As
Filed with the Securities and Exchange Commission on November
10,
2008
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Registration
No. 333-150830
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 3 ON
FORM
S-1/A
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ASIA
TIME CORPORATION
(Name
of Registrant As Specified in its Charter)
Delaware
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3873
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20-4062619
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(State or Other Jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer Identification No.)
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Incorporation
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Classification Code Number)
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or Organization)
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Room 1601-1604,
16/F., CRE Centre
889
Cheung Sha Wan Road
Kowloon,
Hong Kong
(852)-23100101
(Address
and Telephone Number of Principal Executive Offices)
Kwong
Kai Shun
Room
1601-1604, 16/F., CRE Centre
889
Cheung Sha Wan Road
Kowloon,
Hong Kong
(852)-23100101
(Name,
Address and Telephone Number of Agent for Service)
Copies
to
Thomas
J. Poletti, Esq.
Anh
Q. Tran, Esq.
K&L
Gates LLP
10100
Santa Monica Boulevard, 7th Floor
Los
Angeles, California 90067
Telephone
(310) 552-5000
Facsimile
(310) 552-5001
Approximate
Date of Proposed Sale to the Public:
From
time
to time after the effective date of this Registration Statement
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
R
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
£
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
£
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement the same
offering.
£
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
¨
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Accelerated filer
¨
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Non-accelerated filer
þ
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Smaller reporting company
¨
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CALCULATION
OF REGISTRATION FEE
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Proposed
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Proposed
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Maximum
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Maximum
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Amount of
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Title of Each Class of
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Amount To Be
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Offering Price
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Aggregate
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Registration
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Securities To Be Registered
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Registered
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Per Share
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Offering Price
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Fee
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Common
Stock, $.0001 par value per share
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200,000
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(1)
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$
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4.61
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(2)
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$
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920,000
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(2)
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$
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36.16
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Variable
Rate Convertible Bonds Due 2012
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$
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8,000,000
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(3)
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100
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%
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$
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8,000,000
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(4)
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$
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314.40
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Common
Stock, $.0001 par value per share, issuable upon conversion of Variable
Rate Convertible Bonds Due 2012
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2,285,714
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(5)
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-
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-
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N/A
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(6)
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Bond
Warrants to Purchase Common Stock Expiring 2010
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600,000
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(7)
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$
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4.61
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(2)
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$
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2,760,000
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(2)
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$
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108.47
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Common
Stock, $.0001 par value per share issuable upon conversion of Bond
Warrants Expiring 2010
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600,000
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(8)
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-
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-
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N/A
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(6)
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Total
Registration Fee
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$
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459.03
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(9)
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(1)
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Represents
shares of the Registrant’s common stock being registered for resale that
have been issued to a selling security holder named in the prospectus
or a
prospectus supplement.
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(2)
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Estimated
pursuant to Rule 457(c) of the Securities Act of 1933 solely for
the
purpose of computing the amount of the registration fee based on
the
average of the high and low sales prices reported on the N
YSE
Alternext US (formerly known as American Stock Exchange)
(“Alternext”)
on May 6,
2008.
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(3)
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Represents
the aggregate principal amount of the Variable Rate Convertible Bonds
due
2012 issued by the Registrant on November 13,
2007.
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(4)
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Equals
the aggregate principal amount of the Variable Rate Convertible Bonds
due
2012 being registered. Estimated solely for purposes of calculating
the
registration fee pursuant to Rule 457(o) under the Securities Act
of 1933,
as amended, or the Securities Act.
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(5)
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Represents
the number of shares of common stock initially issuable upon conversion
of
the Variable Rate Convertible Bonds due 2012 registered hereby. Solely
for
purposes of determining the number of shares of common stock to be
registered under this registration statement that may be issued upon
the
conversion of the Bonds, the conversion price of $3.50 per share
is used.
Pursuant to Rule 416 under the Securities Act, also includes such
indeterminate number of shares of common stock as may be issued from
time
to time upon conversion of the Variable Rate Convertible Bonds due
2012 as
a result of the anti-dilution provisions contained
therein.
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(6)
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No
separate consideration will be received for the shares of common
stock
issuable upon conversion of the Variable Rate Convertible Bonds due
2012
or the Bond Warrants, and, therefore, no registration fee is required
pursuant to Rule 457(i) under the Securities
Act.
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(7)
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Consists
of 600,000 warrants (the “Bond Warrants”) to purchase 600,000 shares of
Common Stock to be offered for sale by a selling security holder
under
this Registration Statement.
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(8)
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Represents
the number of shares of common stock initially issuable upon exercise
of
the Bond Warrants due 2010 registered hereby. Pursuant to Rule 416
under
the Securities Act, also includes such indeterminate number of shares
of
common stock as may be issued from time to time upon conversion of
the
Bond Warrants due 2010 as a result of the anti-dilution provisions
contained therein. In addition, this Registration Statement covers
the
issuance of Registrant’s common stock upon the exercise of Bond Warrants
by the holders other than the initial
holder.
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The
Registrant amends this registration statement on such date or dates as may
be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
hereafter become effective in accordance with Section 8(a) of the Securities
Act
of 1933, or until the registration statement shall become effective on such
date
as the Commission, acting pursuant to Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission becomes effective. This prospectus is not an offer
to
sell these securities and we are not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
Subject
to Completion, Dated November 10, 2008
$8,000,000
VARIABLE RATE CONVERTIBLE BONDS DUE 2012
600,000
WARRANTS EXPIRING 2010 TO PURCHASE COMMON STOCK
3,085,714
SHARES OF COMMON STOCK
ASIA
TIME CORPORATION
This
prospectus relates to the resale from time to time by a selling security holder
of (i) $8,000,000 variable rate convertible bonds due in 2012 (the “Bonds”)
issued by us in a private placement to a selling security holder on November
13,
2007, (ii) 2,285,714 shares of common stock that are issuable upon conversion
of
the Bonds, subject to adjustment, (iii) 600,000 warrants issued by us in a
private placement to a selling security holder on November 13, 2007 to purchase
an aggregate of 600,000 shares of our common stock, subject to adjustment (the
“Bond Warrants”), (iv) 600,000 shares of our common stock issuable upon exercise
of the Bond Warrants, subject to adjustment, and (v) 200,000 shares of common
stock held by a selling security holder. In addition, this prospectus covers
the
issuance of our common stock upon the exercise of Bond Warrants by the holders
other than the initial holder.
The
Bonds
bear 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. Each Bond is convertible at the option of the holder
at any
time after February 12, 2009 through November 6, 2012 into shares of our
common
stock at an initial conversion price equal to $3.50 per share, the price
at
which shares were sold in our initial public offering on the
NYSE
Alternext US (formerly known as American Stock Exchange) (“Alternext”)
.
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, less
than the applicable per share conversion price of the Bonds. In addition,
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. If either (i)
our
common stock (including the shares of common stock issuable upon conversion
of
the Bonds and exercise of the Bond Warrants) are not listed on Alternext on
or before August 13, 2008 or (ii) we breach certain of our obligations to
register the Bonds, Bond Warrants and underlying shares as promptly as possible,
and in no event later than February 12, 2009, pursuant to the registration
rights agreement dated November 13, 2007 entered into by and between the
Subscriber and us, then holders of the Bonds can require us 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 us to redeem the Bonds at 126.51% of the principal amount of the
Bonds.
We are required to redeem any outstanding Bonds at 150.87% of its principal
amount on November 13, 2012.
The
Bond
Warrants are exercisable
from
February 12, 2009 until November 6, 2010
.
We may
receive proceeds from the exercise of the Bond Warrants, if they are exercised,
at a per share price of
$0.0001
,
subject
to certain adjustments.
All
securities are being offered by the selling security holders of the securities
for resale. The selling security holder may offer the Bonds, the Bond Warrants,
and the shares underlying the Bonds and Bond Warrants through public or private
transactions, at prevailing market prices or at privately negotiated prices,
and
the other selling security holder may also sell their respective shares of
common stock through the same means. The selling security holders may sell
the
securities directly or through agents or broker-dealers acting as principal
or
agent, or in a distribution by underwriters. We will not receive any proceeds
from the sales of these securities by the selling security holders.
Commencing
on February 12, 2008, our shares of common stock have been listed for trading
on
Alternext
under the ticker symbol “TYM.” On November 6, 2008, the closing sales price for
our common stock on
Alternext
was $2.92 per share.
Neither
the Bonds nor the Bond Warrants are currently listed or quoted for trading
on
any national securities exchange or national quotation system and we currently
have no intention to apply for the listing or quotation of the Bonds or Bond
Warrants for trading on any national securities exchange or national quotation
system.
The
purchase of the Bonds, Bond Warrants, or our shares of common stock involves
a
high
degree of risk. See section entitled “Risk Factors” beginning on page
10.
Neither
the U.S. Securities and Exchange Commission nor any state securities commission
has approved or disapproved of anyone’s investment in these securities or
determined if this prospectus is truthful or complete. Any representation to
the
contrary is a criminal offense.
The
Date
of This Prospectus Is: ____________________, 2008
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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1
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SUMMARY
FINANCIAL DATA
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10
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RISK
FACTORS
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12
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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26
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USE
OF PROCEEDS
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27
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DIVIDEND
POLICY
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27
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RATIO
OF EARNINGS TO FIXED CHARGES
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27
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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27
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SELECTED
CONSOLIDATED FINANCIAL DATA
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28
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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29
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DESCRIPTION
OF BUSINESS
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45
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MANAGEMENT
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50
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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56
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BENEFICIAL
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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59
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SELLING
SECURITY HOLDERS
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61
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DESCRIPTION
OF SECURITIES
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66
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DESCRIPTION
OF THE BONDS
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70
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DESCRIPTION
OF THE BOND WARRANTS
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75
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MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES FOR HOLDERS OF BONDS
AND
BOND WARRANTS
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77
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SHARES
ELIGIBLE FOR FUTURE SALE
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85
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PLAN
OF DISTRIBUTION
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87
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LEGAL
MATTERS
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89
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EXPERTS
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89
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ADDITIONAL
INFORMATION
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89
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FINANCIAL
STATEMENTS
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89
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PART
II INFORMATION NOT REQUIRED IN THE PROSPECTUS
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II-1
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SIGNATURES
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II-7
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Please
read this prospectus carefully. It describes our business, our financial
condition and results of operations. We have prepared this prospectus so that
you will have the information necessary to make an informed investment
decision.
You
should rely only on information contained in this prospectus. We have not
authorized any other person to provide you with different information. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any state where the offer or sale is not permitted. The
information in this prospectus is complete and accurate as of the date on the
front cover, but the information may have changed since that
date.
PROSPECTUS
SUMMARY
Because
this is only a summary, it does not contain all of the information that may
be
important to you. You should carefully read the more detailed information
contained in this prospectus, including our financial statements and related
notes. Our business involves significant risks. You should carefully consider
the information under the heading "Risk Factors" beginning on page 10.
Asia
Time Corporation
We
are a
distributor of watch movements components used in the manufacture and assembly
of watches to a wide variety of timepiece manufacturers. Our core customer
base
consists primarily of wholesalers, and medium-to-large sized watch manufacturers
that produce watches primarily for consumer sale. To a lesser extent, we design
watches for manufacturers and exporters of watches and manufacture and
distribute complete watches primarily to internet marketers.
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 300 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.
Our
goal
is to be a leading watch movement and timepiece distributor in Hong Kong and
China through the following strategies:
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·
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Offer
wide-ranging product spectrum to customers.
Management
estimates that it can increase revenues by broadening our product
spectrum
and offering more brands of quartz movement to customers. Apart from
quartz movement, we intend to offer mechanical movements. By broadening
our product spectrum, we hope to increase our market share through
sales
to manufacturers of high-end watches utilizing sophisticated mechanical
movements. We plan to source other brands of quartz and mechanical
movement in order to broaden our product spectrum. The number of
brands
and products that we plan to introduce will depend on the terms and
conditions offered by our
suppliers.
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|
·
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Manufacture
branded proprietary watch movements.
To
further diversify our product offering and reduce our reliance on
third
party watch movement manufacturers, we eventually hope to manufacture
our
own brands of quartz movements and high end mechanical movements
in-house.
We estimate that our company can replace a portion of our current
third-party watch movement sales with our own brand movements, watch
movements manufactured in-house would be higher margin offerings
than
distributed products of third-party suppliers. In addition, in-house
manufacturing will allow product offerings at more competitive price
points which we believe will enhance our competitive position. To
manufacture our own brands of quartz and mechanical movements in-house,
would need to acquire watch movement facilities in China and invest
in new
equipments 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. Our plan to acquire manufacturing
facilities and equipment to manufacture our own brand of quartz and
mechanical movements in-house is still underway and we have identified
certain targets for negotiations.
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·
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Developing
closer relationships with product brands owners and
distributors.
We
believe it is important for our company to develop closer relationships
with product brand owners and its distributors, which we believe
would
lead to more competitive pricing and stable supply of products. We
also
have plans to develop closer relationships with our existing brands
and
distributors by expanding our sales force. We commenced expansion
of our
sales force in the fourth quarter of 2007 and expect to continue
in
2008.
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|
·
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Expand
the distribution of complete watches.
Currently,
the distribution of complete watches represents approximately 11%
of our
revenues. As part of our expansion plan, we intend to expand our
sales and
marketing efforts in China. We believe that a heightened focus in
this
area can lead to an increase in market share and enhance our earning
capacity. It is expected that these watches will be marketed through
a
lower to middle pricing strategy, with sales price range from US$100-$200.
We plan to appoint watch distributors in larger China cities in the
next
two years to expand the distribution of our complete
watches.
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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.
Our
corporate offices are located at Room 1601-1604, 16/F., CRE Centre, 889 Cheung
Sha Wan Road, Kowloon, Hong Kong.
With
respect to this discussion, the terms “we” and “our” refer to Asia Time
Corporation, its 100%-owned subsidiary Times Manufacture and its subsidiaries,
Times Manufacturing & E-Commerce Corporation Ltd., TME Enterprise Ltd.,
Citibond Design Ltd. and Megamooch Online Ltd., each of which is a British
Virgin Islands corporation, and the Hong Kong corporate subsidiaries Billion
Win
International Enterprise Ltd., Goldcome Industrial Ltd., Citibond Industrial
Ltd., and Megamooch International Ltd. Times Manufacture was founded in March
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 handle
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 its
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, representing 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 offering extended credit
terms to our customers, plus the introduction of mechanical movements to the
market which generally have higher profit margins. The revenue for the watch
movement segment of our business for the year ended December 31, 2007 was $86.4
million, with a gross profit $8.9 million, a 18.3% and 53.6% growth,
respectively, compared to $73.0 million revenue and $5.8 million gross profit
for the year ended December 31, 2006. The gross profit margin increased from
8.0% for the year ended December 31, 2006 to 10.3% for the year ended December
31, 2007. We provide a wide product spectrum of products ranging from mechanical
movements to carrying major brands as well as middle-low end China 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
Our
main
market positioning in China is on the middle-class adult, daily, sporty and
classy design. 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 attributable
to an increase in sales of high-end mechanical watches. Revenue of our complete
watch segment was $10.5 million for the year ended December 31, 2007, a 30.4%
increase compared to the same period in 2006, in which revenue was $8.1 million.
This segment contributed approximately 11% of our revenue in 2007, as compared
to 10% of revenue for the year ended December 31, 2006. We believe the increase
was primarily attributable to our offering of value-added design services to
our
customers at no extra charge. Our main market positioning in China is on the
middle-class adult, daily, sporty and classy design.
Recent
Events
February
2008 Public Offering
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 have a term of five
years.
January
2008 Investor Relations Agreement
On
January 16, 2008, we entered into a consulting agreement with Public Equity
Group Inc. Pursuant to the agreement, Public Equity Group will provide us with
business consulting and investor relation services, oversee of all of our
investor public relation and related service providers, and monitor our investor
relation meetings with brokerage firms and brokers to develop support for our
stock and research coverage, in addition to strategic advice and other customary
investor relation 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, we agreed to issue 200,000 shares of our common stock
to
Public Equity Group Inc. In connection with the issuance of 200,000 shares
of
common stock, we expect to recognize a one-time charge to operations in the
first quarter of 2008 in an amount equal to approximately $700,000, which is
derived from valuing each share at $3.50, which is the offering price for our
February 2008 public offering.
November
2007 Issuance of Bonds and Bond Warrants
On
November 13, 2007, we closed a financing transaction with ABN AMRO Bank N.V.
(the “Subscriber”) issuing (i) US$8,000,000 Variable Rate Convertible Bonds due
2012 (the “Bonds”) and (ii) warrants to purchase 600,000 shares of our common
stock expiring 2010 (the “Warrants”). The financing transaction was completed in
accordance with a subscription agreement entered into by us and the Subscriber
dated October 31, 2007.
US$8,000,000
Variable Rate Convertible Bonds
The
Bonds
were issued further to a trust deed between us and The Bank of New York, London
Branch, dated November 13, 2007 (the “Trust Deed”) and are represented by the
global certificate in the form as set forth in the Trust Deed. The Bonds are
subject to a paying and conversion agency agreement between us, The Bank of
New
York, and The Bank of New York, London Branch. 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 Terms and Conditions of the Bonds
(the “Terms”) contained in the Trust Deed, set forth, among other things, the
following terms:
|
·
|
Interest
.
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 and
after 365 days after the date our shares of common stock commence
trading
on the
NYSE
Alternext US (formerly known as American Stock Exchange)
(“Alternext”)
, which occurred on February 12, 2008 (the “Listing
Date”), into shares of our common stock at an initial per share conversion
price (“Conversion Price”) equal to the price per share at which shares
are sold in our public offering on the Alternext, which was $3.50
per
share, subject to adjustment according to the Terms of the Bonds.
No Bonds
may be converted after the close of business on November 6, 2012,
or if
such Bond is called for redemption before the maturity date, then
up to
the close of business on a date no later than seven business days
prior to
the date fixed for redemption thereof.
|
|
·
|
Conversion
Price Adjustments
.
The number of shares of our common stock to be issued on conversion
of the
Bonds will be determined by dividing the principal amount of each
Bond to
be converted by the Conversion Price in effect at the conversion
date. 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 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 our 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) our common stock (including the shares of common
stock
issuable upon conversion of the Bonds and exercise of the Bond
Warrants)
are not listed on Alternext on or before August 13, 2008 or (ii)
we breach
certain of our obligations to register the Bonds, Bond Warrants
and
underlying shares as promptly as possible, and in no event later
than
February 12, 2009, pursuant to the registration rights agreement
dated
November 13, 2007 entered into by and between the Subscriber and
us, the
holder of the Bonds can require us to redeem the Bonds at 104.53%
of their
principal amount of the Bonds at any time after November 13, 2008.
Also,
at any time after November 13, 2010, the holders of the Bonds can
require
us to redeem the Bonds at 126.51% of their principal amount. We
are
required to redeem any outstanding Bonds at 150.87% of its principal
amount on November 13, 2012.
|
Warrants
to Purchase 600,000 Shares of Common Stock
The
Warrants, which are evidenced by a warrant instrument entered into by and
between us and the Subscriber, dated November 13, 2007 (the “Warrant
Instrument”), are subject to the terms of a warrant agency agreement by and
among us, 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 Warrant Agency Agreement, the Warrants
are exercisable at $0.0001 per share from February 12, 2009 until November
6,
2010. We listed the shares underlying the Warrants on Alternext. In addition,
we
have agreed to register the shares of common stock underlying the Warrants
with
the SEC on or prior to November 13, 2008 and will keep the registration
effective until 30 days after the Warrants terminate.
Registration
Rights for Bonds, Warrants, and Underlying Shares
On
November 13, 2007, we and the Subscriber also entered into a registration rights
agreement pursuant to which we agreed to register the Bonds and Warrants, and
the shares of common stock underlying the Bonds and Warrants (the “Registrable
Securities”). We agreed to prepare and file with the SEC, no later than 90 days
after the Listing Date, a Registration Statement on Form S-1 (the “Registration
Statement”) to register the Registrable Securities and, as promptly as possible,
and in any event no later than 365 days after the Listing Date, cause that
Registration Statement, as amended, to become effective. We initially filed
the
Registration Statement on May 12, 2008. In addition, we agreed to list all
Registrable Securities covered by the Registration Statement on each securities
exchange on which similar securities issued by us are then listed. The
registration rights agreement does not provide for liquidated or specified
damages in the event we do not timely register the Registrable
Securities.
Accounting
for the Bond and Warrant Transaction
The
terms
of Bonds include conversion features allowing the holders to convert the Bonds
into shares of our common stock. Certain of those conversion features that
allow
for the reduction in conversion price upon the occurrence of stated events
constitute a “beneficial conversion feature” for accounting purposes. In
addition, we may be required to repurchase the Bonds at the request of the
holders if certain events occur or do not occur, as set forth in the Bond trust
deed. Upon the occurrence of any of the events that trigger a mandatory
redemption, as described above, and we are requested by the holders to
repurchase all or a portion of the Bonds, we will be required to pay cash to
redeem all or a portion of the Bonds.
The
accounting treatment related to the beneficial conversion and mandatory
redemption features of the Bonds and the value of the Bond Warrants will have
an
adverse impact on our results of operations for the term of the Bonds. The
application of Generally Accepted Accounting Principles will require us to
allocate $6,107,299 to the beneficial conversion feature of the Bonds and
$1,652,701 to the Bonds Warrants, which have been reflected in our financial
statements as an interest discount. Also, we have determined that the total
redemption premium associated with the mandatory redemption feature of the
Bonds
is $4,069,600. All of the aforementioned amounts associated with the beneficial
conversion and mandatory redemption feature of the Bonds and the value of the
Bond Warrants are being amortized as additional interest expense over the term
of the Bonds. This accounting will result in an increase in interest expense
in
all reporting periods during the term of the Bonds, and, as a result, reduce
our
net income accordingly.
For
the
six months ended June 30, 2008 and the year ended December 31, 2007, we recorded
$219,765 and $345,461, respectively, in expenses related to the Bonds and Bond
Warrants.
In
addition, if we are required to redeem all or any portion of the Bonds, this
may
have a material adverse effect on our liquidity and cash resources, and may
impair our ability to continue to operate. If we are required to repurchase
all
or a portion of the Bonds and do not have sufficient cash to make the
repurchase, we may be required to obtain third party financing to do so, and
there can be no assurances that we will be able to secure financing in a timely
manner and on favorable terms, which could have a material adverse effect on
our
financial performance, results of operations and stock price.
The
Offering
Variable
Rate Convertible Bonds
|
Pursuant
to this prospectus, the selling security holders are offering for
resale
up to $8,000,000 Variable Rate Convertible Bonds Due 2012.
|
|
|
Interest
Rate
|
The
Bonds bear 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
|
|
|
Ranking
|
The
Bonds constitute direct, unsubordinated, unconditional and, unsecured
obligations of us and will at all times rank
pari
passu
and without any preference or priority among themselves and our payment
obligations under the Bonds will rank at least equally with all of
our
other present and future unsecured and unsubordinated obligations
(other
than any obligations preferred by mandatory provisions of applicable
law).
If we create any secure obligation in any debentures, loan stock,
bonds,
notes, bearer participation certificates, depository receipts,
certificates of deposit or other similar securities for the purpose
of
raising money which are, or are issued with the intention that they
will
be listed in any securities market, we must also secure the Bonds
in
substantially identical terms.
As
of June 30, 2008, we had approximately $22.3 million of secured
indebtedness.
|
|
|
Mandatory
Redemption at Maturity
|
We
are required to redeem any outstanding Bonds at 150.87% of its principal
amount on November 13, 2012.
|
Redemption
at the Bondholder’s Option
|
If
either (i) our common stock (including the shares of common stock
issuable
upon conversion of the Bonds and exercise of the Bond Warrants)
are not
listed on Alternext on or before August 13, 2008 or (ii) we breach
certain
of our obligations to register the Bonds, Bond Warrants and underlying
shares as promptly as possible, and in no event later than February
12,
2009, pursuant to the registration rights agreement dated November
13,
2007 entered into by and between the Subscriber and us, then holders
of
the Bonds can require us 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
us to
redeem the Bonds at 126.51% of the principal amount. There can
be no
guarantee that we will have sufficient financial resources or be
able to
arrange financing to redeem the Bonds.
|
Redemption
for Tax Reasons
|
At
any time, we may, having given not less than 30 nor more than 60
days’
notice to the Bondholders, redeem all, but not some only, of the
Bonds at
a redemption price equal to the early redemption amount on the redemption
date if (i) we have or will become obliged to pay additional amounts
for
any present or future taxes, duties, assessments or governmental
charges,
as a result of a change in, or amendment to, the laws of the Unites
States, the PRC or England, and (ii) the obligation to pay additional
amounts cannot be avoided provided that we do not give notice of
redemption earlier than 90 days prior to the earliest date on which
we
would be obliged to pay such additional amounts were a payment in
respect
of the Bonds then due.
|
Redemption
for Delisting or a Change in Control
|
If
our common stock ceases to be listed on Alternext or if the trading
of our
common stock is suspended for 20 or more consecutive trading days
temporarily or otherwise on Alternext or there is a change of control
of
our company as defined in the Trust Deed, each Bondholder will
have the
right to require us, within 60 days following the date on which
the
Bondholder has been given notice of delisting or a change of control,
to
redeem all or some of that holder’s Bonds. There can be no guarantee that
we will have sufficient financial resources or be able to arrange
financing to redeem the Bonds.
|
Redemption
at Our Option
|
At
any time prior to November 13, 2012, we may, having given not less
than 30
nor more than 60 days’ notice to the Bondholders, and The Bank of New
York, London Branch (the “Trustee”) and The Bank of New York, London
Branch (the “Principal Agent,”) which notice will be irrevocable, redeem
all and not some only of the Bonds at a redemption price equal to
the
early redemption amount on the redemption date if more than ninety
percent
in principal amount of the Bonds has already been converted, redeemed
or
purchased and cancelled. The early redemption amount of a Bond, for
each
US$1,000 principal amount of the Bonds, is determined so that it
represents for the Bondholder a gross yield of twelve percent per
annum,
calculated on a semi-annual basis.
|
Conversion
|
Each
Bond is convertible at the option of the holder at any time after
February
12, 2009 up to the close of business on November 6, 2012 into shares
of
our common stock at an initial conversion price equal to $3.50,
the price
per share at which shares were sold in our initial public offering
of
common stock on Alternext.
|
Adjustment
to the Conversion Price
|
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. In addition, 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 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).
|
|
|
Bond
Warrants
|
Pursuant
to this prospectus, the selling security holders are offering for
resale
600,000 warrants exercisable for 600,000 shares of our common stock,
subject to adjustment.
|
|
|
Exercise
Price
|
The
exercise price of the Bond Warrants is $0.0001 per warrant, subject
to
adjustment.
|
|
|
Vesting
and Expiration Dates
|
The
Bond Warrants become exercisable on February 12, 2009 and will terminate
on November 6, 2010.
|
|
|
Common
stock offered by selling security holders
|
3,085,714
shares (1)
|
|
|
Common
stock outstanding
|
26,570,677
shares (2)
|
|
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the Bonds, Bond Warrants
or
common stock by the selling security holders, except for funds from
the
exercise of Bond Warrants by the selling security holders, if and
when
exercised.
|
|
(1)
|
Consists
of (i) 2,285,714 shares of our common stock issuable upon the conversion
of the Bonds, (ii) 600,000 shares of our common stock issuable upon
the
exercise of the Bond Warrants, and (iii) 200,000 shares of our common
stock held by a selling shareholder.
|
|
(2)
|
As
of November 1, 2008, 26,570,677 shares of our commons stock were
outstanding. This number of shares of our common stock outstanding
excludes (i)
83,800
shares of our common stock issuable upon exercise of outstanding
warrants,
(ii)
2,285,714 shares of our common stock issuable upon the conversion
of the
Bonds, subject to adjustment, (iii) 600,000 shares of our common
stock
issuable upon the exercise of the Bond Warrants, subject to adjustment,
and
(iv) 2,500,000 shares of common stock reserved for future issuance
under
our 2008 Amended and Restated Equity Incentive
Plan.
|
SUMMARY
FINANCIAL DATA
The
following summary financial information contains consolidated statement of
operations data for the six months ended June 30, 2008 and 2007 (unaudited)
and
each of the years in the five-year period ended December 31, 2007 and the
consolidated balance sheet data as of June 30, 2008 (unaudited) and year-end
for
each of the years in the five-year period ended December 31, 2007. The
consolidated statement of operations data and balance sheet data were derived
from the audited consolidated financial statements, except for data for the
periods ended and as of June 30, 2008 and 2007. Such financial data should
be
read in conjunction with the consolidated financial statements and the notes
to
the consolidated financial statements starting on page 89 and with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Consolidated Statement of Operations
|
|
Six Months Ended June 30,
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
74,948
|
|
$
|
41,988
|
|
$
|
96,963
|
|
$
|
81,134
|
|
$
|
63,078
|
|
$
|
36,553
|
|
$
|
33,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(64,001
|
)
|
|
(36,419
|
)
|
|
(83,120
|
)
|
|
(71,496
|
)
|
|
(57,026
|
)
|
|
(34,609
|
)
|
|
(31,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
10,947
|
|
$
|
5,569
|
|
$
|
13,843
|
|
$
|
9,637
|
|
$
|
6,052
|
|
$
|
1,944
|
|
$
|
1,262
|
|
Other
operating income
|
|
|
52
|
|
|
97
|
|
|
618
|
|
|
424
|
|
|
939
|
|
|
-
|
|
|
-
|
|
Depreciation
|
|
|
(615
|
)
|
|
(129
|
)
|
|
(332
|
)
|
|
(326
|
)
|
|
(259
|
)
|
|
(126
|
)
|
|
(18
|
)
|
Administrative
and other operating
expenses,
including stock based compensation
|
|
|
(2,310
|
)
|
|
(2,605
|
)
|
|
(4,595
|
)
|
|
(1,285
|
)
|
|
(1,436
|
)
|
|
(1,345
|
)
|
|
(834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
$
|
8,073
|
|
$
|
2,931
|
|
$
|
9,534
|
|
$
|
8,450
|
|
$
|
5,296
|
|
$
|
473
|
|
$
|
410
|
|
Fee
and costs related to reverse merger
|
|
|
-
|
|
|
(736
|
)
|
|
(741
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
expense
|
|
|
(1,024
|
)
|
|
(514
|
)
|
|
(1,478
|
)
|
|
(1,060
|
)
|
|
(515
|
)
|
|
(165
|
)
|
|
(115
|
)
|
Non-operating
income
|
|
|
111
|
|
|
78
|
|
|
233
|
|
|
238
|
|
|
156
|
|
|
28
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
$
|
7,159
|
|
$
|
1,759
|
|
$
|
7,548
|
|
$
|
7,628
|
|
$
|
4,937
|
|
$
|
336
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(1,480
|
)
|
|
(717
|
)
|
|
(1,978
|
)
|
|
(1,308
|
)
|
|
(912
|
)
|
|
(132
|
)
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,679
|
|
$
|
1,042
|
|
$
|
5,
571
|
|
$
|
6,320
|
|
$
|
4,025
|
|
$
|
204
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
$
|
0.23
|
|
$
|
0.05
|
|
$
|
0.24
|
|
$
|
0.32
|
|
$
|
0.21
|
|
$
|
0.01
|
|
$
|
0.01
|
|
-
Diluted
|
|
$
|
0.21
|
|
$
|
0.04
|
|
$
|
0.22
|
|
$
|
0.32
|
|
$
|
0.21
|
|
$
|
0.01
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.11
|
|
$
|
0.03
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
24,879,527
|
|
|
22,686,183
|
|
|
22,923,339
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
-
Diluted
|
|
|
27,053,765
|
|
|
24,606,260
|
|
|
25,388,026
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
Consolidated Balance Sheets
|
|
As of June 30,
|
|
As of December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Current Assets
|
|
$
|
58,424
|
|
$
|
48,925
|
|
$
|
21,400
|
|
$
|
16,648
|
|
$
|
12,432
|
|
$
|
4,836
|
|
Total Assets
|
|
|
64,006
|
|
|
51,451
|
|
|
24,096
|
|
|
18,533
|
|
|
13,866
|
|
|
4,876
|
|
Current
Liabilities
|
|
|
27,505
|
|
|
24,176
|
|
|
15,553
|
|
|
13,890
|
|
|
12,620
|
|
|
3,847
|
|
Total
Liabilities
|
|
|
32,341
|
|
|
24,578
|
|
|
15,585
|
|
|
13,890
|
|
|
12,620
|
|
|
3,847
|
|
Total
Stockholders' Equity
|
|
|
31,665
|
|
|
26,873
|
|
|
8,511
|
|
|
4,644
|
|
|
1,246
|
|
|
1,030
|
|
RISK
FACTORS
Any
investment in our common stock involves a high degree of risk. Investors should
carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase our common
stock. Our business, financial condition or results of operations could be
materially adversely affected by these risks if any of them actually occur.
Our
shares of common stock are currently listed for trading on the American Stock
Exchange under the ticker symbol “TYM.” The trading price could decline due to
any of these risks, and an investor may lose all or part of his or her
investment. Some of these factors have affected our financial condition and
operating results in the past or are currently affecting us. This prospectus
also contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
described below and elsewhere in this prospectus.
RISKS
RELATED TO OUR OPERATIONS
We
are dependent on a limited number of suppliers. Loss of one or more of our
key
suppliers could harm our ability to manufacture and deliver our products to
our
customers, which would have a material adverse effect on our
business.
We
rely
on a limited number of suppliers for products that generate a significant
portion of our sales. During the six months ended June 30, 2008 and the year
ended December 31, 2007, products purchased from our 10 largest suppliers
accounted for approximately
97
%
and
92%, respectively, of our total net purchases. Substantially all of our
inventory has been and will be purchased from suppliers with which we have
entered into non-exclusive distribution agreements. Moreover, most of our
distribution agreements are cancelable upon short notice. As a result, in the
event that one or more of those suppliers experience financial difficulties
or
are not willing to do business with us in the future on terms acceptable to
management, our ability to manufacture and deliver our products to our customers
would be harmed, which would result in a material adverse effect on our
business, results of operations or financial condition. Additionally, our
relationships with our customers could be materially adversely affected because
our customers depend on our distribution of watch movements from the industry’s
leading suppliers.
Our
industry is highly cyclical, and an industry downturn could limit our ability
to
generate revenues and have a material adverse effect on our
business.
The
watch
movement distribution industry and, in particular, the timepiece manufacturing
industry has historically been affected by general economic downturns and
fluctuations in product supply and demand, often associated with changes in
technology and manufacturing capacity. These industry cycles and economic
downturns have often had an adverse economic effect upon manufacturers,
end-users of watch movements and watch movement distributors, including our
company. We cannot predict the timing or the severity of the cycles within
our
industry, or how long and to what levels any industry downturn and/or general
economic weakness will last or be exacerbated by terrorism or war or other
factors on our industry. Our revenues closely follow the strength or weakness
of
the timepiece market, and future downturns in this industry, would have a
material adverse effect on our business, results of operations and financial
condition.
Rapid
technological change and new and enhanced products could cause declines in
the
value of our inventory or result in obsolescence of our
inventory.
The
watch
movements industry is subject to rapid technological change, new and enhanced
products and evolving industry standards, which can contribute to a decline
in
value or obsolescence of inventory. During an industry and/or economic downturn,
it is possible that prices will decline due to an oversupply of product and,
therefore, there may be greater risk of declines in inventory value. We cannot
assure you that unforeseen new product developments or declines in the value
of
our inventory will not materially adversely affect our business, results of
operations or financial condition, or that we will successfully manage our
existing and future inventories.
We
make commitments regarding the level of business we sill seek and accept,
including production schedules and personnel levels, and significant order
cancellations, reductions, or delays by our customers could materially adversely
affect our commitments and business.
Our
sales
are typically made pursuant to individual purchase orders, and we generally
do
not have long-term supply arrangements with our customers, but instead work
with
our customers to develop nonbinding forecasts of future requirements. Based
on
these forecasts, we make commitments regarding the level of business that we
will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. A variety of conditions, both
specific to each customer and generally affecting each customer’s industry, may
cause customers to cancel, reduce or delay orders that were either previously
made or anticipated. Generally, customers may cancel, reduce or delay purchase
orders and commitments without penalty, except for payment for services rendered
or products competed and, in certain circumstances, payment for materials
purchased and charges associated with such cancellation, reduction or delay.
Significant or numerous order cancellations, reductions or delays by our
customers could have a material adverse effect on our business, financial
condition or results of operations.
The
market for our products is very competitive and, if we cannot effectively
compete, our business will be harmed.
The
market for our products is very competitive and subject to rapid technological
change. We compete with many other distributors of watch movements and complete
watches many of which are larger and have significantly greater assets, name
recognition and financial, personnel and other resources than we have. As a
result, our competitors may be in a stronger position to respond quickly to
potential acquisitions and other market opportunities, new or emerging
technologies and changes in customer requirements. Occasionally, we compete
for
customers with many of our own suppliers and additional competition has emerged
from, fulfillment companies, catalogue distributors and e-commerce companies,
including on-line distributors and brokers, which have grown with the expanded
use of the Internet. We cannot assure you that we will be able to maintain
or
increase our market share against the emergence of these or other sources of
competition. Failure to maintain and enhance our competitive position could
materially adversely affect our business and prospects.
Additionally,
prices for our products tend to decrease over their life cycle. This reduces
resale per component sold. There is also continuing pressure from customers
to
reduce their total cost for products. Our suppliers may also seek to reduce
our
margins on the sale of their products in order to increase their own
profitability or to be competitive with other suppliers of comparable product.
We incur substantial costs on our value-added services required to remain
competitive, retain existing business and gain new customers, and we must
evaluate the expense of those efforts against the impact of price and margin
reductions.
Substantial
defaults by our customers on accounts receivable or the loss of significant
customers could have a material adverse effect on our liquidity and results
of
operations.
A
substantial portion of our working capital consists of accounts receivable
from
customers. If customers responsible for a significant amount of accounts
receivable were to become insolvent or otherwise unable to pay for products
and
services, or to make payments in a timely manner, our liquidity and results
of
operations could be materially adversely affected. An economic or industry
downturn could materially adversely affect the servicing of these accounts
receivable, which could result in longer payment cycles, increased collection
costs and defaults in excess of management’s expectations. A significant
deterioration in our ability to collect on accounts receivable could also impact
the cost or availability of financing available to us.
We
are dependent on Japanese manufacturers for our watch movements and subject
to
trade regulations which expose us to political and economic
risk.
Approximately
90% of watch movements that we sell are manufactured by Japanese companies.
As a
result, our ability to sell certain products at competitive prices could be
adversely affected by any of the following:
·
|
increases
in tariffs or duties on imports from
Japan;
|
·
|
changes
in trade treaties between Japan and Hong
Kong;
|
·
|
strikes
or delays in air or sea transportation between Japan and Hong
Kong;
|
·
|
future
legislation with respect to pricing and/or import quotas on products
imported from Japan; and
|
·
|
turbulence
in the Japanese economy or financial
markets.
|
Trade
regulations between Hong Kong and Japan have remained stable for the past five
years. However, there is long-standing political tension between China and
Japan, which could intensify, causing trade retaliation and changes in trade
regulations. As a special administrative region of China, Hong Kong could be
indirectly affected by changes in trade regulation between China and Japan,
which would limit our ability to sell our products.
Our
industry is subject to supply shortages that could prevent us from manufacturing
and delivering our products to our customers in a timely manner. Any delay
or
inability to deliver our products may have a material adverse effect on our
results of operations.
During
prior periods, there have been shortages of components in the watch movements
industry and the availability of certain movements have been limited by some
of
our suppliers. We cannot assure you that any future shortages or allocations
would not have such an effect on us. A future shortage can be caused by and
result from many situations and circumstances that are out of our control,
and
such shortage could limit the amount of supply available of certain required
movements and increase prices affecting our profitability.
We
face risks related to our recent accounting restatements in December 2007 and
February 2008.
In
December 2007 and February 2008, we determined that we had accounting
inaccuracies in previously reported financial statements and decided to restate
our financial statements for the years ended December 31, 2006, 2005, and 2004,
the three months ended March 31, 2007, the three months and six months ended
June 30, 2007, and the three months and nine months September 30, 2007. The
restatements for the foregoing periods related to the correction of errors
with
respect to the accounting for inventory by adjusting watch movement costing
for
the effects of vendor incentives from an as received basis to an accrual basis,
as we were able to estimate the value of the incentives as inventory is
purchased, the accounting for fees and costs related to the January 2007 reverse
merger as a charge to operations, and the recognition of stock-based
compensation cost related to the Escrow Shares. As a result of these
adjustments, various income tax calculations were also revised, which effected
net income and also caused reclassifications to cash flows. We also corrected
average and actual shares outstanding retroactively (and related earnings per
share calculations) to reflect the January 2007 reverse merger. We also made
various changes to footnote disclosures relating to these revisions. It is
possible that such restatement of our financial statements could lead to
litigation claims and/or regulatory proceedings against us. The defense of
any
such claims or proceedings may cause the diversion of management's attention
and
resources, and we may be required to pay damages if any such claims or
proceedings are not resolved in our favor.
The
prices of our products are subject to volatility, which could have a negative
impact on our sales and gross profit margins.
A
portion
of the watch movements products we sell have historically experienced volatile
pricing. If market pricing for these products decreases significantly, we may
experience periods when our investment in inventory exceeds the market price
of
such products. In addition, at times there are price increases from our
suppliers that we are unable to pass on to our customers. These market
conditions could have a negative impact on our sales and gross profit margins
unless and until our suppliers reduce the cost of these products to us.
Furthermore, in the future, the need for aggressive pricing programs in response
to market conditions, an increased number of low-margin, large volume
transactions and/or increased availability of the supply of certain products,
could further impact our gross profit margins.
A
reversal of the trend for distribution to play an increasing role in the watch
movements industry could limit demand for our services and materially adversely
affect our results of operations.
In
recent
years, there has been a growing trend for large wholesalers and watch
manufacturers to outsource their procurement, inventory and materials management
processes to third parties, particularly watch movement distributors, including
our company. A reversal of this trend for could limit demand for our services,
materially adversely affecting our ability to generate revenues. If such a
reversal occurs, we may be forced to change the focus of our operations if
we
are unable to generate sufficient revenues to support our operations as
currently conducted.
Our
manufacturing capacity restraints and limited experience may cause unexpected
costs, delays and make it more difficult to compete, which may have an adverse
effect on our results of operations.
As
part
of our expansion plan, we intend to substantially expand the design and
manufacture of our own brands of complete watches and commence the manufacture
of branded watch movements in-house. In order to produce our watches and watch
movements in quantities sufficient to meet our anticipated market demand we
will
need to increase our manufacturing capacity by a significant factor over the
current level. There are technical challenges to increasing manufacturing
capacity, including equipment design and automation, material procurement,
problems with production yields and quality control and assurance. Developing
commercial scale manufacturing facilities will require the investment of
substantial funds and the hiring and retaining of additional management and
technical personnel who have the necessary manufacturing experience. We may
encounter some difficulties, such as significant unexpected costs and delays,
in
scaling up the necessary manufacturing operations to produce required quantities
of watch movements and watches. The failure to scale-up manufacturing operations
in a timely and cost-effective way may adversely affect our income. Moreover,
the lack of experience in watch movement and watch manufacture design may make
it difficult to compete against companies that have more senior management
and
experience. If we are unable to satisfy demand for products, our ability to
generate revenue could be impaired, market acceptance of our products could
be
adversely affected and customers may instead purchase our competitors’
products.
If
third-party carriers were unable to transport our products on a timely basis,
we
may be unable to timely deliver products to our customers and our operations
could be materially adversely affected.
All
of
our products are shipped through third party carriers. If a strike or other
event prevented or disrupted these carriers from transporting our products,
other carriers may be unavailable or may not have the capacity to deliver our
products to our customers. If adequate third party sources to ship our products
were unavailable at any time, our business would be materially adversely
affected.
Our
products may be found to be defective and, as a result, warranty and/or product
liability claims may be asserted against us which could have a material adverse
effect on our business.
Our
products are sold at prices that are significantly lower than the cost of the
watches in which they are incorporated. Since a defect or failure in a product
could give rise to failures in the end products that incorporate them (and
claims for consequential damages against us from our customers), we may face
claims for damages that are disproportionate to the sales and profits we receive
from our products involved. Our business could be materially adversely affected
as a result of a significant quality or performance issue in the products sold
by us depending on the extent to which we are required to pay for the damages
that result. Although we currently have product liability insurance, such
insurance is limited in coverage and amount.
The
failure to manage growth effectively could have an adverse effect on our
business, financial condition, and results of operations.
Any
significant growth in the market for our products or entry into new markets
by
Asia Time may require us to expand our employee base for managerial,
operational, financial, and other purposes. As of June 30, 2008, we had 41
full
time employees. Continued future growth will impose significant added
responsibilities upon the members of management to identify, recruit, maintain,
integrate, and motivate new employees. Aside from increased difficulties in
the
management of human resources, we may also encounter working capital issues,
as
we will need increased liquidity to finance. For effective growth management,
we
will be required to continue improving our operations, management, and financial
systems and control. Our failure to manage growth effectively may lead to
operational and financial inefficiencies that will have a negative effect on
our
profitability.
We
are dependent on certain key personnel and loss of our sole executive officer,
which would have a material adverse effect on our business and results of
operations.
Our
success is, to a certain extent, attributable to our chief executive officer,
Kwong Kai Shun. Kwong Kai Shun oversees the operation of our business. There
can
be no assurance that we will be able to retain Kwong Kai Shun or that he may
not
receive and/or accept competing offers of employment. The loss of Kwong Kai
Shun
could have a material adverse effect upon our business, financial condition,
and
results of operations.
Our
planned expansion into new international markets poses additional risks and
could fail, which could cost us valuable resources and affect our results of
operations.
We
plan
to expand sales of products into new international markets including developing
and developed countries, such as South America and Europe. These markets are
untested for our products and we face risks in expanding the business overseas,
which include differences in regulatory product testing requirements,
intellectual property protection (including patents and trademarks), taxation
policy, legal systems and rules, marketing costs, fluctuations in currency
exchange rates and changes in political and economic conditions.
RISKS
RELATED TO US DOING BUSINESS IN CHINA
All
of our assets are located in Hong Kong and China and substantially all of our
revenues are derived from our operations in Hong Kong and China, and changes
in
the political and economic policies of the PRC government could have a
significant impact upon the business we may be able to conduct in the PRC and
the results of operations and financial condition.
Our
business operations may be adversely affected by the current and future
political environment in the PRC. The PRC has operated as a socialist state
since the mid-1900s and is controlled by the Communist Party of China. The
Chinese government exerts substantial influence and control over the manner
in
which we must conduct our business activities. The PRC has only permitted
provincial and local economic autonomy and private economic activities since
1988. The government of the PRC has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China may be adversely
affected by changes in Chinese laws and regulations, including those relating
to
taxation, import and export tariffs, raw materials, environmental regulations,
land use rights, property and other matters. Under current leadership, the
government of the PRC has been pursuing economic reform policies that encourage
private economic activity and greater economic decentralization. There is no
assurance, however, that the government of the PRC will continue to pursue
these
policies, or that it will not significantly alter these policies from time
to
time without notice.
Our
operations are subject to PRC laws and regulations that are sometimes vague
and
uncertain. Any changes in such PRC laws and regulations, or the interpretations
thereof, may have a material and adverse effect on our
business.
The
PRC’s
legal system is a civil law system based on written statutes, in which system
decided legal cases have little value as precedents unlike the common law system
prevalent in the United States. There are substantial uncertainties regarding
the interpretation and application of PRC laws and regulations, including but
not limited to the laws and regulations governing our business, or the
enforcement and performance of our arrangements with customers in the event
of
the imposition of statutory liens, death, bankruptcy and criminal proceedings.
The Chinese government has been developing a comprehensive system of commercial
laws, and considerable progress has been made in introducing laws and
regulations dealing with economic matters such as foreign investment, corporate
organization and governance, commerce, taxation and trade. However, because
these laws and regulations are relatively new, and because of the limited volume
of published cases and judicial interpretation and their lack of force as
precedents, interpretation and enforcement of these laws and regulations involve
significant uncertainties. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively. We are considered
a foreign person or foreign funded enterprise under PRC laws, and as a result,
we are required to comply with PRC laws and regulations. We cannot predict
what
effect the interpretation of existing or new PRC laws or regulations may have
on
our businesses. If the relevant authorities find us in violation of PRC laws
or
regulations, they would have broad discretion in dealing with such a violation,
including, without limitation:
|
·
|
revoking
our business and other licenses;
|
|
·
|
requiring
that we restructure our ownership or operations;
and
|
|
·
|
requiring
that we discontinue any portion or all of our
business.
|
Inflation
in the PRC could negatively affect our profitability and
growth.
While
the
Chinese economy has experienced rapid growth in recent years, such growth has
been uneven among various sectors of the economy and in different geographical
areas of the country. Also, many observers believe that this rapid growth cannot
continue at its current pace and that an economic correction may be imminent.
Rapid economic growth can also lead to growth in the money supply and rising
inflation. During the past two decades, the rate of inflation in China has
been
as high as approximately 20% and China has experienced deflation as low as
minus
2%. If prices for our products rise at a rate that is insufficient to compensate
for the rise in the costs of supplies such as raw materials, it may have an
adverse effect on our profitability. In order to control inflation in the past,
the PRC government has imposed controls on bank credits, limits on loans for
fixed assets and restrictions on state bank lending. The implementation of
such
policies may impede economic growth. In October 2004, the People’s Bank of
China, the PRC’s central bank, raised interest rates for the first time in
nearly a decade and indicated in a statement that the measure was prompted
by
inflationary concerns in the Chinese economy. During 2007, the interest rate
was
increased from 5.67% to 7.83%. Repeated rises in interest rates by the central
bank could slow economic activity in China which could, in turn, materially
increase our costs and also reduce demand for our products.
Recent
PRC regulations relating to acquisitions of PRC companies by foreign entities
may create regulatory uncertainties that could restrict or limit our ability
to
operate.
The
PRC
State Administration of Foreign Exchange, or SAFE, issued a public notice in
January 2005 concerning foreign exchange regulations on mergers and acquisitions
in China. The public notice states that if an offshore company controlled by
PRC
residents intends to acquire a PRC company, such acquisition will be subject
to
strict examination by the relevant foreign exchange authorities. The public
notice also states that the approval of the relevant foreign exchange
authorities is required for any sale or transfer by the PRC residents of a
PRC
company’s assets or equity interests to foreign entities for equity interests or
assets of the foreign entities.
In
April
2005, SAFE issued another public notice further explaining the January notice.
In accordance with the April notice, if an acquisition of a PRC company by
an
offshore company controlled by PRC residents has been confirmed by a Foreign
Investment Enterprise Certificate prior to the promulgation of the January
notice, the PRC residents must each submit a registration form to the local
SAFE
branch with respect to their respective ownership interests in the offshore
company, and must also file an amendment to such registration if the offshore
company experiences material events, such as changes in the share capital,
share
transfer, mergers and acquisitions, spin-off transaction or use of assets in
China to guarantee offshore obligations. The April notice also provides that
failure to comply with the registration procedures set forth therein may result
in restrictions on our PRC resident shareholders and subsidiaries. Pending
the
promulgation of detailed implementation rules, the relevant government
authorities are reluctant to commence processing any registration or application
for approval required under the SAFE notices.
In
addition, on August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by the
State-Owned Assets Supervision and Administration Commission of the State
Council, State Administration of Taxation, State Administration for Industry
and
Commerce, China Securities Regulatory Commission and SAFE, amended and released
the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises,
new foreign-investment rules which took effect September 8, 2006, superseding
much, but not all, of the guidance in the prior SAFE circulars. These new rules
significantly revise China’s regulatory framework governing onshore-offshore
restructurings and how foreign investors can acquire domestic enterprises.
These
new rules signify greater PRC government attention to cross-border merger,
acquisition and other investment activities, by confirming MOFCOM as a key
regulator for issues related to mergers and acquisitions in China and requiring
MOFCOM approval of a broad range of merger, acquisition and investment
transactions. Further, the new rules establish reporting requirements for
acquisition of control by foreigners of companies in key industries, and
reinforce the ability of the Chinese government to monitor and prohibit foreign
control transactions in key industries.
These
new
rules may significantly affect the means by which offshore-onshore
restructurings are undertaken in China in connection with offshore private
equity and venture capital financings, mergers and acquisitions. It is expected
that such transactional activity in China in the near future will require
significant case-by-case guidance from MOFCOM and other government authorities
as appropriate. It is anticipated that application of the new rules will be
subject to significant administrative interpretation, and we will need to
closely monitor how MOFCOM and other ministries apply the rules to ensure its
domestic and offshore activities continue to comply with PRC law. Given the
uncertainties regarding interpretation and application of the new rules, we
may
need to expend significant time and resources to maintain compliance, which
could divert the attention of our management and adversely affect our results
of
operations.
It
is
uncertain how our business operations or future strategy will be affected by
the
interpretations and implementation of the SAFE notices and new rules. Our
business operations or future strategy could be adversely affected by the SAFE
notices and the new rules. For example, we may be subject to a more stringent
review and approval process with respect to our foreign exchange activities,
which could limit our ability to acquire companies in the PRC, restricting
our
ability to expand our operations.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject
us
to penalties and other adverse consequences.
We
are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. In addition, we are required to maintain records that accurately
and
fairly represent our transactions and have an adequate system of internal
accounting controls. Foreign companies, including some that may compete with
us,
are not subject to these prohibitions, and therefore may have a competitive
advantage over us. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in the PRC, and our executive
officers and employees have not been subject to the United States Foreign
Corrupt Practices Act prior to the completion of the Share Exchange. We can
make
no assurance that our employees or other agents will not engage in such conduct
for which we might be held responsible. If our employees or other agents are
found to have engaged in such practices, we could suffer severe penalties and
other consequences that may have a material adverse effect on our business,
financial condition and results of operations.
If
we make equity compensation grants to persons who are PRC citizens, they
may be
required to register with the State Administration of Foreign Exchange
of the
PRC, or SAFE. We may also face regulatory uncertainties that could restrict
our
ability to adopt additional equity compensation plans for our directors
and
employees and other parties under PRC law.
On
April
6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock
Option
Plan of An Overseas Listed Company, also know as “Circular 78.” It is not clear
whether Circular 78 covers all forms of equity compensation plans or only
those
which provide for the granting of stock options. For any plans which are
so
covered and are adopted by a non-PRC listed company, such as our company,
after
April 6, 2007, Circular 78 requires all participants who are PRC citizens
to
register with and obtain approvals from SAFE prior to their participation
in the
plan. In addition, Circular 78 also requires PRC citizens to register with
SAFE
and make the necessary applications and filings if they participated in
an
overseas listed company’s covered equity compensation plan prior to April 6,
2007. We believe that the registration and approval requirements contemplated
in
Circular 78 will be burdensome and time consuming.
In
September 2008, our stockholders adopted our 2008 Equity Incentive Plan,
under
which we intend to make numerous securities grants in the future, some
of which
may be PRC citizens and may be required to register with SAFE. If it is
determined that any of our equity compensation plans are subject to Circular
78,
failure to comply with such provisions may subject us and participants
of our
equity incentive plan who are PRC citizens to fines and legal sanctions
and
prevent us from being able to grant equity compensation to our PRC employees.
In
that case, our business operations may be adversely affected.
Any
recurrence of Severe Acute Respiratory Syndrome (SARS), Avian Flu, or another
widespread public health problem, in the PRC could adversely affect our
employees, customers, and our ability to continue our operations, including
manufacturing and distribution.
A
renewed
outbreak of Severe Acute Respiratory Syndrome, Avian Flu or another widespread
public health problem in China, where all of our manufacturing facilities are
located and where all of our sales occur, could have a negative effect on our
operations. Our business is dependent upon our ability to continue to
manufacture our products. Such an outbreak could have an impact on our
operations as a result of:
|
·
|
quarantines
or closures of some of our manufacturing facilities, which would
severely
disrupt our operations,
|
|
·
|
the
sickness or death of our key officers and employees,
and
|
|
·
|
a
general slowdown in the Chinese
economy.
|
Any
of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our operations.
A
downturn in the economy of the PRC may slow our growth and
profitability.
The
growth of the Chinese economy has been uneven across geographic regions and
economic sectors. There can be no assurance that growth of the Chinese economy
will be steady or that any downturn will not have a negative effect on our
business, especially if it results in either a decreased use of our products
or
in pressure on us to lower our prices.
Because
our business is located in the PRC, we may have difficulty establishing adequate
management, legal and financial controls, which we are required to do in order
to comply with U.S. securities law.
PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. Most of our middle and top management staff are not educated and
trained in the Western system. In addition, we may need to rely on a new and
developing communication infrastructure to efficiently transfer our information
from retail nodes to the headquarters. In addition, we may have difficulty
in
hiring and retaining a sufficient number of qualified employees to work in
the
PRC. As a result of these factors, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards. Therefore, we may,
in turn, experience difficulties in implementing and maintaining adequate
internal controls as required under Section 404 of the Sarbanes-Oxley Act of
2002. This may result in significant deficiencies or material weaknesses in
our
internal controls which could impact the reliability of our financial statements
and prevent us from complying with SEC rules and regulations and the
requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies,
weaknesses or lack of compliance could have a materially adverse effect on
our
business.
You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based upon U.S. laws,
including the federal securities laws or other foreign laws against us or our
management.
Most
of
our current operations are conducted in Hong Kong and China. Moreover all of
our
directors and officers are nationals and residents of Hong Kong and China.
All
or substantially all of the assets of these persons are located outside the
United States and in the PRC. As a result, it may not be possible to effect
service of process within the United States or elsewhere outside China upon
these persons. In addition, uncertainty exists as to whether the courts of
China
would recognize or enforce judgments of U.S. courts obtained against us or
our
officers and/or directors predicated upon the civil liability provisions of
the
securities law of the United States or any state thereof, or be competent to
hear original actions brought in China against us or such persons predicated
upon the securities laws of the United States or any state thereof.
RISKS
RELATED TO OUR CAPITAL STRUCTURE
The
price of our common stock may be volatile, and if an active trading market
for
our common stock does not develop, the price of our common stock may suffer
and
decline.
Prior
to
our initial public offering and listing of our common stock on the A
lternext
on February 12, 2008, there has been no public market for our securities
in the
United States. Accordingly, we cannot assure you that an active trading
market
will develop or be sustained or that the market price of our common stock
will
not decline. The price at which our common stock will trade after our initial
public offering is likely to be highly volatile and may fluctuate substantially
due to many factors, some of which are outside of our
control.
Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common
stock.
As
of November 1, 2008, we had 26,570,677 shares of common stock
outstanding, and our certificate of incorporation permits the issuance of
up to
approximately 73,429,323 additional shares of common stock. Thus, we have
the
ability to issue substantial amounts of common stock in the future, which
would
dilute the percentage ownership held by the existing
investors.
Pursuant
to the terms of the Share Exchange, we registered the 2,250,348 shares of
common
stock underlying shares of our Series A Convertible Preferred Stock issued
in an
equity financing, in addition to 1,703,017 shares held by other shareholders.
In
addition, we agreed to file this registration statement to register the Bonds,
the 2,285,714 shares of our common stock, subject to adjustment, issuable
upon
the conversion of the Bonds, the Bond Warrants, and the 600,000 shares of
our
common stock, subject to adjustment, issuable upon the exercise of the Bond
Warrants, in addition to 200,000 shares of common stock issued in connection
with our investor relations agreement that we entered into in February 2007.
The
holders of the 2,250,348 registered shares are subject to a lock up agreement
pursuant to which they agreed not to sell their shares until our common stock
began trading on the A
lternext
,
which occurred on February 12, 2008, after which their shares will automatically
be released from the lock up every 30 days on a pro rata basis over a nine
month
period beginning on the date that is 30 days after listing of the shares.
All of
the shares included in an effective registration statement as described above
may be freely sold and transferred, except if subject to a lock up
agreement.
In
connection with the public offering that we conducted on February 15, 2008,
in
which we issued 963,700 shares of freely tradable common stock, we, each of
our
directors and senior officers, and each holder of 5% or more of our common
stock
agreed, with limited exceptions, that we and they will not, without the prior
written consent of the offering’s underwriter, through February 12, 2009, among
other things, directly or indirectly, offer to sell, sell or otherwise dispose
of any of shares of our common stock or file a registration statement with
the
SEC. After the lock-up agreements, up to the shares that had been locked up
will
be eligible for future sale in the public market at prescribed times pursuant
to
Rule 144 under the Securities Act, or otherwise, sales of a significant number
of these shares of common stock in the public market could reduce the market
price of the common stock.
Further,
effective February 15, 2008, the SEC revised Rule 144, which provides a safe
harbor for the resale of restricted securities, shortening applicable holding
periods and easing other restrictions and requirements for resales by our
non-affiliates, thereby enabling an increased number of our outstanding
restricted securities to be resold sooner in the public market. Sales of
substantial amounts of our stock at any one time or from time to time by the
investors to whom we have issued them, or even the availability of these shares
for sale, could cause the market price of our common stock to
decline.
Our
principal stockholder has significant influence over us.
Our
largest shareholder, Kwong Kai Shun, who is also our Chairman of the Board
and
Chief Executive Officer, beneficially owns or controls approximately 65.4%
of
our outstanding shares. As a result of his holding, this shareholder has
a
controlling influence in determining the outcome of any corporate transaction
or
other matters submitted to our shareholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets, election
of directors, and other significant corporate actions. This shareholder also
has
the power to prevent or cause a change in control. In addition, without the
consent of this shareholder, we could be prevented from entering into
transactions that could be beneficial to us. The interests of this shareholder
may differ from the interests of our shareholders.
We
may not be able to achieve the benefits we expect to result from the January
2007 Share Exchange.
On
December 15, 2006, we entered into the Exchange Agreement with the sole
shareholder of Times Manufacture, pursuant to which we agreed to acquire 100%
of
the issued and outstanding securities of Times Manufacture in exchange for
shares of our common stock. On January 23, 2007, the Share Exchange closed,
Times Manufacture became our 100%-owned subsidiary and our sole business
operations became that of Times Manufacture. Also, the management and directors
of Times Manufacture became the management and directors of us and we changed
our corporate name from SRKP 9, Inc. to Asia Time Corporation.
We
may
not realize the benefits that we hoped to receive as a result of the Share
Exchange, which includes:
·
|
access
to the capital markets of the United
States;
|
·
|
the
increased market liquidity expected to result from exchanging stock
in a
private company for securities of a public company that may eventually
be
traded;
|
·
|
the
ability to use registered securities to make acquisition of assets
or
businesses;
|
·
|
increased
visibility in the financial
community;
|
·
|
enhanced
access to the capital markets;
|
·
|
improved
transparency of operations; and
|
·
|
perceived
credibility and enhanced corporate image of being a publicly traded
company.
|
There
can
be no assurance that any of the anticipated benefits of the Share Exchange
will
be realized in respect to our new business operations. In addition, the
attention and effort devoted to achieving the benefits of the Share Exchange
and
attending to the obligations of being a public company, such as reporting
requirements and securities regulations, could significantly divert management’s
attention from other important issues, which could materially and adversely
affect our operating results or stock price in the future.
In
connection with Mr. Kwong’s agreement to release, under certain conditions, up
to 2,326,000 shares of his common stock in our company to investors in our
January 2007 Private Placement, we recorded a compensation charge of
approximately $2.4 million for 2007.
In
connection with the Private Placement, Kwong Kai Shun, our Chairman of the
Board
and Chief Executive 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 our net income for 2006 or 2007, subject to specified adjustments,
is less than $6.3 million or $7.7 million, respectively, a portion, if not
all,
of the Escrow Shares will be transferred to the investors based upon our actual
net income, if any, for such fiscal years. We met the targets and have accounted
for the Escrow Shares as the equivalent of a performance-based compensatory
stock plan between Mr. Kwong and us. Accordingly, during the year ended December
31, 2007, we recorded a charge to operations of $2,433,650 to recognize the
grant date fair value of stock-based compensation in conjunction with the Escrow
Shares. The expense had a negative effect on our results of operations for
2007
and caused our net income to be reduced by $2.4 million for the year. We may
not
realize a benefit from services provided under the agreement that is comparable
to such negative effect. As a result, our operations may suffer and our stock
price may decline.
If
we fail to maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.
Our
internal control over financial reporting may have weaknesses and conditions
that need to be addressed, the disclosure of which may have an adverse impact
on
the price of our common stock. We are required to establish and maintain
appropriate internal controls over financial reporting. Failure to establish
those controls, or any failure of those controls once established, could
adversely impact our public disclosures regarding our business, financial
condition or results of operations. Our failure of these controls could also
prevent us from maintaining accurate accounting records and discovering
accounting errors and financial frauds. In addition, management’s assessment of
internal controls over financial reporting may identify weaknesses and
conditions that need to be addressed in our internal controls over financial
reporting or other matters that may raise concerns for investors. Any actual
or
perceived weaknesses and conditions that need to be addressed in our internal
control over financial reporting, disclosure of management’s assessment of our
internal controls over financial reporting or disclosure of our public
accounting firm’s attestation to or report on management’s assessment of our
internal controls over financial reporting may have an adverse impact on the
price of our common stock.
Standards
for compliance with Section 404 of the Sarbanes-Oxley Act Of 2002 are uncertain,
and if we fail to comply in a timely manner, our business could be harmed and
our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting,
and
attestation of this assessment by our company’s independent registered public
accountants. The annual assessment of our internal controls requirement first
applied to our annual report for the 2007 fiscal year and the attestation
requirement of management’s assessment by our independent registered public
accountants will first apply to our annual report for the 2009 fiscal year.
The
standards that must be met for management to assess the internal control over
financial reporting as effective are new and complex, and require significant
documentation, testing and possible remediation to meet the detailed standards.
We may encounter problems or delays in completing activities necessary to make
an assessment of our internal control over financial reporting. In addition,
the
attestation process by our independent registered public accountants is new
and
we may encounter problems or delays in completing the implementation of any
requested improvements and receiving an attestation of our assessment by our
independent registered public accountants. If we cannot assess our internal
control over financial reporting as effective, or our independent registered
public accountants are unable to provide an unqualified attestation report
on
such assessment, investor confidence and share value may be negatively
impacted.
We
incurred an expense charge of approximately $700,000 in the first quarter of
2008 in connection with 200,000 shares of common stock issued for investor
relation services.
On
January 16, 2008, we entered into an investor relations agreement with Public
Equity Group Inc. pursuant to which we agreed to issue 200,000 shares of our
common stock to Public Equity Group Inc. In connection with the issuance of
200,000 shares of common stock, we recognized a one-time charge to operations
in
the first quarter of 2008 in an amount equal to approximately $700,000, which
is
derived from valuing each share at $3.50, the per share offering price in our
February 2008 public offering. The expense had a negative effect on our results
of operations for 2008 and we may not realize a benefit from services provided
under the agreement that is comparable to such negative effect. As a result,
our
operations may suffer and our stock price may decline.
Our
common stock may be considered a “penny stock,” and thereby be subject to
additional sale and trading regulations that may make it more difficult to
sell.
Our
common stock may be considered to be a “penny stock” if it does not qualify for
one of the exemptions from the definition of “penny stock” under Section 3a51-1
of the Securities Exchange Act for 1934, as amended (the “Exchange Act”) once,
and if, it starts trading. Our common stock may be a “penny stock” if it meets
one or more of the following conditions (i) the stock trades at a price less
than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange;
(iii) it is NOT quoted on the Nasdaq Capital Market, or even if so, has a price
less than $5.00 per share; or (iv) is issued by a company that has been in
business less than three years with net tangible assets less than $5
million.
The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers participating in sales of our common stock will be
subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9
promulgated under the Exchange Act. For example, Rule 15g-2 requires
broker-dealers dealing in penny stocks to provide potential investors with
a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document at least two business days before
effecting any transaction in a penny stock for the investor’s account. Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of
any
investor for transactions in such stocks before selling any penny stock to
that
investor. This procedure requires the broker-dealer to (i) obtain from the
investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor
and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide
the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor’s financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.
We
do not foresee paying cash dividends in the foreseeable future, and as a result,
our investors’ sole source of gain, if any, will depend on capital appreciation,
if any.
We
do not
currently plan to declare or pay any cash dividends on our shares of common
stock in the foreseeable future and we currently intend to retain any future
earnings for funding growth. As a result, you should not rely on an investment
in our securities if you require dividend income. Capital appreciation, if
any,
of our shares may be your sole source of gain for the foreseeable future.
Moreover, you may not be able to resell your shares in our company at or above
the price you paid for them. We paid cash dividends of $0, $0, $2.4 million,
and
$642,848 during the six months ended June 30, 2008 and the years ended December
31, 2007, 2006, and 2005, respectively.
RISKS
RELATED TO OUR BONDS AND BOND WARRANTS
We
recently completed a placement of convertible bonds that included a beneficial
conversion feature and are mandatorily redeemable and 600,000 warrants
exercisable at $0.0001 per share. The features of the bonds and the value of
the
warrants will have the effect of reducing our reported operating results during
the term of the bonds.
In
November 2007, we issued $8,000,000 Variable Rate Convertible Bonds due in
2012,
or the Bonds. The terms of Bonds include conversion features allowing the
holders to convert the Bonds into shares of our common stock. Certain of
those
conversion features that allow for the reduction in conversion price upon
the
occurrence of stated events constitute a “beneficial conversion feature” for
accounting purposes. In addition, we may be required to repurchase the Bonds
at
the request of the holders if certain events occur or do not occur, as set
forth
in the Trust Deed. If our common stock ceases to be listed on A
lternext
or there is a change of control of the company as defined in the Trust Deed,
each holder will have the right to require us to redeem all or part of that
holder’s Bonds. If either (i) our common stock (including the shares of common
stock issuable upon conversion of the Bonds and exercise of the Bond Warrants)
are not listed on A
lternext
on or before August 13, 2008 or (ii) we breach certain of our obligations
to
register the Bonds, Bond Warrants and underlying shares as promptly as possible,
and in no event later than February 12, 2009, pursuant to the registration
rights agreement dated November 13, 2007 entered into by and between the
Subscriber and us, then holders of the Bonds can require us 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, each holder can require
us to redeem the Bonds at 126.51% of the principal amount of the Bonds and
we
are required to redeem any outstanding Bonds at 150.87% of its principal
amount
on November 13, 2012. If a triggering event occurs and we are requested by
the
holders to repurchase all or a portion of the Bonds, we will be required
to pay
cash to redeem all or a portion of the Bonds. Finally, in connection with
the
issuance of the Bonds, we issued the holder of the Bonds the Bond Warrants
exercisable at a per share exercise price of $0.0001.
The
accounting treatment related to the beneficial conversion and mandatory
redemption features of the Bonds and the value of the Bond Warrants will have
an
adverse impact on our results of operations for the term of the Bonds. The
application of Generally Accepted Accounting Principles will require us to
allocate $6,107,299 to the beneficial conversion feature of the Bonds and
$1,652,701 to the Bonds Warrants, which will be reflected in our financial
statements as an interest discount. In addition, we have determined that the
total redemption premium associated with the mandatory redemption feature of
the
Bonds is $4,069,600. All of the aforementioned amounts associated with the
beneficial conversion and mandatory redemption feature of the Bonds and the
value of the Bond Warrants will be amortized as additional interest expense
over
the term of the Bonds. For the six months ended June 30, 2008 and the year
ended
December 31, 2007, we recorded $219,765 and $345,461, respectively, in expenses
related to the Bonds and Bond Warrants. This accounting will result in an
increase in interest expense in all reporting periods during the term of the
Bonds, and, as a result, reduce our net income accordingly.
Mandatory
redemption of the Bonds could have a material adverse effect on our liquidity
and cash resources.
If
we are
required to redeem all or any portion of the Bonds, this may have a material
adverse effect on our liquidity and cash resources, and may impair our ability
to continue to operate. If we are required to repurchase all or a portion
of the
Bonds and do not have sufficient cash to make the repurchase, we may be required
to obtain third party financing to do so, and there can be no assurances
that we
will be able to secure financing in a timely manner and on favorable terms,
which could have a material adverse effect on our financial performance,
results
of operations and stock price. Furthermore, additional equity financing may
be
dilutive to the holders of our common stock, and debt financing, if available,
may involve restrictive covenants, and strategic relationships, if necessary
to
raise additional funds, and may require that we relinquish valuable rights.
Please
see the section entitled
Selling
Security Holders
on page
60 of this prospectus for additional information.
Your
right to receive payment on the Bonds is unsecured without any preference or
priority and there may not be sufficient assets to pay amounts due on any or
all
of the Bonds.
The
Bonds
constitute direct, unsubordinated, and unsecured obligations for us and will
at
all times rank
pari
passu
and
without any preference or priority among themselves. Our payment obligations
under the Bonds rank equally with all of our other present and future unsecured
and unsubordinated obligations. Upon any distribution of our assets upon any
insolvency, dissolution or reorganization, the payment of principal and interest
on our senior indebtedness will have priority over the payment of principal
and
interest on the Bonds. There may not be sufficient assets remaining to pay
amounts due on any or all of the Bonds after we have made payment of principal
and interest on the senior indebtedness.
Your
ability to sell the Bonds and Bond Warrants is limited by the absence of a
trading market, which may never develop.
The
Bonds
and Bond Warrants were issued in November 2007 and there is no public market
for
either, and we do not presently intend to apply for the listing of the Bonds
or
the Bond Warrants on any securities exchange or for inclusion in any automated
quotation system. An issue of securities with a smaller float may be more
volatile in price than a comparable issue of securities with a greater float.
Accordingly, the liquidity of the Bonds and the Bond Warrants will be severely
limited. We cannot assure you as to your ability to sell the Bonds or the Bond
Warrants or the price at which you would be able to sell the Bonds or Bond
Warrants. If a trading market does develop, the Bonds and Bond Warrants could
trade at prices that may be higher or lower than the principal amount or
purchase price, depending on many factors, including prevailing interest rates,
the market for similar debt securities, our financial performance and our stock
price. No one is obligated to make a market in the Bonds or the Bond Warrants.
In addition, any market making activities will be subject to the limits imposed
by the Securities Act and the Securities Exchange Act of 1934, as amended.
There
are limited restrictive covenants in the Trust Deed governing the Bonds relating
to our ability to incur future indebtedness.
The
Trust
Deed for the Bonds does not limit our ability to incur indebtedness or to secure
such indebtedness, except that as long as any of the Bonds remains outstanding,
we agreed not to create any encumbrance upon our present or future assets or
revenues to secure any indebtedness in a form which is quoted, listed, dealt
or
traded on any stock exchange or over the counter or other securities market
or
to secure any guarantee of or indemnity in respect of any such indebtedness
unless our obligations under the Bonds are secured by the same encumbrance
or
have the benefit from a guarantee or indemnity in substantially identical terms.
The
Trust
Deed governing the Bonds does not contain any financial or operating covenants
or restrictions on the payment of dividends, incurrence of indebtedness (other
than as stated above), transactions with affiliates, incurrence of liens, or
the
issuance or repurchase of securities by us or any of our subsidiaries. We,
therefore, may incur additional debt, including secured indebtedness or
indebtedness by, or other obligations of, our subsidiaries to which the Bonds
would be structurally subordinate. A higher level of indebtedness increases
the
risk that we may default on our indebtedness. We cannot assure you that we
will
be able to generate sufficient cash flow to pay the interest on our indebtedness
or that future working capital, borrowings or equity financing will be available
to pay or refinance such indebtedness.
Before
conversion, holders of the Bonds and the Bond Warrants will not be entitled
to
any shareholder rights, but will be subject to all changes affecting our
shares.
If
you
hold Bonds or Bond Warrants, you will not be entitled to any rights with respect
to shares of our common stock, including voting rights and rights to receive
dividends or distributions. However, the common stock you would receive if
you
converted or exercised your Bonds and Bond Warrants will be subject to all
changes affecting our common stock. You will be entitled only to rights that
we
may grant with respect to shares of our common stock if and when we deliver
shares to you upon your election to convert and exercise your Bonds and Bond
Warrants into shares. For example, if we seek approval from shareholders for
a
potential merger, or if an amendment is proposed to our articles of
incorporation or by-laws that require shareholder approval, holders of Bonds
and
Bond Warrants will not be entitled to vote on the merger or amendment.
There
may be certain tax risks associated with the Bonds and the Bond
Warrants.
There
are
significant income tax risks in connection with the Bonds and Bond Warrants,
as
more fully described below under “Material United States Federal Income Tax
Consequences for Holders of Bonds and Bond Warrants.” The Bonds will contain
“original issue discount” requiring a U.S. Holder thereof to include such
“original issue discount” in income on a constant accrual basis prior to the
receipt of cash with respect thereto. Your purchase and holding of the Bonds
and
Bond Warrants may have certain other tax consequences to you depending on your
particular circumstances. See “Material United States Federal Income Tax
Consequences for Holders of Bonds and Bond Warrants - Consequences to U.S.
Holders” below.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The
information contained in this
prospectus
,
including in the documents incorporated by reference into this prospectus,
includes some statements that are not purely historical and that are
“forward-looking statements.” Such forward-looking statements include, but are
not limited to, statements regarding our and their management’s expectations,
hopes, beliefs, intentions or strategies regarding the future, including our
financial condition, and results of operations. In addition, any statements
that
refer to projections, forecasts or other characterizations of future events
or
circumstances, including any underlying assumptions, are forward-looking
statements. The words “anticipates,” “believes,” “continue,” “could,”
“estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,”
“potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and
similar expressions, or the negatives of such terms, may identify
forward-looking statements, but the absence of these words does not mean that
a
statement is not forward-looking.
The
forward-looking statements contained in this prospectus are based on current
expectations and beliefs concerning future developments and the potential
effects on the parties and the transaction. There can be no assurance that
future developments actually affecting us will be those anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond the parties’ control) or other assumptions that may cause
actual results or performance to be materially different from those expressed
or
implied by these forward-looking statements, including the
following:
·
|
Dependence
on a limited number of suppliers;
|
·
|
Cyclicality
of our business;
|
·
|
Decline
in the value of our inventory;
|
·
|
Significant
order cancellations, reductions or
delays;
|
·
|
Competitive
nature of our industry;
|
·
|
Vulnerability
of our business to general economic
downturn;
|
·
|
Expenses
and costs related to our issuance of the
Bonds;
|
·
|
Our
ability to obtain all necessary government certifications and/or
licenses
to conduct our business;
|
·
|
Development
of a public trading market for our securities;
|
·
|
The
cost of complying with current and future governmental regulations
and the
impact of any changes in the regulations on our operations;
|
·
|
Costs
and expenses related to the Bonds and Bond Warrants;
and
|
·
|
The
other factors referenced in this prospectus, including, without
limitation, under the sections entitled “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
and “Description of Business.”
|
These
risks and uncertainties, along with others, are also described below under
the
heading “Risk Factors.” Should one or more of these risks or uncertainties
materialize, or should any of the parties’ assumptions prove incorrect, actual
results may vary in material respects from those projected in these
forward-looking statements. We undertake no obligation to update or revise
any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities
laws.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale by the selling security holders of the
Bonds, Bond Warrants, or the shares of common stock. We will receive proceeds
from the exercise of the Bond Warrants, if and when they are exercised, at
a per
share price of $0.0001, subject to certain adjustments.
DIVIDEND
POLICY
We
do not
expect to declare or pay any further cash dividends on our common stock in
the
foreseeable future, and we currently intend to retain future earnings, if any,
to finance the expansion of our business. The decision whether to pay cash
dividends on our common stock will be made by our board of directors, in their
discretion, and will depend on our financial condition, operating results,
capital requirements and other factors that the board of directors considers
significant. We paid cash dividends of $0, $0, $2.4 million, and $642,848 during
the six months ended June 30, 2008 and the years ended December 31, 2007, 2006,
and 2005 respectively.
RATIO
OF EARNINGS TO FIXED CHARGES
The
following table sets forth our unaudited consolidated ratio of earnings to
fixed
charges for each of the three months ended June 30, 2008 and 2007 and each
of
the last five years and for the year ended December 31, 2007:
|
|
Six Months Ended
June 30,
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of earnings to fixed charges (1)
|
|
|
8.88
x
|
|
|
6.70
x
|
|
|
7.45
x
|
|
|
8.97
x
|
|
|
11.28
x
|
|
|
3.87
x
|
|
|
4.57
x
|
|
(1)
|
For
purposes of computing our consolidated ratio of earnings to fixed
charges,
earnings consist of income before taxes plus fixed charges. Fixed
charges consist of interest expense and an estimate of the interest
within
rental expense.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Commencing
on February 12, 2008, our shares of common stock have been listed for trading
on
A
lternext
under the ticker symbol “TYM.” As of September 1, 2008, we had 36 registered
shareholders.
The
following table summarizes the high and low sales prices of our common stock
as
reported by A
lternext
during the quarters presented below. On November 6, 2008, the closing sales
price for our common stock on A
lternext
was $2.92 per share.
|
|
2008
|
|
|
|
High
|
|
Low
|
|
Third
Quarter
|
|
$
|
4.65
|
|
$
|
1.90
|
|
Second
Quarter
|
|
$
|
6.98
|
|
$
|
3.95
|
|
First
Quarter
(from
February 12, 2008)
|
|
$
|
8.70
|
|
$
|
3.91
|
|
SELECTED
CONSOLIDATED FINANCIAL DATA
The
following selected consolidated statement of operations data contains
consolidated statement of operations data for the six months ended June 30,
2008
and 2007 (unaudited) and each of the years in the five-year period ended
December 31, 2007 and the consolidated balance sheet data as of June 30, 2008
(unaudited) and year-end for each of the years in the five-year period ended
December 31, 2007. The consolidated statement of operations data and balance
sheet data were derived from the audited consolidated financial statements,
except for data for the periods ended and as of June 30, 2008 and 2007. Such
financial data should be read in conjunction with the consolidated financial
statements and the notes to the consolidated financial statements starting
on
page 89 and with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Consolidated Statement of Operations
|
|
Six Months Ended June 30,
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
74,948
|
|
$
|
41,988
|
|
$
|
96,963
|
|
$
|
81,134
|
|
$
|
63,078
|
|
$
|
36,553
|
|
$
|
33,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(64,001
|
)
|
|
(36,419
|
)
|
|
(83,120
|
)
|
|
(71,496
|
)
|
|
(57,026
|
)
|
|
(34,609
|
)
|
|
(31,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
10,947
|
|
$
|
5,569
|
|
$
|
13,843
|
|
$
|
9,637
|
|
$
|
6,052
|
|
$
|
1,944
|
|
$
|
1,262
|
|
Other
operating income
|
|
|
52
|
|
|
97
|
|
|
618
|
|
|
424
|
|
|
939
|
|
|
-
|
|
|
-
|
|
Depreciation
|
|
|
(615
|
)
|
|
(129
|
)
|
|
(332
|
)
|
|
(326
|
)
|
|
(259
|
)
|
|
(126
|
)
|
|
(18
|
)
|
Administrative
and other operating expenses, including stock based
compensation
|
|
|
(2,310
|
)
|
|
(2,605
|
)
|
|
(4,595
|
)
|
|
(1,285
|
)
|
|
(1,436
|
)
|
|
(1,345
|
)
|
|
(834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
$
|
8,073
|
|
$
|
2,931
|
|
$
|
9,534
|
|
$
|
8,450
|
|
$
|
5,296
|
|
$
|
473
|
|
$
|
410
|
|
Fee
and costs related to reverse merger
|
|
|
-
|
|
|
(736
|
)
|
|
(741
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
expense
|
|
|
(1,024
|
)
|
|
(514
|
)
|
|
(1,478
|
)
|
|
(1,060
|
)
|
|
(515
|
)
|
|
(165
|
)
|
|
(115
|
)
|
Non-operating
income
|
|
|
111
|
|
|
78
|
|
|
233
|
|
|
238
|
|
|
156
|
|
|
28
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
$
|
7,159
|
|
$
|
1,759
|
|
$
|
7,548
|
|
$
|
7,628
|
|
$
|
4,937
|
|
$
|
336
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(1,480
|
)
|
|
(717
|
)
|
|
(1,978
|
)
|
|
(1,308
|
)
|
|
(912
|
)
|
|
(132
|
)
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,679
|
|
$
|
1,042
|
|
$
|
5,
571
|
|
$
|
6,320
|
|
$
|
4,025
|
|
$
|
204
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
$
|
0.23
|
|
$
|
0.05
|
|
$
|
0.24
|
|
$
|
0.32
|
|
$
|
0.21
|
|
$
|
0.01
|
|
$
|
0.01
|
|
-
Diluted
|
|
$
|
0.21
|
|
$
|
0.04
|
|
$
|
0.22
|
|
$
|
0.32
|
|
$
|
0.21
|
|
$
|
0.01
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.11
|
|
$
|
0.03
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
24,879,527
|
|
|
22,686,183
|
|
|
22,923,339
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
-
Diluted
|
|
|
27,053,765
|
|
|
24,606,260
|
|
|
25,388,026
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
|
As of June 30,
|
|
As of December 31,
|
|
Consolidated
Balance Sheets
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
Current
Assets
|
|
$
|
58,424
|
|
$
|
48,925
|
|
$
|
21,400
|
|
$
|
16,648
|
|
$
|
12,432
|
|
$
|
4,836
|
|
Total
Assets
|
|
|
64,006
|
|
|
51,451
|
|
|
24,096
|
|
|
18,533
|
|
|
13,866
|
|
|
4,876
|
|
Current
Liabilities
|
|
|
27,505
|
|
|
24,176
|
|
|
15,553
|
|
|
13,890
|
|
|
12,620
|
|
|
3,847
|
|
Total
Liabilities
|
|
|
32,341
|
|
|
24,578
|
|
|
15,585
|
|
|
13,890
|
|
|
12,620
|
|
|
3,847
|
|
Total
Stockholders' Equity
|
|
|
31,665
|
|
|
26,873
|
|
|
8,511
|
|
|
4,644
|
|
|
1,246
|
|
|
1,030
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking
Statements
The
following discussion should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
This prospectus 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 prospectus 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
$50.00. 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
complete 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 85% and 89%, respectively, of our revenue
for
the six months ended June 30, 2008 and 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.
With
respect to this discussion, the terms “we” and “our” refer to Asia Time
Corporation, its 100%-owned subsidiary Times Manufacture Times Manufacture
and
its subsidiaries, Times Manufacturing & E-Commerce Corporation Ltd., TME
Enterprise Ltd., Citibond Design Ltd. and Megamooch Online Ltd., each of which
is a British Virgin Islands corporation, and the Hong Kong corporate
subsidiaries Billion Win International Enterprise Ltd., Goldcome Industrial
Ltd., Citibond Industrial Ltd., and Megamooch International Ltd. Times
Manufacture was founded in March 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 revenue for the watch
movement segment of our business for the year ended December 31, 2007 was $86.4
million, with a gross profit $8.9 million, a 18.3% and 53.6% growth,
respectively, compared to $73.0 million revenue and $5.8 million gross profit
for the year ended December 31, 2006. 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. The gross profit margin increased from 8.0% for the
year
ended December 31, 2006 to 10.3% for the year ended December 31, 2007.
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
Our
main
market positioning in China is on the middle-class adult, daily, sporty and
classy design. 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 attributable
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. Revenue of our complete watch segment was $10.5 million for the year
ended December 31, 2007, a 30.4% increase compared to the same period in 2006,
in which revenue was $8.1 million. This segment contributed approximately 11%
of
our revenue in 2007, as compared to 10% of revenue for the year ended December
31, 2006. We believe the increase was primarily attributable to our offering
of
value-added design services to our customers at no extra charge.
Recent
Events
February
2008 Public Offering
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 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 have a term of five
years.
January
2008 Investor Relations Agreement
On
January 16, 2008, we entered into a consulting agreement with Public Equity
Group Inc. Pursuant to the agreement, Public Equity Group will provide us with
business consulting and investor relation services, oversee of all of our
investor public relation and related service providers, and monitor our investor
relation meetings with brokerage firms and brokers to develop support for our
stock and research coverage, in addition to strategic advice and other customary
investor relation 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, we agreed to issue 200,000 shares of our common stock
to
Public Equity Group Inc. In connection with the issuance of 200,000 shares
of
common stock, we recognized a one-time charge to operations in the first quarter
of 2008 in an amount equal to approximately $700,000, which is derived from
valuing each share at $3.50, which is the offering price for our February 2008
public offering.
November
2007 Issuance of Bonds and Bond Warrants
On
November 13, 2007, we closed a financing transaction with ABN AMRO Bank N.V.
(the “Subscriber”) issuing (i) US$8,000,000 Variable Rate Convertible Bonds due
2012 (the “Bonds”) and (ii) warrants to purchase 600,000 shares of our common
stock expiring 2010 (the “Warrants”). The financing transaction was completed in
accordance with a subscription agreement entered into by us and the Subscriber
dated October 31, 2007.
US$8,000,000
Variable Rate Convertible Bonds
The
Bonds
were issued further to a trust deed between us and The Bank of New York, London
Branch, dated November 13, 2007 (the “Trust Deed”) and are represented by the
global certificate in the form as set forth in the Trust Deed. The Bonds are
subject to a paying and conversion agency agreement between us, The Bank of
New
York, and The Bank of New York, London Branch. 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 Terms and Conditions of the Bonds
(the “Terms”) contained in the Trust Deed, set forth, among other things, the
following terms:
|
·
|
Interest
.
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 and
after 365 days after the date our shares of common stock commence
trading
on the
NYSE
Alternext US (formerly known as American Stock Exchange)
(“Alternext”)
, which occurred on February 12, 2008 (the “Listing
Date”), into shares of our common stock at an initial per share conversion
price (“Conversion Price”) equal to the price per share at which shares
are sold in our public offering on the Alternext, which was $3.50
per
share, subject to adjustment according to the Terms of the Bonds.
No Bonds
may be converted after the close of business on November 13, 2012,
or if
such Bond is called for redemption before the maturity date, then
up to
the close of business on a date no later than seven business days
prior to
the date fixed for redemption thereof.
|
|
·
|
Conversion
Price Adjustments
.
The number of shares of our common stock to be issued on conversion
of the
Bonds will be determined by dividing the principal amount of each
Bond to
be converted by the Conversion Price in effect at the conversion
date. 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 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 our 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) our common stock (including the shares of common
stock
issuable upon conversion of the Bonds and exercise of the Bond
Warrants)
are not listed on Alternext on or before August 13, 2008 or (ii)
we breach
certain of our obligations to register the Bonds, Bond Warrants
and
underlying shares as promptly as possible, and in no event later
than
February 12, 2009, pursuant to the registration rights agreement
dated
November 13, 2007 entered into by and between the Subscriber and
us, the
holder of the Bonds can require us to redeem the Bonds at 104.53%
of their
principal amount of the Bonds at any time after November 13, 2008.
Also,
at any time after November 13, 2010, the holders of the Bonds can
require
us to redeem the Bonds at 126.51% of their principal amount. We
are
required to redeem any outstanding Bonds at 150.87% of its principal
amount on November 13, 2012.
|
Warrants
to Purchase 600,000 Shares of Common Stock
The
Warrants, which are evidenced by a warrant instrument entered into by and
between us and the Subscriber, dated November 13, 2007 (the “Warrant
Instrument”), are subject to the terms of a warrant agency agreement by and
among us, 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 Warrant Agency Agreement, the Warrants
are exercisable at $0.0001 per share from February 12, 2008 until November
6,
2010. We listed the shares underlying the Warrants on Alternext. In addition,
we
have agreed to register the shares of common stock underlying the Warrants
with
the SEC on or prior to November 13, 2008 and will keep the registration
effective until 30 days after the Warrants terminate.
Registration
Rights for Bonds, Warrants, and Underlying Shares
On
November 13, 2007, we and the Subscriber also entered into a registration rights
agreement pursuant to which we agreed to register the Bonds and Warrants, and
the shares of common stock underlying the Bonds and Warrants (the “Registrable
Securities”). We agreed to prepare and file with the SEC, no later than 90 days
after the Listing Date, a Registration Statement on Form S-1 (the “Registration
Statement”) to register the Registrable Securities and, as promptly as possible,
and in any event no later than 365 days after the Listing Date, cause that
Registration Statement, as amended, to become effective. In addition, we agreed
to list all Registrable Securities covered by the Registration Statement on
each
securities exchange on which similar securities issued by us are then listed.
The registration rights agreement does not provide for liquidated or specified
damages in the event we do not timely register the Registrable
Securities.
Accounting
for the Bond and Warrant Transaction
The
terms
of Bonds include conversion features allowing the holders to convert the Bonds
into shares of our common stock. Certain of those conversion features that
allow
for the reduction in conversion price upon the occurrence of stated events
constitute a “beneficial conversion feature” for accounting purposes. In
addition, we may be required to repurchase the Bonds at the request of the
holders if certain events occur or do not occur, as set forth in the Bond trust
deed. Upon the occurrence of any of the events that trigger a mandatory
redemption, as described above, and we are requested by the holders to
repurchase all or a portion of the Bonds, we will be required to pay cash to
redeem all or a portion of the Bonds.
The
accounting treatment related to the beneficial conversion and mandatory
redemption features of the Bonds and the value of the Bond Warrants will have
an
adverse impact on our results of operations for the term of the Bonds. The
application of Generally Accepted Accounting Principles will require us to
allocate $6,107,299 to the beneficial conversion feature of the Bonds and
$1,652,701 to the Bonds Warrants, which have been reflected in our financial
statements as an interest discount. Also, we have determined that the total
redemption premium associated with the mandatory redemption feature of the
Bonds
is $4,069,600. All of the aforementioned amounts associated with the beneficial
conversion and mandatory redemption feature of the Bonds and the value of the
Bond Warrants are being amortized as additional interest expense over the term
of the Bonds. This accounting will result in an increase in interest expense
in
all reporting periods during the term of the Bonds, and, as a result, reduce
our
net income accordingly. For the six months ended June 30, 2008 and the year
ended December 31, 2007, we recorded $219,765 and $345,461, respectively, in
expenses related to the Bonds and Bond Warrants.
In
addition, if we are required to redeem all or any portion of the Bonds, this
may
have a material adverse effect on our liquidity and cash resources, and may
impair our ability to continue to operate. If we are required to repurchase
all
or a portion of the Bonds and do not have sufficient cash to make the
repurchase, we may be required to obtain third party financing to do so, and
there can be no assurances that we will be able to secure financing in a timely
manner and on favorable terms, which could have a material adverse effect on
our
financial performance, results of operations and stock price.
January
2007 Share Exchange and Private Placement
On
December 15, 2006, we entered into a share exchange agreement with the sole
shareholder of Times Manufacture. Pursuant to the share exchange agreement
(the
"Exchange Agreement") we agreed to issue shares of our common stock in exchange
for all of the issued and outstanding securities of Times Manufacture (the
"Share Exchange"). The Share Exchange closed on January 23, 2007. Upon the
closing of the Share Exchange and pursuant to the terms of the Exchange
Agreement, we issued an aggregate of 19,454,420 shares of our common stock
to
the sole shareholder of Times Manufacture in exchange for all of the issued
and
outstanding securities of Times Manufacture. Times Manufacture also paid an
aggregate of $350,000 to the stockholders of SRKP 9, Inc. In addition, prior
to
the closing of the Share Exchange and the Private Placement, as described below,
we effectuated a 1.371188519-for-one stock dividend such that there were
3,702,209 shares of common stock outstanding immediately prior to the Share
Exchange and Private Placement. We issued no fractional shares in connection
with the Share Exchange.
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.
We
agreed
to and did register the common stock underlying the Series A Convertible
Preferred Stock sold in the Private Placement. The investors in the Private
Placement also entered into a lock up agreement pursuant to which they agreed
not to sell their shares until our common stock began trading on the Alternext,
which occurred on February 12, 2008, after which their shares will automatically
be released from the lock up every 30 days on a pro rata basis over a nine
month
period beginning on the date that is 30 days after listing of the shares.
As of
September 1, 2008, all of the Series A Convertible Preferred Stock have been
converted to common stock. Each share of the Series A Convertible Preferred
Stock was converted into shares of common stock at a conversion price equal
to
the purchase price of such shares.
In
connection with the Private Placement, Kwong Kai Shun, our Chairman of the
Board
and Chief Executive Officer, entered into an agreement (the “Escrow Agreement”)
with the investors 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 our net income for 2006
or 2007, subject to specified adjustments, as set forth in our filings with
the
SEC is less than $6.3 million or $7.7 million, respectively, a portion, if
not
all, of the Escrow Shares will be transferred to the investors based upon our
actual net income, if any, for such fiscal years. We met these targets. We
have
accounted for the Escrow Shares as the equivalent of a performance-based
compensatory stock plan between Mr. Kwong and us. Accordingly, during the year
ended December 31, 2007, we recorded $2,433,650 as a charge to operations to
recognize the grant date fair value of stock-based compensation in conjunction
with the Escrow Agreement, as described above.
Critical
Accounting Policies and Estimates
Financial
Reporting Release No. 60 recommends that all companies include a discussion
of
critical accounting policies used in the preparation of their financial
statements. The Securities and Exchange Commission (“SEC”) defines critical
accounting policies as those that are, in management's view, most important
to
the portrayal of our financial condition and results of operations and those
that require significant judgments and estimates.
The
preparation of these consolidated financial statements requires our management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as the disclosure of contingent
assets and liabilities at the date of our financial statements. We base our
estimates on historical experience, actuarial valuations and various other
factors that we believe to be reasonable under the circumstances, the results
of
which form the basis for making judgments about the carrying value of assets
and
liabilities that are not readily apparent from other sources. Some of those
judgments can be subjective and complex and, consequently, actual results may
differ from these estimates under different assumptions or conditions. While
for
any given estimate or assumption made by our management there may be other
estimates or assumptions that are reasonable, we believe that, given the current
facts and circumstances, it is unlikely that applying any such other reasonable
estimate or assumption would materially impact the financial statements. The
accounting principles we utilized in preparing our consolidated financial
statements conform in all material respects to generally accepted accounting
principles in the United States of America.
Impairment
of long-lived assets
The
long-lived assets held and used by us are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. It is reasonably possible that these assets could become
impaired as a result of technology or other industry changes. Determination
of
recoverability of assets to be held and used is by comparing the carrying amount
of an asset to future net undiscounted cash flows to be generated by the
assets.
If
such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower
of
the carrying amount of fair value less costs to sell.
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. We have 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 us
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 six months ended June 30, 2008 and 2007 and the years
ended December 31, 2007, 2006, and 2005, we did not make any allowance for
slow-moving or defective inventories.
We
evaluate our inventories for excess, obsolescence or other factors rendering
inventories as unsellable at normal gross profit margins. Write-downs are
recorded so that inventories reflect the approximate market value and take into
account our contractual provisions with our suppliers governing price
protections and stock rotations. Due to the large number of transactions and
complexity of managing the process around price protections and stock rotations,
estimates are made regarding the valuation of inventory at market
value.
In
addition, assumptions about future demand, market conditions and decisions
to
discontinue certain product lines can impact the decision to write-down
inventories. If assumptions about future demand change and/or actual market
conditions are different than those projected by management, additional
write-downs of inventories may be required. In any case, actual results may
be
different than those estimated.
Trade
receivables
Trade
and
other receivables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less provision
for impairment. A provision for impairment of trade and other receivables is
established when there is objective evidence that we will not be able to collect
all amounts due according to the original terms of receivables. The amount
of
the provision is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognized in the income
statement.
Foreign
currency translation
Our
consolidated financial statements are presented in United States dollars. Our
functional currency is the Hong Kong Dollar (HKD). Our consolidated financial
statements are translated into United States dollars from HKD at period-end
exchange rates as to assets and liabilities and average exchange rates as to
revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.
Revenue
recognition
Sales
of
goods represent the invoiced value of goods, net of sales returns, trade
discounts and allowances. We recognize 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. We provide pre- and post- sales
service to our customers related to inventory management information in order
to
facilitate and manage sales to customers. Our 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. We believe 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.
Deferred
income tax
Deferred
income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, if the
deferred income tax arises from initial recognition of an asset or liability
in
a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss, it is not
accounted for. Deferred income tax is determined using tax rates (and laws)
that
have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred income tax assets is realized or
the
deferred income tax liability is settled.
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.
We
did
not recognize any stock-based compensation during the years ended December
31,
2006, 2005 and 2004. During the six months ended June 30, 2008 and 2007 and
year
ended December 31, 2007 we recorded $700,000, $1,652,205 and $2,433,650,
respectively, as a charge to operations to recognize the grant date fair value
of stock-based compensation in conjunction with the Escrow Agreement, as
described below.
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 June 30,
|
|
Six Months Ended June 30,
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
86.2
|
%
|
|
88.7
|
%
|
|
85.4
|
%
|
|
86.7
|
%
|
|
85.7
|
%
|
|
88.1
|
%
|
|
90.4
|
%
|
Gross
profit
|
|
|
13.8
|
%
|
|
11.3
|
%
|
|
14.6
|
%
|
|
13.3
|
%
|
|
14.3
|
%
|
|
11.9
|
%
|
|
9.6
|
%
|
Other
operating income
|
|
|
0.1
|
%
|
|
0.2
|
%
|
|
0.1
|
%
|
|
0.2
|
%
|
|
0.6
|
%
|
|
0.5
|
%
|
|
1.5
|
%
|
Depreciation
|
|
|
0.8
|
%
|
|
0.3
|
%
|
|
0.8
|
%
|
|
0.3
|
%
|
|
0.3
|
%
|
|
0.4
|
%
|
|
0.4
|
%
|
Administrative
and other operating expenses, including stock-based
compensation
|
|
|
1.9
|
%
|
|
2.7
|
%
|
|
3.1
|
%
|
|
6.2
|
%
|
|
4.7
|
%
|
|
1.6
|
%
|
|
2.3
|
%
|
Income
from operations
|
|
|
11.2
|
%
|
|
8.5
|
%
|
|
10.8
|
%
|
|
7.0
|
%
|
|
9.9
|
%
|
|
10.4
|
%
|
|
8.4
|
%
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.8
|
%
|
|
0.8
|
%
|
|
-
|
|
|
-
|
|
Non-operating
income
|
|
|
0.2
|
%
|
|
0.2
|
%
|
|
0.1
|
%
|
|
0.2
|
%
|
|
0.2
|
%
|
|
0.3
|
%
|
|
0.2
|
%
|
Interest
expenses
|
|
|
1.1
|
%
|
|
1.3
|
%
|
|
1.4
|
%
|
|
1.2
|
%
|
|
1.5
|
%
|
|
1.3
|
%
|
|
0.8
|
%
|
Income
before taxes
|
|
|
10.3
|
%
|
|
7.4
|
%
|
|
9.5
|
%
|
|
4.2
|
%
|
|
7.8
|
%
|
|
9.4
|
%
|
|
7.8
|
%
|
Income
taxes
|
|
|
1.7
|
%
|
|
1.5
|
%
|
|
2.0
|
%
|
|
1.7
|
%
|
|
2.0
|
%
|
|
1.6
|
%
|
|
1.4
|
%
|
Net
income
|
|
|
8.6
|
%
|
|
5.9
|
%
|
|
7.5
|
%
|
|
2.5
|
%
|
|
5.8
|
%
|
|
7.8
|
%
|
|
6.4
|
%
|
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.
Comparison
of year ended December 31, 2007 (“Fiscal 2007”) with year ended
December 31, 2006 (“Fiscal 2006”)
Net
sales
for the year ended December 31, 2007 were $97.0 million compared to $81.1
million for the comparable period in 2006, an increase of 19.5%. This increase
was primarily due to the increased sales of watch movements and completed
watches. Net sales of watch movements for the year ended December 31, 2007
were
$86.4 million compared to $73.0 million for the comparable period in 2006 an
increase of 18.3%. The increase was primarily due to an increase of volume
of
sales from 97.8 million to 100.3 million pieces, an increase of 2.5%. The
increase in the volume of movements was primarily due to an increase in sale
of
high-end items. Sales of completed watches for the year ended December 31,
2007
was $10.5 million compared to $8.1 million for the comparable period in 2005,
an
increase of 30.4%. The increase was primarily due to an increase in sales volume
from 877,600 pieces for Fiscal 2006 compared to 1.2 million pieces for Fiscal
2007, an increase of 38.2%.
Cost
of
sales consists of cost of purchases, net of discounts and returns. Cost of
sales
was $83.1 million for the year ended December 31, 2007 as compared to $71.5
million for the comparable period in 2006. The increase in total dollars was
attributable to higher costs associated with our products. Our increase in
revenue was 19.5% and our increase in cost of sales was 16.3% for Fiscal 2007,
as compared to Fiscal 2006. As a percentage of net sales, cost of sales
decreased to 85.7% for the year ended December 31, 2007 compared to 88.1% for
the comparable period in 2006. The decrease as a percentage of net sales was
attributable to improved economy of scale and more trading volume of watch
movements.
Gross
profit for the year ended December 31, 2007 was $13.8 million, or 14.3% of
net
sales, compared to $9.6 million, or 11.9% of net sales for the comparable period
in 2006. Management considers gross profit to be a key performance indicator
in
managing our business. Gross profit margins are usually a factor of product
mix
and demand for product. The increase of profit margin was primarily attributable
to a lower cost for the sales resulting from an increase in economies of scale
and (ii) higher mark-up prices that resulted from extended credit terms that
we
offered to our customers. Profit margin of movements as a percentage of net
sales had increased to 10.3% for the year ended December 31, 2007 as compared
to
8.0% of net sales for same period in 2006. There was a slight decrease of profit
margin for completed watches for the year ended December 31, 2007 to 46.5%
of
net sales as compared to 47.2% for the same period in 2006.
Other
income from operations was $617,913or 0.6% of net sales for Fiscal 2007, as
compared to $424,016, or 0.5% of net sales for Fiscal 2006. The increase in
other income from operations was attributable to a one-time income of $424,102
our sale of intangible assets and a rental income of $63,065 in Fiscal 2007,
which was the rent received from our company-owned properties.
Administrative
and other operating expenses were $4.6 million, or 4.7% of net sales for Fiscal
2007, as compared to $1.3 million, or 1.6% of net sales, for Fiscal 2006. The
increase in amount and as a percentage of net sales was primarily due to the
recognition of $2,433,650 of stock-based compensation in 2007 related to the
Escrow Shares provided by our CEO, Kwong Kai Shun, which were subject to the
achievement of defined annual net income for 2007 pursuant to the Private
Placement agreement entered into with our investors. The increase was also
attributable to an increase in professional fees related to reporting
requirements as a public company and additional employees and upgraded staff
benefits in the comparable period in 2007. 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 $233,379, or 0.2% of net sales for
Fiscal 2007, which was consistent as compared to $237,571, or 0.3% of net sales
for Fiscal 2006. This income was mainly come from bank deposit interests and
had
no significant change over the comparable periods.
Interest
expense was $1.5 million for Fiscal 2007, as compared to $1.1 million for Fiscal
2006. The increase was primarily due to the interest and amortization on bonds
of $345,461 in Fiscal 2007.
Income
taxes for Fiscal 2007 were $2.0 million, or 2.0% of net sales, as compared
to
$1.3 million for Fiscal 2006, or 1.6% of net sales. The increase of effective
income tax rates from 17.1% for Fiscal 2006 to 19.3% for Fiscal 2007 was
primarily due to increase in the income not subject to tax by $30,537 and
increase in expense not deductible by $293,603.
Net
income for Fiscal 2007 was $5.6 million, compared to net income of $6.3 million
for Fiscal 2006, representing an 11.1% decrease.
Comparison
of year ended December 31, 2006 (“Fiscal 2006”) with year ended
December 31, 2005 (“Fiscal 2005”)
Net
sales
for the year ended December 31, 2006 were $81.1 million compared to $63.1
million for the comparable period in 2005, an increase of 28.6%. This increase
was largely due to the improved sales of watch movements and completed watches.
Sales of watch movements for the year ended December 31, 2006 were $73.0 million
compared to $58.8 million for the comparable period in 2005 an increase of
24.1%. The increase was primary due to the increase of volume from 72.9 million
to 97.8 million pieces, an increase of 34.2%. Sales of completed watches for
the
year ended December 31, 2006 was $8.1 million compared to $4.2 million for
the
comparable period in 2005, an increase of 90.9%.
Cost
of
sales consists of cost of purchases, net of discounts and returns. Cost of
sales
was $71.5 million for the year ended December 31, 2006 as compared to $57.0
million for the comparable period in 2005. As a percentage of net sales, cost
of
sales decreased to 88.1% for the year ended December 31, 2006 compared to 90.4%
for the comparable period in 2005. The increase in total dollars was
attributable to higher costs associated with our products and the decrease
as a
percentage of net sales was attributable to improved economy of scale and more
trading volume of watch movements. Our increase in revenue was 28.6% and our
increase in cost of sales was 25.4% for Fiscal 2006 compared to Fiscal
2005.
Gross
profit for the year ended December 31, 2006 were $9.6 million, or 11.9% of
net
sales, compared to $6.1 million, or 9.6% of net sales for the comparable period
in 2005. Management considers gross profit to be a key performance indicator
in
managing our business. Gross profit margins are usually a factor of product
mix
and demand for product. The increase of profit margin was primarily attributable
to i) the economies of scale, where we can get a lower cost for the sales,
and
ii) the improved profit margin by higher mark-up prices as a result of extended
credit terms to our customers. Together, the profit margin of movements as
a
percentage of net sales had increased to 8.0% for the year ended December 31,
2006 as compared to 6.4% of net sales for same period in 2005. There was a
slight decrease of profit margin for completed watches for the year ended
December 31, 2006 to 47.2% of net sales as compared to 53.8% for the same period
of 2005. This was primarily due to the increase of sales of basic units in
2006
which had a lower profit margin. However, this decrease was offset by the
increase of profit margin in movement segment, which accounted for 90% of the
total sales in 2006.
Other
income from operation was $424,016 or 0.5% of net sales for Fiscal 2006, as
compared to $938,573, or 1.5% of net sales for Fiscal 2005. The decrease in
income from operation was attributable to the lack of commission income in
Fiscal 2006 as compared to $771,432 in Fiscal 2005. This was the commission
received for connecting buyers and sellers in China. The decrease in income
from
operation was partially offset by a one time income of $210,594 derived from
the
selling of intangible assets and a rental income of $46,284 in Fiscal 2006,
which was the rent received from our company-owned properties.
Administrative
and other operating expenses were $1.3 million or 1.6% of net sales for
Fiscal 2006, as compared to $1.4 million, or 2.3% of net sales, for Fiscal
2005. The decrease as a percentage of net sales was primarily attributable
to
economies of scale. Management considers these expenses as a percentage of
net
sales to be a key performance indicator in managing our business.
Other
income from non-operation was $237,571 or 0.3% of net sales for Fiscal 2006,
as
compared to $156,199, or 0.3% of net sales for Fiscal 2005. The increase was
primarily due to the increase in bank interest, which was $208,854 for Fiscal
2006 and $76,358 for Fiscal 2005 partially offset by a decrease in other
interest income of $18,635 and $49,440 for Fiscal 2006 and Fiscal 2005
respectively.
Interest
expense increased to $1.1 million for Fiscal 2006, compared to $514,637 for
Fiscal 2005. This increase is primarily attributable to higher borrowing levels
to maintain adequate inventory, and higher borrowing rates. Further increases
in
borrowing rates would further increase our interest expense, which would have
a
negative effect on our results of operations.
Income
taxes for Fiscal 2006 were $1.3 million, or 1.6% of net sales, as compared
to
$911,687 for Fiscal 2005, or 1.4% of net sales. The decrease of effective income
tax rates from 18.5% for Fiscal 2005 to 17.1% for Fiscal 2006 is primarily
due
to increase in income not subject to tax by $30,000 and decrease in unused
tax
losses not recognized by $50,000 for Fiscal 2006. Unused tax losses not
recognized represents valuation allowances established to reduce deferred tax
assets to the amount expected to be realized.
Net
income for Fiscal 2006 was $6.3 million, compared to net income of $4.0 million
for Fiscal 2005.
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 Alternext, 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 and are exercisable
at $0.0001 per share from February 12, 2009 until November 6,
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. As of September 1, 2008,
all of the Series A Convertible Preferred Stock have been converted to common
stock. Each share of the Series A Convertible Preferred Stock was converted
into
shares of common stock at a conversion price equal to the purchase price of
such
shares.
For
the
six months ended June 30, 2008, net cash used by operating activities was
approximately $5.6 million, as compared to net cash used by operating activities
of $3.9 million for the comparable period in 2007. The increase in net cash
used
in operating activities was primarily attributable (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.
For
the
year ended December 31, 2007, net cash used by operating activities was $8.1
million, as compared to net cash provided in operating activities of $190,906
in
Fiscal 2006 and net cash used in operating activities of $445,644 in Fiscal
2005. The increase in net cash used by operating activities in Fiscal 2007
was
attributable to an increase in (i) cash used for accounts receivable of $6.2
million for Fiscal 2007 as compared to $3.4 million for Fiscal 2006, (ii)
prepaid expenses and other receivables of $5.6 million for Fiscal 2007 as
compared to $1.7 million for Fiscal 2006, (iii) inventories of $6.1 million
for
Fiscal 2007 as compared to $50,990 for Fiscal 2006 and (iv) income taxes payable
of $1.1 million for Fiscal 2007 as compared to $701,921 for Fiscal 2006;
partially offset by an increase in net income of 5.6 million for Fiscal 2007
as
compared to $6.3 million for Fiscal 2006 and an adjustment of $2.4 million
to
reconcile the net income for the stock-based compensation related to the Escrow
Shares. The increase in cash used for accounts receivable was primarily
attributable to the extended aging and an increase in net sales of 19.5% for
Fiscal 2007 as compared to Fiscal 2006. The increase in cash used for prepaid
expenses and other receivables was primarily attributable to an increase in
deposit paid from $1.5 million for Fiscal 2006 to $5.8 million for Fiscal 2007,
and the deposit for a potential acquisition of plant facilities, but no
acquisition has been completed as of the date of this prospectus. The increase
in inventories was due to an expected increase in demand of watch movements
in
the first quarter of 2008, in addition to an anticipated increase in sales
of
mechanical movements, which require a higher inventory level than quartz
movements. The increase in income tax was due to the increase in net income,
and
the increase in net income was due to the improved profit margin of movements
segment as a result of improved economies of scale and increased selling
price.
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 in investing activities was $163,398 for the year ended December 31,
2007, as compared to net cash used in investing activities of $859,823 for
Fiscal 2006. The net cash provided in investing activities in Fiscal 2007 was
due to the proceeds from disposal of intangible assets of $589,893, partially
offset by the cash used in acquisition of manufacturing facilities for the
completed watches segment. The net cash used in investing activities in Fiscal
2006 reflected the acquisition of two properties for an aggregate of $618,025,
which were pledged for banking facilities and the acquisition of manufacturing
facilities for the completed watches segment, partially offset by the disposal
of an intangible asset of $300,849 and disposal of equipment of $2,031. The
net
cash used in investing activities in Fiscal 2005 was due to the acquisition
of a
property of $330,884 and a held-to-maturity investment fund that were pledged
for banking facilities, and the acquisition of plant and equipment of $243,504
and acquisition of furniture and fixtures.
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.
Net
cash
provided by financing activities was $13.9 million for the year ended December
31, 2007 as compared to $204,116 and $1.2 million for the comparable period
in
2006 and 2005, respectively. The increase in net cash provided by financing
activities in Fiscal 2007 was due to (i) the proceeds from issuance of Series
A
Convertible Preferred Stock of $2.6 million, (ii) the issuance of convertible
bonds of $7.8 million, (iii) proceeds from new short-term bank loans of $5.4
million , and (iv) net advancement of other bank borrowings of 6.6 million,
partially offset by repayment of short-term bank loans $4.6 million and an
increase in restricted cash of $3.7 million as deposit to facilitate the bank
loans. The decrease in net cash provided by financing activities in Fiscal
2006
was attributable to dividends paid of $2.45 million as compared to $642,848
in
Fiscal 2005. The bank borrowing for Fiscal 2005 was increased to $10 million
as
compared to $7.4 million for Fiscal 2004.
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. Inventory turnover and average days outstanding
are key operating measures that management relies on to monitor our
business.
For
Fiscal year 2007, 2006 and 2005, our inventory turnover was 8.9, 10.8 and 10.8
times, respectively. In 2005 and 2006 the turnover ratio is almost the same
at
10.8 times. The turnover ratio decrease in Fiscal 2007 as the order delivery
cycle time of our supplies has shortened, possibly allowing us to keep a lower
stock level with a decreased risk of stock shortages. The average days
outstanding of our accounts receivable at December 31, 2007 were 42 days, as
compared to 29 days and 24 days at December 31, 2006 and 2005. The increase
in
accounts receivable was due to the change in credit policy since 2005 where
credit terms of up to 60 days were given to customers who had good credit
history in order to improve our profit margin and competitiveness.
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.
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.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including any financial statements
for an interim period within that fiscal year. The provisions of this statement
should be applied prospectively as of the beginning of the fiscal year in which
this statement is initially applied, except in some circumstances where the
statement shall be applied retrospectively. We are currently evaluating the
effect, if any, of SFAS 157 on our financial statements. Management currently
does not believe the adoption of SFAS 157 will have a material impact on our
consolidated financial statements.
On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of SFAS No.
115” (“SFAS 159”). The fair value option established by SFAS 159 permits all
entities to choose to measure eligible items at fair value at specified election
dates. A business entity will report unrealized gains and losses on items for
which the fair value option has been elected in earnings (or another performance
indicator if the business entity does not report earnings) at each subsequent
reporting date. The fair value option: (a) may be applied instrument by
instrument, with a few exceptions, such as investments otherwise accounted
for
by the equity method; (b) is irrevocable (unless a new election date occurs);
and (c) is applied only to entire instruments and not to portions of
instruments. SFAS 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Early adoption is permitted
as
of the beginning of the previous fiscal year provided that the entity makes
that
choice in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS 157. We have not chosen to early adopt this statement.
Management currently does not believe the adoption of SFAS 159 will have a
material impact on our 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 - an amendment of FASB Statement No. 133” (“SFAS No.
161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
133”). The objective of SFAS No. 161 is to provide users of financial statements
with an enhanced understanding of how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS No. 133 and its related interpretations, and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS No. 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features
in
derivative agreements. SFAS No. 161 applies to all derivative financial
instruments, including bifurcated derivative instruments (and nonderivative
instruments that are designed and qualify as hedging instruments pursuant to
paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted for
under SFAS No. 133 and its related interpretations. SFAS No. 161 also amends
certain provisions of SFAS No. 131. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. SFAS No. 161 encourages, but does
not require, comparative disclosures for earlier periods at initial adoption.
The Company does not expect the adoption of SFAS 162 will have a material impact
on its results of operations and financial position.
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
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.
Quantitative
and Qualitative Disclosures 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.
DESCRIPTION
OF BUSINESS
Overview
With
respect to this discussion, the terms “we” and “our” refer to Asia Time
Corporation, its 100%-owned subsidiary Times Manufacture & E-Commerce
Corporation Limited, a British Virgin Islands corporation, (“Times Manufacture”)
and its subsidiaries, Times Manufacturing & E-Commerce Corporation Ltd., TME
Enterprise Ltd., Citibond Design Ltd. and Megamooch Online Ltd., each of which
is a British Virgin Islands corporation, and the Hong Kong corporate
subsidiaries Billion Win International Enterprise Ltd., Goldcome Industrial
Ltd., Citibond Industrial Ltd., and Megamooch International Ltd. Times
Manufacture was founded in March 2002 and is based in Hong Kong.
Our
Company
We
are a
distributor of watch movements components used in the manufacture and assembly
of watches to a wide variety of timepiece manufacturers. Our core customer
base
consists primarily of wholesalers, and medium-to-large sized watch manufacturers
that produce watches primarily for consumer sale. To a lesser extent, we design
watches for manufacturers and exporters of watches and manufacture and
distribute complete watches primarily to internet marketers.
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 300 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.
Our
Industry
A
typical
watch manufacturing process begins with the watch being designed, either from
scratch or based on a chosen watch movement according to the required features.
For example, if a watch manufacturer wants to design a three-hand chronograph
with split-second, three dials and date, they will source the watch movements
that meet these requirements and design the watch according to the
specifications of this movement. Next in the process is the sourcing, purchasing
or manufacture of the required components, including the watch case, watch
movement, strap and crown. The last steps in the process are the assembly of
the
watch components, followed by testing and quality control.
Except
for the largest watch manufactures, such as Citizen, Seiko, and Swatch, which
produce and use their own watch movements, most watch manufacturers source
and
purchase the movements in the market.
In
the
watch manufacturing process, we provide watch movements directly to the
manufacturers or through movement wholesalers, assisting the manufacturers
to
source the movement by providing technical information, advise, and pricing.
We
also assist provide our customers with watch design and technical
assistance.
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.
The
main
parts of a mechanical watch movement are the winding mechanism; the mainspring,
which is the source of the watch’s power; the gear train, which transmits power
from the mainspring to the escapement and drives the watch’s minutes and seconds
hands; the escapement, which distributes power to the oscillator (i.e., the
balance) and controls how fast the mainspring unwinds; the balance itself,
which
measures out time by vibrating at a steady rate; and the motion works, which
moves the watch’s hour hand.
Most
mechanical and quartz analog watch movements are made by one of three companies:
Japan’s Citizen and Seiko, or Switzerland’s ETA, which is owned by the Swatch
Group watch conglomerate. There are several smaller watch movement companies:
Ronda, ISA, and others. Digital watch movements are made by various companies,
most of them in China. Most watch manufacturers buy the movements, case them
and
sell them under their own brand names.
Watch
movement distributors relieve movement manufacturers of a portion of the costs
and personnel needed to warehouse, sell and deliver their products. Distributors
market movement manufacturers’ products to a broader range of customers than
such manufacturers could economically serve with their direct sales forces.
Today, movement distributors have become an integral part of a watch
manufacturer’s purchasing and inventory processes. Generally, companies engaged
in the distribution of watch movement components, including us, are required
to
maintain a relatively significant investment in inventories and accounts
receivable to be responsive to the needs of customers. To meet these
requirements, we, as well as other companies in our industry, typically depend
on internally generated funds as well as external sources of
financing.
Products
We
currently offer over 350 items. Our products primarily consist of watch
movements and, to a lesser extent, complete watches.
Watch
Movements
We
primarily distribute quartz watch movements that were produced primarily in
Switzerland and Japan. All quartz watch movements distributed by our company
are
multi-function and have three hands. The watch movements have high adaptability
so that a range of watches, from inexpensive to luxury, may be made from the
same watch movement. To a lesser extent, we also offer mechanical movements
manufactured by Citizen and Tsinlien Sea Gull Co. Ltd. For the six months ended
June 30, 2008 and the year ended December 31, 2007, we acquired most of our
watch movement products from the following two manufacturers: Citizen Miyota
Co., Ltd., which is a member company in the Citizen Group, supplied 53% and
63%,
respectively, and Seiko Corporation supplied 34% and 27%, respectively. The
next
highest supplier was Best High Investments Ltd. which supplied us with less
than
4% for the six months ended June 30, 2008, and Hip Shun Industrial (HK) Ltd.,
4%, for the year ended December 31, 2007 respectively, of our watch
movements.
Complete
Watches
To
a
lesser extent we also distribute complete analog-quartz and automatic watches
with pricing between $20.00 to $50.00. Manufacturing for these watches is
currently outsourced to third party factories in China. Our top three brand
names include NxTime, SIDIO and Marcellus. The watches are primarily designed
by
U.S. designers and range from fashion watches to classic designs. Watches can
either be made-to-order or design-to-order.
Strategy
Our
goal
is to be a leading watch movement and timepiece distributor in Hong Kong and
China through the following strategies.
Offer
wide-ranging product spectrum to customers.
Management estimates that it can increase revenues by broadening our product
spectrum and offering more brands of quartz movement to customers. Apart from
quartz movement, we intend to offer mechanical movements. By broadening our
product spectrum, we hope to increase our market share through sales to
manufacturers of high-end watches utilizing sophisticated mechanical movements.
We plan to source other brands of quartz and mechanical movement in order to
broaden our product spectrum. The number of brands and products that we plan
to
introduce will depend on the terms and conditions offered by our
suppliers.
Manufacture
branded proprietary watch movements.
To
further diversify our product offering and reduce our reliance on third party
watch movement manufacturers, we eventually hope to manufacture our own brands
of quartz movements and high end mechanical movements in-house. We estimate
that
our company can replace a portion of our current third-party watch movement
sales with our own brand movements, watch movements manufactured in-house would
be higher margin offerings than distributed products of third-party suppliers.
In addition, in-house manufacturing will allow product offerings at more
competitive price points which we believe will enhance our competitive position.
To manufacture our own brands of quartz and mechanical movements in-house,
would
need to acquire watch movement facilities in China and invest in new equipments
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.
Developing
closer relationships with product brands owners and
distributors.
We
believe it is important for our company to develop closer relationships with
product brand owners and its distributors, which we believe would lead to more
competitive pricing and stable supply of products. We also have plans to develop
closer relationships with our existing brands and distributors by expanding
our
sales force. We commenced expansion of our sales force in the fourth quarter
of
2007 and expect to continue in 2008.
Expand
the distribution of complete watches
.
Currently, the distribution of complete watches represents approximately 11%
of
our revenues. As part of our expansion plan, we intend to expand our sales
and
marketing efforts in China. We believe that a heightened focus in this area
can
lead to an increase in market share and enhance our earning capacity. It is
expected that these watches will be marketed through a lower to middle pricing
strategy, with sales price range from US$100-$200. We plan to appoint watch
distributors in larger China cities in the next two years to expand the
distribution of our complete watches.
Value-Added
Services
As
a part
of and included in our sale of watch movements, we provide a number of
value-added services which are intended to attract new customers and to maintain
and increase sales to existing customers. These value-added services
include:
—
|
Automated
inventory management services.
We
manage our customers’ inventory reordering, stocking and administration
functions. We believe these services reduce paperwork, inventory,
cycle
time and the overall cost of doing business for our customers. The
automated inventory management services are provided through our
computer
system through which we can manage our customer’s inventory reordering,
stocking and administration functions. We believe this helps us to
provide
better service to our customers by understanding their stock level,
purchase behavior and allows us to be more responsive to their demands
and
queries.
|
—
|
Integration.
Our sales specialists work directly with our customers to develop
and
deliver customized solutions and technical support to meet specific
requirements for our customers’ applications. We are able to offer
customers a one-stop source for their integration
needs.
|
Sales
and Marketing
Watch
Movements
We
believe we have developed valuable long-term customer relationships and an
understanding of our customers’ requirements. Our sales personnel are trained to
identify our customers’ requirements and to actively market our entire product
line to satisfy those needs. We serve a broad range of wholesalers, medium
to
small watch manufacturers and volume users in China and Hong Kong. We have
established inventory management programs to address the specific distribution
requirements of our customers.
As
a
distributor for leading watch movement manufacturers, we are able to offer
technical support as well as a variety of supply chain management programs.
Technical support and supply chain management services enhance our ability
to
attract new customers. Many of our services revolve around our use of software
automation, computer-to-computer transactions through Internet-based solutions,
technically competent product managers and business development
managers.
Sales
are
made throughout China and Hong Kong from the sales departments maintained at
our
distribution facilities located in Hong Kong and from strategically located
sales offices. Sales are made primarily through personal visits by our employees
and telephone sales personnel who answer inquiries and receive and process
orders from customers. Sales are also made through general advertising,
referrals and marketing support from component manufacturers.
Complete
Watches
Currently,
the main distribution channels of our watches are US direct marketers, online
retailers and China department stores. As part of our expansion plan, we intend
to increase our focus on China’s complete watch market along with exportation to
overseas markets.
With
our
foothold in Southern China, we intend further develop Eastern China and Northern
China regions so as to cover the entire China market in complete
watches.
We
intend
continue to outsource the production of complete watches to third parties.
As
part of our integrated efforts, we intend to supply these manufacturers with
watch movements.
We
are
also exploring opportunities to establish a retail network in China through
teaming up with fashion, apparel or accessories chain stores to market our
completed watches in China.
Suppliers
Manufacturers
of watch movements are increasingly relying on the marketing, customer service,
technical support and other resources of distributors who market and sell their
product lines to customers not normally served by the manufacturer, and to
supplement the manufacturer’s direct sales efforts for other accounts often by
providing value-added services not offered by the manufacturer. Manufacturers
seek distributors who have strong relationships with desirable customers, have
the infrastructure to handle large volumes of products and can assist customers
in the design and use of the manufacturers’ products. Currently, we have stable
supplies from many manufacturers, including Miyota, Seiko, Ronda and
Suissebaches. We continuously seek to identify potential new suppliers. During
the six months ended June 30, 2008 and the year ended December 31, 2007,
products purchased from our ten largest suppliers accounted for 97% and 92%,
respectively, of our total net purchases.
Operations
Inventory
management is critical to a distributor’s business. We constantly focus on a
high number of resales or “turns” of existing inventory to reduce our exposure
to product obsolescence and changing customer demand.
Our
central computer system facilitates the control of purchasing and inventory,
accounts payable, shipping and receiving, and invoicing and collection
information for our distribution business. Our distribution software system
includes financial systems, customer order entry, purchase order entry to
manufacturers, warehousing and inventory control. Each of our sales departments
and offices is electronically linked to our central computer systems, which
provide fully integrated on-line, real-time data with respect to our inventory
levels. We track inventory turns by vendor and by product, and our inventory
management system provides immediate information to assist in making purchasing
decisions and decisions as to which inventory to exchange with suppliers under
stock rotation programs. In some cases, customers use computers that interface
directly with our computers to identify available inventory and to rapidly
process orders. Our computer system also tracks inventory turns by customer.
We
also monitor supplier stock rotation programs, inventory price protection,
rejected material and other factors related to inventory quality and quantity.
This system enables us to more effectively manage our inventory and to respond
quickly to customer requirements for timely and reliable delivery of components.
Competition
The
watch
movement distribution industry is highly competitive, primarily with respect
to
price, product availability, knowledge of product and quality of service. We
believe that the breadth of our customer base, services and product lines,
our
level of technical expertise and the overall quality of our services are
particularly important to our competitive position. We compete with large
distributors such as National Electronics Holding Ltd., as well as mid-size
distributors, such as PTS Resources Ltd., many of whom distribute the same
or
competitive products as we do.
Our
major
competitors in complete watches include designer brands from overseas, China
and
Hong Kong such as Guess, Calvin Klein and Dolce & Gabanna.
Backlog
As
is
typical of watch movement distributors, we have a backlog of customer orders.
At
June 30, 2008, we had a backlog of approximately $2.4 million as compared to
a
backlog of approximately $1.8 million at June 30, 2007. At December 31, 2007,
we
had a backlog of approximately $3.5 million as compared to a backlog of
approximately $1.4 million at December 31, 2006. We believe that a substantial
portion of our backlog represents orders due to be filled within the next 90
days. In recent years, the trend in our industry has been toward outsourcing,
with more customers entering into just-in-time contracts with distributors,
instead of placing orders with long lead times. As a result, the correlation
between backlog and future sales is changing. In addition, we have increased
our
use of transactions where we purchase inventory based on electronically
transmitted forecasts from our customers that may not become an order until
the
date of shipment and, therefore, may not be reflected in our backlog. Our
backlog is subject to delivery rescheduling and cancellations by the customer,
sometimes without penalty or notice. For the foregoing reasons our backlog
is
not necessarily indicative of our future sales for any particular
period.
Employees
At
June
30, 2008, we had a total of 41 full-time employees. There are no collective
bargaining contracts covering any of our employees. We believe our relationship
with our employees is satisfactory
.
Properties
In
addition to our executive offices located at Room 1601-1604, 16/F., CRE Centre
889 Cheung Sha Wan Road, Kowloon, Hong Kong, we have offices at the following
locations:
Unit
B,
17/F, Tower 2,
Maritime
Bay,
No.
18
Pui Shing Road,
Tseung
Kwan O, Sai Kung,
NT
Car
Park
No. 77 on the Basement,
Maritime
Bay
Flat
F,
8/F Hoi Tsui Mansion,
Tower
16
Rivera Gardens,
Nos.
2-12
Yi Lok Street,
Tsuen
Wan,
NT
Car
Park
No. 46, 2/F Podium of
Podium
D
of Riviera Gardens
Flat
G,
59/F,
Tower
6
Banyan Garden,
No.
863
Lai Chi Kok Road
Kowloon
Car
Park
No. 270
2/F
of
Banyan Garden
Each
of
the above properties is owned by our subsidiary Billion Win International
Enterprise Ltd.
Legal
Proceedings
We
are
not a party to any material legal proceedings.
MANAGEMENT
Executive
Officers, Directors and Key Employees
The
following individuals constitute our board of directors and executive management
as of the date of this prospectus:
Name
|
|
Age
|
|
Position
|
Kwong
Kai Shun
|
|
45
|
|
Chief Executive Officer and Chairman of the Board
|
King
Wai Lin
|
|
41
|
|
Chief
Financial Officer
|
Michael
Mak
|
|
62
|
|
Director
and Corporate Secretary
|
Siu
Po Lee
|
|
39
|
|
Director
|
Dr.
Ching Wah Leung
|
|
50
|
|
Director
|
Wu
Hok Lun
|
|
51
|
|
Director
|
Kwong
Kai Shun
has been
the Chairman of the Board and Chief Executive Officer of our company since
2002.
Mr. Kwong also served as the Chief Financial Officer from 2002 to April 2008.
Mr. Kwong was educated in Hong Kong, receiving a Post-Secondary Diploma in
1983.
He started his career with Wah Kwong Hon Trading Ltd. In 1983; when he left
four
years later, he was sales manager for the optical and eyewear company. He held
management positions with Zeiss Optical Co. and Wing Hing Optical Co. Ltd.,
which were eyewear and lenses trading companies, for the next four years. Zeiss
was a public company listed in Germany. In 1991, he founded and served as
Managing Director for Song Lam Industrial Ltd., which was engaged in the watch
movement trading business, where he developed his network of contacts and
connections throughout China and Southeast Asia. He joined Stanford
International Holdings in 1999 and was part of management of BonusAmerica and
resigned in 2005.
King
Wai Lin
has
served as our Chief Financial Officer since April 2008. Mr. Lin is a Certified
Public Accountant in Hong Kong and prior to his appointment as an executive
officer of our company, he served as a sole proprietor of accounting services.
From 2003 to 2006, Mr. Lin served as a Senior Manager of Hong Kong Great Wall
Certified Public Accountant Limited, where he was responsible for tax compliance
and planning, insurance company audits, U.S. initial public offerings (“IPOs”)
and due diligence for mergers and acquisitions in China. Prior to that, he
served as a Manager at Moores Rowland form 2001 to 2003 where he was in charge
of audit advisory for companies listed on the Hong Kong stock exchange,
including Hong Kong IPOs. Mr. Lin also served in senior financial roles at
Deloitte Touche Tohmatsu from 1997 to 2001, and private accounting firms Kwan
Wong Tan & Fong CPA from 1992 to 1997 and Li Tan Chen CPA from 1989 to 1992.
Mr. Lin received a Certificate of Accountancy in 1991 from the Kwai Chung
Vocational Institute. Mr. Lin is a practicing member of the Hong Kong Institute
of Certified Public Accountants, a member of the Chartered Association of
Certified Accountants and a member of the Hong Kong Taxation
Association.
Michael
Mak
has been
Director of our company since 2005 and has served as corporate secretary since
2007. Mr. Mak currently serves as President, CEO and a Director of Asia Global
Holdings Corp. (formerly BonusAmerica Worldwide Corp.) (OTCBB: AAGH), an
E-Commerce and direct marketing firm providing online shopping. An independent
entrepreneur, Mr. Mak founded Stanford International Holding Corporation in
1999
and Asia Global Holdings in 2002. He ran eCommerce, a direct marketing firm,
from 1999 to present. Mr. Mak started his business career after high school
at
Berlin & Company (Hong Kong), a financial company, in 1963 as a foreign
exchange dealer. He was promoted to Manager five years later, and made Associate
Partner in 1972. He managed the organization until 1985 when he immigrated
to
the USA. He subsequently founded and managed the following corporations: Triwell
International Corporation, 1985 to 2005, an importer and wholesaler of general
merchandise; Unitex Trading Corporation, 1987 to present, a designer and
manufacturer of brand-name leather goods and watches, wholesaling to department
stores and specialties stores throughout North America; and Dingbats Inc.,
1995
to present, a designer and importer of timepieces and licensed watches to
discount stores.
Dr.
Ching Wah Leung (Tony)
has
served as a director of our company since January 2008. Since May 2006, Mr.
Leung has been the General Manager of Techtronics Industries Ltd. From 2002
to
2006, Dr. Leung was an Adjunct Professor at the Graduate School of Engineering
at the University of Bridgeport in Connecticut. Additionally, from June 2000
to
April 2006, Dr. Leung was the Program Manager for Johnson Electric (USA) Corp.
(OTCBB:JELCY), a provider of motion subsystems and motion components for
automotive and industrial applications. From 1999 to 2000, Dr. Leung served
as
the Senior Factory Manager for Johnson Electric (China) Ltd. Dr. Leung received
a Ph.D. in Manufacturing Strategy from the University of Wales, Swansea in
the
United Kingdom in 1997 and an MBA from the University of Macau in 1986.
Additionally, Dr. Leung has a diploma in Electronics Engineering form the Hong
Kong Polytechnic University and a diploma in Computer Programming and Internet
Application from the Institute for Computer Studies in Canada.
Siu
Po Lee (Simon)
has
served as a director of our company since January 2008. Since September 2006,
Mr. Lee has served as a lecturer in the Department of Accountancy and Law at
Hong Kong Baptist University, serving as the Assistant Director of the Centre
for Corporate Governance and Financial Policy since June 2007. From September
1999 to August 2006, Mr. Lee served as an instructor at the School of
Accountancy at the Chinese University of Hong Kong. Since January 2007, Mr.
Lee
has served as a director of Infosmart Group, Inc. (OTCBB: IFSG), a developer
of
recordable digital versatile disc media. Mr. Lee received an M.S. in Computer
Science from the Open University of Hong Kong in 2002, an MBA from the Chinese
University of Hong Kong in 1992, and a B.S. in Physics from the Chinese
University of Hong Kong in 1990.
Wu
Hok Lun (Benson)
has
served as a director of our company since January 2008. Since May 2005, Mr.
Wu
has served as a director of Woo Ping Investments, Ltd. (HK), a real estate
management firm. Since July 2004, Mr. Wu has also served as a director of Hainan
New Meyer Industry Ltd., China, a manufacturer of motor vehicle lubricants.
Additionally, Mr. Wu has been a director of Hong Kong Kentford Ltd., HK, a
company involved in the trading of motor lubricant, since March 2003; a director
of Meyer Technology International Ltd., HK, since July 1997; a director of
Meyer
International Ltd., HK, a pharmaceutical exporter since February 1995; a
director of Nidoway Investment Ltd., HK, a pharmaceutical wholesaler and
exporter since August 1992; and a director of Meyer Pharmaceuticals Ltd., HK,
a
pharmaceutical manufacturer since January 1990. Mr. Wu received a B.S. in 1982
from the School of Pharmacy at Brighton Polytechnic in the United Kingdom (now
known as the University of Brighton). Mr. Wu is a registered Pharmacist in
Hong
Kong and the United Kingdom.
Family
Relationships
None.
Board
Composition
Subject
to certain exceptions, under the listing standards of the
NYSE
Alternext US (formerly known as American Stock Exchange) (“Alternext”),
a
listed company’s board of directors must consist of a majority of independent
directors. Although we are eligible for an exemption from this requirement
because we are considered a “controlled company” pursuant to Section 801(a) of
the Alternext Company Guide as one of our shareholders owns more than 50%
of our
voting power, we have a majority of independent directors. Our Board of
Directors has determined that three of the five members of our Board of
Directors are independent under the listing standards of Alternext, as follows:
Siu Po Lee, Dr. Ching Wah Leung, and Wu Hok Lun.
Audit
Committee
We
established our audit committee in January 2008. The audit committee consists
of
Siu Po Lee, Dr. Ching Wah Leung, and Wu Hok Lun, each of whom is an independent
director. Siu Po Lee is an “audit committee financial expert” as defined under
Item 407(d) of Regulation S-K. The purpose of the audit committee is to
represent and assist our board of directors in its general oversight of our
accounting and financial reporting processes, audits of the financial statements
and internal control and audit functions. The audit committee’s responsibilities
include:
|
•
|
The
appointment, replacement, compensation, and oversight of work of
the
independent auditor, including resolution of disagreements between
management and the independent auditor regarding financial reporting,
for
the purpose of preparing or issuing an audit report or performing
other
audit, review or attest services.
|
|
•
|
Reviewing
and discussing with management and the independent auditor various
topics
and events that may have significant financial impact on our company
or
that are the subject of discussions between management and the independent
auditors.
|
Our
Board
of Directors does not maintain a separate nominating or compensation committee.
Functions and duties customarily performed by such committees are performed
by a
majority of our independent directors in compliance with the requirements
for
listing on Alternext. Such responsibilities include:
|
•
|
The
design, review, recommendation and approval of compensation arrangements
for our directors, executive officers and key employees, and for
the
administration of any equity incentive plans, including the approval
of
grants under any such plans to our employees, consultants and
directors.
|
|
•
|
The
review and determination of compensation of our executive officers,
including our Chief Executive
Officer.
|
|
•
|
The
selection of director nominees, the approval of director nominations
to be
presented for shareholder approval at our annual general meeting
and
filling of any vacancies on our board of directors, the consideration
of
any nominations of director candidates validly made by shareholders,
and
the review and consideration of developments in corporate governance
practices.
|
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Prior
to
the Share Exchange on January 23, 2007, we were a “blank check” shell company
that was formed to investigate and acquire a target company or business seeking
the perceived advantages of being a publicly held corporation. The officers
and
directors of our company prior to the Share Exchange are no longer employed
by
or affiliated with our company. Richard Rappaport and Anthony Pintsopolous,
our
President and Chief Financial Officer, respectively, during 2006 prior to Share
Exchange, received no compensation or other perquisites for serving in such
capacity.
Our
Chief
Executive Officer and Chairman of the Board, Kwong Kai Shun, determined the
compensation for our current executive officers that was earned and paid in
fiscal 2007, during which Mr. Kwong was our only executive officer. On January
1, 2007, Kwong Kai Shun began receiving compensation under a plan pursuant
to
which he received a monthly base salary of $20,000 and actual housing and
insurance expenses, which we expected to be approximately $3,000 and $1,000
per
month, respectively. For the year ended December 31, 2007, Mr. Kwong earned
$240,000 in base salary and $12,691 for housing expenses. Mr. Kwong also
received an annual bonus equivalent to three months salary, equal to $60,000.
The annual bonus was subject to a minimum company achievement of $2,000,000
annual profit before tax. The bonus for 2007 was paid after the 2007 fiscal
year
performance was determined and evaluated. The bonus of Kwong Kai Shun is solely
(100%) based on the achievement of annual profit before tax as we believe this
performance indicator is best to reflect his overall responsibility and
contribution to the company for the relevant period. In addition, we intend
to
adopt an equity incentive plan in 2008, subject to shareholder approval, after
which we intend to grant 200,000 stock options to Mr. Kwong. The specific terms
of the options will be determined by the independent members of the Board of
Directors of our company.
In
addition, we recorded a charge of $2,433,650 in 2007 for a performance-based
compensatory stock arrangement with Mr. Kwong. In connection with our January
2007 Private Placement, Mr. Kwong entered into an agreement (the “Escrow
Agreement”) with the investors pursuant to which he 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 our net income for
2006 or 2007, subject to specified adjustments, as set forth in our filings
with
the SEC was less than $6.3 million or $7.7 million, respectively, a portion,
if
not all, of the Escrow Shares were to be transferred to the investors based
upon
our actual net income, if any, for such fiscal years. We have accounted for
the
Escrow Shares as the equivalent of a performance-based compensatory stock plan
between Mr. Kwong and us. Accordingly, during the year ended December 31, 2007,
we recorded $2,433,650 as a charge to operations to recognize the grant date
fair value of stock-based compensation in conjunction with the Escrow
Agreement.
In
comparison to 2007, Mr. Kwong was paid a salary of $61,538 and automobile,
housing and medical personal benefits allowance in the amount of $12,312 for
the
year ended December 31, 2006. Mr. Kwong did not receive a cash bonus in 2006.
The increase in compensation during 2007 as compared to 2006 was primarily
due
to the increased level of responsibilities that were assumed by the executive
in
becoming a publicly-listed company. The compensation for Mr. Kwong was set
and
approved by the Board of Directors.
Compensation
for our executive officers is determined with the goal of attracting and
retaining high quality executive officers and encouraging them to work as
effectively as possible on our behalf. Key areas of corporate performance taken
into account in setting compensation policies and decisions are growth of sales,
cost control, profitability, and innovation. The key factors may vary depending
on which area of business a particular executive officer’s work is focused on.
Compensation
is designed to reward executive officers for successfully meeting their
individual functional objectives and for their contributions to our overall
development. For these reasons, the elements of compensation of our executive
officers are salary, housing and bonus. The salary and housing components of
compensation are paid and rewarded to cover an appropriate level of living
expenses for the executive officers and the bonus is paid to reward the
executive officer for individual and company achievement. With respect to the
amount of a bonus, we determine company achievement based on performance factors
and results of operations such as revenues generated, cost of revenues, net
income, and whether we obtain significant contracts. We determine achievement
level of an executive based on performance factors such as contribution to
the
achievement of the company.
The
level
and components of the compensation packages for our executive officers are
primarily determined based upon previous compensation, comparisons with the
compensation packages of certain public companies in the United States and
Hong
Kong. We review and evaluate the compensation packages of specialty timepiece
manufacturers, distributors and retailers, in addition to other Chinese
specialty companies engaged in the manufacture and distribution of consumer
products.
As
a
result of these criteria, we have reviewed the following companies:
|
•
|
Hong
Kong/Chinese timepiece and jewelry companies
: National
Electronics Holdings Ltd. (SEHK:213), Hang Fung Gold Technology
Limited
(SSEHK:870), and Peace Mark Holdings Ltd. (SEHK:304), LJ International,
Inc. (NasdaqNM: JADE), and Man Sang Holdings, Inc. (Alternext:
MHJ).
|
|
•
|
Hong
Kong/Chinese companies listed in the United States
: China
Architectural Engineering, Inc. (NasdaqGS: CAEI), Wonder Auto Technology,
Inc. (NasdaqNM:WATG — manufacturer of automotive electrical
parts in China), SORL Auto Parts, Inc.
(NasdaqNM:SORL — manufacturer and distributor of commercial
vehicle air brake valves and related components in China and
internationally), and Orsus Xelent Technologies, Inc. (Alternext:
ORS — designer for retail and wholesale distribution of cellular
phones).
|
Our
Board
of Directors focuses its evaluation and analysis on companies of similar market
size and stage of growth, while taking into account our relative performance
and
our own strategic goals. We believe that the companies that we evaluate are
comparable to us and provided valuable guidance to us in setting the appropriate
levels and form of compensation for our executive officers.
We
believe that the salary paid to our executive officer during 2007, 2006, and
2005 are indicative of the objectives of our compensation program and reflect
the fair value of the services provided to our company. We set an executive’s
base salary with the objective of attracting and retaining highly qualified
individuals for the relevant position and rewarding individual performance.
When
setting and adjusting individual executive salary levels, we consider the
relevant established salary range, the named executive officer’s
responsibilities, experience, potential, individual performance and
contribution. We also consider other factors such as our overall corporate
budget for annual merit increases, unique skills, demand in the labor market
and
succession planning.
Currently,
we have no specific plans to provide raises. Although no specific plans have
yet
been discussed, we may adopt such a plan to provide raises to our executive
officers in the future. Adopting higher compensation in the future may be
based
on the increased amount of responsibilities to be assumed by each of the
executive officers after we became a publicly listed company. We may also
expand
the scope of our compensation, such as the possibility of granting options
to
executive officers and tying compensation to predetermined performance
goals.
In
September 2008, our stockholders approved our 2008 Equity Incentive Plan,
which
has 2,500,000 shares of common stock reserved for future issuance (“2008 EIP”).
We believe that long-term performance is aided by the use of stock-based
awards,
which we believe create an ownership culture among our named executive officers
and significant employees that fosters beneficial, long-term performance
by our
company. There are currently no options or other securities outstanding under
the 2008 EIP. We expect to make fully vested, unrestricted stock grants to
five
of our long-term employees in an aggregate amount of 500,000 shares after
we
receive approval for additional listing of the shares reserved for issuance
under the 2008 EIP from Alternext and after we file a Form S-8 with, and
it is
declared effective by, the Securities and Exchange Commission, which we expect
to occur within the next 30 days.
We
believe the 2008 EIP will provide our employees, including our named executive
officers, as well as our directors and consultants, with incentives to
help
align their interests with the interests of stockholders. We believe that
the
use of stock-based awards promotes our overall executive compensation objectives
and expects that stock options will become a significant source of compensation
for our executives. We do not have a general equity grant policy with respect
to
the size and terms of option grants, but the independent members of our
Board
will evaluate our achievements for the fiscal year based on performance
factors
and results of operations such as revenues generated, cost of revenues,
and net
income. We do not currently have established quantitative targets.
Our
board
of directors does not currently have a compensation committee. We anticipate
that our board of directors will establish a compensation committee in fiscal
2008 that will be comprised of non-employee members of our board of directors.
Our current expectation is that the compensation committee of our board of
directors will perform, at least annually, a strategic review of the
compensation program for our executive officers to determine whether it provides
adequate incentives and motivation to our executive officers and whether it
adequately compensates our executive officers relative to comparable officers
in
other companies with which we compete for executives. Those companies may or
may
not be public companies or companies located in Hong Kong or China or even,
in
all cases, companies in a similar business. The companies that we review may
include the comparable companies listed above, in addition other companies
of a
size, scope and magnitude similar to us at the time we conduct our annual
review, which may include companies not currently listed or reporting. We
believe that the companies that we evaluate are comparable to us and can provide
valuable guidance to us in determining whether the levels and forms of
compensation for our executive officers are adequate. For 2008, until such
time
as a formal compensation program and committee is established, the independent
members of our board of directors will determine the bonus levels for 2008
after
the completion of the fiscal year. After the compensation committee is formed,
it will make such determinations.
Summary
Compensation Tables
The
following table sets forth information concerning the compensation for the
three
fiscal years ended December 31, 2007, 2006, and 2005 of the principal executive
officer, principal financial officer, in addition to our three most highly
compensated officers whose annual compensation exceeded $100,000, and up to
two
additional individuals for whom disclosure would have been required but for
the
fact that the individual was not serving as an executive officer of the
registrant at the end of the last fiscal year.
Name and Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option
Awards
($)
|
|
Stock
Awards
($)
|
|
All Other
Compensation
($)
(1)
|
|
Total
($)
|
|
Kwong Kai Shun
(5)
|
|
|
2007
|
|
|
240,000
|
|
$
|
60,000
|
(2)
|
|
—
|
|
$
|
2,433,650
|
(3)
|
$
|
12,691
|
|
$
|
2,746,341
|
|
Chief Executive Officer and
|
|
|
2006
|
|
|
61,538
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,312
|
|
|
73,850
|
|
Chairman
of the Board
|
|
|
2005
|
|
|
62,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,500
|
|
|
75,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Rappaport
(4)
Former Chief Executive Officer and
|
|
|
2007
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Former Director
|
|
|
2006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
Pintsopoulos
(4)
|
|
|
2007
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Former
Chief Financial Officer and
|
|
|
2006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Former
Director
|
|
|
2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
This
relates to automobile, housing and medical personal benefits.
|
|
(2)
|
|
Mr.
Kwong received an annual bonus equivalent to three months salary,
equal to
$60,000, after we obtained a minimum company achievement of $2,000,000
annual profit before tax for the year ended December 31,
2007.
|
|
(3)
|
|
In
connection with our January 2007 Private Placement, Mr. Kwong entered
into
an agreement (the “ Escrow Agreement”) with the investors pursuant to
which he 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 our net income for 2006 or 2007, subject
to
specified adjustments, as set forth in our filings with the SEC is
less
than $6.3 million or $7.7 million, respectively, a portion, if not
all, of
the Escrow Shares will be transferred to the investors based upon
our
actual net income, if any, for such fiscal years. We have accounted
for
the Escrow Shares as the equivalent of a performance-based compensatory
stock plan between Mr. Kwong and us. Accordingly, during the year
ended
December 31, 2007, we recorded $2,433,650 as a charge to operations
to
recognize the grant date fair value of stock-based compensation in
conjunction with the Escrow
Agreement.
|
|
(4)
|
|
Messrs.
Rappaport and Pintsopoulos resigned from all positions with the Company
upon the close of the Share Exchange on January 23,
2007.
|
|
(5)
|
|
Mr.
Kwong resigned as our Chief Financial Officer in April
2008.
|
Grants
of Plan-Based Awards in 2007
There
were no option grants in 2007. See description of the Escrow Agreement by and
between us and Mr. Kwong under “Certain Relationships and Related Transactions,
and Director Independent —Agreement of Kwong Kai Shun,”
below.
Outstanding
Equity Awards at 2007 Fiscal Year-End
There
were no option exercises or options outstanding in 2007. See description of
the
Escrow Agreement by and between us and Mr. Kwong under “Certain Relationships
and Related Transactions, and Director Independent —Agreement of Kwong Kai
Shun,” below.
Option
Exercises and Stock Vested in Fiscal 2007
There
were no option exercises or stock vested in 2007. See description of the Escrow
Agreement by and between us and Mr. Kwong under “Certain Relationships and
Related Transactions, and Director Independent —Agreement of Kwong Kai Shun,”
below.
Employment
Agreement
On
April
21, 2008, we entered into an employment agreement with King Wai Lin (the
“Employment Agreement”) in connection with Mr. Lin’s employment as our Chief
Financial Officer. The Employment Agreement is effective as of April 21, 2008
and continues in effect until terminated by us or Mr. Lin as provided in the
Employment Agreement. Mr. Lin will receive a monthly base salary of HK$80,000,
or approximately USD $10,264. Further, after a two-month probation period,
Mr.
Lin will be eligible for a discretionary annual bonus and to receive paid
vacation and other benefits made available to our other employees, such as
paid
holidays and paid sick leave.
During
the two-month probation period, we may terminated the Employment Agreement
with
not less than one month’s written notice or payment of one months’ base salary
in lieu thereof or by Mr. Lin with not less than one month’s written notice.
After the probation period, we may terminate the Employment Agreement with
not
less than four month’s written notice or payment of four months’ base salary in
lieu thereof or by Mr. Lin with not less than four month’s written notice. Upon
termination of the Employment Agreement, Mr. Lin may not work for any of our
suppliers or clients for a period of 12 months after his termination.
In
addition, Mr. Lin executed a Confidentiality Employment Agreement effective
as
of April 21, 2008. Pursuant to the Confidentiality Employment Agreement, Mr.
Lin
may not, without prior approval, engage in the conduct of any business or have
any financial interest in any other business which (i) competes or may compete
with our business; (ii) could jeopardize our reputation; or (iii) interfere
with
Mr. Lin’s performance of his duties to us. Additionally, Mr. Lin may not, for a
period of twelve months after the termination of his employment with us, engage
in or be interested in, any business which is in direct competition with our
business, subject to certain exceptions. Additionally, Mr. Lin may not for
a
period 12 months after the termination of his employment with us, within Hong
Kong, or in any other country where we have transacted business, solicit or
entice away our employees, customers or clients or employ or use the services
of
any of our employees or consultants.
Director
Compensation
For
the
year ended December 31, 2007, our directors received compensation for his or
her
service as a director, as set forth in the table below.
Name
(2)
|
|
Fees Earned or Paid in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Kwong Kai Shun
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Michael
Mak
|
|
|
210,000
|
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
210,000
|
|
|
(1)
|
|
In
January 1, 2007, Michael Mak began receiving compensation under a
plan
pursuant to which he receives monthly compensation with respect to
salary,
housing and insurance in the amounts of $15,000, $3,000 and $1,000,
respectively. Mr. Mak did not claim any housing or insurance allowance
for
2007. Mr. Mak will also receive an annual bonus equivalent to two
months
salary subject to a minimum company achievement of $2,000,000 annual
profit before tax, which is the same company performance standard
to which
our CEO’s annual bonus is subject. The compensation for Mr. Mak was set
and approved by the Board of
Directors.
|
|
(2)
|
|
Siu
Po Lee, Dr. Ching Wah Leung, and Wu Hok Lun were appointed to the
Board of
Directors in January 2008. The directors will be paid $10,000 annually
for
their services as a member of the Board of
Directors.
|
Equity
Compensation Plan Information
The
following table sets forth certain information as of June 30, 2008 with respect
to securities authorized for issuance as equity compensation.
Plan Category
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (a)
|
|
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights (b)
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c)
|
|
Equity
compensation plans approved by shareholders
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
Equity
compensation plans not approved by shareholders (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
(1)
In
February 2008, we issued 200,000 shares of common stock to an investor relations
firm. See description of the Escrow Agreement by and between us and Mr. Kwong
under “Certain Relationships and Related Transactions, and Director Independent
—Agreement of Kwong Kai Shun,” below.
On
September 27, 2008, our stockholders approved Asia Time Corporation 2008
Equity
Incentive Plan, which has 2,500,000 shares of common stock authorized to
be
issued under the equity plan. No shares have been granted under the plan
as of
the date of this prospectus.
In
September 2008, we adopted our 2008 Equity Incentive Plan (“2008 EIP”). Our
employees, officers and directors (including employees, officers and directors
of our affiliates) are eligible to participate in the 2008 EIP. Administration
of the 2008 EIP is carried out by our Board of Directors or any committee
of the
Board of Directors to which the Board of Directors has delegated all or
a
portion of responsibility for the implementation, interpretation or
administration of the equity incentive plan. The administrator of the 2008
EIP
will select the participants who are granted stock options or stock awards
and,
consistent with the terms of the equity incentive plan, will establish
the terms
of each stock option or stock award. The maximum period in which a stock
option
may be exercised will be fixed by the administrator, but in no event longer
than
ten years.
The
2008
EIP authorizes the issuance of options to purchase shares of common stock
under
the Option Grant Program and the grant of stock awards under the Stock
Issuance
Program. Although the administrator determines the exercise prices of options
granted under the 2008 EIP, the exercise price per share may not be less
than
100% of the “fair market value,” as defined in the equity incentive plan, on the
date of grant. Options that are granted under the equity incentive plan
vest and
terminate over various periods at the discretion of the Board of Directors
or
any committee authorized by the Board of Directors, but subject to the
terms of
the plan. Under the Stock Issuance Program, shares of our common stock
may be
issued through direct and immediate issuance without any intervening options
grants.
The
2008
EIP will terminate upon the earliest of (i) the expiration of the ten year
period measured from the date we adopt the plan, (ii) the date on which
all
shares available under the plan have been issued as vested shares, or (iii)
the
termination of all outstanding options in connection with a change in our
ownership or control. Nevertheless, options granted under the 2008 EIP
may
extend beyond the date of termination.
The
maximum number of securities that may be granted under the 2008 EIP is
2,500,000
shares of common stock. In addition, the aggregate number of shares of
common
stock that may be issued pursuant to the 2008 EIP during any twelve month
period
may not exceed 10% of the average number of issued and outstanding shares
during
such twelve month period. As of the date of this prospectus, we had 26,570,677
shares of common stock outstanding. There are currently no options or other
securities outstanding under the 2008 EIP. We expect to make fully vested,
unrestricted stock grants to five of our long-term employees in an aggregate
amount of 500,000 shares after we receive approval for additional listing
of the
shares reserved for issuance under the 2008 EIP from Alternext and after
we file
a Form S-8 with, and it is declared effective by, the Securities and Exchange
Commission, which we expect to occur within the next 30 days.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Times
Manufacture & E-Commerce Corporation Limited
Times
Manufacture & E-Commerce Corporation Limited (“Times Manufacture”) is our
wholly-owned subsidiary, which has interlocking executive and director positions
with us.
January
2007 Share Exchange
On
January 23, 2007, we completed the Share Exchange with Times Manufacture and
Kwong Kai Shun, the former sole shareholder of Times Manufacture. At the close
of the Share Exchange, Times Manufacture became our wholly-owned subsidiary
and
100% of the issued and outstanding securities of Times Manufacture were
exchanged for our securities. An aggregate of 19,454,420 shares of our common
stock were issued to this shareholder. Further to the Share Exchange, Times
Manufacture paid an aggregate of $350,000 to the shareholders of SRKP 9, Inc.
As
of the close of the Share Exchange and as of January 1, 2008, Mr. Kwong owned
approximately 84.0% of our issued and outstanding stock. Moreover, concurrent
with the closing of the Share Exchange, our board appointed Kwong Kai Shun
as
Chairman of the Board, Chief Executive Officer and Chief Financial Officer,
as
well as Michael Mak as a director. Kwong Kai Shun is Chief Executive Officer
and
director of Times Manufacture and has since resigned as our Chief Financial
Officer.
WestPark
Capital, Inc.
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 of $2,902,946 (the “Private Placement”).
WestPark Capital, Inc. (“WestPark”) acted as the placement agent for the Private
Placement. Of the gross proceeds, $50,000 is represented by a subscription
receivable from one investor. For its services as placement agent, WestPark
received an aggregate fee of approximately $261,265, which consisted of a
commission equal to 9.0% of the gross proceeds from the financing. WestPark
is
acting as the managing underwriter for our public offering that we intend to
conduct.
Upon the closing of the offering, we agreed to sell to WestPark Capital, Inc.
warrants to purchase up to a number of shares of our common stock that will
be
determined. The warrants will be exercisable on their date of issuance at a
per
share exercise price equal to 120% of the public offering price, subject to
standard anti-dilution adjustments for stock splits and similar transactions,
and will expire five years. The holders of shares of common stock acquired
upon
exercise of the warrants have the right to include such shares in any future
registration statements filed by us and to demand one registration for the
shares. In addition, we have agreed to indemnify the underwriters against some
liabilities, including liabilities under the Securities Act of 1933, as amended,
and to contribute to payments that the underwriters may be required to make
in
respect thereof. We will pay WestPark a non-accountable expense allowance to
be
determined.
Some
of
the controlling shareholders, control persons of WestPark were also, prior
to
the completion of the Share Exchange, shareholders and/or control persons
of our
company, including Richard Rappaport, who is the Chief Executive Officer
of
WestPark and was the President and a significant shareholder of our company
prior to the Share Exchange, Anthony C. Pintsopoulos, who is the Chief Financial
Officer of WestPark and an officer, director and significant shareholder
of our
company prior to the Share Exchange and Kevin DePrimio and Jason Stern, each
employees of WestPark and shareholders of our company prior to the Share
Exchange. Each of Messrs. Rappaport and Pintsopoulos resigned from all of
their
executive and director positions with our company upon the closing of the
Share
Exchange. Affiliates of WestPark who own shares of our common stock have
agreed
to a lock-up whereby they shall not sell an aggregate of 1,528,933 shares
of
common stock held by them until that date which is nine months from the day
that
our common stock begins to be traded on either the New York Stock Exchange,
Alternext
,
NASDAQ Global Market, NASDAQ Capital Market, the OTC Bulletin Board or the
Pink
Sheets.
We
believe that the WestPark Capital arrangements are at fair market value and
are
on terms comparable to those that would have been reached in arm’s-length
negotiations had the parties been unaffiliated at the time of the negotiations.
Agreement
of Kwong Kai Shun
In
connection with the Private Placement, Kwong Kai Shun, our Chairman of the
Board, Chief Executive Officer and Chief Financial Officer, entered into an
agreement with the investors in the Private Placement. Mr. Kwong agreed to
place
2,326,000 shares of his common stock in escrow for possible distribution to
the
investors (the “Escrow Shares”). According to the agreement, if our annual net
income for 2006 or 2007 (subject to specified adjustment) as set forth in its
filings with the Securities and Exchange Commission is less than $6.3 million
or
$7.7 million, respectively, a portion, if not all, of the Escrow Shares will
be
transferred to the investors based upon our actual net income for such fiscal
years. According to the agreement, the number of shares Mr. Kwong would
distribute to shareholders would be determined by a formula based on the number
of common stock held by the investors multiplied by the shortfall in a valuation
agreed upon by the parties. We met our net income threshold of $6.3 million
for
2006 and $7.7 million for 2007, and the investors did not receive shares from
Mr. Kwong. If we did not meet any of these thresholds, the number of shares
that
would have been distributed would have been determined by the following
formula.
A
=
N × S
|
A
|
means
the number of additional shares of common stock to be transferred
by Mr.
Kwong to the investors.
|
|
|
|
|
N
|
means
the number of stock held by the investors.
|
|
|
|
|
S
|
means
the shortfall in agreed valuation per share of Common Stock calculated
as
follows: $1.29 - ((actual amount of net income for
2007 × 4) / 25,482,210).
|
For
illustration purposes, if our net income for fiscal 2007 was $7.0 million,
as
opposed to $7.7 million, then Mr. Kwong would be required to transfer
approximately 430,254 shares of common stock to the investors under the
agreement. In no circumstances will the shares distributed by Mr. Kwong exceed
2,326,000 shares. Each shareholder would have received a pro rata amount of
shares based on the number of the shares that they held at the time of any
distribution per the agreement.
We
have
accounted for the Escrow Shares as the equivalent of a performance-based
compensatory stock plan between Mr. Kwong and us. Accordingly, during the year
ended December 31, 2007, we recorded a charge to operations of $2,433,650 to
recognize the grant date fair value of stock-based compensation in conjunction
with the Escrow Shares.
In
addition, Mr. Kwong has agreed to purchase all shares of Series A Preferred
Stock then held by such investors at a per-share purchase price of $1.29
if our
common stock shall fail to be listed or quoted for trading on the Alternext,
the
Nasdaq Capital Market, the Nasdaq Global Market or the New York Stock Exchange
on or before an agreed upon date. The date for listing was originally set
by the
parties at June 30, 2007 and was subsequently extended to March 31, 2008.
Mr.
Kwong and the investors also executed an amendment to the agreement to revise
the agreement to provide that our 2007 net income will be determined in
accordance with US GAAP except that following will be added back to our US
GAAP
net income for purposes of calculating our 2007 net income under the agreement:
(i) any and all non-cash charges and expenses related to the Bonds and Bond
Warrants that we issued in November 2007, and (ii) any and all charges and
expenses related to our Private Placement of the Series A Convertible Preferred
Stock in January 2007 and the reverse takeover that occurred in January 2007.
We
believe that arrangement with Kwong Kai Shun is at fair market value and are
on
terms comparable to those that would have been reached in arm’s-length
negotiations had the parties been unaffiliated at the time of the negotiations.
Director
Independence
Subject
to certain exceptions, under the listing standards of the
NYSE
Alternext US (formerly known as American Stock Exchange) (“Alternext”),
a
listed company’s board of directors must consist of a majority of independent
directors. Although we are eligible for an exemption from this requirement
because we are considered a “controlled company” pursuant to Section 801(a) of
the Alternext Company Guide as one of our shareholders owns more than 50%
of our
voting power, we have a majority of independent directors. Our Board of
Directors has determined that three of the five members of our Board of
Directors are independent under the listing standards of Alternext, as follows:
Siu Po Lee, Dr. Ching Wah Leung, and Wu Hok Lun.
Policy
for Approval of Related Party Transactions
Our
policy is to have our Audit Committee review and pre-approve any related party
transactions and other matters pertaining to the integrity of management,
including potential conflicts of interest, or adherence to standards of business
conduct as required by our policies.
INDEMNIFICATION
OF DIRECTORS AND EXECUTIVE OFFICERS
AND
LIMITATION OF LIABILITY
Under
Section 145 of the General Corporation Law of the State of Delaware, we can
indemnify our directors and officers against liabilities they may incur in
such
capacities, including liabilities under the Securities Act of 1933, as amended
(the “Securities Act”). Our certificate of incorporation provides that, pursuant
to Delaware law, our directors shall not be liable for monetary damages for
breach of the directors’ fiduciary duty of care to us and our stockholders. This
provision in the certificate of incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as injunctive
or
other forms of no monetary relief will remain available under Delaware law.
In
addition, each director will continue to be subject to liability for breach
of
the director’s duty of loyalty to us or our stockholders, for acts or omissions
not in good faith or involving intentional misconduct or knowing violations
of
the law, for actions leading to improper personal benefit to the director,
and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a director’s
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
Our
bylaws provide for the indemnification of our directors to the fullest extent
permitted by the Delaware General Corporation Law. Our bylaws further provide
that our Board of Directors has discretion to indemnify our officers and other
employees. We are required to advance, prior to the final disposition of any
proceeding, promptly on request, all expenses incurred by any director or
executive officer in connection with that proceeding on receipt of an
undertaking by or on behalf of that director or executive officer to repay
those
amounts if it should be determined ultimately that he or she is not entitled
to
be indemnified under the bylaws or otherwise. We are not, however, required
to
advance any expenses in connection with any proceeding if a determination is
reasonably and promptly made by our Board of Directors by a majority vote of
a
quorum of disinterested Board members that (i) the party seeking an advance
acted in bad faith or deliberately breached his or her duty to us or our
stockholders and (ii) as a result of such actions by the party seeking an
advance, it is more likely than not that it will ultimately be determined that
such party is not entitled to indemnification pursuant to the applicable
sections of our bylaws.
We
have
been advised that in the opinion of the Securities and Exchange Commission,
insofar as indemnification for liabilities arising under the Securities Act
may
be permitted to our directors, officers and controlling persons pursuant to
the
foregoing
provisions, or otherwise, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
a
claim for indemnification against such liabilities (other than our payment
of
expenses incurred or paid by our director, officer or controlling person in
the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by the us is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
We
may
enter into indemnification agreements with each of our directors and officers
that are, in some cases, broader than the specific indemnification provisions
permitted by Delaware law, and that may provide additional procedural
protection. We have not entered into any indemnification agreements with our
directors or officers, but may choose to do so in the future. Such
indemnification agreements may require us, among other things, to:
|
•
|
indemnify
officers and directors against certain liabilities that may arise
because
of their status as officers or directors;
|
|
•
|
advance
expenses, as incurred, to officers and directors in connection with
a
legal proceeding, subject to limited exceptions; or
|
|
•
|
obtain
directors’ and officers’ insurance.
|
At
present, there is no pending litigation or proceeding involving any of our
directors, officers or employees in which indemnification is sought, nor are
we
aware of any threatened litigation that may result in claims for
indemnification.
BENEFICIAL
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the percentage of
ownership of that person, shares of common stock subject to options and warrants
held by that person that are currently exercisable or become exercisable within
60 days of September 1, 2008 are deemed outstanding even if they have not
actually been exercised. Those shares, however, are not deemed outstanding
for
the purpose of computing the percentage ownership of any other person.
As
of
November 1, 2008, we had 26,570,677 issued and outstanding shares of common
stock and no options to purchase shares of common stock. We also have
outstanding (i) variable rate convertible Bonds that are convertible into
2,285,714 shares of our common stock issuable upon the conversion of the
Bonds,
subject to adjustment, based on an initial conversion price equal to $3.50
per
share, the price at which shares were sold in our initial public offering
on
Alternext, (ii) 600,000 shares of our common stock issuable upon the exercise
of
outstanding Bond Warrants, subject to adjustment, (iii) an additional 83,800
shares of our common stock issuable upon exercise of outstanding warrants,
and
(iv)
2,500,000 shares of common stock reserved for future issuance under our 2008
Amended and Restated Equity Incentive Plan.
The
following table sets forth, as of November 1, 2008, certain information
with respect to beneficial ownership of our common stock by:
|
•
|
Each
person known to be the beneficial owner of 5% or more of the outstanding
common stock of our company;
|
|
•
|
Each
executive officer;
|
|
•
|
All
of the executive officers and directors as a group.
|
Unless
otherwise indicated, the persons and entities named in the table have sole
voting and sole investment power with respect to the shares set forth opposite
the stockholder’s name, subject to community property laws, where applicable.
Unless otherwise indicated, the address of each stockholder listed in the table
is c/o Asia Time Corporation, Room 1601-1604, 16/F., CRE Centre, 889 Cheung
Sha
Wan Road, Kowloon, Hong Kong.
Name and Address
of Beneficial Owner
|
|
Title
|
|
Shares
Beneficially
Owned
|
|
Percent of Class
Beneficially
Owned
|
|
Officers
and directors
|
|
|
|
|
|
|
|
|
|
|
Kwong
Kai Shun
|
|
|
Chairman
of the Board and
Chief
Executive Officer
|
|
|
17,377,810
|
|
|
65.4
|
%
|
King
Wai Lin
|
|
|
Chief
Financial Officer
|
|
|
—
|
|
|
—
|
|
Michael
Mak
|
|
|
Director
and Corporate
Secretary
|
|
|
—
|
|
|
—
|
|
Siu
Po Lee
|
|
|
Director
|
|
|
—
|
|
|
—
|
|
Dr.
Ching Wah Leung
|
|
|
Director
|
|
|
—
|
|
|
—
|
|
Wu
Hok Lun
|
|
|
Director
|
|
|
—
|
|
|
—
|
|
Officers
and Directors as a Group (6 persons)
|
|
|
|
|
|
17,377,810
|
|
|
65.4
|
%
|
5%
of more
shareholders
|
|
|
|
|
|
|
|
|
|
|
Kam
Yuen
Suite
2911 Shell Tower
Times
Square 1
Matheson
Street
Causeway
Bay,
Hong
Kong
|
|
|
|
|
|
1,550,388
(1
|
)
|
|
5.8
|
%
|
Debbie
Schwartzberg
1900
Avenue Of The Stars
Suite
301
Los
Angeles,
CA
90067
|
|
|
|
|
|
1,332,795
|
|
|
5.0
|
%
|
Richard
Rappaport
1900
Avenue Of The Stars
Suite
301
Los
Angeles,
CA
90067
|
|
|
|
|
|
1,332,795
|
|
|
5.0
|
%
|
|
(1)
|
Represents
775,194 shares of common stock held by Success Day International
Limited
and 775,194 shares of common stock held by Sino Sky Enterprise Limited.
Mr. Kam Yuen may be deemed to be the beneficial owner of the shares
as the
majority shareholder of each of Success Day International Limited
and Sino
Sky Enterprise Limited. Mr. Kam Yuen disclaims beneficial ownership
of the
shares except to the extent of his pecuniary
interest.
|
SELLING
SECURITY HOLDERS
General
On
November 13, 2007, we completed a financing transaction with ABN AMRO pursuant
to which we issued the Bonds and the Bond Warrants. Each Bond is convertible
at
the option of the holder at any time after February 12, 2009 into shares
of our
common stock at an initial conversion price equal to $3.50 per share, the
price
at which shares were sold in our initial public offering of common stock
on
NYSE
Alternext US (formerly known as American Stock Exchange) (“Alternext”)
.
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. In addition,
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. We agreed to
register the Bonds, the Bond Warrants and the shares of common stock underlying
the Bonds and the Bond Warrants. A total of 2,285,714 shares of common
stock may
be acquired upon conversion of the Bonds and 600,000 may be acquired upon
exercise of the Bond Warrants, each subject to adjustment.
The
total
dollar value of the securities underlying the Bonds that we are registering
for
resale is $8.0 million, which is based on 2,285,714 shares of our common
stock
issuable upon conversion of the Bonds that we have registered for resale
and a
market price per share of $3.50. At the time that the Bonds were sold,
on
November 13, 2007, there was no public trading market for our securities,
and
the $3.50 market price per share was the mid-point of the proposed offering
at
the time of the sale of the Bonds and the per share price at which we sold
our
common stock in our initial public offering that we conducted in connection
with
our initial listing on the Alternext in February 2008.
We
intend
to make, and believe that we have a reasonable basis to believe that we
will
have the financial ability to make, all payments on the
Bonds.
Prior
to
the issuance of the Bonds and Bond Warrants on November 13, 2007, the number
of
our common shares outstanding that were held by persons other than the
selling
security holders, affiliates of the Company, and affiliates of the selling
security holders was 4,402,209 shares. The number of shares registered
for
resale on behalf of the selling security holders or affiliates of the selling
security holders in the current transaction is 3,085,714 shares. Based
on
information obtained from the selling security holders, the selling security
holders do not have an existing short position in our common
stock.
On
January 16, 2008, we entered into a consulting agreement with Public Equity
Group Inc. Pursuant to the agreement, Public Equity Group will provide
us with
business consulting and investor relation services, oversee of all of our
investor public relation and related service providers, and monitor our
investor
relation meetings with brokerage firms and brokers to develop support for
our
stock and research coverage, in addition to strategic advice and other
customary
investor relation 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, we agreed to issue 200,000 shares of our common stock
to
Public Equity Group Inc.
The
selling security holders may from time to time offer for resale and sell
(i) the
Bonds, (ii) the Bond Warrants, and (iii) up to 3,085,714 shares of common
stock, which includes 2,285,714 shares that may be acquired upon conversion
of
the Bonds and 600,000 shares that may be acquired upon exercise of the
Bond
Warrants, subject to adjustment.
When
we
refer to the “selling security holders” in this prospectus, we mean those
persons listed in the table below or in any prospectus supplement, as well
as
the pledgees, donees, assignees, transferees, successors and others who
later
hold any of the selling security holders’ interests. The selling security
holders may resell the securities covered by this prospectus as provided
under
the section entitled “Plan of Distribution” and in any applicable prospectus
supplement.
Payments
and Potential Payments Required in Connection with the Issuance of the
Securities Being Registered
The
following table discloses the dollar amount of each payment (including
the value
of any payments to be made in common stock) that we have made or may be
required
to make to any selling security holder, any affiliate of a selling security
holder, or any person with whom any selling security holder has a contractual
relationship in connection with the Bonds and Bond Warrants (including
any
interest payments, liquidated damages, payments made to “finders” or “placement
agents,” and any other payments or potential payments).
Type
of Payment
Event
|
|
Dollar
Amount of
Payment,
if Payment is
Required
|
|
Description
|
Commission
to ABN AMRO
|
|
$240,000
|
|
The
Bonds were subscribed at a price equal to 97% of their principal
amount of
$8,000,000, which is the issue price of 100% less a 3% commission,
or
$240,000, to the Subscriber.
|
|
|
|
|
|
Warrants
|
|
$2,099,940
|
|
On
the date that the Bonds were issued, we issued ABN AMRO 600,000
warrants,
which are exercisable from February 12, 2009 until November 6,
2010. The
warrants are exercisable at $0.0001 per share. Based on the $3.50
per
share market price, the Warrants have a value of
$2,099,940.
|
|
|
|
|
|
Standard
Interest
|
|
Up
to approximately
$1,440,000
|
|
The
Bonds bear 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.
|
|
|
|
|
|
Mandatory
Redemption at Maturity
|
|
Up
to approximately
$4,069,600
|
|
We
are required to redeem any outstanding Bonds at 150.87% of their
principal
amount on November 13, 2012. This may result in us having to
pay up to an
additional $4,069,600 to the Bondholders.
|
|
|
|
|
|
Redemption
at the Bondholder’s Option – Breach of Registration
Obligations
|
|
Up
to approximately
$362,400
|
|
If
we breach certain of our obligations to register the Bonds, Bond
Warrants
and underlying shares as promptly as possible, and in no event
later than
February 12, 2009, pursuant to the registration rights agreement
dated
November 13, 2007 entered into by and between the Subscriber
and us, then
holders of the Bonds can require us to redeem the Bonds at 104.53%
of the
principal amount of the Bonds at any time after November 13,
2008. This
may result in us having to pay up to an additional $362,400 to
the
Bondholders.
|
|
|
|
|
|
Redemption
at the Bondholder’s Option
|
|
Up
to approximately
$2,120,800
|
|
In
addition, at any time after November 13, 2010, holders of the
Bonds can
require us to redeem the Bonds at 126.51% of the principal amount.
This
may result in us having to pay up to an additional $2,120,800
to the
Bondholders.
|
|
|
|
|
|
Redemption
for Tax Reasons
|
|
Between
approximately
$362,400
and $4,069,600
|
|
At
any time, we may, having given not less than 30 nor more than
60 days’
notice to the Bondholders, redeem all, but not some only, of
the Bonds at
a redemption price equal to the early redemption amount on the
redemption
date if (i) we have or will become obliged to pay additional
amounts for
any present or future taxes, duties, assessments or governmental
charges,
as a result of a change in, or amendment to, the laws of the
Unites
States, the PRC or England, and (ii) the obligation to pay additional
amounts cannot be avoided provided that we do not give notice
of
redemption earlier than 90 days prior to the earliest date on
which we
would be obliged to pay such additional amounts were a payment
in respect
of the Bonds then due.
|
Redemption
for Delisting or a Change in Control
|
|
Between
approximately
$362,400
and $4,069,600
|
|
If
our common stock ceases to be listed on Alternext or if the trading
of our
common stock is suspended for 20 or more consecutive trading
days
temporarily or otherwise on Alternext or there is a change of
control of
our company as defined in the Trust Deed, each Bondholder will
have the
right to require us, within 60 days following the date on which
the
Bondholder has been given notice of delisting or a change of
control, to
redeem all or some of that holder’s Bonds.
|
Redemption
at Our Option
|
|
Up
to approximately
$4,800,000
|
|
At
any time prior to November 13, 2012, we may, having given not
less than 30
nor more than 60 days’ notice to the Bondholders, and The Bank of New
York, London Branch (the “Trustee”) and The Bank of New York, London
Branch (the “Principal Agent,”) which notice will be irrevocable, redeem
all and not some only of the Bonds at a redemption price equal
to the
early redemption amount on the redemption date if more than ninety
percent
in principal amount of the Bonds has already been converted,
redeemed or
purchased and cancelled. The early redemption amount of a Bond,
for each
US$1,000 principal amount of the Bonds, is determined so that
it
represents for the Bondholder a gross yield of twelve percent
per annum,
calculated on a semi-annual basis. This may result in us having
to pay up
to an additional $4,800,000 to the
Bondholders.
|
Type
of Payment
Event
|
|
Dollar
Amount of
Payment,
if Payment is
Required
|
|
Description
|
Expenses
Related to the Bonds and Warrants
|
|
At
least $106,000
|
|
We
agreed to pay all costs and expenses, to the extent reasonably
and
properly incurred, related to:
(i)
all
costs and expenses in connection with the preparation of the
Bonds, the
Warrants, and all other documents relating to the issue of the
Bonds or
the Warrants;
(ii)
the
initial delivery and distribution (including transportation and
packaging
but not insurance (other than to the place of distribution))
of the Bonds
or the Warrants;
(iii)
the
listing of the Shares on the Alternext or any Alternative Stock
Exchange;
(iv)
the
fees and expenses of ABN AMRO’s legal counsel and any other professional
advisers in connection with the issue of the Bonds or the Warrants,
including, but not limited to, all traveling, telecommunications,
accommodation, and postage expenses; and
(v)
the
Trustee and the agents appointed under the Trust Deed and the
Agency
Agreement in connection with the performance of their duties
under such
agreements, including the legal fees and expenses of Trustee's
counsel.
To
date, we have expended approximately $82,000 in
trustee related fees and for legal fees. In addition, we will
incur at
least $6,000 for each of the next four years for the annual trustee
fees.
We are obligated to pay such fees and costs, as described above,
as they
are reasonably and properly incurred. There is no maximum cap
on such fees
that we are required to pay.
|
Subject
to the potential events and related payments described above, the total
possible
payments to the Bondholders and Bond Warrantholders and any of their affiliates
in the first year following the sale of the Bonds is approximately $2,819,940,
which accounts for the 3% commission to ABN AMRO ($240,000), first year’s
interest at 6% ($480,000), and the market value of the Warrants
($2,099,940).
For
information regarding net proceeds of the Company and potential profits
for the
Bondholder, see below at “Comparison of Company Expenses and Net Proceeds and
Potential Investor Profit.”
Potential
Profits on Conversion of Bonds and Exercise of
Warrants
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. The table below
shows the potential profit that ABN AMRO could realize if the conversion
price
is reset to 70% of the conversion price, based on the current conversion
price
of $3.50 per share.
Selling Security Holder
|
|
Market Price
per share of
Common
Stock on
Closing Date
|
|
Conversion
Price of
Bonds, if adjusted
to 70% of
Conversion Price
|
|
Total Shares
underlying
the Bonds,
(based on
reduced
conversion
price)
|
|
Combined
Market Price
of Shares
underlying
the Bonds
|
|
Combined
Conversion
Price of
Shares
underlying
Bonds
|
|
Total
Possible
Discount to
Market
Price
|
|
ABN
AMRO Bank N.V.
|
|
$
|
3.50
|
|
$
|
2.45
|
|
|
3,265,306
|
|
$
|
11,428,571
|
|
$
|
8,000,000
|
|
$
|
3,428,571
|
|
On
the
date that the Bonds were issued, we issued ABN AMRO 600,000 warrants, the
Warrants, which are exercisable from February 12, 2009 until November 6,
2010 at
an exercise price of $0.0001 per share. Based on the $3.50 per share market
price on the date the Warrants were issued, ABN AMRO would realize a profit
of
$2,099,940 upon the exercise of the Warrants.
Comparison
of Company Proceeds and Potential Investor Profit
The
table
below illustrates the net proceeds received by us and the potential profit
that
the investor in the Bonds and Warrants may realize.
Costs,
Expenses and Net Proceeds of the Company
|
|
Costs
and expenses paid or to be paid by the Company
|
|
Total
amount of possible payments by the Company
|
|
Net
proceeds (loss) from sale of the Bonds under each redemption
scenario
|
|
Amount
of possible payments compared to net proceeds (as a
percentage)
|
|
Amount
of possible payments compared to net proceeds (as a percentage)
averaged
over five-year term of the bonds
|
Gross
Proceeds from the Bonds
|
$
|
8,000,000
|
|
|
|
|
|
|
|
|
|
Less
fees and expenses
|
|
(106,000)
|
(1)
|
|
|
|
|
|
|
|
|
Less
payment of 3% commission
|
|
(240,000)
|
(2)
|
|
|
|
|
|
|
|
|
Less
value of the Warrants
|
|
(2,099,940)
|
(3)
|
|
|
|
|
|
|
|
|
Less
standard interest
|
|
(1,440,000)
|
(4)
|
|
|
|
|
|
|
|
|
Proceeds
after fees, expenses, commission and standard interest
|
$
|
4,114,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
from the Company to the Bondholder under Each Possible Redemption
Scenario:
|
|
|
|
|
|
|
|
|
|
|
|
Mandatory
Redemption at Maturity
-
redemption of the Bonds at 150.87%
|
|
(4,069,600)
|
(5)
|
(7,955,540)
|
|
$
44,460
|
|
17,894%
|
|
3,579%
|
|
Redemption
at the Bondholder’s Option for Breach of Registration Obligations
-
redemption of the Bonds at 104.53%
|
|
(362,400)
|
(6)
|
(4,248,340)
|
|
$
3,751,660
|
|
113%
|
|
23%
|
|
Redemption
at the Bondholder’s Option
-
redemption of the Bonds at 126.51%
|
|
(2,120,800)
|
(7)
|
(6,006,740)
|
|
$
1,993,260
|
|
301%
|
|
60%
|
|
Redemption
for Tax Reasons
-
redemption of the Bonds at redemption rate up to
150.87%
|
|
(4,069,600)
|
(8)
|
(7,955,540)
|
|
$
44,460
|
|
17,894%
|
|
3,579%
|
|
Redemption
for Delisting or a Change in Control
-
redemption of the Bonds at redemption rate up to
150.87%
|
|
(4,069,600)
|
(9)
|
(7,955,540)
|
|
$
44,460
|
|
17,894%
|
|
3,579%
|
|
Redemption
at Our Option
-
redemption of the Bonds at yield of twelve percent per
annum
|
|
(4,800,000)
|
(10)
|
(8,685,940)
|
|
$
(685,940)
|
|
(1,266)%
|
|
(253%
|
)
|
|
(1)
|
To
date, we have expended approximately $82,000 in trustee related
fees and
for legal fees. In addition, we will incur at least $6,000
for each of the
next four years for the annual trustee fees. In addition, this
amount
excludes an additional indeterminate amount for fees and expenses
required
to be paid by us for the benefit of the investor in connection
with the
Bonds and the Warrants, including ABN AMRO’s legal counsel and other
professional adviser fees and expenses, listing of the shares
on the
Alternext, and fees incurred for the Trustee and the agents
appointed
under the Trust Deed and the Agency Agreement in connection
with the
performance of their duties under such agreements, including
the legal
fees and expenses of Trustee's counsel. We are obligated to
pay such fees
and costs, as described above, as they are reasonably and properly
incurred. There is no maximum cap on such fees that we are
required to
pay.
|
|
(2)
|
The
Bonds were subscribed at a price equal to 97% of their principal
amount of
$8,000,000, which is the issue price of 100% less a 3% commission,
or
$240,000, to the Subscriber.
|
|
(3)
|
On
the date that the Bonds were issued, we issued ABN AMRO 600,000
warrants,
which are exercisable from February 12, 2009 until November
6, 2010. The
warrants are exercisable at $0.0001 per share. Based on the
$3.50 per
share market price, the Warrants have a value of
$2,099,940.
|
|
(4)
|
The
Bonds bear 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. Interest is payable semi-annually
in
arrears on May 13 and November 13 of each
year.
|
|
(5)
|
We
are required to redeem any outstanding Bonds at 150.87% of
their principal
amount on November 13, 2012. After payment of this full redemption
amount,
assuming none of the Bonds had been previously redeemed, we
would have net
proceeds of $2,144,400.
|
|
(6)
|
If
we breach certain of our obligations to register the Bonds,
Bond Warrants
and underlying shares as promptly as possible, and in no event
later than
February 12, 2009, pursuant to the registration rights agreement
dated
November 13, 2007 entered into by and between the Subscriber
and us, then
holders of the Bonds can require us to redeem the Bonds at
104.53% of the
principal amount of the Bonds at any time after November 13,
2008. This
may result in us having to pay up to an additional $362,400
to the
Bondholders. After payment of the full potential redemption
amount,
assuming none of the Bonds had been previously redeemed, we
would have net
proceeds of $5,851,600.
|
|
(7)
|
At
any time after November 13, 2010, holders of the Bonds can
require us to
redeem the Bonds at 126.51% of the principal amount. This may
result in us
having to pay up to $2,120,800 to the Bondholders in addition
to the
principal amount of the Bonds. After payment of the full potential
redemption amount, assuming none of the Bonds had been previously
redeemed, we would have net proceeds of
$4,093,200.
|
|
(8)
|
At
any time, we may, having given not less than 30 nor more than
60 days’
notice to the Bondholders, redeem all, but not some only, of
the Bonds at
a redemption price equal to the early redemption amount on
the redemption
date if (i) we have or will become obliged to pay additional
amounts for
any present or future taxes, duties, assessments or governmental
charges,
as a result of a change in, or amendment to, the laws of the
Unites
States, the PRC or England, and (ii) the obligation to pay
additional
amounts cannot be avoided provided that we do not give notice
of
redemption earlier than 90 days prior to the earliest date
on which we
would be obliged to pay such additional amounts were a payment
in respect
of the Bonds then due. The cost for redemption for tax reasons
would range
between approximately $362,400 and $4,069,600, depending on
the date of
the redemption and related early redemption rate. After payment
of the
full potential redemption amount, assuming none of the Bonds
had been
previously redeemed, we would have net proceeds of
$2,144,400.
|
|
(9)
|
If
our common stock ceases to be listed on Alternext or if the
trading of our
common stock is suspended for 20 or more consecutive trading
days
temporarily or otherwise on Alternext or there is a change
of control of
our company as defined in the Trust Deed, each Bondholder will
have the
right to require us, within 60 days following the date on which
the
Bondholder has been given notice of delisting or a change of
control, to
redeem all or some of that holder’s Bonds. The cost for redemption for
delisting or change in control reasons would range between
approximately
$362,400 and $4,069,600, depending on the date of the redemption
and
related early redemption rate. After payment of the full potential
redemption amount, assuming none of the Bonds had been previously
redeemed, we would have net proceeds of
$2,144,400.
|
|
(10)
|
At
any time prior to November 13, 2012, we may, having given not
less than 30
nor more than 60 days’ notice to the Bondholders, and The Bank of New
York, London Branch (the “Trustee”) and The Bank of New York, London
Branch (the “Principal Agent,”) which notice will be irrevocable, redeem
all and not some only of the Bonds at a redemption price equal
to the
early redemption amount on the redemption date if more than
ninety percent
in principal amount of the Bonds has already been converted,
redeemed or
purchased and cancelled. The early redemption amount of a Bond,
for each
US$1,000 principal amount of the Bonds, is determined so that
it
represents for the Bondholder a gross yield of twelve percent
per annum,
calculated on a semi-annual basis. This may result in us having
to pay up
to approximately $4,800,000 to the Bondholders in addition
to the
principal amount of the Bonds. After payment of the full potential
redemption amount, assuming none of the Bonds had been previously
redeemed, we would have net proceeds of
$1,414,000.
|
Potential
Profits of the Bondholder
|
|
Amounts
received or to be received by the Bondholder (not including
principal)
|
|
Potential
profit to Bondholder under each redemption scenario (not including
principal)
|
|
Fees
and expenses paid for benefit of Bondholder
|
|
$
|
106,000
|
|
|
|
|
Payment
of 3% commission
|
|
|
240,000
|
|
|
|
|
Value
of the Warrants
|
|
|
2,099,940
|
|
|
|
|
Standard
interest
|
|
|
1,440,000
|
|
|
|
|
Total
benefit of fees, expenses, commission and standard interest
for benefit of
Bondholder
|
|
$
|
3,885,940
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
from the Company to the Bondholder under Each Possible Redemption
Scenario:
|
|
|
|
|
|
|
|
Mandatory
Redemption at Maturity
-
redemption of the Bonds at 150.87%
|
|
|
4,069,600
|
|
$
|
7,955,540
|
|
Redemption
at the Bondholder’s Option for Breach of Registration Obligations
-
redemption of the Bonds at 104.53%
|
|
|
362,400
|
|
$
|
4,248,340
|
|
Redemption
at the Bondholder’s Option
-
redemption of the Bonds at 126.51%
|
|
|
2,120,800
|
|
$
|
6,006,740
|
|
Redemption
for Tax Reasons
-
redemption of the Bonds at redemption rate up to
150.87%
|
|
|
4,069,600
|
|
$
|
7,955,540
|
|
Redemption
for Delisting or a Change in Control
-
redemption of the Bonds at redemption rate up to
150.87%
|
|
|
4,069,600
|
|
$
|
7,955,540
|
|
Redemption
at Our Option
-
redemption of the Bonds at yield of twelve percent per
annum
|
|
|
4,800,000
|
|
$
|
8,685,940
|
|
In
addition to the potential net proceeds to the Company and potential profits
to
the Bondholder for each redemption scenario as set forth in the tables
above,
the Company may incur additional expenses, and therefore reduced profits,
if
any, and the Bondholder may receive additional profits if the conversion
price
is reduced pursuant to the terms of the Bonds. According to the Trust
Deed, 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. Based
on the
market value of our securities on the date of issuance of the Bonds,
ABN AMRO
could realize an additional profit of $3,428,571 as a result of the conversion
discount, and the Company would incur an additional expense in this amount.
Selling
Security Holders Table
The
following table sets forth information as of the date of this prospectus,
with
respect to the selling security holders and the principal amounts of bonds
beneficially owned by each selling security holder that may be offered
under
this prospectus. Information concerning the selling security holders may
change
from time to time and any changed information will be set forth in supplements
to this prospectus if and when necessary. In addition, the conversion rate
and,
therefore, the number of shares of common stock issuable upon conversion
of the
bonds, is subject to adjustment under certain circumstances.
On
the
date of this prospectus, 26,570,677 shares of our commons stock were
outstanding. This number of shares of our common stock outstanding excludes
(i)
83,800 shares of our common stock issuable upon exercise of outstanding
warrants, (ii) 2,285,714 shares of our common stock issuable upon the conversion
of the Bonds, subject to adjustment, (iii) 600,000 shares of our common
stock
issuable upon the exercise of the Bond Warrants, subject to adjustment,
and
(iv)
2,500,000 shares of common stock reserved for future issuance under our
2008
Amended and Restated Equity Incentive Plan.
Name of Selling
Security Holder
|
|
Beneficial Ownership
of Shares of Common
Stock Prior to the
Offering
|
|
Shares of
Common Stock
Being Offered
|
|
Principal Amount of
Bonds Beneficially
Owned Prior to the
Offering
|
|
Bonds Being
Offered
|
|
Number of Bond
Warrants Being
Offered
|
|
ABN
AMRO Bank N.V.
|
|
|
—
|
|
|
2,885,714
|
(1)
|
$
|
8,000,000
|
|
$
|
8,000,000
|
|
|
600,000
|
|
Public
Equity Group(2)
|
|
|
200,000
|
|
|
200,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1)
|
Consists
of (i) 2,285,714 shares of common stock may be acquired upon
conversion of
the Bonds, which are not convertible until February 12, 2009,
and (ii)
600,000 shares of common stock that may be acquired upon exercise
of the
Bond Warrants which become exercisable on February 12, 2009.
For purposes
of calculating the number of shares of common stock owned by
ABN AMRO as
of the date of this prospectus, we have calculated the number
of shares
issuable upon conversion of the Bonds based on an initial conversion
price
equal to $3.50 per share, the price at which shares were sold
in our
initial public offering on Alternext. Based on information provided
to us
by ABN AMRO, ABN AMRO is an affiliate of a broker-dealer and
it acquired
these securities in the ordinary course of business and, at the
time of
the acquisition of these securities, it had no agreements or
understandings, directly or indirectly, with any person to distribute
these securities. Graeme Booth and Alex Gardner have voting and
investment
control over the securities owned by this
entity.
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(2)
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Brad
Stewart has voting and investment control over the shares owned
by this
entity. On January 16, 2008, we entered into a consulting agreement
with
Public Equity Group Inc. Pursuant to the agreement, Public Equity
Group
will provide us with business consulting and investor relation
services,
oversee of all of our investor public relation and related service
providers, and monitor our investor relation meetings with brokerage
firms
and brokers to develop support for our stock and research coverage,
in
addition to strategic advice and other customary investor relation
services. The agreement has a term of one year, unless terminated
earlier
with 60-days prior written notice. As consideration for entering
into the
agreement and compensation for Public Equity Group’s services under the
agreement, we issued 200,000 shares of our common stock to Public
Equity
Group Inc.
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DESCRIPTION
OF SECURITIES
Common
Stock
We
are
authorized to issue 100,000,000 shares of common stock, $0.0001 par value per
share. Each outstanding share of common stock is entitled to one vote, either
in
person or by proxy, on all matters that may be voted upon by their holders
at
meetings of the stockholders.
Holders
of our common stock:
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(i)
|
have
equal ratable rights to dividends from funds legally available therefore,
if declared by our Board of Directors;
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(ii)
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are
entitled to share ratably in all of our assets available for distribution
to holders of common stock upon our liquidation, dissolution or winding
up;
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(iii)
|
do
not have preemptive, subscription or conversion rights or redemption
or
sinking fund provisions; and
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(iv)
|
are
entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of our stockholders.
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The
holders of shares of our common stock do not have cumulative voting rights,
which means that the holders of more than fifty percent (50%) of outstanding
shares voting for the election of directors can elect all of our directors
if
they so choose and, in such event, the holders of the remaining shares will
not
be able to elect any of our directors.
As
of November 1, 2008, our principal shareholder owns approximately 65.4% of
the outstanding shares of our common stock. Accordingly, this stockholder
is in
a position to control all of our affairs.
Preferred
Stock
We
may
issue up to 10,000,000 shares of our preferred stock, par value $.0001 per
share, from time to time in one or more series. Our Board of Directors, without
further approval of our stockholders, is authorized to fix the dividend rights
and terms, conversion rights, voting rights, redemption rights, liquidation
preferences and other rights and restrictions relating to any series. Issuances
of shares of preferred stock, while providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of our common
stock and prior series of preferred stock then outstanding.
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.
As
of
September 1, 2008, all of the Series A Convertible Preferred Stock have been
converted to common stock. Each share of the Series A Convertible Preferred
Stock was converted into shares of common stock at a conversion price equal
to
the purchase price of such shares.
Warrants
In
connection with the Bond offering completed in November 2007, we issued
three-year warrants (the “Bond Warrants”) to purchase 600,000 shares of our
common stock subject to the terms of a warrant instrument entered into by and
between us and ABN AMRO and a warrant agency agreement entered into by and
among
us, The Bank of New York and The Bank of New York, London Branch, both dated
November 13, 2007. We agreed to register the Bond Warrants and the shares of
common stock underlying the Bond Warrants. The Bond Warrants are exercisable
at
$0.0001 per share from February 12, 2009 until November 6, 2010. The Bond
Warrants and the shares of common stock underlying the Bond Warrants are covered
by this prospectus. In addition, we issued to the underwriter of our initial
public offering, which closed in February 2008, warrants to purchase up to
83,800 shares of our common stock. The warrants are exercisable at $4.20 per
share and will expire if unexercised after five years from the date of
issuance.
Convertible
Bonds
On
November 13, 2007, we issued the Bonds. Each Bond is convertible at the
option
of the holder at any time on and after February 12, 2009 up to November
6, 2012,
into shares of our common stock at an initial conversion price of $3.50,
the
price per share at which shares were sold in our initial public offering
of our
common stock on
Alternext
.
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 addition,
the
conversion price will only be adjusted pursuant to the Trust Deed to an
amount
not less than $0.25 per share (as adjusted for stock splits, stock dividends,
spin-offs, rights offerings, recapitalizations and similar events) except
in
certain circumstances.
Market
Price of Our Common Stock
Our
common stock is currently listed for trading on Alternext under the ticker
symbol “TYM.” The price of our common stock will likely fluctuate in the future.
The stock market in general has experienced extreme stock price fluctuations
in
the past few years. In some cases, these fluctuations have been unrelated
to the
operating performance of the affected companies. Many companies have experienced
dramatic volatility in the market prices of their common stock. We believe
that
a number of factors, both within and outside our control, could cause the
price
of our common stock to fluctuate, perhaps substantially. Factors such as
the
following could have a significant adverse impact on the market price of
our
common stock:
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Our
ability to obtain additional financing and, if available, the terms
and
conditions of the financing;
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·
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Our
financial position and results of
operations;
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·
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Concern
as to, or other evidence of, the reliability and efficiency of our
proposed products and services or our competitors’ products and
services;
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·
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Announcements
of innovations or new products or services by us or our
competitors;
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·
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U.S.
federal and state governmental regulatory actions and the impact
of such
requirements on our business;
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·
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The
development of litigation against
us;
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·
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Period-to-period
fluctuations in our operating
results;
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·
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Changes
in estimates of our performance by any securities
analysts;
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·
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The
issuance of new equity securities pursuant to a future offering or
acquisition;
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·
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Changes
in interest rates;
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·
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Competitive
developments, including announcements by competitors of new products
or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
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·
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Investor
perceptions of our company; and
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·
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General
economic and other national
conditions.
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Delaware
Anti-Takeover Law and Charter Bylaws Provisions
We
are
subject to Section 203 of the Delaware General Corporation Law. This provision
generally prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date the stockholder became an interested stockholder,
unless:
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·
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prior
to such date, the Board of Directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
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·
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upon
consummation of the transaction that resulted in the stockholder
becoming
an interested stockholder, the interested stockholder owned at least
85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the
number of
shares outstanding those shares owned by persons who are directors
and
also officers and by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares
held
subject to the plan will be tendered in a tender or exchange offer;
or
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·
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on
or subsequent to such date, the business combination is approved
by the
Board of Directors and authorized at an annual meeting or special
meeting
of stockholders and not by written consent, by the affirmative vote
of at
least 66 2/3% of the outstanding voting stock that is not owned by
the
interested stockholder.
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Section
203 defines a business combination to include:
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·
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any
merger or consolidation involving the corporation and the interested
stockholder;
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·
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any
sale, transfer, pledge or other disposition of 10% or more of the
assets
of the corporation involving the interested stockholder;
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·
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subject
to certain exceptions, any transaction that results in the issuance
or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
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·
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any
transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder;
or
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·
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the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided
by or
through the corporation.
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In
general, Section 203 defines an “interested stockholder” as any entity or person
beneficially owning 15% or more of the outstanding voting stock of a
corporation, or an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of a corporation at any time
within three years prior to the time of determination of interested stockholder
status; and any entity or person affiliated with or controlling or controlled
by
such entity or person.
Our
certificate of incorporation and bylaws contain provisions that could have
the
effect of discouraging potential acquisition proposals or making a tender offer
or delaying or preventing a change in control of our company, including changes
a stockholder might consider favorable. In particular, our certificate of
incorporation and bylaws, as applicable, among other things, will:
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·
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provide
our board of directors with the ability to alter our bylaws without
stockholder approval;
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·
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provide
for an advance notice procedure with regard to the nomination of
candidates for election as directors and with regard to business
to be
brought before a meeting of
stockholders;
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·
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provide
that vacancies on our board of directors may be filled by a majority
of
directors in office, although less than a
quorum.
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Such
provisions may have the effect of discouraging a third-party from acquiring
our
company, even if doing so would be beneficial to our stockholders. These
provisions are intended to enhance the likelihood of continuity and stability
in
the composition of our board of directors and in the policies formulated by
them, and to discourage some types of transactions that may involve an actual
or
threatened change in control of our company. These provisions are designed
to
reduce our vulnerability to an unsolicited acquisition proposal and to
discourage some tactics that may be used in proxy fights. We believe that the
benefits of increased protection of our potential ability to negotiate with
the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
us
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
However,
these provisions could have the effect of discouraging others from making tender
offers for our shares that could result from actual or rumored takeover
attempts. These provisions also may have the effect of preventing changes in
our
management.
Transfer
Agent
The
transfer agent and registrar for our common stock is Corporate Stock Transfer.
Listing
Our
shares of common stock are currently listed for trading on the Alternext
under
the ticker symbol “TYM.”
DESCRIPTION
OF THE BONDS
On
November 13, 2007, we completed a financing transaction with ABN AMRO issuing
the Bonds. The Bonds were issued pursuant to, and are subject to the terms
and
conditions of, a trust deed, between us and The Bank of New York, London Branch,
dated November 13, 2007 (the “Trust Deed”) and are represented by the global
certificate in the form as set forth in the Trust Deed. The Bonds are also
subject to a paying and conversion agency agreement dated November 13, 2007
between us, The Bank of New York, and The Bank of New York, London Branch (the
“Agency Agreement”). The Bank of New York, London Branch (“Principal Agent”)
will act as the principal agent under the Trust Deed and The Bank of New York
will act as the registrar.
We
are
summarizing the material provisions of the Bonds and the Trust Deed. You should
refer to the specific terms of the Trust Deed, and the terms and conditions
of
the Bonds contained therein, for a complete statement of the terms of the Bonds.
When we use capitalized terms that we do not define here, those terms have
the
meanings given in the Trust Deed. Unless otherwise indicated, when we use
references to Sections or defined terms, we mean Sections or defined terms
in
the Trust Deed. The following summary is qualified by reference to the
applicable provisions of the Trust Deed, which we filed as an exhibit to the
registration statement of which this prospectus is a part which is incorporated
by reference herein.
General
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 ABN AMRO. The terms and conditions
of the Bonds, as set forth in the Trust Deed include, among other thing, the
following terms:
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Interest
Rate.
The Bonds bear 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.
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·
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Conversion.
Each Bond is convertible at the option of the holder at any time
after
February 12, 2009 up to November 6, 2012, into shares of our common
stock
at an initial conversion price of $3.50, the price per share at
which
shares were sold in our initial public offering of common stock
on
NYSE
Alternext US (formerly known as American Stock Exchange)
(“Alternext”)
. 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. In addition, 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
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) except in certain
circumstances.
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·
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Mandatory
Redemptions.
If
either (i) our common stock (including the shares of common stock
issuable
upon conversion of the Bonds and exercise of the Bond Warrants)
are not
listed on Alternext on or before August 13, 2008 or (ii) we breach
certain
of our obligations to register the Bonds, Bond Warrants and underlying
shares as promptly as possible, and in no event later than February
12,
2009, pursuant to the registration rights agreement dated November
13,
2007 entered into by and between the Subscriber and us, then holders
of
the Bonds can require us to redeem the Bonds at 104.53% of the
principal
amount at any time after November 13, 2008. In addition, at any
time after
November 13, 2010, holders of the Bonds can require us to redeem
the Bonds
at 126.51% of the principal amount. We are required to redeem any
outstanding Bonds at 150.87% of its principal amount on November
13,
2012.
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Ranking
The
Bonds
constitute direct, unsubordinated, unconditional and, unsecured obligations
of
us and will at all times rank
pari
passu
and
without any preference or priority among themselves and our payment obligations
under the Bonds will rank at least equally with all of our other present and
future unsecured and unsubordinated obligations (other than any obligations
preferred by mandatory provisions of applicable law). If we create any secure
obligation in any debentures, loan stock, bonds, notes, bearer participation
certificates, depository receipts, certificates of deposit or other similar
securities for the purpose of raising money which are listed, or are issued
with
the intention that they will be listed, in any securities market, we must also
secure the Bonds in substantially identical terms.
Title
and Transfer
Title
to
the Bonds passes only by transfer and registration in the register of
Bondholders. The holder of any Bond will (except as otherwise required by law)
be treated as its absolute owner for all purposes (whether or not it is overdue
and regardless of any notice of ownership, trust or any interest in it or any
writing on, or the theft or loss of, the Bond certificate issued in respect
of
it) and no person will be liable for so treating the holder. Bondholder and
(in
relation to a Bond) holder mean the person in whose name a Bond is
registered.
A
Bond
may be transferred by delivery of the certificate issued in respect of that
Bond, with the form of transfer on the back duly completed and signed by the
holder or his attorney duly authorized in writing, to the specified office
of
the registrar or any of the agents appointed under the Trust Deed. No transfer
of a Bond will be valid unless and until entered on the register of Bondholders.
All transfers of Bonds and entries on the register of Bondholders will be made
subject to the detailed regulations concerning transfer of Bonds scheduled
to
the Agency Agreement. The regulations may be changed by us, but only with the
prior written approval of the trustee and the registrar as identified in the
Trust Deed. A copy of the current regulations will be mailed (free of charge)
by
the registrar to any Bondholder upon request.
Conversion
Conversion
Period
Bondholders
have the right to convert their Bonds into shares of our common stock at any
time during the conversion period, which is described below. Any Bond may be
converted, at the option of the holder, at any time on and after February 12,
2009 up to the close of business (at the place where the certificate evidencing
such Bond is deposited for conversion) on November 6, 2012, provided that,
however, if such Bond has been called for redemption before November 13, 2012,
then such Bond may be converted up to the close of business on a date no later
than seven business days prior to the date fixed for redemption.
The
number of shares of our common stock to be issued upon conversion of a Bond
will
be determined by dividing the principal amount of the Bond to be converted
by
the conversion price in effect at the conversion date, both as defined in the
Trust Deed, and as discussed below. Conversion of a Bond may only be exercised
in respect of one or more Bonds. If more than one Bond held by the same holder
is converted at any one time by the same holder, the number of shares of our
commons stock to be issued upon such conversion will be calculated on the basis
of the aggregate principal amount of Bonds to be converted.
Fractions
of shares of our common stock will not be issued on conversion and no cash
adjustments will be made for such conversions. Notwithstanding the foregoing,
in
the event of a consolidation or re-classification of the shares of our common
stock by operation of law or otherwise occurring after November 13, 2007 which
reduces the number of shares of common stock outstanding, we will upon
conversion of Bonds pay in cash (in US dollars by means of a US dollar check
drawn on a bank in New York) a sum equal to such portion of the principal amount
of the Bond or Bonds evidenced by the certificate deposited in connection with
the exercise of conversion rights, for any fraction of a share of common stock
not issued as a result of such consolidation or re-classification aforesaid
if
such sum exceeds $10.00.
Conversion
Price
The
price
at which shares of our common stock will be issued upon conversion will
initially be $3.50 per share, the price per share at which shares were sold
in
our initial public offering on Alternext.
Adjustments
to Conversion Price
The
conversion price of the Bonds is subject to adjustment upon the occurrence
of
certain events, including:
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The
alteration of the nominal value of shares of our common stock as
a result
of consolidation, subdivision or
reclassification;
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If
we issue any shares of our common stock credited as fully paid to
our
shareholders by capitalization of profits or reserves including,
shares
paid up out of distributable profits or reserves and/or share premium
account issued and which would not have constituted a capital
distribution;
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A
capital distribution to our shareholders. The adjustment to the conversion
price upon a capital distribution will become effective on the date
of the
capital distribution is actually made and when the capital distribution
is
by means of a cash dividend, it will be fully taken into account
in the
fair market value of the portion of the capital distribution attributable
to one share;
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If
we issue shares of our common stock to all or substantially all of
our
shareholders at less than the current market price per share on the
last
trading day preceding the date of the announcement or issue of the
grant;
and
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If
we issue shares of our common stock at less than the conversion price
in
effect at the time of such issuance, the conversion price will be
reduced
concurrently with the issuance to a price equal to the consideration
per
share for which such shares were
issued.
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In
addition, 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
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) except in certain circumstances.
Redemption
Unless
previously redeemed, converted or purchased and cancelled, we are required
to
redeem any outstanding Bonds at 150.87% of its principal amount on November
13,
2012 (the “Maturity Date”).
Redemption
at Our Option
At
any
time prior to the Maturity Date, we may, having given not less than 30 nor
more
than 60 days’ notice to the Bondholders, the Trustee and the Principal Agent,
which notice will be irrevocable, redeem all and not some only of the Bonds
at a
redemption price equal to the early redemption amount on the redemption date
if
more than ninety percent in principal amount of the Bonds has already been
converted, redeemed or purchased and cancelled. The early redemption amount
of a
Bond, for each $1,000 principal amount of the Bonds, is determined so that
it
represents for the Bondholder a gross yield of twelve percent per annum,
calculated on a semi-annual basis.
Redemption
for Taxation Reasons
At
any
time, we may, having given not less than 30 nor more than 60 days’ notice to the
Bondholders, redeem all, but not some only, of the Bonds at a redemption price
equal to the early redemption amount on the redemption date if (i) we have
or
will become obliged to pay additional amounts for any present or future taxes,
duties, assessments or governmental charges, as a result of a change in, or
amendment to, the laws of the Unites States, the PRC or England, and (ii) the
obligation to pay additional amounts cannot be avoided provided that we do
not
give notice of redemption earlier than 90 days prior to the earliest date on
which we would be obliged to pay such additional amounts were a payment in
respect of the Bonds then due.
Redemption
at the Option of the Bondholder
:
In
the
event that either (i) our shares are not listed on Alternext (including shares
issuable upon conversion of the Bonds and exercise of the Bond Warrants)
on or
before August 13, 2008 or (ii) we breach certain of our obligations to register
the Bonds, Bond Warrants and underlying shares as promptly as possible, and
in
no event later than February 12, 2009, pursuant to the registration rights
agreement dated November 13, 2007 entered into by and between the Subscriber
and
us, the holder of each Bond will have the right, at such holder’s option, to
require us to redeem all or some of the Bonds held by that holder, at any
time
on or after the first anniversary of November 13, 2007, at 104.53% of our
principal amount of the Bonds. At any time on or after the third anniversary
of
November 13, 2007, the holder of each Bond will have the right, at such holder’s
option, to require us to redeem all or some of the Bonds held by that holder
at
126.51% of our principal amount of the Bonds. To exercise either such optional
redemption right, the holder of the relevant Bond must complete, sign and
deliver at the specified office or any paying agent, as identified in the
Agency
Agreement, a duly completed and signed notice of redemption, in the then
current
form obtainable from the specified office of any paying agent together with
the
certificate evidencing the Bonds to be redeemed not earlier than 60 days
and not
later than 30 days prior to the date chosen by the Bondholder for redemption,
which must be a business day.
Redemption
for Delisting or a Change in Control
If
there
is a change of control of the Company, as defined in the Trust Deed, or if
our
common stock ceases to be listed or admitted to trading on Alternext or if
trading in respect of our common stock is suspended temporarily or otherwise
on
Alternext for twenty (20) or more consecutive trading days, each Bondholder
will
have the right to require us to redeem all or some of that holder’s Bonds. We
shall provide notice to the Bondholders within fourteen (14) days after we
become aware of the occurrence of a delisting or change of control specifying
the procedures for the exercise of the Bondholders’ rights to redemption. A
Bondholder may exercise its right to redemption by completing, signing and
depositing, at its own expense at the office of a paying agent, a notice
of
redemption together with the certificate evidencing the Bonds to be redeemed
within sixty (60) days following the latter of the occurrence of a delisting
or
change of control or the date on which notice of the delisting or change
of
control is provided to the Bondholder by us. Once a Bondholder provides such
notice of redemption, it is irrevocable and we must redeem the Bonds on the
fourteenth (14
th
)
day
following such sixty (60) day period.
Purchase
and Cancellation
We
may at
any time and from time to time purchase Bonds at any price in the open market
or
otherwise. All Bonds which are redeemed, converted or purchased by us, will
be
cancelled. Certificates in respect of all Bonds cancelled will be forwarded
to
or to the order of the registrar and such Bonds may not be reissued or
resold.
Defaults
and Remedies
The
Trustee, in its sole discretion may, and if so requested in writing by the
holders of not less than 25% in principal amount of the Bonds then outstanding
or if so directed by an extraordinary resolution, give notice to us that the
Bonds are immediately due and repayable at an early redemption amount
if:
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a
default is made in the payment of any principal or early redemption
amount
due in respect of the Bonds;
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any
failure by us to deliver the shares of our common stock as and when
the
shares are required to be delivered following conversion of Bonds
and such
failure continues for seven days;
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we
do not perform or comply with one or more of our other obligations
in the
Bonds or the Trust Deed which default is incapable of remedy or,
if in the
opinion of the trustee capable of remedy, is not in the opinion of
the
trustee remedied within 21 days after written notice by the trustee
of
such default is delivered to us;
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(a)
we or any of our subsidiaries are or could be deemed by law to be
insolvent or bankrupt or unable to pay our debts, (b) we or any of
our
subsidiaries stop, suspend or threaten to stop or suspend payment
of all
or a material part of our debts, (c) we or any of our subsidiaries
propose
or make any agreement to defer, reschedule or readjust all of our
debts,
(d) we or any of our subsidiaries propose or make a general assignment
or
an arrangement with or for the benefit of our creditors for any of
such
debts, (e) a moratorium is agreed or declared in respect of or affecting
all or any part of the debts of us or any of our subsidiaries, or
(f) an
administrator or liquidator or the whole or any material part of
the
assets of us or any of our subsidiaries is
appointed;
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any
of present or future indebtedness of us or any of our subsidiaries
becomes, or becomes capable of being declared, due and payable prior
to
its stated maturity by reason of any actual or potential default,
event of
default or the like, or (b) any such indebtedness is not paid when
due or,
as the case may be, within any applicable grace period, or (c) we
or any
of our subsidiaries fail to pay when due any amount payable under
any
present or future guarantee for, or indemnity in respect of, any
moneys
borrowed or raised, provided that the aggregate amount of the relevant
indebtedness, guarantees and indemnities in respect of which one
or more
of the events mentioned above in (a), (b), or (c) equals or exceeds
$5,000,000;
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a
distress, attachment, execution, seizure before judgment or other
legal
process is levied, enforced or sued out on or against any of the
property
or assets of us or any of our
subsidiaries;
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an
order is made or an effective resolution passed for the winding-up
or
dissolution, judicial management or administration of us or any of
our
subsidiaries (except for a members’ voluntary solvent winding-up), or we
or any of our subsidiaries cease or threaten to cease to carry on
all or
substantially all of our business or operations and except for the
purpose
of and followed by a reconstruction, amalgamation, reorganization,
merger
or consolidation (a) on terms approved by an extraordinary resolution,
or
(b) in the case of any subsidiary, whereby the undertaking and assets
of
such subsidiary are transferred to or otherwise vested in us or any
of our
subsidiaries;
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a
lien holder or other holder of an encumbrance takes possession or
an
administrative or other receiver, manager, or administrator is appointed
of the whole or any material part of the property or assets of us
or any
of our subsidiaries and is not discharged within 30
days;
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any
step is taken by any person with a view to the seizure, compulsory
acquisition, expropriation or nationalization of all or a material
part of
the assets of us or any of our subsidiaries; or (b) we or any of
our
subsidiaries are prevented from exercising normal control over all
or any
substantial part of our property or
assets;
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any
action or condition (including obtaining any necessary consent, approval,
authorization, exemption, filing, license, order, recording or
registration) at any time required to be taken or fulfilled in order
(a)
to enable us to lawfully enter into, exercise our rights and perform
and
comply with our obligations under the Bonds and the Trust Deed, (b)
to
ensure that those obligations are legally binding and enforceable
and (c)
to make the Bonds and the Trust Deed admissible in evidence in the
courts
of the United States or the PRC is not taken, fulfilled or
done;
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it
is or will become unlawful for us to perform or comply with our
obligations under any of the Bonds or the Trust
Deed;
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the
conversion price is affected by any limitation to an adjustment to
the
conversion set forth in the relevant sections of the Trust Deed;
or
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any
event occurs which under the laws of any relevant jurisdiction has
an
analogous effect to any of the events referred to in any of the foregoing
paragraphs.
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Modification
and Waiver
The
Trust
Deed permits the Trustee, without the consent of the Bondholders, to agree
to
(i) a modification to, or waiver of any breach of, the Bonds, the Agency
Agreement or the Trust Deed, if in the opinion of the Trustee it is not
materially prejudicial to the interests of the Bondholders or (ii) any
modification to the Bonds or the Trust Deed, which, in the Trustee’s opinion, is
of a formal, minor, or technical nature or to correct a manifest or proven
error
to comply with the mandatory provisions of law.
Governing
Law
The
Trust
Deed and the Bonds are governed by English law.
Termination
of the Trust Deed
The
Trust
Deed will terminate when none of the Bonds remains outstanding.
DESCRIPTION
OF THE BOND WARRANTS
On
November 13, 2007, we completed a financing transaction with ABN AMRO issuing
600,000 warrants to purchase an aggregate of 600,000 shares of our common stock
expiring 2010, subject to adjustment (the “Bond Warrants”). The warrant
instrument between us and ABN AMRO is dated November 13, 2007 (the “Warrant
Instrument”). The Bond Warrants are subject to the terms of a warrant agency
agreement by and among us, The Bank of New York (the “Registrar”) and The Bank
of New York, London Branch (the “Agent”), dated November 13, 2007 (the “Warrant
Agency Agreement”). The following is a summary of the material provisions of the
Bond Warrants.
General
The
Bond
Warrants are in registered form and represented by a global certificate.
Pursuant to the terms and conditions of the Warrant Instrument and the Warrant
Agency Agreement, the Bond Warrants are exercisable from February 12, 2009
until
November 6, 2010. On November 13, 2007 we also entered into a registration
rights agreement with ABN AMRO pursuant to which we agreed to include the Bonds,
the Bond Warrants, and the shares of common stock underlying the Bonds and
Bond
Warrants in a registration statement, of which this prospectus is a
part.
Shares
of
our common stock issuable upon the exercise of the Bond Warrants
will:
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rank
pari
passu
in
all respects from the effective date of issue with the shares of
our
common stock then in issue;
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be
entitled to all dividends and distributions paid on any date or by
reference to any date on or after the exercise
date;
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otherwise
have the rights and privileges of shareholder as prescribed in our
Certificate of Incorporation.
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No
fraction of a Warrant Share will be issued on the exercise of a Bond Warrant
but, if more than one Bond Warrant is exercised at the same time by the same
holder, then, for the purpose of determining the number of the Warrant Shares
to
be issued upon exercise and whether any fraction of a Warrant Share arises,
the
number of shares arising on the exercise of each Bond Warrant will be
aggregated.
Exercise
Shares
of
our common stock can be issued upon the exercise of the Bond Warrants at an
exercise price of $0.0001 per Bond Warrant, subject to adjustment, any time
from
February 12, 2009 until November 6, 2010.
Adjustments
The
number of shares of common stock issuable upon the exercise of the Bond Warrants
and the subscription price are subject to adjustment for any stock split or
subdivision, reclassification, or reorganization of the common
stock.
Transfer
We
will
ensure that a register is kept at the specified office of the Registrar as
identified in the Warrant Instrument. Bond Warrants may, subject to the terms
of
the Warrant Instrument and the Warrant Agency Agreement, be transferred in
whole
or in part in an authorized denomination by submitting the relevant Bond Warrant
certificate at the specified office of the Registrar or Agent as indicated
in
the Warrant Instrument.
Winding
up
We
will
notify and invite as soon as reasonably practicable all Bond Warrant holders
to
attend any of our general shareholders’ meeting having on our agenda the
possible voluntary winding up or dissolution of our company. In the event of
our
winding up or dissolution, each holder of a Bond Warrant will be deemed to
have
exercised all his or her Bond Warrants and will be treated as a holder of
Warrant Shares equal to the maximum number of shares issuable under his or
her
Bond Warrants. Each Bond Warrant holder will receive out of the proceeds of
our
share capital resulting from winding up or dissolution, in addition to any
liquidation surplus to which the holder is entitled to as the holder of those
Warrant shares. Subject to compliance with these conditions, the Bond Warrants
will lapse upon our liquidation.
Reservation
of Shares
While
the
Bond Warrants are outstanding, we will keep available for issue, and free from
pre-emptive rights, out of our authorized but unissued share capital the number
of shares of common stock that are issuable upon the exercise of all outstanding
Bond Warrants. We will also ensure that our directors have all necessary
authorizations to allot such common shares at any time.
MATERIAL
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES
FOR HOLDERS OF BONDS AND BOND WARRANTS
The
following discussion of the material United States federal income tax matters
addressed herein is the opinion of K&L Gates LLP.
The
following is a summary of certain material U.S. federal income tax consequences
relating to the purchase, ownership and disposition of the Bonds, the Bond
Warrants and common stock underlying the Bonds and the Bond Warrants, but is
not
a complete analysis of all the potential tax consequences relating thereto.
This
summary is based upon the provisions of the Internal Revenue Code of 1986,
as
amended, which we refer to as the “Code”, Treasury regulations promulgated
thereunder, administrative rulings and judicial decisions, all as of the date
hereof. These authorities may be changed, possibly retroactively, so as to
result in U.S. federal income tax consequences different from those set forth
below. We have not sought any ruling from the Internal Revenue Service, which
we
refer to as “IRS”, with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the IRS
will agree with such statements and conclusions.
This
summary is limited to holders who purchase Bonds or Bond Warrants for cash
and
who hold the Bonds, the Bond Warrants and the common stock underlying the Bonds
and the Bond Warrants as capital assets. This summary also does not address
the
tax consequences arising under the laws of any foreign, state or local
jurisdiction. In addition, this summary does not address tax consequences
applicable to a holder’s particular circumstances or to holders that may be
subject to special tax rules, including, without limitation:
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partnerships
or other pass-through entities or investors in such
entities;
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banks,
insurance companies or other financial
institutions;
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persons
subject to the U.S. federal estate, gift or alternative minimum tax
arising from the purchase, ownership or disposition of the
notes;
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tax-exempt
organizations;
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dealers
in securities or currencies;
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traders
in securities that elect to use a mark-to-market method of accounting
for
their securities holdings;
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certain
former citizens or long-term residents of the United States;
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U.S.
holders (as defined below) whose functional currency is not the U.S.
dollar;
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persons
who hold the Bonds, Bond Warrants or the common stock underlying
the Bonds
and the Bond Warrants in connection with a straddle, hedging, conversion
or other risk reduction transaction;
or
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persons
deemed to sell the Bonds, Bond Warrants or the common stock underlying
the
Bonds and the Bond Warrantsunder the constructive sale provisions
of the
Code.
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If
a
holder is an entity treated as a partnership for U.S. federal income tax
purposes, the tax treatment of each partner of such partnership will depend
upon
the status of the partner and the activities of the partnership. A holder that
is a partnership, and partners in such partnerships, should consult their own
tax advisors regarding the tax consequences of the purchase, ownership and
disposition of the Bonds, the Bond Warrants and common stock.
INVESTORS
CONSIDERING THE PURCHASE OF THE BONDS OR THE BOND WARRANTS SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME
TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
Consequences
to U.S. Holders
The
following is a summary of certain material U.S. federal income tax consequences
that will apply to you if you are a U.S. holder of the Bonds, the Bond Warrants
or our common stock. Certain consequences to “non-U.S. holders” of the Bonds,
the Bond Warrants or common stock are described under “—Consequences to Non-U.S.
Holders” below. As used herein, the term “U.S. holder” means a beneficial owner
of a Bond, a Bond Warrant or common stock who or that is:
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an
individual who is a citizen or resident of the United
States;
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a
corporation or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of
the
United States or any political subdivision
thereof;
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an
estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or
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a
trust if (1) the administration of the trust is subject to the primary
supervision of a court within the United States and one or more U.S.
persons have the authority to control all substantial decisions of
the
trust or (2) the trust has a valid election in effect under applicable
Treasury regulations to be treated as a U.S.
person.
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Payments
of Interest
Qualified
stated interest on the Bonds will be taxable to you as ordinary income at the
time it is accrued or received in accordance with your method of accounting
for
U.S. federal income tax purposes.
Original
Issue Discount
In
accordance with Sections 1271 through 1275 of the Code and the Treasury
regulations thereunder, the Bonds will bear “original issue discount” if its
“stated redemption price at maturity” exceeds its “issue price” by more than a
de
minimis
amount.
For U.S. federal income tax purposes, the Bonds and the Bond Warrants were
treated as an investment unit upon initial issuance. The “issue price” of the
investment unit is the first price at which we sold a substantial portion of
the
investment units, disregarding sales to bond houses, brokers, or similar persons
or organizations acting in the capacity of underwriters, placement agents,
or
wholesalers. The issue price of a Bond is determined by allocating the issue
price of an investment unit between the Bond and the Bond Warrant based on
their
relative fair market values. Our allocation of the issue price is binding on
a
U.S. holder of the Bonds and the Bond Warrants, unless the holder explicitly
discloses on a statement attached to its federal income tax return for the
year
in which it acquires the Bonds or the Bond Warrants that it has made a different
determination. Our allocation is not binding on the IRS, however, and the IRS
may challenge such allocation. If the IRS successfully asserts that the issue
price of a Bond is less than the amount allocated by us, a greater amount of
original issue discount will accrue on the Bonds.
The
stated redemption price at maturity of a Bond includes all amounts payable
other
than “qualified stated interest” (i.e., payments that are unconditionally
required to be paid at least annually at the lowest single fixed rate over
the
term of the Bonds). Because the Bonds were issued as part of an investment
unit
and we are required to redeem any outstanding Bonds at 150.87% of their
principal amount on November 13, 2012, the stated redemption price at maturity
of a Bond exceeds its issue price, as determined above, and the Bonds were
issued with original issue discount.
Each
U.S.
holder of a Bond must include original issue discount in income as ordinary
interest income for U.S. federal income tax purposes as it accrues in advance
of
the receipt of cash payments attributable to such income, regardless of such
holder’s regular method of tax accounting. As a result, a U.S. holder will be
required to include original issue discount in income prior to the receipt
of
cash with respect thereto. The original issue discount will accrue daily in
accordance with a constant yield method based on a compounding of interest.
The
original issue discount allocable to any accrual period will be equal to the
product of the adjusted issue price of the Bonds as of the beginning of such
period and the yield to maturity of the Bonds. The adjusted issue price of
the
Bonds as of the beginning of any accrual period will equal its issue price,
increased by the amount of original issue discount previously included in the
gross income of the applicable U.S. holder, and decreased by the amount of
any
payment made on the Bonds other than payments of qualified stated interest.
If
you purchase a Bond for an amount that is greater than its adjusted issue price
but equal to or less its stated redemption price at maturity, you will be
considered to have purchased that Bond at an "acquisition premium" equal to
the
amount of such excess, and the amount of original issue discount that you must
include as ordinary interest income for any taxable year will be reduced by
the
portion of the acquisition premium properly allocable to that year.
Market
Discount
If
you
purchase a Bond for an amount that is less than its revised issue price (which
is generally equal to its adjusted issue price, determined as described above),
the amount of the difference will be treated as market discount for U.S. federal
income tax purposes, unless this difference is less than a specified
de
minimis
amount.
You
will
be required to treat any principal payment on, or any gain on the sale,
exchange, retirement or other disposition of a Bond as ordinary income to the
extent of the market discount accrued on the Bond at the time of the payment
or
disposition unless you previously have included in income this market discount
pursuant to an election to include market discount in income as it accrues,
or
pursuant to a constant yield election. If the Bond is disposed of in certain
non-taxable transactions (not including its conversion into common stock),
accrued market discount will be included as ordinary income to you as if you
had
sold the Bond in a taxable transaction at its then fair market value. In
addition, you may be required to defer, until the maturity of the Bond or its
earlier disposition (including certain nontaxable transactions, but not
including its conversion into common stock), the deduction of all or a portion
of the interest expense on any indebtedness incurred or maintained to purchase
or carry such Bond.
Upon
conversion of a Bond acquired at a market discount, any market discount not
previously included in income (including as a result of the conversion) will
carryover to the common stock received. Any such market discount that is carried
over to common stock received upon conversion will be taxable as ordinary income
upon the sale or other disposition of the common stock.
Amortizable
Premium
If
your
tax basis in a Bond, immediately after the purchase, is greater than the stated
redemption price at maturity of the Bond, you will be considered to have
purchased the Bond with amortizable Bond premium. Amortizable Bond premium
with
respect to any Bond will be equal in amount to the excess, if any, of the tax
basis (reduced as set forth in the following sentence) over the stated
redemption price at maturity of the Bond. For this purpose only, a holder’s tax
basis in a Bond is reduced by an amount equal to the value of the option to
convert the Bond into common stock; the value of this conversion option may
be
determined under any reasonable method. You may elect to amortize any such
Bond
premium, using a constant yield method, over the remaining term of the Bond.
You
may use the amortizable Bond premium allocable to an accrual period to offset
qualified stated interest required to be included in your income with respect
to
the Bond in that accrual period. If you elect to amortize Bond premium, you
must
reduce your tax basis in the Bond by the amount of the premium amortized in
any
year. An election to amortize Bond premium applies to all taxable debt
obligations then owned and thereafter acquired by you and may be revoked only
with the consent of the IRS.
Constructive
Dividends
Holders
of convertible debt instruments such as the Bonds may, in certain circumstances,
be deemed to have received distributions of stock if the conversion price of
such instruments is adjusted. Adjustments to the conversion price made pursuant
to a bona fide reasonable adjustment formula that has the effect of preventing
the dilution of the interest of the holders of the Bonds will not be deemed
to
result in a constructive distribution of stock. However, certain of the possible
adjustments provided in the Bonds may not qualify as being pursuant to a bona
fide reasonable adjustment formula. If such adjustments are made, you will
be
deemed to have received constructive distributions includible in your income
in
the manner described under “—Dividends” below even though you have not received
any cash or property as a result of such adjustments. In certain circumstances,
the failure to provide for such an adjustment may also result in a constructive
distribution to you.
Sale,
Exchange, Redemption, Repurchase or Other Taxable Disposition of the Bonds
Except
as
set forth below under “—Conversion of the Bonds,” upon the sale, exchange,
redemption, repurchase or other taxable disposition of a Bond, you will
recognize gain or loss to the extent of the difference between (1) the sum
of
the cash and the fair market value of any property received on such disposition
(except to the extent attributable to the payment of accrued and unpaid interest
on the Bond, which will be taxed as ordinary income to the extent that you
have
not previously recognized this income), and (2) your adjusted tax basis in
the
Bond. Your adjusted tax basis in a Bond will equal the portion of the purchase
price allocated to the Bond (as discussed above under “Original Issue
Discount”), increased by market discount and original issue discount that you
have previously included in income with respect to the Bond and decreased by
the
amount of payments of principal and any premium that you have taken into account
with respect to the Bond. Except as set forth above under “—Market Discount,”
any such gain or loss you recognize upon such taxable disposition of a Bond
will
be capital gain or loss. In the case of a non-corporate U.S. holder, such
capital gain will be subject to tax at a reduced rate if, at the time of such
disposition, the Bond had been held for more than one year. The deductibility
of
capital losses is subject to limitations.
Conversion
of the Bonds
You
will
not recognize any income, gain or loss upon conversion of a Bond into common
stock, except with respect to cash received in lieu of a fractional share of
common stock. Your tax basis in the common stock received on conversion of
a
Bond will be the same as your adjusted tax basis in the Bond at the time of
the
conversion, reduced by any basis allocable to a fractional share, and the
holding period for the common stock received on conversion will include the
holding period of the Bond converted.
To
the
extent, however, that any common stock received upon conversion is considered
attributable to accrued interest not previously included in income, the receipt
of the common stock will be taxable as ordinary income. Your tax basis in the
shares of common stock considered attributable to accrued interest will equal
the amount of such accrued interest included in income, and the holding period
for such common stock will begin on the day following the date of conversion.
Cash
received in lieu of a fractional share of common stock upon conversion should
be
treated as a payment in exchange for the fractional share of common stock.
Accordingly, the receipt of cash in lieu of a fractional share of common stock
should result in capital gain or loss, which is equal to the difference between
the cash received for the fractional share and your adjusted tax basis in the
fractional share. This gain or loss should be capital gain or loss and should
be
taxable as described below under “—Sale, Exchange, Redemption, or Other Taxable
Disposition of Common Stock.”
Dividends
If
you
convert your Bond into our common stock, distributions, if any, made on our
common stock will be included in your income as ordinary dividend income to
the
extent of our current or accumulated earnings and profits. With respect to
non-corporate U.S. holders for taxable years beginning after December 31, 2002
and before January 1, 2011 such dividends are taxed at a preferential maximum
rate of 15% provided certain holding period requirements are satisfied.
Distributions in excess of our current and accumulated earnings and profits
will
be treated as a return of capital to the extent of your adjusted tax basis
in
the common stock and thereafter as capital gain from the sale or exchange of
such common stock. Dividends received by a corporate U.S. holder may be eligible
for a dividends received deduction, subject to applicable limitations.
Sale,
Exchange, Redemption or Other Taxable Disposition of Common Stock
If
you
convert your Bonds into our common stock, then upon the sale, exchange,
redemption or other taxable disposition of our common stock, you will recognize
capital gain or loss equal to the difference between (i) the amount of cash
and
the fair market value of any property received upon such taxable disposition
and
(ii) your adjusted tax basis in the common stock. Your tax basis and holding
period in common stock received upon conversion of a Bond are determined as
discussed above under “—Conversion of the Bonds.” Except as set forth above
under “—Market Discount,” any such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if your holding period in the common
stock is more than one year at the time of the taxable disposition. Long-term
capital gains recognized by certain non-corporate U.S. holders will be subject
to a reduced rate of U.S. federal income tax. The deductibility of capital
losses is subject to limitations.
Exercise
of the Bond Warrants
A
U.S.
holder will not recognize gain or loss upon exercise of a Bond Warrant (except
with respect to any cash received in lieu of a fractional share, which will
be
taxed in a manner similar to that described above under “Conversion of the
Bonds”). A U.S. holder will have a tax basis in the common stock received upon
the exercise of a Bond Warrant equal to the sum of its tax basis in the Bond
Warrant and the aggregate cash exercise price paid in respect of such exercise,
less any amount attributable to any fractional shares. The holding period of
common stock received upon the exercise of a Bond Warrant will commence on
the
day after the Bond Warrant is exercised.
Expiration
and Disposition of the Bond Warrants
If
a Bond
Warrant expires without being exercised, a U.S. holder will recognize a capital
loss in an amount equal to its tax basis in the Bond Warrant. Upon the sale,
exchange, or redemption of a Bond Warrant, a U.S. holder will recognize gain
or
loss equal to the difference between the amount realized on such sale, exchange,
or redemption and the U.S. holder’s tax basis in such Bond Warrant. Such gain or
loss will be long-term capital gain or loss if, at the time of such sale,
exchange, or redemption, the Bond Warrant has been held for more than one year.
The deductibility of capital losses is subject to limitations.
Information
Reporting and Backup Withholding
Information
returns will be filed with the IRS, other than with respect to corporations
and
other exempt holders, with respect to interest on the Bonds, dividends paid
on
the common stock and proceeds received from a disposition of the Bonds or shares
of common stock. Unless you are an exempt recipient such as a corporation,
you
may be subject to backup withholding tax (currently at a rate of 28%) with
respect to interest paid on the Bonds, dividends paid on the common stock or
with respect to proceeds received from a disposition of the Bonds or shares
of
common stock. You will be subject to backup withholding if you are not otherwise
exempt and you:
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fail
to furnish your taxpayer identification number, or “TIN”, which for an
individual, is ordinarily his or her social security
number;
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furnish
an incorrect TIN;
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are
notified by the IRS that you have failed to properly report payments
of
interest or dividends; or
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fail
to certify, under penalties of perjury, that you have furnished a
correct
TIN and that the IRS has not notified you that you are subject to
backup
withholding.
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Backup
withholding is not an additional tax but, rather, is a method of tax collection.
You will be entitled to credit any amounts withheld under the backup withholding
rules against your U.S. federal income tax liability and may be entitled to
a
refund provided that the required information is furnished to the IRS in a
timely manner.
Consequences
to Non-U.S. Holders
The
following is a summary of certain material U.S. federal income tax consequences
that will apply to you if you are a non-U.S. holder of the Bonds, the Bond
Warrants or our common stock. For purposes of this discussion, a “non-U.S.
holder” means a beneficial owner of Bonds, the Bond Warrants or common stock
that is a nonresident alien individual or a corporation, trust or estate that
is
not a U.S holder.
“Non-U.S.
holder” does not include an individual who is present in the United States for
183 days or more in the taxable year of disposition of the Bonds, the Bond
Warrants or common stock and is not otherwise a resident of the United States
for U.S. federal income tax purposes. Such an individual is urged to consult
his
or her own tax advisor regarding the U.S. federal income tax consequences on
the
sale, exchange or other disposition of the Bonds, the Bond Warrants or common
stock.
Payments
of Interest
Interest
paid (or accrued under the original issue discount rules) on a Bond to you
will
qualify for the “portfolio interest exemption” and will not be subject to U.S.
federal income tax or withholding tax, provided that such interest income is
not
effectively connected with your conduct of a U.S. trade or business and provided
that you:
·
|
do
not actually or by attribution own 10% or more of the combined voting
power of all classes of our stock entitled to
vote;
|
·
|
are
not a controlled foreign corporation for U.S. federal income tax
purposes
that is related to us actually or by attribution through stock ownership;
|
·
|
are
not a bank that acquired the Bonds in consideration for an extension
of
credit made pursuant to a loan agreement entered into in the ordinary
course of business; and
|
·
|
either
(a) provide a Form W-8BEN (or a suitable substitute form) signed
under
penalties of perjury that includes your name and address and certifies
as
to non-United States status in compliance with applicable law and
regulations, or (b) are a securities clearing organization, bank
or other
financial institution that holds customers’ securities in the ordinary
course of its trade or business and provides a statement to us or
our
agent under penalties of perjury in which it certifies that such
a Form
W-8 (or a suitable substitute form) has been received by it from
you or a
qualifying intermediary and furnishes us or our agent with a copy.
|
If
you
cannot satisfy the requirements described above, payments of interest made
to
you will be subject to the 30% U.S. federal withholding tax.
If
interest on a Bond is effectively connected with a trade or business conducted
by you, you will not be subject to withholding if you comply with applicable
IRS
certification requirements (
i.e.
,
by
delivering a properly executed IRS Form W-8ECI) and will be subject to U.S.
federal income tax on a net income basis at regular graduated rates in the
same
manner as if you were a U.S. holder. If you are eligible for the benefits of
an
income tax treaty between the U.S. and your country of residence, any interest
income that is effectively connected with a U.S. trade or business will be
subject to U.S. federal income tax in the manner specified by the treaty and
will only be subject to such tax if such income is attributable to a permanent
establishment (or a fixed base in the case of an individual) maintained by
you
in the U.S. and you claim the benefit of the treaty by properly submitting
an
IRS form W-8BEN. If you are a corporation, effectively connected income also
may
be subject to the additional branch profits tax, which is imposed on a foreign
corporation on the deemed repatriation from the United States of effectively
connected earnings and profits at a 30% rate (or such lower rate as may be
prescribed by an applicable tax treaty).
Dividends
and Constructive Dividends
If
distributions are made with respect to our common stock (including any deemed
distributions resulting from certain adjustments, or failures to make certain
adjustments, to the conversion price of the Bonds, see “—Consequences to U.S.
Holders—Constructive Dividends” above), such distributions will be treated as
dividends to the extent of our current and accumulated earnings and profits
as
determined under the Code. Any portion of a distribution that exceeds our
current and accumulated earnings and profits will first be applied in reduction
of your tax basis in the common stock, and to the extent such portion exceeds
your tax basis, the excess will be treated as gain from the disposition of
the
common stock, the tax treatment of which is discussed below under “—Sale,
Exchange, Conversion, Redemption, Repurchase or Other Taxable Disposition of
the
Bonds or Common Stock.”
Dividends
paid to a non-U.S. holder will be subject to the U.S. federal withholding tax
at
a 30% rate, subject to the following two exceptions.
·
|
Dividends
effectively connected with a trade or business of a non-U.S. holder
and,
if a tax treaty applies, attributable to a U.S. permanent establishment
maintained by the non-U.S. holder within the United States, will
not be
subject to withholding if the non-U.S. holder complies with applicable
IRS
certification requirements and will be subject to U.S. federal income
tax
on a net income basis. In the case of a non-U.S. holder that is a
corporation, such effectively connected income also may be subject
to the
branch profits tax, which is imposed on a foreign corporation on
the
deemed repatriation from the United States of effectively connected
earnings and profits at a 30% rate (or such lower rate as may be
prescribed by an applicable tax
treaty).
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·
|
The
withholding tax might not apply, or might apply at a reduced rate,
under
the terms of an applicable tax treaty. Under Treasury regulations,
to
obtain a reduced rate of withholding under a tax treaty, a non-U.S.
holder
will be required to satisfy applicable certification and other
requirements.
|
Because
a
constructive dividend deemed received by a non-U.S. holder would not give rise
to any cash from which any applicable withholding tax could be satisfied, we
may
set-off any such withholding tax against cash payments of interest payable
on
the Bonds.
Conversion
of the Bonds or Exercise of the Bond Warrants
A
non−U.S. holder will not be subject to U.S. federal income tax on the conversion
of Bonds or exercise of Bond Warrants into common stock. However, if the
non−U.S. holder receives any cash in lieu of a fractional share of common stock,
the rules described below under “Sale, Exchange, Redemption, Repurchase or Other
Taxable Disposition of the Bonds or Common Stock” will apply.
Sale,
Exchange, Redemption, Repurchase or Other Taxable Disposition of the Bonds,
the
Bond Warrants or Common Stock
Any
gain
realized by you on the sale, exchange, redemption, repurchase or other taxable
disposition of the Bonds, the Bond Warrants or our common stock will not be
subject to U.S. federal income tax unless:
·
|
the
gain is effectively connected with your conduct of a trade or business
in
the United States or
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·
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we
are or have been a “United States real property holding corporation,” or a
“USRPHC,” for U.S. federal income tax purposes and, provided that our
common stock is “regularly traded on an established securities market,”
you held directly or indirectly at any time during the five-year
period
ending on the date of disposition or such shorter period more than
five
percent of our common stock.
|
We
believe that we are not currently and will not become a USRPHC. However, because
the determination of whether we are a USRPHC depends on the fair market value
of
our U.S. real property interests relative to the fair market value of our other
business assets, there can be no assurance that we will not become a USRPHC
in
the future.
If
you
are engaged in a trade or business in the United States, and if gain realized
on
a sale, exchange redemption, repurchase or other taxable disposition of Bonds,
the Bond Warrants or common stock is effectively connected with the conduct
of
this trade or business, you will be taxed in the same manner as a U.S. holder
(see “—Consequences to U.S. Holders—Sale, Exchange, Redemption, Repurchase or
Other Taxable Disposition of Bonds” above). These holders are urged to consult
their own tax advisors with respect to other tax consequences of the ownership
and disposition of Bonds or common stock including the possible imposition
of
branch profits tax at a rate of 30% (or lower treaty rate).
Information
Reporting and Backup Withholding
Information
Reporting
The
payment of interest and dividends to a non-U.S. holder is not subject to
information reporting on IRS Form 1099 if applicable certification requirements
(for example, by delivering a properly executed IRS Form W-8BEN) are satisfied.
The payment of proceeds from the sale or other disposition of the Bonds, the
Bond Warrants or common stock by a broker to a non-U.S. holder is not subject
to
information reporting if:
·
|
the
beneficial owner of the Bonds or common stock certifies the owner’s
non-U.S. status under penalties of perjury (
i.e.
,
by providing a properly executed IRS Form W-8BEN), or otherwise
establishes an exemption; or
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·
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the
sale or other disposition of the Bonds or common stock is effected
outside
the United States by a foreign office, unless the broker
is:
|
·
|
a
foreign person that derives 50% or more of its gross income for certain
periods;
|
·
|
a
controlled foreign corporation for U.S. federal income tax purposes;
or
|
·
|
a
foreign partnership more than 50% of the capital or profits of which
is
owned by one or more U.S. persons or which engages in a U.S. trade
or
business.
|
In
addition to the foregoing, we must report annually to the IRS and to each
non-U.S. holder on IRS Form 1042-S the entire amount of interest or dividends
paid to you. This information may also be made available to the tax authorities
in the country in which you reside under the provisions of an applicable income
tax treaty or other agreement.
Backup
Withholding
Backup
withholding (currently at a rate of 28%) is required only on payments that
are
subject to the information reporting requirements, discussed above, and only
if
other requirements are satisfied. Even if the payment of proceeds from the
sale
or other disposition of Bonds or common stock is subject to the information
reporting requirements, the payment of proceeds from a sale or other disposition
outside the United States will not be subject to backup withholding unless
the
payor has actual knowledge that the payee is a U.S. person. Backup withholding
does not apply when any other provision of the Code requires withholding. For
example, if interest payments are subject to the withholding tax described
above
under “—Consequences to Non-U.S. Holders—Payments of Interest” backup
withholding will not also be imposed. Thus, backup withholding may be required
on payments subject to information reporting, but not otherwise subject to
withholding.
Backup
withholding is not an additional tax. Any amount withheld from a payment to
a
non-U.S. holder under these rules will be allowed as a credit against such
holder’s U.S. federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished timely to the IRS.
SHARES
ELIGIBLE FOR FUTURE SALE
As
of November 1, 2008, we had 26,570,677 shares of common stock outstanding.
All of the shares registered in this offering will be freely tradable without
restriction or further registration under the Securities Act. If shares are
purchased by our “affiliates” as that term is defined in Rule 144 under the
Securities Act, their sales of shares would be governed by the limitations
and
restrictions that are described below.
Rule
144
In
general, under Rule 144 a person, or persons whose shares are aggregated, who
is
not deemed to have been one of our affiliates at any time during the 90 days
preceding a sale and who has beneficially owned shares of our common stock
for
at least six months, including the holding period of any prior owner, except
if
the prior owner was one of our affiliates, would be entitled to sell all of
their shares, provided the availability of current public information about
our
company.
Sales
under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about our
company. Any substantial sale of common stock pursuant to any resale
registration statement or Rule 144 may have an adverse effect on the market
price of our Common Stock by creating an excessive supply.
Lock-Up
Agreements
The
investors in the Private Placement, in which we sold 2,250,348 shares of
Series
A Convertible Preferred Stock, entered into a lock-up agreement pursuant
to
which they agreed not to sell their shares, or the common stock that underlie
their shares, until our common stock begins to be listed or quoted on the
New
York Stock Exchange, Alternext, 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 basis over a nine month period
beginning on the date that is 30 days after listing or quotation of the shares.
Our securities were listed on February 12, 2008. We have the option to release
the investors from the lock-up agreements.
We
filed
a registration statement covering the common stock sold in the private
placement. Subject to the lock up agreement, the shares became freely tradable
upon effectiveness of the registration statement in February 2008. In addition,
affiliates of WestPark who own shares of our common stock have agreed to a
lock-up with us whereby they agreed not sell an aggregate of 1,528,933 shares
of
common stock held by them until that date which is nine months from the day
that
our common stock begins to be traded on either the New York Stock Exchange,
American Stock Exchange, NASDAQ Global Market, NASDAQ Capital Market, the OTC
Bulletin Board or the Pink Sheets.
Upon
closing of our initial public offering, we also agreed with WestPark Capital,
Inc. that we will not, without the prior written consent of WestPark Capital,
directly or indirectly sell, offer, contract or grant any option to sell,
pledge, transfer, or otherwise dispose of or enter into any transaction which
may result in the disposition of any shares of our common stock or securities
convertible into, exchangeable or exercisable for any shares of our common
stock
(excluding the exercise of certain warrants and/or options currently outstanding
and exercisable) for a period of 12 months after February 12, 2008. In addition,
each of our executive officers and directors, have agreed with WestPark Capital
not to directly or indirectly sell, offer, contract or grant any option to
sell,
pledge, transfer (excluding intra-family transfers, transfers to a trust for
estate planning purposes or to beneficiaries of officers, directors and
shareholders upon their death), or otherwise dispose of or enter into any
transaction which may result in the disposition of any shares of our common
stock or securities convertible into, exchangeable or exercisable for any shares
of our common stock, without the prior written consent of WestPark Capital,
for
a period of 12 months after February 12, 2008.
We
have
been advised by WestPark Capital that it has no present intention and there
are
no agreements or understandings, explicit or tacit, relating to the early
release of any locked-up shares. WestPark Capital may, however, consent to
an
early release from the lock-up period if, in its opinion, the market for the
common stock would not be adversely impacted by sales. The release of any lock
up would be considered on a case-by-case basis. Factors that WestPark Capital
may consider in deciding whether to release shares from the lock up restriction
include the length of time before the lock-up expires, the number of shares
involved, the reason for the requested release, market conditions, the trading
price of our securities, historical trading volumes of our securities and
whether the person seeking the release is an officer, director or affiliate
of
us.
Registration
In
February 2008, we completed a public offering and sale of 963,700 shares
of
common stock, all of which are currently freely tradeable. In addition, pursuant
to the terms of the Share Exchange, we filed a registration statement with
the
Securities and Exchange Commission to register a total of 2,250,348 shares
of
common stock underlying shares of our Series A Convertible Preferred Stock
issued in a Private Placement that was conducted in conjunction with the
Share
Exchange in January 2007. The registration statement was declared effective
by
the Securities and Exchange Commission in February 2008. The investors in
the
Private Placement agreed not to sell their shares until our common stock
was
listed on the Alternext, after which their shares are automatically released
from the lock up on a monthly basis pro rata over a nine month period beginning
with the date that is 30 days from the date of listing on the Alternext.
We also
registered 1,703,017 shares of common stock held by certain of our shareholders
immediately prior to the Share Exchange.
In
addition, we entered into a registration rights agreement with ABN AMRO pursuant
to which we agreed to register the Bonds, the Bond Warrants, and the shares
of
common stock underlying the Bonds and the Bond Warrants. A total of 2,285,714
shares may be issued upon conversion of the Bonds, subject to adjustment, and
600,000 shares may be issued upon exercise of the Bond Warrants, subject to
adjustment. The Bonds may not be converted until February 12, 2009 and the
Bond
Warrants may not be exercised until February 12, 2009. We are registering the
Bonds, the Bond Warrants and the shares that may be issued upon conversion
of
the Bonds and upon exercise of the Bond Warrants under this prospectus. For
additional information of registration obligations, see above under “Prospectus
Summary - Recent Events - November 2007 Issuance of Bonds and Bond Warrants.” In
addition to the foregoing securities, we are registering for resale under this
prospectus an additional 200,000 shares of our common stock held by another
selling security holder.
In
September 2008, we adopted our 2008 Equity Incentive Plan (“2008 EIP”). Our
employees, officers and directors (including employees, officers and directors
of our affiliates) are eligible to participate in the 2008 EIP. The maximum
number of securities that may be granted under the 2008 EIP is 2,500,000
shares
of common stock. In addition, the aggregate number of shares of common
stock
that may be issued pursuant to the 2008 EIP during any twelve month period
may
not exceed 10% of the average number of issued and outstanding shares during
such twelve month period. As of the date of this prospectus, we had 26,570,677
shares of common stock outstanding. There are currently no options or other
securities outstanding under the 2008 EIP. We expect to make fully vested,
unrestricted stock grants to five of our long-term employees in an aggregate
amount of 500,000 shares after we receive approval for additional listing
of the
shares reserved for issuance under the 2008 EIP from Alternext and after
we file
a Form S-8 with, and it is declared effective by, the Securities and Exchange
Commission, which we expect to occur within the next 30
days.
PLAN
OF DISTRIBUTION
We
are
registering (i) $8,000,000 in aggregate principal amount of Variable Rate
Convertible Bonds due in 2012 (the “Bonds”), (ii) 600,000 Bond Warrants to
purchase an aggregate of 600,000 shares of our common stock, (iii) 2,885,714
shares of our common stock issuable pursuant to conversion of the Bonds or
exercise of the Bond Warrants; and (iv) 200,000 additional shares of common
stock held by the selling security holders (the “Shares”). We will not receive
any of the proceeds from the sale by the selling security holders of the Bonds,
the Bond Warrants, the Shares, or shares of common stock issuable pursuant
to
conversion of the Bonds or exercise of the Bond Warrants. We will bear all fees
and expenses incident to our obligation to register the Bonds, the Bond
Warrants, the Shares and any shares of common stock issuable upon the conversion
of the Bonds or exercise of the Bond Warrants, except that the selling security
holders will pay all applicable underwriting discounts and selling commissions,
if any.
The
selling security holders may sell all or a portion of the Bonds, the Bond
Warrants, the Shares or common stock underlying the Bonds and the Bond Warrants
owned by them and offered hereby from time to time directly or through one
or
more underwriters, broker-dealers or agents. If the Bonds, the Bond Warrants,
Shares or common stock underlying the Bonds and the Bond Warrants are sold
through underwriters or broker-dealers, then the selling security holders will
be responsible for underwriting discounts or commissions or agent’s commissions.
The securities may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices.
The
securities may be sold by one or more of, or a combination of, the
following:
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•
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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•
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block
trades in which the broker-dealer will attempt to sell the Bonds,
the Bond
Warrants, Shares, or common stock underlying the Bonds and the Bond
Warrants as agent but may position and resell a portion of the block
as
principal to facilitate the
transaction;
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|
|
•
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
•
|
privately
negotiated transactions;
|
|
•
|
settlement
of short sales entered into after the date of this
prospectus;
|
|
•
|
broker-dealers
may agree with any selling security holder to sell a specified amount
of
such securities at a stipulated price per
security;
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|
•
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
|
•
|
a
combination of any such methods of sale;
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|
•
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any
other method permitted pursuant to applicable law.
|
The
selling security holders may also sell the securities under Rule 144 under
the
Securities Act of 1933, as amended (the “Securities Act”), under Registration S
under the Securities Act, or pursuant to any other transaction exempt from
registration requirements of the Securities Act or the Securities Exchange
Act
of 1934, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling security holders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holders (or, if any broker-dealer acts as agent for the
purchaser of the Bonds, the Bond Warrants, the Shares or common stock underlying
the Bonds and the Bond Warrants, from the purchaser) in amounts to be
negotiated. The selling security holders do not expect these commissions and
discounts relating to its sales of securities to exceed what is customary in
the
types of transactions involved. The maximum commission or discount to be
received by any NASD member or independent broker-dealer, however, will not
be
greater than eight (8) percent for the sale of any securities being registered
hereunder pursuant to Rule 415 of the Securities Act.
In
connection with the sale of our common stock or interests therein, the selling
security holders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. They may also
sell the Bonds, the Bond Warrants, the Shares or common stock underlying the
Bonds and the Bond Warrants short and deliver these securities to close out
their short positions, or loan or pledge the securities to broker-dealers that
in turn may sell these securities. The selling security holders may also enter
into option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of securities
offered by this prospectus, which securities such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented
or
amended to reflect such transaction).
The
selling security holders and any broker-dealers or agents that are involved
in
selling the Bonds, the Bond Warrants, the common stock underlying the Bonds
and
the Bond Warrants or the Shares may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event,
any
commissions received by such broker-dealers or agents and any profit on the
resale of the securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. ABN AMRO has informed us
that
it is an affiliate of a broker-dealer and it acquired these securities in the
ordinary course of business and that at the time of the acquisition of these
securities, it had no agreements or understandings, directly or indirectly,
with
any person to distribute these securities.
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the Bonds, the Bond Warrants, the Shares or common stock
underlying the Bonds and the Bond Warrants. We have agreed to indemnify the
selling security holders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
the selling security holders may be deemed to be “underwriters” within the
meaning of the Securities Act, and such selling security holder so deemed may
be
subject to the prospectus delivery requirements of the Securities Act. In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than under this prospectus. The selling security holders have advised us that
they have not entered into any agreements, understandings or arrangements with
any underwriter or broker-dealer regarding the sale of the resale securities.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of the resale securities by the selling security
holders.
The
resale securities will be sold only through registered or licensed brokers
or
dealers if required under applicable state securities laws. In addition, in
certain states, the resale securities may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale securities may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
selling security holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation
M,
which may limit the timing of purchases and sales of the Bonds, the Bond
Warrants, the common stock underlying the Bonds and the Bond Warrants or the
Shares by the selling security holders or any other person. We will make copies
of this prospectus available to the selling security holders and have informed
them of the need to deliver a copy of this prospectus to each purchaser at
or
prior to the time of the sale.
LEGAL
MATTERS
The
validity of the shares of common stock offered by this prospectus will be passed
upon for us by K&L Gates LLP, Los Angeles, California. The legality of the
Bonds and Bond Warrants offered by this prospectus will be passed upon for
us by
K&L Gates LLP, London, United Kingdom.
EXPERTS
Our
consolidated financial statements as of December 31, 2007 and 2006 and for
the
years ended December 31, 2007, 2006, and 2005 appearing in this prospectus
and
the registration statement have been audited by Dominic K.F. Chan & Co.,
Certified Public Accountants, an independent registered public accounting firm,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
ADDITIONAL
INFORMATION
We
filed
with the Securities and Exchange Commission a registration statement under
the
Securities Act of 1933 for the shares of common stock in this offering. This
prospectus does not contain all of the information in the registration statement
and the exhibits and schedule that were filed with the registration statement.
For further information with respect to us and our common stock, we refer you
to
the registration statement and the exhibits and schedule that were filed with
the registration statement. Statements contained in this prospectus about the
contents of any contract or any other document that is filed as an exhibit
to
the registration statement are not necessarily complete, and we refer you to
the
full text of the contract or other document filed as an exhibit to the
registration statement. A copy of the registration statement and the exhibits
and schedules that were filed with the registration statement may be inspected
without charge at the Public Reference Room maintained by the Securities and
Exchange Commission at 100 F Street, N.E. Washington, DC 20549, and copies
of
all or any part of the registration statement may be obtained from the
Securities and Exchange Commission upon payment of the prescribed fee.
Information regarding the operation of the Public Reference Room may be obtained
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission maintains a web site that contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the SEC. The address of the website is
www.sec.gov.
We
file
periodic reports under the Securities Exchange Act of 1934, including annual,
quarterly and special reports, and other information with the Securities and
Exchange Commission. These periodic reports, and other information are available
for inspection and copying at the regional offices, public reference facilities
and website of the Securities and Exchange Commission referred to
above.
ASIA
TIME CORPORATION
(FORMERLY
SRKP 9, INC.)
CONSOLIDATED
FINANCIAL STATEMENTS
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
|
|
PAGE
|
|
|
|
JUNE
30, 2008 AND 2007 (UNAUDITED)
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
F-1
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
F-3
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
F-4
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
F-6
|
|
|
|
DECEMBER
31, 2007, 2006 AND 2005
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
F-38
|
CONSOLIDATED
BALANCE SHEETS
|
|
F-39
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
F-41
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
F-42
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
F-43
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
F-45
|
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
|
|
|
|
|
|
|
|
(continued)
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 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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
(Continued)
|
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 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 are exercisable from February 12, 2009 until November 6, 2010. The
Warrants are exercisable at a per share exercise price of $0.0001. 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 basis 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 based upon the Company's actual net income, if any, for such
fiscal years.
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)
|
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.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
Asia
Time
Corporation
(Formerly
SRKP 9, Inc.)
We
have
audited the accompanying consolidated balance sheets of Asia Time Corporation
(the “Company”) and its subsidiaries (collectively referred to as the “Group”)
as of December 31, 2007 and 2006, and the related consolidated statements of
operations, stockholders’ equity and cash flows for the years ended December 31,
2007, 2006 and 2005. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
and
its subsidiaries as of December 31, 2007 and 2006, and the consolidated results
of their operations and their cash flows for the years ended December 31, 2007,
2006 and 2005, in conformity with accounting principles generally accepted in
the United States of America.
Dominic
K.F. Chan & Co
Certified
Public Accountants
Hong
Kong
March
20,
2008
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
BALANCE SHEETS
(Stated
in US Dollars)
|
|
|
|
At December 31,
|
|
|
|
Notes
|
|
2007
|
|
2006
|
|
|
|
|
|
$
|
|
$
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets :
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
6,258,119
|
|
|
316,621
|
|
Restricted
cash
|
|
|
|
|
|
8,248,879
|
|
|
4,523,679
|
|
Accounts
receivable
|
|
|
|
|
|
14,341,989
|
|
|
8,188,985
|
|
Prepaid
expenses and other receivables
|
|
|
7
|
|
|
7,704,999
|
|
|
2,101,133
|
|
Tax
prepayment
|
|
|
|
|
|
-
|
|
|
767
|
|
Inventories,
net
|
|
|
8
|
|
|
12,370,970
|
|
|
6,246,185
|
|
Prepaid
lease payments
|
|
|
|
|
|
-
|
|
|
22,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
|
|
|
48,924,956
|
|
|
21,400,328
|
|
Deferred
tax assets
|
|
|
6
|
|
|
29,929
|
|
|
14,042
|
|
Property
and equipment, net
|
|
|
9
|
|
|
1,891,709
|
|
|
890,258
|
|
Leasehold
lands
|
|
|
10
|
|
|
-
|
|
|
895,322
|
|
Held-to-maturity
investments
|
|
|
11
|
|
|
300,231
|
|
|
301,196
|
|
Intangible
assets
|
|
|
12
|
|
|
48,012
|
|
|
337,836
|
|
Restricted
cash
|
|
|
|
|
|
256,476
|
|
|
257,301
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
|
51,451,313
|
|
|
24,096,283
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities :
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
|
1,310,809
|
|
|
770,360
|
|
Other
payables and accrued liabilities
|
|
|
13
|
|
|
132,507
|
|
|
190,358
|
|
Income
taxes payable
|
|
|
|
|
|
2,293,887
|
|
|
1,387,571
|
|
Bank
borrowings
|
|
|
15
|
|
|
20,438,479
|
|
|
13,205,167
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
|
|
|
24,175,682
|
|
|
15,553,456
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bond payables
|
|
|
16
|
|
|
345,461
|
|
|
-
|
|
Deferred
tax liabilities
|
|
|
6
|
|
|
56,953
|
|
|
31,711
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
|
|
|
24,578,096
|
|
|
15,585,167
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
20
|
|
|
|
|
|
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
BALANCE SHEETS
(Cont’d)
(Stated
in US Dollars)
|
|
|
|
At
December 31,
|
|
|
|
Notes
|
|
2007
|
|
2006
|
|
|
|
|
|
$
|
|
$
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock
|
|
17
|
|
|
|
|
|
Par
value: US$0.0001
|
|
|
|
|
|
|
|
Authorized:
2007 - 10,000,000 shares
|
|
|
|
|
|
|
|
Issued
and outstanding: 2007 - 2,250,348 issued (2006 - none)
|
|
|
|
|
|
225
|
|
|
-
|
|
Common
stock
|
|
|
17
|
|
|
|
|
|
|
|
Par
value: US$0.0001
|
|
|
|
|
|
|
|
|
|
|
Authorized:
100,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2007 - 23,156,629 shares (2006 - 19,454,420
shares)
|
|
|
|
|
|
2,316
|
|
|
1,946
|
|
Additional
paid-in capital
|
|
|
|
|
|
13,481,036
|
|
|
654,298
|
|
Accumulated
other comprehensive income
|
|
|
|
|
|
(28,404
|
)
|
|
7,470
|
|
Retained
earnings
|
|
|
|
|
|
13,418,044
|
|
|
7,847,402
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
26,873,217
|
|
|
8,511,116
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
51,451,313
|
|
|
24,096,283
|
|
See
notes
to consolidated financial statements
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Stated
in US Dollars)
|
|
|
|
Year ended December 31,
|
|
|
|
Notes
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
Net
sales
|
|
|
|
|
|
96,962,693
|
|
|
81,134,275
|
|
|
63,078,409
|
|
Cost
of sales
|
|
|
21
|
|
|
(83,119,825
|
)
|
|
(71,496,801
|
)
|
|
(57,026,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
13,842,868
|
|
|
9,637,474
|
|
|
6,052,373
|
|
Other
operating income
|
|
|
3
|
|
|
617,913
|
|
|
424,016
|
|
|
938,573
|
|
Depreciation
|
|
|
|
|
|
(332,153
|
)
|
|
(325,995
|
)
|
|
(259,127
|
)
|
Administrative
and other operating expenses
|
|
|
|
|
|
(4,595,126
|
)
|
|
(1,284,863
|
)
|
|
(1,436,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
|
|
|
9,533,502
|
|
|
8,450,632
|
|
|
5,295,750
|
|
Fees
and costs related to reverse merger
|
|
|
|
|
|
(741,197
|
)
|
|
-
|
|
|
-
|
|
Non-operating
income
|
|
|
4
|
|
|
233,379
|
|
|
237,571
|
|
|
156,199
|
|
Interest
expenses
|
|
|
5
|
|
|
(1,477,514
|
)
|
|
(1,060,536
|
)
|
|
(514,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
|
|
|
7,548,170
|
|
|
7,627,667
|
|
|
4,937,312
|
|
Income
taxes
|
|
|
6
|
|
|
(1,977,528
|
)
|
|
(1,307,728
|
)
|
|
(911,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
5,570,642
|
|
|
6,319,939
|
|
|
4,025,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
|
|
|
0.24
|
|
|
0.32
|
|
|
0.21
|
|
-
Diluted
|
|
|
|
|
|
0.22
|
|
|
0.32
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic
|
|
|
|
|
|
22,923,339
|
|
|
19,454,420
|
|
|
19,454,420
|
|
-
Diluted
|
|
|
|
|
|
25,388,026
|
|
|
19,454,420
|
|
|
19,454,420
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(Stated
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
other
|
|
|
|
|
|
|
|
Preferred
stock
|
|
Common
stock
|
|
paid-in
|
|
comprehensive
|
|
Retained
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
capital
|
|
income
|
|
earnings
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
$
|
|
Balance,
January 1, 2005
|
|
|
-
|
|
|
-
|
|
|
19,454,420
|
|
|
1,946
|
|
|
652,488
|
|
|
412
|
|
|
591,059
|
|
|
1,245,905
|
|
Issuance
of shares
(Note 1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
Restructuring
(Note 1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(28,190
|
)
|
|
-
|
|
|
-
|
|
|
(28,190
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,025,625
|
|
|
4,025,625
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,137
|
|
|
-
|
|
|
13,137
|
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,137
|
|
|
4,025,625
|
|
|
4,038,762
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(642,848
|
)
|
|
(642,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
-
|
|
|
-
|
|
|
19,454,420
|
|
|
1,946
|
|
|
654,298
|
|
|
13,549
|
|
|
3,973,836
|
|
|
4,643,629
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,319,939
|
|
|
6,319,939
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,079
|
)
|
|
-
|
|
|
(6,079
|
)
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,079
|
)
|
|
6,319,939
|
|
|
6,313,860
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,446,373
|
)
|
|
(2,446,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
19,454,420
|
|
|
1,946
|
|
|
654,298
|
|
|
7,470
|
|
|
7,847,402
|
|
|
8,511,116
|
|
Originally
issued on Jan. 3, 2006; deemed issued on Jan. 23, 2007 for reverse
merger
purposes
|
|
|
-
|
|
|
-
|
|
|
2,700,000
|
|
|
270
|
|
|
(270
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Issued
in connection with 1.371188519 - for-1 retroactive stock
split
|
|
|
-
|
|
|
-
|
|
|
1,002,209
|
|
|
100
|
|
|
(100
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Adjustment
to SRKP 9 accounts to reflect reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,999
|
)
|
|
-
|
|
|
-
|
|
|
(7,999
|
)
|
Gross
proceeds from shares sold in offering - initial closing
|
|
|
1,749,028
|
|
|
175
|
|
|
-
|
|
|
-
|
|
|
2,053,009
|
|
|
-
|
|
|
-
|
|
|
2,053,184
|
|
Gross
proceeds from shares sold in offering - final closing
|
|
|
501,320
|
|
|
50
|
|
|
-
|
|
|
-
|
|
|
588,448
|
|
|
-
|
|
|
-
|
|
|
588,498
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,433,650
|
|
|
-
|
|
|
-
|
|
|
2,433,650
|
|
Stock
warrants & conversion feature (Note 16)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,760,000
|
|
|
-
|
|
|
-
|
|
|
7,760,000
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,570,642
|
|
|
5,570,642
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(35,874
|
)
|
|
-
|
|
|
(35,874
|
)
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(35,874
|
)
|
|
5,570,642
|
|
|
5,542,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
2,250,348
|
|
|
225
|
|
|
23,156,629
|
|
|
2,316
|
|
|
13,481,036
|
|
|
(28,404
|
)
|
|
13,418,044
|
|
|
26,873,217
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Stated
in US Dollars)
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
|
5,570,642
|
|
|
6,319,939
|
|
|
4,025,625
|
|
Adjustments
to reconcile net income to net cash (used in) provided by operating
activities :
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
2,433,650
|
|
|
-
|
|
|
-
|
|
Amortization
of bond discount and bond interest
|
|
|
345,461
|
|
|
-
|
|
|
-
|
|
Amortization
of intangible assets
|
|
|
123,977
|
|
|
154,436
|
|
|
154,438
|
|
Amortization
of leasehold lands
|
|
|
-
|
|
|
23,247
|
|
|
7,968
|
|
Depreciation
|
|
|
332,153
|
|
|
325,995
|
|
|
259,127
|
|
Loss
on disposal of plant and equipment
|
|
|
5,411
|
|
|
7,715
|
|
|
-
|
|
Gain
on disposal of intangible assets
|
|
|
(425,256
|
)
|
|
(210,594
|
)
|
|
-
|
|
Income
taxes
|
|
|
1,977,528
|
|
|
1,307,728
|
|
|
911,687
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities :
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(6,176,551
|
)
|
|
(3,369,347
|
)
|
|
(1,445,937
|
)
|
Prepaid
expenses and other receivables
|
|
|
(5,583,145
|
)
|
|
(1,706,789
|
)
|
|
334,759
|
|
Inventories
|
|
|
(6,142,119
|
)
|
|
50,990
|
|
|
(2,421,140
|
)
|
Accounts
payable
|
|
|
542,798
|
|
|
(462,658
|
)
|
|
(573,017
|
)
|
Other
payables and accrued liabilities
|
|
|
(57,206
|
)
|
|
45,445
|
|
|
103,007
|
|
Income
taxes payable
|
|
|
(1,056,985
|
)
|
|
(701,921
|
)
|
|
(199,079
|
)
|
Unearned
revenue
|
|
|
—
|
|
|
(1,593,280
|
)
|
|
(1,603,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows (used in) provided by operating activities
|
|
|
(8,109,642
|
)
|
|
190,906
|
|
|
(445,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of leasehold lands
|
|
|
-
|
|
|
(618,025
|
)
|
|
(330,884
|
)
|
Acquisition
of held-to-maturity investments
|
|
|
-
|
|
|
-
|
|
|
(301,007
|
)
|
Acquisition
of property and equipment
|
|
|
(426,815
|
)
|
|
(544,678
|
)
|
|
(243,504
|
)
|
Proceeds
from disposal of property and equipment
|
|
|
320
|
|
|
2,031
|
|
|
-
|
|
Proceeds
from disposal of intangible assets
|
|
|
589,893
|
|
|
300,849
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided by (used in) investing activities
|
|
|
163,398
|
|
|
(859,823
|
)
|
|
(875,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from insurance of series A convertible preferred stock
|
|
|
2,641,682
|
|
|
-
|
|
|
-
|
|
Issuance
of convertible bonds
|
|
|
7,760,000
|
|
|
-
|
|
|
-
|
|
Proceeds
from new short-term bank loans
|
|
|
5,368,934
|
|
|
1,700,622
|
|
|
346,622
|
|
Repayment
of short-term bank loans
|
|
|
(4,636,670
|
)
|
|
(525,535
|
)
|
|
(408,211
|
)
|
Net
advancement of other bank borrowings
|
|
|
6,561,682
|
|
|
1,789,269
|
|
|
2,946,182
|
|
Increase
in restricted cash
|
|
|
(3,738,065
|
)
|
|
(484,997
|
)
|
|
(755,170
|
)
|
(Decrease)
increase in bank overdrafts
|
|
|
(21,484
|
)
|
|
199,893
|
|
|
(250,997
|
)
|
Advance
from a related party
|
|
|
(33,000
|
)
|
|
(28,763
|
)
|
|
(60,511
|
)
|
Dividends
paid
|
|
|
-
|
|
|
(2,446,373
|
)
|
|
(642,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided by financing activities
|
|
|
13,903,079
|
|
|
204,116
|
|
|
1,175,067
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Cont’d)
(Stated
in US Dollars)
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
5,956,835
|
|
|
(464,801
|
)
|
|
(145,972
|
)
|
Effect
of foreign currency translation on cash and cash
equivalents
|
|
|
(15,337
|
)
|
|
1,332
|
|
|
14,575
|
|
Cash
and cash equivalents - beginning of year
|
|
|
316,621
|
|
|
780,090
|
|
|
911,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of year
|
|
|
6,258,119
|
|
|
316,621
|
|
|
780,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures for cash flow information :
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
1,197,386
|
|
|
1,060,536
|
|
|
514,637
|
|
Income
taxes
|
|
|
1,056,985
|
|
|
701,921
|
|
|
199,079
|
|
See
notes
to consolidated financial statements.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
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 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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
(Cont’d)
|
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
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
1.
|
Organization
and nature of operations
(Cont’d)
|
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 and watch components
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(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
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
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 years ended December 31, 2007, 2006 and 2005, 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 years ended December 31, 2007, 2006 and
2005, 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
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
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
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Property
and equipment
(Cont’d)
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.
For
the
year ended December 31, 2007, no advertising and promotion expenses were
incurred.
Advertising
and promotion expenses amounted to $2,502 and $19,718 during 2006 and 2005,
respectively, and are included in administrative and other operating
expenses.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
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.
In
June
2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of Statement
of
Financial Accounting Standards No. 109
(“FIN
48”). FIN 48 clarifies the accounting for uncertainty in tax positions. This
interpretation requires that an entity recognizes in the consolidated financial
statements the impact of a tax position, if that position is more likely than
not of being sustained upon examination, based on the technical merits of the
position. The adoption of FIN 48 did not have any impact on the Group’s results
of operations or financial condition for the year ended December 31, 2007.
As of
the date of the adoption of FIN 48, the Group has no material unrecognized
tax
benefit which would favorably affect the effective income tax rate in future
periods. The Group has elected to classify interest and penalties related to
unrecognized tax benefits, if and when required, as part of income tax expense
in the consolidated statements of operations.
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
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
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, a component of stockholders’ equity.
|
|
2007
|
|
2006
|
|
2005
|
|
Year
end HK$ : US$ exchange rate
|
|
|
7.7980
|
|
|
7.7730
|
|
|
7.7535
|
|
Average
yearly HK$ : US$ exchange rate
|
|
|
7.8014
|
|
|
7.7783
|
|
|
7.7778
|
|
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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
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.
The
calculation of diluted weighted average common shares outstanding for the year
ended December 31, 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:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Numerator
for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Net
income
|
|
|
5,570,642
|
|
|
6,319,939
|
|
|
4,025,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares
|
|
|
22,923,339
|
|
|
19,454,420
|
|
|
19,454420
|
|
Effect
of dilutive securities
|
|
|
2,464,687
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares
|
|
|
25,388,026
|
|
|
19,454,420
|
|
|
19,454,420
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
0.24
|
|
|
0.32
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
0.22
|
|
|
0.32
|
|
|
0.21
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Comparative
amounts
Certain
amounts included in the prior years consolidated financial statements have
been
reclassified to conform to the current year’s presentation. These
reclassifications had no effect on reported total assets, liabilities,
shareholders’ equity, or net income.
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 as of December 31, 2007 and 2006 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.
The
Company did not recognize any stock-based compensation during the years ended
December 31, 2006 and 2005. During the year ended December 31, 2007, the Company
recorded $2,433,650 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 17.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Stated
in US Dollars)
2.
|
Summary
of significant accounting policies
(Cont’d)
|
Recent
accounting pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including any financial statements
for an interim period within that fiscal year. The provisions of this statement
should be applied prospectively as of the beginning of the fiscal year in which
this statement is initially applied, except in some circumstances where the
statement shall be applied retrospectively. The Company is currently evaluating
the effect, if any, of SFAS 157 on its financial statements. Management
currently does not believe the adoption of SFAS 157 will have a material impact
on the Group’s consolidated financial statements.
On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of
SFAS No. 115” (“SFAS 159”). The fair value option established by SFAS 159
permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity will report unrealized gains and
losses on items for which the fair value option has been elected in earnings
(or
another performance indicator if the business entity does not report earnings)
at each subsequent reporting date. The fair value option: (a) may be applied
instrument by instrument, with a few exceptions, such as investments otherwise
accounted for by the equity method; (b) is irrevocable (unless a new election
date occurs); and (c) is applied only to entire instruments and not to portions
of instruments. SFAS 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Early adoption is permitted
as
of the beginning of the previous fiscal year provided that the entity makes
that
choice in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS 157. Management currently does not believe the adoption
of
SFAS 159 will have a material impact on the Group’s consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”
(“SFAS 141(R)”), which requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
the
acquiree at their fair values on the acquisition date, with goodwill being
the
excess value over the net identifiable assets acquired. SFAS 141(R) is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The Company does not
anticipate that the adoption of the above standards will have a material impact
on it current or future consolidated financial statements
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”), which clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share will
continue to be based on income amounts attributable to the parent. SFAS 160
is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The Company does not
anticipate that the adoption of the above standards will have a material impact
on it current or future consolidated financial statements
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
3.
|
Other
operating income
|
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Commission
income
|
|
|
-
|
|
|
-
|
|
|
771,432
|
|
Gain
on disposal of intangible assets
|
|
|
424,103
|
|
|
210,594
|
|
|
-
|
|
License
fee of intangible assets
|
|
|
130,745
|
|
|
167,138
|
|
|
167,141
|
|
Rental
income
|
|
|
63,065
|
|
|
46,284
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617,913
|
|
|
424,016
|
|
|
938,573
|
|
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Bank
interest income
|
|
|
214,217
|
|
|
208,854
|
|
|
76,358
|
|
Dividend
income
|
|
|
11,957
|
|
|
8,977
|
|
|
4,481
|
|
Insurance
compensation
|
|
|
-
|
|
|
-
|
|
|
8,325
|
|
Net
exchange gains
|
|
|
3,335
|
|
|
1,078
|
|
|
1,302
|
|
Other
interest income
|
|
|
25
|
|
|
18,635
|
|
|
49,440
|
|
Sundry
income
|
|
|
3,845
|
|
|
27
|
|
|
16,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,379
|
|
|
237,571
|
|
|
156,199
|
|
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Interest
on trade related bank loans
|
|
|
1,066,581
|
|
|
981,184
|
|
|
457,983
|
|
Interest
and amortization on bonds
|
|
|
345,461
|
|
|
-
|
|
|
-
|
|
Interest
on short-term bank loans
|
|
|
22,267
|
|
|
25,322
|
|
|
6,254
|
|
Interest
on bank overdrafts
|
|
|
42,654
|
|
|
54,030
|
|
|
45,302
|
|
Interest
on other loans
|
|
|
551
|
|
|
-
|
|
|
5,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,477,514
|
|
|
1,060,536
|
|
|
514,637
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Hong
Kong profits tax
|
|
|
|
|
|
|
|
|
|
|
Current
year
|
|
|
1,968,120
|
|
|
1,311,479
|
|
|
948,933
|
|
Over
provision in prior year
|
|
|
-
|
|
|
(21,408
|
)
|
|
(37,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,968,120
|
|
|
1,290,071
|
|
|
911,687
|
|
Deferred
taxes
|
|
|
9,408
|
|
|
17,657
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977,528
|
|
|
1,307,728
|
|
|
911,687
|
|
The
Company’s subsidiaries operating in Hong Kong are subject to profits tax of
17.5% on the estimated assessable profits during the years.
The
Company’s subsidiaries that are incorporation in the British Virgin Islands are
not subject to income taxes under that jurisdiction.
A
reconciliation of income tax expense to the amount computed by applying the
Hong
Kong statutory tax rate to the income before taxes in the consolidated income
statement is as follows:
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Income
before taxes
|
|
|
7,548,170
|
|
|
7,627,667
|
|
|
4,937,312
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes at Hong Kong
|
|
|
|
|
|
|
|
|
|
|
income
tax rate
|
|
|
1,320,929
|
|
|
1,334,842
|
|
|
864,030
|
|
Change
in valuation allowance
|
|
|
4,150
|
|
|
486
|
|
|
50,918
|
|
Non-taxable
items
|
|
|
(74,407
|
)
|
|
(43,870
|
)
|
|
(14,147
|
|
Non-deductible
items
|
|
|
726,856
|
|
|
7,363
|
|
|
27
|
|
Others
|
|
|
-
|
|
|
8,907
|
|
|
45,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977,528
|
|
|
1,307,728
|
|
|
911,687
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
The
major
components of deferred tax recognized in the consolidated balance sheets as
of
December 31, 2007, 2006 and 2005 are as follows:
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Temporary
difference on accelerated tax
|
|
|
|
|
|
|
|
|
|
|
depreciation
on plant and equipment
|
|
|
27,024
|
|
|
17,669
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities, net
|
|
|
27,024
|
|
|
17,669
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
(29,929
|
)
|
|
(14,042
|
)
|
|
-
|
|
Net
deferred tax liabilities
|
|
|
56,953
|
|
|
31,711
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,024
|
|
|
17,669
|
|
|
-
|
|
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 years ended December 31, 2007, 2006 and 2005 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.
7.
|
Prepaid
expenses and other
receivables
|
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Rental
receivable
|
|
|
-
|
|
|
46,314
|
|
|
-
|
|
Interest
receivable
|
|
|
24,696
|
|
|
20,218
|
|
|
-
|
|
Purchase
deposits
|
|
|
7,553,332
|
|
|
1,530,372
|
|
|
361,221
|
|
Sales
proceeds of intangible assets receivable
|
|
|
-
|
|
|
301,042
|
|
|
-
|
|
Other
deposits and prepayments
|
|
|
126,971
|
|
|
203,187
|
|
|
33,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,704,999
|
|
|
2,101,133
|
|
|
394,236
|
|
The
purchase deposits represented advanced payments to suppliers for merchandises
of
inventories.
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Merchandises,
at cost - completed watches
|
|
|
2,148,638
|
|
|
1,745,648
|
|
|
3,630,754
|
|
Merchandises,
at cost - watch movements
|
|
|
10,222,332
|
|
|
4,500,537
|
|
|
2,682,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,370,970
|
|
|
6,246,185
|
|
|
6,313,622
|
|
No
inventories were written off during the years ended December 31, 2007, 2006
and
2005.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
9.
|
Property
and equipment
|
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
1,188,043
|
|
|
242,350
|
|
|
104,008
|
|
Furniture
and fixtures
|
|
|
488,901
|
|
|
492,866
|
|
|
478,811
|
|
Office
equipment
|
|
|
146,752
|
|
|
145,911
|
|
|
137,410
|
|
Machinery
and equipment
|
|
|
320,595
|
|
|
321,626
|
|
|
128,974
|
|
Moulds
|
|
|
774,558
|
|
|
384,665
|
|
|
230,863
|
|
Motor
vehicles
|
|
|
74,475
|
|
|
45,928
|
|
|
26,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,993,324
|
|
|
1,633,346
|
|
|
1,106,441
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
68,525
|
|
|
8,441
|
|
|
2,542
|
|
Furniture
and fixtures
|
|
|
331,751
|
|
|
237,508
|
|
|
140,271
|
|
Office
equipment
|
|
|
128,165
|
|
|
100,612
|
|
|
68,766
|
|
Machinery
and equipment
|
|
|
157,294
|
|
|
93,475
|
|
|
32,447
|
|
Moulds
|
|
|
379,548
|
|
|
276,936
|
|
|
153,139
|
|
Motor
vehicles
|
|
|
36,332
|
|
|
26,116
|
|
|
26,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,101,615
|
|
|
743,088
|
|
|
423,540
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
1,119,518
|
|
|
233,909
|
|
|
101,466
|
|
Furniture
and fixtures
|
|
|
157,150
|
|
|
255,358
|
|
|
338,540
|
|
Office
equipment
|
|
|
18,587
|
|
|
45,299
|
|
|
68,644
|
|
Machinery
and equipment
|
|
|
163,301
|
|
|
228,151
|
|
|
96,527
|
|
Moulds
|
|
|
395,010
|
|
|
107,729
|
|
|
77,724
|
|
Motor
vehicles
|
|
|
38,143
|
|
|
19,812
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,891,709
|
|
|
890,258
|
|
|
682,901
|
|
Depreciation
expenses included in administrative and other operating expenses for the years
ended 2007, 2006 and 2005 are $332,153, $325,995, $259,127
respectively.
As
at
December, 2006, 2005 and 2004, the carrying amount of land and buildings pledged
as security for the Group’s banking facilities amounted to $1,121,531, $233,909
and $101,466 respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Cost
|
|
|
949,514
|
|
|
949,514
|
|
|
331,924
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization
|
|
|
-
|
|
|
(31,234
|
)
|
|
(7,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to property and equipment
|
|
|
(949,514
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
-
|
|
|
918,280
|
|
|
323,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Analyzed
for reporting purposes as:
|
|
|
|
|
|
|
|
|
|
|
Current
asset
|
|
|
-
|
|
|
22,958
|
|
|
7,993
|
|
Non-current
asset
|
|
|
-
|
|
|
895,322
|
|
|
315,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
918,280
|
|
|
323,932
|
|
Amortization
expenses included in administrative and other operating expenses for the years
ended 2007, 2006 and 2005 are $Nil, $23,247 and $7,968
respectively.
As
at
December, 2007, 2006 and 2005, the carrying amount of leasehold lands pledged
as
security for the Group’s banking facilities amounted to $Nil, $918,280, $323,932
respectively.
11.
|
Held-to-maturity
investments
|
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Hang
Seng Capital Guarantee Investment Fund
|
|
|
|
|
|
|
|
|
|
|
-
30,000 units at $10 each, interest rate at 10.5% in 3.75
years
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
300,231
|
|
|
301,196
|
|
|
301,954
|
|
As
at
December, 2007, 2006 and 2005, the carrying amount of held-to-maturity
investments pledged as security for the Group’s banking facilities amounted to
$300,231, $301,196 and $301,954 respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
200,051
|
|
|
200,695
|
|
|
201,199
|
|
Websites
|
|
|
-
|
|
|
421,459
|
|
|
573,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,051
|
|
|
622,154
|
|
|
774,617
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
152,039
|
|
|
112,389
|
|
|
72,431
|
|
Websites
|
|
|
-
|
|
|
171,929
|
|
|
118,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,039
|
|
|
284,318
|
|
|
190,468
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
48,012
|
|
|
88,306
|
|
|
128,768
|
|
Websites
|
|
|
-
|
|
|
249,530
|
|
|
455,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,012
|
|
|
337,836
|
|
|
584,149
|
|
Amortization
expenses included in administrative and other operating expenses for the years
ended 2007, 2006 and 2005 are $ 92,884, $154,436 and $154,438
respectively.
Estimated
aggregate future amortization expenses for the succeeding three years as of
December 31, 2007 were as follows:
13.
|
Other
payables and accrued liabilities
|
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Accrued
expenses
|
|
|
92,249
|
|
|
181,352
|
|
|
145,249
|
|
Sales
deposits received
|
|
|
40,258
|
|
|
9,006
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,507
|
|
|
190,358
|
|
|
145,249
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
14.
|
Advance
from a related party
|
Advance
from a related party for working capital is as follows:
|
|
At
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Advance
from a director
|
|
|
-
|
|
|
-
|
|
|
28,854
|
|
The
above
advance is interest-free, unsecured and has no fixed repayment
terms.
|
|
At
December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
Secured:
|
|
|
|
|
|
|
|
|
|
|
Bank
overdrafts repayable on demand
|
|
|
528,451
|
|
|
551,714
|
|
|
352,577
|
|
Repayable
within one year
|
|
|
|
|
|
|
|
|
|
|
Short
term bank loans
|
|
|
2,223,290
|
|
|
1,469,866
|
|
|
294,764
|
|
Other
trade related bank loans
|
|
|
17,686,738
|
|
|
11,183,587
|
|
|
9,416,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,438,479
|
|
|
13,205,167
|
|
|
10,064,129
|
|
As
of
December 31, 2007, the Company’s banking facilities are composed of the
following:
Facilities
granted
|
|
Granted
|
|
Amount
Utilized
|
|
Unused
|
|
|
|
$
|
|
$
|
|
|
|
Bank
overdrafts
|
|
|
695,662
|
|
|
528,451
|
|
|
167,211
|
|
Other
short terms bank loans
|
|
|
2,223,290
|
|
|
2,223,290
|
|
|
-
|
|
Other
trade related facilities
|
|
|
22,151,579
|
|
|
17,686,738
|
|
|
4,464,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,070,531
|
|
|
20,438,479
|
|
|
4,632,052
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
15.
|
Bank
borrowings
(Cont’d)
|
As
of
December 31, 2007, 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 $1,152,189 (note 10 and 11);
|
|
(b)
|
charge
over restricted cash of totally
$8,505,354;
|
|
(c)
|
charge
over held-to-maturity investments of $300,231 (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 $256,476 and a director as the insured party.
The
bank
borrowings require one of the Company’s subsidiaries to maintain a minimum net
worth of $5,257,758.
The
Company was in compliance with this requirement at December 31,
2007.
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.
16.
|
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:
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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
16.
|
Convertible
Bonds and Bond Warrants
(Cont’d)
|
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
$3.5 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 Bond Warrants) are not listed
on AMEX on or before August 13, 2008 or (ii) the Company breaches certain of
its
obligations to register the Bonds, Bond 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 6, 2010.
The
Bond 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.
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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
16.
|
Convertible
Bonds and Bond Warrants
(Cont’d)
|
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 $3.5. 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 December 31, 2007 amounted to $65,333 as disclosed in
the
following schedule of Convertible Bonds Payable.
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
|
|
$
|
6,107,299
|
|
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:-
Year
ending December 31, 2007
|
|
$
|
|
Convertible
Bonds Payable
|
|
|
8,000,000
|
|
Less:
Interest discount - Warrants
|
|
|
(1,652,701
|
)
|
Less:
Interest discount - Beneficial conversion feature
|
|
|
(6,107,299
|
)
|
Less:
Bond discount
|
|
|
(240,000
|
)
|
Accretion
of interest discount - Warrant
|
|
|
44,374
|
|
Accretion
of interest discount - Beneficial conversion feature
|
|
|
163,977
|
|
Amortization
of bond discount to interest expense
|
|
|
6,444
|
|
6%
Interest Payable
|
|
|
65,333
|
|
Accretion
of redemption premium
|
|
|
65,333
|
|
|
|
|
|
|
Net
|
|
|
345,461
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
17.
|
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.
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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
17.
|
Common
stock and convertible preferred stock
(Cont’d)
|
The
investors in the Private Placement also entered into a lock-up agreement
pursuant to which they agreed not to sell their shares until our 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 basis 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 former
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 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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
17.
|
Common
stock and convertible preferred stock
(Cont’d)
|
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 would be fully returned to Mr.
Kwong on April 1, 2008.
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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
18.
|
Concentration
of credit
|
A
substantial percentage of the Group's sales are made to the following customers.
Details of the customers accounting for 10% or more of total net revenue are
as
follows:
|
|
2007
|
|
2006
|
|
2005
|
|
Company
A
|
|
|
11
|
%
|
|
12
|
%
|
|
24
|
%
|
Company
B
|
|
|
-
|
|
|
11
|
%
|
|
11
|
%
|
Details
of the accounts receivable from the one customer with the largest receivable
balances at December 31, 2007 and 2006 are as follows:
|
|
Percentage
of accounts
receivable
|
|
|
|
2007
|
|
2006
|
|
Company
A
|
|
|
22
|
%
|
|
18
|
%
|
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 was $20,265, $18,749 and $18,802 during 2007,
2006 and 2005, respectively.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
20.
|
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 December 31, 2007 are as follows:
Year
ending December 31
|
|
$
|
|
2008
|
|
|
70,047
|
|
Rental
expenses for the years ended 2007, 2006 and 2005 were $90,295, $103,624 and
$138,262 respectively.
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.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
21.
|
Segment
Information
(Cont’d)
|
For
the
year ended December 31, 2007
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Sales
|
|
|
86,414,118
|
|
|
10,548,575
|
|
|
-
|
|
|
96,962,693
|
|
Cost
of sales
|
|
|
(77,473,063
|
)
|
|
(5,646,762
|
)
|
|
-
|
|
|
(83,119,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,941,055
|
|
|
4,901,813
|
|
|
-
|
|
|
13,842,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(1,072,410
|
)
|
|
(913,394
|
)
|
|
(2,941,475
|
)
|
|
(4,927,279
|
)
|
Other
operating income
|
|
|
63,064
|
|
|
554,849
|
|
|
-
|
|
|
617,913
|
|
Income
from operations
|
|
|
7,931,709
|
|
|
4,543,268
|
|
|
(2,941,475
|
)
|
|
9,533,502
|
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
(741,197
|
)
|
|
(741,197
|
)
|
Non-operating
income
|
|
|
233,379
|
|
|
-
|
|
|
-
|
|
|
233,379
|
|
Interest
expenses
|
|
|
(1,132,053
|
)
|
|
-
|
|
|
(345,461
|
)
|
|
(1,477,514
|
)
|
Income
before income taxes
|
|
|
7,033,035
|
|
|
4,543,268
|
|
|
(4,028,133
|
)
|
|
7,548,170
|
|
Significant
non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Gain on disposal of intangible assets
|
|
|
-
|
|
|
(425,256
|
)
|
|
-
|
|
|
(425,256
|
)
|
-
Depreciation
|
|
|
180,034
|
|
|
152,119
|
|
|
-
|
|
|
332,153
|
|
-
Amortization of intangible assets
|
|
|
-
|
|
|
123,977
|
|
|
-
|
|
|
123,977
|
|
Segment
assets
|
|
|
45,349,351
|
|
|
6,101,962
|
|
|
-
|
|
|
51,451,313
|
|
Total
expenditures for additions to long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Property and equipment
|
|
|
426,815
|
|
|
-
|
|
|
-
|
|
|
426,815
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
21.
|
Segment
Information
(Cont’d)
|
For
the
year ended December 31, 2006
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Sales
|
|
|
73,047,632
|
|
|
8,086,643
|
|
|
-
|
|
|
81,134,275
|
|
Cost
of sales
|
|
|
(67,228,452
|
)
|
|
(4,268,349
|
)
|
|
-
|
|
|
(71,496,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
5,819,180
|
|
|
3,818,294
|
|
|
-
|
|
|
9,637,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(1,396,289
|
)
|
|
(214,569
|
)
|
|
-
|
|
|
(1,610,858
|
)
|
Other
operation income
|
|
|
46,264
|
|
|
377,752
|
|
|
-
|
|
|
424,016
|
|
Income
from operations
|
|
|
4,469,155
|
|
|
3,981,477
|
|
|
-
|
|
|
8,450,632
|
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-operating
income
|
|
|
237,571
|
|
|
-
|
|
|
-
|
|
|
237,571
|
|
Interest
expenses
|
|
|
(1,060,536
|
)
|
|
-
|
|
|
-
|
|
|
(1,060,536
|
)
|
Income
before income taxes
|
|
|
3,646,190
|
|
|
3,981,477
|
|
|
-
|
|
|
7,627,667
|
|
Significant
non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Gain on disposal of fixed asset
|
|
|
(210,594
|
)
|
|
-
|
|
|
-
|
|
|
(210,594
|
)
|
-
Depreciation
|
|
|
159,003
|
|
|
166,992
|
|
|
-
|
|
|
325,995
|
|
-
Amortization of intangible assets
|
|
|
-
|
|
|
154,436
|
|
|
-
|
|
|
154,436
|
|
-
Amortization of leasehold lands
|
|
|
23,247
|
|
|
-
|
|
|
-
|
|
|
23,247
|
|
Segment
assets
|
|
|
19,766,313
|
|
|
4,329,970
|
|
|
-
|
|
|
24,096,283
|
|
Total
expenditures for additions to long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Property and equipment
|
|
|
776,252
|
|
|
386,451
|
|
|
-
|
|
|
1,162,703
|
|
-
Acquisition of held-to-maturity investments
|
|
|
301,007
|
|
|
-
|
|
|
-
|
|
|
301,007
|
|
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
21.
|
Segment
Information
(Cont’d)
|
For
the
year ended December 31, 2005
|
|
Watch
movements
|
|
Completed
watches
|
|
Unallocated
|
|
Total
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Sales
|
|
|
58,843,209
|
|
|
4,235,200
|
|
|
-
|
|
|
63,078,409
|
|
Cost
of sales
|
|
|
(55,069,673
|
)
|
|
(1,956,363
|
)
|
|
-
|
|
|
(57,026,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,773,536
|
|
|
2,278,837
|
|
|
-
|
|
|
6,052,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
expenses
|
|
|
(1,270,239
|
)
|
|
(424,957
|
)
|
|
-
|
|
|
(1,695,196
|
)
|
Other
operating income
|
|
|
771,431
|
|
|
167,142
|
|
|
-
|
|
|
938,573
|
|
Income
from operations
|
|
|
3,274,728
|
|
|
2,021,022
|
|
|
|
|
|
5,295,750
|
|
Fees
and costs related to reverse merger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-operating
income
|
|
|
156,199
|
|
|
-
|
|
|
-
|
|
|
156,199
|
|
Interest
expenses
|
|
|
(514,637
|
)
|
|
-
|
|
|
-
|
|
|
(514,637
|
)
|
Income
before income taxes
|
|
|
2,916,290
|
|
|
2,021,022
|
|
|
|
|
|
4,937,312
|
|
Significant
non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Depreciation
|
|
|
183,180
|
|
|
75,947
|
|
|
-
|
|
|
259,127
|
|
-
Amortization of intangible assets
|
|
|
-
|
|
|
154,438
|
|
|
-
|
|
|
154,438
|
|
-
Amortization of leasehold lands
|
|
|
7,968
|
|
|
-
|
|
|
-
|
|
|
7,968
|
|
Segment
assets
|
|
|
13,678,951
|
|
|
5,078,308
|
|
|
-
|
|
|
18,757,259
|
|
Total
expenditures for additions to long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Property and equipment
|
|
|
574,388
|
|
|
-
|
|
|
-
|
|
|
574,388
|
|
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 years ended December,
2007, 2006 and 2005 consequently, no segment information by geographical areas
is presented.
ASIA
TIME
CORPORATION
(Formerly
SRKP 9, Inc.)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(Cont’d)
(Stated
in US Dollars)
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 will issue 200,000 shares of its common stock to Public
Equity Group Inc. In connection with the issuance of 200,000 shares of common
stock, we expect to recognize a one-time charge to operations in the first
quarter of 2008 in an amount equal to approximately $700,000, which is derived
from valuing each share at $3.50, the offering price in our public
offering.
On
February, 12, 2008, the company’s common stock commenced trading on the American
Stock Exchange.
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 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,
the
Company sold to the underwriter warrants to purchase up to 83,800 shares of
its
common stock. The warrants are exercisable at a per share price of $4.20 and
have a term of five years.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item
13. Indemnification of directors and officers
Under
Section 145 of the General Corporation Law of the State of Delaware, the Company
can indemnify its directors and officers against liabilities they may incur
in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the “Securities Act”). The Company’s certificate of incorporation
provides that, pursuant to Delaware law, its directors shall not be liable
for
monetary damages for breach of the directors’ fiduciary duty of care to the
Company and its stockholders. This provision in the certificate of incorporation
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director’s duty of loyalty to the Company
or its stockholders, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of the law, for actions leading
to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director’s responsibilities under any
other law, such as the federal securities laws or state or federal environmental
laws.
The
Company’s bylaws provide for the indemnification of its directors to the fullest
extent permitted by the Delaware General Corporation Law. The Company’s bylaws
further provide that its Board of Directors has discretion to indemnify its
officers and other employees. The Company is required to advance, prior to
the
final disposition of any proceeding, promptly on request, all expenses incurred
by any director or executive officer in connection with that proceeding on
receipt of an undertaking by or on behalf of that director or executive officer
to repay those amounts if it should be determined ultimately that he or she
is
not entitled to be indemnified under the Company’s bylaws or otherwise. The
Company is not, however, required to advance any expenses in connection with
any
proceeding if a determination is reasonably and promptly made by its Board
of
Directors by a majority vote of a quorum of disinterested Board members that
(a)
the party seeking an advance acted in bad faith or deliberately breached his
or
her duty to the Company or its stockholders and (b) as a result of such actions
by the party seeking an advance, it is more likely than not that it will
ultimately be determined that such party is not entitled to indemnification
pursuant to the applicable sections of its bylaws.
The
Company has been advised that in the opinion of the Securities and Exchange
Commission, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to the Company’s directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, such
indemnification is against public policy as expressed in the Securities Act
and
is therefore unenforceable. In the event a claim for indemnification against
such liabilities (other than the Company’s payment of expenses incurred or paid
by its director, officer or controlling person in the successful defense of
any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by the Company is against public policy as expressed in
the
Securities Act and will be governed by the final adjudication of such
issue.
The
Company will enter into indemnification agreements with each of its directors
and officers that are, in some cases, broader than the specific indemnification
provisions permitted by Delaware law, and that may provide additional procedural
protection. The indemnification agreements require the Company, among other
things, to:
|
•
|
indemnify
officers and directors against certain liabilities that may arise
because
of their status as officers or
directors;
|
|
•
|
advance
expenses, as incurred, to officers and directors in connection with
a
legal proceeding, subject to limited exceptions;
or
|
|
•
|
obtain
directors’ and officers’ insurance.
|
At
present, there is no pending litigation or proceeding involving any of the
Company’s directors, officers or employees in which indemnification is sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification.
Item
14. Other expenses of issuance and distribution
The
following table sets forth the costs and expenses payable by the Registrant
relating to the sale of securities being registered. All amounts are estimates
except the SEC registration fee.
Securities
and Exchange Commission registration fee
|
|
$
|
459
|
|
Transfer
Agent Fees
|
|
|
1,000
|
|
Accounting
fees and expenses
|
|
|
30,000
|
|
Legal
fees and expenses
|
|
|
50,000
|
|
Miscellaneous
|
|
|
18,541
|
|
Total
|
|
$
|
100,000
|
|
Item
15. Recent sales of unregistered securities
In
February 2008, we issued 200,000 shares of our common stock to Public Equity
Group Inc. in connection with a consulting agreement and investor relation
services. The securities were offered and sold to consulting firm in reliance
upon exemptions from registration pursuant to Section 4(2) under the Securities
Act of 1933, as amended, and Rule 506 promulgated thereunder. The firm is
qualified as an accredited investor (as defined by Rule 501 under the Securities
Act of 1933, as amended).
On
November 13, 2007, we completed a financing transaction with ABN AMRO Bank
N.V.
(the “Subscriber”) under Regulation S of the Securities Act of 1933, as amended
(the “Securities Act”) and issued (i) $8,000,000 Variable Rate Convertible Bonds
due in 2012 (the “Bonds”) and (ii) 600,000 warrants to purchase an aggregate of
600,000 shares of our common stock, subject to adjustments for stock splits
or
reorganizations as set forth in the warrant, that expire in 2010 (the “Bond
Warrants”). The Bonds and Bond Warrants were offered and sold to the Subscriber
in reliance upon exemption from registration pursuant to Regulation S of the
Securities Act. We complied with the conditions of Rule 903 as promulgated
under
the Securities Act including, but not limited to, the following: (i) Subscriber
is a non-U.S. resident and has not offered or sold their shares in accordance
with the provisions of Regulation S; (ii) an appropriate legend was affixed
to
the securities issued in accordance with Regulation S; (iii) Subscriber has
represented that it was not acquiring the securities for the account or benefit
of a U.S. person; and (iv) Subscriber agreed to resell the securities only
in
accordance with the provisions of Regulation S, pursuant to a registration
statement under the Securities Act, or pursuant to an available exemption from
registration. We will refuse to register any transfer of the shares not made
in
accordance with Regulation S, after registration, or under an exemption.
On
January 23, 2007, pursuant to the terms of the Exchange Agreement entered into
by and between us, Times Manufacture & E-Commerce Corporation Limited
(“Times Manufacture”) and the sole shareholder of Times Manufacture, we issued
19,454,420 shares of common stock to Kwong Kai Shun, the sole shareholder of
Times Manufacture, in exchange for all of the issued and outstanding securities
of Times Manufacture. The securities were offered and issued to the sole
shareholder of Times Manufacture in reliance upon an exemption from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended, and
Rule
506 promulgated thereunder. Kwong Kai Shun was the principal executive officer
of Times Manufacture before the Share Exchange and became our principal
executive officer after the Share Exchange. The sole shareholder of Times
Manufacture qualified as an accredited investor (as defined by Rule 501 under
the Securities Act of 1933, as amended).
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 of $2,902,946 (the “Private Placement”).
As
of September 1, 2008, all of the Series A Convertible Preferred Stock have
been
converted to common stock. Each share of the Series A Convertible Preferred
Stock was converted into shares of common stock at a conversion price equal
to
the purchase price of such shares.
The securities were offered and sold
to investors in reliance upon exemptions from registration pursuant to Section
4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. Each of the persons and/or entities receiving our securities
qualified as an accredited investor (as defined by Rule 501 under the Securities
Act of 1933, as amended).
Item
16. Exhibits
Exhibit
No.
|
|
Exhibit
Description
|
2.1
|
|
Share
Exchange Agreement, dated as of December 15, 2006, by and among the
Registrant, Kwong Kai Shun and Times Manufacture & E-Commerce
Corporation, Limited (incorporated by reference from Exhibit 2.1
to
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 29, 2007).
|
|
|
|
3.1
|
|
Certificate
of Incorporation (incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form 10-SB (File No. 000-51981) filed with
the
Securities and Exchange Commission on May 5, 2006).
|
|
|
|
3.2
|
|
Bylaws
(incorporated by reference from Exhibit 3.2 to the Registration Statement
on Form 10-SB (File No. 000-51981) filed with the Securities and
Exchange
Commission on May 5, 2006).
|
|
|
|
3.3
|
|
Articles
of Merger Effecting Name Change (incorporated by reference from Exhibit
3.3 to Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 29, 2007).
|
|
|
|
3.4
|
|
Certificate
Of Designations, Preferences And Rights Of Series A Convertible Preferred
Stock (incorporated by reference from Exhibit 3.4 to Current Report
on
Form 8-K filed with the Securities and Exchange Commission on January
29,
2007).
|
|
|
|
4.1
|
|
Specimen
Certificate of Common Stock (incorporated by reference to Exhibit
4.1 of
the Registrant's Registration Statement on Form SB-2 filed August
20,
2004).
|
|
|
|
4.2
|
|
Trust
Deed, dated November 13, 2007, by and between the Registrant and
The Bank
of New York, London Branch (incorporated by reference to Exhibit
4.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 16, 2007).
|
|
|
|
4.3
|
|
Paying
and Conversion Agency Agreement, dated November 13, 2007, by and
among the
Registrant, The Bank of New York, and The Bank of New York, London
Branch
(incorporated by reference to Exhibit 4.2 to the Current Report on
Form
8-K filed with the Securities and Exchange Commission on November
16,
2007).
|
|
|
|
4.4
|
|
Warrant
Instrument, dated November 13, 2007, by and between the Registrant
and ABN
AMRO Bank N.V. (incorporated by reference to Exhibit 4.3 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 16, 2007).
|
|
|
|
4.5
|
|
Warrant
Agency Agreement, dated November 13, 2007, by and among the Registrant,
The Bank of New York and The Bank of New York, London Branch (incorporated
by reference to Exhibit 4.4 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on November 16,
2007).
|
|
|
|
4.6
|
|
Registration
Rights Agreement, dated November 13, 2007, by and between the Registrant
and ABN AMRO Bank N.V. (incorporated by reference to Exhibit 4.5
to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 16, 2007).
|
5.1**
|
|
Opinion
of K&L Gates LLP regarding validity of common
stock.
|
|
|
|
5.2**
|
|
Opinion
of K&L Gates LLP regarding bonds and warrants.
|
|
|
|
8.1**
|
|
Opinion
of K&L Gates LLP.
|
Exhibit
No.
|
|
Exhibit
Description
|
10.1
|
|
Form
of Subscription Agreement dated as of January 23, 2007 and February
9,
2007 (incorporated by reference from Exhibit 10.1 to Current Report
on
Form 8-K filed with the Securities and Exchange Commission on February
13,
2007).
|
|
|
|
10.1(a)
|
|
Form
of Amendment No. 1 dated as of July 20, 2007 to Subscription Agreement
(incorporated by reference from Exhibit 10.1(a) to Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on
December
18, 2007).
|
|
|
|
10.1(b)
|
|
Form
of Amendment No. 2 dated as of December 16, 2007 to Subscription
Agreement
(incorporated by reference from Exhibit 10.1(b) to Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on
December
18, 2007, 2008).
|
|
|
|
10.2
|
|
Form
of Agreement between Kwong Kai Shun and Investors of Series A Convertible
Preferred Stock (incorporated by reference from Exhibit 10.2 to
Registration Statement on Form S-1 filed with the Securities and
Exchange
Commission on September 26, 2007).
|
|
|
|
10.2(a)
|
|
Amendment
No. 1 to Agreement between Kwong Kai Shun and Investors of Series
A
Convertible Preferred Stock, dated June 30, 2007 (incorporated by
reference to Exhibit 10.2(a) of the Registration Statement on Form
S-1
filed with the Securities and Exchange Commission on September 26,
2007).
|
|
|
|
10.2(b)
|
|
Form
of Amendment No. 2 to Agreement between Kwong Kai Shun and Investors
of
Series A Convertible Preferred Stock (incorporated by reference to
Exhibit
10.2(b) of the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on December 18,
2007).
|
|
|
|
10.3
|
|
Subscription
Agreement, dated October 31, 2007, by and between the Registrant
and ABN
AMRO Bank N.V. (incorporated by reference to Exhibit 10.3 to the
Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 16, 2007).
|
|
|
|
10.4
|
|
Registration
Rights Agreement dated January 23, 2007 entered into by and between
the
Registrant and Affiliates of WestPark Capital, Inc. (incorporated
by
reference to Exhibit 10.4 of the Registration Statement on Form S-1
filed
with the Securities and Exchange Commission on December 18,
2007).
|
|
|
|
10.5
|
|
Employment
Agreement by and between King Wai Lin and the Registrant dated April
21,
2008 (incorporated by reference to Exhibit 10.1 of the Current Report
on
Form 8-K filed with the Securities and Exchange Commission on April
24,
2008).
|
|
|
|
10.6
|
|
Confidential
Agreement by and between King Wai Lin and the Registrant dated April
21,
2008 (incorporated by reference to Exhibit 10.2 of the Current Report
on
Form 8-K filed with the Securities and Exchange Commission on April
24,
2008).
|
10.7
|
|
Asia
Time Corporation 2008 Equity Incentive Plan (incorporated by
reference to
Appendix A-1 the Company’s Definitive Proxy Statement filed with the
Securities and Exchange Commission on September 3,
2008).
|
|
|
|
10.7(a)
|
|
Asia
Time Corporation Amended and Restated 2008 Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company’s Current Report
on Form 8-K filed with the Securities and Exchange Commission
on November
6, 2008).
|
|
|
|
10.8
|
|
Form
of Notice of Grant of Stock Option of the Registrant (incorporated
by
reference to Appendix A-2 of the Company’s Definitive Proxy Statement
filed with the Securities and Exchange Commission on September
3,
2008).
|
|
|
|
10.9
|
|
Form
of Stock Option Agreement (including Addendum) of the Registrant
(incorporated by reference to Appendix A-3 of the Company’s Definitive
Proxy Statement filed with the Securities and Exchange Commission
on
September 3, 2008).
|
|
|
|
10.10
|
|
Form
of Stock Issuance Agreement (including Addendum) of the Registrant
(incorporated by reference to Appendix A-4 of the Company’s Definitive
Proxy Statement filed with the Securities and Exchange Commission
on
September 3, 2008).
|
|
|
|
10.11
|
|
Form
of Stock Purchase Agreement (including Addendum) of the Registrant
(incorporated by reference to Appendix A-5 of the Company’s Definitive
Proxy Statement filed with the Securities and Exchange Commission
on
September 3, 2008).
|
|
|
|
12.1**
|
|
Computation
of Ratio of Earnings to Fixed
Charges.
|
21.1
|
|
List
of Subsidiaries (incorporated by reference from Exhibit 21.1 to Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
January 29, 2007).
|
|
|
|
23.1
|
|
Consent
of Dominic K. F. Chan & Co., Certified Public
Accountants.
|
23.2**
|
|
Consent
of K&L Gates LLP (contained in Exhibits 5.1 and
5.2).
|
24.1**
|
|
Power
of Attorney (included on signature
page).
|
____________
**
Previously filed.
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
(1)
To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i)
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii)
To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set
forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2)
That,
for
the purpose of determining any liability under the Securities Act of 1933,
each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3)
To
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering.
(4)
That,
for
the purpose of determining liability of the registrant under the Securities
Act
to any purchaser in the initial distribution of the securities:
The
undersigned registrant undertakes that in a primary offering of securities
of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if
the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i)
any preliminary prospectus or prospectus of the undersigned registrant relating
to the offering required to be filed pursuant to Rule 424;
(ii)
any free writing prospectus relating to the offering prepared by or on behalf
of
the undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
the
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv)
any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(5)
That,
for
purposes of determining liability under the Securities Act to any purchaser:
(A)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement;
and
(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B relating
to
an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose
of
providing the information required by section 10(a) of the Securities Act shall
be deemed to be part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after effectiveness
or
the date of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall
be
deemed to be a new effective date of the registration statement relating to
the
securities in the registration statement to which that prospectus relates,
and
the offering of such securities at that time shall be deemed to be the initial
bona
fide
offering
thereof.
Provided,
however,
that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of
the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made
in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act, the Registrant has duly caused
this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Kowloon, Hong Kong, on the 7th day of November,
2008.
|
ASIA
TIME CORPORATION
|
|
|
|
By:
|
/s/
Kwong Kai Shun
|
|
Name:
|
Kwong
Kai Shun
|
|
Title:
|
Chief
Executive Officer and Chairman of the
Board
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities and on
the
dates indicated:
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/
Kwong Kai Shun
|
|
Chief
Executive Officer and Chairman of the Board
|
|
November
7, 2008
|
Kwong
Kai Shun
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
King Wai Lin
|
|
Chief
Financial Officer
|
|
|
King
Wai Lin
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Michael Mak
|
|
Director
and Corporate Secretary
|
|
|
Michael
Mak
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Lee
Siu Po
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Dr.
Leung Ching Wah
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Wu
Hok Lun
|
|
|
|
|
*
By:
|
/s/
Kwong Kai
Shun
|
|
as
Attorney in Fact
|
EXHIBIT
INDEX
Exhibit
No.
|
|
Exhibit
Description
|
2.1
|
|
Share
Exchange Agreement, dated as of December 15, 2006, by and among the
Registrant, Kwong Kai Shun and Times Manufacture & E-Commerce
Corporation, Limited (incorporated by reference from Exhibit 2.1
to
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 29, 2007).
|
|
|
|
3.1
|
|
Certificate
of Incorporation (incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form 10-SB (File No. 000-51981) filed with
the
Securities and Exchange Commission on May 5, 2006).
|
|
|
|
3.2
|
|
Bylaws
(incorporated by reference from Exhibit 3.2 to the Registration Statement
on Form 10-SB (File No. 000-51981) filed with the Securities and
Exchange
Commission on May 5, 2006).
|
|
|
|
3.3
|
|
Articles
of Merger Effecting Name Change (incorporated by reference from Exhibit
3.3 to Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 29, 2007).
|
|
|
|
3.4
|
|
Certificate
Of Designations, Preferences And Rights Of Series A Convertible Preferred
Stock (incorporated by reference from Exhibit 3.4 to Current Report
on
Form 8-K filed with the Securities and Exchange Commission on January
29,
2007).
|
|
|
|
4.1
|
|
Specimen
Certificate of Common Stock (incorporated by reference to Exhibit
4.1 of
the Registrant's Registration Statement on Form SB-2 filed August
20,
2004).
|
|
|
|
4.2
|
|
Trust
Deed, dated November 13, 2007, by and between the Registrant and
The Bank
of New York, London Branch (incorporated by reference to Exhibit
4.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 16, 2007).
|
|
|
|
4.3
|
|
Paying
and Conversion Agency Agreement, dated November 13, 2007, by and
among the
Registrant, The Bank of New York, and The Bank of New York, London
Branch
(incorporated by reference to Exhibit 4.2 to the Current Report on
Form
8-K filed with the Securities and Exchange Commission on November
16,
2007).
|
|
|
|
4.4
|
|
Warrant
Instrument, dated November 13, 2007, by and between the Registrant
and ABN
AMRO Bank N.V. (incorporated by reference to Exhibit 4.3 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 16, 2007).
|
|
|
|
4.5
|
|
Warrant
Agency Agreement, dated November 13, 2007, by and among the Registrant,
The Bank of New York and The Bank of New York, London Branch (incorporated
by reference to Exhibit 4.4 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on November 16,
2007).
|
|
|
|
4.6
|
|
Registration
Rights Agreement, dated November 13, 2007, by and between the Registrant
and ABN AMRO Bank N.V. (incorporated by reference to Exhibit 4.5
to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 16, 2007).
|
5.1**
|
|
Opinion
of K&L Gates LLP regarding validity of common
stock.
|
|
|
|
5.2**
|
|
Opinion
of K&L Gates LLP regarding bonds and warrants.
|
|
|
|
8.1**
|
|
Opinion
of K&L Gates LLP.
|
10.1
|
|
Form
of Subscription Agreement dated as of January 23, 2007 and February
9,
2007 (incorporated by reference from Exhibit 10.1 to Current Report
on
Form 8-K filed with the Securities and Exchange Commission on February
13,
2007).
|
|
|
|
10.1(a)
|
|
Form
of Amendment No. 1 dated as of July 20, 2007 to Subscription Agreement
(incorporated by reference from Exhibit 10.1(a) to Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on
December
18, 2007).
|
Exhibit
No.
|
|
Exhibit
Description
|
10.1(b)
|
|
Form
of Amendment No. 2 dated as of December 16, 2007 to Subscription
Agreement
(incorporated by reference from Exhibit 10.1(b) to Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on
December
18, 2007, 2008).
|
|
|
|
10.2
|
|
Form
of Agreement between Kwong Kai Shun and Investors of Series A Convertible
Preferred Stock (incorporated by reference from Exhibit 10.2 to
Registration Statement on Form S-1 filed with the Securities and
Exchange
Commission on September 26, 2007).
|
|
|
|
10.2(a)
|
|
Amendment
No. 1 to Agreement between Kwong Kai Shun and Investors of Series
A
Convertible Preferred Stock, dated June 30, 2007 (incorporated by
reference to Exhibit 10.2(a) of the Registration Statement on Form
S-1
filed with the Securities and Exchange Commission on September 26,
2007).
|
|
|
|
10.2(b)
|
|
Form
of Amendment No. 2 to Agreement between Kwong Kai Shun and Investors
of
Series A Convertible Preferred Stock (incorporated by reference to
Exhibit
10.2(b) of the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on December 18,
2007).
|
|
|
|
10.3
|
|
Subscription
Agreement, dated October 31, 2007, by and between the Registrant
and ABN
AMRO Bank N.V. (incorporated by reference to Exhibit 10.3 to the
Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 16, 2007).
|
|
|
|
10.4
|
|
Registration
Rights Agreement dated January 23, 2007 entered into by and between
the
Registrant and Affiliates of WestPark Capital, Inc. (incorporated
by
reference to Exhibit 10.4 of the Registration Statement on Form S-1
filed
with the Securities and Exchange Commission on December 18,
2007).
|
|
|
|
10.5
|
|
Employment
Agreement by and between King Wai Lin and the Registrant dated April
21,
2008 (incorporated by reference to Exhibit 10.1 of the Current Report
on
Form 8-K filed with the Securities and Exchange Commission on April
24,
2008).
|
|
|
|
10.6
|
|
Confidential
Agreement by and between King Wai Lin and the Registrant dated April
21,
2008 (incorporated by reference to Exhibit 10.2 of the Current Report
on
Form 8-K filed with the Securities and Exchange Commission on April
24,
2008).
|
10.7
|
|
Asia
Time Corporation 2008 Equity Incentive Plan (incorporated by
reference to
Appendix A-1 the Company’s Definitive Proxy Statement filed with the
Securities and Exchange Commission on September 3,
2008).
|
|
|
|
10.7(a)
|
|
Asia
Time Corporation Amended and Restated 2008 Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company’s Current Report
on Form 8-K filed with the Securities and Exchange Commission
on November
6, 2008).
|
|
|
|
10.8
|
|
Form
of Notice of Grant of Stock Option of the Registrant (incorporated
by
reference to Appendix A-2 of the Company’s Definitive Proxy Statement
filed with the Securities and Exchange Commission on September
3,
2008).
|
|
|
|
10.9
|
|
Form
of Stock Option Agreement (including Addendum) of the Registrant
(incorporated by reference to Appendix A-3 of the Company’s Definitive
Proxy Statement filed with the Securities and Exchange Commission
on
September 3, 2008).
|
|
|
|
10.10
|
|
Form
of Stock Issuance Agreement (including Addendum) of the Registrant
(incorporated by reference to Appendix A-4 of the Company’s Definitive
Proxy Statement filed with the Securities and Exchange Commission
on
September 3, 2008).
|
|
|
|
10.11
|
|
Form
of Stock Purchase Agreement (including Addendum) of the Registrant
(incorporated by reference to Appendix A-5 of the Company’s Definitive
Proxy Statement filed with the Securities and Exchange Commission
on
September 3, 2008).
|
12.1**
|
|
Computation
of Ratio of Earnings to Fixed
Charges.
|
21.1
|
|
List
of Subsidiaries (incorporated by reference from Exhibit 21.1 to Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
January 29, 2007).
|
|
|
|
23.1
|
|
Consent
of Dominic K. F. Chan & Co., Certified Public
Accountants.
|
23.2**
|
|
Consent
of K&L Gates LLP (contained in Exhibits 5.1 and
5.2).
|
24.1**
|
|
Power
of Attorney (included on signature
page).
|
____________
**
Previously filed.
Asia Time Corp (AMEX:TYM)
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