UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal
year ended
December
31, 2008
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______ to ________
Commission file
number
333-83375
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HONG
KONG WINALITE GROUP, INC.
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(Name of
registrant as specified in its
charter)
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Nevada
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87-0575571
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(State or
other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification
No.)
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606,
6/F, Ginza Plaza, 2A Sai Yeung Choi Street South
Mongkok,
Kowloon, Hong Kong
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(Address of
principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number
(852)
2388-3928
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No
x
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
¨
No
x
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
x
No
¨
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
x
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
x
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(Do not
check if a smaller reporting company)
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Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
Yes
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No
x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked prices of such
common equity as of the last business day of the registrant’s most recently
completed second fiscal quarter.
As
of June 30, 2008, the aggregate market value of shares of the
issuer’s common stock held by non-affiliates was approximately $54.3
million.
Indicate the
number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
49,740,933 as of
March 30, 2009
TABLE
OF CONTENTS
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PART
I
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1
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Item
1.
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Business.
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1
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Item
1A.
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Risk
Factors.
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6
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Item
1B.
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Unresolved
Staff Comments.
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11
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Item
2.
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Properties.
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11
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Item
3.
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Legal
Proceedings.
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11
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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11
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PART
II
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11
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Item
5.
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Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
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11
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Item
6.
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Selected
financial data.
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12
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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12
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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19
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Item
8.
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Financial
Statements and Supplementary Data.
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20
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Item
9.
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Changes in
and Disagreements With Accountants on Accounting and Financial
Disclosure.
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35
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Item
9A(T).
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Controls
and Procedures.
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35
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Item
9B.
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Other
Information.
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36
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PART
III
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36
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Item
10.
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Directors,
Executive Officers and Corporate Governance.
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36
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Item
11.
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Executive
Compensation.
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38
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters.
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39
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Item
13.
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Certain
Relationships and Related Transactions and Director
Independence.
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40
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Item
14.
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Principal
Accounting Fees and Services.
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41
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PART
IV
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41
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Item
15.
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Exhibits.
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41
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SIGNATURES
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43
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HONG
KONG WINALITE GROUP, INC.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual
Report on Form 10-K, including the following “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements that are based on the beliefs of our management, and
involve risks and uncertainties, as well as assumptions, that, if they ever
materialize or prove incorrect, could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. The words
“believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,”
“aim,” “will” or similar expressions are intended to identify forward-looking
statements. All statements, other than statements of historical fact, are
statements that could be deemed forward-looking statements, including statements
regarding new and existing products, brand development, technologies and
opportunities; statements regarding market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in China; any statements of belief or intention;
and any statements of assumptions underlying any of the foregoing. Forward
looking statements may involve risks and uncertainties, known or unknown to us,
that could cause results to differ materially from management’s expectations as
projected in such forward-looking statements. These risks and
uncertainties are discussed in Item 1A. in this Annual Report on Form 10-K. All
forward-looking statements included in this report are based on information
available to us on the date of this report. We assume no obligation and do not
intend to update these forward-looking statements, except as required by
law.
USE
OF CERTAIN DEFINED TERMS AND TREATMENT OF STOCK SPLIT
Except as
otherwise indicated by the context, references to “we,” “us,” “our,” or “the
Company” are references to the combined business of Hong Kong Winalite Group,
Inc., a Nevada corporation, and its wholly-owned Hong Kong operating subsidiary,
The Hong Kong Winalite Group Limited, or Winalite. Unless the context otherwise
requires, all references to: (i) “PRC” and “China” are to the People’s Republic
of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iii)
“RMB” are to Renminbi, the legal currency of China; (iv) “HKD” are to Hong Kong
dollars, the legal currency of Hong Kong, (v) “Securities Act” are to the
Securities Act of 1933, as amended; (vi) “Exchange Act” are to the Securities
Exchange Act of 1934, as amended; and (vii) “SEC” are to the U.S. Securities and
Exchange Commission.
Effective January
7, 2008, we implemented a 7.352380958-for-1 reverse stock split in issued and
outstanding shares of our common stock which reduced the number of our issued
and outstanding shares from 365,714,286 to 49,740,933 shares. Unless otherwise
indicated, all share and per share information contained herein has been
adjusted to give effect to such reverse stock split.
Item
1. Business.
History
We were
incorporated under the laws of Nevada on January 22, 1998 under the name Gourmet
Herb Growers, Inc. From our inception in 1998 until December 31, 2002, we
engaged in the business of growing gourmet herbs and specialty vegetables for
sale to, and use by, restaurants and delicatessens. From that point until
December 28, 2007, when we acquired Winalite in a reverse acquisition
transaction, we were a blank check company and did not engage in active business
operations other than our search for, and evaluation of, potential business
opportunities for acquisition or participation. During this time, we incurred
limited operating expenses necessary to maintain our status as a corporation in
good standing and conduct search for and evaluation of potential business
opportunities.
On December 28,
2007, we acquired Winalite in a reverse acquisition transaction. In that
transaction, we issued to the shareholders of Winalite 48,000,000 shares of our
common stock in exchange for all of the issued and outstanding capital stock of
Winalite. Winalite thereby became our wholly owned subsidiary and the former
shareholders of Winalite became our controlling stockholders. Winalite was
incorporated on September 10, 2007. We amended our articles of incorporation on
January 7, 2008 and changed our name from Gourmet Herb Growers, Inc. to Hong
Kong Winalite Group, Inc.
In connection
with our acquisition of Winalite, we assumed the rights and obligations of
Winalite under certain restricted stock purchase agreements, or Purchase
Agreements, that Winalite had entered into with several purchasers, or
Purchasers, including four members of its management team and 160 expected
service providers, distributors and sub-distributors of its products. All of the
Purchase Agreements are in substantially the same form. Under the Purchase
Agreements, the Purchasers bought a number of shares of Winalite at par value, a
nominal amount. All these shares are subject to a gradually declining right of
repurchase by Winalite at the same price per share paid by the Purchasers,
according to a vesting schedule attached to each of the Purchase Agreements, as
amended from time to time.
Business
Overview
We are a holding
company that only operates through our direct, wholly-owned Hong Kong
subsidiary, Winalite. We started our business in marketing and selling personal
health and hygiene products in early May 2008. These products currently consist
of sanitary pads and pantiliners. However, we plan to add other
health and hygiene products to our product offerings within the coming months
and years. We procure all of the goods that we sell from an
independent manufacturer in mainland China and sell them to consumers
internationally through our contracted direct-selling distributors and wholesale
and retail establishments. We generate our revenues in three
principal ways: from the resale at a profit of products manufactured to our
specifications, from the delivery of consulting, management, technical,
marketing, financial and/or other services to our distributors, and from the
license of the Winalite mark and brand to the manufacturer and distributors of
our products.
Our products are
manufactured for us by an independent third party, Shenzhen Yuelang Techno
Industrial Co., Ltd., or the Manufacturer, under a master purchase and supply
agreement, or MPSA, entered into on May 1, 2008. Pursuant to the
MPSA, we purchase our products from the Manufacturer on an open account basis
pursuant to separate purchase orders and resell those products to certain
distributors as more particularly described below. The prices we pay
for the products are set by the MPSA and may only be changed by agreement of the
parties. The Manufacturer is responsible for marking and labeling the
products and their packaging, and for quality control according to the
specifications set forth in the MPSA and subject to our
inspection. With the exception of the PRC market, the Manufacturer is
required to supply exclusively to us and is not permitted to manufacture or sell
the same or functionally equivalent products to any other party.
We currently sell
the products manufactured for us by the Manufacturer in Malaysia, Taiwan,
Indonesia, Singapore, Thailand, Vietnam, USA, Peru, Japan, Korea and the
Philippines pursuant to exclusive international distribution agreements, or
Distribution Agreements that we entered into with eleven independent third party
distributors, or the Distributors on May 1, 2008 (seven agreements), August 25,
2008 (one agreement), December 1, 2008 (two agreements) and January 10, 2009
(one agreement). The Distributors purchase from us the products we
buy from the Manufacturer, and resell those products through direct marketing
and/or other channels in their assigned, exclusive territories. The
Distributors are responsible for promoting sales of our products in their
territories, maintaining adequate sales forces, and other customary
functions. As we expand, we anticipate appointing additional
distributors for new territories.
In addition to
selling our products to our Distributors, we provide certain consulting,
management, technical, marketing, financial and/or other services to our
Distributors in exchange for certain fees pursuant to separate consulting and
management services agreements, or Service Agreements, that we entered into with
our Distributors. Pursuant to separate license agreements, or License
Agreements, entered into with our Distributors, we also license the Winalite
mark and brand and certain other intellectual property to our Distributors,
solely for use in their assigned,
exclusive
territories, and solely for the purpose of carrying out their activities under
the Distribution Agreements, for a license fee in an amount equal to 10% of the
monetary amount of the Distributor’s orders for products placed with us. As we
expand, we anticipate appointing additional distributors for new
territories.
The
Products that We Sell
We classify the
products that we sell into four categories: (1) ultra-thin regular anionic
sanitary pads; (2) ultra-thin long anionic sanitary pads; (3) anionic
pantiliners; and (4) baby diapers. The sanitary pads, pantiliners and baby
diapers that we sell are patented in the PRC and such patents are owned by the
Manufacturer. The remaining duration on these patents is 9
years. These products have been tested by various independent Chinese
agencies, including SGS-CSTC Standards Technical Services Co., Ltd., Shanghai
Textile Industry Technology Intendance, National Paper Product Quality Control
Institution Shanghai Office, and East China Normal University. These
tests generally related to anionic function, with some tests relating to
germicidal function.
All of our
sanitary pads and pantiliners are sold in combination packages, but are
individually wrapped so that they can be carried discreetly without being
contaminated. Each piece of pad or pantiliner incorporates “Anionic Padding,”
which contains an anionic core that is able to generate anions by slight body
friction. Anions are negatively charged ions. An ion is an atom or molecule
which has lost or gained one or more electrons, making it positively or
negatively charged. Anions are negatively charged because there are more
electrons associated with them than there are protons in their nuclei. According
to the Manufacturer, the anionic core may be able to generate up to 6,070 anions
per cubic centimeter such that the sanitary pads and pantiliners could be
antibacterial, and could be able to prevent the contraction of certain diseases,
reduce the acidic environment around the vaginal area, and absorb
odor.
Our
Industry
According to a
market report of the feminine hygiene products issued by Global Industry
Analysts, Inc. in 2008, the worldwide feminine hygiene products market is
characterized by intense competition, innovation, and rising consumer health
concerns. Major players in this market include Procter & Gamble,
Co., Johnson & Johnson, Kimberly-Clark Corp., Svenska Cellulosa Aktiebolaget
SCA, Lil-lets Group Limited, Playtex Products, Inc., Unicharm Corporation, and
Kao Corporation. Given the growing number of aging brand-loyal baby
boomers entering menopause, the market is targeting the younger
generation. The other important factor shaping the market development
is the increasing popularity of physically active lifestyles among
women. With active adolescents and working young women favoring
figure-hugging dresses, swimsuits and spandex outfits, the use of ultra-thin
sanitary pads and innovative tampons is expected to gain
preference. Driven by technology innovation and greater user safety,
sanitary pads have emerged as a popular feminine protection product
worldwide. The consistent consumption trend is further benefited by
technological innovations that have made sanitary pads thinner, smaller,
lighter, and more highly absorptive. The United States, Europe, and
Asia-Pacific collectively account for about 80% of the feminine hygiene products
market, as stated by Global Industry Analysts, Inc. Sales from
sanitary pads in the United States are estimated at $1.3 billion for
2008. Asia-Pacific, with a vast population base and relatively
untapped market, is projected to be the fastest growing region over the period
2001-2010. Tampons are used extensively in developed areas including the United
States, Western Europe and Canada. Faced with issues related to
adverse health and environmental effects, the European tampon market is expected
to grow at a modest pace to reach $1.1 billion by 2010, according to Global
Industry Analysts, Inc. Furthermore, the use of tampons in Asia,
Africa and Eastern Europe is restricted due to cultural and cost
factors.
China has
experienced over two decades of high economic growth, which has been stimulated
by increases in industrial output, consumer consumption and capital
investment. As China has become more affluent, its population,
especially its female population, has grown more conscious of the benefits of
personal health and hygiene products. According to China National
Household Paper Industry Association, from 1990 to 2005, the annual consumption
of feminine products, including pantiliners and sanitary pads, increased by
1,420% and the sales from these products reached $1.65 billion in 2005, the most
recent date for which we have data. In light of China’s rapid
economic development, as well as high rates of infection and outbreaks of
gynecological diseases, we believe that the market for high-end feminine hygiene
as well as other personal care products has growth potential in
China.
Our
Intellectual Property
We currently do
not own any patents or trademarks registered with any governmental authorities.
However, the Manufacturer owns PRC patents over certain sanitary paid and
pantiliners that we sell and the MPSA granted to us a world-wide, royalty-free
license during the term of the MPSA to use any patents, copyrights, trademarks,
trade names or other intellectual property which is owned or to which
Manufacturer has rights, solely for the purposes of marketing, selling and
distributing the products that we purchase from the Manufacturer.
The Manufacturer and some or all of the
Distributors have previous
ly used the name “
Winalite”
and one or more marks incorporating
that name.
The MPSA
and the Distribution Agreements include the transfer to us of all rights to the
word, “
Winalite,”
as well as any trademark, trade name,
or copyright to that word and any
r
epresentation or design incorporating
that word. Pursuant to the MPSA, we then licensed that word, mark and
brand back to the Manufacturer solely for use in carrying out its obligations
under the MPSA. In addition, p
ursuant to separate License
Agreements entered into with our Distributors, we license the Winalite mark and
brand and certain other intellectual property to our Distributors, solely for
use in their assigned, exclusive territories, and solely for the purpose of
carrying out their activities under the Distribution Agreements. In
consideration of the rights granted to them by us under the License Agreements,
each Distributor agreed to pay us a license fee in an amount equal to 10% of the
monetary amount of the Distributor’s orders for the products placed with us.
In addition, each Distributor may sub-license such intellectual property
only to downline distributors, as defined in the Distribution Agreement, but may
not grant to any sub-licensee any more right than is granted to the Distributor
under the License Agreement. The License Agreement will expire when the
Distribution Agreement is terminated. Once the License Agreement expires,
the Distributors will immediately cease using all intellectual property and, at
our option, return or destroy all intellectual property having tangible form in
its possession, custody, or control.
Our
Research and Development Efforts
Currently we do
not have an internal research and development program, and over our last two
fiscal years, we have not spent any money on research and development
activities.
Sales
and Marketing Efforts
Product Sales and
Strategy
We engage in
global network marketing of personal hygiene products. We sell
branded, fast-moving consumer goods to distributors worldwide, who in turn sell
such products to consumers through direct selling, except in mainland China,
where our contract distributors sell through wholesaling and retailing
distributorships.
Marketing
Strategy
Our marketing
objective is to expand our distributor base and geographic presence, and help
our distributors to increase net sales through management training and
consulting. We believe the following marketing initiatives will grow our
business:
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Our
distributors outside mainland China employ a direct-selling model that we
design for them. We expect that with our consulting and training services
and the products we re-sell to them, our direct-selling distributors will
become steady sources of profit. In mainland China, due to certain
regulations, we plan for our distributors to sell the products through
wholesaling and retailing distributorships. We expect that this business
model will prove profitable and competitive with other retail and
wholesale business models because of the superior training, expertise, and
motivation that we intend to promote in our
distributors.
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We plan to
select the most attractive countries and regions to enter and target
customers in the top-25% income bracket.
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The
products that we sell are patent-protected and of superior quality.
Therefore, we plan to target upscale customers in well-developed countries
and regions and wealthy segments in developing countries, where there is
increasing demand for quality fast moving consumer
goods.
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We plan to
be persistent in exploring new markets and increasing our geographic reach
and presence.
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We expect
to have distributor networks in 20 to 30 countries in Southeastern Asia
and regions located in Australasia, North Asia, Europe, North America,
Latin America and Africa by the end of 2009. We are currently
in 11 countries. Before entering a new market, we plan to find
experienced distributors. We register the products that we sell in
prospective countries and regions. This process averages 3 months to
register each product, though it can take longer. We assist distributors
in designing a sales launch plan. Management estimates the entire new
market launch process to be 6-8 months in length, depending on various
market factors, including the economic environment and governmental
regulation. Our first such launch process began in April
2008.
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We plan to
launch new product marketing lines by leveraging the initial markets that
we develop for our current products.
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We plan to
develop new product lines in line with market demand based on distributor
feedback and our own market research. On an ongoing basis, we plan to
launch 2-4 new products each quarter to be available in all existing
markets in addition to our core product portfolio. In that regard, we plan
to leverage our existing resources to reduce costs. For
example, we recently developed a new baby diaper
product.
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We plan to
seek partnerships with credible institutions and organizations that will
facilitate building brand awareness and researching demand for other
products.
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We plan to
seek partnerships with the research centers of well-known universities in
China and worldwide to further increase awareness of the products that we
sell and to research market demand for potential future products.
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Our
Growth Strategy
We expect to
enhance profitability and cash flows of the Company through the following
strategies:
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Focus on Brand
Development
. With intense price competition among many
similar or identical products in the industry, we believe that building
brand awareness is the primary means to generate and sustain profitable
growth in the future. We believe that developing close cooperative
relationships with research centers of well-know universities in China and
worldwide is key to building brand equity. We also market our
products through an integrated marketing program that includes customer
flyers, brochures and promotional pieces. A number of merchandising
techniques are used, including information on new products, the use of
combination offers, the use of trial sizes and samples and the promotion
of products packaged as gift items. In the future, we also plan to
publish sales and marketing magazines quarterly, with health care tips and
product information.
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Future Market Expansion in
China
. We market and sell the products that we acquire from
the Manufacturer by growing our sales network. We will sell some of
these products through a combination of distributors and distributorship
stores. Although our products are not currently sold in China, we
expect that our future distributors’ sales in China will be made through
approximately 100 wholesale and retail stores throughout China within our
first year of operations in China. We intend to add 800 more such
distributorship stores in China over the next five years. At the
same time, we expect to expand our total number of employees to
approximately 50 people over the next five years. In addition, we
seek to motivate our direct-selling and other distributor representatives
through the adoption of special incentive programs that reward superior
sales performance. Periodic sales meetings with sales
representatives are expected to be conducted at our headquarters in order
to keep sales representatives updated on product line changes, explain
sales techniques and provide recognition for sales
performance.
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Future Sales in China
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We plan to conduct our business in China through a network of
wholesale and retail stores. We are committed to developing a
domestic store network in China by creating a distributorship presence.
We intend to sell to and service more than 900 network stores in
China over the next five years. We expect that our sales in China
will generate a significant part of annual revenues of the Company by the
end of 2009.
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International Growth
.
Our overseas sales are expected to account for a significant
percentage of our revenue in the future. We expect to become present
in 20 to 30 countries in Asia, Europe, North America, Latin America and
Africa by the end of 2009. We are currently in 11
countries. In these countries and regions, we sell goods to
distributors who will in turn sell though contract direct sellers to end
consumers.
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Technology Innovation
.
We believe that the development of new technology is critical to our
success. We will continuously work to improve the quality of our
existing and future products through introducing new technology. We
expect to establish joint-development programs with Chinese universities
and research institutes.
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Introducing New
Products
. We plan to expand our market presence by
introducing additional competitive personal health and hygiene products to
our product offerings, including personal care products, cosmetics, skin
care products, and nutritional supplements. Our new product
development process starts with the identification of potential market
opportunities by our distributors and internal marketing forces, as well
as from our assessment of our competitors. We plan for this
information to be analyzed by experts at outside institutions and research
centers to help us determine which new products to
sell.
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Sales campaigns
.
We believe that maintaining good public relations is key to our
business success and organizing or participating in the public
undertakings is undoubtedly the best means to promote public relations.
The public activities of a company reflect key values it
appreciates. We sponsor and organize many important social
activities, such as sales rallies, motivational events, and sales and
training seminars for our distributors, sub-distributors, and their sales
forces. These activities not only to reflect our high level of
social responsibility, but also make us unique in the industry in China.
We believe that this kind of operation will continue to effectively
promote our company reputation and our brand
name.
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Our
Competition
The personal
health and hygiene industry both within China and globally is highly fragmented
and intensely competitive. Many of our competitors, both domestic and
international, have significant research and development capabilities and
financial, scientific, manufacturing, marketing and sales resources. In China,
we compete principally with Fujian Hengan Group, Ltd., Fujian Hengli Group, Ltd.
and Procter & Gamble Co. Internationally, we compete principally with
Procter & Gamble Co. and Johnson & Johnson.
We compete with
our competitors based upon the price and quality of the products that we sell,
brand awareness, ability to produce a diverse range of products, and customer
service.
Our
Competitive Strengths
We believe that
our competitive strengths include:
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·
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An Experienced Management
Team
. Our senior management is equipped with extensive
marketing experience. For instance, our Chairperson, Ms. Jingjun Hu, has
13 years of executive experience, including seven years as a Vice
President of Guangzhou Yashi Investment Development Co., Ltd and four
years as a Vice President of Shenzhen Yashi Clothing and Hats Co., Ltd.
Our Chief Executive Officer, Dr. Hongxing Gao, has over 20 years of
experience working in finance, and holds the qualification of senior
financial manager from the China Securities Regulatory Commission and the
China Banking Regulatory Commission. Mr. Jianquan Li, our Chief
Financial Officer, has worked as a senior financial manager in China for
more than 13 years, including as an overseas financial director of the
Manufacturer from February 2007 to March 2008, as a Vice President of
Guangzhou Banju Lighting Company from October 2004 to January 2007, and as
the Financial Director and President of SOUPB International (China)
Company from March 2000 to September 2004.
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|
|
|
|
·
|
New product
development
. We believe that new products are a key driver of
customer traffic and purchases. Our distributors and internal marketing
forces, complemented by relationships that we expect to develop with
experts at outside research institutions, will spur innovation in our
product offerings and ongoing development of untapped
markets.
|
|
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|
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·
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Favorable direct sale
model
. We believe that our vertically integrated network marketing
structure will be able to support a higher sales volume without adding
significant costs. Through the network marketing arrangements we plan to
build, we anticipate that our distributors will be able to grow business
without employing internal sales forces. We believe that most marketing
expenses will be borne by
distributors.
|
Regulation
There are no
specific rules or regulations applicable to a company engaged in direct selling
in the countries where we currently sell our products. In China, companies may
not re-sell through a direct marketing arrangement without being licensed to do
so by the relevant governmental authorities. We have received
multi-level marketing licenses in certain countries and an FDA certificate in
the United States. Therefore, our distributors do not engage in
direct selling inside China and instead sell through wholesale and retail
distribution. Wholesale and retail selling of personal health and hygiene
products is not highly regulated in China. Only the general rules of commerce,
both in China and in the other countries our products will be sold, are
applicable.
Our
Employees
As of December
31, 2008, we had 6 employees. We expect to hire a total of 14 full-time
employees over the next twelve months and we expect these employees to be
allocated among job functions conducted at the Company as follows:
|
|
Department
|
Number
of Employees
|
|
|
|
Domestic
Sales
|
3
|
|
|
|
Human
Resources
|
1
|
|
|
|
International
Sales
|
7
|
|
|
|
Finance
|
3
|
|
|
|
Total
|
14
|
|
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below, together with all of the other
information included in this Annual Report on Form 10-K, before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or results of operations could suffer. In
that case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
RISKS
RELATED TO OUR BUSINESS
Third-party
suppliers and distributors provide and sell all of our products, and the loss of
any of them or a disruption or interruption in the supply or distribution chain
may adversely affect our business.
We acquire all of
the products that we currently sell from the Manufacturer pursuant to the MPSA
and have entered into Distribution Agreements with the Distributors for the sale
of the products acquired from the Manufacturer. We expect to enter into
similar agreements in the future with other manufacturers and distributors
relating to the sale of different products. All of our products will be
purchased from these various suppliers and will be sold by these various
distributors. The loss of the Manufacturer as our supplier or, in the
future, the inability to enter into agreements with other suppliers, or if we do
enter into such agreements, the loss of any other suppliers that we may have a
relationship with, or a significant disruption or interruption in the supply
chain could have a material adverse effect on our ability to acquire the
products that we plan to sell. By the same token, the loss of these
Distributors as our distributors or, in the future, the inability to enter into
agreements with other distributors, or if we do enter into such agreements, the
loss of any other distributors that we may have a relationship with, or a
significant disruption or interruption in the distribution chain could have a
material adverse effect on our ability to distribute the products that we plan
to sell. We charge a certain percentage markup over our procurement
prices. Any fluctuation in production costs or other expenses associated
with direct selling to customers would not affect the premium we obtain on our
products. However, increases in the costs of procuring or distributing our
products may adversely affect our profit margins if we are unable to pass along
any higher costs in the form of price increases or otherwise achieve cost
efficiencies in distribution.
We
operate in an extremely competitive industry and are subject to continual
pricing pressure that could negatively affect our financial
results.
We compete either
directly or indirectly with a number of major domestic and international
manufacturers and distributors of personal care and hygiene products, as well as
a large number of smaller, regional competitors. Several of our
competitors have strong technical, marketing, sales, manufacturing, distribution
and other resources, as well as significant name recognition, established
positions in the market and long-standing relationships with manufacturers and
customers. In addition, some of our competitors own raw materials
facilities which, during periods of raw materials cost increases or price
volatility, may provide a competitive pricing advantage and reduce their
exposure to volatile raw material costs. Although we anticipate that our
operational costs will be relatively low due to our position as an intermediary,
our ability to maintain and improve our operating margins may depend in part on
our ability to control and reduce our costs. We cannot assure you that we
will be able to control or reduce our operating expenses, to raise or maintain
our prices or increase our unit volume, in order to maintain or improve our
operating results.
In addition, we
face competition from competing network marketing companies. We compete
against products sold directly to consumers by other direct-selling and direct
sales companies and through the Internet, and against products sold through the
mass market and prestige retail channels. The number of competitors and
degree of competition that we face in our industries varies widely from country
to country. There are a number of direct-selling and retail and wholesale
companies that sell product lines similar to ours, some of which also have
worldwide operations and compete with us globally.
If our
advertising, promotional, merchandising or other marketing strategies are not
successful, if we are unable to deliver new products that represent
technological breakthroughs, if we do not successfully manage the timing of new
product introductions or the profitability of these efforts, or if for other
reasons our distributors or end customers perceive competitors’ products as
having greater appeal, then our sales and financial results may
suffer.
We are also
subject to significant competition for the recruitment of distributors from
other direct selling or network marketing organizations, including those that
market personal care and hygiene products. As a result, it may be
continually necessary to recruit and retain new distributors and if we are
unable to do so our business may be adversely affected.
We
face risks associated with significant international operations.
We expect to
achieve our financial targets, in part, by achieving disproportionate growth in
developing regions. Should growth rates or our market share fall substantially
below expected levels in these regions, our results could be negatively
impacted. In addition, economic changes, terrorist activity and political unrest
may result in business interruption, inflation, deflation or decreased demand
for our products. Our success will depend, in part, on our ability to manage
continued global political and/or economic uncertainty, especially in our
significant geographical markets, as well as any political or economic
disruption due to terrorist and other hostile activities.
A
material change in customer relationships or in customer demand for our products
could have a significant impact on our business.
Our success is
dependent on our ability to successfully manage relationships with our
distributors and retail trade customers. This includes our ability to offer
trade terms that are acceptable to our customers and are aligned with our
pricing and profitability targets. Our business could suffer if we cannot reach
agreement with a key customer based on our trade terms and principles. Further,
there is a continuing trend towards retail trade consolidation and this leads to
more complex work across broader geographic boundaries for both us and key
retailers. This can be particularly difficult when major customers are
addressing local trade pressures or local law and regulation changes. Further,
our business would be negatively impacted if a key customer were to
significantly reduce the range or inventory level of our products.
Cyclical
industry conditions may adversely affect the results of our
operations.
Our operating
results are affected by the general cyclical pattern of the industries in which
our major customer groups (our distributors) operate, and the overall
economic conditions in which we and our customers operate. All of our
target client segments are heavily dependent on the end-user markets they serve,
especially up-scale and female markets. A weak capital expenditure
environment in these markets can be expected to have a material adverse effect
on the results of our operations.
We
may not be able to adequately protect the proprietary intellectual
property and technology associated with our products, which may harm our
competitive position and result in increased expenses incurred to enforce our
rights.
We rely on a
combination of copyright, trademark, patent and trade secret laws,
non-disclosure agreements and other confidentiality procedures and contractual
provisions to establish, protect and maintain the proprietary intellectual
property and technology and other confidential information associated with the
sanitary pad and pantiliner products that we sell. The sanitary pads and
pantiliners are patented in the PRC and such patent is owned by the
Manufacturer. Some of these technologies are important to our
business and are not protected by patents. Despite our efforts, the steps
we or the Manufacturer take to protect the proprietary intellectual property and
technology and other confidential information associated with the products that
we sell may not be adequate to preclude misappropriation of this proprietary
information or infringement of the intellectual property rights associated with
these products. Protecting against the unauthorized use of the products,
trademarks and other proprietary rights is also expensive, difficult and, in
some cases, impossible. Litigation may be necessary in the future to
enforce or defend intellectual property rights, to protect trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of management
resources, either of which could harm our business, operating results and
financial condition.
Our
sales are currently derived from a limited number of distributors, and
results from operations could be adversely affected and stockholder value harmed
if we lose these distributors.
All of our
revenues are currently derived from a limited number of distributors. For
example, in 2008, our revenues were derived from ten distributors. The loss of
any of these significant distributors that is not accompanied by the retention
of new business in similar volume would adversely affect our revenues and
stockholder value.
The
products that we sell could be subject to product liability claims by consumers,
which would adversely affect our profit margins, results from operations and
stockholder value.
We are exposed to
risks inherent in the packaging and distribution of personal care and hygiene
products, such as adequacy of warnings, mislabeling and contamination. As
a result, there is a risk that someone using the products that we sell may
experience significant negative side effects which may permanently harm them and
we could be subject to claims for damages based on theories of product liability
and other legal theories. The costs and resources to defend such claims
could be substantial and, if such claims are successful, we could be responsible
for paying some or all of the damages. Also, our reputation could be
adversely affected, regardless of whether such claims are successful. We
have obtained product liability insurance; however, there can be no assurance
that we will be able to maintain insurance on acceptable terms for the products
that we sell or that such insurance would be sufficient to cover any potential
product liability claim or recall. Any of these results would
adversely affect our future profit margins, results from operations and
stockholder value.
Expansion of our business may put added pressure on our
management and operational infrastructure impeding our ability to meet any
potential increased demand for the personal care and hygiene products that we
sell and possibly hurting our future operating results.
Our business plan
is to significantly grow our operations to meet anticipated growth in demand for
the products that we sell, including the introduction of new product offerings.
Growth in our business may place a significant strain on our personnel,
management, financial systems and other resources. The evolution of our
business also presents numerous risks and challenges, including:
|
·
|
our ability
to successfully and rapidly expand sales to potential new distributors in
response to potentially increasing demand;
|
|
|
|
|
·
|
the costs
associated with such growth, which are difficult to quantify, but could be
significant; and
|
|
|
|
|
·
|
rapid
technological change.
|
To accommodate
any such growth and compete effectively, we may need to obtain additional
funding to improve information systems, procedures and controls and expand,
train, motivate and manage our employees, and such funding may not be available
in sufficient quantities, if at all. If we are not able to manage these
activities and implement these strategies successfully to expand to meet any
increased demand, our operating results could suffer.
We
depend heavily on key personnel, and turnover of key employees and senior
management could harm our business.
Our future
business and results of operations depend in significant part upon the continued
contributions of our key technical and senior management personnel, including
Hongxing Gao, our chief executive officer, Jingjun Hu, our Chairperson and
President, and Jianquan Li, our Chief Financial Officer. Our future
business and results of operations also depend in significant part upon our
ability to attract and retain additional qualified management, technical,
marketing and sales and support personnel for our operations. If we lose a
key employee or if a key employee fails to perform in his or her current
position, or if we are not able to attract and retain skilled employees as
needed, our business could suffer. Significant turnover in our senior
management could significantly deplete our institutional knowledge held by our
existing senior management team. We depend on the skills and abilities of
these key employees in managing the technical, marketing and sales aspects of
our business, any part of which could be harmed by further
turnover.
Although
our internal control over financial reporting was considered effective as of
December 31, 2008, there is no assurance that our internal control over
financial reporting will continue to be effective in the future, which could
result in our financial statements being unreliable, government investigation or
loss of investor confidence in our financial reports.
Pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish an
annual report by our management assessing the effectiveness of our internal
control over financial reporting. This assessment must include disclosure of any
material weaknesses in our internal control over financial reporting identified
by management. Management’s report as of the end of fiscal year 2008 concluded
that our internal control over financial reporting was effective. There is
however, no assurance that we will be able to maintain such effective internal
control over financial reporting in the future. Ineffective internal control
over financial reporting can result in errors or other problems in our financial
statements. In addition, our internal control over financial reporting has not
yet been audited by our independent registered public accounting firm. In the
future, if we are unable to assert that our internal controls are effective, our
investors could still lose confidence in the accuracy and completeness of our
financial reports, which in turn could cause our stock price to decline. Failure
to maintain effective internal control over financial reporting could also
result in investigation or sanctions by regulatory authorities.
Our ability to anticipate and respond to market trends and
changes in consumer preferences could affect our financial
results.
Our success
depends on our ability to anticipate, gauge and react in a timely and effective
manner to changes in consumer spending patterns and product preferences.
We must continually work to develop, produce and market new products,
maintain and enhance the recognition of our brands, achieve a favorable mix of
products, and refine our approach as to how and where we market and sell our
products. While we plan to devote considerable effort and resources to
shape, analyze and respond to consumer preferences, consumer spending patterns
and preferences cannot be predicted with certainty and can change rapidly.
If we are unable to anticipate and respond to trends in the market for our
products and changing consumer demands, our financial results will
suffer.
Furthermore,
material shifts or decreases in market demand for our products, including as a
result of changes in consumer spending patterns and preferences, could result in
us carrying inventory that cannot be sold at anticipated prices or
increased
product returns
by our distributors. Failure to maintain proper inventory levels or
increased product returns by our distributors could result in a material adverse
effect on our business, results of operations and financial
condition.
A
general economic downturn or sudden disruption in business conditions may affect
consumer purchases of discretionary items, including the personal care and
hygiene products that we currently sell, which could adversely affect our
business.
Consumer spending
is generally affected by a number of factors, including general economic
conditions, inflation, interest rates, energy costs, and consumer confidence
generally, all of which are beyond our control. Consumer purchases of
discretionary items tend to decline during recessionary periods, when disposable
income is lower, and may impact sales of the products that we sell. In
addition, sudden disruptions in business conditions as a result of a terrorist
attack similar to the events of September 11, 2001, including further
attacks, retaliation and the threat of further attacks or retaliation, war,
adverse weather conditions or other natural disasters, such as Hurricane
Katrina, pandemic situations or large scale power outages can have a short or,
sometimes, long-term impact on consumer spending. A downturn in the
economies in which the products that we acquire are re-sold or a sudden
disruption of business conditions in those economies could adversely affect our
sales.
Our
information technology systems may be susceptible to disruptions.
We employ
information technology systems to support our business, including systems to
support financial reporting, and an internal communication and data transfer
network. We also employ information technology systems to support
distributors in many of our markets, including electronic order collection and
invoicing systems and on-line training. We have Internet sites in many of
our markets, including business-to-business sites to support distributors.
Any of these systems may be susceptible to outages due to fire, floods,
power loss, telecommunications failures, break-ins and similar events.
Despite the implementation of network security measures, our systems may
also be vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with these systems. The occurrence of these or
other events could disrupt our information technology systems and adversely
affect our operations.
RISKS
RELATED TO DOING BUSINESS IN CHINA
A
substantial amount of our sourcing originates in China. We may be
unable to enforce our legal rights due to policies regarding the regulation of
foreign investments in China as well as other aspects of the Chinese legal
system.
Unlike the common
law system prevalent in the United States, China’s legal system is a civil law
system based on written statutes, in which system decided legal cases have
little value as precedents. China does not have a well-developed,
consolidated body of laws governing foreign investment enterprises. As a
result, the administration of laws and regulations by government agencies are
subject to considerable discretion and variation on the part of the Chinese
government, including its courts, and may be subject to influence by external
forces unrelated to the legal merits of a particular matter. China’s
regulations and policies with respect to foreign investments are evolving.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been
published.
As a result, we may not be aware of any violations of these policies and
rules until some time after the violation. Statements regarding these
evolving policies have been conflicting and any such policies, as administered,
are likely to be subject to broad interpretation and discretion and to be
modified, perhaps on a case-by-case basis. The uncertainties regarding
such regulations and policies present risks that may affect our ability to
achieve our business objectives. If we are unable to enforce any legal
rights we may have under our contracts or otherwise, our ability to compete with
other companies in our industry could be materially and negatively affected.
In addition, any litigation in China may be protracted and result in
substantial cost and diversion of resources and management attention. The
relative inexperience of China’s judiciary in many cases creates additional
uncertainty as to the outcome of any litigation. It may also be difficult
to obtain enforcement of a judgment by a court of another jurisdiction in
China.
Future
inflation in China may inhibit our ability to conduct business profitably in
China.
In recent years,
the Chinese economy has experienced periods of rapid expansion and high rates of
inflation. During the past ten years, the rate of inflation in China has
been as high as 8.7% and as low as -2.2% (source:
http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=CNY). These
factors have led to the adoption by the Chinese government, from time to time,
of various corrective measures designed to restrict the availability of credit
or regulate growth and contain inflation. High inflation may in the future
cause the Chinese government to impose controls on credit and/or prices, or to
take other action, which could inhibit economic activity in China, and thereby
harm the market for our products.
RISKS
RELATED THE MARKET FOR OUR COMMON STOCK
Our
common stock is quoted on the OTC Bulletin Board, which may have an unfavorable
impact on our stock price and liquidity.
Our common stock
is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a
significantly more limited market than the New York Stock Exchange or Nasdaq
Stock Market. The quotation of our shares on the OTC Bulletin Board may
result in a less liquid market available for existing and potential stockholders
to trade shares of our common stock, could depress the trading price of our
common stock and could have a long-term adverse impact on our ability to raise
capital in the future.
We
may be subject to penny stock regulations and restrictions and you may have
difficulty selling shares of our common stock.
The SEC has
adopted regulations which generally define so-called “penny stocks” to be an
equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. As of
March 30, 2009, the closing bid and asked price for our common stock was $0.81
per share. Thus, our stock price has traded under $5.00 per share recently
and it may do so again in the future, in which case, it may be designated a
“penny stock.” As a “penny stock”, our common stock may become subject to
Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule”. This rule
imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and “accredited
investors” (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses).
For transactions covered by Rule 15g-9, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser’s written consent to the transaction prior to sale. As a result,
this rule may affect the ability of broker-dealers to sell our securities and
may affect the ability of purchasers to sell any of our securities in the
secondary market.
For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in a penny stock, of a disclosure schedule prepared by
the SEC relating to the penny stock market. Disclosure is also required to
be made about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stock.
There can be no
assurance that our common stock will qualify for exemption from the Penny Stock
Rule. In any event, even if our common stock were exempt from the Penny
Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest.
We
do not intend to pay dividends on shares of our common stock for the foreseeable
future, but if we intend to do so our holding company structure may limit the
payment of dividends to our stockholders.
We have no direct
business operations, other than our ownership of our subsidiary Winalite.
While we have no current intention of paying dividends, should we decide
in the future to do so, as a holding company, our ability to pay dividends and
meet other obligations depends upon the receipt of dividends or other payments
from Winalite and other holdings and investments. In addition, Winalite
from time to time may be subject to restrictions on its ability to make
distributions to us, including as a result of restrictive covenants in loan
agreements, restrictions on the conversion of local currency into U.S. dollars
or other hard currency, or other regulatory restrictions. If future
dividends are paid in RMB, fluctuations in the
exchange rate for
the conversion of RMB into U.S. dollars may reduce the amount received by U.S.
stockholders upon conversion of the dividend payment into U.S.
dollars.
We
do not have any independent directors and may be unable to appoint any qualified
independent directors.
We currently do
not have any independent directors. We plan to appoint a number of
independent directors which will constitute a majority of our board of directors
before our common stock is listed on a national securities exchange, but we may
not be able to identify independent directors qualified to be on our
board.
Our
largest stockholder, Jingjun Hu, holds a significant percentage of our
outstanding voting securities and accordingly may make decisions regarding our
daily operations, significant corporate transactions and other matters that
other stockholders may believe are not in their best interests .
Ms. Jingjun Hu,
our Chairperson and President, is the beneficial owner of approximately 87.9% of
our outstanding voting securities. As a result, she possesses significant
influence over the election of our Board of Directors and significant corporate
transactions. Her ownership may also have the effect of delaying or
preventing a future change in control, impeding a merger, consolidation,
takeover or other business combination or discourage a potential acquirer from
making a tender offer. Other stockholders may believe that these future
decisions made by Ms. Hu are not in their best interests.
Item
1B. Unresolved Staff Comments.
Not
applicable.
We currently
lease our office space under a written lease with Wai Fung Plaza Limited, of Wai
Fung, for a term which began on February 2, 2009, and which expires on February
1, 2011. We pay Wai Fung rent totalling HK$69,184 (approximately
$8,926) per month under this lease. Currently, we do not own or lease
any other properties or facilities.
Item
3. Legal Proceedings.
From time to time, we may
become involved in various lawsuits and legal proceedings which arise in the
ordinary course of business. However, litigation is subject to inherent
uncertainties and an adverse result in these or other matters may arise from
time to time that may harm our business. We are currently not aware of any such
legal proceedings or claims that we believe will have a material adverse affect
on our business, financial condition or operating results.
Item
4. Submission of Matters to a Vote of Security
Holders.
None.
Item
5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Our common stock
is quoted under the symbol “HKWO.OB” on the Over-the-Counter Bulletin Board, but
has not been traded in the over-the-counter market except on a limited and
sporadic basis.
The following
table sets forth, for the periods indicated, the high and low bid quotations of
our common stock. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
These prices have been adjusted to give retroactive effect to the
7.352380958-for-1 reverse split of our common stock that occurred on January 7,
2008.
|
|
|
Bid
Quotations
(1)
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year
Ended December 31, 2008
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$
|
12.00
|
|
|
$
|
1.25
|
|
|
2nd
Quarter
|
|
$
|
10.00
|
|
|
$
|
8.00
|
|
|
3rd
Quarter
|
|
$
|
8.50
|
|
|
$
|
1.15
|
|
|
4th
Quarter
|
|
$
|
2.50
|
|
|
$
|
1.00
|
|
|
|
|
Bid
Quotations
(1)
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$
|
1.02
|
|
|
$
|
1.02
|
|
|
2nd
Quarter
|
|
$
|
1.02
|
|
|
$
|
1.02
|
|
|
3rd
Quarter
|
|
$
|
1.03
|
|
|
$
|
1.02
|
|
|
4th
Quarter
|
|
$
|
1.50
|
|
|
$
|
1.03
|
|
|
(1)
|
The above
tables set forth the range of high and low bid quotations per share of our
common stock as reported by www.quotemedia.com for the periods indicated,
as adjusted for the January 7, 2008 reverse stock
split.
|
Approximate
Number of Holders of Our Common Stock
As of March 30,
2009, there were 179 stockholders of record of our common stock, as reported by
our transfer agent. In computing the number of holders of record, each
broker-dealer and clearing corporation holding shares on behalf of its customers
is counted as a single shareholder.
Dividends
On October 12,
2007, we paid a cash dividend of $1.80133 (on a post-split basis) per share of
common stock to our stockholders of record as of October 10, 2007 holding
217,617 shares of our common stock, which resulted in a total dividend
distribution of $392,000. Except for such dividend, we have never declared or
paid cash dividends. Any future decisions regarding dividends will be made by
our board of directors. We currently intend to retain and use any future
earnings for the development and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future.
Equity
Compensation Plans
On March 30, 2009
our board of directors adopted an equity incentive plan, or EIP, that provides
for the issuance of stock options (both incentive and nonstatutory), restricted
stock, restricted stock units, stock appreciation rights, performance units,
performance shares and other share-based awards in order to retain, attract and
motivate officers, employees, directors, and consultants. The
effective date of the EIP will be April 1, 2009, and following its
effectiveness, up to 4,295,000 shares of our common stock will be available for
issuance thereunder.
Recent
Sales of Unregistered Securities
We have not sold
any equity securities during the fiscal year ended December 31, 2008 that were
not previously disclosed in a quarterly report on Form 10-Q or Form 10-QSB or a
current report on Form 8-K that was filed during the 2008 fiscal
year.
Item
6. Selected financial data.
Not
Applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
We started our
business in marketing and selling personal health and hygiene products in early
May 2008. These products currently consist of sanitary pads, pantiliners and
baby diapers. However, we plan to add other health and hygiene products to our
product offerings in the coming months and years. We procure all of the goods
that we sell from an independent manufacturer in mainland China and sell them to
consumers internationally through our contracted direct-selling distributors and
wholesale and retail establishments. We generate our revenues in three principal
ways: from the resale at a profit of products manufactured to our
specifications, from the delivery of consulting, management, technical,
marketing, financial and/or other services to our distributors, and from the
license of the Winalite mark and brand to the distributors of our
products.
Our products are
manufactured for us by an independent third party, Shenzhen Yuelang Techno
Industrial Co., Ltd., or the Manufacturer, under a master purchase and supply
agreement, or MPSA, entered into on May 1, 2008. Pursuant to the MPSA,
we
purchase our products from the Manufacturer on an open account basis pursuant to
separate purchase orders and resell those products to certain distributors as
more particularly described below. The prices we pay for the products are set by
the MPSA and may only be changed by agreement of both parties. The Manufacturer
is responsible for marking and labeling the products and their packaging, and
for quality control according to the specifications set forth in the MPSA and
subject to our inspection. With the exception of the PRC market, the
Manufacturer is required to supply exclusively to us and is not permitted to
manufacture or sell the same or functionally equivalent products to any other
party.
We currently sell the products in Malaysia, Taiwan, Indonesia,
Singapore, Thailand, Vietnam, the Philippines, Japan, Korea, USA and Peru,
pursuant to the Distribution Agreements. The Distributors purchase from us the
products we buy from the Manufacturer, and resell those products through direct
marketing and/or other channels in their assigned, exclusive territories. The
Distributors are responsible for promoting sales of our products in their
territories, maintaining adequate sales forces, and other customary functions.
As we expand, we anticipate appointing additional distributors for new
territories.
In addition to
selling our products to our Distributors, we provide certain consulting,
management, technical, marketing, financial and/or other services to our
Distributors in exchange for certain fees pursuant to separate consulting and
management services agreements that we entered into with our Distributors.
Pursuant to separate license agreements entered into with our Distributors, we
also license the Winalite mark and brand and certain other intellectual property
to our Distributors, solely for use in their assigned, exclusive territories,
and solely for the purpose of carrying out their activities under the
Distribution Agreements, for a license fee in an amount equal to 10% of the
monetary amount of the Distributor’s orders for products placed with
us.
We classify the
products that we sell into four categories: (1) ultra-thin regular anionic
sanitary pads; (2) ultra-thin long anionic sanitary pads; (3) anionic
pantiliners; and (4) baby diapers. The sanitary pads, pantiliners and baby
diapers that we sell are patented in the PRC and such patents are owned by the
Manufacturer. These products have been tested by various independent Chinese
agencies, including SGS-CSTC Standards Technical Services Co., Ltd., Shanghai
Textile Industry Technology Intendance, National Paper Product Quality Control
Institution Shanghai Office, and East China Normal University.
Results
of Operations – Year Ended December 31, 2008 Compared to Period Ended
December 31, 2007
We experienced
strong demand for our products and services during the fiscal year 2008, which
resulted in growth in our revenues and net income.
The following are
some financial highlights for the year 2008:
|
·
|
Revenues:
Our revenues were $3,885,374 for fiscal year 2008.
|
|
|
|
|
·
|
Gross
Margin: Gross margin was 45.38% for fiscal year 2008.
|
|
|
|
|
·
|
Operating
Profit: Operating profit was $1,409,738 for fiscal year
2008.
|
|
|
|
|
·
|
Net Income:
Net income was $1,448,310 for fiscal year 2008.
|
|
|
|
|
·
|
Fully
diluted earnings per share were $0.03 for fiscal year
2008.
|
Results
of Operations
From December 31,
2002 until December 28, 2007, when we completed a reverse acquisition
transaction with Winalite, we were a blank check company and did not engage in
any active business operations other than our search for, and evaluation of,
potential business opportunities for acquisition or participation.
Winalite is a
limited company incorporated in Hong Kong on September 10, 2007. As a
result of the acquisition of Winalite, we changed our business plan to market
and sell personal health and hygiene products. We started our
business operations in early May 2008.
Year Ended December 31,
2008
The following
table summarizes the results of our operations during 2008. We were
not operating during 2007 and have therefore provided no data for such
period. In 2007, we incurred administrative expenses primarily
consisting of legal and professional fees in connection with the reverse merger
and related search services. All amounts, other than percentages, are in
thousands of U.S. dollars.
|
|
Item
|
|
Year
Ended
December
31, 2008
|
|
|
|
|
|
In
Thousands
|
As
a percentage of net revenues
|
|
|
|
Revenues
|
$
|
3,885
|
100%
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
$
|
2,122
|
54.63%
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
1,763
|
45.37%
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
expenses
|
$
|
163
|
4.18%
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
$
|
-
|
-%
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
$
|
163
|
4.18%
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
$
|
7
|
0.18%
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
$
|
1,607
|
41.36%
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
$
|
159
|
4.09%
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
1,448
|
37.28%
|
|
Revenues
.
Our sales revenue is generated from
sales and license fee income of our
personal health and hygiene
products
.
Sales revenue was $
3,
885,374 for 2008.
Cost of
Sales
.
Our cost of sales was $
2,122,685
for 2008. As a p
ercentage of sales revenue, the cost of
goods sales during such period was
54.63
%.
Gross
Profit
. Our gross
profit was $
1,
762
,
689
for 2008. Gross profit as a
percentage of sales revenue during such period was
45.37
%.
Administrative
Expenses
.
Our a
dministrative expenses were
$
162,550
for 2008. As a percentage of
sales revenue, administrative expenses during such period was
4.
18
%.
Selling
Expenses
. For 2008, there
were no selling expenses recorded because we commenced our operation in May 2008
a
nd our selling expenses
were immaterial during this period. We expect to incur selling
expenses in the
first
quarter
of
fiscal
year 2009
.
Total
Expenses
.
Our total expenses were $
162,550
for 2008. As a percentage of
sales revenue, total expenses duri
ng such period were
4.
18
%
.
Other
Income.
Our
other income is generated from our license fee receivable, which equals 10% of
the dollar amount of distributor’s orders for products placed with us and
sundry income.
Other income was
$7,021 for 2008.
As a
percentage of sales revenue, the
other income
during such period was
0.18
%.
Income before Income
Taxes
. Income
before income taxes
was $
1,607,160
for 2008. Income before
income taxes as a percentage of sales revenue during such period was
41.36
%.
Income
Taxes
.
United
States
The Company is
subject to the United States of America tax law. No provision for the
US federal income tax has been made as the Company had no taxable income for the
reporting period. The statutory tax rate is 35%.
Hong
Kong
The Company is
subject to profits tax rate of 16.5% on the estimated assessable profits during
the reporting period.
Income
Taxes
.
I
ncome taxes
were $
158,850
for 2008. Income
taxes as a percentage of sales revenue
during such period was
4.09
%.
Net
Income
.
Our net income was $
1,448,310
for 2008
.
Segment
Information
The Company
operates in a single segment, being marketing and selling personal health and
hygiene products. Additional information can be found at Note 13 of
our audited consolidated financial statements contained under Part II, Item 8
"FINANCIAL STATEMENTS" below.
Inflation
Inflation does
not materially affect our business or the results of our
operations.
Liquidity
and Capital Resources
General
As of
December
3
1
, 2008, we had cash and cash equivalents
(excluding restricted cash) of $
307,558
. The following table
pro
vides detailed
information about our net cash flow for 2008.
|
Item
|
|
Cash Flow
Year
Ended
December
3
1
, 2008
|
|
|
Net cash
used in operating activities
|
|
$
|
(255,383)
|
|
|
|
|
|
|
|
|
Net cash
used in investing activities
|
|
$
|
(130,013)
|
|
|
|
|
|
|
|
|
Net cash
provided by financing activities
|
|
$
|
629,949
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
$
|
1,505
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents, beginning of period
|
|
$
|
61,500
|
|
|
|
|
|
|
|
|
Net cash
flow
|
|
$
|
307,558
|
|
Operating
Activities
Net cash used in
operating activities was $(255,383) for 2008. Such amount of cash used in
operating activities was mainly attributable to promoting the sales of our
products during 2008, including product promotion and marketing expenditures as
part of our sales strategy.
Investing
Activities
Net cash used in
investing activities was $(130,013) for 2008. Such amount of cash used in
investing activities was attributable to the vehicle purchasing.
Financing
Activities
Net cash provided
by financing activities was $629,949 for 2008. Such amount of cash provided by
financing activities was attributable to the amount due to our Chairperson and
President, Ms. Hu, as described below.
As of December
31, 2008, we had no bank loans or other debt outstanding other than amounts due
to our Chairperson and President, Ms. Hu, as described below.
Effect of Exchange Rate
Changes on Cash
The effect of
exchange rate changes on the Company’s cash was $1,505 for 2008.
During 2008, our
Chairperson and President, Ms. Hu, provided approximately 5.9 million HK Dollars
as working capital to the Company. The amount is interest-free,
unsecured and repayable on demand. Although we believe that our
currently available working capital will be sufficient to sustain our operations
at our current levels through at least the next twelve months, Ms. Hu is
expected to provide working capital for the year 2009, if
necessary.
Obligations
Under Material Contracts
On May 1, 2008,
we entered into the MPSA with the Manufacturer under which we purchase the
products we sell to our Distributors from the Manufacturer. The MPSA
does not commit us to any specific volume of purchases, and all our purchases
are on the terms and conditions contained in our standard purchase order
form. We purchase products from the Manufacturer on open account, and
have the right to return any non-conforming goods for replacement at the
Manufacturer’s cost.
Outlook
In 2009, we
intend to develop many other distributors in new countries. We expect
to continue to develop new products, and to enter into agreements with
additional distributors for distribution of our products both within China and
other countries. We expect that our revenues will continue to
increase as we expand into new markets and increase our market share within
existing markets.
Critical
Accounting Policies
Basis of
consolidation
The consolidated
financial statements include the accounts of the Company and its
subsidiary. All significant inter-company accounts and transactions
have been eliminated in consolidation.
Basic and diluted earnings
per share
The Company
reports basic earnings per share in accordance with SFAS No. 128, “Earnings Per
Share”. Basic earnings per share is computed using the weighted
average number of shares outstanding during the period presented. The
weighted average number of shares of the Company represents the common stock
outstanding during the reporting period.
During the
reporting period, the Company had no dilutive
instruments. Accordingly, the basic and diluted earnings per share
are the same.
Income
taxes
The Company uses
the asset and liability method of accounting for income taxes pursuant to SFAS
No. 109 “Accounting for Income Taxes”. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences between the
financial statements carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.
Off-balance sheet
arrangements
The Company does
not have any off-balance sheet arrangements.
Revenue
recognition
Revenue from
sales of the products and license fee are recognized when the
significant risks and rewards of ownership have been transferred to the buyer at
the time when the products are delivered to the customer, the sales price is
fixed or determinable and collection is reasonably assured.
Allowance of doubtful
accounts
The Company
establishes an allowance for doubtful accounts based on management’s experience
on same industry and assessment of the collectibility of trade
receivables. A considerable amount of judgment is required in
assessing the amount of the allowance.
During the
reporting period, the management establishes the general provisioning policy to
make allowance equivalent to 100% of gross amount of trade receivables due over
1 year. Additional specific provision is made against trade
receivables aged less than 1 year to the extent which they are considered to be
doubtful. Bad debts are written off when identified.
Comprehensive
income
The Company has
adopted Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting
Comprehensive Income”, which establishes standards for reporting and display of
comprehensive income, its components and accumulated
balances. Components of comprehensive income include net income and
foreign currency translation adjustments.
Administrative
expenses
Administrative
expenses consist of office expenses, legal and professional fees, traveling
expense and salaries and allowance which are incurred at the administrative
level and exchange difference.
Cash
equivalents
Cash equivalents
comprise highly liquid investments with initial maturities of three months or
less.
Property,
plant and equipment
Property, plant
and equipment are stated at cost less accumulated depreciation. Cost
represents the purchase price of the asset and other costs incurred to bring the
asset into its existing use.
Depreciation is
provided on straight-line basis over their estimated useful lives. The
principal depreciation rate is 20% with nil residual value.
Maintenance or
repairs are charged to expense as incurred. Upon sale or disposition,
the applicable amounts of asset’s cost and accumulated depreciation are removed
from the accounts and the net amount less proceeds from disposal is charged or
credited to income.
Foreign currency
translation
The functional
currency of the Company is Hong Kong dollars (“HKD”). The Company
maintains its financial statements in the functional
currency. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet
date. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or
losses arising from foreign currency transactions are included in the
determination of net income.
For financial
reporting purposes, the financial statements of the Company which are prepared
using the functional currency have been translated into United States dollars
(“US dollars”). Assets and liabilities are translated at the exchange
rates at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates. Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders’
equity. The exchange rates in effect at December 31, 2008 and 2007
were HKD 1.00 for $0.129 and HKD1.00 for $0.1281 respectively. There
is no significant fluctuation in exchange rate for the conversion of HKD to US
dollars after the balance sheet date.
Fair value of financial
instruments
The carrying
values of the Company’s financial instruments, including trade receivables,
trade payables, accrued expenses and amount due to a director approximate their
fair values due to the short-term maturity of such instruments.
It is
management’s opinion that the Company is not exposed to significant interest,
price or credit risks arising from these financial instruments.
Concentrations on credit
risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents and trade receivables. As of
December 31, 2008, su
bstantially all of the
Company
’
s cash and cash equivalents were held by
major financial institutions in Hong Kong, which management believes are of high
credit quality. With respect to trade receivables, the Company does
not require collateral for trade
r
eceivables.
During the reporting periods, customers
represented 10% or more of the Company
’
s consolidated sales
are:
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
|
2007
(day of
|
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Pt.
Winalite Indonesia*
|
|
$
|
1,679,416
|
|
|
$
|
-
|
|
|
|
Winalite
International Inc.*
|
|
|
447,801
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,127,217
|
|
|
$
|
-
|
|
Details of customers for 10% or more of
the Company
’
s trade receivables
are:
|
|
|
|
As
of December 31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Pt.
Winalite Indonesia*
|
|
$
|
1,190,062
|
|
|
$
|
-
|
|
|
|
Winalite
International Inc.*
|
|
|
188,615
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,378,677
|
|
|
$
|
-
|
|
|
|
*
|
All these customers are
independent third party distributors as represented by management of the
Company.
|
Recently
issued accounting pron
ouncements
SFAS No. 159, “
The Fair Value Option for Financial
Assets and Financial Liabilities”
In February 2007, the Financial
Accounting Standards Board (“
FASB”
) issued SFAS No.
159, “
The Fair Value Option for Financial
Assets and Financial Liabilities
- Including an Amendment of FASB
Statement No.
115”
. SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. Entities that elect the fair value option will report
unrealized
g
ains and losses in earnings at each
subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS No. 159
also establishes presentation and disclosure requirements to facilitate
compariso
n
s between companies that choose
different measurement attributes for similar assets and
liabilities. The requirements of SFAS No. 159 are effective for
fiscal year beginning January 1, 2008. The adoption of this
statement has no material effect on the C
o
mpany's financial
statements.
SFAS No. 141R, “
Business
Combinations”
In December 2007, the FASB issued SFAS
No. 141 (Revised) “
Business
Combinations”
SFAS No. 141 (Revised) establishes
principles and requirements for how the a
cquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the g
o
odwill acquired in the business
combination and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The guidance will become effective for the
fiscal
year beginning after December 15, 2008.
The Company is in the process of evaluating the impact that SFAS No. 141
(Revised) will have on its financial statements upon adoption.
SFAS No. 160,
“Non-controlling (“Minority”) Interests in Consolidated Financial
Statements”
In December 2007,
the FASB issued SFAS No. 160 “Non-controlling Interests in Consolidated
Financial Statements-an amendment of ARB No. 51”. SFAS No. 160 establishes
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. The guidance will become
effective for the fiscal year beginning after December 15, 2008. The management
is in the process of evaluating the impact that SFAS No. 160 will have
on its financial statements upon adoption.
SFAS No. 161,
"Disclosure about Derivative Instruments and Hedging Activities"
In March 2008,
the FASB issued SFAS No.161 "Disclosures about Derivative Instruments and
Hedging Activities – an amendment to FASB Statement No.133". SFAS No.161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under FASB
Statement No.133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008, with early adoption
encouraged. The management is in the process of evaluating the impact that SFAS
No. 161 will have on the Company's financial statements upon
adoption.
Off-Balance
Sheet Arrangements
We do not have
any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Item 8. Financial Statements and Supplementary
Data.
Hong
Kong Winalite Group, Inc.
Consolidated
Financial Statements
For the year
ended December 31, 2008
(Stated in US
dollars)
Hong
Kong Winalite Group, Inc.
Consolidated
Financial Statements
Index
to Consolidated Financial Statements
|
|
Pages
|
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
22
|
|
|
|
|
|
|
Consolidated
Statements of Income and Other Comprehensive Income
|
23
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
24
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
25
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
26
|
|
|
|
|
|
|
Notes to
Consolidated Financial Statements
|
27 -
35
|
|
Report
of Independent Registered Public Accounting Firm
To the Director
and Stockholders of
Hong Kong
Winalite Group, Inc.
We have audited
the accompanying consolidated balance sheets of Hong Kong Winalite Group, Inc.
(the “Company”) as of December 31, 2008 and 2007, and the related consolidated
statements of income and other comprehensive income, stockholders’ equity and
cash flows for the year ended December 31, 2008 and for the period from
September 10, 2007 (date of inception) to December 31, 2007. These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our
audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company as of December 31,
2008 and 2007, and the results of their operations and their consolidated cash
flows for the year ended December 31, 2008 and for the period from September 10,
2007 (date of inception) to December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America.
/s/
PKF
Certified Public
Accountants
Hong Kong,
China
March 30, 2009
Hong
Kong Winalite Group, Inc.
Consolidated
Statements of Income and Other Comprehensive Income
(Stated
in US Dollars)
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
2007
(day of
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,532,423
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
License fee
income
|
|
|
352,951
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3,885,374
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
(2,122,685
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,762,689
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
expenses
|
|
$
|
(162,550
|
)
|
|
$
|
(644,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from operations
|
|
$
|
1,600,139
|
|
|
$
|
(644,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
7,021
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before income taxes
|
|
$
|
1,607,160
|
|
|
$
|
(644,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes - Note 5
|
|
|
(158,850
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
1,448,310
|
|
|
$
|
(644,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
3,162
|
|
|
|
2,092
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income/(expense)
|
|
$
|
1,451,472
|
|
|
$
|
(642,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss)
per share: basic and diluted - Note 6
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
basic
and diluted
|
|
|
49,740,933
|
|
|
|
48,061,626
|
|
See accompanying
Notes to Consolidated Financial Statements
Hong
Kong Winalite Group, Inc.
Consolidated
Balance Sheets
(Stated
in US Dollars)
|
|
|
As
of December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Trade
receivables (net of allowance on doubtful account
|
|
|
|
|
|
|
|
as
$Nil in 2008 and 2007)
|
|
$
|
2,622,583
|
|
|
$
|
-
|
|
|
Other
receivables and prepayments - Note 7
|
|
|
88,607
|
|
|
|
7,175
|
|
|
Cash
and cash equivalents
|
|
|
307,558
|
|
|
|
61,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,018,748
|
|
|
|
68,675
|
|
|
Motor
vehicle, net - Note 8
|
|
|
130,591
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
3,149,339
|
|
|
$
|
68,675
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY / (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
$
|
1,127,986
|
|
|
$
|
-
|
|
|
Other
payables
|
|
|
207,812
|
|
|
|
-
|
|
|
Accrued
expenses
|
|
|
21,286
|
|
|
|
520,320
|
|
|
Amount
due to a director - Note 9
|
|
|
755,466
|
|
|
|
121,888
|
|
|
Tax
payable – Note 5
|
|
|
143,336
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,255,886
|
|
|
|
642,208
|
|
|
Deferred
taxes - Note 5
|
|
|
15,514
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
2,271,400
|
|
|
|
642,208
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENT AND
CONTINGENCIES
- Note 10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY / (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Preferred
stock: par value $0.001 per share;
|
|
|
|
|
|
|
|
|
|
authorized
1,000,000 shares; none issued and outstanding
|
|
|
|
|
|
|
|
|
|
Common
stock: par value $0.001 per share - Note 11
|
|
|
|
|
|
|
|
|
|
authorized
500,000,000 shares; issued and
outstanding
49,740,933 shares
|
|
|
49,741
|
|
|
|
49,741
|
|
|
Additional
paid in capital
|
|
|
19,079
|
|
|
|
19,079
|
|
|
Accumulated
other comprehensive income
|
|
|
5,254
|
|
|
|
2,092
|
|
|
Retained
earnings/(accumulated deficit)
|
|
|
803,865
|
|
|
|
(644,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY / (DEFICIT)
|
|
|
877,939
|
|
|
|
(573,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
3,149,339
|
|
|
$
|
68,675
|
|
See accompanying
Notes to Consolidated Financial Statements
Hong
Kong Winalite Group, Inc.
Consolidated
Statements of Cash Flows
(Stated
in US Dollars)
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
2007
(day of
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
1,448,310
|
|
|
$
|
(644,445
|
)
|
|
Adjustment
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
15,514
|
|
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
(2,610,998
|
)
|
|
|
-
|
|
|
Other
receivables and deposits
|
|
|
(81,072
|
)
|
|
|
-
|
|
|
Trade
payables
|
|
|
1,123,003
|
|
|
|
-
|
|
|
Other
payables
|
|
|
206,894
|
|
|
|
-
|
|
|
Accrued
expenses
|
|
|
(500,370
|
)
|
|
|
522,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax payable
|
|
|
143,336
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
flows used in operating activities
|
|
|
(255,383
|
)
|
|
|
(122,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Payments
to acquire motor vehicle
|
|
|
(130,013
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
flows used in financing activities
|
|
|
(130,013
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of shares of Winalite
|
|
|
-
|
|
|
|
61,645
|
|
|
Advance
from a director
|
|
|
629,949
|
|
|
|
122,312
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
flows provided by financing activities
|
|
|
629,949
|
|
|
|
183,957
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
|
1,505
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
246,058
|
|
|
|
61,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - beginning of year/period
|
|
|
61,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - end of year/period
|
|
$
|
307,558
|
|
|
$
|
61,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See accompanying
Notes to Consolidated Financial Statements
Hong
Kong Winalite Group, Inc.
Consolidated
Statements of Stockholders’ Equity
(Stated
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
(Accumulated
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
|
|
|
other
|
|
|
deficit)/
|
|
|
|
|
|
|
|
No.
of
|
|
|
|
|
|
paid
in
|
|
|
comprehensive
|
|
|
retained
|
|
|
|
|
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
income
|
|
|
earnings
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares for RTO
|
|
|
48,000,000
|
|
|
$
|
48,000
|
|
|
$
|
(48,000
|
)
|
|
$
|
-
|
|
|
$
|
--
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares of Winalite
|
|
|
-
|
|
|
|
-
|
|
|
|
61,645
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
|
1,740,933
|
|
|
|
1,741
|
|
|
|
5,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(644,445
|
)
|
|
|
(644,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,092
|
|
|
|
-
|
|
|
|
2,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
49,740,933
|
|
|
|
49,741
|
|
|
|
19,079
|
|
|
|
2,092
|
|
|
|
(644,445
|
)
|
|
|
(573,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,448,310
|
|
|
|
1,448,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,162
|
|
|
|
-
|
|
|
|
3,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
49,740,933
|
|
|
$
|
49,7419
|
|
|
$
|
19,079
|
|
|
$
|
5,254
|
|
|
$
|
803,865
|
|
|
$
|
877,939
|
|
See accompanying
Notes to Consolidated Financial Statements
1. Corporate
information
Hong Kong
Winalite Group, Inc. (the “Company”) was incorporated in the State of Nevada on
January 22, 1998. The Company’s shares are quoted for trading on the
Over-The-Counter Bulletin Board in the United States of America.
On October 30,
2007, the then subsidiary of the Company, The Hong Kong Winalite Group Limited
(“Winalite”), a limited company incorporated in Hong Kong, entered into a
financial advisory agreement (“FAA”), with HFG International Limited (“HFG), a
Hong Kong corporation. Under the FAA, HFG agreed to provide Winalite
with financial advisory and consulting services in implementing a restructuring
plan, facilitating Winalite’s going public transaction, and advising Winalite on
matters related to Winalite’s post-going-public-transaction
period. In consideration for these services, HFG was paid a fee of
$80,000 after completion of a due diligence investigation of Winalite and a fee
of $400,000 upon the closing of the going public transaction, $400,000 of which
was paid during 2008. Winalite also granted HFG certain registration
rights. Timothy P. Halter, who immediately prior to consummation of
the transactions contemplated by the Share Exchange Agreement beneficially owned
approximately 87.5% of the Company issued and outstanding capital stock, is the
principal stockholder and Chief Financial Officer of HFG.
Pursuant to the
Share Exchange Agreement dated December 28, 2007, the Company
acquired 100% ownership interest in Winalite on September 10, 2007,
in consideration for the issuance of the Company’s 48,000,000 common shares (as
adjusted for a 7.352380958-for-1 reverse stock split on January 7, 2008 (the
“Reverse Stock Split”)) to the former stockholders of Winalite (“Winalite Former
Shareholders”).
The aforesaid
transaction was completed on December 28, 2007 and thereafter Winalite became a
wholly owned subsidiary of the Company and Winalite Former Stockholders became
the majority stockholders of the Company. This transaction
constituted a reverse takeover transaction (“RTO”).
On May 1, 2008,
the Company entered into a master purchase and supply agreement ("MPSA") with
Shenzhen Yuelang Techno Industrial Company Limited ("Yuelang"), an independent
third party. Pursuant to the MPSA, the Company will purchase certain products
from Yuelang at prices set out in the MPSA. The MPSA has an indefinite term but
may be terminated on six months’ notice by either party or upon specified
events, such as the insolvency of either party.
On May 1, 2008,
the Company entered into the following agreements with independent third party
distributors ("Distributors"), namely the exclusive international distribution
agreements ("Distribution Agreements"), consulting and management services
agreements ("Services Agreements") and license agreements ("License
Agreements"). Pursuant to the Distribution Agreements, the
Distributors will purchase products from the Company and resell those products
through direct marketing and/or other channels in their assigned and exclusive
territories. The Distribution Agreements have an initial term of five years,
which will be automatically renewed for additional one year period unless the
Company indicates in writing its desire to the contrary more than thirty days
before the end of the term. Pursuant to the Services Agreements, the Company
agreed to provide certain consulting and management services to the Distributors
at a pre-determined hourly rate agreed by both parties. The Services
Agreements may be terminated at any time by the Company, and upon sixty days’
advance notice by the Distributors, by written notice delivered to the
non-terminating party. Pursuant to the License Agreements, the
Company agreed to license to each Distributor certain intellectual property
solely for use in their assigned and exclusive territories in connection with
the marketing, sale and distribution of the Company’s products. Each Distributor
agreed to pay the Company a license fee in an amount equal to 10% of the
monetary amount of Distributor’s orders for the products placed with the
Company. The License Agreements will expire when the Distribution Agreements are
terminated.
2. Description
of business
The Company is a
holding company that operates through its direct, wholly-owned Hong Kong
subsidiary, Winalite. The Company had been in development stage until
May 2008. Following the RTO as detailed in Note 1, the Company
through its subsidiary commenced its business in marketing and selling personal
health and hygiene products in May 2008.
3. Basis
of presentation
The consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles in the
United States of
America
(“
U.S. GAAP”
).
4. Summary
of significant accounting policies
Basis of
consolidation
The consolidated
financial statements include the accounts of the Company and its
subsidiary. All significant inter-company accounts and transactions
have been eliminated in consolidation.
Basic and diluted earnings
per share
The Company
reports basic earnings per share in accordance with SFAS No. 128, “Earnings Per
Share”. Basic earnings per share is computed using the weighted
average number of shares outstanding during the period presented. The
weighted average number of shares of the Company represents the common stock
outstanding during the reporting period.
During the
reporting period, the Company had no dilutive
instruments. Accordingly, the basic and diluted earnings per share
are the same.
Income
taxes
The Company uses
the asset and liability method of accounting for income taxes pursuant to SFAS
No. 109 “Accounting for Income Taxes”. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences between the
financial statements carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.
Off-balance sheet
arrangements
The Company does
not have any off-balance sheet arrangements.
Revenue
recognition
Revenue from
sales of the products and license fee are recognized when the significant risks
and rewards of ownership have been transferred to the buyer at the time when the
products are delivered to the customer, the sales price is fixed or determinable
and collection is reasonably assured.
Allowance of doubtful
accounts
The Company
establishes an allowance for doubtful accounts based on management’s experience
on same industry and assessment of the collectibility of trade
receivables. A considerable amount of judgment is required in
assessing the amount of the allowance.
During the
reporting period, the management establishes the general provisioning policy to
make allowance equivalent to 100% of gross amount of trade receivables due over
1 year. Additional specific provision is made against trade
receivables aged less than 1 year to the extent which they are considered to be
doubtful. Bad debts are written off when identified.
4. Summary
of significant accounting policies (cont’d)
Comprehensive
income
The Company has
adopted Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting
Comprehensive Income”, which establishes standards for reporting and display of
comprehensive income, its components and accumulated
balances. Components of comprehensive income include net income and
foreign currency translation adjustments.
Administrative
expenses
Administrative
expenses consist of office expenses, legal and professional fees, traveling
expense and salaries and allowance which are incurred at the administrative
level and exchange difference.Cash equivalents.
Cash
equivalents
Cash equivalents
comprise highly liquid investments with initial maturities of three months or
less.
Property,
plant and equipment
Property, plant
and equipment are stated at cost less accumulated depreciation. Cost
represents the purchase price of the asset and other costs incurred to bring the
asset into its existing use.
Depreciation is
provided on straight-line basis over their estimated useful lives. The
principal depreciation rate is 20% with nil residual value.
Maintenance or
repairs are charged to expense as incurred. Upon sale or disposition,
the applicable amounts of asset’s cost and accumulated depreciation are removed
from the accounts and the net amount less proceeds from disposal is charged or
credited to income.
Foreign currency
translation
The functional
currency of the Company is Hong Kong dollars (“HKD”). The Company
maintains its financial statements in the functional
currency. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet
date. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or
losses arising from foreign currency transactions are included in the
determination of net income.
For financial
reporting purposes, the financial statements of the Company which are prepared
using the functional currency have been translated into United States dollars
(“US dollars”). Assets and liabilities are translated at the exchange
rates at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates. Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders’
equity. The exchange rates in effect at December 31, 2008 and 2007
were HKD 1.00 for $0.129 and HKD1.00 for $0.1281 respectively. There
is no significant fluctuation in exchange rate for the conversion of HKD to US
dollars after the balance sheet date.
Fair value of financial
instruments
The carrying
values of the Company’s financial instruments, including trade receivable, trade
payables, accrued expenses and amount due to a director approximate their fair
values due to the short-term maturity of such instruments.
It is
management’s opinion that the Company is not exposed to significant interest,
price or credit risks arising from these financial instruments.
4. Summary
of significant accounting policies (cont’d)
Concentrations
on credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents and trade receivables. As of
December 31, 2008,
substantially all of the Company
’
s cash and cash equivalents were held by
major financial institutions in
Hong Kong
, which management believes are of high
credit quality. With respect to trade receivables, the Company does
not require collateral for tra
d
e receivables.
During the reporting periods, customers
represented 10% or more of the Company
’
s consolidated sales
are:
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
2007
(day of
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Pt.
Winalite Indonesia*
|
|
$
|
1,679,416
|
|
|
$
|
-
|
|
|
Winalite
International Inc.*
|
|
|
447,801
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,127,217
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of customers for 10% or
mo
re of the
Company
’
s trade receivables
are:
|
|
|
|
As of December 31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Pt.
Winalite Indonesia*
|
|
$
|
1,190,062
|
|
|
$
|
-
|
|
|
|
Winalite
International Inc.*
|
|
|
188,615
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,378,677
|
|
|
$
|
-
|
|
*
All these customers are independent
third party distributors as represented by management of the
Company.
Recently
issued accounting
pronouncements
SFAS No. 159, “
The Fair Value Option for Financial
Assets and Financial Liabilities”
In February 2007, the Financial
Accounting Standards Board (“
FA
SB”
) issued SFAS No.
159, “
The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement
No.
115”
. SFAS No. 159 permits
entities to choose to measure many financial instruments and certai
n
other items at fair
value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions.
SFAS No. 159 also establishes
presentation and disclosure requirements to facilitate comparisons between
companies that choose different measurement attributes for similar assets and
liabilities. The requirements of SFAS No. 159 are effective for
fiscal
y
ear beginning January 1,
2008. The adoption of this statement has no material effect on the
Company's financial statements.
4. Summary
of significant accounting policies (cont’d)
Recently
issued accounting pronouncements
(cont
’
d)
SFAS No. 141R, “
Busi
ness Combinations”
In December 2007, the FASB issued SFAS
No. 141 (Revised) “
Business
Combinations”,
SFAS No. 141
(Revised) establishes principles and requirements for how the acquirer of a
business recognizes and measures in it
s financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. The statement also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and de
t
ermines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The guidance will become effective for the
fiscal year beginning after December 15, 2008.
The Company is in the
process of evaluating the impact that SFAS No. 141 (Revised) will have
on its financial statements upon adoption.
SFAS No. 160,
“Non-controlling (“Minority”) Interests in Consolidated Financial
Statements”
In December 2007,
the FASB issued SFAS No. 160 “Non-controlling Interests in Consolidated
Financial Statements-an amendment of ARB No. 51”, SFAS No. 160 establishes
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. The guidance will become
effective for the fiscal year beginning after December 15, 2008. The management
is in the process of evaluation the impact that SFAS No. 160 will
have on its financial statements upon adoption.
SFAS No. 161,
"Disclosure about Derivative Instruments and Hedging Activities"
In March 2008,
the FASB issued SFAS No.161 "Disclosures about Derivative Instruments and
Hedging Activities – an amendment to FASB Statement No.133". SFAS No.161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under FASB
Statement No.133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008, with early adoption
encouraged. The management is in the process of evaluation the impact
that SFAS No. 161 will have on the Company's financial
statements upon adoption.
5. Income
taxes
United
States
The Company is
subject to the United States of America tax law. No provision for the
US federal income tax has been made as the Company had no taxable income for the
reporting period. The statutory tax rate is 35%.
Hong
Kong
The Company’s
subsidiary operating in Hong Kong is subject to profits tax rate of 16.5%
(2007:17.5%) on the estimated assessable profits.
The components of
the provision for income taxes from continuing operations are:
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
2007
(day of
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Current
taxes – Hong Kong
|
|
$
|
143,336
|
|
|
$
|
-
|
|
|
Deferred
taxes – Hong Kong
|
|
|
15,514
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
158,850
|
|
|
$
|
-
|
|
The effective
income tax expenses differs from the Hong Kong statutory income tax rate of
16.5% (2007: 17.5%) from continuing operations in the Hong Kong as
follows:
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
2007
(day of
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Provision
for income tax at Hong Kong statutory rate of 16.5% (2007:
17.5%)
|
|
$
|
265,182
|
|
|
$
|
(112,776
|
)
|
|
(Reversal
of)/Valuation allowance
|
|
|
(106,332
|
)
|
|
|
112,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
158,850
|
|
|
$
|
-
|
|
In July 2006, the
FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“FIN 48”). This interpretation requires recognition and measurement
of uncertain income tax positions using a “more-likely-than-not”
approach. The Company adopted FIN 48 on September 10, 2007 (day of
inception). The management evaluated the Company’s tax positions and
considered that no additional provision for uncertainty in income taxes is
necessary as of December 31, 2008.
Deferred tax
asset (liability) as of December 31, 2008 and 2007 are composed of the
following:
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
2007
(day of
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Current
deferred tax asset:
|
|
|
|
|
|
|
|
Operating
losses available for future periods
|
|
$
|
-
|
|
|
$
|
112,776
|
|
|
Valuation
allowance
|
|
|
-
|
|
|
|
(112,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
deferred tax liability:
|
|
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
$
|
(15,514
|
)
|
|
$
|
-
|
|
6. Earnings/(loss)
per share
During the
reporting period, the Company did not issue any dilutive
instruments. Accordingly, the reported basic and diluted
earnings/(loss) per share are the same.
The per share
data reflects the recapitalization of stockholders’ equity as of the RTO
occurred as of the first period presented and has been adjusted for the Reverse
Stock Split effected in January 2008.
7. Other
receivables and prepayments
|
|
|
As
of December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Deposits
and prepayments
|
|
$
|
81,432
|
|
|
$
|
-
|
|
|
Other
receivables
|
|
|
7,175
|
|
|
|
7,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,607
|
|
|
$
|
7,175
|
|
8. Property,
Plant and Equipment, net
|
|
|
As
of December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor vehicle
|
|
$
|
130,591
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,591
|
|
|
$
|
-
|
|
9. Amount
due to a director
The amount is
interest-free, unsecured and repayable on demand.
10. Commitment
and contingencies
The Company has
no commitments or contingent liabilities as of December 31, 2008.
11. Common
stock and additional paid-in capital
|
|
|
Common
stock
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
|
shares
as
|
|
|
|
|
|
|
|
|
|
|
adjusted
for
|
|
|
|
|
|
Additional
|
|
|
|
|
Reverse
|
|
|
|
|
|
paid-in
|
|
|
|
|
Stock
Split
|
|
|
Amount
|
|
|
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares for RTO
|
|
|
48,000,000
|
|
|
$
|
48,000
|
|
|
$
|
(48,000
|
)
|
|
Issuance of
shares of Winalite
|
|
|
-
|
|
|
|
-
|
|
|
|
61,645
|
|
|
Recapitalization
|
|
|
1,740,933
|
|
|
|
1,741
|
|
|
|
5,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007 and 2008
|
|
|
49,740,933
|
|
|
$
|
49,741
|
|
|
$
|
19,079
|
|
|
|
(a)
|
On December
28, 2007, the Company issued 48,000,000 shares as adjusted for Reverse
Stock Split of common stock, par value $0.001 per share, to Winalite
Former Stockholders in exchange for 100% of the outstanding capital stock
of Winalite.
|
|
|
|
|
|
|
(b)
|
The
Company’s issued and outstanding number of common stock immediately prior
to the RTO is 1,740,933 shares as adjusted for Reverse Stock Split are
accounted for at $7,175 of net book value at the time of the
RTO.
|
|
|
|
|
|
|
(c)
|
On January
7, 2008, the Company implemented a 7.352380958-for-1 Reverse Stock
Split. Immediately following the Reverse Stock Split, the
Company has 49,740,933 shares of common stock issued and
outstanding. The effect of Reverse Stock Split has been
retroactively reflected in these financial statements. All
references to weighted average shares outstanding and per share amounts
included in the accompanying financial statements and notes reflect the
Reverse Stock Split and its retroactive
effects.
|
12. Related
party transactions
Apart from the
transactions as disclosed in note 1 and note 9 to the financial statements, the
Company had no other material transactions with its related parties during the
reporting period.
13. Segment
information
The Group
operates in a single segment, being marketing and selling personal health and
hygiene products.
All of the
Group’s long-lived assets are located in Hong Kong. Geographic
information about the revenue classified based on location of the customers, is
set out as follows:
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
September
10,
|
|
|
|
|
|
|
|
2007
(date of
|
|
|
|
|
Year
ended
|
|
|
inception)
to
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
$
|
1,526,852
|
|
|
$
|
-
|
|
|
Japan
|
|
|
150,767
|
|
|
|
-
|
|
|
Malaysia
|
|
|
186,104
|
|
|
|
-
|
|
|
Peru
|
|
|
212,077
|
|
|
|
-
|
|
|
The
Philippines
|
|
|
407,126
|
|
|
|
-
|
|
|
Singapore
|
|
|
58,938
|
|
|
|
-
|
|
|
Taiwan
|
|
|
320,630
|
|
|
|
-
|
|
|
Thailand
|
|
|
272,771
|
|
|
|
-
|
|
|
USA
|
|
|
220,461
|
|
|
|
-
|
|
|
Vietnam
|
|
|
176,697
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,532,423
|
|
|
$
|
-
|
|
14. Subsequence
Event
On March 30,
2009, the directors of the Company adopted an equity incentive plan (the “EIP”)
that provides for the issuance of stock options (both incentive and
nonstatutory), restricted stock, restricted stock units, stock appreciation
rights, performance units, performance shares and other share-based awards in
order to retain, attract and motivate officers, employees, directors,
distributors and consultants. The effective date of the EIP will be
April 1, 2009, and following its effectiveness, up to 4,295,000 shares of the
Company common stock will be available for issuance
thereunder.
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Item
9A(T). Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
The Company
conducted an evaluation under the supervision of the Chief Executive Officer and
Chief Financial Officer (its principal executive officer and principal financial
officer, respectively), regarding the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of December 31, 2008. Based on the aforementioned evaluation,
management has concluded that the Company’s disclosure controls and procedures
were effective as of December 31, 2008.
Management’s
Internal Control Over Financial Reporting
Management of the
Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial
reporting has been designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles generally accepted in the United States of America.
The Company’s
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of assets of the Company; provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and
expenditures are being made only in accordance with authorization of management
and directors of the Company; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the Company’s
financial statements.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement
preparation and presentation. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting at December 31, 2008. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control–Integrated Framework. Based on that assessment
under those criteria, management has determined that, at December 31, 2008, the
Company’s internal control over financial reporting was effective.
This annual
report does not include an attestation report of our Company’s registered
independent public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our Company’s
registered public accounting firm pursuant to temporary rules of the SEC that
permit our Company to provide only management’s report in this annual
report.
Changes
in Internal Control Over Financial Reporting
There have been
no changes in our Company’s internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during
the fourth quarter of fiscal year 2008 that have materially affected, or are
reasonably likely to materially affect, our Company’s internal control over
financial reporting.
Item 9B. Other
Information.
On March 30, 2009
our board of directors adopted an equity incentive plan, or EIP, that provides
for the issuance of stock options (both incentive and nonstatutory), restricted
stock, restricted stock units, stock appreciation rights, performance units,
performance shares and other share-based awards in order to retain, attract and
motivate officers, employees, directors, distributors and
consultants. The effective date of the EIP will be April 1, 2009, and
following its effectiveness, up to 4,295,000 shares of our common stock will
available for issuance thereunder.
Item
10. Directors, Executive Officers and Corporate Governance.
The following
table sets forth the name and position of each of our current executive officers
and directors.
|
Name
|
Age
|
Position
|
|
Jingjun
Hu
|
41
|
Director
(Chairperson) and President
|
|
Hongxing
Gao
|
46
|
Director
and Chief Executive Officer
|
|
Jianquan
Li
|
51
|
Chief
Financial Officer
|
|
Wei
Li
|
33
|
Director
and Secretary
|
|
Shusheng
Guo
|
41
|
Director
|
JINGJUN HU.
Ms. Hu
became our Chairperson on December 28, 2007 and became our President on April 1,
2008. Ms. Hu also served as our Chief Executive Officer from April 1, 2008
until January 1, 2009. Ms. Hu has 13 years of executive experience.
Before founding Winalite in September 2007, Ms. Hu was a Vice President of
Guangzhou Yashi Investment Development Co., Ltd, an investment company, from
September 2000 to September 2007, where she was responsible for sales strategy
and human resources. Prior to that, she was a Vice President of Shenzhen
Yashi Clothing and Hats Co., Ltd from March 1996 to August 2000, where she also
was responsible for sales strategy and human resources, an Export Manager of
Guangzhou Huachuan Silk Co., Ltd from August 1992 to November 1995 and an
Engineer at Guangzhou Silk Dyeing Co., Ltd from August 1990 to July 1992.
Ms. Hu has a Bachelor in Dyeing from Zhejiang Science-Technology
University.
HONGXING GAO.
Dr.
Gao became our Chief Executive Officer and a Director on January 1,
2009. Dr. Gao has more than 20 years of working experience in
finance. He is a senior economist, and holds the qualification of
senior financial manager from the China Securities Regulatory Commission and the
China Banking Regulatory Commission. Dr. Gao is a mentor and
specially appointed professor of the graduate faculty of the Beijing
International Business and Economics University and the People’s Bank of
China. Dr. Gao is also a committee member of the Shenzhen Senior
Title Committee. Before joining the Company, Dr. Gao was a vice
leader in restructuring at Shantou Commercial Bank from 2007 to November
2008. Prior to that, Mr. Gao was a Chairman and CEO of Chinalion
Securities from 2003 to 2006, and Vice President of Shenzhen Branch Guotai Junan
Securities from 2000 to 2003. Dr. Gao holds a Doctor Degree in
Management and a Master Degree in Engineering from Zhejiang
University.
JIANQUAN LI.
Mr. Li
became our Chief Financial Officer on April 1, 2008. He has worked as a
senior financial manager in China for more than 13 years. From
February 2007 to March 2008, Mr. Li served as an overseas financial director of
the Manufacturer. Before joining the Manufacturer, Mr. Li was the
Vice President of Guangzhou Banju Lighting Company from October 2004 to January
2007, where he was responsible for financing activities, the Financial Director
and President of SOUPB International (China) Company, a stereo system company,
from March 2000 to September 2004, the Accounting Manager of Dong Fang Pearl
Industrial Group Company, a clothing company, from July 1998 to February 2000,
and the Accounting and Office Senior Manager of Panyu Wan Jie Clothing Company
from October 1994 to June 1998. Mr. Li has a Master Degree in
Economics from Guangdong Social Sciences Institute.
WEI LI.
Mr. Li
became a Director and our Secretary on November 24, 2008, and has 10 years of
corporate financial experience. Before joining the Company, Mr. Li was a finance
manager of Guangzhou Yiquan Culture Media Co. from January 2005 to May 2008.
Prior to that, Mr. Li was a senior finance supervisor of Shenzhen KFC Ltd. from
October 2002 to December 2004, and a finance supervisor of PARKnSHOP Southern
China Ltd., one of the largest supermarket chains in China, from July 1998 to
September 2002. Mr. Li has a Bachelor’s degree in Economics from Shenzhen
University.
SHUSHENG
GUO.
Mr. Guo became a Director on May 1, 2008. Mr. Guo has
more than nine years of executive experience. From June 2004 to April
2008, Mr. Guo served as a general manager of Spain Jinxin Trading Company, a
company engaged in the business of importing apparel and shoes. Before
joining Spain Jinxin Trading Company, Mr. Guo was the Vice General Manager of
Guangdong Jinjiufang Liquor Co., Ltd. from December 1999 to June
2004. Mr. Guo holds a Bachelor’s degree from Guangzhou Leader
Training College.
Directors are
elected until their successors are duly elected and qualified.
Family
Relationships
There are no
family relationships among our directors or executive officers.
Section
16(a) Beneficial Ownership Reporting Compliance
The Company is
not subject to Section 16(a) of the Exchange Act.
Code
of Ethics
We have a code of
ethics that applies to members of our board of directors, officers, managers,
supervisors, secretaries reporting to officers or mangers, and other employees
who may be selected from time to time. The code of ethics addresses, among other
things, ethical conduct, conflicts of interest, compliance with laws,
regulations and policies, including disclosure requirements under the federal
securities laws, confidentiality, trading on inside information, and reporting
of violations of the code. A copy of the code of ethics has been filed as
Exhibit 14.1 to our Current Report on Form 8-K filed on January 4, 2008. We are
in the process of building up the Company website. Once our website is
available, we will make the code of ethics available on the
website. Thereafter, any amendments or waivers to the code of ethics
will be posted on our website within four business days of such amendment or
waiver. Until such time, however, any amendments or waivers to our code of
ethics with respect to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions, will be filed with the SEC in a Current Report on Form
8-K.
Audit
Committee and Audit Committee Financial Expert
We do not have an
audit committee or an audit committee financial expert serving on the audit
committee. Our entire board of directors currently is responsible for
the functions that would otherwise be handled by an audit committee. However, we
intend to establish an audit committee of the board of directors as soon as
practicable. We envision that the audit committee, among other duties, will be
primarily responsible for reviewing the services performed by our independent
auditors, evaluating our accounting policies and our system of internal
controls. Upon the establishment of an audit committee, the board will determine
whether any of the directors qualify as an audit committee financial
expert.
Item
11. Executive Compensation.
The following is
a summary of the compensation paid by the Company to Jingjun Hu, who was our
Chief Executive Officer from April 1, 2008 until January 1, 2009, for the year
ended December 31, 2008 and the period from September 10, 2007 (date of
inception) to December 31, 2007, respectively. No executive officer
of the Company received compensation in excess of $100,000 for any of these two
years.
Summary
Compensation Table – 2007 and 2008
|
Name
and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compensation
($)
|
Total
($)
|
|
Jingjun Hu
(Principal Executive Officer)
|
2008
|
58,060
(1)
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
58,060
|
|
|
2007
|
-0-
(2)
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
(1) Ms.
Hu was compensated at a rate of HKD 50,000 per month beginning April 1,
2008. Ms. Hu did not receive any compensation prior to April 1,
2008. The figures in the above table are provided in U.S. dollars
using a conversion ratio of 1 U.S. dollar = 7.75055 HKD. This
conversion ratio was obtained on the currency conversion website www.xe.com on
March 23, 2009.
(2) No
compensation was awarded to, earned by, or paid to any of our named executive
officers or directors during 2007 because we were not operating at that
time.
Employment
Agreements
We had a written
employment agreement with Jingjun Hu. Pursuant to this employment
agreement, Jingjun Hu became our CEO on April 1, 2008, and was paid a monthly
salary of HKD 50,000, or approximately $6,447, until her resignation from the
position of CEO on January 1, 2009. Each executive officer is also
eligible to participate in our bonus program and any future stock option plans
(including the EIP, once it becomes effective), as appropriate to their
respective position levels.
Our employment
agreement with Ms. Hu is “at will” and either we or she may terminate her
employment any time with or without advance notice. Her employment
agreement also contains covenants prohibiting her from engaging in any business
other than our business during their employment with us or disclosing any
confidential information regarding our Company, both during her employment and
after the termination of employment.
Outstanding
Equity Awards at Fiscal Year End
None of our
executive officers received any equity awards, including, options, restricted
stock or other equity incentives during the fiscal year ended December 31,
2008. We do not currently have in effect any compensation plans under
which our equity securities are authorized for issuance and we do not have any
outstanding stock options. However, on March 30, 2009 our board of directors
adopted the EIP, which will become effective on April 1, 2009.
Compensation
of Directors
There have been
no fees earned or paid in cash for services to our directors, and we have no
current plans to pay such fees to our directors in the future. No stock or stock
options or other equity incentives were awarded to our directors during the
fiscal year ended December 31, 2008. We do not have non-equity incentive or
deferred compensation plans that our directors may participate in.
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders Matters.
The following
table sets forth information regarding beneficial ownership of our common stock
as of [March 30], 2009 (i) by each person who is known by us to beneficially own
more than 5% of our common stock; (ii) by each of our officers named in the
Summary Compensation Table in Item 11 above and each of our directors; and (iii)
by all of our executive officers and directors as a group.
Unless otherwise
specified, the address of each of the persons set forth below is in care of The
Hong Kong Winalite Group Limited, 606, 6/F, Ginza Plaza, 2A Sai Yeung Choi
Street South, Mongkok, Kowloon, Hong Kong.
|
Name & Address of Beneficial
Owner
|
Office, If Any
|
Title of Class
|
Amount and Nature of
Beneficial Ownership
(1)
|
Percent of
Class
(2)
|
|
Officers
and Directors
|
|
Jingjun
Hu
|
Chairperson
and President
|
Common
stock $0.001 par value
|
43,705,000
|
87.9%
|
|
Hongxing
Gao
|
Chief
Executive Officer and Director
|
Co
mmon stock
$0.001 par value
|
0
|
*
|
|
Jianquan
Li
|
Chief
Financial Officer
|
Common
stock $0.001 par value
|
0
|
*
|
|
Wei
Li
|
Secretary
and Director
|
Common
stock $0.001 par value
|
0
|
*
|
|
Shusheng
Guo
|
Director
|
Common
stock $0.001 par value
|
0
|
*
|
|
All
officers and directors as a group (5 persons named above)
|
|
Common
stock $0.001 par value
|
43,705,000
|
87.9%
|
|
5%
Securities Holder
|
|
Jingjun
Hu
|
Chairperson
and President
|
Common
stock $0.001 par value
|
43,705,000
|
87.9%
|
* Less than 1%
(1) Beneficial
Ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Each of
the beneficial owners listed above has direct ownership of and sole voting power
and investment power with respect to the shares of our common
stock.
(2) As of March
30, 2009, a total of 49,740,933 shares of our common stock are considered to be
outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner
above, any options exercisable within 60 days have been included in the
denominator.
Securities Authorized for Issuance under Equity
Compensation Plans
On March 30, 2009
our board of directors adopted an equity incentive plan, or EIP, that provides
for the issuance of in order to retain, attract and motivate officers,
employees, directors, and consultants. The EIP, which will become
effective on April 1, 2009, will provide for the issuance of up to 4,295,000
shares of our common stock to officers, employees, directors and consultants in
the form of stock options (both incentive and nonstatutory), restricted stock,
restricted stock units, stock appreciation rights, performance units,
performance shares and other share-based awards.
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity
compensation plans approved by security holders
|
0
|
0
|
0
|
|
Equity
compensation plans not approved by security holders
|
0
|
0
|
4,295,000
(1)
|
|
Total
|
0
|
0
|
4,295,000
(1)
|
(1) These shares
will become available for issuance under the EIP following its effectiveness on
April 1, 2009.
Item
13. Certain Relationships and Related Transactions and Director
Independence.
Transactions
with Related Persons
The following
includes a summary of transactions since the beginning of the 2008 fiscal year,
or any currently proposed transaction, in which we were or are to be a
participant and the amount involved exceeded or exceeds the lesser of $120,000
or one percent of the average of our total assets at year-end for the last two
completed fiscal years, and in which any related person had or will have a
direct or indirect material interest (other than compensation described under
“Item 11. Executive Compensation”). We believe the terms obtained or
consideration that we paid or received, as applicable, in connection with the
transactions described below were comparable to terms available or the amounts
that would be paid or received, as applicable, in arm’s-length
transactions.
|
·
|
On October
30, 2007, Winalite entered into a financial advisory agreement, or FAA,
with HFG International, Limited, a Hong Kong corporation, or HFG.
Under the FAA, HFG agreed to provide Winalite with financial
advisory and consulting services in implementing a restructuring plan,
facilitating Winalite’s going public transaction, and advising Winalite on
matters related to Winalite’s post-going-public-transaction period.
In consideration for these services, HFG was paid a fee of $80,000
after completion of a due diligence investigation of Winalite and a fee of
$400,000 upon the closing of the going public transaction, $400,000 of
which was paid during 2008. Winalite also granted HFG certain
registration rights. Timothy P. Halter, who immediately prior to
consummation of the transactions contemplated by the Exchange Agreement
beneficially owned approximately 87.5% of our issued and outstanding
capital stock, is the principal stockholder and Chief Financial Officer of
HFG International, Limited.
|
|
|
|
|
|
Prior to
February 2, 2009, we sub-leased our previous office space from Hong Kong
Yuelang International Electronic Commerce Co., Limited, or HKY, pursuant
to a verbal agreement for an indefinite term. We paid HKY HK$21,503
(approximately $2,756) per month under this sub-lease. Our
Chairperson and President, Ms. Jingjun Hu, was also a director of HKY at
the time we entered into this verbal agreement. Ms. Hu resigned as a
director of Yuelang in December 2007.
|
|
|
|
|
·
|
From time
to time since Winalite’s inception in September 2007, Ms. Hu has made
loans to Winalite in order to pay Winalite’s general and administrative
expenses. As of December 31, 2008, such loans totaled approximately
$755,466. The loans are short term and non-interest
bearing.
|
Except as set
forth in our discussion above, none of our directors or executive officers has
been involved in any transactions with us or any of our directors, executive
officers, affiliates or associates which are required to be disclosed pursuant
to the rules and regulations of the SEC.
Director
Independence
We currently do
not have any independent directors, using the definition contained in the rules
of the Nasdaq Stock Market
.
Item
14. Principal Accounting Fees and Services.
Independent
Registered Public Accounting Firm’s Fees
During the period
from September 10, 2007 (date of inception) to December 31, 2007 and the fiscal
year ended December 31, 2008, fees for services provided by PKF Certified Public
Accountants, Hong Kong were as follows:
|
|
|
|
|
|
Period from
September
10, 2007
(date of
inception)
to
December 31, 2007
|
Year Ended
December 31, 2008
|
|
|
Audit
Fees
|
$20,142
|
$53,075
|
|
|
Audit-Related
Fees
|
$0
|
$0
|
|
|
Tax
Fees
|
$0
|
$0
|
|
|
All Other
Fees
|
$0
|
$0
|
|
|
Total
|
$20,142
|
$53,075
|
|
“Audit
Fees” consisted of fees billed for professional services rendered by our
registered independent public accounting firm for the audit of our annual
financial statements and review of the financial statements included in our Form
10-Q or services that are normally provided by the firm in connection with
statutory and regulatory filings or engagements.
Pre-Approval
Policies and Procedures
Under the
Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our
auditors must be approved in advance by our Board to assure that such services
do not impair the firm’s independence from us. In accordance with its policies
and procedures, our Board pre-approved all of the audit and non-audit service
performed by our auditor for our consolidated financial statements as of and for
the year ended December 31, 2008.
Item
15. Exhibits.
(a) Index
to Consolidated Financial Statements
|
|
Pages
|
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
22
|
|
|
|
|
|
|
Consolidated
Statement of Income and Other Comprehensive Income
|
23
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
24
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
25
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
26
|
|
|
|
|
|
|
Notes to
Consolidated Financial Statements
|
27 -
35
|
|
|
(b)
|
Exhibits
|
|
2.1
|
Share
Exchange Agreement, dated December 28, 2007, among the Company, The Hong
Kong Winalite Group Limited and its stockholders (incorporated by
reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed
on January 4, 2008).
|
|
|
|
|
3.1
|
Amended and
Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
on January 11, 2008).
|
|
|
|
|
3.2
|
Amended and
Restated Bylaws of the Company adopted on December 28, 2007 (incorporated
by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K
filed on January 4, 2008).
|
|
|
|
|
10.1*
|
Form of
Restricted Stock Purchase Agreement (filed herewith).
|
|
|
|
|
10.2
|
Financial
Advisory Agreement, dated October 30, 2007, by and between HFG
International, Limited and Winalite (named therein as Yuelang
International Co, Ltd) (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on January 4,
2008).
|
|
|
|
|
10.3
|
Master
Purchase and Supply Agreement, dated as of May 1, 2008, between Winalite
and Shenzhen Yuelang Techno Industrial Co., Ltd (incorporated by reference
to the Company’s Current Report on Form 8-K dated May 7,
2008).
|
|
|
|
|
10.4
|
Form of
Exclusive International Distribution Agreement (incorporated by reference
to the Company’s Current Report on Form 8-K dated May 7,
2008).
|
|
|
|
|
10.5
|
Form of
Consulting and Management Services Agreement (incorporated by reference to
the Company’s Current Report on Form 8-K dated May 7,
2008).
|
|
|
|
|
10.6
|
Form of
License Agreement (incorporated by reference to the Company’s Current
Report on Form 8-K dated May 7,
2008).
|
|
10.7
|
Employment
Agreement, dated April 1, 2008, by and between the Company and Jingjun Hu
(+) (incorporated by reference to the Company’s Current Report on Form 8-K
dated April 4, 2008).
|
|
|
|
|
10.8
|
Employment
Agreement, dated April 1, 2008, by and between the Company and Jianquan Li
(+) (incorporated by reference to the Company’s Current Report on Form 8-K
dated April 4, 2008).
|
|
|
|
|
10.9
|
Employment
Agreement, dated November 24, 2008, by and between the Company and Wei Li
(+) (incorporated by reference to the Company’s Current Report on Form 8-K
dated November 26, 2008).
|
|
|
|
|
10.10
|
Employment
Agreement, dated January 1, 2009, by and between the Company and Hongxing
Gao (+) (incorporated by reference to the Company’s Current Report on Form
8-K/A dated January 7, 2009).
|
|
|
|
|
10.11*
|
The
Company’s 2009 Equity Incentive Plan (+) (filed
herewith).
|
|
|
|
|
14.1
|
Business
Ethics Policy & Code of Conduct for the Company adopted on March 12,
2004 (incorporated by reference to Exhibit 14.1 to the Company’s Current
Report on Form 8-K filed on January 4, 2008).
|
|
|
|
|
21.1
|
Subsidiaries
of the Company (incorporated by reference to Exhibit 21.1 to the Company’s
Current Report on Form 8-K filed on January 4, 2008).
|
|
|
|
|
31.1*
|
Rule
13a-14(a) Certification of Chief Executive Officer.
|
|
|
|
|
31.2*
|
Rule
13a-14(a) Certification of Chief Financial Officer.
|
|
|
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32.1**
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Certification
of Chief Executive Officer furnished pursuant to 18 U.S.C. Section
1350.
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32.2**
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Certification
of Chief Financial Officer furnished pursuant to 18 U.S.C. Section
1350.
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(+) Management
contract or compensation plan.
SIGNATURES
In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
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HONG KONG
WINALITE GROUP, INC.
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Dated:
March 30, 2009
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By:
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/s/
Hongxing
Gao
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Hongxing
Gao
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Director
and Chief Executive Officer
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In accordance
with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
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SIGNATURE
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CAPACITY
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DATE
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/s/ Jingjun
Hu
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Chairperson
and President
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March 30,
2009
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Jingjun
Hu
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/s/
Hongxing Gao
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Director
and Chief Executive Officer
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March 30,
2009
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Hongxing
Gao
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(principal
executive officer)
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/s/
Jianquan Li
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Chief
Financial Officer
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March 30,
2009
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Jianquan
Li
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(principal
financial and accounting officer)
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/s/ Wei
Li
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Director
and Secretary
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March 30,
2009
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Wei
Li
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/s/Shusheng
Guo
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Director
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March 30,
2009
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Shusheng
Guo
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Hong Kong Winalite (GM) (USOTC:HKWO)
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