SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
No. 1 to Form 10-QSB
|
|
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31, 2008
OR
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For
the transition period from ______ to __________
COMMISSION
FILE NUMBER:
0-20532
CHINA
INSONLINE CORP.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
74-2559866
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
Room
42, 4F, New Henry House, 10 Ice House Street, Central, Hong
Kong
(Address
of principal executive offices)
(011)
00852-25232986
(Registrant’s
Telephone Number, Including Area Code)
DEXTERITY
SURGICAL, INC.
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes
x
No
o
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
Yes
o
No
x
Check
whether the registrant has filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes
x
No
o
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: As of May 2, 2008, the registrant had
40,000,000 shares of common stock, par value $0.001 per share, issued and
outstanding.
Transitional
Small Business Disclosure Format (check one):
Yes
o
No
x
TABLE
OF CONTENTS
PART
I
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F-i
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FINANCIAL
INFORMATION
|
F-i
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ITEM
1. FINANCIAL STATEMENTS
|
F-i
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ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
I-2
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ITEM
3A(T). CONTROLS AND PROCEDURES
|
I-19
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PART
II
|
II-1
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OTHER
INFORMATION
|
II-1
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ITEM
1. LEGAL PROCEEDINGS
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II-1
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ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
II-1
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ITEM
3. DEFAULTS UPON SENIOR SECURITIES
|
II-1
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|
|
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
|
II-1
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|
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ITEM
5. OTHER INFORMATION
|
II-1
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|
|
ITEM
6. EXHIBITS
|
II-2
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SIGNATURES
|
II-4
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EXHIBIT
31.1
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EXHIBIT
31.2
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EXHIBIT
32.1
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EXHIBIT
32.2
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PART
I
FINANCIAL
INFORMATION
ITEM
1. FINANCIAL STATEMENTS
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.)
AND
SUBSIDIARIES
TABLE
OF CONTENTS
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|
Page
|
CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2008 (UNAUDITED) AND
JUNE 30,
2007
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|
F-1
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|
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|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE
THREE
AND NINE MONTHS ENDED MARCH 31, 2008, THREE MONTHS ENDED MARCH 31,
2007
AND FOR THE PERIOD FROM OCTOBER 8, 2006 (INCEPTION) TO MARCH 31,
2007
(UNAUDITED)
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|
F
-2
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|
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|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH
31,
2008 AND FOR THE PERIOD FROM OCTOBER 8, 2006 (INCEPTION) TO MARCH
31, 2007
(UNAUDITED)
|
|
F-
3
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|
|
|
NOTES
TO CONDENSED CONSOLIDATD FINANCIAL STATEMENTS AS OF MARCH 31, 2008
(UNAUDITED)
|
|
F -4 – F- 12
|
CHINA INSONLINE
CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March 31, 2008
|
|
June 30, 2007
|
|
|
|
(Unaudited)
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|
|
|
Assets
|
|
|
|
|
|
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Current:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,885,743
|
|
$
|
47,657
|
|
Accounts
receivable
|
|
|
3,321,770
|
|
|
2,224,342
|
|
Other
receivables
|
|
|
3,980
|
|
|
10,505
|
|
Prepayments
and deposits
|
|
|
2,205,692
|
|
|
4,891
|
|
Deferred
taxes
|
|
|
144,807
|
|
|
1,805
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|
Total
Current Assets
|
|
|
8,561,992
|
|
|
2,289,200
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
261,582
|
|
|
35,721
|
|
Software,
net
|
|
|
2,724,442
|
|
|
-
|
|
Total
Assets
|
|
$
|
11,548,016
|
|
$
|
2,324,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Liabilities
|
|
|
|
|
|
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|
Current:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
295,015
|
|
$
|
-
|
|
Other
payables and accrued liabilities
|
|
|
971,003
|
|
|
20,727
|
|
Taxes
payable
|
|
|
1,990,536
|
|
|
364,431
|
|
Deferred
taxes
|
|
|
9,348
|
|
|
-
|
|
Deferred
revenue
|
|
|
134,817
|
|
|
-
|
|
Total
Current Liabilities
|
|
|
3,400,719
|
|
|
385,158
|
|
|
|
|
|
|
|
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|
COMMITMENTS
|
|
|
|
|
|
|
|
|
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|
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Shareholders’
Equity
|
|
|
|
|
|
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|
Common
stock, at $0.001 par value; 100,000,000 shares authorized; 40,000,000
shares and 26,400,000 shares at March 31, 2008 and at June 30, 2007,
respectively
|
|
|
40,000
|
|
|
26,400
|
|
Additional
paid-in capital
|
|
|
86,360
|
|
|
99,960
|
|
Retained
earnings
|
|
|
7,425,641
|
|
|
1,778,251
|
|
Accumulated
other comprehensive income
|
|
|
595,296
|
|
|
35,152
|
|
Total
Shareholders’ Equity
|
|
|
8,147,297
|
|
|
1,939,763
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
11,548,016
|
|
$
|
2,324,921
|
|
See
accompanying notes to condensed consolidated financial statements
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months
Ended March
31, 2008
|
|
Three Months
Ended March
31, 2007
|
|
Nine Months
Ended March
31, 2008
|
|
From October
8, 2006
(Inception) to
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE,
NET
|
|
$
|
3,230,301
|
|
$
|
260,537
|
|
$
|
8,469,275
|
|
$
|
259,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
623,033
|
|
|
14,907
|
|
|
845,866
|
|
|
17,761
|
|
GROSS
PROFIT
|
|
|
2,607,268
|
|
|
245,630
|
|
|
7,623,409
|
|
|
241,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
262,335
|
|
|
14,508
|
|
|
477,297
|
|
|
25,350
|
|
Selling
expenses
|
|
|
43,185
|
|
|
3,934
|
|
|
99,128
|
|
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
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INCOME
FROM OPERATIONS
|
|
|
2,301,748
|
|
|
227,188
|
|
|
7,046,984
|
|
|
210,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
income, net
|
|
|
6,289
|
|
|
95
|
|
|
12,764
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
|
|
2,308,037
|
|
|
227,283
|
|
|
7,059,748
|
|
|
211,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax
|
|
|
697,851
|
|
|
75,003
|
|
|
1,411,359
|
|
|
74,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
1,610,186
|
|
|
152,280
|
|
|
5,648,389
|
|
|
136,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain
|
|
|
374,563
|
|
|
2,935
|
|
|
560,144
|
|
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME
|
|
$
|
1,984,749
|
|
$
|
155,215
|
|
$
|
6,208,533
|
|
$
|
140,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
BASIC AND DILUTED
|
|
$
|
0.04
|
|
$
|
0.01
|
|
$
|
0.18
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARE OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
BASIC AND DILUTED
|
|
|
39,961,882
|
|
|
26,400,000
|
|
|
31,096,530
|
|
|
26,400,000
|
|
See
accompanying notes to condensed consolidated financial statements
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months
Ended March
31, 2008
|
|
From October 8,
2006
(Inception) to
March 31, 2007
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,648,389
|
|
$
|
136,613
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Amortization
|
|
|
26,918
|
|
|
-
|
|
Depreciation
|
|
|
38,617
|
|
|
1,717
|
|
Deferred
taxes
|
|
|
(133,654
|
)
|
|
(825
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
(increase) in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,097,428
|
)
|
|
(249,057
|
)
|
Other
receivables
|
|
|
6,525
|
|
|
(10,344
|
)
|
Prepayments
and deposits
|
|
|
(2,200,801
|
)
|
|
(8,469
|
)
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
295,015
|
|
|
-
|
|
Other
payables and accrued liabilities
|
|
|
950,276
|
|
|
15,404
|
|
Taxes
payable
|
|
|
1,626,105
|
|
|
76,063
|
|
Deferred
revenue
|
|
|
134,817
|
|
|
-
|
|
Net
cash provided by (used in) operating activities
|
|
|
5,294,779
|
|
|
(38,898
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
Purchases
of equipment
|
|
|
(264,968
|
)
|
|
(31,408
|
)
|
Acquisition
of software
|
|
|
(2,753,210
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(3,018,178
|
)
|
|
(31,408
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
Proceeds
from registered capital
|
|
|
-
|
|
|
126,360
|
|
Advances
to a related company
|
|
|
(645,737
|
)
|
|
-
|
|
Repayment
from a related company
|
|
|
645,737
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
126,360
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
2,276,601
|
|
|
56,054
|
|
Effect
of exchange rate changes on cash
|
|
|
561,485
|
|
|
3,933
|
|
Cash
and cash equivalents, beginning of the period
|
|
|
47,657
|
|
|
-
|
|
Cash
and cash equivalents, end of the period
|
|
$
|
2,885,743
|
|
$
|
59,987
|
|
|
|
|
|
|
|
|
|
Supplementary
Cash Flow Information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
$
|
-
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
See
accompanying notes to condensed consolidated financial statements
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
1.
Organization
and Principal Activities
China
INSOnline Corp. (“CHIO”), formerly known as Dexterity Surgical, Inc. (“Dexterity
Surgical”) was incorporated on December 23, 1988 as a Delaware corporation and
commenced operations on January 1, 1989. In August 1992, CHIO completed an
initial public offering of common stock. In March 2008, CHIO has change its
name
from Dexterity Surgical, Inc. to China INSOnline Corp. and which is currently
traded on The Over-The-Counter Bulletin Board under the symbol
“CHIO”.
On
December 18, 2007, CHIO, Rise and Grow Limited (“Rise & Grow”) and Newise
Century Inc., the sole stockholder of Rise & Grow (the “Shareholder”)
consummated a share exchange agreement (the “Share Exchange Agreement”) pursuant
to which the Shareholder transferred to CHIO, and CHIO acquired from the
Shareholder, all of the capital stock of Rise & Grow (the “Shares”), which
Shares constitute 100% of the issued and outstanding capital stock of Rise
&
Grow, in exchange for 26,400,000 shares of CHIO’s common stock (“Common Stock”),
which shares now constitute 66% of the fully diluted outstanding shares of
Common Stock. This share exchange transaction resulted in the Shareholder
obtaining a majority voting interest in CHIO. Generally accepted accounting
principles require that a company whose shareholders retain the majority
interest in a combined business be treated as the acquirer for accounting
purposes, resulting in a reverse acquisition. Accordingly, the share exchange
transaction has been accounted for as a recapitalization of CHIO.
On
April
19, 2004, Dexterity Surgical filed a voluntary petition for relief for
reorganization (the “Reorganization”) under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Texas Houston Division (the “Bankruptcy Court”). Dexterity Surgical underwent
numerous operating changes and operated its business as a “debtor-in-possession”
under the jurisdiction of the Bankruptcy Court. On March 2, 2005, the
Bankruptcy Court entered an Order confirming its First Amended Plan of
Liquidation. In connection with that Plan, Dexterity Surgical’s assets were
scheduled to be auctioned, which auction culminated in the sale of substantially
all of Dexterity Surgical’s assets as approved by the Bankruptcy Court on March
17, 2006.
The
First
Amended Plan of Liquidation was subsequently amended on March 2, 2006, by an
order titled “Order Approving Modification of the First Amended Plan” (the
“Order”). The amendments provided for in the Order included the Bankruptcy
Court’s authorization of a $50,000 Debtor-In-Possession Loan (the “DIP Loan”)
for payment of administrative expenses of the bankruptcy, which converted into
6,000,000 shares of common stock (the “Section 1145 Shares”) and 3,000,000
warrants under Section 1145 of the U.S. Bankruptcy Code at the option of the
holder(s) of the DIP Loan, which were cancelled immediately prior to the
Exchange. For an additional $125,000, the Bankruptcy Court authorized the sale
of 25,000,000 restricted shares of common stock to an investor for the payment
of both administrative claims and creditor claims. Also see Note 7.
The
Bankruptcy Court also provided that all of the old shares of Dexterity
Surgical’s preferred stock, stock options and warrants shall be (and have been)
cancelled; issue (and did issue) 29,800 new shares of Common Stock under Section
1145 of the U.S. Bankruptcy Code; issue up to 25,000 shares of Common Stock
under Section 1145 of the U.S. Bankruptcy Code to those persons deemed
appropriate by the Board of Directors (it was not necessary to issue these
shares and therefore they have been cancelled); and appoint new Board members,
amend the Certificate of Incorporation to increase the authorized shares of
common stock to 100,000,000, amend the Bylaws, change the fiscal year, execute
a
share exchange agreement and issue shares in which effective control or majority
ownership is given, all without stockholder approval.
Rise
& Grow was formed on February 10, 2006 as a Hong Kong limited company. Zhi
Bao Da Tong (Beijing) Technology Co. Ltd (“ZBDT”), a company registered in the
People’s Republic of China (the “PRC” or “China”), was established and
incorporated by Rise & Grow and commenced business on June 9, 2007. Rise
& Grow’s sole business is to act as a holding company for ZBDT.
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
1.
Organization
and Principal Activities (Continued)
ZBDT
was
formed by Rise & Grow with the purpose of developing computer and network
software and related products and to promote the development of high-tech
industries in the field of Chinese information technology. It does this by
controlling Beijing ZYTX Technology Co., Ltd (“ZYTX”), through an Exclusive
Technical Consulting and Service Agreement and related transaction documents
dated as of September 28, 2007 (collectively, the “Service Agreements”). In
compliance with the PRC’s foreign investment restrictions on Internet
information services and other laws and regulations, ZBDT conducts all of our
Internet information and media services and advertising in China through ZYTX,
a
domestic Variable Interest Entity (“VIE”), as its primary beneficiary. In
accordance with the Financial Accounting Standards Board
(“FASB”) Interpretation No. 46R “Consolidation of Variable Interest
Entities” (“FIN 46R”), an Interpretation of Accounting Research Bulletin No. 51,
a VIE is to be consolidated by a company if that company is subject to a
majority of the risk of loss for the VIE or is entitled to receive a majority
of
the VIE’s residual returns. Upon executing the Service Agreements, ZYTX is now
considered a VIE and ZBDT is its primary beneficiary.
ZYTX,
a
company registered in the PRC on October 8, 2006, is an Internet e-business
development, online advertisement publishing and related online servicing
company, which focuses on the PRC insurance industry. With localized web sites
targeting Greater China, ZYTX provides a platform through its web site,
www.soobao.cn, to consumers, agents and insurance companies for online
transaction, advertising, online inquiry, news circulation, statistic analysis
and software development. ZYTX also provides online insurance agent services
including car, property and life insurance to customers in the PRC.
2.
Principles
of Consolidation
The
business of CHIO (together with its subsidiaries, the “Company”) is operated
through ZYTX and the consolidated financial statements include the assets,
liabilities and operating results of ZYTX as the Company’s VIE. Inter-company
accounts and transactions have been eliminated.
Arrangements
with these business enterprises have been evaluated, and those in which ZYTX
is
determined to have controlling financial interest are consolidated. In
January 2003, the FASB issued FASB Interpretation
(“FIN”) No. 46,
Consolidation of Variable Interest Entities
(“FIN
46”), and amended it by issuing FIN 46R in December 2003. FIN 46R addresses
the consolidation of business enterprises to which the usual condition of
consolidation (ownership of a majority voting interest) does not apply. This
interpretation focuses on controlling financial interests that may be achieved
through arrangements that do not involve voting interests. It concludes that,
in
the absence of clear control through voting interests, a company’s exposure
(variable interest) to the economic risks and potential rewards from the
variable interest entity’s assets and activities are the best evidence of
control. If an enterprise holds a majority of the variable interests of an
entity, it would be considered the primary beneficiary. The primary beneficiary
is required to consolidate the assets, liabilities and results of operations
of
the variable interest entity in its financial statements.
The
unaudited condensed consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the requirements for reporting on Form
10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include
all
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
However, such information reflects all adjustments (consisting solely of normal
recurring adjustments), which are, in the opinion of management, necessary
for
the fair presentation of the consolidated financial position and the
consolidated results of operations. Results shown for interim periods are not
necessarily indicative of the results to be obtained for a full year. The
condensed consolidated balance sheet information as of June 30, 2007 was derived
from the audited consolidated financial statements included in the Company’s
Form 8-K. These interim financial statements should be read in conjunction
with
that report.
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
3.
Summary
of Significant Accounting Policies
(a)
Economic
and Political Risks
The
Company's operations are conducted in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by
the
political, economic and legal environments in the PRC, and by the general state
of the PRC economy. The Company's operations in the PRC are subject to special
considerations and significant risks not typically associated with companies
in
North America and Western Europe. These include risks associated with, among
others, the political, economic and legal environment and foreign currency
exchange. The Company's results may be adversely affected by changes in the
political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti−inflationary measures,
currency conversion, remittances abroad, and rates and methods of taxation,
among other things.
(b)
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(c)
Fair
Value of Financial Instruments
The
carrying value of financial instruments classified as current assets and current
liabilities, such as accounts receivables, other receivables, prepayments and
deposits, accounts payable, other payables and accrued liabilities, approximate
fair value due to the short-term maturity of the instruments.
(d)
Deferred
Revenue
Deferred
revenue primarily comprises contractual billings in excess of recognized revenue
and payments received in advance of revenue recognition.
(e)
Cash
and
Cash Equivalents
The
Company considers all highly liquid investments purchased with original maturity
of three months or less to be cash equivalents.
(f)
Foreign
Currency Translation
The
accompanying financial statements are presented in United States dollars. The
functional currency of the Company is the Renminbi (“RMB”) and Hong Kong Dollar
(“HKD”). The financial statements are translated into United States dollars from
RMB and HKD at period-end exchange rates as to assets and liabilities and
average exchange rates as to revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions
occurred.
|
|
March 31, 2008
|
|
June 30, 2007
|
|
March 31, 2007
|
|
|
|
|
|
|
|
|
|
Period/year
end RMB: US$ exchange rate
|
|
|
7.0100
|
|
|
7.6155
|
|
|
7.7342
|
|
|
|
|
|
|
|
|
|
|
|
|
Period/year
average RMB: US$ exchange rate
|
|
|
7.4919
|
|
|
7.7446
|
|
|
7.8038
|
|
|
|
|
|
|
|
|
|
|
|
|
Period/year
end HKD: US$ exchange rate
|
|
|
7.8114
|
|
|
7.8190
|
|
|
7.8325
|
|
|
|
|
|
|
|
|
|
|
|
|
Period/year
average HKD: US$ exchange rate
|
|
|
7.8297
|
|
|
7.7960
|
|
|
7.8150
|
|
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
3.
Summary
of Significant Accounting Policies (Continued)
(g)
Revenue
Recognition
Advertising
Advertising
revenues are derived mainly from online advertising arrangements, which allow
advertisers to place advertisements on particular areas of the Company’s web
sites, in particular formats and over particular periods of time. In accordance
with Emerging Issues Task Force (“EITF”) No. 00-21, “Accounting for Revenue
Arrangements with Multiple Deliverables,” advertising arrangements involving
multiple deliverables are broken down into single-element arrangements based
on
their relative fair value for revenue recognition purposes, when
possible.
For
web
site construction service, which is usually included in new advertising
contract, revenue is recognized ratably over the displayed period, typically
one
year. For web site maintenance services, revenue is recognized ratably over
the
contact period, generally one year.
Under
the
guidance of the SOP 97-2 “Software Revenue Recognition”, as amended by SOP 98-9
“Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions”, the Company determines vendor-specific objective evidence
(“VOSE”) based on actual prices charged when the service is sold on a standalone
basis.
Software
Development
Software
development revenue is recognized in accordance with SOP 97-2, when the outcome
of a contract for software development can be estimated reliably, contract
revenue and costs are charged to the income statement by reference to the stage
of completion of the contract activity at the balance sheet date, as measured
by
the proportion that costs incurred to date bear to estimated total costs for
each contract. When the outcome of a contract cannot be estimated reliably,
contract costs are recognized as an expense in the period in which they are
incurred. Contract revenue is recognized to the extent of contract costs
incurred that it is probable will be recoverable. Where it is probable that
the
total contract costs will exceed total contract revenue, the expected loss
is
recognized as an expense immediately.
Insurance
Commissions
Insurance
revenues, net of discounts, represent commissions earned from performing
agency-related services. Insurance commissions are recognized at the later
of
the date when the customer is initially billed or the insurance policy effective
date.
In
accordance with EITF No. 01-9, “Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendor’s Product,” cash consideration given
to customers or resellers, for which the Company does not receive a separately
identifiable benefit or cannot reasonably estimate fair value, are accounted
for
as a reduction of revenue rather than as an expense.
Cash
consideration includes discounts and other offers that entitle a customer to
receive a reduction in the price of a product. For the nine months ended March
31, 2008 and the period from October 8, 2006 to March 31,2007, the Company
recognized $177,411 and $0, respectively, as a reduction of revenue for the
discount offered to its customers.
(h)
Fixed
Assets
Fixed
assets are carried at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of
the
assets, which are five years for motor vehicles, computers and equipment. For
the leasehold improvements, deprecation is computed using the straight-line
method over the estimated useful lives or lease term of the hired premises,
whichever is shorter. Depreciation expense for the nine months ended March
31,
2008 and for the period from October 8, 2006 to March 31, 2007 was $38,617
and
$1,717, respectively.
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
3.
Summary
of Significant Accounting Policies (Continued)
(i)
Software
Software
is carried at cost less accumulated amortization. Amortization is computed
using
the straight-line method over the estimated useful lives of the assets, which
is
five years for software. Software is periodically reviewed when indicators
are
present to assess recoverability from future operations using undiscounted
cash
flows in accordance with Statement of Financial Accounting Standards (“SFAS”)
No.144, “Accounting for the Impairment or Disposal of Long-Live Assets”. To the
extent carrying value exceeds fair value, an impairment loss is recognized
in
operating result. No impairment was recorded for the nine months ended March
31,
2008.
Amortization
expense for the nine months ended March 31, 2008 and period ended from October
8, 2006 to March 31, 2007 was $26,918 and $0, respectively.
(j)
Earnings
Per Share
Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings
per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were no dilutive securities outstanding for the periods
presented.
4.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS
No. 157”) which provides enhanced guidance for using fair value to measure
assets and liabilities. SFAS No. 157 provides a common definition of fair value
and establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS No. 157
also
requires expanded disclosures to provide information about the extent to which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures
on
earnings. SFAS No. 157 is effective for financial statements issued in fiscal
years beginning after November 15, 2007 and to interim periods within those
fiscal years. The Company does not have to adopt this until next fiscal year.
The Company is currently evaluating the impact on the adoption of SFAS No.
157
may have on its financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option of Financial
Assets and Financial Liabilities” (“SFAS No. 159”), which permits entities to
measure many financial instruments and certain other items of fair value. SFAS
No. 159’s overall objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 applies to all entities,
including not-for-profit organization, and most of its provisions apply only
to
entities that elect the fair value option, although FAS 159's amendment to
FAS
115 applies to all entities with available-for-sale and trading securities.
This
Statement was effective as of the beginning of each reporting entity's first
fiscal year that begins after November 15, 2007. Adoption of the first interim
period of earlier fiscal years, provided the entity also elects to early adopt
SFAS No. 159. The Company is currently evaluating the impact on adoption of
SFAS
No. 159 may have on the Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS No.
141R”), “Business Combinations”, which replaces SFAS No. 141. This statement
retains the purchase method of accounting for acquisitions, but requires a
number of changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It also changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS
No. 141R is effective for the Company beginning July 1, 2009 and will
apply prospectively to business combinations completed on or after that
date.
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
4.
Recent
Accounting Pronouncements (Continued)
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51, which changes the
accounting and reporting for minority interests. Minority interests will be
recharacterized as noncontrolling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning
July 1, 2009 and will apply prospectively, except for the presentation and
disclosure requirements, which will apply retrospectively. The Company is
currently assessing the potential impact that adoption of SFAS No. 160
would have on the Company’s financial statements.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), which amends SFAS No.133 and expands
disclosures to include information about the fair value of derivatives, related
credit risks and a company’s strategies and objectives for using derivatives.
SFAS No. 161 is effective for fiscal periods beginning on or after November
15,
2008. We are currently in the process of assessing the impact that SFAS No.
161
will have on the disclosures in our consolidated financial
statements.
5.
Taxes
(a)
Corporation
Income Tax (“CIT”)
The
Company has not recorded a provision for U.S. federal income taxes for the
nine
months ended March 31, 2008 due to the net operating loss carry forward in
the
United States.
On
March 16, 2007, the National People’s Congress of China approved the new
Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”),
which was effective from January 1, 2008. Prior to January 1, 2008,
the CIT rate applicable to the Company’s subsidiary in the PRC was 33%. As from
January 1, 2008, the applicable CIT rate for ZBDT, the wholly owned subsidiary,
is 25%. For the nine months ended March 31, 2008, CIT for ZBDT was $1,759,885.
ZYTX, a VIE of the Company, enjoys a favorable tax rate of 15% as it is
considered as a high technology company by the Chinese government. ZYTX is
also
entitled to a full exemption from CIT for the first two years from January
1,
2007 to December 31, 2008. Starting from January 1, 2009, the CIT rate of ZYTX
will be 15%. ZYTX is exempted from CIT for the nine months ended March 31,
2008.
Some
of
the tax concession granted to eligible companies prior to the new CIT law is
grand fathered. The new CIT Law has an impact on the deferred tax assets and
liabilities of the Company. The Company adjusted deferred tax balances as of
March 31, 2007 and June 30, 2007 based on the current applicable tax rate
and will continue to assess the impact of such new law in the future. Effects
arising from the enforcement of the new CIT Law were reflected into the accounts
by best estimates.
Pursuant
to the Inland Revenue Ordinance of Hong Kong, Rise & Grow is subject to Hong
Kong Profits Tax at 17.5% for the nine months ended March 31, 2008. As Rise
& Grow has no assessable profits for the nine months ended March 31, 2008,
no provision for profits tax has been made.
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
5.
Taxes
(Continued)
(a)
Corporation
Income Tax (“CIT”) (Continued)
Income
tax expense is summarized as follows:
|
|
Three Months Ended March 31,
|
|
Nine Months
Ended
March 31,
|
|
From October 8,
2006 (Inception)
to March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Computed
“expected” expense
|
|
$
|
820,094
|
|
$
|
75,003
|
|
$
|
1,536,271
|
|
$
|
69,689
|
|
Permanent
differences
|
|
|
(122,243
|
)
|
|
-
|
|
|
(124,912
|
)
|
|
4,877
|
|
Income
tax expense
|
|
$
|
697,851
|
|
$
|
75,003
|
|
$
|
1,411,359
|
|
$
|
74,566
|
|
The
tax
effects of temporary differences that give rise to the Company’s deferred tax
assets and liabilities are as follows:
|
|
March 31, 2008
|
|
June 30, 2007
|
|
|
|
|
(Unaudited
|
)
|
|
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
|
Social
welfare expenses
|
|
$
|
12,580
|
|
$
|
1,630
|
|
Insurance
premiums
|
|
|
608
|
|
|
-
|
|
Consumable
expenses
|
|
|
4,381
|
|
|
175
|
|
Software
development income
|
|
|
12,325
|
|
|
-
|
|
Depreciation
|
|
|
3,608
|
|
|
-
|
|
Amortization
|
|
|
4,315
|
|
|
-
|
|
Rental
expenses
|
|
|
1,109
|
|
|
-
|
|
Business
tax
|
|
|
105,881
|
|
|
-
|
|
Total
current deferred tax assets
|
|
|
144,807
|
|
|
1,805
|
|
|
|
|
|
|
|
|
|
Current
deferred tax liabilities:
|
|
|
|
|
|
|
|
Commission
income
|
|
|
9,348
|
|
|
-
|
|
Total
current deferred tax liabilities
|
|
|
9,348
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
135,459
|
|
$
|
1,805
|
|
Pursuant
to the relevant PRC tax laws, the Company is subject to business tax at 5%
of
the gross sales, excluding the software development income. For the nine months
ended March 31, 2008 and the period from October 8, 2006 (Inception) to March
31, 2007, the Company has provided a total business tax of $729,692 and $3,674,
respectively, which is included in the cost of sales in the accompanying
condensed consolidated statement of income and comprehensive
income.
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
6.
Lease
commitments
The
Company occupies office spaces leased from third parties. For the nine months
ended March 31, 2008 and the period from October 8, 2006 (Inception) to March
31, 2007, the Company recognized $83,786 and $6,087, respectively, as rental
expense for these spaces. As of March 31, 2008, the Company has outstanding
commitments with respect to non-cancelable operating leases as
follows:
Year
Ending June 30,
|
|
Amount
|
|
2008
|
|
$
|
47,860
|
|
2009
|
|
|
159,500
|
|
2010
|
|
|
149,363
|
|
2011
|
|
|
25,371
|
|
|
|
$
|
382,094
|
|
7.
Shareholders’
Equity
(a)
Issue
of
Shares under Section 1145 Shares Pursuant to the Reorganization
On
December 18, 2007, the Company issued 1,756,250 shares of common stock under
Section 1145 pursuant to the Reorganization. On January 2, 2008, the Company
issued the remaining 4,243,750 shares of common stock for a total of 6,000,000
shares of common stock under Section 1145 pursuant to the
Reorganization.
(b)
Cancellation
of Shares Pursuant to the Bankruptcy Court Order
On
December 27, 2007, the Company cancelled 17,454,127 shares of common stock
pursuant to the Bankruptcy Court Order. On February 4, 2008, 25,000 shares
of
common stock were cancelled pursuant to the Bankruptcy Court Order
8.
Certain
Risk and Concentration
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivable.
The
Company has $2,708,227 in bank deposits with a bank in China, which constitutes
about 94% of its total cash and cash equivalents as of March 31, 2008.
Historically, deposits in Chinese banks are secured due to the state policy
on
protecting depositors’ interests. However, China promulgated a new Bankruptcy
Law in August 2006, which came into effect on June 1, 2007. The new Bankruptcy
Law contains a separate article expressly stating that the State Council may
promulgate implementation measures for the bankruptcy of Chinese banks. Under
the new Bankruptcy Law, a Chinese bank may go bankrupt. In addition, since
China’s concession to WTO, foreign banks have been gradually permitted to
operate in China and have been severe competitors against Chinese banks in
many
aspects, especially since the opening of Renminbi business to foreign banks
in
late 2006.
Therefore,
the risk of bankruptcy of the bank in which that the Company has deposits has
increased. In the event of bankruptcy of the bank which holds the Company’s
deposits, the Company is unlikely to recover its deposits back in full since
it
is unlikely to be classified as a secured creditor based on PRC
laws.
Accounts
receivable consist primarily of software development clients and insurance
agents. As of March 31, 2008, approximately 27% of the accounts receivable
and
30% of revenues were derived from the software development business. Regarding
its online advertising and insurance agency operations, no individual customer
accounted for more than 10% of total net revenues for the nine months ended
March 31, 2008.
CHINA
INSONLINE CORP.
(FORMERLY
KNOWN AS DEXTERITY SURGICAL, INC.) AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31,
2008
(UNAUDITED)
9.
Segment
Information
Based
on
criteria established by SFAS 131, “Disclosures about Segments of an Enterprise
and Related Information,” the Company operates three business segments for the
nine months ended March 31, 2008, which are software development, online
insurance advertising and insurance agency within the PRC. The following is
the
summary information by segment as of and for the nine months ended March 31,
2008 and the period from October 8, 2006 (Inception) to March 31,
2007:
|
|
Software
Development
|
|
Online
Insurance
Advertising
|
|
Insurance
Agency
|
|
Administration
|
|
Total
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Nine
Months Ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,584,658
|
|
$
|
5,875,887
|
|
$
|
8,730
|
|
$
|
-
|
|
$
|
8,469,275
|
|
Cost
of sales
|
|
|
52,332
|
|
|
360,020
|
|
|
37,233
|
|
|
396,281
|
|
|
845,866
|
|
Gross
profit (loss)
|
|
$
|
2,532,326
|
|
$
|
5,515,867
|
|
$
|
(28,503
|
)
|
$
|
(396,281
|
)
|
$
|
7,623,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
$
|
23,988
|
|
$
|
2,034
|
|
$
|
2,725,609
|
|
$
|
234,393
|
|
$
|
2,986,024
|
|
Current
assets
|
|
$
|
890,128
|
|
$
|
2,335,032
|
|
$
|
2,239,262
|
|
$
|
3,097,570
|
|
$
|
8,561,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
October 8, 2006 (Inception) to March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
192,214
|
|
$
|
66,798
|
|
$
|
-
|
|
$
|
-
|
|
$
|
259,012
|
|
Cost
of sales
|
|
|
12,437
|
|
|
5,324
|
|
|
-
|
|
|
-
|
|
|
17,761
|
|
Gross
profit
|
|
$
|
179,777
|
|
$
|
61,474
|
|
$
|
-
|
|
$
|
-
|
|
$
|
241,251
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward
Looking Statements
The
following is management’s discussion and analysis of certain significant factors
which have affected our financial position and operating results during the
periods included in the accompanying consolidated financial statements, as
well
as information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words “believes”
“anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”,
“continue” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the SEC from time
to
time, which could cause actual results or outcomes to differ materially from
those projected. Undue reliance should not be place on these forward-looking
statements which speak only as of the date hereof. We undertake no obligation
to
update these forward-looking statements.
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this report.
Acquisition
of Rise & Grow
On
December 18, 2007 (the “Closing Date”), China INSOnline Corp. (formerly known as
Dexterity Surgical, Inc. and hereinafter, “CHIO” and together with its
subsidiaries, the “Company”) entered into a Share Exchange Agreement (the
“Exchange Agreement”) with Rise and Grow Limited, an inactive Hong Kong limited
holding company (“Rise & Grow”) and Newise Century Inc., a British Virgin
Islands company and the sole stockholder of Rise & Grow (the “Stockholder”).
As a result of the share exchange, CHIO acquired all of the issued and
outstanding securities of Rise & Grow from the Stockholder in exchange for
Twenty-Six Million Four Hundred Thousand (26,400,000) newly-issued shares of
CHIO’s common stock, par value $0.001 per share (“Common Stock”). As a result of
the exchange, Rise & Grow became our wholly-owned and chief operating
subsidiary. We currently have no other business operations other than those
of
Rise & Grow.
The
following is disclosure regarding CHIO, Rise & Grow and the wholly-owned
operating subsidiary of Rise & Grow, Zhi Bao Da Tong (Beijing) Technology
Co. Ltd. (“ZBDT”), a company formed under the laws of the People’s Republic of
China (the “PRC”) and doing business in the PRC. From and after the Closing
Date, the operations of Rise & Grow, through its operating subsidiary, ZBDT,
are the only operations of CHIO.
Effective
March 17, 2008, the Common Stock of CHIO began trading under a new ticker
symbol, “CHIO.OB” on the Over-The-Counter Bulletin Board. CHIO changed its
ticker symbol from “DEXT.OB” to “CHIO.OB” as a result of the Company’s name
change from “Dexterity Surgical, Inc.” to “China INSOnline Corp.”, which such
name change became effective as of February 26, 2008.
Organizational
Structure of Rise & Grow, ZBDT and ZYTX
Rise
& Grow was formed on February 10, 2006 as a Hong Kong limited company. ZBDT
was established and incorporated by Rise & Grow and commenced business on
September 6, 2007. Rise & Grow’s sole business is to act as a holding
company for ZBDT. ZBDT was formed by Rise & Grow for the purpose of
developing computer and network software and related products and to promote
the
development of high-tech industries in the field of Chinese information
technology. It does this by controlling, through an Exclusive Technical
Consulting and Service Agreement and related transaction documents dated as
of
September 28, 2007 (collectively, the “Service Agreements”), Beijing Zhi Yuan
Tian Xia Technology Co., Ltd. (“ZYTX”), a limited liability company duly
established on October 8, 2006 and validly existing under the
PRC.
Pursuant
to the Services Agreements, ZYTX shall provide on-going technical services
and
other services to ZYTX in exchange for substantially all net income of ZYTX.
In
addition, Mr. Zhenyu Wang and Ms. Junjun Xu have pledged all of their shares
in
ZYTX to ZBDT, representing one hundred percent (100%) of the total issued and
outstanding capital stock of ZYTX, as collateral for non-payment under the
Service Agreements or for fees on technical and other services due to us
thereunder. We have the power to appoint all directors and senior management
personnel of ZYTX. Currently, ZYTX is sixty percent (60%) owned by Mr. Zhenyu
Wang, CHIO’s Chairman of the Board, and forty percent (40%) owned by Junjun
Xu, CHIO’s Chief Executive Officer and a director.
Business
of the Company
We
are an
Internet service and media company focusing on the PRC insurance industry.
With
localized websites targeting Greater China, the Company primarily provides,
through ZYTX, a network portal through its industry website,
www.soobao.cn
(hereinafter also referred to as “
Soobao
”),
to
insurance companies, agents and consumers for advertising, online inquiry,
news
circulation, online transactions, statistic analysis and software development.
The Company is also a licensed online motor vehicle, property and life insurance
agent generating revenues through sales commissions from customers in the
PRC.
ZYTX
was
originally founded with goal of raising the national insurance consciousness
and
reducing the cost on national security in China by constructing and maintaining
its network portal (
www.soobao.cn
)
in
order to integrate and optimize business flow during the course of insurance
sales and related client services. From incorporation through the end of June
30, 2007, ZYTX was primarily engaged in institutional preparation and
prior-period business development. Thereafter, through trial implementation
of
www.soobao.cn
,
ZYTX’s
products and services received favorable reviews and recognition in the Chinese
insurance industry. ZYTX strengthened its technical research and development
and
expanded its product line after collecting suggestions from clients. In April
2007,
www.soobao.cn
was
formally put into use. From October 8, 2006 (inception) through June 30,
2007, ZYTX’s fiscal year end, ZYTX realized a business income of RMB 17.2
million (US$2.2 million) and net profits of RMB 13.8 million (US$1.8
million).
Today,
the Company offers online insurance products and services in China including
(a)
a network portal for the Chinese insurance industry (
www.soobao.cn
),
offering industry players a forum for advertising products and services, (b)
website construction and software development services for marketing teams
in
the insurance industry, (c) insurance agency services (whereby the Company
generates sales commissions on motor vehicle insurance, property insurance
and
life insurance) and (d) accompanying client support services.
On
September 28, 2007, ZBDT signed the following Service Agreements with ZYTX
and
its stockholders:
|
·
|
Exclusive
Technology Consultation Service Agreement, by and between ZYTX and
ZBDT,
through which ZBDT will provide, exclusively for both parties, technology
consultation services to the Company and receive payments periodically;
and
|
|
·
|
Exclusive
Equity Interest Purchase Agreements, by and between each of ZYTX’s
stockholders and ZBDT, through which ZBDT is entitled to exclusively
purchase all of the outstanding shares of capital stock of ZYTX from
its
current stockholders upon certain terms and conditions, especially
upon it
is allowable under the PRC laws and regulations;
and
|
|
·
|
Equity
Interest Pledge Agreements, by and between each of ZYTX’s stockholders and
ZBDT, through which the current stockholders of ZYTX have pledged
all
their respective shares in ZYTX to ZBDT. These Equity Interest Pledge
Agreements guarantee the cash-flow payments under the Exclusive Technology
Consultation Service Agreement; and
|
|
·
|
Powers
of Attorney, executed by each of the ZYTX’s stockholders, through which
ZBDT is entitled to perform the equity right of ZYTX’s
stockholders.
|
In
accordance with Financial Accounting Standards Board (“
FASB
”)
Interpretation No. 46R “Consolidation of Variable Interest Entities”
(“
FIN
46R
”),
an
Interpretation of Accounting Research Bulletin No. 51, a Variable Interest
Entity (a “
VIE
”)
is to
be consolidated by a company if that company is subject to a majority of the
risk of loss for the VIE or is entitled to receive a majority of the VIE’s
residual returns. After executing the above agreements, ZYTX is now considered
a
VIE and ZBDT its primary beneficiary.
The
unaudited condensed financial statements of the Company as of March 31, 2008
have been prepared in accordance with generally accepted accounting principles
of interim financial information. Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted
in the United States of America for annual financial statements. However, the
information included in these interim financial statements reflect all
adjustments (consisting solely of normal recurring adjustments) which are,
in
the opinion of management, necessary for the fair presentation of the financial
position and the results of operations. Results shown for interim periods are
not necessarily indicative of the results to be obtained for the full year.
The
condensed balance sheet information as of March 31, 2008 was derived from the
audited financial statements of ZYTX as set forth in the Company’s Current
Report on Form 8-K as filed with the SEC on December 20, 2007.
Plan
of Operation
Publicity
and Promotion of Soobao
Since
its
inception, ZYTX has been making business preparations and development mainly
in
the Beijing area, with a sales mode focusing on marketing. The Company plans
to
popularize
www.soobao.cn
and its
insurance sales commission businesses in first and second-level cities across
China from late mid year of 2008 to the year 2010. The Company plans to attempt
to develop
www.soobao.cn
so that
it is the largest network portal in China’s insurance industry and the first
choice of network media for insurance companies to advertise and to promote
their products and services. We are also planning to organize an insurance
agency marketing program.
With
respect to network promotion, we plan to set “
hot-spot
”
key
words for price competition of the relevant industries in popular search engines
and release advertisements in the relevant columns of large portal websites.
With respect to traditional media, we plan to launch an integrated vertical
promotion by means of LCD televisions installed in office buildings, elevator
advertisements, public buses, radio stations and airplane media so as to
popularize the
www.soobao.cn
brand.
Technical
Development Plan
Our
technical development plan consists of (a) developing applications of new
technologies aimed at the network portal to meet the clients’ demand in online
transactions, member score accumulation and other new functions, (b) building
a
two-way bridge for insurance providers and customers based on development and
application of insurance portal website (
www.soobao.cn
)
while
taking advantage of the Internet platform to connect traditional sales and
marketing with e-commerce, (c) technical development aimed at comprehensive
solutions in the Internet application field for insurance companies and
insurance agencies, (d) the introduction of and continued R&D of a
comprehensive life insurance real-time quotation system whereby all life
insurance products may be thoroughly compared under certain scientific and
quantifiable factors and (e) the introduction and continued R&D of an
insurance statistical and data analysis system that can analyze a present and
prospective customer’s “
hot-points
”
of
insurance through analyzing a large number of effective clicks.
Products
and Services Plan
The
Company intends to focus on its products and services in following
areas:
|
·
|
With
respect to the Company’s motor vehicle insurance sales business, the
Company plans to provide motor vehicle-owners more value-added services
following the purchase of motor vehicle insurance and the Company
plans to
improve its membership club programs in the area of motor vehicle
insurance;
|
|
·
|
The
Company plans to gradually grow its property insurance and life insurance
business as insurance agent by utilizing third-party insurance brokers
and
by choosing cost-effective products. With online product optimization
and
the ability to compare products online in real-time, the Company
will be
able to choose more suitable insurance, enhance customer insurance
purchasing efficiency and reduce
costs.
|
|
·
|
Capitalize
on our brand name and current influence in the Chinese insurance
industry
through www.soobao.cn in order to drive consumer
sales.
|
Nationwide
Marketing Network Construction Plan
To
carry
out insurance sales more effectively and to supplement the function and effect
of
www.soobao.cn
,
ZYTX is
in the process of constructing a comprehensive chain insurance supermarket
entity whereby the Company intends to establish branch sales agency locations
in
key cities throughout China in the form of purchase or franchisee, and strive
to
establish a nationwide insurance marketing network system. ZYTX plans to set
up
subsidiaries and branches in every province and major city across China, provide
prospective clients with a series of services such as one-to-one advisory on
different products offered by different insurance companies, examination of
life
insurance, insurance site-sales, compensation and appreciation and claims
settlement. As there will likely be many specialized clients in the transaction
market, the Company plans to organize professional lectures on insurance, create
an industry salon and release new products and services. It is our goal through
such entity to (a) educate consumers with respect to insurance and insurance
products, (b) provide objective and impartial information of each company’s
product, (c) offer personalized insurance programs to consumers, (d) offer
after-sale one-stop compensation services including improved efficiency with
claims settlements and (e) offer exposure to
www.soobao.cn
and
enjoy the network value-added services which are not offered through more
traditional insurance consumption.
Purchase
of Equipment
In
light
of the expanding insurance industry and in order to make web-browsing timely,
smooth and secure, it will be necessary for the Company to continually upgrade
the existing network portal hardware environment and to strengthen its network
security inputs, while at the same time increase advertisement promotion related
to network portal brand building. Therefore, we expect to purchase an estimated
RMB 10 million (US$1.3 million) of equipment over the next twelve (12) months.
Employees
With
the
anticipated business growth and nationwide business development as discussed
above, the Company plans to employ up to three hundred (300) employees in the
following two (2) to three (3) years through external introduction and internal
training.
Cash
Requirements
As
of the
date of this report, all of our capital is equity capital and we have not made
any debt financing with any bank or other financial institutions. We believe
our
capital is sufficient to satisfy our cash requirements. As our business
develops, the Company may consider raising additional funds if conditions are
suitable.
Summary
of Significant Accounting Policies
Economic
and Political Risks
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by
the
political, economic and legal environments in the PRC, and by the general state
of the PRC economy. The Company’s operations in the PRC are subject to special
considerations and significant risks not typically associated with companies
in
North America and Western Europe. These include risks associated with, among
others, the political, economic and legal environment and foreign currency
exchange. The Company’s results may be adversely affected by changes in the
political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti−inflationary measures,
currency conversion, remittances abroad, and rates and methods of taxation,
among other things.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair
Value of Financial Instruments
The
carrying value of financial instruments classified as current assets and current
liabilities, such as accounts receivables, other receivables, prepayments and
deposits, accounts payable, other payables and accrued liabilities, approximate
fair value due to the short-term maturity of the instruments.
Deferred
Revenue
Deferred
revenue primarily comprises contractual billings in excess of recognized revenue
and payments received in advance of revenue recognition.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with original maturity
of three months or less to be cash equivalents.
Foreign
Currency Translation
The
accompanying financial statements are presented in United States dollars. The
functional currency of the Company is the Renminbi (“
RMB
”)
and
Hong Kong Dollars (“HKD”). The financial statements are translated into United
States dollars from RMB and HKD at period-end exchange rates as to assets and
liabilities and average exchange rates as to revenues and expenses. Capital
accounts are translated at their historical exchange rates when the capital
transactions occurred.
|
|
March 31, 2008
|
|
June 30, 2007
|
|
March 31, 2007
|
|
Period/year
end RMB: US$ exchange rate
|
|
|
7.0100
|
|
|
7.6155
|
|
|
7.7342
|
|
|
|
|
|
|
|
|
|
|
|
|
Period/year
average RMB: US$ exchange rate
|
|
|
7.4919
|
|
|
7.7446
|
|
|
7.8038
|
|
|
|
|
|
|
|
|
|
|
|
|
Period/year
end HKD: US$ exchange rate
|
|
|
7.8114
|
|
|
7.8190
|
|
|
7.8325
|
|
|
|
|
|
|
|
|
|
|
|
|
Period/year
average HKD: US$ exchange rate
|
|
|
7.8297
|
|
|
7.7960
|
|
|
7.8150
|
|
Revenue
Recognition
Advertising
Advertising
revenues are derived mainly from online advertising arrangements, which allow
advertisers to place advertisements on particular areas of the Company’s web
sites, in particular formats and over particular periods of time. In accordance
with Emerging Issues Task Force (“EITF”) No. 00-21, “Accounting for Revenue
Arrangements with Multiple Deliverables,” advertising arrangements involving
multiple deliverables are broken down into single-element arrangements based
on
their relative fair value for revenue recognition purposes, when
possible.
For
web
site construction service, which is usually included in new advertising
contract, revenue is recognized ratably over the displayed period, typically
one
year. For web site maintenance services, revenue is recognized ratably over
the
contact period, generally one year.
Under
the
guidance of the SOP 97-2 “Software Revenue Recognition”, as amended by SOP 98-9
“Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions”, the Company determines vendor-specific objective evidence
(“VOSE”) based on actual prices charged when the service is sold on a standalone
basis.
Software
Development
Software
development revenue is recognized in accordance with SOP 97-2, when the outcome
of a contract for software development can be estimated reliably, contract
revenue and costs are charged to the income statement by reference to the stage
of completion of the contract activity at the balance sheet date, as measured
by
the proportion that costs incurred to date bear to estimated total costs for
each contract. When the outcome of a contract cannot be estimated reliably,
contract costs are recognized as an expense in the period in which they are
incurred. Contract revenue is recognized to the extent of contract costs
incurred that it is probable will be recoverable. Where it is probable that
the
total contract costs will exceed total contract revenue, the expected loss
is
recognized as an expense immediately.
Insurance
Commissions
Insurance
revenues, net of discounts, represent commissions earned from performing
agency-related services. Insurance commissions are recognized at the later
of
the date when the customer is initially billed or the insurance policy effective
date.
In
accordance with EITF No. 01-9, “Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendor’s Product,” cash consideration given
to customers or resellers, for which the Company does not receive a separately
identifiable benefit or cannot reasonably estimate fair value, are accounted
for
as a reduction of revenue rather than as an expense.
Cash
consideration includes discounts and other offers that entitle a customer to
receive a reduction in the price of a product. For the nine months ended March
31, 2008 and the period from October 8, 2006 to March 31,2007, the Company
recognized $177,411 and $0, respectively, as a reduction of revenue for the
discount offered to its customers.
Fixed
Assets
Fixed
assets are carried at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of
the
assets, which are five years for motor vehicles, computers and equipment. For
leasehold improvements, depreciation is computed using the straight-line method
over the estimated useful lives or lease term of the hired premises, whichever
is shorter. Depreciation expense for the nine months ended March 31, 2008 and
for the period from October 8, 2006 to March 31, 2007 was $38,617 and $1,717,
respectively.
Software
Software
is carried at cost less accumulated amortization. Amortization is computed
using
the straight-line method over the estimated useful lives of the assets, which
is
five years for software. Software is periodically reviewed when indicators
are
present to assess recoverability from future operations using undiscounted
cash
flows in accordance with Statement of Financial Accounting Standards (“SFAS”)
No.144, “Accounting for the Impairment or Disposal of Long-Live Assets”. To the
extent carrying value exceeds fair value, an impairment loss is recognized
in
operating result. No impairment was recorded for the nine months ended March
31,
2008.
Amortization
expense for the nine months ended March 31, 2008 and for the period from October
8, 2006 to March 31, 2007 was $26,918 and $0, respectively.
Earnings
Per Share
Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings
per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were no dilutive securities outstanding for the periods
presented.
Results
of Operations
For
the Three Months Ended March 31, 2008 Compared To Three Months Ended March
31,
2007
Our
operating results are presented on a condensed consolidated basis for the three
months ended March 31, 2008, as compared to the three months ended March 31,
2007.
The
following table sets forth the amounts and the percentage relationship to
revenues of certain items in our condensed consolidated statements of income
for
the three months ended March 31, 2008 and 2007.
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
3,345,933
|
|
|
104
|
%
|
$
|
260,537
|
|
|
100
|
%
|
$
|
3,085,396
|
|
|
1184
|
%
|
DISCOUNT
ALLOWED
|
|
|
115,632
|
|
|
4
|
%
|
|
-
|
|
|
0
|
%
|
|
115,632
|
|
|
100
|
%
|
REVENUES,
NET
|
|
|
3,230,301
|
|
|
100
|
%
|
|
260,537
|
|
|
100
|
%
|
|
2,969,764
|
|
|
1140
|
%
|
COST
OF SALES
|
|
|
623,033
|
|
|
19
|
%
|
|
14,907
|
|
|
6
|
%
|
|
608,126
|
|
|
4079
|
%
|
GROSS
PROFIT
|
|
|
2,607,268
|
|
|
81
|
%
|
|
245,630
|
|
|
94
|
%
|
|
2,361,638
|
|
|
961
|
%
|
General
& administrative expenses
|
|
|
262,335
|
|
|
8
|
%
|
|
14,508
|
|
|
6
|
%
|
|
247,827
|
|
|
1708
|
%
|
Selling
expenses
|
|
|
43,185
|
|
|
1
|
%
|
|
3,934
|
|
|
2
|
%
|
|
39,251
|
|
|
998
|
%
|
OPERATING
INCOME
|
|
|
2,301,748
|
|
|
71
|
%
|
|
227,188
|
|
|
87
|
%
|
|
2,074,560
|
|
|
913
|
%
|
Interest
income, net
|
|
|
6,289
|
|
|
0
|
%
|
|
95
|
|
|
0
|
%
|
|
6,194
|
|
|
6520
|
%
|
INCOME
BEFORE TAXES
|
|
|
2,308,037
|
|
|
71
|
%
|
|
227,283
|
|
|
87
|
%
|
|
2,080,754
|
|
|
915
|
%
|
Income
tax
|
|
|
697,851
|
|
|
22
|
%
|
|
75,003
|
|
|
29
|
%
|
|
622,848
|
|
|
830
|
%
|
NET
INCOME
|
|
$
|
1,610,186
|
|
|
50
|
%
|
$
|
152,280
|
|
|
58
|
%
|
$
|
1,457,906
|
|
|
957
|
%
|
Revenues
The
Company’s consolidated revenue rose to $3,345,933 for the three months ended
March 31, 2008, a 1184% increase from $260,537 reported for the three months
ended March 31, 2007. The consolidated net revenue rose to $3,230,301 for the
three months ended March 31, 2008, a 1140% increase from $260,537 reported
for
the three months ended March 31, 2007.
The
increase in revenue can be attributed to the following factors: a) the
significant increase of online insurance advertising services; b) the increase
of software development projects and; c) the launch of new business operation
of
insurance agency services.
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
development
|
|
$
|
434,964
|
|
|
13
|
%
|
$
|
193,346
|
|
|
74
|
%
|
$
|
241,618
|
|
|
125
|
%
|
Online
insurance advertising
|
|
|
2,782,749
|
|
|
83
|
%
|
|
67,191
|
|
|
26
|
%
|
|
2,715,558
|
|
|
4042
|
%
|
Insurance
agency
|
|
|
128,220
|
|
|
4
|
%
|
|
-
|
|
|
0
|
%
|
|
128,220
|
|
|
100
|
%
|
Total
Revenue
|
|
$
|
3,345,933
|
|
|
100
|
%
|
$
|
260,537
|
|
|
100
|
%
|
$
|
3,085,396
|
|
|
1184
|
%
|
The
significant increase of online insurance advertising services is a result of
the
significant increase in the recruitment of insurance agents upto 70 teams of
over 5,970 members for the three months ended March 31, 2008 from 11 teams
of
1,285 members for the three months ended March 31, 2007, and revenue was
increased by 4042% or $2,715,558 to $2,782,749 for the three months ended March
31, 2008 from $67,191 for the three months ended March 31, 2007.
Cost
of Sales
The
Company’s consolidated cost of sales (“COS”) increased $608,126 or 4079% to
$623,033 or 19% of net revenues for the three months ended March 31, 2008,
from
$14,907 or 6% of net revenues for the three months ended March 31, 2007. The
increase in COS is attributed to the significant increase in revenues and
accordingly the enlarged scale of operations to meet the operational needs.
Besides, the Business Tax for the inter-company transactions was $401,399 for
the three months ended March 31, 2008, which was generated from the consultancy
services fee paid by our VIE, ZYTX, to its primary beneficiary, ZBDT.
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
tax and levies
|
|
$
|
556,384
|
|
|
89
|
%
|
$
|
3,696
|
|
|
25
|
%
|
$
|
552,688
|
|
|
14954
|
%
|
Salaries
and allowance
|
|
|
23,937
|
|
|
4
|
%
|
|
6,059
|
|
|
41
|
%
|
|
17,878
|
|
|
295
|
%
|
Social
insurance
|
|
|
9,694
|
|
|
2
|
%
|
|
2,454
|
|
|
16
|
%
|
|
7,240
|
|
|
295
|
%
|
Depreciation
|
|
|
1,591
|
|
|
0
|
%
|
|
978
|
|
|
7
|
%
|
|
613
|
|
|
63
|
%
|
Others
|
|
|
31,427
|
|
|
5
|
%
|
|
1,720
|
|
|
12
|
%
|
|
29,707
|
|
|
1727
|
%
|
Total
Cost of Sales
|
|
$
|
623,033
|
|
|
100
|
%
|
$
|
14,907
|
|
|
100
|
%
|
$
|
608,126
|
|
|
4079
|
%
|
Gross
Profit
The
Company’s consolidated gross profit increased by $2,361,638 or 961% to
$2,607,268 for the three months ended March 31, 2008 from $245,630 for the
three
months ended March 31, 2007. The increase in gross profit is attributable to
the
significant increase in revenues from online insurance advertising
business.
General
and Administrative Expenses
General
and administrative expenses were $262,335 or 8% of our net revenue for the
three
months ended March 31, 2008, as compared to $14,508 or 6% of net revenues for
the three months ended March 31, 2007. The increase was mainly attributable
to
the growth of our business operations.
Selling
Expenses
Selling
expenses were $43,185 or 1% of net revenues for the three months ended March
31,
2008, as compared to $3,934, or 2% of net revenues for the three months ended
March 31, 2007. The increase is attributable to the growth of our sales
activities and operations during the period.
Finance
Income, net
Net
finance income for the three months ended March 31, 2008 was $6,289, as compared
to $95 for the three months ended March 31, 2007. It represents interest income
for the periods.
Income
Tax
The
Company has not recorded a provision for U.S. federal income taxes for the
three
months ended March 31, 2008 due to the net operating loss carry forward in
the
United States.
On
March 16, 2007, the National People’s Congress of China approved the new
Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”),
which was effective from January 1, 2008. Prior to January 1, 2008,
the CIT rate applicable to the Company’s subsidiary in the PRC was 33%. Starting
January 1, 2008, the applicable CIT rate for ZBDT, a wholly owned subsidiary,
is
25%. For the three months ended March 31, 2008, the CIT for ZBDT was $1,759,885.
ZYTX, a VIE of the Company, enjoys a favorable tax rate of 15% as it is
considered as a high technology company by the Chinese government. ZYTX is
also
entitled to a full exemption from CIT for the first two years from January
1,
2007 to December 31, 2008. Starting from January 1, 2009, the CIT rate of ZYTX
will be 15%. ZYTX was exempted from CIT for the three months ended March 31,
2008.
Some
of
the tax concession granted to eligible companies prior to the new CIT law
is
grandfathered. The new CIT Law has an impact on the deferred tax assets and
liabilities of the Company. The Company adjusted deferred tax balances as
of
March 31, 2007 and June 30, 2007 based on the current applicable tax rate
and will continue to assess the impact of such new law in the future. Effects
arising from the enforcement of the new CIT Law were reflected into the accounts
by best estimates.
Pursuant
to the Inland Revenue Ordinance of Hong Kong, Rise & Grow is subject to the
Hong Kong Profits Tax at 17.5% for the nine months ended March 31, 2008.
As Rise
& Grow has no assessable profits for the three months ended March 31, 2008,
no provision for profits tax has been made.
Income
tax expense is summarized as follows:
|
|
2008
|
|
2007
|
|
Computed
“expected” expense
|
|
$
|
820,094
|
|
$
|
75,003
|
|
Permanent
differences
|
|
|
(122,243
|
)
|
|
-
|
|
Income
tax expense
|
|
$
|
697,851
|
|
$
|
75,003
|
|
Net
Income
Net
income was $1,610,186 and net profit margin was 50% for the three months
ended
March 31, 2008, as compared to net income was $152,280 and net profit margin
was
58% for the three months ended March 31, 2007. The increase in net income
of
$1,457,906 is attributable to the increase in revenue from our business
operations.
Results
by Segment
The
Company has determined that there are three reportable business segments
for the
three months ended March 31, 2008 and 2007, which are software development,
online insurance advertising and insurance agency within the PRC.
(a)
Software
Development
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
434,964
|
|
|
100
|
%
|
$
|
193,346
|
|
|
100
|
%
|
$
|
241,618
|
|
|
125
|
%
|
COS
|
|
|
10,229
|
|
|
2
|
%
|
|
10,289
|
|
|
5
|
%
|
|
(60
|
)
|
|
(1
|
)%
|
Gross
profit
|
|
$
|
424,735
|
|
|
98
|
%
|
$
|
183,057
|
|
|
95
|
%
|
$
|
241,678
|
|
|
132
|
%
|
Revenues
from software development increased by 125% or $241,618 to $434,964 for the
three months ended March 31, 2008 from $193,346 for the three months ended
March
31, 2007. The increase is attributable to the growth of the operations.
In
additions, the Company maintained a stable COS and GP ratio throughout the
three
months ended March 31, 2008 and 2007, which summarized as table
below:
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and allowance
|
|
$
|
9,952
|
|
|
97
|
%
|
$
|
5,440
|
|
|
53
|
%
|
$
|
4,512
|
|
|
83
|
%
|
Social
insurance
|
|
|
4,488
|
|
|
44
|
%
|
|
2,203
|
|
|
21
|
%
|
|
2,285
|
|
|
104
|
%
|
Depreciation
|
|
|
760
|
|
|
7
|
%
|
|
926
|
|
|
9
|
%
|
|
(166
|
)
|
|
(18
|
)%
|
Others
|
|
|
(4,970
|
)
|
|
(49
|
)%
|
|
1,720
|
|
|
17
|
%
|
|
(6,690
|
)
|
|
(389
|
)%
|
|
|
$
|
10,230
|
|
|
100
|
%
|
$
|
10,289
|
|
|
100
|
%
|
$
|
(59
|
)
|
|
1
|
%
|
Similar
as March 31, 2007, Salaries and allowance was the major components of COS
of
Software Development income. The Salaries and allowance increased by 83%
or
$4,512 to $9,952 for the three months ended March 31, 2008 from $5,440 for
the
three months ended March 31, 2007. The increase is attributable to the recruit
of sufficient number of software engineers to meet the needs of our business
operations.
Different
from the other business segment, the Software Development was the only one
not
subject to Business tax and levies under the existing PRC tax law. As a result,
no Business tax and levies expenses were incurred.
(b)
Online
Insurance Advertising
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,782,749
|
|
|
100
|
%
|
$
|
67,191
|
|
|
100
|
%
|
$
|
2,715,558
|
|
|
4042
|
%
|
COS
|
|
|
182,476
|
|
|
7
|
%
|
|
4,618
|
|
|
7
|
%
|
|
177,858
|
|
|
3851
|
%
|
Gross
profit
|
|
$
|
2,600,273
|
|
|
93
|
%
|
$
|
62,573
|
|
|
93
|
%
|
$
|
2,537,700
|
|
|
4056
|
%
|
Revenues
from online insurance advertising increased by 4042% or $2,715,558 to $2,782,749
for the three months ended March 31, 2008 from $67,191 for the three months
ended March 31, 2007. The increase is attributable to the significant
recruitment of new insurance agents up to 70 teams, which consist of over
5,970
members who subscribed to our online advertising and website construction
services during the three months ended March 31, 2008, comparing with the
11
teams, which consist of 1,285 members during the three months ended March
31,
2007.
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
tax & levies
|
|
$
|
153,051
|
|
|
84
|
%
|
$
|
3,696
|
|
|
80
|
%
|
$
|
149,355
|
|
|
4041
|
%
|
Salaries
and allowance
|
|
|
13,984
|
|
|
8
|
%
|
|
619
|
|
|
13
|
%
|
|
13,365
|
|
|
2159
|
%
|
Social
insurance
|
|
|
5,206
|
|
|
3
|
%
|
|
251
|
|
|
5
|
%
|
|
4,955
|
|
|
1974
|
%
|
Depreciation
|
|
|
755
|
|
|
0
|
%
|
|
52
|
|
|
1
|
%
|
|
703
|
|
|
1352
|
%
|
Others
|
|
|
9,480
|
|
|
5
|
%
|
|
0
|
|
|
0
|
%
|
|
9,480
|
|
|
N/A
|
|
|
|
$
|
182,476
|
|
|
100
|
%
|
$
|
4,618
|
|
|
100
|
%
|
$
|
177,858
|
|
|
3851
|
%
|
Meanwhile,
the Company maintained stable COS and GP ratio for both three months ended
March
31, 2008 and 2007.
As
the
Online Insurance Advertising is subject to Business tax and levies, the Business
tax and levies become the most significant elements of the COS, which is
5.5% of
revenue. Comparing with same period prior year, the increase of Business
tax and
levies is attributable to the increase of revenue.
(c)
Insurance
Agency
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
128,220
|
|
|
1019
|
%
|
$
|
-
|
|
|
N/A
|
|
$
|
128,220
|
|
|
100
|
%
|
Discount
allowed
|
|
|
115,632
|
|
|
919
|
%
|
|
-
|
|
|
N/A
|
|
|
115,632
|
|
|
100
|
%
|
Revenue,
net
|
|
|
12,588
|
|
|
100
|
%
|
|
-
|
|
|
N/A
|
|
|
12,588
|
|
|
100
|
%
|
COS
|
|
|
34,047
|
|
|
270
|
%
|
|
-
|
|
|
N/A
|
|
|
34,047
|
|
|
100
|
%
|
Gross
loss
|
|
$
|
(21,459
|
)
|
|
(170
|
)%
|
$
|
-
|
|
|
N/A
|
|
$
|
(21,459
|
)
|
|
(100
|
)%
|
Insurance
agency was launched in September 2007, which is a new operating sector for
the
Company. There is no comparative information for the three month ended March
31,
2007.
Revenue
on Insurance agency is also subject to Business tax and levies, the COS mainly
consists of Business tax and levies in 5.5% of revenue, amounting to $7,052,
and
amortization of software for the this business segment amounting to $26,198
for
the three months ended March 31, 2008.
(d)
Administration
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
-
|
|
COS
|
|
|
396,281
|
|
|
100
|
%
|
|
-
|
|
|
396,281
|
|
|
100
|
%
|
Gross
loss
|
|
$
|
396,281
|
|
|
100
|
%
|
$
|
-
|
|
$
|
396,281
|
|
|
100
|
%
|
Administration
represented the inter-companies’ service income from ZYTX to ZBDT, which
eliminated on consolidation. However, under the relevant PRC tax law, service
income of ZBDT was subject to Business Tax and levies of 5.5% on revenue,
which
was recognized as COS of administration.
For
The Nine Months Ended March 31, 2008 Compared To The Period From October
8, 2006
(Inception) to March 31, 2007
Our
operating results are presented on a condensed consolidated basis for the
nine
months ended March 31, 2008, as compared to the period ended from October
8,
2006 to March 31, 2007.
The
following table sets forth the amounts and the percentage relationship to
revenues of certain items in our condensed consolidated statements of income
for
the nine months ended March 31, 2008 and the period ended from October 8,
2006
to March 31, 2007.
|
|
Nine Months Ended
March 31, 2008
|
|
From October 8,
2006 (Inception) to
March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
8,646,686
|
|
|
102
|
%
|
$
|
259,012
|
|
|
100
|
%
|
$
|
8,387,674
|
|
|
3238
|
%
|
DISCOUNT
ALLOWED
|
|
|
177,411
|
|
|
2
|
%
|
|
-
|
|
|
0
|
%
|
|
177,411
|
|
|
100
|
%
|
REVENUES,
NET
|
|
|
8,469,275
|
|
|
100
|
%
|
|
259,012
|
|
|
100
|
%
|
|
8,210,263
|
|
|
3170
|
%
|
COST
OF SALES
|
|
|
845,866
|
|
|
10
|
%
|
|
17,761
|
|
|
7
|
%
|
|
828,105
|
|
|
4662
|
%
|
GROSS
PROFIT
|
|
|
7,623,409
|
|
|
90
|
%
|
|
241,251
|
|
|
93
|
%
|
|
7,382,158
|
|
|
3060
|
%
|
General
& administrative expenses
|
|
|
477,297
|
|
|
6
|
%
|
|
25,350
|
|
|
10
|
%
|
|
451,947
|
|
|
1783
|
%
|
Selling
expenses
|
|
|
99,128
|
|
|
1
|
%
|
|
4,935
|
|
|
2
|
%
|
|
94,193
|
|
|
1909
|
%
|
OPERATING
INCOME
|
|
|
7,046,984
|
|
|
83
|
%
|
|
210,966
|
|
|
81
|
%
|
|
6,836,018
|
|
|
3240
|
%
|
Interest
income, net
|
|
|
12,764
|
|
|
0
|
%
|
|
213
|
|
|
0
|
%
|
|
12,551
|
|
|
5892
|
%
|
INCOME
BEFORE TAXES
|
|
|
7,059,748
|
|
|
83
|
%
|
|
211,179
|
|
|
82
|
%
|
|
6,848,569
|
|
|
3243
|
%
|
Income
tax
|
|
|
1,411,359
|
|
|
17
|
%
|
|
74,566
|
|
|
29
|
%
|
|
1,336,793
|
|
|
1793
|
%
|
NET
INCOME
|
|
$
|
5,648,389
|
|
|
67
|
%
|
$
|
136,613
|
|
|
53
|
%
|
$
|
5,511,776
|
|
|
4035
|
%
|
Revenues
The
Company’s consolidated revenue rose to $8,646,686 for the nine months ended
March 31, 2008, a 3238% increase from $259,012 reported for the period from
October 8, 2006 to March 31, 2007. The consolidated net revenue rose to
$8,469,275 for the nine months ended March 31, 2008, a 3170% increase from
$259,012 reported for the period from October 8, 2006 to March 31,
2007
The
increase in revenue can be attributed to the following factors: the significant
increase of online insurance advertising services, the increase of software
development projects and the launch of new business operation of insurance
agency services.
|
|
Nine Months
Ended March 31,
2008
|
|
From October 8,
2006 (Inception)
to March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
development
|
|
$
|
2,584,658
|
|
|
30
|
%
|
$
|
192,214
|
|
|
74
|
%
|
$
|
2,392,444
|
|
|
1245
|
%
|
Online
insurance advertising
|
|
|
5,875,887
|
|
|
68
|
%
|
|
66,798
|
|
|
26
|
%
|
|
5,809,089
|
|
|
8697
|
%
|
Insurance
agency
|
|
|
186,141
|
|
|
2
|
%
|
|
-
|
|
|
0
|
%
|
|
186,141
|
|
|
100
|
%
|
Total
Revenue
|
|
$
|
8,646,686
|
|
|
100
|
%
|
$
|
259,012
|
|
|
100
|
%
|
$
|
8,387,674
|
|
|
3238
|
%
|
The
significant increase of online insurance advertising services is a result
of the
significant increase in the recruitment of insurance agents up to 70 teams
of
over 5,970 members for the nine months ended March 31, 2008 from 11 teams
of
1,285 members for the period from October 8, 2006 to March 31, 2007, and
revenue
was increased by 8697% or $5,809,089 to $5,875,887 for the nine months ended
March 31, 2008 from $66,798 for the period from October 8, 2006 to March
31,
2007
The
increase of software development projects during the nine months ended March
31,
2008, which raised the software development income by $2,392,444 or 1245%
to
$2,584,658, due to completion of two projects, for the nine months ended
March
31, 2008 from $192,214 for the period from October 8, 2006 to March 31,
2007.
Cost
of Sales
The
Company’s consolidated cost of sales (“COS”) increased $828,105 or 4662% to
$845,866 or 10% of net revenues for the nine months ended March 31, 2008,
from
$17,761 or 7% of net revenues for the period from October 8, 2006 to March
31,
2007. The increase in COS is attributed to the significant increase in revenues
and accordingly the enlarged the scale of operations to meet the operational
needs. Besides, the Business Tax for the inter-company transactions was $396,281
for the nine months ended March 31, 2008, which was generated from the
consultancy services fee paid by our VIE, ZYTX, to its primary beneficiary,
ZBDT.
|
|
Nine
Months
Ended
March 31,
2008
|
|
From
October 8,
2006
(Inception)
to
March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
tax and levies
|
|
$
|
729,692
|
|
|
86
|
%
|
$
|
3,674
|
|
|
21
|
%
|
$
|
726,018
|
|
|
19761
|
%
|
Salaries
and allowance
|
|
|
52,891
|
|
|
6
|
%
|
|
7,056
|
|
|
40
|
%
|
|
45,835
|
|
|
650
|
%
|
Social
insurance
|
|
|
21,780
|
|
|
3
|
%
|
|
2,858
|
|
|
16
|
%
|
|
18,922
|
|
|
662
|
%
|
Depreciation
|
|
|
4,309
|
|
|
1
|
%
|
|
1,134
|
|
|
6
|
%
|
|
3,175
|
|
|
280
|
%
|
Other
|
|
|
37,194
|
|
|
4
|
%
|
|
3,039
|
|
|
17
|
%
|
|
34,155
|
|
|
1124
|
%
|
Total
Cost of Sales
|
|
$
|
845,866
|
|
|
100
|
%
|
$
|
17,761
|
|
|
100
|
%
|
$
|
828,105
|
|
|
4662
|
%
|
Gross
Profit
The
Company’s consolidated gross profit increased by $7,382,158 or 3060% to
$7,623,409 for the nine months ended March 31, 2008 from $241,251 for the
period
from October 8, 2006 to March 31, 2007. The increase in gross profit is
attributable to the significant increase in revenues from software development
and online insurance advertising business.
General
and Administrative Expenses
General
and administrative expenses were $477,297 or 6% of net revenue for the nine
months ended March 31, 2008, as compared to $25,350 or 10% of net revenues
for
the period from October 8, 2006 to March 31, 2007. The increase was mainly
attributable to the growth of our business operations.
Selling
Expenses
Selling
expenses were $99,128 or 1% of net revenues for the nine months ended March
31,
2008, as compared to $4,935, or 2% of net revenues for the period from October
8, 2006 to March 31, 2007. The increase is attributable to the increase of
sales
activities.
Interest
Income, net
Net
interest income for the nine months ended March 31, 2008 was $12,764, compared
to $213 for the period from October 8, 2006 to March 31, 2007. The increase
is
attributable to increase of bank deposit as the growth of our business
operations for the nine months ended March 31, 2008.
Income
Tax
The
Company has not recorded a provision for U.S. federal income taxes for the
nine
months ended March 31, 2008 due to the net operating loss carry forward in
the
United States.
On
March 16, 2007, the National People’s Congress of China approved the new
Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”),
which was effective from January 1, 2008. Prior to January 1, 2008,
the CIT rate applicable to the Company’s subsidiary in the PRC was 33%. Starting
January 1, 2008, the applicable CIT rate for ZBDT, a wholly owned subsidiary,
is
25%. For the nine months ended March 31, 2008, the CIT for ZBDT was $1,759,885.
ZYTX, a VIE of the Company, enjoys a favorable tax rate of 15% as it is
considered as a high technology company by the Chinese government. ZYTX is
also
entitled to a full exemption from CIT for the first two years from January
1,
2007 to December 31, 2008. Starting from January 1, 2009, the CIT rate of
ZYTX
will be 15%. ZYTX is exempted from CIT for the nine months ended March 31,
2008.
Some
of
the tax concession granted to eligible companies prior to the new CIT law
is
grandfathered. The new CIT Law has an impact on the deferred tax assets and
liabilities of the Company. The Company adjusted deferred tax balances as
of
March 31, 2007 and June 30, 2007 based on the current applicable tax rate
and will continue to assess the impact of such new law in the future. Effects
arising from the enforcement of the new CIT Law were reflected into the accounts
by best estimates.
Pursuant
to the Inland Revenue Ordinance of Hong Kong, Rise & Grow is subject to the
Hong Kong Profits Tax at 17.5% for the nine months ended March 31, 2008.
As Rise
& Grow has no assessable profits for the nine months ended March 31, 2008,
no provision for profits tax has been made.
Income
tax expense is summarized as follows:
|
|
Nine Months
Ended March
31, 2008
|
|
From October 8,
2006 (Inception)
to March 31,
2007
|
|
Computed
“expected” expense
|
|
$
|
1,536,271
|
|
$
|
69,689
|
|
Permanent
differences
|
|
|
(124,912
|
)
|
|
4,877
|
|
Income
tax expense
|
|
$
|
1,411,359
|
|
$
|
74,566
|
|
Net
Income
Net
income was $5,648,389 and net profit margin was 67% for the nine months ended
March 31, 2008, as compared to net income was $136,613 and net profit margin
was
53% for the period from October 8, 2006 to March 31, 2007. The increase in
net
income of $5,511,776 or 4035% is attributable to the increase in revenue
form
our business operations.
Results
by Segment
The
Company has determined that there are three reportable business segments
for the
nine months ended March 31, 2008 and for the period ended from October
8, 2006
to March 31, 2007, which are software development, online insurance advertising
and insurance agency within the PRC.
(a)
Software
Development
|
|
Nine Months
Ended March 31,
2008
|
|
From October 8,
2006 (Inception)
to March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,584,658
|
|
|
100
|
%
|
$
|
192,214
|
|
|
100
|
%
|
$
|
2,392,444
|
|
|
1245
|
%
|
COS
|
|
|
52,332
|
|
|
2
|
%
|
|
12,437
|
|
|
6
|
%
|
|
39,895
|
|
|
321
|
%
|
Gross
profit
|
|
$
|
2,532,326
|
|
|
98
|
%
|
$
|
179,777
|
|
|
94
|
%
|
$
|
2,352,549
|
|
|
1309
|
%
|
Revenues
from software development increased by 1245% or $2,392,444 to $2,584,658
for the
nine months ended March 31, 2008 from $192,214 for the period from October
8,
2006 to March 31, 2007. The increase is attributable to the growth of the
operations.
In
additions, the Company maintained a stable COS and GP ratio throughout
the nine
months ended March 31, 2008 and for the period from October 8, 2006 to
March 31,
2007, which summarized as table below:
|
|
Nine Months
Ended March
31, 2008
|
|
From October 8,
2006 (Inception)
to March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and allowance
|
|
$
|
37,577
|
|
|
72
|
%
|
$
|
5,927
|
|
|
48
|
%
|
|
31,650
|
|
|
534
|
%
|
Social
insurance
|
|
|
10,710
|
|
|
20
|
%
|
|
2,400
|
|
|
19
|
%
|
|
8,310
|
|
|
346
|
%
|
Depreciation
|
|
|
3,248
|
|
|
6
|
%
|
|
1,069
|
|
|
9
|
%
|
|
2,179
|
|
|
204
|
%
|
Others
|
|
|
797
|
|
|
2
|
%
|
|
3,041
|
|
|
24
|
%
|
|
(2,244
|
)
|
|
(74
|
)%
|
|
|
$
|
52,332
|
|
|
100
|
%
|
$
|
12,437
|
|
|
100
|
%
|
$
|
39,895
|
|
|
321
|
%
|
Similar
as March 31, 2007, Salaries and allowance was the major components of COS
of
Software Development income. The Salaries and allowance increased by 534%
or
$31,650 to $37,577 for the nine months ended March 31, 2008 from $5,927
for the
period from October 8, 2006 to March 31, 2007. The increase is attributable
to
the recruit of sufficient number of software engineers to meet the needs
of our
business operations..
Different
from the other business segment, the Software Development was the only
one not
subject to Business tax and levies under the existing PRC tax law. As a
result,
no Business tax and levies expenses were incurred.
(b)
Online
Insurance Advertising
|
|
Nine Months
Ended March 31,
2008
|
|
From October 8,
2006 (Inception)
to March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,875,887
|
|
|
100
|
%
|
$
|
66,798
|
|
|
100
|
%
|
$
|
5,809,089
|
|
|
8697
|
%
|
COS
|
|
|
360,020
|
|
|
6
|
%
|
|
5,324
|
|
|
8
|
%
|
|
354,696
|
|
|
6662
|
%
|
Gross
profit
|
|
$
|
5,515,867
|
|
|
94
|
%
|
$
|
61,474
|
|
|
92
|
%
|
$
|
5,454,393
|
|
|
8873
|
%
|
Revenues
from online insurance advertising increased by 8697% or $5,809,089 to $5,875,887
for the nine months ended March 31, 2008 from $66,798 for the nine months
ended
March 31, 2007. The increase is attributable to the significant recruitment
of
new insurance agents up to 70 teams, which consist of over 5,970 members
who
subscribed to our online advertising and website construction services
during
the nine months ended March 31, 2008, comparing with the 11 teams, which
consist
of 1,285 members during the nine months ended March 31, 2007.
|
|
Nine Months
Ended March
31, 2008
|
|
From October 8,
2006 (Inception)
to March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
tax & levies
|
|
$
|
323,174
|
|
|
90
|
%
|
$
|
3,674
|
|
|
69
|
%
|
|
319,500
|
|
|
8696
|
%
|
Salaries
and allowance
|
|
|
15,313
|
|
|
4
|
%
|
|
1,129
|
|
|
21
|
%
|
|
14,184
|
|
|
1256
|
%
|
Social
insurance
|
|
|
11,070
|
|
|
3
|
%
|
|
457
|
|
|
9
|
%
|
|
10,613
|
|
|
2322
|
%
|
Depreciation
|
|
|
984
|
|
|
0
|
%
|
|
64
|
|
|
1
|
%
|
|
920
|
|
|
1438
|
%
|
Others
|
|
|
9,480
|
|
|
3
|
%
|
|
-
|
|
|
0
|
%
|
|
9,480
|
|
|
100
|
%
|
|
|
$
|
360,021
|
|
|
100
|
%
|
$
|
5,324
|
|
|
100
|
%
|
$
|
354,697
|
|
|
6662
|
%
|
Meanwhile,
the Company maintained stable COS and GP ratio for both nine months ended
March
31, 2008 and for the period from October 8, 2006 to March 31, 2007.
As
the
Online Insurance Advertising is subject to Business tax and levies, the Business
tax and levies become the most significant elements of the COS, which is
5.5% of
revenue. Comparing with same period prior year, the increase of Business
tax and
levies is attributable to the increase of revenue.
|
|
Nine
Months
Ended
March 31,
2008
|
|
From
October 8,
2006
(Inception) to
March
31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
186,141
|
|
|
2133
|
%
|
$
|
-
|
|
|
N/A
|
|
$
|
186,141
|
|
|
100
|
%
|
Discount
allowed
|
|
|
177,411
|
|
|
2032
|
%
|
|
-
|
|
|
N/A
|
|
|
177,411
|
|
|
100
|
%
|
Revenue,
net
|
|
|
8,730
|
|
|
100
|
%
|
|
-
|
|
|
N/A
|
|
|
8,730
|
|
|
100
|
%
|
COS
|
|
|
37,233
|
|
|
426
|
%
|
|
-
|
|
|
N/A
|
|
|
37,233
|
|
|
100
|
%
|
Gross
loss
|
|
$
|
(28,503
|
)
|
|
(326
|
)%
|
$
|
-
|
|
|
N/A
|
|
$
|
(28,503
|
)
|
|
(100
|
)%
|
Insurance
agency was launched in September 2007, which is a new operating sector for
the
Company, there is no comparative information for the period from October
8, 2006
to March 31, 2007.
Revenue
on Insurance agency is also subject to Business tax and levies, the COS mainly
consists of Business tax and levies in 5.5% of revenue, amounting to $10,238,
and amortization of software for the this business segment amounting to $26,918
for the nine months ended March 31, 2008.
|
|
Nine Months
Ended March 31,
2008
|
|
From October 8,
2006 (Inception)
to March 31, 2007
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
-
|
|
COS
|
|
|
396,281
|
|
|
100
|
%
|
|
-
|
|
|
396,281
|
|
|
100
|
%
|
Gross
loss
|
|
$
|
396,281
|
|
|
100
|
%
|
$
|
-
|
|
$
|
396,281
|
|
|
100
|
%
|
Administration
represented the inter-companies’ service income from ZYTX to ZBDT, which
eliminated on consolidation. However, under the relevant PRC tax law, service
income of ZBDT was subject to Business Tax and levies of 5.5% on revenue,
which
was recognized as COS of administration.
Liquidity
and Capital Resources
Cash
flow
As
of
March 31, 2008, the Company has $2,708,227 in bank deposits with a bank in
China, which constitutes about ninety-four percent (94%) of its total cash
and
cash equivalent as of such date.
We
summarize our Statement of Cash flow for the nine months ended March 31,
2008
and the period from October 8, 2006 (Inception) to March 31, 2007 as
below:
|
|
Nine
Months
Ended
March 31,
2008
|
|
From
October 8,
2006
(Inception)
to March
31, 2007
|
|
Variance
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
5,294,779
|
|
$
|
(38,898
|
)
|
$
|
5,333,677
|
|
|
(13711
|
)%
|
Investing
activities
|
|
|
(3,018,178
|
)
|
|
(31,408
|
)
|
|
(2,986,770
|
)
|
|
9510
|
%
|
Financing
activities
|
|
|
-
|
|
|
126,360
|
|
|
(126,360
|
)
|
|
(100
|
)%
|
Net
change in cash and cash equivalents
|
|
|
2,276,601
|
|
|
56,054
|
|
|
2,220,547
|
|
|
3962
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
561,485
|
|
|
3,933
|
|
|
557,552
|
|
|
14162
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
47,657
|
|
|
-
|
|
|
47,657
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,885,743
|
|
$
|
59,987
|
|
$
|
2,825,756
|
|
|
4711
|
%
|
Cash
flows provided by operating activities during the nine months ended March
31,
2008 amounted to $5,294,779, representing an increase of $5,333,677 of cash
inflow, as opposite to cash outflows used in operating activities of $38,898
during the period ended March 31, 2007. The increase in cash flows from
operating activities was primarily due to the growth of the operating activities
mainly on online insurance advertising.
Cash
flows used in investing activities was $3,018,178 during the nine months
ended
March 31, 2008, which represented an increase of $2,986,770 or 9510%, as
compared to $31,408 for the period ended March 31, 2007. This increase is
mainly
attributable to the acquisition of two application software of $2,753,210,
and
acquisition of fixed assets amounting to $264,968 to facilitate the new business
of insurance agency services.
For
the
period ended March 31, 2008, cash provided by financing activities was $0,
as
compared to $126,360 of proceeds from registered capital for the incorporation
of ZYTX, on October 8, 2006, for the period ended March 31, 2007.
Liquidity
The
primary source of liquidity had been cash generated from operations, which
included cash inflows from currency translation activities. Historically,
the
primary liquidity requirements were for capital expenditures, working capital
and investments. Our contractual obligations, commitments and debt service
requirements over the next 12 months are not significant. Our primary source
of
liquidity will continue to be cash generated from operations as well as existing
cash on hand. We have availability under our amended and restated credit
facilities to assist, if required, in meeting our working capital needs and
other contractual obligations.
We
believe our current cash and cash equivalents and cash generated from operations
will satisfy our expected working capital and other requirements for the
foreseeable future based on current business strategy and expansion plan.
We
believe we will have available resources to meet our short-term liquidity
requirements.
As
of
March 31, 2008, all of our capital is equity capital and we have not made
any
debt financing with any bank or other financial institutions. We believe
our
capital is sufficient to satisfy our cash requirements in the next twelve
months. As for our business development, the Company may consider raising
additional funds for the following future business plans if conditions are
suitable:
|
1)
|
To
expand our Beijing office and upgrade our network operating
environment;
|
|
2)
|
To
expand our online insurance sales supermarket;
and
|
|
3)
|
To
expand our operations in different cities in the PRC;
and
|
|
4)
|
To
acquire equipment to continually upgrade the existing network portal
hardware environment and to strengthen its network security
inputs.
|
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS
No. 157”) which provides enhanced guidance for using fair value to measure
assets and liabilities. SFAS No. 157 provides a common definition of fair
value
and establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS No. 157
also
requires expanded disclosures to provide information about the extent to
which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures
on
earnings. SFAS No. 157 is effective for financial statements issued in fiscal
years beginning after November 15, 2007 and to interim periods within those
fiscal years. The Company does not have to adopt this until next fiscal year.
The Company is currently evaluating the impact on the adoption of SFAS No.
157
may have on its financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option of Financial
Assets and Financial Liabilities” (“SFAS No. 159”), which permits entities to
measure many financial instruments and certain other items of fair value.
SFAS
No. 159’s overall objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings
caused
by measuring related assets and liabilities differently without having to
apply
complex hedge accounting provisions. SFAS No. 159 applies to all entities,
including not-for-profit organization, and most of its provisions apply only
to
entities that elect the fair value option, although FAS 159’s amendment to FAS
115 applies to all entities with available-for-sale and trading securities.
This
Statement was effective as of the beginning of each reporting entity's first
fiscal year that begins after November 15, 2007. Adoption of the first interim
period of earlier fiscal years, provided the entity also elects to early
adopt
SFAS No. 159. The Company is currently evaluating the impact on adoption
of SFAS
No. 159 may have on our financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS No.
141R”), “Business Combinations”, which replaces SFAS No. 141. This statement
retains the purchase method of accounting for acquisitions, but requires
a
number of changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It also changes the recognition of
assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS
No. 141R is effective for the Company beginning July 1, 2009 and will
apply prospectively to business combinations completed on or after that
date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51, which changes
the
accounting and reporting for minority interests. Minority interests will
be
recharacterized as noncontrolling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for
as
equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning
July 1, 2009 and will apply prospectively, except for the presentation and
disclosure requirements, which will apply retrospectively. The Company is
currently assessing the potential impact that adoption of SFAS No. 160
would have on the Company’s financial statements.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), which amends SFAS No.133 and expands
disclosures to include information about the fair value of derivatives, related
credit risks and a company’s strategies and objectives for using derivatives.
SFAS No. 161 is effective for fiscal periods beginning on or after November
15,
2008. We are currently in the process of assessing the impact that SFAS No.
161
will have on the disclosures in our consolidated financial
statements.
Material
Commitments
The
Company occupies office space leased from third parties. For the nine months
ended March 31, 2008 and the period from October 8, 2006 (Inception) to March
31, 2007, the Company recognized $83,786 and $6,087, respectively, as rental
expense for these spaces. As of March 31, 2008, the Company has outstanding
commitments with respect to non-cancelable operating leases as
follows:
Year
Ending June 30,
|
|
Amount
|
|
2008
|
|
$
|
47,860
|
|
2009
|
|
|
159,500
|
|
2010
|
|
|
149,363
|
|
2011
|
|
|
25,371
|
|
|
|
$
|
382,094
|
|
Off-Balance
Sheet Arrangements
We
currently have no off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
Risk
Factor
As
a
smaller reporting company, we are not required to provided the information
required by this item.
ITEM
3A(T). CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
The
Company maintains disclosure controls and procedures and internal controls
designed to ensure that information required to be disclosed in the Company’s
filings under the Securities Exchange Act of 1934, as amended is recorded,
processed, summarized and reported within the time periods specified in the
U.S.
Securities and Exchange Commission’s rules and forms. As of the end of the
period covered by this Quarterly Report, we carried out an evaluation, under
the
supervision and with the participation of our principal executive officer
and
principal financial officer, of the effectiveness of the design and operation
of
our disclosure controls and procedures. Based on this evaluation, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures are effectively designed to ensure that information
required to be disclosed or filed by us is recorded, processed or summarized,
within the time periods specified in the rules and regulations of the Securities
and Exchange Commission. It should be noted that the design of any system
of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed
in
achieving its stated goals under all potential future conditions, regardless
of
how remote.
Changes
In Internal Controls
There
was
no change in the Company’s internal control over financial reporting that was
identified in connection with such evaluation that occurred during the period
covered by this Quarterly Report on Form 10-QSB/A that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
PART
II
OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
In
the
normal course of business, we are named as a defendant in lawsuits in which
claims are asserted against us. In our opinion, the liabilities, if any,
which
may ultimately result from such lawsuits, are not expected to have a material
adverse effect on our financial position, results of operations or cash flows.
As of the date hereof, there is no outstanding litigation.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On
December 18, 2007, pursuant to the terms of the Exchange Agreement, the Company
acquired all of the issued and outstanding capital stock of Rise & Grow in
exchange for the issuance by CHIO of 26,400,000 newly-issued shares of Common
Stock to the Stockholder (Newise Century Inc.).
The
Company did not issue any shares of unregistered securities for the quarter
ended March 31, 2008.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
ITEM
5. OTHER INFORMATION
On
February 22, 2008, the Board of Directors (the “
Board
”)
of the
Company adopted a new Code of Ethics that applies to the Company’s officers,
directors and employees. A copy of the Code of Ethics is attached to the
Company’s Current Report on Form 8-K as Exhibit 14.1 as filed with the SEC on
February 27, 2008.
On
February 22, 2008, the Board of the Company also approved the charters for
each
of the Audit Committee, the Compensation and the Nominating Committees of
the
Board. A copy of the Audit Committee Charter, the Compensation Committee
Charter
and the Nominating Committee Charter are attached to the Company’s Current
Report on Form 8-K as Exhibits 99.1, 99.2 and 99.3, respectively as filed
with
the SEC on February 27, 2008.
Effective
March 17, 2008, the common stock of CHIO began trading under a new ticker
symbol, “CHIO.OB” on the Over-The-Counter Bulletin Board. CHIO changed its
ticker symbol from “DEXT.OB” to “CHIO.OB” as a result of the Company’s name
change from “Dexterity Surgical, Inc.” to “China INSOnline Corp.”, which such
name change became effective as of February 26, 2008.
On
April
8, 2008, the Board unanimously resolved to amend and restate the Company’s
bylaws, and the Company did amend and restate its bylaws, to (a) add a provision
requiring a quorum of 33 1/3% at any annual or special stockholder meeting
and
(b) allow the Board to adopt a resolution providing for uncertificated shares.
A
copy of the amended and restated bylaws of the Company is attached hereto
as
Exhibit 3.3.
ITEM
6. EXHIBITS
EXHIBIT
NO.
|
|
DESCRIPTION
|
|
LOCATION
|
3.1
|
|
Certificate
of Incorporation (as amended) of Dexterity Surgical, Inc.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
3.2
|
|
Certificate
of Amendment to the Company’s Certificate of Incorporation, dated February
26, 2008
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB as
filed with the SEC on May 15, 2008
|
3.3
|
|
Amended
and Restated Bylaws of the Company
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB as
filed with the SEC on May 15, 2008
|
3.4
|
|
Certificate
of Incorporation of Rise and Grow Limited
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
3.5
|
|
Certificate
of Incorporation of ZBDT (Beijing) Technology Co., Ltd.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
3.6
|
|
Company
Charter of ZBDT (Beijing) Technology Co., Ltd.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.1
|
|
Share
Exchange Agreement, dated December 17, 2007, by and among Dexterity
Surgical, Inc., Rise and Grow Limited and Newise Century
Inc.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.2
|
|
Exclusive
Technology Consultation Service Agreement, dated September 28,
2007, by
and between ZBDT and ZYTX
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.3
|
|
Exclusive
Interest Purchase Agreement, dated September 28, 2007, by and between
ZBDT
and Zhenyu Wang
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.4
|
|
Exclusive
Interest Purchase Agreement, dated September 28, 2007, by and between
ZBDT
and Junjun Xu
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.5
|
|
Equity
Interest Pledge Agreement, dated September 28, 2007, by and between
ZBDT
and Zhenyu Wang
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.6
|
|
Equity
Interest Pledge Agreement, dated September 28, 2007, by and between
ZBDT
and Junjun Xu
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.7
|
|
Power
of Attorney, dated September 28, 2007, executed by Zhenyu Wang
in favor of
ZBDT
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
10.8
|
|
Power
of Attorney, dated September 28, 2007, executed by Junjun Xu in
favor of
ZBDT
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on December 20, 2007
|
EXHIBIT
NO.
|
|
DESCRIPTION
|
|
LOCATION
|
14.1
|
|
Code
of Ethics
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on February 27, 2008
|
31.1
|
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Provided
herewith
|
31.2
|
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Provided
herewith
|
32.1
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of
the Sarbanes-Oxley Act Of 2002
|
|
Provided
herewith
|
32.2
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of
the Sarbanes-Oxley Act Of 2002
|
|
Provided
herewith
|
99.1
|
|
Audit
Committee Charter of the Company
|
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on February 27, 2008
|
99.2
|
|
Compensation
Committee Charter of the Company
|
|
Incorporated
by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on February 27, 2008
|
99.3
|
|
Corporate
Governance and Nominating Committee Charter of the Company
|
|
Incorporated
by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on February 27,
2008
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of
1934, as amended, the Registrant has duly caused this Quarterly Report on
Form
10-QSB report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
By:
|
/s/
Junjun Xu
|
|
Name:
|
Junjun
Xu
|
|
Its:
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
By:
|
/s/Mingfei
Yang
|
|
Name:
|
Mingfei
Yang
|
|
Its:
|
Chief
Financial Officer and
|
|
|
Principal
Accounting Officer
|
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