Filed
Pursuant to Rule 424(b)(3)
File
Number 333-140692
PROSPECTUS
SUPPLEMENT NO. 5
to
Prospectus dated February 12, 2008
(Registration
No. 333-140692)
ASIA
TIME CORPORATION
This
Prospectus Supplement No. 5 supplements our Prospectus dated February 12, 2008
and Prospectus Supplements Nos. 1, 2, 3 and 4 (collectively referred to as
the
“Prospectus Supplements”) dated April 14, 2008, April 28, 2008, May 2, 2008 and
May 22, 2008, respectively. The securities that are the subject of the
Prospectus have been registered to permit their resale to the public by the
selling security holders named in the Prospectus. We are not selling any
securities in this offering and therefore will not receive any proceeds from
this offering. You should read this Prospectus Supplement No. 5 together with
the Prospectus and the Prospectus Supplements.
This
Prospectus Supplement No. 5 includes the attached report, as set forth below,
as
filed by us with the Securities and Exchange Commission (the “SEC”): Quarterly
Report on Form 10-Q filed with the SEC on August 19, 2008.
Our
common stock is traded on the American Stock Exchange under the symbol “TYM.”
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A
CRIMINAL OFFENSE.
The
date
of this Prospectus Supplement No. 5 is August 20, 2008.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2008
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Commission
File Number
001-33956
ASIA
TIME CORPORATION
(Exact
name of small business issuer as specified in its charter)
Delaware
(State
or other jurisdiction of incorporation
or
organization)
|
|
20-4062619
(I.R.S.
Employer Identification
No.)
|
|
|
|
Room
1601-1604, 16/F., CRE Centre
889
Cheung Sha Wan Road,
Kowloon,
Hong Kong
(Address
of principal executive offices)
|
|
N/A
(Zip
Code)
|
(852)-23100101
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
o
|
Accelerated
filer
o
|
Non-accelerated
filer
x
|
Smaller
reporting company
o
|
|
|
(Do
not check if a smaller
|
|
|
|
reporting
company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
There
were 26,570,677 shares outstanding of registrant’s common stock, par value
$0.0001 per share, as of August 18, 2008.
ASIA
TIME CORPORATION
FORM
10-Q QUARTERLY REPORT
TABLE
OF CONTENTS
|
Page
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
1
|
|
|
|
|
Condensed
Consolidated Balance Sheets (Unaudited)
|
2-3
|
|
|
|
|
Condensed
Consolidated Statements of Operations (Unaudited)
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
5-6
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7-38
|
|
|
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
39
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
46
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
46
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
48
|
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
48
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
48
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
48
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
48
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
48
|
|
|
|
ITEM
6.
|
EXHIBITS
|
48
|
|
|
|
SIGNATURES
|
|
49
|
PART
I - FINANCIAL INFORMATION
ITEM
1.
FINANCIAL
STATEMENTS
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying unaudited financial statements reflect all adjustments that,
in
the opinion of management, are considered necessary for a fair presentation
of
the financial position, results of operations, and cash flows for the periods
presented. The results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year or for any future
period. The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements of Asia Time Corporation
as
contained in its Annual Report on Form 10-K, as amended, as originally filed
with the Securities and Exchange Commission on March 31, 2008.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Stated
in US Dollars)
|
|
|
|
As
of
|
|
|
|
Notes
|
|
June
30,
|
|
December
31,
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
|
|
$
|
|
$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
Assets :
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
1,838,723
|
|
|
6,258,119
|
|
Restricted
cash
|
|
|
|
|
|
7,955,331
|
|
|
8,248,879
|
|
Accounts
receivable
|
|
|
|
|
|
20,922,873
|
|
|
14,341,989
|
|
Prepaid
expenses and other
receivables
|
|
|
7
|
|
|
14,547,132
|
|
|
7,704,999
|
|
Inventories,
net
|
|
|
8
|
|
|
13,160,240
|
|
|
12,370,970
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current
Assets
|
|
|
|
|
|
58,424,299
|
|
|
48,924,956
|
|
Deferred
tax
assets
|
|
|
6
|
|
|
29,895
|
|
|
29,929
|
|
Property
and equipment,
net
|
|
|
9
|
|
|
4,967,897
|
|
|
1,891,709
|
|
Leasehold
lands
|
|
|
10
|
|
|
-
|
|
|
-
|
|
Held-to-maturity
investments
|
|
|
11
|
|
|
299,885
|
|
|
300,231
|
|
Intangible
assets
|
|
|
12
|
|
|
27,975
|
|
|
48,012
|
|
Restricted
cash
|
|
|
|
|
|
256,180
|
|
|
256,476
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
|
64,006,131
|
|
|
51,451,313
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities :
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
|
695,098
|
|
|
1,310,809
|
|
Other
payables and accrued
liabilities
|
|
|
13
|
|
|
743,457
|
|
|
132,507
|
|
Income
taxes payable
|
|
|
|
|
|
3,755,674
|
|
|
2,293,887
|
|
Bank
borrowings
|
|
|
14
|
|
|
22,310,355
|
|
|
20,438,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current
Liabilities
|
|
|
|
|
|
27,504,584
|
|
|
24,175,682
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bond payables
|
|
|
15
|
|
|
4,779,824
|
|
|
345,461
|
|
Deferred
tax
liabilities
|
|
|
6
|
|
|
56,888
|
|
|
56,953
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
|
|
|
32,341,296
|
|
|
24,578,096
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
18
|
|
|
|
|
|
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Continued)
(Stated
in US Dollars)
|
|
|
|
As
of
|
|
|
|
Notes
|
|
June
30,
2008
(Unaudited)
|
|
December
31,
2007
(Audited)
|
|
|
|
|
|
$
|
|
$
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
16
|
|
|
|
|
|
|
|
Par
value: 2008 – US$0.0001 (2007 - US$0.0001)
|
|
|
|
|
|
|
|
|
|
|
Authorized:
2008 – 10,000,000
shares (2007 – 10,000,000 shares)
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2008 – 43,056 issued (2007 – 2,250,348
issued)
|
|
|
|
|
|
4
|
|
|
225
|
|
Common
stock
|
|
|
16
|
|
|
|
|
|
|
|
Par
value: 2008 US$0.0001 (2007 – US$0.0001)
|
|
|
|
|
|
|
|
|
|
|
Authorized:
100,000,000
shares
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2008 – 26,527,621 shares (2007 – 23,156,629
shares)
|
|
|
|
|
|
2,653
|
|
|
2,316
|
|
Additional
paid-in capital
|
|
|
|
|
|
12,636,309
|
|
|
13,481,036
|
|
Accumulated
other comprehensive
income
|
|
|
|
|
|
(71,190
|
)
|
|
(28,404
|
)
|
Retained
earnings
|
|
|
|
|
|
19,097,059
|
|
|
13,418,044
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
31,664,835
|
|
|
26,873,217
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
64,006,131
|
|
|
51,451,313
|
|
See
notes
to condensed consolidated financial statements
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated
in US Dollars)
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
38,122,896
|
|
|
20,869,437
|
|
|
74,948,144
|
|
|
41,987,579
|
|
Cost
of sales
|
|
|
(32,854,691
|
)
|
|
(18,519,891
|
)
|
|
(64,000,989
|
)
|
|
(36,418,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
5,268,205
|
|
|
2,349,546
|
|
|
10,947,155
|
|
|
5,568,710
|
|
Other
operating income – Note 3
|
|
|
25,894
|
|
|
48,281
|
|
|
51,557
|
|
|
96,778
|
|
Depreciation
|
|
|
(307,338
|
)
|
|
(63,433
|
)
|
|
(614,911
|
)
|
|
(128,864
|
)
|
Administrative
and other operating expenses, including stock-based
compensation
|
|
|
(727,196
|
)
|
|
(558,857
|
)
|
|
(2,310,387
|
)
|
|
(2,605,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
4,259,565
|
|
|
1,775,537
|
|
|
8,073,414
|
|
|
2,931,361
|
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(736,197
|
)
|
Non-operating
income - Note 4
|
|
|
63,896
|
|
|
48,452
|
|
|
110,748
|
|
|
78,381
|
|
Interest
expenses – Note 5
|
|
|
(423,204
|
)
|
|
(274,990
|
)
|
|
(1,024,838
|
)
|
|
(514,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
3,900,257
|
|
|
1,548,999
|
|
|
7,159,324
|
|
|
1,759,126
|
|
Income
taxes - Note 6
|
|
|
(668,663
|
)
|
|
(314,204
|
)
|
|
(1,480,309
|
)
|
|
(716,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
3,231,594
|
|
|
1,234,795
|
|
|
5,679,015
|
|
|
1,042,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
0.13
|
|
|
0.05
|
|
|
0.23
|
|
|
0.05
|
|
-
Diluted
|
|
|
0.11
|
|
|
0.05
|
|
|
0.21
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
25,698,807
|
|
|
23,156,629
|
|
|
24,879,527
|
|
|
22,686,183
|
|
-
Diluted
|
|
|
28,809,386
|
|
|
25,406,977
|
|
|
27,053,765
|
|
|
24,606,260
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated
in US Dollars)
|
|
Six
months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
|
5,679,015
|
|
|
1,042,255
|
|
Adjustments
to reconcile net
income to net cash
|
|
|
|
|
|
|
|
used
in operating activities
:
|
|
|
|
|
|
|
|
Amortization
of bond discount and bond interest
|
|
|
219,765
|
|
|
-
|
|
Stock-based
compensation
|
|
|
700,000
|
|
|
1,652,205
|
|
Amortization
of intangible
assets
|
|
|
20,007
|
|
|
61,907
|
|
Amortization
of leasehold
lands
|
|
|
-
|
|
|
11,522
|
|
Depreciation
|
|
|
614,910
|
|
|
128,864
|
|
Loss
on disposal of plant and
equipment
|
|
|
-
|
|
|
5,404
|
|
Income
taxes
|
|
|
1,480,309
|
|
|
716,871
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and
liabilities :
|
|
|
|
|
|
|
|
(Increase)
decrease in -
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(6,605,738
|
)
|
|
(6,317,232
|
)
|
Prepaid
expenses and other
receivables
|
|
|
(6,859,648
|
)
|
|
(3,929,492
|
)
|
Inventories
|
|
|
(804,545
|
)
|
|
2,231,701
|
|
Increase
(decrease) in -
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(614,945
|
)
|
|
748,048
|
|
Other
payables and accrued
liabilities
|
|
|
611,603
|
|
|
(138,176
|
)
|
Income
taxes
payable
|
|
|
(14,025
|
)
|
|
(111,908
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(5,573,292
|
)
|
|
(3,898,031
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Acquisition
of plant and
equipment
|
|
|
(3,697,162
|
)
|
|
(3,824
|
)
|
Proceeds
from disposal of plant
and equipment
|
|
|
-
|
|
|
320
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(3,697,162
|
)
|
|
(3,504
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
2,669,987
|
|
|
-
|
|
Proceeds
from issuance of Series
A convertible preferred stock
|
|
|
-
|
|
|
2,641,683
|
|
Proceeds
from new short-term bank loans
|
|
|
-
|
|
|
2,815,939
|
|
Repayment
of short-term bank
loans
|
|
|
(1,233,535
|
)
|
|
(2,247,211
|
)
|
Net
advances under other
short-term bank borrowings
|
|
|
2,989,988
|
|
|
1,969,237
|
|
Increase
in restricted
cash
|
|
|
284,396
|
|
|
(1,440,370
|
)
|
Advances
(from) to related
parties
|
|
|
-
|
|
|
(9,057
|
)
|
Decrease
(increase) in bank
overdrafts
|
|
|
141,375
|
|
|
(66,923
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
4,852,211
|
|
|
3,663,298
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(4,418,243
|
)
|
|
(238,237
|
)
|
Effect
of foreign currency translation on cash and cash
equivalents
|
|
|
(1,153
|
)
|
|
(3,674
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
6,258,119
|
|
|
316,621
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
|
1,838,723
|
|
|
74,710
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Stated
in US Dollars)
|
|
Six
months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information :
|
|
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
|
|
Interest
|
|
|
1,024,838
|
|
|
514,419
|
|
Income
taxes
|
|
|
14,025
|
|
|
111,908
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
|
Asia
Time
Corporation (the “Company”), formerly SRKP 9, Inc., was incorporated in the
State of Delaware on January 3, 2006. Effective January 23, 2007, the Company
changed its name from SRKP 9, Inc. to Asia Time Corporation.
Recapitalization
The
Company entered into an Exchange Agreement dated December 15, 2006 (the
“Exchange Agreement”) with Times Manufacture & E-Commerce Corporation
Limited, a British Virgin Islands corporation (“Times Manufacture”), and Kwong
Kai Shun, the sole shareholder of Times Manufacture (“Original Shareholder”).
The closing of the Exchange Agreement occurred on January 23, 2007.
The
Company effected a 1.371188519-for-one stock reverse split in the course of
the
share exchange process such that there were 3,702,209 shares of common stock
outstanding immediately prior to the closing of the Exchange Agreement. These
financial statements give retroactive effect to this share split.
At
the
closing of the Exchange Agreement, the Company acquired all of the capital
shares of Times Manufacture from the Original Shareholder, in exchange for
which
the Company issued 19,454,420 shares of its Common Stock to the Original
Shareholder. The 19,454,420 shares of common stock issued to the Original
Shareholder in conjunction with this transaction have been presented as
outstanding for all periods presented.
The
Original Shareholder of Times Manufacture acquired 84% of the Company’s issued
and outstanding common stock in conjunction with the completion of the Exchange
Agreement. Therefore, although Times Manufacture became the Company’s
wholly-owned subsidiary, the transaction was accounted for as a recapitalization
in the form of a reverse merger of Times Manufacture, whereby Times Manufacture
was deemed to be the accounting acquirer and was deemed to have retroactively
adopted the capital structure of SRKP 9, Inc. Since the transaction was
accounted for as a reverse merger, the accompanying consolidated financial
statements reflect the historical consolidated financial statements of Times
Manufacture for all periods presented, and do not include the historical
financial statements of SRKP 9, Inc. All costs associated with the reverse
merger transaction were expensed as incurred.
The
Company agreed to register the 1,999,192 shares of common stock that were held
by certain of the Company’s shareholders immediately prior to the closing of the
Exchange Agreement. If the Company fails to register 1,999,192 shares due to
failure on the part of the Company, additional shares of its common stock shall
be issued to the respective shareholders in the amount of 0.0333% of their
respective shares for each calendar day until the registration becomes
effective. There is no maximum potential consideration to be transferred in
connection with the registration of these shares. The Company agreed to file
a
registration statement no later than the tenth day after the end of the six
month period that immediately follows the filing date of the initial
registration statement (the "Required Filing Date"). The Company agreed to
use
reasonable best efforts to cause such registration
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
(Continued)
|
statement
to become effective within 120 days after the Required Filing Date or the actual
filing date, whichever is earlier, or 150 days after the Required Filing Date
or
the actual filing date, whichever is earlier, if the registration statement
is
subject to a full review by the Securities and Exchange Commission (“SEC”). In
addition, the Company agreed to use its reasonable best efforts to maintain
the
registration statement effective for a period of 24 months at the Company's
expense.
Restructuring
For
the
purpose of the reverse takeover transaction (“RTO”), the companies comprising
the group underwent a restructuring in December 2005 (the “Restructuring”), and
the Company acquired all of the outstanding and issued shares of common stock
of
its subsidiaries (including Times Manufacturing & E-Commerce Corporation
Limited (“TMEHK”), Billion Win International Enterprise Limited (“BW”), Citibond
Industrial Limited (“CI”), Goldcome Industrial Limited (“GI”) and Megamooch
International Limited (“MI”)) from their then existing stockholders in
consideration for the issuance of 20,000 shares with a designated value of
$1.00
of the company’s voting common stock, representing 99.99% of the voting power in
the company.
Before
acquisition of TME HK group, TME HK acquired all of the outstanding and issued
shares of common stock of its subsidiaries (including BW, CI, GI and MI) from
their then existing stockholders in consideration for the issuance of 10,000
shares with a designated value of $1.00 of TME HK’s voting common
stock.
Corporate
Structure – Before Restructuring
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
(Continued)
|
Corporate
Structure – After Restructuring
Description
of business
The
Company and its subsidiaries (together, the “Group”) are engaged in sales to
distributors of completed watches and watch components.
Name of company
|
|
Place and date of
incorporation
|
|
Issued and fully
paid capital
|
|
Principal activities
|
Times
Manufacture & E-Commerce Corporation Ltd
|
|
British
Virgin Islands
March
21, 2002
|
|
US$20,002
Ordinary
|
|
Investment
holding
|
Times
Manufacturing & E-Commerce Corporation Ltd
(“TME
HK”)
|
|
British
Virgin Islands
January
2, 2002
|
|
US$20,000
Ordinary
|
|
Investment
holding
|
Billion
Win International Enterprise Ltd (“BW”)
|
|
Hong
Kong
March
5, 2001
|
|
HK$5,000,000
Ordinary
|
|
Trading
of watch components
|
Goldcome
Industrial Ltd (“GI”)
|
|
Hong
Kong
March
2, 2001
|
|
HK$10,000
Ordinary
|
|
Trading
of watch components
|
Citibond
Industrial Ltd (“CI”)
|
|
Hong
Kong
February
28, 2003
|
|
HK$1,000
Ordinary
|
|
Trading
of watch components
|
Megamooch
International Ltd (“MI”)
|
|
Hong
Kong
April
2, 2001
|
|
HK$100
Ordinary
|
|
Trading
of watches and watch components
|
TME
Enterprise Ltd
|
|
British
Virgin Islands
November
28, 2003
|
|
US$2
Ordinary
|
|
Investment
holding
|
Citibond
Design Ltd
|
|
British
Virgin Islands
August
1, 2003
|
|
US$2
Ordinary
|
|
Inactive
|
Megamooch
Online Ltd
|
|
British
Virgin Islands
June
6, 2003
|
|
US$2
Ordinary
|
|
Trading
of watches
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting
policies
|
The
accompanying consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”).
Principle
of Consolidation
The
consolidated financial statements include the accounts of Asia Time Corporation
and its subsidiaries. All significant inter-company balances and transactions
have been eliminated in consolidation.
Use
of
estimates
The
preparation of the consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management of the Group to
make a number of estimates and assumptions relating to the reported amounts
of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of
revenues and expenses during the period. Significant items subject to such
estimates and assumptions include the recoverability of the carrying amount
of
property and equipment, intangible assets; the collectibility of accounts
receivable; the realizability of deferred tax assets; the realizability of
inventories; and amounts recorded for contingencies. These estimates are often
based on complex judgments and assumptions that management believes to be
reasonable but are inherently uncertain and unpredictable. Actual results may
differ from those estimates.
Concentrations
of credit risk
Financial
instruments that potentially subject the Group to significant concentrations
of
credit risk consist principally of accounts receivable. The Group extends credit
based on an evaluation of the customer’s financial condition, generally without
requiring collateral or other security. In order to minimize the credit risk,
the management of the Group has delegated a team responsibility for
determination of credit limits, credit approvals and other monitoring procedures
to ensure that follow-up action is taken to recover overdue debts. Further,
the
Group reviews the recoverable amount of each individual trade debt at each
balance sheet date to ensure that adequate impairment losses are made for
irrecoverable amounts. In this regard, the directors of the Group consider
that
the Group’s credit risk is significantly reduced.
Restricted
cash
Certain
cash balances are held as security for short-term bank borrowings and are
classified as restricted cash in the Company’s balance sheets.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Accounts
receivable
Accounts
receivable are stated at original amount less an allowance made for doubtful
receivables, if any, based on a review of all outstanding amounts at the year
end. An allowance is also made when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms
of
the receivables. Bad debts are written off when identified. The Group extends
unsecured credit to customers in the normal course of business and believes
all
accounts receivable in excess of the allowances for doubtful receivables to
be
fully collectible. The Group does not accrue interest on trade accounts
receivable.
The
Group
has a credit policy in place and the exposure to credit risk is monitored on
an
ongoing basis credit evaluations are preferred on all customers requiring credit
over a certain amount.
During
the reporting period, the Group did not experience any bad debts and,
accordingly, did not make any allowance for doubtful debts.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined on a first-in,
first-out basis and includes only purchase costs. There are no significant
freight charges, inspection costs and warehousing costs incurred for any of
the
periods presented. In assessing the ultimate realization of inventories,
management makes judgments as to future demand requirements compared to current
or committed inventory levels. The Company has vendor arrangements on the
purchase of watch movements providing for price reduction paid in the form
of
additional watch movements. The percentage of additional movements to be
received by the Company from these vendors is estimated and inventory costs
are
reduced to reflect the effect of these additional movements on the actual cost
of the items in inventory. During the reporting period, the Company did not
make
any allowance for slow-moving or defective inventories.
Leasehold
lands
Leasehold
lands, representing upfront payment for land use rights, are capitalized at
their acquisition cost and amortized using the straight-line method over the
lease terms.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Intangible
assets
Intangible
assets with limited useful lives are stated at cost less accumulated
amortization and accumulated impairment losses.
Amortization
of intangible assets is provided using the straight-line method over their
estimated useful lives as follows:
Trademarks
|
|
|
20
|
%
|
Websites
|
|
|
20
|
%
|
Held-to-maturity
investments
The
Company’s policies for investments in debt and equity securities are as
follows:
Non-derivative
financial assets with fixed or determinable payments and fixed maturities that
the company has the positive ability and intention to hold to maturity are
classified as held-to-maturity securities. Held-to-maturity securities are
initially recognized in the balance sheet at fair value plus transaction costs.
Subsequently, they are stated in the balance sheet at amortized cost using
the
effective interest method less any identified impairment losses.
Investments
are recognized / derecognized on the date the Company commits to
purchase
/ sell the investments or they expire.
Property
and equipment
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation
of property and equipment is provided using the straight-line method over their
estimated useful lives as follows:-
Land
and buildings
|
|
|
over the unexpired lease term
|
|
Furniture
and fixtures
|
|
|
20 –
25
|
%
|
Office
equipment
|
|
|
25 –
33
|
%
|
Machinery
and equipment
|
|
|
25 –
33
|
%
|
Moulds
|
|
|
33
|
%
|
Motor
vehicles
|
|
|
25 –
33
|
%
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Property
and equipment
(Continued)
Property
and equipment, and intangible assets subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at the lower
of
the carrying amount or fair value less costs to sell, and are no longer
depreciated.
Revenue
recognition
Sales
of
goods represent the invoiced value of goods, net of sales returns, trade
discounts and allowances.
The
Company recognizes revenue when the goods are delivered and the customer takes
ownership and assumes risk of loss, collection of the relevant receivable is
probable, persuasive evidence of an arrangement exists, and the sales price
is
fixed or determinable. The Company provides pre and post sales service to its
customers related to inventory management information in order to facilitate
and
manage sales to customers. By providing such services to keep track of
customers’ inventory levels, the Company can manage and replenish inventory
levels on a timely basis. The Company’s integration, design and development and
management services provide customers with watch design assistance, components
outsourcing or other project support, and are generally completed prior to
a
sale and do not continue post-delivery. There is no requirement that these
services be provided for a sale to take place, nor is there any objective or
reliable evidence of a separate fair value, or if no longer offered or ceased
to
be offered would a right of return be created for the goods sold. The Company
believes these services are part of the sales process and are not a customer
deliverable, and are therefore charged to selling expense or cost of sales,
as
appropriate.
Advertising
and promotion expenses
Advertising
and promotion expenses are charged to expense as incurred.
Advertising
and promotion expenses amounted to $Nil during each of the three- and six-month
periods ended June 30, 2008 and 2007.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Income
taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Comprehensive
income
Other
comprehensive income refers to revenues, expenses, gains and losses that under
U.S. GAAP are included in comprehensive income but are excluded from net income
as these amounts are recorded as a component of stockholders’ equity. The
Company’s other comprehensive income represented foreign currency translation
adjustments.
Foreign
currency translation
The
functional currency of the Group is Hong Kong dollars (“HK$”). The Group
maintains its financial statements in the functional currency. Monetary assets
and liabilities denominated in currencies other than the functional currency
are
translated into the functional currency at rates of exchange prevailing at
the
balance sheet dates. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or losses
arising from foreign currency transactions are included in the determination
of
net income for the respective periods.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Foreign
currency translation
For
financial reporting purposes, the financial statements of the Group which
are
prepared using the functional currency have been translated into United States
dollars. Assets and liabilities are translated at the exchange rates at the
balance sheet dates and revenue and expenses are translated at the average
exchange rates and stockholders’ equity is translated at historical exchange
rates. Any translation adjustments resulting are not included in determining
net
income but are included in foreign exchange adjustment to other comprehensive
income.
|
|
Six months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Six
months end HK$ : US$ exchange rate
|
|
|
7.8070
|
|
|
7.8130
|
|
Average
quarterly HK$ : US$ exchange rate
|
|
|
7.7972
|
|
|
7.8117
|
|
Fair
value of financial instruments
The
carrying values of the Group’s financial instruments, including cash and cash
equivalents, restricted cash, trade and other receivables, deposits, trade
and
other payables approximate their fair values due to the short-term maturity
of
such instruments. The carrying amounts of borrowings approximate their fair
values because the applicable interest rates approximate current market
rates.
Basic
and diluted earnings per share
The
Company computes earnings per share (“EPS’) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”),
and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128
requires companies with complex capital structures to present basic and diluted
EPS. Basic EPS is measured as the income or loss available to common
shareholders divided by the weighted average common shares outstanding for
the
period. Diluted EPS is similar to basic EPS but presents the dilutive effect
on
a per share basis of potential common shares (e.g., convertible securities,
options, and warrants) as if they had been converted at the beginning of
the
periods presented, or issuance date, if later. Potential common shares that
have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted
EPS.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Basic
and diluted earnings per share
(Continued)
The
calculation of diluted weighted average common shares outstanding for the
three
and six months ended June 30, 2008 and 2007 is based on the estimate fair
value
of the Company’s common stock during such periods applied to warrants and
options using the treasury stock method to determine if they are dilutive.
The
Convertible Bond is included on an “as converted” basis when these shares are
dilutive.
The
following tables are a reconciliation of the weighted average shares used
in the
computation of basic and diluted earnings per share for the periods
presented:
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Numerator
for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
3,231,594
|
|
|
1,234,795
|
|
|
5,679,015
|
|
|
1,042,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares
|
|
|
25,698,807
|
|
|
23,156,629
|
|
|
24,879,527
|
|
|
22,686,183
|
|
Effect
of dilutive securities
|
|
|
3,110,579
|
|
|
2,250,348
|
|
|
2,174,238
|
|
|
1,920,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares
|
|
|
28,809,386
|
|
|
25,406,977
|
|
|
27,053,765
|
|
|
24,606,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
0.13
|
|
|
0.05
|
|
|
0.23
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
0.11
|
|
|
0.05
|
|
|
0.21
|
|
|
0.04
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Interest
rate risk
The
Group
is exposed to interest rate risk arising from short-term variable rate
borrowings from time to time. The Group’s future interest expense will fluctuate
in line with any change in borrowing rates. The Group does not have any
derivative financial instruments for the six months ended June 30, 2008 and
2007
and believes its exposure to interest rate risk is not
material.
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”), a revision to SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS 123R requires that the Company measure the cost of employee
services received in exchange for equity awards based on the grant date fair
value of the awards, with the cost to be recognized as compensation expense
in
the Company’s financial statements over the vesting period of the awards.
Accordingly, the Company recognizes compensation cost for equity-based
compensation for all new or modified grants issued after December 31, 2005.
The
Company did not have equity awards outstanding at December 31,
2005.
The
Company accounts for stock option and warrant grants issued and vesting to
non-employees in accordance with EITF 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”, and EITF 00-18, “Accounting Recognition for Certain
Transactions involving Equity Instruments Granted to Other Than Employees”,
whereas the value of the stock compensation is based upon the measurement date
as determined at either (a) the date at which a performance commitment is
reached or (b) at the date at which the necessary performance to earn the equity
instruments is complete.
During
the six months ended June 30, 2008 and 2007, the Company recorded $700,000
and
$1,652,205, respectively, as a charge to operations to recognize the grant
date
fair value of stock-based compensation in conjunction with the Escrow Agreement
described at Note 16.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Continued)
|
Recently
Issued Accounting Pronouncements
In
February 2008, FASB issued FASB Staff Position (“FSP”) FAS 157-1
“Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements. That address Fair Value Measurement for Purposes of Lease
Classification or Measurement under Statement 13,” and FSP FAS 157-2, “Effective
Date of FASB Statement No. 157.”
FSP FAS
157-1 amends the scope of SFAS No. 157 and other accounting standards that
address fair value measurements for purpose of lease classification or
measurement under Statement 13. The FSP is effective on initial adoption of
Statement 157, FSP FAS 157-2 defers the effective date of SFAS No. 157 to fiscal
years beginning after November 15, 2008 for all nonfinancial assets and
nonfinancial liabilities, exception those that are recognized or disclosed
at
fair value in the financial statements on a recurring basis. The Company does
not expect the adoption of FSP FAS 157-1 and FSP FAS 157-2 will have a material
impact on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141(R),
“Business
Combinations”
and SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements –
an
amendment to ARB No. 51”
.
SFAS
No. 141(R) and SFAS No. 160 require most identifiable assets, liabilities,
noncontrolling interests and goodwill acquired in business combination to be
recorded at “full fair value” and require noncontrolling interests (previously
referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with noncontrolling interest
holders. Both statements are effective for periods beginning on or after
December 15, 2008, and earlier adoption is prohibited. SFAS No. 141(R) will
be
applied to business combinations occurring after the effective date. SFAS No.
160 will be applied prospectively to all noncontrolling interests, including
any
that arose before the effective date. The Company is currently evaluating the
impact of adopting SFAS No. 160 on its consolidated financial
statements.
In
March
2008, the FASB issued SFAS No. 161,
“Disclosures
about Derivative Instruments and Hedging Activities,”
which
requires enhanced disclosures about an entity’s derivative and hedging
activities. This Statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The Company
does not expect the adoption of SFAS 161 will have a material impact on its
results of operations and financial position.
In
May
2008, the FASB issued SFAS No. 162,
“The
Hierarchy of Generally Accepted Accounting Principles”
(“SFAS
162”). This statement identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in accordance with
generally accepted accounting principles (“GAAP”). With the issuance of this
statement, the FASB concluded that the GAAP hierarchy should be directed toward
the entity and not its auditor, and reside in the accounting literature
established by the FASB as opposed to the American Institute of Certified Public
Accountants (“AICPA”) Statement on Auditing Standards No. 69,
“The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.”
This
statement is effective 60 days following the Securities and Exchange
Commission’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411,
“The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.”
The
Company does not expect the adoption of SFAS 162 will have a material impact
on
its results of operations and financial position.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
3.
|
Other
operating income
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
License
fee of intangible assets
|
|
|
10,125
|
|
|
32,571
|
|
|
20,007
|
|
|
65,287
|
|
Rental
income
|
|
|
15,769
|
|
|
15,710
|
|
|
31,550
|
|
|
31,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,894
|
|
|
48,281
|
|
|
51,557
|
|
|
96,778
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Bank
interest income
|
|
|
63,896
|
|
|
47,904
|
|
|
110,748
|
|
|
76,906
|
|
Net
exchange gains
|
|
|
-
|
|
|
548
|
|
|
-
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,896
|
|
|
48,452
|
|
|
110,748
|
|
|
78,381
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on trade related bank loan
|
|
|
236,983
|
|
|
248,538
|
|
|
548,511
|
|
|
468,040
|
|
Interest
and amortization on bonds
|
|
|
177,595
|
|
|
-
|
|
|
459,764
|
|
|
-
|
|
Interest
on short-term bank loans
|
|
|
-
|
|
|
7,181
|
|
|
-
|
|
|
16,764
|
|
Interest
on bank overdrafts
|
|
|
8,295
|
|
|
10,847
|
|
|
15,901
|
|
|
21,191
|
|
Interest
on other loans
|
|
|
331
|
|
|
8,424
|
|
|
662
|
|
|
8,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,204
|
|
|
274,990
|
|
|
1,024,838
|
|
|
514,419
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Hong
Kong profits tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
period
|
|
|
668,663
|
|
|
314,204
|
|
|
1,480,309
|
|
|
716,871
|
|
The
Company’s subsidiaries operating in Hong Kong are subject to profits tax of
16.5% (2007:17.5%) on the estimated assessable profits during the
periods.
The
Company’s subsidiaries that are incorporation in the British Virgin Islands are
not subject to income taxes under that jurisdiction.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
6.
|
Income
taxes (Continued)
|
|
The
major components of deferred tax recognized in the condensed consolidated
balance sheets for the six months ended June 30, 2008 and the year
ended
December 31, 2007 respectively are as
follows:
|
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Temporary
difference on accelerated tax
|
|
|
|
|
|
|
|
depreciation
on plant and equipment
|
|
|
26,993
|
|
|
27,024
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities, net
|
|
|
26,993
|
|
|
27,024
|
|
|
|
|
|
|
|
|
|
Recognized
in the balance sheet:
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
(29,895
|
)
|
|
(29,929
|
)
|
Net
deferred tax liabilities
|
|
|
56,888
|
|
|
56,953
|
|
|
|
|
|
|
|
|
|
|
|
|
26,993
|
|
|
27,024
|
|
Deferred
tax assets of the Company relating to the tax effect of the change in valuation
allowance of the Company has not been accounted for in the financial statements
for the six months ended June 30, 2008 and the year ended December 31, 2007
as
management determined that it was more likely than not that these tax losses
would not be utilized in the foreseeable future. There was no other significant
unprovided deferred taxation of the Company at the balance sheet
dates.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
7.
|
Prepaid
expenses and other
receivables
|
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Rebate
receivable
|
|
|
2,437,812
|
|
|
-
|
|
Interest
receivable
|
|
|
-
|
|
|
24,696
|
|
Purchase
deposits paid
|
|
|
4,530,899
|
|
|
7,553,332
|
|
Deposit
for acquisition
|
|
|
7,442,039
|
|
|
-
|
|
Other
deposits and prepayments
|
|
|
136,382
|
|
|
126,971
|
|
|
|
|
|
|
|
|
|
|
|
|
14,547,132
|
|
|
7,704,999
|
|
The
purchase deposits represented advanced payments to suppliers for merchandises
of
inventories.
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Merchandises,
at cost – completed watches
|
|
|
2,587,691
|
|
|
2,148,638
|
|
Merchandises,
at cost – watch movements
|
|
|
10,572,549
|
|
|
10,222,332
|
|
|
|
|
|
|
|
|
|
|
|
|
13,160,240
|
|
|
12,370,970
|
|
No
inventories were written off during the six months ended June 30, 2008 and
for
the year ended December 31, 2007, respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
9.
|
Property
and equipment
|
|
|
As of
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
1,186,674
|
|
|
1,188,043
|
|
Furniture
and fixtures
|
|
|
508,980
|
|
|
488,901
|
|
Office
equipment
|
|
|
228,078
|
|
|
146,752
|
|
Machinery
and equipment
|
|
|
1,194,953
|
|
|
320,595
|
|
Moulds
|
|
|
3,489,305
|
|
|
774,558
|
|
Motor
vehicles
|
|
|
74,389
|
|
|
74,475
|
|
|
|
|
|
|
|
|
|
|
|
|
6,682,379
|
|
|
2,993,324
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
82,918
|
|
|
68,525
|
|
Furniture
and fixtures
|
|
|
379,358
|
|
|
331,751
|
|
Office
equipment
|
|
|
133,345
|
|
|
128,165
|
|
Machinery
and equipment
|
|
|
257,535
|
|
|
157,294
|
|
Moulds
|
|
|
817,048
|
|
|
379,548
|
|
Motor
vehicles
|
|
|
44,278
|
|
|
36,332
|
|
|
|
|
|
|
|
|
|
|
|
|
1,714,482
|
|
|
1,101,615
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
1,103,756
|
|
|
1,119,518
|
|
Furniture
and fixtures
|
|
|
129,622
|
|
|
157,150
|
|
Office
equipment
|
|
|
94,733
|
|
|
18,587
|
|
Machinery
and equipment
|
|
|
937,418
|
|
|
163,301
|
|
Moulds
|
|
|
2,672,257
|
|
|
395,010
|
|
Motor
vehicles
|
|
|
30,111
|
|
|
38,143
|
|
|
|
|
|
|
|
|
|
|
|
|
4,967,897
|
|
|
1,891,709
|
|
Depreciation
expenses included in administrative and other operating expenses for the six
months ended June 30, 2008 and 2007 were 614,911 and $128,864,
respectively.
As
at
June 30, 2008 and December 31, 2007, the carrying amount of land and buildings
pledged as security for the Group’s banking facilities amounted to $1,103,756
and $1,119,518, respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Cost
|
|
|
-
|
|
|
949,514
|
|
Accumulated
amortization
|
|
|
-
|
|
|
-
|
|
Transfer
to property and equipment
|
|
|
-
|
|
|
(949,514
|
)
|
|
|
|
|
|
|
|
|
Net
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Analyzed
for reporting purposes as:
|
|
|
|
|
|
|
|
Current
asset
|
|
|
-
|
|
|
-
|
|
Non-current
asset
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
Amortization
expenses included in administrative and other operating expenses for the six
months ended June 30, 2008 and for the year ended December 31, 2007 were $Nil
and $Nil respectively.
As
at
June 30, 2008 and December 31, 2007, the carrying amount of leasehold lands
pledged as security for the Group’s banking facilities amounted to $Nil and
$Nil, respectively.
11.
|
Held-to-maturity
investments
|
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Hang
Seng Capital Guarantee Investment Fund
|
|
|
|
|
|
|
|
-
30,000 units at $10 each, interest rate at 10.5% in 3.75
years
|
|
|
|
|
|
|
|
Cost
|
|
|
299,885
|
|
|
300,231
|
|
As
at
June 30, 2008 and December 31, 2007, the carrying amount of held-to-maturity
investments pledged as security for the Group’s banking facilities amounted to
$299,885 and $300,231, respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
Trademarks
|
|
|
199,821
|
|
|
200,051
|
|
Websites
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
199,821
|
|
|
200,051
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
Trademarks
|
|
|
171,846
|
|
|
152,039
|
|
Websites
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
171,846
|
|
|
152,039
|
|
Net
|
|
|
|
|
|
|
|
Trademarks
|
|
|
27,975
|
|
|
48,012
|
|
Websites
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
27,975
|
|
|
48,012
|
|
Amortization
expenses included in administrative and other operating expenses for the six
months ended June 30, 2008 and 2007 were $20,007 and $91,907,
respectively.
Estimated
aggregate future amortization expenses for the succeeding three years as of
June
30, 2008 were as follows:
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
13.
|
Other
payables and accrued
liabilities
|
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
301,606
|
|
|
92,249
|
|
Deposit
received
|
|
|
401,952
|
|
|
-
|
|
Sales
deposits received
|
|
|
39,899
|
|
|
40,258
|
|
|
|
|
|
|
|
|
|
|
|
|
743,457
|
|
|
132,507
|
|
|
|
As of
|
|
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Secured:
|
|
|
|
|
|
|
|
Bank
overdrafts repayable on demand
|
|
|
669,039
|
|
|
528,451
|
|
Repayable
within one year
|
|
|
|
|
|
|
|
Short
term bank loans
|
|
|
988,745
|
|
|
2,223,290
|
|
Other
trade related bank loans
|
|
|
20,652,571
|
|
|
17,686,738
|
|
|
|
|
|
|
|
|
|
|
|
|
22,310,355
|
|
|
20,438,479
|
|
As
of
June 30, 2008, the Company’s banking facilities are composed of the
following:
|
|
Amount
|
|
Facilities granted
|
|
Granted
|
|
Utilized
|
|
Unused
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Bank
overdrafts
|
|
|
694,860
|
|
|
669,039
|
|
|
25,821
|
|
Other
short terms bank loans
|
|
|
988,745
|
|
|
988,745
|
|
|
-
|
|
Other
trade related facilities
|
|
|
20,725,660
|
|
|
20,652,571
|
|
|
73,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,409,265
|
|
|
22,310,355
|
|
|
98,910
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
14.
|
Bank
borrowings
(Continued)
|
As
of
June 30, 2008, the above short-term banking borrowings were secured by the
following:
|
(a)
|
first
fixed legal charge over leasehold land and buildings with carrying
amounts
of $1,103,756 (note 9 and 10);
|
|
(b)
|
charge
over restricted cash of totally
$8,211,511;
|
|
(c)
|
charge
over held-to-maturity investments of $299,885 (note 11);
and
|
|
(d)
|
personal
guarantee executed by a director of the
Company;
|
|
(e)
|
Other
financial covenant:-
|
The
bank
borrowings require one of the Company’s subsidiaries to be secured by an
Insurance Policy of $2,570,463 and a director as the insured party.
The
bank
borrowings require one of the Company’s subsidiaries to maintain a minimum net
worth of $5,251,697.
The
Company was in compliance with this requirement at June 30, 2008.
The
interest rates of short-terms bank loans were at
6.25%
to 8.00%
per
annum with various maturity rates.
The
interest rates of other trade related bank loans were at Hong Kong Prime Rate
minus 0.75% to 2% per annum.
15.
|
Convertible
Bonds and Bond Warrants
|
On
November 13, 2007, the Company completed a financing transaction with ABN AMRO
Bank N.V. (the “Subscriber”) issuing (i) $8,000,000 Variable Rate Convertible
Bonds due in 2012 (the “Bonds”) and (ii) warrants to purchase an aggregate of
600,000 shares of the Company’s common stock, subject to adjustments for stock
splits or reorganizations as net forth in the warrant, that expire in 2010
(the
“Warrants“).
The
Bonds
were subscribed at a price equal to 97% of their principal amount, which is
the
issue price of 100% less a 3% commission to the Subscriber. The Bonds were
issued pursuant to, and are subject to the terms and conditions of, a trust
deed
dated November 13, 2007, as amended, between the Company and The Bank of New
York, London Branch (the “Trust Deed“). The Bonds are also subject to a paying
and conversion agency agreement dated November 13, 2007 between the Company,
The
Bank of New York, and The Bank of New York, London Branch. The terms and
conditions of the Bonds, as set forth in the Trust Deed include, among other
thing, the following terms:
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
15.
|
Convertible
Bonds and Bond Warrants
(Continued)
|
-
Interest Rate
.
The
Bonds bear cash interest from November 13, 2007 at the rate of 6% per annum
for
the first year after November 13, 2007 and 3% per annum thereafter, of the
principal amount of the Bonds.
-
Conversion.
Each
Bond is convertible at the option of the holder at any time on a date that
is
365 days after the date that the Company’s securities are traded on the American
Stock Exchange (“AMEX”) through March 28, 2012, into shares of the Company’s
common stock at an initial conversion price equal to the price per share at
which shares are sold in the Company’s proposed initial public offering of
common stock on the American Stock Exchange (“AMEX”) with minimum gross proceeds
of $2,000,000. If no initial public offering occurs prior to conversion, the
conversion price per share will be $2.00, subject to adjustment in accordance
with the terms and conditions of the Bonds. The conversion price was adjusted
to
$3.50 based on the Company’s initial public offering completed in February 2008.
The conversion price is subject to adjustment in certain events, including
the
Company’s issuance of additional shares of common stock or rights to purchase
common stock at a per share or per share exercise or conversion price,
respectively, at less than the applicable per share conversion price of the
Bonds. If for the period of 20 consecutive trading days immediately prior to
April 12, 2009 or February 18, 2012, the conversion price for the Bonds is
higher than the average closing price for the shares, then the conversion price
will be reset to such average closing price; provided that, the conversion
price
will not be reset lower than 70% of the then existing conversion price. In
addition, the Trust Deed provides that the conversion price of the Bonds cannot
be adjusted to lower than $0.25 per share of common stock (as adjusted for
stock
splits, stock dividends, spin-offs, rights offerings, recapitalizations and
similar events).
-
Mandatory Redemptions.
If
either (i) the Company’s common stock (including the shares of common stock
issuable upon conversion of the Bonds and exercise of the Warrants) are not
listed on AMEX on or before August 13, 2008 or (ii) the Company breaches certain
of its obligations to timely register the Bonds, Warrants and underlying shares
pursuant to the registration rights agreement dated November 13, 2007 entered
into by and between the Subscriber and the Company, then holders of the Bonds
can require the Company to redeem the Bonds at 104.53% of the principal amount
of the Bonds at any time after November 13, 2008. In addition, at any time
after
November 13, 2010, holders of the Bonds can require the Company to redeem the
Bonds at 126.51% of the principal amount. The Company is required to redeem
any
outstanding Bonds at 150.87% of its principal amount on November 13,
2012.
On
November 13, 2007, the Company entered into a warrant instrument with the
Subscriber pursuant to which the Subscriber purchased the Warrants from the
Company (the “Warrants Instrument”). The Warrants, which are represented by a
global certificate, are also subject to a warrant agency agreement by and among
the Company, The Bank of New York and The Bank of New York, London Branch dated
November 13, 2007 (the “Warrant Agency Agreement”). Pursuant to the terms and
conditions of the Warrant Instrument and the Warrant Agency Agreement, the
Warrants vested on November 13, 2007 and will terminate on November 13, 2010.
The Warrants are exercisable at a per share exercise price of $0.01. The Company
has agreed to list the Warrant on AMEX, or any alternative stock exchange by
November 13, 2008.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
15.
|
Convertible
Bonds and Bond Warrants
(Continued)
|
On
November 13, 2007 the Company also entered into a registration rights agreement
with the Subscriber pursuant to which the Company agreed to include the Bonds,
the Warrants, and the shares of common stock underlying the Bonds and Warrants
in a pre-effective amendment to registration statement that the Company have
on
file with the SEC. Subsequently, the Company verbally agreed with the Subscriber
not to include the Subscriber’s securities in this registration statement and to
register them in a separate registration statement to be filed promptly after
the effective date of this registration statement.
At
November 13, 2007, the date of issuance, the Company determined the fair value
of the Bonds to be $7,760,000. The warrants and the beneficial conversion
feature were $1,652,701 and $6,107,299 respectively, which were determined
under
the Black-Scholes valuation method. They are included under stockholders’ equity
as additional paid in capital-stock warrants and additional paid in
capital-beneficial conversion feature respectively in accordance with guidance
of APB 14 and EITF No. 98-5.Accordingly, the interest discount on the warrants
and beneficial conversion feature were recorded, and are being amortized by
the
interest method of 5 years. The Beneficial Conversion Feature was calculated
using a $2 conversion price. The conversion rate effective with the Company’s
initial public offering in February 2008 increased to $3.50. This change in
the
conversion rate will result in a reduction of the Beneficial Conversion Feature
by approximately $4 million dollars and will result in a reduction in additional
paid in capital and increase the bonds payable. The overall result in a
reduction in bond discounts.
As
addressed in an earlier paragraph under Mandatory Redemptions, the Company
will
redeem each bond at 150.87% of its principal amount on November 13, 2012 (the
maturity date). On the basis of this commitment, the Company has determined
the
total redemption premium to be $4,069,600, which is an addition to the original
face value of the Bonds of $8,000,000. This redemption premium is to be
amortized to interest expense over the term of the Bonds by the interest method.
Interest expense on the accretion of redemption premium for the period from
November 13, 2007 to June 30, 2008 amounted to $219,765 as disclosed in the
following schedule of Convertible Bonds Payable.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
15.
|
Convertible
Bonds and Bond Warrants
(Continued)
|
Because
of the fact that the $8,000,000 Variable Rate Convertible Bonds contain three
separate securities and yet merged into one package, the bond security must
identify its constituents and establish the individual value as determined
by
the Issuer as follows:
(1)
|
Convertible
Bonds
|
$
|
8,000,000
|
(2)
|
Bond
Discount
|
$
|
240,000
|
(3)
|
Warrants
|
$
|
1,652,701
|
(4)
|
Beneficial
Conversion Feature
|
$
|
1,892,701
|
The
above
items (2), (3), and (4) are to be amortized to interest expense over the term
of
the Bonds by the effective interest method as disclosed in the table
below.
The
Convertible Bonds Payable, net consists of the following:-
For the six months ended June 30, 2008
|
|
$
|
|
|
|
|
|
Convertible
Bonds Payable
|
|
|
8,000,000
|
|
Less:
Interest discount - Warrants
|
|
|
(1,652,701
|
)
|
Less:
Interest discount - Beneficial conversion feature
|
|
|
(1,892,701
|
)
|
Less:
Bond discount
|
|
|
(240,000
|
)
|
Accretion
of interest discount - Warrant
|
|
|
44,374
|
|
Accretion
of interest discount - Beneficial conversion feature
|
|
|
434,179
|
|
Amortization
of bond discount to interest expense
|
|
|
6,444
|
|
6%
Interest Payable
|
|
|
14,896
|
|
Accretion
of redemption premium
|
|
|
65,333
|
|
|
|
|
|
|
Net
|
|
|
4,779,824
|
|
16.
|
Common
stock and
convertible
preferred
stock
|
The
Company conducted a private placement (“Private Placement”) pursuant to
subscription agreements (the “Subscription Agreement”) entered into by the
Company and certain investors. Pursuant to the Private Placement, the Company
sold an aggregate of 2,250,348 shares of Series A Convertible Preferred Stock
(“Series A Preferred Stock”) at $1.29 per share for aggregate gross proceeds of
$2,902,947.
At
the
initial closing of the Private Placement on January 23, 2007, the Company sold
an aggregate of 1,749,028 shares of Series A Preferred Stock. At the second
and
final closing of the Private Placement on February 9, 2007, the Company sold
an
aggregate of 501,320 shares of Series A Preferred Stock.
The
shares of the Company’s Series A Preferred Stock are convertible into shares of
common stock at a conversion price equal to the share purchase price, subject
to
adjustments. Accordingly, each share of Series A Preferred Stock is initially
convertible into one share of common stock.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
16.
|
Common
stock and
convertible
preferred
stock
(Continued)
|
If
the
Company at any time prior to the first trading day on which the common stock
is
quoted on the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq
Global Market or the New York Stock Exchange (each a “Trading Market”) sells or
issues any shares of common stock in one or a series of transactions at an
effective price less than such conversion price where the aggregate gross
proceeds to the Company are at least $1,000,000, then the aforementioned
conversion price shall be reduced to such effective price. Each share of
Series A Convertible Preferred Stock shall automatically convert into
shares of common stock if (i) the closing price of the common stock on the
Trading Market for any 10 consecutive trading day period exceeds $3.00 per
share, (ii) the shares of common stock underlying the Series A
Convertible Preferred Stock are subject to an effective registration statement,
and (iii) the daily trading volume of the common stock on a Trading Market
exceeds 25,000 shares per day for 10 out of 20 prior trading days.
The
Company agreed to file a registration statement covering the common stock
underlying the Series A Convertible Preferred Stock sold in the Private
Placement within 30 days of the closing of the Share Exchange pursuant to the
Subscription Agreement with each investor. The Company agreed to a penalty
provision with respect to its obligation to register the Series A Convertible
Preferred Stock. If the Company fails to register the Series A Convertible
Preferred Stock due to failure on the part of the Company, the Company will
pay
to the holders of Series A Convertible Preferred Stock a cash payment equal
to
0.0333% of the purchase price of their respective shares for each business
day
of the failure. There is no maximum potential consideration to be transferred.
The Company is required to file the registration statement no later than 30
days
after the consummation of the Private Placement and agreed to use reasonable
best efforts to cause such Registration Statement to become effective within
150
days after the closing of the Private Placement, or 180 days if the Registration
Statement is subject to a full review by the SEC. The Company is also required
to use its reasonable best effort to maintain the Registration Statement
effective for a period of 24 months at the Company's expense.
The
investors in the Private Placement also entered into a lock-up agreement
pursuant to which they agreed not to sell their shares until the Company common
stock begins to be listed or quoted on the New York Stock Exchange, American
Stock Exchange, NASDAQ Global Market, NASDAQ Capital Market or the OTC Bulletin
Board, after which their shares will automatically be released from the lock
up
every 30 days on a pro rata over a nine month period beginning on the date
that
is 30 days after listing or quotation of the shares.
In
connection with the Private Placement, in January and February 2007, Kwong
Kai
Shun, the Company's Chairman of the Board, Chief Executive Officer and Chief
Financial Officer, entered into an agreement (the “Escrow Agreement”) with the
investors in the Private Placement pursuant to which Mr. Kwong agreed to place
2,326,000 shares of his common stock in escrow for possible distribution to
the
investors (the "Escrow Shares"). Pursuant to the Escrow Agreement, if the
Company's net income for 2006 or 2007 (subject to specified adjustments) as
set
forth in its filings with the SEC is less than $6,300,000 or $7,700,000,
respectively, a portion, if not all, of the Escrow Shares will be transferred
to
the investors
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
16.
|
Common
stock and
convertible
preferred
stock
(Continued)
|
based
upon the Company's actual net income, if any, for such fiscal years. In
addition, Mr. Kwong has agreed to purchase all of the shares of Series A
Preferred Stock then held by such investors at a per share purchase price of
$1.29 if the Company's common stock fails to be listed or quoted for trading
on
the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market
or the New York Stock Exchange on or before June 30, 2007, which has been
subsequently extended to March 31, 2008. The number of shares that Mr. Kwong
will distribute to shareholders will be determined by the number of shares
of
common stock that have not been sold by the investors, multiplied by the
shortfall in a valuation agreed upon by the parties. The agreed upon shortfall
in valuation is calculated using the $1.29 purchase price per share of the
common stock, the actual amount of net income for either 2006 or 2007 (subject
to specified adjustments) and a price earnings ratio set at 5 for 2006 and
4 for
2007. In no circumstances will Mr. Kwong be required to distribute in excess
of
2,326,000 shares. In the event that Mr. Kwong transfers any shares to investors,
it is anticipated that the transfer will be effected under an exemption from
registration pursuant to the Securities Act of 1933, as amended.
The
Company has accounted for the Escrow Shares as the equivalent of a
performance-based compensatory stock plan between the Company and Mr. Kwong.
Accordingly, the Company determined the fair value of the stock-based
compensation related to the Escrow Shares by employing a binomial tree model,
which is commonly used to value performance-based equity compensation packages.
The valuation model used a volatility factor of 57%, a risk-free interest rate
of 5.7%, and weekly steps to incorporate various possible scenarios for net
income and common stock price. The probability at each quarter-end represents
the probability of achieving the annual 2006 and 2007 net income targets
specified in the Escrow Agreement. This quarterly probability is a time-weighted
average of the implicit probabilities of achieving each net income target.
The
probabilities are calculated using multi-period scenario analyses through a
backward induction tree, which generated an aggregate fair value for the Escrow
Shares of $2,433,650. The inputs to the valuation mode were based on actual
quarterly net income and estimates made by the Company that the required annual
net income would be equaled or exceeded.
As
the
performance conditions under this compensatory stock plan relate to the
attainment of specific defined net income milestones for both 2006 and 2007,
the
Company has determined that the appropriate period over which to recognize
the
charge to operations for the aggregate fair value of this compensatory stock
plan of $2,433,650 is the 11-month period from February 2007 through December
2007, which is the period of vesting (which is equivalent to the period of
benefit), since this is the period in which the Escrow Shares are subject to
the
Escrow Agreement.
The
Company met the 2006 and 2007 net income requirement of $6,300,000 and
$7,700,000, respectively, and the Escrow Shares had fully returned to Mr. Kwong
on April 1, 2008.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
16.
|
Common
stock and
convertible
preferred
stock
(Continued)
|
If
the
Company pays a stock dividend on the shares of common stock, subdivide
outstanding shares of common stock into a larger number of shares, combine,
through a reverse stock split, outstanding shares of the common stock into
a
smaller number of shares or issues, in the event of a reclassification of shares
of the common stock, any shares of capital stock, then the conversion price
of
the Series A Preferred Stock will be adjusted as follows: the conversion price
will be multiplied by a fraction, of which (i) the numerator will be the number
of shares of common stock outstanding immediately before one of the events
described above and (ii) the denominator will be the number of shares of common
stock outstanding immediately after such event.
Holder
of
the Series A Convertible Preferred Stock have the right to one vote per share
of
common stock issuable upon conversion of the shares underlying any shares of
Preferred Stock outstanding as of the record date for purposes of determining
which holders have the right to vote with respect to any matters brought to
a
vote before the Company’s holders of common stock.
In
the
event of any liquidation, dissolution, or winding up of the Company, the holders
of the Series A Convertible Preferred Stock are entitled to receive in
preference to the holders of common stock an amount per share of $1.29 plus
any
accrued but unpaid dividends. If the Company’s assets are insufficient to pay
the above amounts in full, then all of the Company’s assets will be ratably
distributed among the holders of the Series A Convertible Preferred Stock in
accordance with the respective amounts that would be payable on such shares
if
all amounts payable were paid in full.
There
are
no additional specific dividend rights or redemption rights of holders of the
Series A Convertible Preferred Stock.
If
the
Company redeems or acquired any shares of the Series A Convertible Preferred
Stock are converted, those shares will resume the status of authorized but
unissued shares of preferred stock and will no longer be designated as Series
A
Convertible Preferred Stock.
As
long
as any shares of Series A Convertible Preferred Stock are outstanding, the
Company cannot alter or adversely change the powers, preference or rights given
to the Series A Convertible Preferred Stock holders, without the affirmative
vote of those holders.
On
January 16, 2008, the Company entered into a consulting agreement with Public
Equity Group Inc. Pursuant to the agreement, Public Equity Group will provide
the Company with business consulting and investor relation services and other
related services. The agreement has a term of one year, unless terminated
earlier with 60-days prior written notice. As consideration for entering in
the
agreement and compensation for Public Equity Group’s services under the
agreement, the Company issued 200,000 shares of its common stock to Public
Equity Group Inc.
On
February, 12, 2008, the Company’s common stock commenced trading on the American
Stock Exchange.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
16.
|
Common
stock and
convertible
preferred
stock
(Continued)
|
On
February 15, 2008, the Company issued 963,700 shares of common stock upon the
closing of an initial public offering. The Company’s sale of common stock, which
was sold indirectly by the Company to the public at a price of $3.50 per share,
resulted in net proceeds of $2,669,987. These proceeds were net of underwriting
discounts and commissions, fees for legal and auditing services, and other
offering costs.
The
Group
participates in a defined contribution pension scheme under the Mandatory
Provident Fund Schemes Ordinance “MPF Scheme” for all its eligible employees in
Hong Kong.
The
MPF
Scheme is available to all employees aged 18 to 64 with at least 60 days of
service in the employment in Hong Kong. Contributions are made by the Group’s
subsidiary operating in Hong Kong at 5% of the participants’ relevant income
with a ceiling of HK$20,000. The participants are entitled to 100% of the
Group’s contributions together with accrued returns irrespective of their length
of service with the Group, but the benefits are required by law to be preserved
until the retirement age of 65. The only obligation of the Group with respect
to
MPF Scheme is to make the required contributions under the plan.
The
assets of the schemes are controlled by trustees and held separately from those
of the Group. Total pension cost during the six months ended June 30, 2008
and
2007 were $9,850 and $7,623, respectively.
18.
|
Commitments
and contingencies
|
Operating
leases commitments
The
Group
leases office premises under various non-cancelable operating lease agreements
that expire at various dates through years 2008, with an option to renew the
lease. All leases are on a fixed repayment basis. None of the leases includes
contingent rentals. Minimum future commitments under these agreements payable
as
of June 30, 2008 are as follows:
Rental
expenses for the six months ended June 30, 2008 and 2007 were $44,312 and
$50,302, respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
SFAS
No. 131,
Disclosures
about Segments of an Enterprise and Related Information
,
establishes standards for reporting information about operating segments in
financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing
performance.
For
management purposes, the Group is currently organized into two major principal
activities – trading of watch movements (components) and trading of completed
watches. These principal activities are the basis on which the Group reports
its
primary segment information.
For
the
six months ended June 30, 2008
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
63,855,678
|
|
|
11,092,466
|
|
|
-
|
|
|
74,948,144
|
|
Cost
of sales
|
|
|
(56,446,692
|
)
|
|
(7,554,297
|
)
|
|
-
|
|
|
(64,000,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,408,986
|
|
|
3,538,169
|
|
|
-
|
|
|
10,947,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(1,014,858
|
)
|
|
(564,388
|
)
|
|
(1,346,052
|
)
|
|
(2,925,298
|
)
|
Other
operating income
|
|
|
31,550
|
|
|
20,007
|
|
|
-
|
|
|
51,557
|
|
Income
from operations
|
|
|
6,425,678
|
|
|
2,993,788
|
|
|
(1,346,052
|
)
|
|
8,073,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income
|
|
|
110,748
|
|
|
-
|
|
|
-
|
|
|
110,748
|
|
Interest
expenses
|
|
|
(565,074
|
)
|
|
-
|
|
|
(459,764
|
)
|
|
(1,024,838
|
)
|
Income
before income taxes
|
|
|
5,971,352
|
|
|
2,993,788
|
|
|
(1,805,816
|
)
|
|
7,159,324
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
19.
|
Segment
Information
(Continued)
|
For
the
three months ended June 30, 2008
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
32,527,223
|
|
|
5,595,673
|
|
|
-
|
|
|
38,122,896
|
|
Cost
of sales
|
|
|
(29,117,929
|
)
|
|
(3,736,762
|
)
|
|
-
|
|
|
(32,854,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,409,294
|
|
|
1,858,911
|
|
|
-
|
|
|
5,268,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(499,980
|
)
|
|
(277,834
|
)
|
|
(256,720
|
)
|
|
(1,034,534
|
)
|
Other
operating income
|
|
|
15,769
|
|
|
10,125
|
|
|
-
|
|
|
25,894
|
|
Income
from operations
|
|
|
2,925,083
|
|
|
1,591,202
|
|
|
(256,720
|
)
|
|
4,259,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income
|
|
|
63,896
|
|
|
-
|
|
|
-
|
|
|
63,896
|
|
Interest
expenses
|
|
|
(245,609
|
)
|
|
-
|
|
|
(177,595
|
)
|
|
(423,204
|
)
|
Income
before income taxes
|
|
|
2,743,370
|
|
|
1,591,202
|
|
|
(434,315
|
)
|
|
3,900,257
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
19.
|
Segment
Information
(Continued)
|
For
the
six months ended June 30, 2007
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
38,234,542
|
|
|
3,753,037
|
|
|
-
|
|
|
41,987,579
|
|
Cost
of sales
|
|
|
(34,409,026
|
)
|
|
(2,009,843
|
)
|
|
-
|
|
|
(36,418,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,825,516
|
|
|
1,743,194
|
|
|
-
|
|
|
5,568,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(541,642
|
)
|
|
(275,555
|
)
|
|
(1,916,930
|
)
|
|
(2,734,127
|
)
|
Fee
and cost related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
(736,197
|
)
|
|
(736,197
|
)
|
Other
operation income
|
|
|
31,491
|
|
|
65,287
|
|
|
-
|
|
|
96,778
|
|
Income
from operations
|
|
|
3,315,365
|
|
|
1,532,926
|
|
|
(2,653,127
|
)
|
|
2,195,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
and costs related to reverse merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income
|
|
|
78,381
|
|
|
-
|
|
|
-
|
|
|
78,381
|
|
Interest
expenses
|
|
|
(514,419
|
)
|
|
-
|
|
|
-
|
|
|
(514,419
|
)
|
Income
before income taxes
|
|
|
2,879,327
|
|
|
1,532,926
|
|
|
(2,653,127
|
)
|
|
1,759,126
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
19.
|
Segment
Information
(Continued)
|
For
the
three months ended June 30, 2007
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
19,010,476
|
|
|
1,858,961
|
|
|
-
|
|
|
20,869,437
|
|
Cost
of sales
|
|
|
(17,486,901
|
)
|
|
(1,032,990
|
)
|
|
-
|
|
|
(18,519,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,523,575
|
|
|
825,971
|
|
|
-
|
|
|
2,349,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(270,626
|
)
|
|
(163,358
|
)
|
|
(188,306
|
)
|
|
(622,290
|
)
|
Fee
and cost related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
operation income
|
|
|
15,710
|
|
|
32,571
|
|
|
-
|
|
|
48,281
|
|
Income
from operations
|
|
|
1,268,659
|
|
|
695,184
|
|
|
(188,306
|
)
|
|
1,775,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
and costs related to reverse merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income
|
|
|
48,452
|
|
|
-
|
|
|
-
|
|
|
48,452
|
|
Interest
expenses
|
|
|
(274,990
|
)
|
|
-
|
|
|
-
|
|
|
(274,990
|
)
|
Income
before income taxes
|
|
|
1,042,121
|
|
|
695,184
|
|
|
(188,306
|
)
|
|
1,548,999
|
|
Total
assets
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2008
|
|
|
52,479,099
|
|
|
11,513,527
|
|
|
13,505
|
|
|
64,006,131
|
|
At
December 31, 2007
|
|
|
45,349,351
|
|
|
6,101,962
|
|
|
-
|
|
|
51,451,313
|
|
The
Group’s operations are primarily in Hong Kong and China and the Group’s sales,
gross profit and total assets attributable to other geographical areas are
less
than
10%
of
the Group’s corresponding consolidated totals for the six months ended June 30,
2008 and 2007 consequently, no segment information by geographical areas is
presented.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The
following discussion should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this quarterly
report. This report contains forward-looking statements. The words
“anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,”
“project,” “could,” “may,” and similar expressions are intended to identify
forward-looking statements. These statements include, among others, information
regarding future operations, future capital expenditures, and future net cash
flow. Such statements reflect our management’s current views with respect to
future events and financial performance and involve risks and uncertainties,
including, without limitation, general economic and business conditions, changes
in foreign, political, social, and economic conditions, regulatory initiatives
and compliance with governmental regulations, the ability to achieve further
market penetration and additional customers, and various other matters, many
of
which are beyond our control. Should one or more of these risks or uncertainties
occur, or should underlying assumptions prove to be incorrect, actual results
may vary materially and adversely from those anticipated, believed, estimated
or
otherwise indicated. Consequently, all of the forward-looking statements made
in
this quarterly report are qualified by these cautionary statements and there
can
be no assurance of the actual results or developments.
Overview
We
are a
distributor of watch movements components used in the manufacture and assembly
of watches to a wide variety of timepiece manufacturers. There are two
categories of watch movements, quartz and mechanical. The main parts of an
analog quartz watch movement are the battery; the oscillator, a piece of quartz
that vibrates in response to the electric current; the integrated circuit,
which
divides the oscillations into seconds; the stepping motor, which drives the
gear
train; and the gear train itself, which makes the watch’s hands move. A digital
watch movement has the same timing components as an analog quartz movement
but
has no stepping motor or gear train. To a lesser extent we also distribute
complete analog-quartz and automatic watches with pricing between $20.00 to
$70.00. Manufacturing for these watches is currently outsourced to third party
factories in China.
Our
core
customer base consists primarily of large wholesalers, online retailers and
small and medium-sized watch manufacturers that produce watches primarily for
sale to customers in Hong Kong and China. To a lesser extent, we design watches
for manufacturers and exporters of watches and manufacture and distribute
completed watches primarily to online retailers and internet
marketers.
We
are
mainly engaged in watch movement distribution business in Hong Kong and China
which accounted for approximately 89% of our revenue for the year ended December
31, 2007. We have distribution centers and strategically located sales offices
throughout Hong Kong and the People’s Republic of China (“China” or “PRC”). We
distribute more than 350 products from over 30 vendors, including such market
leaders as Citizen Group, Seiko Corporation and Ronda AG, to a base of over
350
customers primarily through our direct sales force. As a part and included
in
our sale of watch movements, we provide a variety of value-added services,
including automated inventory management services, integration, design and
development, management, and support services.
Corporate
Structure
We
were
incorporated in the State of Delaware on January 3, 2006. We were originally
organized as a “blank check” shell company to investigate and acquire a target
company or business seeking the perceived advantages of being a publicly held
corporation. On January 23, 2007, we closed a share exchange transaction (“Share
Exchange”) pursuant to which we (i) issued 19,454,420 shares of our common stock
to acquire 100% equity ownership of Times Manufacture & E-Commerce
Corporation Limited, a British Virgin Islands corporation (“Times Manufacture”),
which has eight wholly-owned subsidiaries, (ii) assumed the operations of Times
Manufacture and its subsidiaries, and (iii) changed our name from SRKP 9, Inc.
to Asia Time Corporation. Times Manufacture also paid an aggregate of $350,000
to the stockholders of SRKP 9, Inc. Times Manufacture was founded in January
2002 and is based in Hong Kong.
In
2005,
we re-aligned the structure and business functions of our subsidiaries to
clearly define the scopes our business objectives in order to strengthen our
ability to effectively conduct our business operations. Billion Win
International Enterprise Limited, or Billion Win, is our central sourcing
component. Billion Win, which is held indirectly through Times Manufacture,
procures and imports watch movements and distributes them to suppliers, volume
users in China, and two of our subsidiaries, Goldcome Industrial Limited, or
Goldcome, and Citibond Industrial Limited, or Citibond. Goldcome mainly focuses
it distributions to wholesalers and large manufacturers and Citibond focuses
on
distributions to small to medium size manufacturers. Megamooch International
Limited is a complete watch distributor and exporter targeting overseas buyers.
Another two subsidiaries, TME Enterprise Ltd. and Citibond Design Ltd., are
responsible for complete watch design for manufacturers and exporters and
handles large volume watch movement transactions between buyers and sellers
solely on a commission basis. Megamooch Online Ltd. operations are focused
on
complete watch marketing and distribution, with manufacturing being outsourced,
and it concentrates on overseas markets.
Watch
Movement Segment
Presently,
Hong Kong does not generally have watch movement manufacturing. Watch movements
are largely imported from Japan and Switzerland. The revenue for the watch
movement segment of our business for the six months ended June 30, 2008 was
$63.9 million, with a gross profit of $7.4 million, a 67.0% and 93.7% increase,
respectively, as compared to $38.2 million in revenue and $3.8 million in gross
profit for the six months ended June 30, 2007.
The
gross
profit margin increased to 11.6% for the six months ended June 30, 2008 from
10.0% for the
same
period in
2007,
primarily due to more diversified products being promoted to customers and
higher selling prices as a result of extended credit terms to our customers,
plus the introduction of mechanical movements to the market which generally
have
higher profit margins.
We
provide a wide product spectrum of products ranging from mechanical movements
to
carrying major brands as well as middle-low end China quartz movements. We
believe carrying a wide product spectrum enables us to provide a convenient
one-stop provider for our customers, which may result in higher sales per
customer. We began to target small to medium manufacturers in mid-2005 and
our
customer base has expanded to more than 350 watch manufacturers. In addition,
we
have extended our credit period from an average of 30 days to 50 days to major
customers that have maintained a history of timely settlement of receivables.
We
believe that this extension lead to an increase of purchase orders from those
customers. We review the credit status of each customer and periodically adjust
the credit period to specific customers in an attempt to maximize business
with
each customer without suffering significant credit risk.
Complete
Watch Segment
Revenue
of our complete watch segment was $11.1 million for the six months ended June
30, 2008, a 195.6% increase compared to the same period in 2007 in which revenue
was $3.8 million. This segment contributed approximately 14.8% of our revenue
for the six months ended June 30, 2008, as compared to 8.9% of revenue for
the
same period in 2007. The increase was primarily contributed to an increase
in
sales of high-end mechanical watches. Our main market positioning in China
is on
the middle-class adult, daily, sporty and classy design.
Results
of Operations
The
following table sets forth certain items in our statement of operations as
a
percentage of net sales for the periods shown:
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
86.2
|
%
|
|
88.7
|
%
|
|
85.4
|
%
|
|
86.7
|
%
|
Gross
profit
|
|
|
13.8
|
%
|
|
11.3
|
%
|
|
14.6
|
%
|
|
13.3
|
%
|
Other
operating income
|
|
|
0.1
|
%
|
|
0.2
|
%
|
|
0.1
|
%
|
|
0.2
|
%
|
Depreciation
|
|
|
0.8
|
%
|
|
0.3
|
%
|
|
0.8
|
%
|
|
0.3
|
%
|
Administrative
expenses
|
|
|
1.9
|
%
|
|
2.7
|
%
|
|
3.1
|
%
|
|
6.2
|
%
|
Income
from operations
|
|
|
11.2
|
%
|
|
8.5
|
%
|
|
10.8
|
%
|
|
7.0
|
%
|
Professional
expenses related to Restructuring and Share Exchange
|
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
1.8
|
%
|
Other
income
|
|
|
0.2
|
%
|
|
0.2
|
%
|
|
0.1
|
%
|
|
0.2
|
%
|
Interest
expenses
|
|
|
1.1
|
%
|
|
1.3
|
%
|
|
1.4
|
%
|
|
1.2
|
%
|
Profit
before tax
|
|
|
10.3
|
%
|
|
7.4
|
%
|
|
9.5
|
%
|
|
4.2
|
%
|
Taxation
|
|
|
1.7
|
%
|
|
1.5
|
%
|
|
2.0
|
%
|
|
1.7
|
%
|
Net
income
|
|
|
8.6
|
%
|
|
5.9
|
%
|
|
7.5
|
%
|
|
2.5
|
%
|
Comparison
of the three months ended June 30, 2008 with the three months ended June 30,
2007
Net
sales
for the three months ended June 30, 2008 was $38.1 million as compared to $20.9
million for the comparable period in 2007, an increase of $17.3 million, or
82.7%. This increase was primarily due to an increase in the sales of both
completed watches and watch movements. Net sales of movements was $32.5 million
for the three months ended June 30, 2008, accounting for approximately 85.3%
of
our total sales for the period, an increase of 71.1% as compared to $19.0
million for the comparable period in 2007. The increase was primarily
attributable to an increase in volume of movements from 25.3 million pieces
to
27.6 million pieces in the comparable three-month period in 2007 and 2008,
respectively, and an increase in sales of middle to high-end movements. Sales
of
completed watches for the three months ended June 30, 2008, was $5.6 million
as
compared to $1.9 million for the comparable period in 2007, an increase of
201.0%. The increase was due to a significant increase in sales of high-end
mechanical watches partially offset by a decrease in low-end items. The total
volume decreased from 0.22 million pieces to 85,500 pieces, or 61.6%, in the
comparable periods in 2007 and 2008, respectively. The increase in sales of
high-end mechanical watches and decrease in low-end items was a result of our
strategic focus of our business on the high-end items which have a higher growth
potential. Management believes the profit margin of mechanical watches is on
the
rise while the profit margin of quartz watches will further decline in 2008
and
2009. The profit margin of mechanical and quartz watches was approximately
40%
and 20%, respectively, for the three months ended June 30, 2008.
Cost
of
sales for the three months ended June 30, 2008 was $32.9 million, or 86.2%
of
net sales, as compared to $18.5 million, or 88.7% of net sales, for the same
period in 2007. The decrease in cost of sales as a percentage of net sales
was
largely attributable to the introduction of our mechanical movements and watches
to the market, which generally carry higher margins. In addition, the decrease
is due to our improved economies of scale and price reductions that we received
in the form of additional watch movements from the manufacturers.
Gross
profit for the three months ended June 30, 2008 was $5.3 million, or 13.8%
of
net sales, compared to $2.4 million, or 11.3% of net sales for the same period
in 2007. The increase in our gross profit was primarily attributable to an
increase in sales of high-end products as a result of business re-alignment
and
improved economies of scale. The gross profit margin of watch movements
increased from 8.0% for the three months ended June 30, 2007 to 10.5% for the
same period in 2008. Gross profit margins are usually a factor of product mix
and demand for product. The gross profit margin for completed watches for the
three months ended June 30, 2008 was 33.2% as compared to 44.4% for the
comparable period in 2007. The decrease in gross profit margin for completed
watches was a result of management’s strategy to offer price discounts on our
products in exchange for a decreased warranty period on the products, as opposed
to 2007 in which we offered a long-term warranty. Management believes that
this
new pricing strategy on completed watches in 2008 will reduce our exposure
to
the risk of return goods.
Other
income from operations was approximately $26,000 or 0.1% of net sales, for
the
three months ended June 30, 2008, as compared to approximately $48,000, or
0.2%
of net sales, for the three months ended June 30, 2007. The decrease was due
to
a decrease in income received from the license fees of intangible assets as
we
had disposed of some websites in 2007.
Administrative
and other operating expenses were approximately $727,000, or 1.9% of net sales,
for the three months ended June 30, 2008, as compared to approximately $558,000,
or 2.7% of net sales, for the comparable period in 2007. The increase was
primarily due to increased professional fees related to company restructuring
and reporting requirements as a public company, together with additional
employees and upgraded staff benefits. Management considers the expenses as
a
percentage of net sales to be a key performance indicator in managing our
business.
Other
income from non-operating activities was approximately $64,000, or 0.2% of
net
sales, for the three months ended June 30, 2008, as compared to approximately
$48,000, or 0.2% of net sales, for the three months ended June 30, 2007. The
increase was primarily due to an increase in bank interest income, which was
approximately $58,000 for the three months ended June 30, 2008, as compared
to
approximately $48,000 for the same period in 2007.
Interest
expenses for the three months ended June 30, 2008 was approximately $423,000,
or
1.1% of net sales, as compared to approximately $275,000, or 1.3% of net sales,
in 2007. The increase was primarily due to the interest and amortization on
bonds of approximately $178,000 in three months ended June 30,
2008.
Income
taxes for the three months ended June 30, 2008 were approximately $669,000,
or
1.8% of net sales, as compared to approximately $314,000, or 1.5% of net sales
for the three months ended June 30, 2007. The increase in income taxes was
primarily due to an increase in the operating profit. The taxation rate
decreased from 17.5% for the period ended June 30, 2007 to 16.5% for the same
period in 2008.
Net
income for the three months ended June 30, 2008 was $3.2 million, or 8.5% of
net
sales, an increase of 161.7% over the comparable period in 2007 of $1.2 million,
or 5.9% of net sales.
Comparison
of the six months ended June 30, 2008 with the six months ended June 30,
2007
Net
sales
for the six months ended June 30, 2008 was $75.0 million as compared to $42.0
million for the comparable period in 2007, an increase of $33.0 million, or
78.5%. This increase was primarily due to an increase in the sales of both
completed watches and watch movements. Net sales of movements was $63.9 million
for the six months ended June 30, 2008, accounting for approximately 85.2%
of
our total sales for the period, an increase of 67.0% as compared to $38.2
million for the comparable period in 2007. The increase was primarily
attributable to an increase in volume of movements from 46.6 million pieces
to
54.9 million pieces in the comparable six-month period in 2007 and 2008,
respectively, and an increase in sales of middle to high-end movements. Sales
of
completed watches for the six months ended June 30, 2008, was $11.1 million
as
compared to $3.8 million for the comparable period in 2007, an increase of
195.6%. The increase was due to a significant increase in sales of high-end
mechanical watches partially offset by a decrease in low-end items. The total
volume decreased from 0.43 million pieces to 0.18 million pieces, or 58.0%,
in
the comparable periods in 2007 and 2008, respectively. The increase in sales
of
high-end mechanical watches and decrease in low-end items was a result of our
strategic focus of our business on the high-end items which have a higher growth
potential. Management believes the profit margin of mechanical watches is on
the
rise while the profit margin of quartz watches will further decline in 2008
and
2009. The profit margin of mechanical and quartz watches was approximately
40%
and 20%, respectively, for the six months ended June 30, 2008.
Cost
of
sales for the six months ended June 30, 2008 was $64.0 million, or 85.4% of
net
sales, as compared to $36.4 million, or 86.7% of net sales, for the same period
in 2007. The decrease in cost of sales as a percentage of net sales was largely
attributable to the introduction of our mechanical movements and watches to
the
market, which generally carry higher margins. In addition, the decrease is
due
to our improved economies of scale and price reductions that we received in
the
form of additional watch movements from the manufacturers.
Gross
profit for the six months ended June 30, 2008 was $11.0 million, or 14.6% of
net
sales, compared to $5.6 million, or 13.3% of net sales for the same period
in
2007. The increase in our gross profit margin was primarily attributable to
the
increase in sales of higher-margin products as a result of diversification
of
products, plus a decrease in costs in the six months ended June 30, 2008 due
to
improved economies of scale. Gross profit margins are usually a factor of
product mix and demand for product. The gross profit of watch movements as
a
percentage of net sales had increased from 10.0% for the period ended June
30,
2007 to 11.6% of net sales for the same period in 2008. The increase in gross
profit margin was primarily due to an increase in sales of higher-margin items.
There was a decrease of gross profit margin for completed watches for the six
months ended June 30, 2008, which was 31.9% of net sales as compared to 46.4%
of
net sales for the comparable period in 2007. The decrease in profit margin
was
due to the decrease in profit margin of low-end items as we were making
clearance sales to move away from our low-end watches to focus our sales efforts
on high-end items in accordance to our long-term strategy. Another reason of
the
decrease was the change in management’s strategy to offer price discounts in
exchange for a decreased warranty period on the products, as opposed to 2007
in
which we offered a long-term warranty. Management believes that this new pricing
strategy on completed watches in 2008 will reduce our exposure to the risk
of
return goods.
Other
income from operations was approximately $52,000 or 0.1% of net sales for the
six months ended June 30, 2008, as compared to approximately $97,000 or 0.2%
of
net sales for the six months ended June 30, 2007. The decrease was due to a
decrease in income received from the license fees of intangible assets as we
had
disposed of some websites in 2007.
Administrative
and other operating expenses were $2.3 million, or 3.1% of net sales for the
six
months ended June 30, 2008, as compared to $2.6 million, or 6.2% of net sales
for the comparable period in 2007. The decrease in administrative and other
operating expenses in amount and as a percentage of net sales was primarily
due
to a one-time recognition of approximately $1.7 million of stock-based
compensation during the six months ended June 30, 2007 related to the Escrow
Shares provided by our CEO, Kwong Kai Shun, pursuant to the Private Placement
agreement entered into with our investors, and there is no such expense in
the
same period in 2008, partially offset by (i) a recognition of stock-based
business consulting fee during the six month ended 2008 of approximately
$700,000 valued at $3.50, the offering price in our public offering, and (ii)
an
increase in professional fees related to reporting requirements as a public
company in 2008. Management considers these expenses as a percentage of net
sales to be a key performance indicator in managing our business.
Other
income from non-operating activities was approximately $111,000, or 0.1% of
net
sales, for the six months ended June 30, 2008, as compared to approximately
$78,000, or 0.2% of net sales, for the six months ended June 30, 2007. The
increase was primarily due to an increase in bank interest income, which was
approximately $111,000 for the six months ended June 30, 2008, as compared
to
approximately $77,000 for the same period in 2007.
Interest
expense for the six months ended June 30, 2008 was $1.0 million, or 1.4% of
net
sales, as compared to approximately $514,000, or 1.2% of net sales in the same
period in 2007. The increase was primarily due to the interest and amortization
on bonds of $460,000 in six months ended June 30, 2008.
Income
taxes for the six months ended June 30, 2008 were $1.5 million, or 2.0% of
net
sales, as compared to approximately $717,000, or 1.7% of net sales for the
six
months ended June 30, 2007. The increase in income taxes was primarily due
to an
increase in the operating profit. The taxation rate decreased from 17.5% for
the
period ended June 30, 2007 to 16.5% for the same period in 2008.
Net
income for the six months ended June 30, 2008 was $5.7 million, 7.6% of net
sales, as compared to 1.0 million, or 2.5% of net sales for the comparable
period in 2007.
Off-Balance
Sheet Arrangements
Other
than the Escrow Agreement and Escrow Shares, as described in the notes to the
financial statements, we do not have any off-balance sheet debt, nor do we
have
any transactions, arrangements or relationships with any special purpose
entities.
Contractual
Obligations
Other
than those commitments and obligations being entered into in the normal course
of business, we do not have any additional, material capital commitments and
obligations due to other parties.
Inflation
and Seasonality
Inflation
and seasonality have not had a significant impact on our operations during
the
last two fiscal years.
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities, disclosure of contingent assets and liabilities at
the
date of the consolidated financial statements and the reported amounts of
revenues, expenses and allocated charges during the reporting period. Actual
results could differ from those estimates.
We
describe our significant accounting policies in Note 1 of the Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K
as
of and for the year ended December 31, 2007. We discuss our critical accounting
policies and estimates in Management’s Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K as of
and
for the year ended December 31, 2007. Other than as indicated in this quarterly
report, there have been no material revisions to the critical accounting
policies as filed in our Annual Report on Form 10-K as of and for the year
ended
December 31, 2007 with the SEC on March 31, 2008.
Stock-based
compensation
Effective
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123R”), a revision to SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS 123R requires that we measure the cost of employee services
received in exchange for equity awards based on the grant date fair value of
the
awards, with the cost to be recognized as compensation expense in our financial
statements over the vesting period of the awards. Accordingly, we recognize
compensation cost for equity-based compensation for all new or modified grants
issued after December 31, 2005. We account for stock option and warrant grants
issued and vesting to non-employees in accordance with EITF 96-18, “Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services”, and EITF 00-18, “Accounting
Recognition for Certain Transactions involving Equity Instruments Granted to
Other Than Employees”, whereas the value of the stock compensation is based upon
the measurement date as determined at either (a) the date at which a performance
commitment is reached or (b) at the date at which the necessary performance
to
earn the equity instruments is complete.
During
the six months ended June 30, 2007, we recorded approximately $1,652,205 as
a
charge to operations to recognize the grant date fair value of stock-based
compensation in conjunction with the Escrow Agreement. During the six months
ended June 30, 2008, we did not record any charge to operations to recognize
the
grant date fair value of stock-based compensation in conjunction with the Escrow
Agreement.
New
Accounting Pronouncements
In
February 2008, FASB issued FASB Staff Position (“FSP”) FAS 157-1
“Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements. That address Fair Value Measurement for Purposes of Lease
Classification or Measurement under Statement 13,” and FSP FAS 157-2, “Effective
Date of FASB Statement No. 157.”
FSP FAS
157-1 amends the scope of SFAS No. 157 and other accounting standards that
address fair value measurements for purpose of lease classification or
measurement under Statement 13. The FSP is effective on initial adoption of
Statement 157, FSP FAS 157-2 defers the effective date of SFAS No. 157 to fiscal
years beginning after November 15, 2008 for all nonfinancial assets and
nonfinancial liabilities, exception those that are recognized or disclosed
at
fair value in the financial statements on a recurring basis. The Company does
not expect the adoption of FSP FAS 157-1 and FSP FAS 157-2 will have a material
impact on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141(R),
“Business
Combinations”
and SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements –
an
amendment to ARB No. 51”
.
SFAS
No. 141(R) and SFAS No. 160 require most identifiable assets, liabilities,
noncontrolling interests and goodwill acquired in business combination to be
recorded at “full fair value” and require noncontrolling interests (previously
referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with noncontrolling interest
holders. Both statements are effective for periods beginning on or after
December 15, 2008, and earlier adoption is prohibited. SFAS No. 141(R) will
be
applied to business combinations occurring after the effective date. SFAS No.
160 will be applied prospectively to all noncontrolling interests, including
any
that arose before the effective date. The Company is currently evaluating the
impact of adopting SFAS No. 160 on its consolidated financial
statements.
In
March
2008, the FASB issued SFAS No. 161,
“Disclosures
about Derivative Instruments and Hedging Activities,”
which
requires enhanced disclosures about an entity’s derivative and hedging
activities. This Statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The Company
does not expect the adoption of SFAS 161 will have a material impact on its
results of operations and financial position.
In
May
2008, the FASB issued SFAS No. 162,
“The
Hierarchy of Generally Accepted Accounting Principles”
(“SFAS
162”). This statement identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in accordance with
generally accepted accounting principles (“GAAP”). With the issuance of this
statement, the FASB concluded that the GAAP hierarchy should be directed toward
the entity and not its auditor, and reside in the accounting literature
established by the FASB as opposed to the American Institute of Certified Public
Accountants (“AICPA”) Statement on Auditing Standards No. 69,
“The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.”
This
statement is effective 60 days following the Securities and Exchange
Commission’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411,
“The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.”
The
Company does not expect the adoption of SFAS 162 will have a material impact
on
its results of operations and financial position.
Liquidity
and Capital Resources
To
provide liquidity and flexibility in funding our operations, we borrow amounts
under bank facilities and other external sources of financing. As of June 30,
2008 we had general banking facilities amounted to approximately $22.3 million
for overdraft, letter of credit, trust receipt, invoice financing and export
loans granted by seven banks. The amount increased by $6.7 million compared
to
$15.6 million as at June 30, 2007. Interest on the facilities ranged from minus
2.00% to 0.75% over the Bank’s Best Lending Rate of Hong Kong (Prime Rate) or
Hong Kong Inter Bank Offered Rate (HIBOR). These banking facilities were secured
by the leasehold properties, time deposits and held-to maturity investments
of
the group and personal guarantees executed by our Chairman of the Board.
On
February 15, 2008, we completed an initial public offering consisting of 963,700
shares of our common stock. Our sale of common stock, which was sold indirectly
by us to the public at a price of $3.50 per share, resulted in net proceeds
of
approximately $2.7 million. These proceeds were net of underwriting discounts
and commissions, fees for legal and auditing services, and other offering costs.
Upon the closing of the initial public offering, we sold to the underwriter
warrants to purchase up to 83,800 shares of our common stock. The warrants
are
exercisable at a per share price of $4.20 and will expire if unexercised after
five years from the date of issuance.
On
November 13, 2007, we completed a financing transaction pursuant to which we
issued $8,000,000 Variable Rate Convertible Bonds that will be due in 2012.
The
Bonds were subscribed at a price equal to 97% of their principal amount, which
is the issue price of 100% less a 3% commission to the Subscriber of the Bonds.
The Bonds bear cash interest at the rate of 6% per annum for the first year
after November 13, 2007 and 3% per annum thereafter, of the principal amount
of
the Bonds. Each Bond is convertible at the option of the holder at any time
on
and after a date that is 365 days after February 12, 2008, which is the date
that our shares of common stock commence trading on the AMEX, at an initial
conversion price of $3.50. The conversion price is subject to adjustment in
certain events, including our issuance of additional shares of common stock
or
rights to purchase common stock at a per share or per share exercise or
conversion price, respectively, at less than the applicable per share conversion
price of the Bonds. If for the period of 20 consecutive trading days immediately
prior to November 13, 2009 or September 29, 2012, the conversion price for
the
Bonds is higher than the average closing price for the shares, then the
conversion price will be reset to such average closing price; provided that,
the
conversion price will not be reset lower than 70% of the then existing
conversion price. In connection with the issuance of the Bonds, we also issued
to the Subscriber warrants to purchase 600,000 shares of our common stock.
The
warrants were subscribed at a price of $0.0001 per warrant, are exercisable
at
$0.0001 per share, and terminate on November 13, 2010.
On
January 23, 2007, concurrently with the close of the Share Exchange, we
conducted an initial closing of a private placement transaction pursuant to
which we sold an aggregate of 1,749,028 shares of Series A Convertible Preferred
Stock at $1.29 per share. On February 9, 2007, we conducted a second and final
closing of the private placement pursuant to which we sold 501,320 shares of
Series A Convertible Preferred Stock at $1.29 per share. Accordingly, a total
of
2,250,348 shares of Series A Convertible Preferred Stock were sold in the
private placement for an aggregate gross proceeds of $2,902,946 (the “Private
Placement”). After commissions and expenses, we received net proceeds of
approximately $2.3 million in the Private Placement.
For
the
six months ended June 30, 2008, net cash used in operating activities was
approximately $5.6 million, as compared to net cash used in operating activities
of $3.9 million for the comparable period in 2007. The increase in net cash
used
in operating activities was primarily attributable to (i) an increase in prepaid
expenses and other receivables of $2.9 million for the six months ended June
30,
2008 as compared to $3.9 million in the same period in 2007, (ii) an increase
in
inventories of $3.0 million for the six months ended June 30, 2008 as compared
to the same period in 2007, (iii) a decrease in accounts payable of $1.4 million
for the six months ended June 30, 2008 as compared to the same period in 2007,
partially offset by an increase in net income of $4.6 million for the six months
ended June 30, 2008 as compared to $1.0 million in the same period in 2007
and a
decrease in stock-based compensation of approximately $952,000 for the six
months ended June 30, 2008 as compared to $1.7 million in the same period in
2007. The increase in prepaid expenses and other receivables was attributable
to
a deposit paid in relation to two potential acquisitions, which is fully
refundable if the acquisition transactions do not close. The increase in
inventories was attributable to our production of mechanical movements and
mechanical watches, which require a longer inventory period. The decrease in
accounts payable was primarily due to the increased purchases of mechanical
watches, which have shorter payment terms. Stock-based compensation decrease
since we recorded approximately $1.7 million as a charge to operations to
recognize the grant date fair value of stock-based compensation in conjunction
with the Escrow Agreement during the six month ended June 30, 2007. There was
no
such compensation in 2008.
Net
cash
used in investing activities was $3.7 million for the six months ended June
30,
2008, compared to $3,504 in the comparable period in 2007. The increase in
net
cash used was primarily due to an increase in expenditures for acquiring
moldings and equipments of $3.7 million for the six months ended June 30, 2008
as compared to $3,824 in the comparable period in 2007.
Net
cash
provided by financing activities was $4.9 million for the six months ended
June
30, 2008 and $3.7 million for the comparable period in 2007. The increase in
net
cash provided by financing activities for the six months ended June 30, 2008
was
primarily attributable to the proceeds of approximately $2.7 million from our
issuance of common stocks in the public offering in February 2008, and net
proceeds from short-term bank loans of $1.8 million.
For
the
six months ended June 30, 2008 and the same period in 2007, our average
inventory turnover were 36 days and 26 days, respectively. The increase in
inventory turnover period in 2008 was due to a higher level of stock associated
with higher sales. The average days outstanding of our accounts receivable
for
the six months ended June 30, 2008 was 43 days, as compared to 49 days for
the
same period in 2007. The decrease in the average days outstanding of our
accounts receivable was due to quicker payments from our customers as a result
of our tightened credit policy.
In
an
attempt to reduce our reliance on third-party watch movement manufacturers,
we
have plans to manufacture our own brands of quartz movements and mechanical
movements in-house. To manufacture our own brands of quartz and mechanical
movements in-house, we would need to acquire watch movement facilities in China
and invest in new equipment and research and development. We expect that up
to
$5.5 million will be required to obtain the equipment and facilities to
manufacture branded proprietary watch movements. During the three months ended
June 30, 2008, we identified two potential acquisition targets. One of the
targets is a full-range manufacturer of plastic and metal watch parts and the
other is a supplier of analog watches. If we are to acquire the former, we
believe it will contribute to our strategy of producing low-end quartz movements
in-house. If we are to acquire the latter, we believe it will result in an
increased production of mechanical watches. There is currently no definitive
agreement in place for either potential target and there is no assurance that
we
will be able to complete such acquisitions.
We
may
need to raise further capital for our future growth and operations from future
equity sales or through debt financings. Failure to obtain funding when needed
may force us to delay, reduce, or eliminate our plans to manufacture our own
watch movement parts. We may not be able to obtain additional financial
resources when necessary or on terms favorable to us, if at all, and any
available additional financing may not be adequate. Moreover, new equity
securities issued in financings may have greater rights, preferences or
privileges than our existing common stock. To the extent stock is issued or
options and warrants are exercised, holders of our common stock will experience
further dilution.
Based
on
our current plans, we believe that cash on hand, cash flow from operations
and
funds available under our bank facilities will be sufficient to fund our capital
needs for the next 12 months. However, our ability to maintain sufficient
liquidity depends partially on our ability to achieve anticipated levels of
revenue, while continuing to control costs. If we did not have sufficient
available cash, we would have to seek additional debt or equity financing
through other external sources, which may not be available on acceptable terms,
or at all. Failure to maintain financing arrangements on acceptable terms would
have a material adverse effect on our business, results of operations and
financial condition.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Credit
Risk.
We
are
exposed to credit risk from our cash at bank, fixed deposits and contract
receivables. The credit risk on cash at bank and fixed deposits is limited
because the counterparts are recognized financial institutions. Contract
receivables are subject to credit evaluations. As we are getting more new
customers and offering credit terms, financial efficiency, we believe that
cash
flow and controlling bad debt and late payment become more and more important.
We carry out thorough research through public filing records available on our
new customers, coupled with the employment of business intelligence information
provider, before extending any credit to new customers. Different levels of
credit periods and credit limits are granted to different customers according
to
their size, financial position, business position and payment history, among
other factors, in order to offer the right credit terms to our customers to
enhance competitiveness yet manage the risk. We have not recorded bad debt
since
inception.
Foreign
Currency Risk.
The
functional currency of our company is the Hong Kong Dollar (HKD). In the future,
we expect Renminbi (RMB) also to be a functional currency. Substantially all
of
our operations are conducted in the PRC. Our sales and purchases are conducted
within the PRC in HKD and in the future will include RMB. Conversion of RMB
into
foreign currencies is regulated by the People’s Bank of China through a unified
floating exchange rate system. Although the PRC government has stated its
intention to support the value of the RMB, there can be no assurance that such
exchange rate will not again become volatile or that the RMB will not devalue
significantly against the U.S. Dollar. Exchange rate fluctuations may adversely
affect the value, in U.S. Dollar terms, of our net assets and income derived
from its operations in the PRC. In addition, the RMB is not freely convertible
into foreign currency and all foreign exchange transactions must take place
through authorized institutions.
Country
Risk.
The
substantial portion of our business, assets and operations are located and
conducted in Hong Kong and China. While these economies have experienced
significant growth in the past twenty years, growth has been uneven, both
geographically and among various sectors of the economy. The Chinese government
has implemented various measures to encourage economic growth and guide the
allocation of resources. Some of these measures benefit the overall economy
of
Hong Kong and China, but may also have a negative effect on us. For example,
our
operating results and financial condition may be adversely affected by
government control over capital investments or changes in tax regulations
applicable to us. If there are any changes in any policies by the Chinese
government and our business is negatively affected as a result, then our
financial results, including our ability to generate revenues and profits,
will
also be negatively affected.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed
to
ensure that information required to be disclosed by us in the reports that
we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
As
of the
end of the period covered by this report, we conducted an evaluation,
under
the
supervision and with the participation of our Chief Executive Officer (CEO)
and
our Chief Financial Officer (CFO),
of our
disclosure controls and procedures as defined in Rule 13a-15(e) and Rule
15d-15(e) of the Exchange Act. Based upon this evaluation, our CEO and CFO
concluded that the Company’s disclosure controls and procedures had significant
deficiencies that caused our controls and procedures to be ineffective. These
deficiencies consisted of inadequate staffing and supervision that could lead
to
the untimely identification and resolution of accounting and disclosure matters
and failure to perform timely and effective reviews. In addition, there are
deficiencies in the recording and classification of accounting transactions
and
a lack of personnel with expertise in US generally accepted accounting
principles and US Securities and Exchange Commission rules and
regulations.
We
are in
the process of improving our controls and procedures in an effort to remediate
these deficiencies through improving supervision, education, and training of
our
accounting staff. We have hired two third-party financial consultants to review
and analyze our financial statements and assist us improve our reporting of
financial information. Our management and Board of Directors, with assistance
from outside financial consultants, conducted a review and analysis of our
accounting treatment for (i) our inventory by adjusting watch movement costing
for the effects of vendor incentives from an as received basis to an accrual
basis, (ii) the share exchange transaction that we conducted in January 2007,
(iii) stock-based compensation related to an escrow agreement that our CEO
and
CFO entered into with investors in our January 2007 private placement. Based
on
the review, we concluded that we misapplied accounting principles generally
accepted in the United States of America and we restated our financial
statements for the periods over the past two years.
Management
decided to seek additional qualified in house accounting personnel and
third-party accounting personnel to ensure that management will have adequate
resources in order to attain complete reporting of financial information
disclosures in a timely matter. In April 2008, we hired our CFO, David Lin,
who
has more than 17 years of financial expertise, including experience with
companies listed on the U.S. and Hong Kong stock exchanges, to assume the job
responsibilities of a CFO from our CEO, who had previously assumed this duty.
Together, our CEO and CFO reviewed, improved and strengthened our controls
and
procedures during this reporting period. We believe that the remedial steps
that
we have taken will address the conditions identified by our CEO and CFO in
our
disclosure controls and procedures. We will continue to monitor the
effectiveness of these improvements. We will also engage outside consultants
to
assist us in assessing and improving our internal controls and procedures when
necessary.
Changes
in Internal Control over Financial Reporting
Based
on
the evaluation of our management as required by paragraph (d) of Rule 13a-15
or
15d-15 of the Exchange Act, and other than as stated above, including the
appointment of a new CFO in April 2008, there were no changes in our internal
control over financial reporting that occurred during the second quarter of
2008
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II-OTHER INFORMATION
ITEM
1.
LEGAL
PROCEEDINGS
We
are
not currently a party to any material legal proceedings.
ITEM
1A. RISK FACTORS
There
have been no material changes from the risk factors disclosed in the “Risk
Factors” section of our annual report on Form 10-K for the year ended December
31, 2007.
ITEM
2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not
applicable.
ITEM
3.
DEFAULTS
UPON SENIOR SECURITIES
Not
applicable.
ITEM
4.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
ITEM
5.
OTHER
INFORMATION
Not
applicable.
ITEM
6.
EXHIBITS
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification
of Principal Financial and Accounting Officer pursuant to Section
302(a)
of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification
of Principal Executive Officer and Principal Financial and Accounting
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
* This
exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that section,
nor shall it be deemed incorporated by reference in any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
ASIA
TIME CORPORATION
(Registrant)
|
|
|
|
August
18, 2008
|
By:
|
/s/ Kwong
Kai Shun
|
|
Kwong
Kai Shun
|
|
Chief
Executive Officer and Chairman of the
Board
|
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