the present obligation is implied because of an entity's past practices or stated policies.
If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized
as equity.
The Company accounts for stock-based compensation
issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity -Based Payments to Non-Employees"
which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services".
Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably
measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment
transaction should be determined at the earlier of performance commitment date or performance completion date.
In accordance with ASC 718, the cost of
stock options and warrants issued to non-employees is measured at the grant date based on the fair value of the award. The fair
value of the stock-based award is determined using the Black-Scholes option-pricing model. The resulting amount is charged to expense
on the straight-line basis over the period in which the Company expects to receive benefit, which is generally the vesting period.
Stock options issued to non-employee directors
at fair market value will be accounted for under the intrinsic value method.
The Company did not have any stock options
outstanding during the period ended March 31, 2013 (2012: Nil). Accordingly, no pro forma financial disclosure is provided herein.
5. RECENT ACCOUNTING
PRONOUNCEMENTS
In January 2011, the FASB issued ASU 2011-01
an accounting pronouncement related to receivables (“FASB ASC Topic 310”). The amendments in this update temporarily
delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is
intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective
date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes
a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and
annual periods ending after June 15, 2011. The adoption of this pronouncement is not expected to have a material impact on our
consolidated financial statements.
The FASB has issued Accounting Standards
Update (ASU) No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt
Restructuring. The FASB believes the guidance in this ASU will improve financial reporting by creating greater consistency in the
way GAAP is applied for various types of debt restructurings.
The ASU clarifies which loan modifications
constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms
of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment
loss and for disclosure of troubled debt restructurings.
In evaluating whether a restructuring constitutes
a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes
a concession; and (b) the debtor is experiencing financial difficulties. The amendments to FASB Accounting Standards Codification™
(Codification) Topic 310, Receivables, clarify the guidance on a creditor’s evaluation of whether it has granted a concession
and whether a debtor is experiencing financial difficulties.
For public companies, the new guidance
is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings
occurring on or after the beginning of the fiscal year of adoption. For nonpublic entities, the amendments to the Codification
in the ASU are effective for annual periods ending on or after December 15, 2012, including interim periods within those annual
periods. Early application is permitted.
The FASB has issued Accounting Standards
Update (ASU) No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.
The ASU is intended to improve financial reporting of repurchase agreements (“repos”) and other agreements that both
entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.
In a typical repo transaction, an entity
transfers financial assets to a counterparty in exchange for cash with an agreement for the counterparty to return the same or
equivalent financial assets for a fixed price in the future. FASB Accounting Standards Codification™ (Codification) Topic
860, Transfers and Servicing, prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject
to repo agreements. That determination is based, in part, on whether the entity has maintained effective control over the transferred
financial assets.
The amendments to the Codification in this
ASU are intended to improve the accounting for these transactions by removing from the assessment of effective control the criterion
requiring the transferor to have the ability to repurchase or redeem the financial assets. The guidance in the ASU is effective
for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to
transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted.
The FASB has issued Accounting Standards
Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value
measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements
for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term
“fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value
measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs.
The amendments to the FASB Accounting Standards
Codification™ (Codification) in this ASU are to be applied prospectively. For public entities, the amendments are effective
during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual
periods beginning after December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply
the amendments in ASU 2011-04 early, but no earlier than for interim periods beginning after December 15, 2011.
The FASB has issued Accounting Standards
Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU amends the FASB Accounting
Standards Codification™ (Codification) to allow an entity 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. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part
of the statement of changes in stockholders' equity. The amendments to the Codification in the ASU do not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
ASU 2011-05 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. Early adoption is permitted.
The FASB has issued Accounting Standards
Update (ASU) No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended
to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess
qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described
in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than
50%.
ASU 2011-08 is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including
for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial
statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been
made available for issuance.
In September 2011, the FASB has issued
Accounting Standards Update (ASU) No. 2011-09, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures
about an Employer’s Participation in a Multiemployer Plan. ASU 2011-09 is intended to address concerns from various users
of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. Users
of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating
in multiemployer pension plans. The amendments in this ASU will require additional disclosures about an employer’s participation
in a multiemployer pension plan. Previously, disclosures were limited primarily to the historical contributions made to the plans.
ASU 2011-09 applies to nongovernmental entities that participate in multiemployer plans. For public entities, ASU 2011-09 is effective
for annual periods for fiscal years ending after December 15, 2011. For nonpublic entities, ASU 2011-09 is effective for annual
periods for fiscal years ending after December 15, 2012. Early adoption is permissible for both public and nonpublic entities.
ASU 2011-09 should be applied retrospectively for all prior periods presented.
In December 2011, the FASB has issued Accounting
Standards Update (ASU) No. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope
Clarification. ASU No. 2011-10 is intended to resolve the diversity in practice about whether the guidance in Subtopic 360-20,
Property, Plant, and Equipment—Real Estate Sales, applies to a parent that ceases to have a controlling financial interest
(as described in Subtopic 810-10, Consolidation—Overall) in a subsidiary that is in substance real estate as a result of
default on the subsidiary’s nonrecourse debt. This Update does not address whether the guidance in Subtopic 360-20 would
apply to other circumstances when a parent ceases to have a controlling financial interest in a subsidiary that is in substance
real estate. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date;
with prior periods not adjusted even if the reporting entity has continuing involvement with previously derecognized in substance
real estate entities. For public entities, ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning
on or after June 15, 2012. For nonpublic entities, ASU 2011-10 is effective for fiscal years ending after December 15, 2013, and
interim and annual periods thereafter. Early adoption is permitted.
In December 2011, the FASB has issued Accounting
Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11
is intended to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential
effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights
of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments
require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are
either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting
arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section
815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and
interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively
for all comparative periods presented.
In December 2011, the FASB has issued Accounting
Standards Update (ASU) No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation
of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No.
2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05,Comprehensive Income (Topic
220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation
of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board
time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual
and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not
affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement
or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and
interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements
for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.
In July 2012, FASB has issued Accounting
Standards Update (ASU) No. 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities — Refundable
Advance Fees. This ASU clarifies that an entity should classify an advance fee as deferred revenue when a continuing care retirement
community has a resident contract that provides for payment of the refundable advance fee upon reoccupancy by a subsequent resident,
which is limited to the proceeds of reoccupancy. Refundable advance fees that are contingent upon reoccupancy by a subsequent resident
but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability. For public entities (including
conduit bond obligors), the amendments in ASU No. 2012-01 are effective for fiscal periods beginning after December 15, 2012. For
nonpublic entities, the amendments to the codification in the ASU are effective for fiscal periods beginning after December 15,
2013. Early adoption is permitted. The amendments in ASU No. 2012-01 should be applied retrospectively by recording a cumulative-effect
adjustment to opening retained earnings (or unrestricted net assets) as of the beginning of the earliest period presented.
In July 2012, FASB has issued Accounting
Standards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets
for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence
of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If,
after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived
intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise,
then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment
test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles—Goodwill
and Other, General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the
qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative
impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments
in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.
Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if
a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic
entities, have not yet been made available for issuance.
6. CERTAIN SIGNIFICANT
RISKS AND UNCERTAINTIES
Country Risk - The Company is subject to
the consideration and risks of operating in the People's Republic of China (the "PRC"). These include risks associated
with the political and economic environment, foreign currency exchange and the legal system in the PRC. The economy of the PRC
differs significantly from the economies of the "western" industrialized nations in such respects as structure, level
of development, gross national product, growth rate, capital reinvestment, resource allocation, self-sufficiency, rate of inflation
and balance of payments position, among others. Only recently has the PRC government encouraged substantial private economic activities.
The Chinese economy has experienced significant growth in the past several years, but such growth has been uneven among various
sectors of the economy and geographic regions. Actions by the PRC government to control inflation have significantly restrained
economic expansion in the recent past. Similar actions by the PRC government in the future could have a significant adverse effect
on economic conditions in PRC.
Many laws and regulations dealing with
economic matters in general and foreign investment in particular have been enacted in the PRC. However, the PRC still does not
have a comprehensive system of laws, and enforcement of existing laws may be uncertain and sporadic.
The Company’s primary sources of
revenues and cash flows are derived from its business operations in the PRC. The Company’s business activity is with customers
in the PRC. The PRC economy has, for many years, been a centrally-planned economy, operating on the basis of annual, five-year
and ten-year state plans adopted by central PRC governmental authorities, which set out national production and development targets.
The PRC government has been pursuing economic reforms since it first adopted its "open-door" policy in 1978. There is
no assurance that the PRC government will continue to pursue economic reforms or that there will not be any significant change
in its economic or other policies, particularly in the event of any change in the political leadership of, or the political, economic
or social conditions in, the PRC. There is also no assurance that the Company will not be adversely affected by any such change
in governmental policies or any unfavorable change in the political, economic or social conditions, the laws or regulations, or
the rate or method of taxation in the PRC.
As many of the economic reforms that have
been or are being implemented by the PRC government are unprecedented or experimental, they may be subject to adjustment or refinement,
which may have adverse effects on the Company. Further, through state plans and other economic and fiscal measures such as the
leverage of exchange rate, it remains possible for the PRC government to exert significant influence on the PRC economy.
The Company's financial instruments that
are exposed to concentration of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents are maintained
with government-owned banks in the PRC with high credit ratings. Accordingly, the Company believes that no significant credit risk
exists.
On January 1, 1994, the PRC government
introduced a single rate of exchange of Renminbi ("Rmb") against United States Dollar (“US$”) as quoted daily
by the People’s Bank of China (the "Unified Exchange Rate"). On July 21, 2005, the Rmb was revalued from Rmb8.28
to Rmb8.11 for US$1 following the removal of the peg to the US dollar and pressure from the United States. The Peoples Bank of
China also announced that the Renminbi would be pegged to a basket of foreign currencies, rather than being strictly tied to the
US dollar and would trade within a narrow 0.3% band against this basket of currencies, which is dominated by the US dollar, Euro,
Japanese Yen and South Korean Won, with a smaller proportion made up of the British pound, Thai Baht and Russian Ruble. No representation
is made that the Rmb amounts have been, or could be, converted into US dollars at that rate. This quotation of exchange rates does
not imply free convertibility of Rmb to other foreign currencies. All foreign exchange transactions continue to take place either
through the Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by the People's
Bank of China. Approval of foreign currency payments by the People's Bank of China or other institutions requires submitting a
payment application form together with suppliers' invoices, shipping documents and signed contracts.
Restrictions on the Payment of Dividends
- PRC law requires net profits after taxes to be used to set-off any losses carried forward before any distribution of profits
may be made. Furthermore, PRC law imposes a Mandatory Provident Reserve on all businesses. Under this law, a business must set
aside 10% of its distributable profits as a mandatory reserve before a distribution of profits may occur. Once the business accumulates
a mandatory reserve equal to 50% of its capitalization, no further accumulation of the reserve is required.
Industry Risk - The Company operates in
business segments which are characterized by rapid technological advances, changes in customer requirements, and evolving regulatory
requirements and industry standards. Any failure by the Company to anticipate or to respond adequately to technological changes
in its industry segments, changes in customer requirements or changes in regulatory requirements or industry standards, could have
a material adverse effect on the Company's business and operating results.
See generally the caption “Overview”
under Item 2 and the sub captions “Risks Associated with Doing Business in China” and “Certain Factors Affecting
Operating Results” under the caption “Overview”.
7. INCOME TAXES
The Company and its subsidiaries are subject
to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate.
The Company is subject to the United States
federal corporate income tax at a rate of 33%. IL was incorporated under the International Business Companies Act of the British
Virgin Islands and, accordingly, is exempted from payment of the British Virgin Islands income taxes. The subsidiaries established
in the PRC are subject to PRC enterprise income taxes at a rate of 15% to 25%. The subsidiary (LP) established in the British Virgin
Islands while operated in Taiwan is subject to Taiwan non-resident profit-seeking enterprise income tax, which is from 0% to 25%,
only for the income derived from Taiwan sources. IHKL is subject to Hong Kong profits tax at a rate of 16.5%.
8. CONCENTRATION
On December 15, 2009, the Company entered
into five sale and purchase agreements with the shareholders of APT Paper Group Limited (“APT”) to purchase all shares
of APT at a consideration of not less than US$22,000,000 which will be paid by way of the Company shares fixed at the share price
of US$0,05. The acquisition of APT was completed on May 31, 2010 and the Company has aggregately issued 440 million Company shares
on Jun 1, 2010 for exchange as consideration for the APT shares. The business of APT is manufacturing paper packaging products.
After the acquisition, the Company controls the new combined companies and the Company’s original senior management team
remained on the same original position oversight of the operation of the entire group of companies.
On December 21, 2009, Uni Core Holdings
Corporation (UCHC) entered into Investment Cooperation Agreement (Agreement) with the shareholders of Shaanxi Prosperous Agriculture
Company Limited (Prosperous Agriculture) to acquire 51% equity of Prosperous Agriculture by two phrases and exchanged in total
11 millions of UCHC shares. This transaction has not yet finished.
9. SEGMENT INFORMATION
The Company adopted ASC 280 “Segment
Reporting” in respect of its operating segments. The Company currently operates in six principle business segments which
are: sales of paper products, E-Commerce solutions and Consulting. Sales of paper product are undertaken by its subsidiary APT
Group and subsidiary companies in PR China. E-Commerce Solutions comprises revenue from web-site development contracts and maintenance
contracts. The Consulting segment comprises services rendered for provision of information on property exchange matters.
Each segment is managed separately because
each business requires different technology and marketing strategies. The Company evaluates performance based on operating earnings
of the respective business units. The accounting policies of the segments are the same as those described in the summary of significant
accounting policies. The corporate assets include primarily cash and cash equivalents and deposits and other receivables. There
were no significant intercompany transactions during any of the reported periods. In determining operating income (loss) by reportable
segment, general corporate expenses and other income and expense items of a non-operating nature are not considered; as such items
are not allocated to the Company's segments.
Based on the revenue information from 2013
and 2012, the Company generated over 90% revenue from APT Group companies which is operating the sales of paper products. Moreover,
the Company generated over 90% of revenue from PR China. Accordingly, the Company is not required to provide segment information
on product or geographic category.
Segment information for the nine months
period ended March 31, 2013 is as follows:
|
|
Nine months Ended March 31, 2013
|
|
|
|
Rmb’000
|
|
|
US$’000
|
|
Net revenues by major categories
|
|
|
|
|
|
|
|
|
Sales of paper products
|
|
|
52,351
|
|
|
|
8,310
|
|
E-commerce solutions
|
|
|
|
|
|
|
|
|
- website design and development
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
|
|
|
|
|
|
|
|
|
52,351
|
|
|
|
8,310
|
|
All net revenues were generated in PRC.
|
(b)
|
Net loss before equity in earnings of associated companies:
|
|
|
Nine months Ended March 31, 2013
|
|
|
|
Rmb’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Sales of paper products
|
|
|
(10,694
|
)
|
|
|
(1,697
|
)
|
E-commerce solutions
|
|
|
|
|
|
|
|
|
- website design and development
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(3,068
|
)
|
|
|
(487
|
)
|
|
|
|
(13,762
|
)
|
|
|
(2,184
|
)
|
|
|
As of March 31, 2013
|
|
|
|
Rmb’000
|
|
|
US$’000
|
|
Sales of paper products
|
|
|
36,029
|
|
|
|
5,742
|
|
E-commerce solutions
|
|
|
|
|
|
|
|
|
- website design and development
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
10,206
|
|
|
|
1,627
|
|
|
|
|
46,235
|
|
|
|
7,369
|
|
Substantially all of the Company's identifiable
assets are located in the PRC.
|
|
Nine months Ended March 31, 2013
|
|
|
|
Rmb’000
|
|
|
US$’000
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Sales of paper products
|
|
|
19,733
|
|
|
|
3,132
|
|
E-commerce solutions
|
|
|
|
|
|
|
|
|
- website design and development
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
276
|
|
|
|
44
|
|
|
|
|
20,009
|
|
|
|
3,176
|
|
There was recorded
a material write-off fixed assets & depreciation for Shenzhen APT paper factories during the nine months ended March 31, 2013.
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
|
Certain statements
contained in this Form 10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements herein are based
on current expectations that involve a number of known and unknown risks and uncertainties. Such forward-looking statements are
based on management’s assumptions that there will be no material adverse change in our operations or business, that we will
meet success in marketing and selling our products, and that we will be able to continue to attract and retain skilled employees
necessary for our business, among other things. The foregoing assumptions are based on judgments of management with respect to,
among other things, information available to our, future economic, competitive and market conditions and future business decisions.
All of these assumptions are difficult or impossible to predict accurately and many are beyond our control. Accordingly, although
we believe that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be
inaccurate and therefore there can be no assurance that the results contemplated in the forward-looking statements will be realized.
There are a number of risks presented by our business and operations, which could cause our financial performance to vary markedly
from prior results, or results contemplated by the forward-looking statements. Such risks include failure of the our technology
or products to work as anticipated, failure to develop commercially viable products or services from our technology, delays or
failure in financing efforts, delays in or lack of market acceptance, failure to recruit adequate personnel, and problems with
protection of intellectual property, among others.
The words “believe,” “estimate,”
“expect,” “intend,” “anticipate” “should”, “could”, “may”,
“plan” and similar expressions and variations thereof identify some of these forward-looking statements.
Management
decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions
and business developments, the impact of which may cause us to alter our capital investment and other expenditures, which may also
adversely affect our results of operations. In light of significant uncertainties inherent in forward-looking information included
in this Quarterly Report on Form 10-Q, the inclusion of such information should not be regarded as a representation by us that
our objectives or plans will be achieved. We undertake no obligation to revise or publicly release the results of any revision
to these forward-looking statements.
Overview
We believe that the People’s Republic
of China represents an exciting emerging world market whose role in the global economy is, despite recent global economic slowdown,
increasing steadily. China’s economic growth rate, measured by its gross domestic product, has consistently been higher than
7% over the past 10 years. This economic growth is attributable to many factors, including investment in the country’s infrastructure,
increased privatization of businesses and an abundant source of labor. Currently, we offer products and services to businesses
and consumers located primarily in China. The Company’s subsidiary, APT Paper Group Limited, is divided into three independently
operated facilities. One of the Company’s paper factories located in Shenzhen recently filed for bankruptcy protection and
was closed. The other two independently operating subsidiary paper factories continue to operate normally. Our plan is to take
advantage of China’s economic growth to expand our existing businesses and, possibly, in the future, to sell our products
and services outside of China. We also have begun to acquire diverse businesses that are not dependent on, or directly related
to, each other. We believe that diversification is a good hedge against the collapse of a single industry, such as the global collapse
of the technology industry that occurred in 2000. We expect that any acquisitions we make will improve our financial condition,
although we cannot guarantee any such result.
Amidst global economic slowdown we continue
to diversify our business, not only so that we will no longer be dependent on one market for revenue, but also so that we will
be poised to take advantage of future economic recovery. Generally, the issuance of our common stock represents some or all of
the purchase price we pay for an acquired business. We believe that the continued active trading of our common stock will be important
to the principals of target companies and future acquisitions may be dependent on the active trading of our common stock. However,
our common stock has not been actively traded and, if our common stock continues to trade with limited volume and at current levels
we may not be able to make acquisitions as planned.
Risks Associated with Doing Business in
China
There are significant risks in operating
in the Peoples’ Republic of China (the “PRC”). These include risks associated with the political and economic
environment, foreign currency exchange and the legal system in the PRC. The economy of PRC differs significantly from the economies
of the industrialized nations of the West in such respects as structure, level of development, gross national product, growth rate,
capital reinvestment, resource allocation, self-sufficiency, rate of inflation and balance of payments position, among others.
Only recently has the PRC government encouraged substantial private economic activities. The Chinese economy has experienced significant
growth in the past several years, but such growth has been uneven among various sectors of the economy and geographic regions.
Actions by the PRC government to control inflation have significantly restrained economic expansion in the recent past. Similar
actions by the PRC government in the future could have a significant adverse effect on economic conditions there.
Many laws and regulations dealing with
economic matters in general and foreign investment in particular have been enacted in the PRC. However, the PRC still does not
have a comprehensive system of laws, and enforcement of existing laws may be uncertain and sporadic. Our primary sources of revenues
and cash flows are derived from our business operations in the PRC. The PRC economy has, for many years, been a centrally-planned
economy, operating on the basis of annual, five-year and ten-year state plans adopted by central PRC governmental authorities,
which set out national production and development targets. The PRC government has been pursuing economic reforms since it first
adopted its "open-door" policy in 1978. There is no assurance that the PRC government will continue to pursue economic
reforms or that there will not be any significant change in its economic or other policies, particularly in the event of any change
in the political leadership of, or the political, economic or social conditions in, the PRC. There is also no assurance that the
Company will not be adversely affected by any such change in governmental policies or any unfavorable change in the political,
economic or social conditions, the laws or regulations, or the rate or method of taxation in the PRC.
As many of the economic reforms that have
been or are being implemented by the PRC government are unprecedented or experimental, they may be subject to adjustment or refinement,
which may have adverse effects on the Company. Further, through state plans and other economic and fiscal measures such as the
leverage of exchange rate, it remains possible for the PRC government to exert significant influence on the PRC economy. The Company's
financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents. Cash and
cash equivalents are maintained with government-owned banks in the PRC with high credit ratings.
On January 1, 1994, the PRC government
introduced a single rate of exchange of Renminbi (“Rmb”) against United States Dollar ("US$") as quoted daily
by the People's Bank of China (the “Unified Exchange Rate”). On July 21, 2005, Rmb was revalued from Rmb 8.28 to Rmb8.11
for US$1 following the removal of the peg to the US dollar and pressure for the United States. The Peoples Bank of China also announced
that the Renminbi would be pegged to a basket of foreign currencies, rather than being strictly tied to the US dollar and would
trade within a narrow 0.3% band against this basket of currencies, which is dominated by the US dollar, Euro, Japanese Yen and
South Korean Won, with a smaller proportion made up of the British pound, Thai Baht and Russian Ruble. No representation is made
that the Rmb amounts have been, or could be, converted into US$ at that rate. This quotation of exchange rates does not imply free
convertibility of Rmb to other foreign currencies. All foreign exchange transactions continue to take place either through the
Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by the People's Bank of
China. Approval of foreign currency payments by the People's Bank of China or other institutions requires submitting a payment
application form together with suppliers’ invoices, shipping documents and signed contracts.
Restriction on the Payment of Dividends
- PRC law requires net profits after taxes to be used to set-off any losses carried forward before any distribution of profits
may be made. Furthermore, PRC law imposes a Mandatory Provident Reserve on all businesses. Under this law, a business must set
aside 10% of its distributable profits as a mandatory reserve before a distribution of profits may occur. Once the business accumulates
a mandatory reserve equal to 50% of its capitalization, no further accumulation of the reserve is required.
Certain Factors Affecting Future Operating
Results
The Company’s operating results have
been, and will continue to be, affected by a wide variety of factors that could have a material adverse effect on revenues and
profitability during any particular period. Some of these factors include:
|
·
|
the Company's ability to successfully implement its current business plans;
|
|
·
|
whether the Company will be able to obtain additional capital, if necessary, to support its operations;
|
|
·
|
whether the Company will be able to find joint venture prospects or acquisition prospects with
which to enhance its business;
|
|
·
|
whether the Company can successfully integrate acquisitions that it makes into its business;
|
|
·
|
the level and rate of acceptance of the Company's products and services by consumers in China;
|
|
·
|
continued economic growth in China;
|
|
·
|
entry of new competition (including established companies from outside China and companies with
substantially greater resources) into the Company's market;
|
|
·
|
fluctuations in the level of demand for services or products;
|
|
·
|
rescheduling or cancellation of orders by customers;
|
|
·
|
competitive pressures on selling prices;
|
|
·
|
rapid changes in technology, which could result in the Company's technology becoming obsolete;
|
|
·
|
dependence upon key employees;
|
|
·
|
availability and cost of computer technicians;
|
|
·
|
loss of any of the Company's major customers;
|
|
·
|
the Company's ability to introduce new products and services on a timely basis;
|
|
·
|
new product and service introductions by the Company's competitors;
|
|
·
|
fluctuations in exchange rates; and
|
|
·
|
adverse changes in the general economic, social or political conditions in the PRC.
|
Critical Accounting Policies
Management’s discussion and analysis
of results of operations and financial condition are based upon the Company’s consolidated financial statements. These statements
have been prepared in accordance with the generally accepted accounting principles as used in the United States of America. These
principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate
our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The following critical accounting policies
affect the more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.
Revenue Recognition
Revenues are recognized (i) with respect to services,
at the time a project (or a milestone thereof) is completed and accepted by the customer, and (ii) with respect to products, at
the time products are delivered to customers and collectability for such sales is reasonably assured. We have adopted Staff Accounting
Bulletin No.101, Revenue Recognition (“SAB 101”) in our financial statements. SAB 101 provides in part further interpretive
guidance for public companies on the recognition, presentation, and disclosure of revenues in financial statements. The adoption
of SAB 101 did not have a material impact on our revenue recognition practices.
Inventories
Inventories consist of finished
goods and raw materials, and stated at the lower of cost or market value. Substantially all inventory costs are determined using
the weighted average basis. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.
The management regularly evaluates the composition of its inventory to identify slow-moving and obsolete inventories to determine
if additional write-downs are required.
Accounts Receivable
We typically extend credit to
our customers. From time to time, e-commerce solution services are provided under fixed-price contracts where the revenues and
the payment of related receivable balances are due upon the achievement of certain milestones. Management estimates the probability
of collection of the receivable balances and provides an allowance for doubtful accounts based upon its judgment in assessing the
realization of these receivable balances taking into account aging, historical experience, the customer’s financial condition
and general economic conditions.
Goodwill
Goodwill represents the excess
of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination.
In accordance with Accounting Standards Codification ASC 350 “Intangibles - Goodwill and Other” formerly Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill is no
longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value
based test. Fair value is generally determined using a discounted cash flow analysis. See Note 4 for goodwill impairment details.
Accounting for the Impairment of Long-Lived
Assets and Goodwill
The Company periodically evaluates
the carrying value of long-lived assets held or used whenever events and circumstances indicate that the carrying value of the
asset may no longer be recoverable. An impairment loss, measured on the fair value of the asset, is recognized if expected future
undiscounted cash flows are less than the carrying value of the assets.
We evaluate goodwill, at a minimum,
on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable, in
accordance with ASC 350 “Intangibles – Goodwill and Other,” formerly SFAS No. 142 “Goodwill and Other Intangible
Assets.” Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount,
including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using discounted
cash flows approach. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a
second step is performed to measure the amount of impairment loss, if any.
Income Taxes
The Company uses the accrual method
of accounting to determine and report its taxable income and tax credit in the year in which they are available. The
Company has implemented ASC 740 “Income Taxes” formerly
SFAS No. 109, Accounting for Income Taxes.
Income tax liabilities computed
according to the United States, People’s Republic of China (PRC), Taiwan (ROC) and Hong Kong SAR 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 either be taxable
or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating
losses that are available to offset future income taxes. 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.
Results of Operations - Three Months
Ended March 31, 2013 and 2012
All amounts shown below are presented in
US$. As used below, the letter “K” appearing immediately after a dollar amount denotes that it has been rounded to
the nearest US$1,000.
Net Revenues
Net revenues for the three months ended
March 31, 2013 were derived principally from sales of paper products of APT Paper Group Limited. The term "e-commerce solutions"
includes web-site design and development and web-hosting.
The following table reflects the total
net revenues and percentage of net revenues by major category for the periods indicated:
|
|
3 months ended March 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
USD'000
|
|
|
%
|
|
|
USD'000
|
|
|
%
|
|
Sales of paper products
|
|
|
1,538
|
|
|
|
100
|
%
|
|
|
5,458
|
|
|
|
100
|
%
|
E-commerce solutions - website design and development
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
Consulting
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
|
|
|
1,538
|
|
|
|
100
|
%
|
|
|
5,458
|
|
|
|
100
|
%
|
Total net revenues decreased to $1,538K
during the three months ended March 31, 2013, as compared to $5,458K during the three months ended March 31, 2012. The decrease
in total net revenues was primarily due to the reduction of revenue and closing down of one of the Company’s subsidiary independently
operated APT Paper Group Limited paper factories located in Shenzhen. The remaining two independently operated APT Paper Group
Limited paper factories located in Suzhou and Qingdao continue to operate normally.
Cost of Revenues
The following table reflects the principal
components of cost of revenues and the percentage of net revenues represented by each component for the periods indicated:
|
|
3 months ended March 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
USD'000
|
|
|
%
|
|
|
USD'000
|
|
|
%
|
|
Engineering/technician salaries
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
Direct materials
|
|
|
821
|
|
|
|
53
|
%
|
|
|
3,969
|
|
|
|
74
|
%
|
Direct labor
|
|
|
162
|
|
|
|
11
|
%
|
|
|
307
|
|
|
|
5
|
%
|
Manufacturing overhead
|
|
|
241
|
|
|
|
16
|
%
|
|
|
468
|
|
|
|
8
|
%
|
Depreciation
|
|
|
54
|
|
|
|
3
|
%
|
|
|
293
|
|
|
|
5
|
%
|
Others
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
-
|
%
|
|
|
|
1,278
|
|
|
|
83
|
%
|
|
|
5,037
|
|
|
|
92
|
%
|
The decrease in costs of revenues
for the three months ended March 31, 2013 compared with 2012 was due to the decrease of sales of APT Paper Group Limited and the
closing down of Shenzhen factories. Costs of revenues consist principally of the production cost of paper products for the periods
ended March 31, 2013 and 2012. The costs of revenues for the period consist principally of direct material cost, direct labor,
manufacturing overhead, depreciation, and other costs including travel employee benefits and office expenses.
Selling, General and Administrative Expense
Selling, general and administrative (“SG&A”)
expense consists principally of sales commissions, advertising, other marketing expenses, rental expenses, salaries for administrative
and sales staff, and corporate overhead.
The following table reflects the principal
components of SG&A expense and the percentage of net sales represented by each component for the periods indicated:
|
|
3 months ended March 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
USD'000
|
|
|
%
|
|
|
USD'000
|
|
|
%
|
|
Sales & Marketing salaries & commissions
|
|
|
69
|
|
|
|
4
|
%
|
|
|
454
|
|
|
|
8
|
%
|
Other sales and marketing exp
|
|
|
0
|
|
|
|
0
|
%
|
|
|
215
|
|
|
|
4
|
%
|
Rentals
|
|
|
115
|
|
|
|
8
|
%
|
|
|
126
|
|
|
|
2
|
%
|
Administrative salaries
|
|
|
99
|
|
|
|
7
|
%
|
|
|
213
|
|
|
|
4
|
%
|
Directors’ fee
|
|
|
0
|
|
|
|
0
|
%
|
|
|
285
|
|
|
|
5
|
%
|
Consultancy Fee
|
|
|
3
|
|
|
|
0
|
%
|
|
|
135
|
|
|
|
3
|
%
|
Corporate overhead
|
|
|
96
|
|
|
|
6
|
%
|
|
|
602
|
|
|
|
11
|
%
|
|
|
|
382
|
|
|
|
25
|
%
|
|
|
2,030
|
|
|
|
37
|
%
|
The principal components of SG&A during
the three months ended March 31, 2013 were sales and marketing salaries and commissions, other marketing expenditures, administrative
salaries and benefits, and other corporate expenses, which includes legal and professional fees, general office expenses, traveling
expenses, general employee benefit expense, depreciation consultancy fees, and allowance for bad and doubtful accounts.
For the three months ended March 31, 2013,
SG&A expense decreased by 81% to $382K, as compared to $2,030K for the three months ended March 31, 2012.
The decrease in SG&A was mainly due
to the decrease of corporate overhead and the reduction of cost associated with the closed Shenzhen factories.
Income Taxes
There was no income tax for both the three
months ended March 31, 2013 and the three months ended March 31, 2012.
Minority Interest
Minority interests reflect the minority
shareholders' proportionate interests in the net loss of the group operating losses of China Equity Platform Holding Group Limited.
Because The China Equity Platform Holding Group Ltd. was sold in February 2012, we do not have any minority interest to report
at this time. This item remains in our balance sheet so as to comply with Regulation S-K Item 905 “Comparative Information”.
Net Income (Loss)
The Company had net loss of $244K during
the three months ended March 31, 2013, as compared to a net loss of $1,737K during the three months ended March 31, 2012.
Results of Operations - Nine months
Ended March 31, 2013 and 2012
All amounts shown below are presented in
US$. As used below, the letter “K” appearing immediately after a dollar amount denotes that it has been rounded to
the nearest US$1,000.
Net Revenues
Net revenues for the nine months ended March 31, 2013 were derived
principally from sales of paper products of APT Paper Group Limited. The term "e-commerce solutions" includes web-site
design and development and web-hosting.
The following table reflects the total
net revenues and percentage of net revenues by major category for the periods indicated:
|
|
9 months ended March 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
USD'000
|
|
|
%
|
|
|
USD'000
|
|
|
%
|
|
Sales of paper products
|
|
|
8,310
|
|
|
|
100
|
%
|
|
|
18,058
|
|
|
|
99
|
%
|
E-commerce solutions - website design and development
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
Consulting
|
|
|
0
|
|
|
|
0
|
%
|
|
|
48
|
|
|
|
1
|
%
|
|
|
|
8,310
|
|
|
|
100
|
%
|
|
|
18,106
|
|
|
|
100
|
%
|
Total net revenues decreased to $8,310K
during the nine months ended March 31, 2013, as compared to $18,106K during the nine months ended March 31, 2012. The decrease
in total net revenues was primarily due to the reduction in sales of paper products caused by the bankruptcy and closing of the
independently operated Shenzhen factories. The remaining two independently operated APT Paper Group Limited factories located in
Suzhou and Qingdao continue to operate normally.
Cost of Revenues
The following table reflects the principal
components of cost of revenues and the percentage of net revenues represented by each component for the periods indicated:
|
|
9 months ended March 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
USD'000
|
|
|
%
|
|
|
USD'000
|
|
|
%
|
|
Engineering/technician salaries
|
|
|
24
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
Direct materials
|
|
|
6,162
|
|
|
|
74
|
%
|
|
|
13,681
|
|
|
|
75
|
%
|
Direct labor
|
|
|
585
|
|
|
|
7
|
%
|
|
|
927
|
|
|
|
5
|
%
|
Manufacturing overhead
|
|
|
832
|
|
|
|
10
|
%
|
|
|
1,533
|
|
|
|
8
|
%
|
Depreciation
|
|
|
251
|
|
|
|
3
|
%
|
|
|
542
|
|
|
|
3
|
%
|
Others
|
|
|
4
|
|
|
|
0
|
%
|
|
|
53
|
|
|
|
1
|
%
|
|
|
|
7,858
|
|
|
|
94
|
%
|
|
|
16,736
|
|
|
|
92
|
%
|
The decrease in costs of revenues
for the nine months ended March 31, 2013 compared with 2012 was due to the decrease of sales of of APT Paper Group Limited and
the closing down of Shenzhen factories. Costs of revenues consist principally of the production cost of paper products for the
periods ended March 31, 2013 and 2012. The costs of revenues for the period consist principally of direct material cost, direct
labor, manufacturing overhead, depreciation, and other costs including travel employee benefits and office expenses.
Selling, General and Administrative Expense
Selling, general and administrative (“SG&A”)
expense consists principally of sales commissions, advertising, other marketing expenses, rental expenses, salaries for administrative
and sales staff, and corporate overhead.
The following table reflects the principal
components of SG&A expense and the percentage of net sales represented by each component for the periods indicated:
|
|
9 months ended March 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
USD'000
|
|
|
%
|
|
|
USD'000
|
|
|
%
|
|
Sales & Marketing salaries & commissions
|
|
|
169
|
|
|
|
2
|
%
|
|
|
881
|
|
|
|
5
|
%
|
Other sales and marketing exp
|
|
|
94
|
|
|
|
1
|
%
|
|
|
784
|
|
|
|
4
|
%
|
Rentals
|
|
|
677
|
|
|
|
8
|
%
|
|
|
346
|
|
|
|
2
|
%
|
Administrative salaries
|
|
|
499
|
|
|
|
6
|
%
|
|
|
803
|
|
|
|
4
|
%
|
Directors’ Fee
|
|
|
-
|
|
|
|
-
|
%
|
|
|
285
|
|
|
|
2
|
%
|
Consultancy Fee
|
|
|
85
|
|
|
|
1
|
%
|
|
|
196
|
|
|
|
1
|
%
|
Corporate overhead
|
|
|
508
|
|
|
|
6
|
%
|
|
|
1,554
|
|
|
|
9
|
%
|
|
|
|
2,032
|
|
|
|
24
|
%
|
|
|
4,849
|
|
|
|
27
|
%
|
The principal components of SG&A during
the nine months ended March 31, 2013 were sales and marketing salaries and commissions, other marketing expenditures, administrative
salaries and benefits, and other corporate expenses, which includes legal and professional fees, general office expenses, traveling
expenses, general employee benefit expense, depreciation consultancy fees, and allowance for bad and doubtful accounts.
For the nine months ended March 31, 2013,
SG&A expense decreased by 58% to $2,032K, as compared to $4,849K for the nine months ended March 31, 2012. The decrease in
SG&A was mainly due to the decrease of corporate overhead and the reduction of costs associated with the closed Shenzhen factories.
The remaining two independently operated APT Paper Group Limited factories located in Suzhou and Qingdao continue to operate normally.
Income Taxes
There was no income tax for both the nine
months ended March 31, 2013 and the nine months ended March 31, 2012.
Minority Interest
Minority interests reflect the minority shareholders' proportionate
interests in the net loss of the group operating losses of China Equity Platform Holding Group Limited. Because The China Equity
Platform Holding Group Ltd. was sold in February 2012, we do not have any minority interest to report at this time. This item remains
in our balance sheet so as to comply with Regulation S-K Item 905 “Comparative Information”
Net Income (Loss)
The Company had net loss of $6,769K during
the nine months ended March 31, 2013, as compared to a net loss of $3,649K during the nine months ended March 31, 2012. It included
a material impairment loss on closing down of Shenzhen factories $4,578K
Liquidity and Capital Resources –
March 31, 2013
At March 31, 2013, the Company had cash
and cash equivalents of $117K and net current liabilities of $8,878K, as compared to $1,660K of cash and cash equivalents and $5,229K
of net current liabilities capital at March 31, 2012. The accounts receivable was decreased by $4,645K to $1,694K in 2013 as compared
to $6,339K in 2012. The main reason of such decrease was due to the decrease in sales and closing down the Shenzhen factories.
The remaining two independently operated APT Paper Group Limited factories located in Suzhou and Qingdao continue to operate normally.
The deposits, prepayments and other receivables were decreased $1,770K to $514K in 2013 as compared to $2,284K in 2012. The decrease
was mainly from the closing down of Shenzhen factories and decrease of trade deposits paid to suppliers. The accounts payable was
decreased by $1,689 to $3,426K in 2013 as compared to $5,115K in 2012. The decrease was mainly from the decrease of turnover resulting
in a decrease in the amount of materials purchased and the closing down of the Shenzhen factories. The accrued liabilities and
other payable were also decreased by $5,684K to $2,968K in 2013 as compared to $8,652K in 2012. The decrease was due to the decrease
of trade deposits from customers. In the quarter ended March 31, 2013, the Company had raised convertible loan stocks of $369K
which will mature in six months. The loan from a shareholder and the bank loans were also decreased in 2013 as compared to 2012.
These loaned funds were used for the payment of daily operating expenses.
Net cash generated from operating activities
was $1,584K for the nine months ended March 31, 2013, as compared to net cash used in operating activities of $3,275K for the nine
months ended December 31, 2012. While one of the independently operating paper factories in Shenzhen has closed, the remaining
two independently operated APT Paper Group Limited factories located in Suzhou and Qingdao continue to operate normally.
Net cash used in investing activities was
$0.4K and $79K for the nine months ended March 31, 2013 and March 31, 2012 respectively, mainly consisting of a decrease in expenses
for fixed assets.
Net cash used in financing activities was
$1,385K for nine months ended March 31, 2013, was mainly the bank loans and the convertible loan stock. Net cash generated from
financing activities was $2,836K for the nine months ended March 31, 2012.
The Company continues to evaluate various opportunities to improve
the operating performance of the Company’s businesses and to invest in or acquire other types of businesses. The remaining
two independently operated APT Paper Group Limited factories located in Suzhou and Qingdao continue to operate normally.
Principal Commitments
At March 31, 2013, the Company has operating
lease agreements for office premises, which are expiring in June 2035. The Company does not have any material commitments for capital
expenditures, or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
The Company has no long-term debt at March
31, 2013.
Subsequent Event
The investment cooperation agreement with
the shareholders of Shaanxi Prosperous Agriculture Company Limited to acquire 51% equity of Shaanxi Prosperous Agriculture Company
Limited has not yet finished.
From July to March, 2013, an investor exercised
and converted a total of $221,701 out of $578,180 convertible loan balance for 2,628,238,857 shares of ordinary common stock.
The Company has evaluated all other subsequent
events through March 31, 2013 the date these consolidated financial statements were issued, and determined that there were no other
subsequent events or transactions that require recognition or disclosures in the financial statements except the above- mentioned
matters.
RISK FACTORS
In addition to other information in this
Form 10-Q, including many risks presented in our Management’s Discussion and Analysis, the following risk factors should
be carefully considered in evaluating our business since it operates in a highly changing and complex business environment that
involves numerous risks, some of which are beyond our control. The following discussion highlights a few of these risk factors,
any one of which may have a significant adverse impact on our business, operating results and financial condition. As a result
of the risk factors set forth below and elsewhere in this 10-Q, the risks identified in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2012, and the risks discussed in our other Securities and Exchange Commission filings, actual results
could differ materially from those projected in any forward-looking statements.
We face significant risks, and the risks
described below may not be the only risks we face. Additional risks that we do not know of or that we currently consider immaterial
may also impair our business operations. If any of the events or circumstances described in the following risk factors actually
occurs, our business, financial condition or results of operations could be harmed and the trading price of our common stock could
decline.
Our success depends on identifying
and closing acquisitions of emerging and growing businesses in China.
Our success is largely dependent on our
identifying good acquisition targets, negotiating and structuring transactions that are beneficial to us, closing those transactions,
finding suitable management to operate those businesses and successfully operate and grow the businesses we acquire.
We must work cooperatively with governmental
authorities
.
We are engaged in business in a country
with a planned economy heavily influenced by government activities and we must work cooperatively with a variety of national, federal,
regional, state, provincial, and local government authorities and entities. The economy of China differs significantly from the
economies of the “Western” industrialized nations in such respects as structure, level of development, gross national
product, growth rate, capital reinvestment, resource allocation, self-sufficiency, rate of inflation and balance of payments position,
among others. Only recently has the Chinese government encouraged substantial private economic activities. The Chinese economy
has experienced significant growth in the past several years, but such growth has been uneven among various sectors of the economy
and geographic regions. Actions by the Chinese government to control inflation have significantly restrained economic expansion
in the recent past. Similar actions by the Chinese government in the future could have a significant adverse effect on economic
conditions in China and the results of operations of the Company.
If we deliver products with defects,
our credibility will be harmed and the sales and market acceptance of our products will decrease
.
Our product and services are complex and
may at times contain errors, defects and “bugs.” If we deliver products with errors, defects or bugs, our credibility
and the market acceptance and sales of our products would be harmed. Further, if our products contain errors, defects or bugs,
we may be required to expend significant capital and resources to alleviate such problems. We may agree to indemnify our customers
in some circumstances against liability arising from defects in our products. Defects could also lead to liability, and, as a result
of product liability lawsuits against us or against our customers. We carry product and information liability and errors and omissions
insurance, but in the event that we are required to defend more than a few such actions, or in the event that we are found liable
in connection with such an action, our business and operations may be severely and materially adversely affected.
We compete with large companies
.
We operate in a highly competitive industry.
Although we believe that some of our technology is unique, can be protected, and, if adopted, will confer benefits that will be
otherwise unavailable for some time, we face very large competitors with greater resources which may adopt various strategies to
block or slow our market penetration, thereby straining our more limited resources. We are aware of efforts by competitors to introduce
doubt about our financial stability as we compete to make sales and win customers and business. Large competitors may also seek
to hinder our operations through attempts to recruit key staff with exceptionally attractive terms of employment, including signing
bonuses, or by the offer of highly competitive terms to potential or newly acquired customers.
We will need to continue our product
development efforts
.
We believe that our market will be characterized
by increasing technical sophistication. We also believe that our eventual success will depend on our ability to continue to provide
increased and specialized technical expertise. There is no assurance that we will not fall technologically behind competitors with
greater resources. Although we believe that we enjoy a lead in our product development, and are hopeful that our patents provide
some protection, we will likely need significant additional capital in order to continue to enjoy such a technological lead over
competitors with more resources.
If we are unable to protect our intellectual
property, our competitive position would be adversely affected
.
We may rely on patent protection, as well
as trademark and copyright law, trade secret protection and confidentiality agreements with our employees and others to protect
our intellectual property. Despite our precaution, unauthorized third parties may copy our products and services or reverse engineer
or obtain and use information that we regard as proprietary. We have filed eleven patent applications with the United States Patent
and Trademark Office and intend to file more. Six patents have been granted; however, we do not know if the remaining applications
will be granted or whether we will be successful in prosecuting any future patents. In addition, the laws of some foreign countries
do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary
rights may not be adequate and third parties may infringe or misappropriate our patents, copyrights, trademarks and similar proprietary
rights. If we fail to protect our intellectual property and proprietary rights, our business, financial condition and results of
operations would suffer. We believe that we do not infringe upon the proprietary rights of any third party, and no third party
has asserted an infringement claim against us. It is possible, however, that such a claim might be asserted successfully against
us in the future. We may be forced to suspend our operations, or to pay significant amounts to defend our rights, and a substantial
amount of the attention of our management may be diverted from our ongoing business, all of which would materially adversely affect
our business.
We focus on the research and development
of our proprietary technologies and the marketing of our first product
.
We believe that these technologies are
the basis for marketable commercial products. However, there can be no assurance of this, and it is possible that our proprietary
technologies and products will have no commercial benefit or potential. In addition, from our inception to the present, we have
not recognized any substantial operating revenues.
We depend on our key personnel and
may have difficulty attracting and retaining the skilled staff we need to execute our growth plans
.
Our success will be dependent largely upon
the efforts of our management team. The loss of key staff could have a material adverse effect on our business and prospects. To
execute our plans, we will have to attract and retain current employees. Competition for highly skilled employees with technical,
management, marketing, sales, product development and other specialized training is intense. We may not be successful in attracting
or retaining such qualified personnel. Specifically, we may experience increased costs in order to retain skilled employees. If
we are unable to attract or retain experienced employees as needed, we would be unable to execute our business plan.
We may face rapid technological change
.
The market for our products and services
may be characterized by rapidly changing technologies, extensive research and the introduction of new products and services. We
believe that our future success will depend in part upon our ability to continue to enhance our existing products and to develop,
manufacture and market new products and services. As a result, we expect to continue to make a significant investment in engineering,
research and development. During the fiscal years 2009 and 2010, we spent Rmb75,000_($US10,985) and Rmb420,321 ($US63,418), respectively;
the cost of such activities were borne by the Company, not customers. There can be no assurance that we will be able to develop
and introduce new products and services or enhance our initial products in a timely manner to satisfy customer needs, achieve market
acceptance or address technological changes in our target markets. Failure to develop products and services and introduce them
successfully and in a timely manner could adversely affect our competitive position, financial condition and results of operations.
If we experience rapid growth, we
will need to manage such growth well
.
We may experience substantial growth in
the size of our staff and the scope of our operations, resulting in increased responsibilities for management. To manage this possible
growth effectively, we will need to continue to improve our operational, financial and management information systems, will possibly
need to create entire departments that do not now exist, and hire, train, motivate and manage a growing number of staff. Due to
a competitive employment environment for qualified technical, marketing and sales personnel, we expect to experience difficulty
in filling our needs for qualified personnel. There can be no assurance that we will be able to effectively achieve or manage any
future growth, and our failure to do so could delay product development cycles and market penetration or otherwise have a material
adverse effect on our financial condition and results of operations.
We could face information and product
liability risks and may not have adequate insurance
.
Our products may be used in connection
with critical business applications. We may become the subject of litigation alleging that one or more of our products are ineffective
or disruptive in our treatment of data, or with regard to critical business information. Thus, we may become the target of lawsuits
from injured or disgruntled businesses or other users. In the event that we are required to defend more than a few such actions,
or in the event that we are found liable in connection with such actions, our business and operations may be severely and materially
adversely affected.
Future profitability is not guaranteed
.
We have not recognized any substantial
operating revenues to date. Assuming we can attract sufficient financing, and revenues increase, there is no assurance that our
plans will be realized or that we will achieve break-even status or profitability in the future.
Changes to financial accounting standards
may affect our results of operations and cause us to change business practices
.
We prepare financial statements in conformity
with U.S. generally accepted accounting principles. These accounting principles are subject to interpretation by the American Institute
of Certified Public Accountants, the Public Company Accounting Oversight Board, the SEC and various other bodies formed to interpret
and create appropriate accounting principles. A change in those principles can have a significant effect on our reported results
and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning
of current practices may adversely affect our reported financial results or the way we conduct business. For example, accounting
principles affecting many aspects of our business, including rules relating to equity-related compensation, have recently been
revised. The Financial Accounting Standards Board and other agencies finalized changes to U.S. generally accepted accounting principles
that required us, starting January 1, 2006, to record a charge to earnings for employee stock option grants and other equity incentives.
We will have significant ongoing accounting charges resulting from option grant and other equity incentive expensing that could
reduce net income or increase losses. In addition, since we historically used equity-related compensation as a component of our
total employee compensation program, the accounting change could make the use of equity-related compensation less attractive and
therefore make it more difficult to attract and retain employees.
There is a limited market for our
common stock
and we do not anticipate paying cash dividends.
Our common stock is not listed on any exchange
and trades in the over-the-counter (the “OTC”) market in the United States. Additionally, one stockholder holds a majority
of our stock. As such, the market for our common stock is limited and is not regulated by the rules and regulations of any exchange
in the United States or China. Further, the price of our common stock and its trading volume in the OTC market may be subject to
wide fluctuations. Our stock price could decline regardless of our actual operating performance, and stockholders could lose a
substantial part of their investment as a result of industry or market-based fluctuations. Our stock trades relatively thinly.
If a more active public market for our stock is not sustained, it may be difficult for stockholders to sell shares of our common
stock, in which case they may sustain significant losses or lose their entire investments Because we do not anticipate paying cash
dividends on our common stock for the foreseeable future, stockholders will not be able to receive a return on their shares unless
they are able to sell them. The market price of our common stock will likely fluctuate in response to a number of factors, including
but not limited to, the following:
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sales, sales cycle and market acceptance or rejection of our products;
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economic conditions within our industry;
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our failure to meet performance estimates or the performance estimates of securities analysts;
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the timing of announcements by us or our competitors of significant products, contracts or acquisitions
or publicity regarding actual or potential results or performance thereof; and
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domestic Chinese and international economic, business and political conditions.
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Failure to maintain effective internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock
price
.
Section 404 of the Sarbanes-Oxley
Act of 2002 and the related rules and regulations of the SEC require annual management assessments of the effectiveness of our
internal control over financial reporting and a report by our independent registered public accounting firm attesting to and reporting
on these assessments. If we fail to adequately maintain compliance with, or maintain the adequacy of, our internal control over
financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that
we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404
of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If we cannot favorably assess, or our independent
registered public accounting firm is unable to provide an unqualified attestation report on our assessment of the effectiveness
of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely
affected, which could have a material adverse effect on our stock price.
Enforceability of Civil Liabilities
Against Foreign Persons.
Although the Company is a Wyoming corporation,
we engage in business primarily in China, our factories, properties, equipment and other assets are located outside the United
States in China and our officers and directors are located outside the United States in China. Therefore, investors and stockholders
may have considerable difficulty in bringing an original action in courts in the United States or in China under the civil liability
provisions of the U.S. federal securities laws, against the Company, its factories or its officers and directors. Investors and
stockholders also may have considerable difficulty in effecting service of process in the United States on our officers and directors
or in enforcing in courts in China judgments of United States courts against them based on the U.S. federal securities laws.
; no dividends are anticipated for the
foreseeable future[if true] and there is no trading market in China.[stop here]
[Include the above paragraph through “stop
here;” expand the subcaption of the paragraph.]