UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly
period ended:
JUNE 30,
2009
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ____________ to _____________
Commission File
Number: 333-83375
HONG
KONG WINALITE GROUP, INC.
(Exact Name of
Registrant as Specified in Its Charter)
Nevada
|
|
87-0575571
|
(State or
other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
1204-06,
12/F
Wai
Fung Plaza, 664 Nathan Road,
Mongkok,
Kowloon, Hong Kong
(Address of
principal executive offices, Zip Code)
(852)
2388-3928
(Registrant’s
telephone number, including area code)
_____________________________________________________
(Former name,
former address and former fiscal year, if changed since last
report)
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes
x
No
¨
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
¨
No
¨
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.
|
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
Non-accelerated
filer
¨
|
Smaller
reporting company
x
|
|
(Do not
check if a smaller reporting company)
|
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
¨
No
x
The number of
shares outstanding of each of the issuer’s classes of common stock, as of
November 6, 2009, is as follows:
Class of Securities
|
Shares Outstanding
|
Common
Stock, $0.001 par value
|
49,740,933
|
TABLE OF
CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
|
ii
|
|
|
PART
I. FINANCIAL INFORMATION
|
1
|
|
|
ITEM
1.
FINANCIAL
STATEMENTS.
|
1
|
ITEM
2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
15
|
ITEM
4.
CONTROLS AND
PROCEDURES.
|
21
|
|
|
PART
II. OTHER INFORMATION
|
22
|
|
|
ITEM
6.
EXHIBITS.
|
22
|
|
|
SIGNATURES
|
23
|
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly
Report on Form 10-Q, including the following “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements that are based on the beliefs of our management, and
involve risks and uncertainties, as well as assumptions, that, if they ever
materialize or prove incorrect, could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. The words
“believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,”
“aim,” “will” or similar expressions are intended to identify forward-looking
statements. All statements, other than statements of historical fact,
are statements that could be deemed forward-looking statements, including
statements regarding new and existing products, brand development, technologies
and opportunities; statements regarding market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in China; any statements of belief or intention;
and any statements of assumptions underlying any of the
foregoing. Forward looking statements may involve risks and
uncertainties, known or unknown to us, that could cause results to differ
materially from management’s expectations as projected in such forward-looking
statements. These risks and uncertainties are discussed in “Item 1A.
Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, and subsequent SEC filings. All forward-looking
statements included in this report are based on information available to us on
the date of this report. We assume no obligation and do not intend to
update these forward-looking statements, except as required by law.
PART
I.
FINANCIAL
INFORMATION
ITEM
1.
|
FINANCIAL
STATEMENTS.
|
Hong
Kong Winalite Group, Inc.
Condensed
Consolidated Financial Statements
For the Three and
Six Months Ended June 30, 2009
(Stated in US
dollars)
(Unaudited)
Hong
Kong Winalite Group, Inc.
Condensed
Consolidated Financial Statements
Index
to Condensed Consolidated Financial Statements
|
Page
|
|
|
Condensed
Consolidated Statements of Income for the three month and six month
periods ended June 30, 2009 and 2008
|
3
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2009 and December 31,
2008
|
4
|
|
|
Condensed
Consolidated Statements of Cash Flows for the six month period ended June
30, 2009 and 2008
|
6
|
|
|
Notes to
Condensed Consolidated Financial Statements
|
8
|
Hong
Kong Winalite Group, Inc.
Condensed
Consolidated Statements of Income
Three
month and six month periods ended June 30, 2009 and 2008
(Unaudited)
(Stated
in US Dollars)
|
|
Three
Month Period
|
|
|
Six
Month Period
|
|
|
|
Ended
June 30
|
|
|
Ended
June 30
|
|
|
|
2009
|
|
|
|
2008
|
|
|
2009
|
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,483,702
|
|
|
|
$
|
955,327
|
|
|
|
4,848,415
|
|
|
|
$
|
955,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fee
income
|
|
|
248,370
|
|
|
|
|
95,532
|
|
|
|
484,841
|
|
|
|
|
95,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2,732,072
|
|
|
|
|
1,050,859
|
|
|
|
5,333,256
|
|
|
|
|
1,050,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
(1,489,548
|
)
|
|
|
|
(573,925
|
)
|
|
|
(2,797,709
|
)
|
|
|
|
(573,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,242,524
|
|
|
|
|
476,934
|
|
|
|
2,535,547
|
|
|
|
|
476,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
expenses
|
|
|
(402,503
|
)
|
|
|
|
(103,487
|
)
|
|
|
(534,423
|
)
|
|
|
|
(163,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
840,021
|
|
|
|
|
373,447
|
|
|
|
2,001,124
|
|
|
|
|
313,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes - Note 5
|
|
|
(175,291
|
)
|
|
|
|
-
|
|
|
|
(345,809
|
)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
664,730
|
|
|
|
|
373,447
|
|
|
|
1,655,315
|
|
|
|
|
313,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share-basic and diluted
|
|
|
0.013
|
|
|
|
|
0.008
|
|
|
|
0.033
|
|
|
|
|
0.006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
basic and diluted
|
|
|
49,740,933
|
|
|
|
|
49,740,933
|
|
|
|
49,740,933
|
|
|
|
|
49,740,933
|
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
Hong
Kong Winalite Group, Inc.
Condensed
Consolidated Balance Sheets
As
of June 30, 2009 and December 31, 2008
(Stated in US
Dollars)
|
|
As
of
|
|
|
As
of
|
|
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
|
358,296
|
|
|
|
307,558
|
|
|
|
|
|
|
|
|
|
|
Trade
receivables (net of allowance for doubtful account of
US$207,770
in 2009 and US$0 in 2008)
|
|
$
|
3,994,236
|
|
|
$
|
2,622,583
|
|
|
|
|
|
|
|
|
|
Loan
receivables - Note 13
|
|
|
1,149,703
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other
receivables and prepayments
|
|
|
47,924
|
|
|
|
88,607
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
5,550,159
|
|
|
|
3,018,748
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net - Note 6
|
|
|
184,226
|
|
|
|
130,591
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
5,734,385
|
|
|
$
|
3,149,339
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
$
|
1,205,861
|
|
|
$
|
1,127,986
|
|
|
|
|
|
|
|
|
|
Sales
deposit received
|
|
|
1,277,252
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other
payables
|
|
|
14,304
|
|
|
|
207,812
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
97,829
|
|
|
|
21,286
|
|
|
|
|
|
|
|
|
|
Amount
due to a director - Note 8
|
|
105,830
|
|
|
|
755,466
|
|
|
|
|
|
|
|
|
|
|
Tax
payable
|
|
|
489,795
|
|
|
|
143,336
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,190,871
|
|
|
|
2,255,886
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
15,514
|
|
|
|
15,514
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
3,206,385
|
|
|
|
2,271,400
|
|
|
|
|
|
|
|
|
|
|
COMMITMENT AND CONTINGENCIES
- Note 9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock: par value $0.001 per share;
|
|
|
|
|
|
|
authorized 1,000,000 shares;
|
|
|
|
|
|
|
none issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock: par value $0.001 per share - Note 10
|
|
|
|
|
|
|
authorized 500,000,000 shares;
issued and
|
|
|
|
|
|
|
outstanding 49,740,933
shares
|
|
|
49,741
|
|
|
|
49,741
|
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital
|
|
|
19,079
|
|
|
|
19,079
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income
|
|
|
-
|
|
|
|
5,254
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
2,459,180
|
|
|
|
803,865
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
2,528,000
|
|
|
|
877,939
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
5,734,385
|
|
|
$
|
3,149,339
|
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
Hong
Kong Winalite Group, Inc.
Condensed
Consolidated Statements of Cash Flows
Six
month period ended June 30, 2009 and 2008
(Unaudited)
(Stated
in US Dollars)
|
Six
Month Period Ended June 30
|
|
Cash
flows from operating activities
|
2009
|
|
2008
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
1,655,315
|
|
$
|
313,201
|
|
|
|
|
|
|
|
|
Adjustment
to reconcile net income to net cash
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful debts
|
|
207,770
|
|
|
-
|
|
|
|
|
|
|
|
|
Depreciation
|
|
22,528
|
|
|
-
|
|
|
|
|
|
|
|
|
Changes in
operating assets and liabilities :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
(1,579,423
|
)
|
|
(842,091
|
)
|
|
|
|
|
|
|
|
Other
receivables and prepayments
|
|
40,683
|
|
|
(97,695
|
)
|
|
|
|
|
|
|
|
Trade
payables
|
|
77,875
|
|
|
573,925
|
|
|
|
|
|
|
|
|
Sales
deposit received
|
|
1,277,252
|
|
|
-
|
|
|
|
|
|
|
|
|
Other
payables
|
|
(193,508
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
76,543
|
|
|
(408,234
|
)
|
|
|
|
|
|
|
|
Tax
payable
|
|
346,459
|
|
|
-
|
|
|
|
|
|
|
Net cash
flows provided by/(used in) operating activities
|
|
1,931,494
|
|
|
(460,894
|
)
|
|
|
|
|
|
|
|
Cash
flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance to
a third party
|
|
(1,149,703
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Payments to
acquire property, plant and equipment
|
|
(76,163
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Net cash
flows used in investing activities
|
|
(1,225,866
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Repayment
to)/advance from a director
|
|
(649,636
|
)
|
|
629,312
|
|
|
|
|
|
|
|
|
Net cash
flows (used in) /provided by financing activities
|
|
(649,636
|
)
|
|
629,312
|
|
|
|
|
|
|
|
|
Effect of
exchange rate
|
|
(5,254
|
)
|
|
(134
|
)
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
50,738
|
|
|
168,284
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents – beginning of period
|
|
307,558
|
|
|
61,500
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents - end of period
|
$
|
358,296
|
|
$
|
229,784
|
|
|
|
|
|
|
|
|
Cash paid
for :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Income
taxes
|
$
|
-
|
|
$
|
-
|
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
Hong
Kong Winalite Group, Inc.
Notes
to Condensed Consolidated Financial Statements
(Stated
in US Dollars)
|
Hong Kong
Winalite Group, Inc. (the “Company”) was incorporated in the State of
Nevada on January 22, 1998. The Company’s shares are quoted for
trading on the Over-The-Counter Bulletin Board in the United States of
America.
|
|
|
|
On October
30, 2007, the then subsidiary of the Company, The Hong Kong Winalite Group
Limited (“Winalite”), a limited company incorporated in Hong Kong, entered
into a financial advisory agreement (“FAA”) with HFG International Limited
(“HFG), a Hong Kong corporation. Under the FAA, HFG agreed to
provide Winalite with financial advisory and consulting services in
implementing a restructuring plan, facilitating Winalite’s going public
transaction, and advising Winalite on matters related to Winalite’s
post-going-public-transaction period. In consideration for
these services, HFG was paid a fee of $80,000 after completion of a due
diligence investigation of Winalite and a fee of $400,000 upon the closing
of the going public transaction, $400,000 of which was paid during
2008. Winalite also granted HFG certain registration
rights. Timothy P. Halter, who immediately prior to
consummation of the transactions contemplated by the Share Exchange
Agreement beneficially owned approximately 87.5% of the Company’s issued
and outstanding capital stock, is the principal stockholder and Chief
Financial Officer of HFG.
|
|
Pursuant to
a Share Exchange Agreement dated December 28, 2007, the Company acquired a
100% ownership interest in Winalite as of September 10, 2007, in
consideration for the issuance of 48,000,000 of the Company’s common
shares (as adjusted for a 7.352380958-for-1 reverse stock split on January
7, 2008 (the “Reverse Stock Split”)) to the former stockholders of
Winalite (the “Winalite Former Shareholders”).
|
|
|
|
The
aforesaid transaction was completed on December 28, 2007, and, thereafter,
Winalite became a wholly-owned subsidiary of the Company and the Winalite
Former Stockholders became the majority stockholders of the
Company. This transaction constituted a reverse takeover
transaction (“RTO”).
|
|
|
|
On May 1,
2008, the Company entered into a master purchase and supply agreement
(“MPSA”) with Shenzhen Yuelang Techno Industrial Company Limited
(“Yuelang”), an independent third party. Pursuant to the MPSA,
the Company will purchase certain products from Yuelang at prices set out
in the MPSA. The MPSA has an indefinite term but can be terminated upon
six months’ notice by either party or upon specified events, such as the
insolvency of either party.
|
|
|
|
On May 1,
2008, the Company entered into agreements with independent third party
distributors (“Distributors”), namely exclusive international distribution
agreements (“Distribution Agreements”), consulting and management services
agreements (“Services Agreements”) and license agreements (“License
Agreements”). Pursuant to the Distribution Agreements, the
Distributors will purchase products from the Company and resell those
products through direct marketing and/or other channels in the
Distributors’ assigned and exclusive territories. The Distribution
Agreements have an initial term of five years and will be automatically
renewed for an additional one year period unless the Company indicates in
writing its desire to the contrary more than thirty days before the end of
the initial term. Pursuant to the Services Agreements, the Company has
agreed to provide certain consulting and management services to the
Distributors at a pre-determined hourly rate agreed by both
parties. The Services Agreements can be terminated at any time
by the Company, and upon sixty days’ advance notice by the Distributors,
by written notice delivered to the non-terminating
party. Pursuant to the License Agreements, the Company has
agreed to license to each Distributor certain intellectual property solely
for use in such Distributor’s assigned and exclusive territories in
connection with the marketing, sale and distribution of the Company’s
products. Each Distributor has agreed to pay the Company a
license fee in an amount equal to 10% of
the
|
Hong
Kong Winalite Group, Inc.
Notes
to Condensed Consolidated Financial Statements
(Stated
in US Dollars)
1.
|
Corporate
information (Cont’d)
|
|
monetary
amount of such Distributor’s orders for the products placed with the
Company. The License Agreements will terminate when the
Distribution Agreements are
terminated.
|
2.
|
Description
of business
|
|
|
|
The Company
is a holding company that operates through its direct, wholly-owned Hong
Kong subsidiary, Winalite. The Company was in development stage
until May 2008. Following the RTO, as described in Note 1, the
Company, through its subsidiary, commenced its business in marketing and
selling personal health and hygiene products in May
2008.
|
3.
|
Basis of
presentation
|
|
|
|
The
unaudited condensed consolidated financial statements included herein,
presented in accordance with accounting principles generally accepted in
the United States of America (“US GAAP”) and stated in US dollars, have
been prepared by the Company, pursuant to the rules and regulations of the
U.S. Securities and Exchange Commission (“SEC”).
|
|
|
|
Certain
information and note disclosures normally included in financial statements
prepared in accordance with US GAAP have been condensed or omitted
pursuant to SEC rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. These statements reflect all adjustments,
consisting of normal recurring adjustments, which, in the opinion of
management, are necessary for fair presentation of the information
contained therein. These interim condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company’s Form 10-K for the
year ended December 31, 2008. The Company follows the same
accounting policies in the preparation of interim reports as it does in
the preparation of annual reports.
|
|
|
|
Results of
operations for the interim periods are not indicative of annual
results.
|
4.
|
Summary
of significant accounting policies
|
|
|
|
Revenue recognition
|
|
|
|
Sales of
goods are recognized as revenue when persuasive evidence of an arrangement
exists, title transfer has occurred (product shipment), the price is fixed
or readily determinable, and collectability is probable. We recognize
revenue in accordance with Staff Accounting Bulletin No. 104,
“
Revenue
Recognition.”
|
Hong
Kong Winalite Group, Inc.
Notes
to Condensed Consolidated Financial Statements
(Stated
in US Dollars)
4.
|
Summary
of significant accounting policies (Cont’d)
|
|
|
|
Concentrations on credit
risk
|
|
|
|
During the
reporting periods, customers representing 10% or more of the Company’s
consolidated sales were:
|
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
|
June
30, 2009
|
|
|
June
30, 2009
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Winalite
International USA, Inc.*
|
|
|
1,312,589
|
|
|
|
1,536,262
|
|
|
|
|
|
|
|
|
|
|
|
|
PT.
Winalite Indonesia*
|
|
|
511,993
|
|
|
|
606,307
|
|
|
|
|
|
|
|
|
|
|
|
|
Winalite
Japan Co. Ltd*
|
|
|
89,819
|
|
|
|
593,456
|
|
|
|
|
|
|
|
|
|
|
|
|
Winalite
Global Sdn Bhd*
|
|
|
-
|
|
|
|
715,215
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,914,401
|
|
|
|
3,451,240
|
|
During the
reporting periods, customers representing 10% or more of the Company’s trade
receivables were:
|
|
|
June
30, 2009
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Winalite
Global Sdn Bhd*
|
|
|
733,686
|
|
|
|
|
|
|
|
|
Winalite
International USA, Inc.*
|
|
|
733,335
|
|
|
|
|
|
|
|
|
PT.
Winalite Indonesia*
|
|
|
695,749
|
|
|
|
|
|
|
|
|
Winalite
Peru S.A.C.*
|
|
|
474,875
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,637,645
|
|
* All these
customers are independent third party distributors.
|
Recently issued accounting
pronouncements
|
|
|
|
In June
2009, the Financial Accounting Standards and Board (the “FASB”) issued
Statement of Financial Accounting Standards No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles” (“SFAS 168”). SFAS 168 establishes the FASB
Accounting Standards Codification (the “Codification”), which officially
launched July 1, 2009, and became the authoritative source of U.S.
generally accepted accounting principles (“GAAP”) recognized by the FASB
to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities
laws are also authoritative sources of GAAP for SEC
registrants. The subsequent issuances of new standards will be
in the form of Accounting Standards Updates that will be included in the
Codification. Generally, the Codification is not expected to
change GAAP. All other accounting
literature
|
Hong
Kong Winalite Group, Inc.
Notes
to Condensed Consolidated Financial Statements
(Stated
in US Dollars)
4.
|
Summary
of significant accounting policies (Cont’d)
|
|
|
|
excluded
from the Codification will be considered nonauthoritative. SFAS
168 is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. We will adopt SFAS 168
for our quarter ending September 30, 2009. We are currently
evaluating the effect on our financial statement disclosures as all future
references to authoritative accounting literature will be references in
accordance with the Codification.
|
|
|
|
In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165,
“Subsequent Events” (“SFAS 165”). SFAS 165 provides general
standards of accounting for, and disclosure of, events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. SFAS No. 165 is applicable for interim
or annual periods after June 15, 2009. The Company evaluated all
events or transactions that occurred after June 30, 2009, up through
November 6, 2009, the date the Company issued these financial statements.
During this period the Company did not have any material recognizable
subsequent events.
|
5.
|
Income
taxes
|
|
|
|
United States
|
|
|
|
The Company
is subject to the United States of America tax law. No
provision for the U.S. federal income tax has been made because the
Company had no taxable income for the reporting period. The
statutory tax rate is 35%.
|
|
|
|
Hong Kong
|
|
|
|
The
Company’s subsidiary operating in Hong Kong is subject to a profit tax at
the rate of 16.5% of the estimated assessable profits.
|
|
|
6.
|
Property,
plant and equipment
|
|
|
|
Month
ended
June
30,
|
|
|
Year
ended
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Costs:
|
|
|
|
|
|
|
|
Office
equipment
|
|
$
|
3,367
|
|
|
$
|
-
|
|
|
Leasehold
improvements
|
|
|
72,796
|
|
|
|
-
|
|
|
Motor
vehicles
|
|
|
130,591
|
|
|
|
130,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,754
|
|
|
|
130,591
|
|
|
Accumulated
depreciation
|
|
|
(22,528
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
184,226
|
|
|
$
|
130,591
|
|
Property, plant
and equipment includes a motor vehicle with net book value of US$118,185, which
is held on behalf of the Company by a third party.
Hong
Kong Winalite Group, Inc.
Notes
to Condensed Consolidated Financial Statements
(Stated
in US Dollars)
7.
|
Net
Income per share
|
|
|
|
During the
reporting period, the Company did not issue any dilutive instruments.
Accordingly, the reported basic earnings per share and diluted earnings
per share are the same.
|
|
|
8.
|
Amount
due to a director
|
|
|
|
The amount
is interest-free, unsecured and repayable on
demand.
|
9.
|
Commitment
and contingencies
|
|
|
|
|
(a)
|
Capital
commitment
|
|
|
|
|
|
The Company
has not had any capital commitments which were contracted for but not
provided in the financial statements.
|
|
|
|
|
(b)
|
Operating
lease arrangement
|
|
|
|
|
|
As of June
30, 2009, the Company had a non-cancelable operating lease for its
office. The lease will expire in February 2011, and the
expected payments are as follows:
|
|
Within one
year
|
$
|
123,638
|
|
|
|
Two to five
year
|
$
|
72,122
|
|
|
|
|
$
|
195,760
|
|
|
The rental
expense relating to the operating lease was $32,587 and $0 for the three months
ended June 30, 2009 and 2008, respectively. The rental expense
relating to the operating lease was $44,434 and $0 for the six months ended June
30, 2009 and 2008, respectively.
10.
|
Common
stock and additional paid-in
capital
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
|
shares
as
|
|
|
|
|
|
|
|
|
|
|
adjusted
for
|
|
|
|
|
|
Additional
|
|
|
|
|
Reverse
|
|
|
|
|
|
paid-in
|
|
|
|
|
Stock
Split
|
|
|
Amount
|
|
|
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares for RTO
|
|
|
48,000,000
|
|
|
$
|
48,000
|
|
|
$
|
(48,000
|
)
|
|
Issuance of
shares of Winalite
|
|
|
-
|
|
|
|
-
|
|
|
|
61,645
|
|
|
Recapitalization
|
|
|
1,740,933
|
|
|
|
1,741
|
|
|
|
5,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008 and
June
30, 2009
|
|
|
49,740,933
|
|
|
$
|
49,741
|
|
|
$
|
19,079
|
|
|
(a)
|
On December
28, 2007, the Company issued 48,000,000 shares as adjusted for Reverse
Stock Split of common stock, par value $0.001 per share, to the Winalite
Former Stockholders in exchange for 100% of the outstanding capital stock
of Winalite.
|
Hong
Kong Winalite Group, Inc.
Notes
to Condensed Consolidated Financial Statements
(Stated
in US Dollars)
10.
|
Common
stock and additional paid-in capital
(Cont’d)
|
|
(b)
|
The
Company’s issued and outstanding number of common stock immediately prior
to the RTO was 1,740,933 shares, as adjusted for Reverse Stock Split, and
are accounted for at $7,175 of net book value at the time of the
RTO.
|
|
|
|
|
(c)
|
On January
7, 2008, the Company implemented a 7.352380958-for-1 reverse stock
split. Immediately following the Reverse Stock Split, the
Company had 49,740,933 shares of common stock issued and
outstanding. The effect of Reverse Stock Split has been
retroactively reflected in these financial statements. All
references to weighted average shares outstanding and per share amounts
included in the accompanying financial statements and notes reflect the
Reverse Stock Split and its retroactive
effects.
|
11.
|
EIP
information
|
|
|
|
Pursuant to
the Company’s equity incentive plan (“EIP”) adopted by the Company’s Board
of Directors on March 30, 2009, which became effective on April 1, 2009,
the Company has signed Restrictive Stock Purchase Agreements (“RSPAs”)
with officers, employees, distributors or consultants who perform services
to the Company. The shares to be issued to the recipients
pursuant to the RSPAs are priced at US$2 per share and are subject to a
lock-up period of 5.5 years and a vesting schedule, as well as other
restrictions.
|
|
|
12.
|
Segment
information
|
|
|
|
The Company
operates in a single segment: marketing and selling personal health and
hygiene products. All of the Company’s long-lived assets are
located in Hong Kong. Geographic information about the revenues
classified based on locations of the customers, is set out as
follows:
|
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
|
June
30, 2009
|
|
|
June
30, 2009
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
1,312,589
|
|
|
$
|
1,536,262
|
|
|
Indonesia
|
|
|
511,993
|
|
|
|
606,307
|
|
|
Korea
|
|
|
232,637
|
|
|
|
439,656
|
|
|
Philippines
|
|
|
160,013
|
|
|
|
314,059
|
|
|
Peru
|
|
|
157,175
|
|
|
|
314,365
|
|
|
Taiwan
|
|
|
141,256
|
|
|
|
141,256
|
|
|
Japan
|
|
|
89,819
|
|
|
|
593,456
|
|
|
Lithuania
|
|
|
78,587
|
|
|
|
251,496
|
|
|
Malaysia
|
|
|
-
|
|
|
|
715,215
|
|
|
Georgia
|
|
|
-
|
|
|
|
157,033
|
|
|
Others
|
|
|
48,003
|
|
|
|
264,151
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,732,072
|
|
|
$
|
5,333,256
|
|
Hong
Kong Winalite Group, Inc.
Notes
to Condensed Consolidated Financial Statements
(Stated
in US Dollars)
13.
|
Loan
receivable
|
|
|
|
The Company
has made a loan to For You Group L.L.C. (“FYG”) in the aggregate amount of
US$1,850,000. The Company loaned US$1,150,000 to FYG in June
2009, and the Company loaned the balance to FYG in July
2009. FYG is a related party of the Company’s primary
supplier.
|
|
|
|
The loan is
interest-bearing at 0.05% per month, but no interest is required to be
paid by FYG in the event that FYG repays the loan in full within three
months of the drawdown date. The loan is unsecured and due in
June 2010. The Company’s primary supplier has guaranteed
the repayment of this loan to the
Company.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Use
of Certain Defined Terms
Except as
otherwise indicated by the context, references to “we,” “us,” “our,” or “the
Company” are references to the combined business of Hong Kong Winalite Group,
Inc., a Nevada corporation, and its wholly-owned Hong Kong operating subsidiary,
The Hong Kong Winalite Group Limited, or Winalite. Unless the context otherwise
requires, all references to: (i) “PRC” and “China” are to the People’s Republic
of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iii)
“RMB” are to Renminbi, the legal currency of China; (iv) “HKD” are to Hong Kong
dollars, the legal currency of Hong Kong, (v) “Securities Act” are to the
Securities Act of 1933, as amended; (vi) “Exchange Act” are to the Securities
Exchange Act of 1934, as amended; and (vii) “SEC” are to the U.S. Securities and
Exchange Commission.
Overview
We are a holding
company that only operates through our direct, wholly-owned Hong Kong
subsidiary, The Hong Kong Winalite Group Limited, or Winalite. We
started our business in marketing and selling personal health and hygiene
products in early May 2008. We procure all of the goods that we sell
from an independent manufacturer in the mainland China and sell them to
consumers internationally through our contracted direct-selling distributors and
wholesale and retail establishments. We generate our revenues in
three principal ways: from the resale at a profit of products manufactured to
our specifications, from the delivery of consulting, management, technical,
marketing, financial and/or other services to our distributors, and from the
license of the Winalite mark and brand to the manufacturer and distributors of
our products.
Our products are
manufactured by an independent third party, Shenzhen Yuelang Techno Industrial
Company Limited, or the Manufacturer, under a master purchase and supply
agreement, or MPSA, entered into on May 1, 2008. Pursuant to the
MPSA, we purchase our products from the Manufacturer on an open account basis
pursuant to separate purchase orders and resell those products to certain
distributors as more particularly described below. The prices we pay
for the products are set by the MPSA and may only be changed by agreement of the
parties. The Manufacturer is responsible for marking and labeling the
products and their packaging and for quality control according to the
specifications set forth in the MPSA and subject to our
inspection. With the exception of the PRC market, the Manufacturer is
required to supply exclusively to us and is not permitted to manufacture or sell
the same or functionally equivalent products to any other party.
We currently sell
the products in Malaysia, Taiwan, Indonesia, Singapore, Thailand, Vietnam, the
Philippines, the USA, Peru, Japan, Korea, Georgia, Lithuania and Columbia
pursuant to exclusive international distribution agreements, or Distribution
Agreements, that we entered into with fourteen independent third party
distributors, or the Distributors, on May 1, 2008 (seven agreements), August 25,
2008 (one agreement), December 1, 2008 (two agreements), January 10, 2009 (one
agreement) and February 1, 2009 (one agreement), April 1, 2009 (one agreement)
and May 1, 2009 (one agreement). The Distributors purchase from us
the products we buy from the Manufacturer and resell those products through
direct marketing and/or other channels in their assigned, exclusive
territories. The Distributors are responsible for promoting sales of
our products in their territories, maintaining adequate sales forces, and
performing other customary functions. As we expand, we anticipate
appointing additional distributors for new territories.
In addition to
selling our products to our Distributors, we provide certain consulting,
management, technical, marketing, financial and/or other services to our
Distributors in exchange for certain fees pursuant to separate consulting and
management services agreements, or Service Agreements, that we have entered into
with our Distributors. Pursuant to separate license agreements, or
License Agreements, entered into with our Distributors, we also license the
Winalite mark and brand and certain other intellectual property to our
Distributors, solely for use in their assigned, exclusive territories, and
solely for the purpose of carrying out their activities under the Distribution
Agreements, for a license fee in an amount equal to 10% of the monetary amount
of the Distributor’s orders for products placed with us.
We classify the
products that we sell into four categories: (1) ultra-thin regular anionic
sanitary pads; (2) ultra-thin long anionic sanitary pads; (3) anionic
pantiliners and (4) baby diapers. The sanitary pads, pantiliners and
baby diapers that we sell are patented in the PRC and such patents are owned by
the Manufacturer. These products have been tested by various independent Chinese
agencies, including SGS-CSTC Standards Technical Services Co., Ltd., Shanghai
Textile Industry Technology Intendance, National Paper Product Quality Control
Institution Shanghai Office, and East China Normal University.
Second
Quarter Financial Performance Highlights
We experienced
strong demand for our products and services during the second fiscal quarter of
2009, which resulted in increased revenue and decreased net income due to the
bad debt allowance of US$207,770.
The following are
some financial highlights for the second quarter of 2009:
|
·
|
Our
revenues were $2,732,072.
|
|
|
|
|
·
|
Gross
margin was 45.48%.
|
|
|
|
|
·
|
Gross
profit was $1,242,524.
|
|
|
|
|
·
|
Net income
was $664,730
|
|
|
|
|
·
|
Basic and
diluted earnings per share were
$0.013.
|
Results
of Operations: Six Months Ended June 30, 2009, Compared to Six Months Ended June
30, 2008
|
|
|
Six Months
Ended June 30
|
|
Item
|
|
|
in
Thousands of Dollars
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Fluctuant
|
%
|
Revenues
|
|
|
$
|
5,333
|
|
|
|
1,051
|
|
|
|
407
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
$
|
(2,798
|
)
|
|
|
(574
|
)
|
|
|
387
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
$
|
2,536
|
|
|
|
477
|
|
|
|
432
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
$
|
(534
|
)
|
|
|
(164
|
)
|
|
|
226
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
$
|
2,001
|
|
|
|
313
|
|
|
|
539
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
$
|
(346
|
)
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
$
|
1,655
|
|
|
|
313
|
|
|
|
429
|
%
|
Revenues
. Our
revenues are generated from sales of and license fees from our personal health
and hygiene products. Revenues were $5,333,256 for the six-month
period ended June 30, 2009. We are principally a trading
company. Goods are directly purchased from suppliers and sold to
distributors. Revenue for the six-month period ended June 30, 2009,
increased $4,282,000 relative to the prior year’s comparable period, and such
increase was due to the Company increasing its number of distributors from five
(5) to fourteen (14).
Cost of Sales
. Our
cost of sales was $2,797,709 for the six-month period ended June 30,
2009. As a percentage of revenues, the cost of sales for such period
was 52.46% compared to 54.61% for the six-month period ended June 30,
2008. Cost of sales represents the cost of purchase from
suppliers. Cost of sales for the six-month period ended June 30,
2009, increased $2,224,000 relative to the prior year’s comparable period, and
such increase was due to an increase in volume of sales.
Gross Profit
. Our
gross profit was $2,535,547 for the six-month period ended June 30,
2009. Gross profit as a percentage of revenues for such period was
47.54% compared to 45.39% for the six-month period ended June 30,
2008. Gross profit for the six-month period ended June 30, 2009,
increased $2,059,000 relative to the prior year’s comparable period, and such
increase was due to an increase in volume of sales.
Operating
Expenses
. Our operating expenses were $534,423 for the
six-month period ended June 30, 2009. As a percentage of revenues,
operating expenses for such period were 10.02% compared to 15.58% for the
six-month period ended June 30, 2008. Our operating expenses mainly
represented the salary, office rental expenses, legal fee expenses and the
allowance for doubtful debts of $207,770 for the license fee from our
distributor in Indonesia. Operating expenses for the six-month period
ended June 30, 2009, increased $370,000 relative to the prior year’s comparable
period, and such increase was due to the furnishing and equipping of a new
office and increased payroll expenses for the addition of
employees.
Income before Income
Taxes
. Income before income taxes was $2,001,124 for the
six-month period ended June 30, 2009. Income before income taxes as a
percentage of revenues for such period was 37.52% compared to 29.80% for the
six-month period ended June 30, 2008.
Income
Taxes
United
States
The Company is
subject to the United States of America tax law. No provision for the
US federal income tax has been made as the Company had no taxable income for the
reporting period. The statutory tax rate is 35%.
Hong
Kong
The Company is
subject to a profit tax at the rate of 16.5% of the estimated assessable profits
for the reporting period. Income taxes were $345,809 for the
six-month period ended June 30, 2009.
Net Income
. Our
net income was $1,655,315 for the six-month period ended June 30,
2009. Net income as a percentage of revenues for such period was
31.04% compared to 29.80% for the six-month period ended June 30,
2008.
Results
of Operations: Three Months Ended June 30, 2009, Compared to Three Months Ended
June 30, 2008
|
|
|
Three
Months Ended June 30
|
|
Item
|
|
|
in
Thousands of Dollars
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Fluctuant
|
%
|
Revenues
|
|
|
$
|
2,732
|
|
|
|
1,051
|
|
|
|
160
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
$
|
(1,490
|
)
|
|
|
(574
|
)
|
|
|
160
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
$
|
1,243
|
|
|
|
477
|
|
|
|
161
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
$
|
(403
|
)
|
|
|
(103
|
)
|
|
|
291
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
$
|
840
|
|
|
|
373
|
|
|
|
125
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
$
|
(175
|
)
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
$
|
665
|
|
|
|
373
|
|
|
|
78
|
%
|
Revenues
. Our
revenues are generated from sales of and license fees from our personal health
and hygiene products. Revenues were $2,732,072 for the three-month
period ended June 30, 2009. We are principally a trading
company. Goods are directly purchased from suppliers and sold to
distributors. Revenue for the three-month period ended June 30, 2009
increased $1,681,000 relative to the prior year’s comparable period, and such
increase was due to the Company increasing its number of distributors from five
(5) to fourteen (14).
Cost of Sales
. Our
cost of sales was $1,489,548 for the three-month period ended June 30,
2009. As a percentage of revenues, the cost of sales for such period
was 54.52% compared to 54.61% for the three-month period ended June 30,
2008. Cost of sales represents the cost of purchase from
suppliers. Cost of sales for the three-month period ended June 30,
2009, increased $916,000 relative to the prior year’s comparable period, and
such increase was due to an increase in volume of sales.
Gross Profit
. Our
gross profit was $1,242,524 for the three-month period ended June 30,
2009. Gross profit as a percentage of revenues for such period was
45.48% compared to 45.39% for the three-month period ended June 30,
2008. Gross profit for the three-month period ended
June 30, 2009, increased $766,000 relative to the prior year’s comparable
period, and such increase was due to an increase in volume of
sales.
Operating
Expenses
. Our operating expenses were $402,503 for the
three-month period ended June 30, 2009. As a percentage of revenues,
operating expenses for such period were 14.73% compared to 9.85% for the
three-month period ended June 30, 2008. Our operating expenses mainly
represented the salary, office rental expenses, legal fee expenses and the
allowance for doubtful debts of $207,770 for the uncertain license fee from our
distributor in Indonesia. Operating expenses for the three-month
period ended June 30, 2009, increased $300,000 relative to the prior year’s
comparable period, and such increase was due to the furnishing and equipping of
a new office and increased payroll expenses for the addition of
employees.
Income before Income
Taxes
. Income before income taxes was $840,021 for the
three-month period ended June 30, 2009. Income before income taxes as
a percentage of revenues during such period was 30.75% compared to 35.54% for
the three-month period ended June 30, 2008.
Income
Taxes
United
States
The Company is
subject to the United States of America tax law. No provision for the
US federal income tax has been made as the Company had no taxable income for the
reporting period. The statutory tax rate is 35%.
Hong
Kong
The Company is
subject to a profit tax at the rate of 16.5% of the estimated assessable profits
during the reporting period. Income taxes were $175,291 for the
three-month period ended June 30, 2009.
Net Income
. Our
net income was $664,730 for the three-month period ended June 30,
2009. Net income as a percentage of revenues during such period was
24.33% compared to 35.54% for the three-month period ended June 30,
2008.
Segment
Information
The Company
operates in a single segment: the marketing and sale of personal health and
hygiene products. Additional information can be found at Note 12 of
our unaudited condensed consolidated financial statements contained under Part
I, Item 1 – “Financial Statements” above.
Inflation
Inflation does
not materially affect our business or the results of our
operations.
Liquidity
and Capital Resources
As of June 30,
2009, we had cash and cash equivalents of $358,296. The following
table provides detailed information about our net cash flow for the six-month
period ended June 30, 2009.
Item
|
|
Cash
Flow
Six Months
Ended
June 30,
2009
|
|
Net cash
provided by operating activities
|
|
$
|
1,931,494
|
|
|
|
|
|
|
Net cash
used in investing activities
|
|
$
|
(1,225,866
|
)
|
|
|
|
|
|
Net cash
used in financing activities
|
|
$
|
(649,636
|
)
|
|
|
|
|
|
Effect of
exchange rate
|
|
$
|
(5,254
|
)
|
|
|
|
|
|
Cash and
cash equivalents, beginning of period
|
|
$
|
307,558
|
|
|
|
|
|
|
Cash and
cash equivalents, end of period
|
|
$
|
358,296
|
|
Operating
Activities
Net cash provided
by operating activities was $1,931,494 for the six-month period ended June 30,
2009. Such amount of cash provided by operating activities was mainly
attributable to the sales of our products during the six-month period ended June
30, 2009.
Investing
Activities
Net cash used in
investing activities was $1,225,866 for the six-month period ended June 30,
2009. Such amount of cash used in investing activities was
attributable to the purchase of office equipment and leasehold improvements and
the loan extended to For You Group L.L.C.
Financing
Activities
Net cash used in
financing activities was $649,636 for the six-month period ended June 30,
2009. Such amount of cash used in financing activities was
attributable to repayment to a director.
As of June 30,
2009, we had no bank loans or other debt outstanding other than amounts due to
our Chairperson and President, Ms. Hu. During 2008, our Chairperson
and President, Ms. Hu, provided approximately 5.9 million HK Dollars as working
capital to the Company. The Company had repaid approximately 5.04
million HK Dollars to Ms. Hu during the six-month ended period June 30,
2009. The amount is interest-free, unsecured and repayable on
demand.
Effect of Exchange
Rate
The effect of
exchange rate on the Company’s financial statements was $5,254 for the six-month
period ended June 30, 2009.
Outlook
In 2009, we
intend to develop relationships with many other distributors in new
countries. We expect to continue to develop new products and to enter
into agreements with additional distributors for distribution of our products
both within China and other countries. We expect that our revenues
will continue to increase as we expand into new markets and increase our market
share within existing markets.
Critical
Accounting Policies
Basis of
consolidation
The consolidated
financial statements include the accounts of the Company and its
subsidiary. All significant inter-company accounts and transactions
have been eliminated in consolidation.
Basic and diluted earnings
per share
The Company
reports basic earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, “Earnings Per Share”. Basic earnings
per share is computed using the weighted average number of shares outstanding
during the period presented. The weighted average number of shares of
the Company represents the common stock outstanding during the reporting
period.
During the
reporting period, the Company had no dilutive
instruments. Accordingly, the basic earnings per share and the
diluted earnings per share are the same.
Income
taxes
The Company uses
the asset and liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards No. 109 “Accounting for Income
Taxes” (“SFAS 109”). Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statements carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.
Off-balance sheet
arrangements
The Company does
not have any off-balance sheet arrangements.
Revenue
recognition
Sales of goods
are recognized as revenue when persuasive evidence of an arrangement exists,
title transfer has occurred (product shipment), the price is fixed or readily
determinable, and collectability is probable. We recognize revenue in accordance
with Staff Accounting Bulletin No. 104,
“
Revenue
Recognition.”
Allowance of doubtful
accounts
The Company has
established an allowance for doubtful accounts based on management’s industry
experience and management’s assessment of the ability to collect trade
receivables. A considerable amount of judgment is required in
assessing the amount of the allowance.
During the
three-month period ended June 30, 2009, the Company recognized an allowance for
doubtful accounts to ensure trade and other receivables are not overstated due
to an inability to collect trade receivables. The Company’s estimate
is based on a variety of factors, including historical collection experience,
existing economic conditions and a review of the current status of the trade
receivables. Bad debts are written off when identified.
Comprehensive
income
The Company has
adopted Statement of Financial Accounting Standards No. 130, “Reporting
Comprehensive Income”, which establishes standards for reporting and display of
comprehensive income, its components and accumulated
balances. Components of comprehensive income include net income and
foreign currency translation adjustments.
Administrative
expenses
Administrative
expenses consist of office expenses, legal and professional fees, traveling
expenses and salaries and allowances which are incurred at the administrative
level and include exchange differences.
Cash
equivalents
Cash equivalents
comprise highly liquid investments with initial maturities of three months or
less.
Property, plant and
equipment
Property, plant
and equipment are stated at cost less accumulated depreciation. Cost
represents the purchase price of the asset and other costs incurred to bring the
asset into its existing use.
Depreciation is
provided on straight-line basis over their estimated useful lives. The
principal depreciation rate is 20% with no residual value.
Maintenance and
repairs are charged to expense as incurred. Upon a sale or
disposition of an asset, the applicable amounts of the asset’s cost and
accumulated depreciation are removed from the accounts, and the net amount less
proceeds from disposal is charged or credited to income.
Foreign currency
translation
The functional
currency of the Company is United States dollars (“US dollars”). The
Company maintains its financial statements in the functional
currency. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet
date. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or
losses arising from foreign currency transactions are included in the
determination of net income.
Fair value of financial
instruments
The carrying
values of the Company’s financial instruments, including trade receivables,
trade payables, accrued expenses and amount due to a director, approximate their
fair values due to the short-term maturity of such instruments.
It is
management’s opinion that the Company is not exposed to significant interest,
price or credit risks arising from these financial instruments.
Off-Balance
Sheet Arrangements
As of November 6,
2009, we do not have any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources.
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
The Company
conducted an evaluation under the supervision of the Chief Executive Officer and
Chief Financial Officer (its principal executive officer and principal financial
officer, respectively), regarding the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the
Exchange Act) as of June 30, 2009. Based on the aforementioned
evaluation, management has concluded that the Company’s disclosure controls and
procedures were not effective as of June 30, 2009. The fact that the
Company is late in filing its current quarterly report is due to the fact that
the Company has not maintained sufficient staff with appropriate training in SEC
financial rules and regulations.
Changes
in Internal Control Over Financial Reporting.
To strengthen the
effectiveness of the Company’s disclosure controls and procedures, the Company
has evaluated its resource requirements, added—and will add—additional financial
staff and taken further measures to improve its financial record maintenance
system to ensure continued timely compliance with SEC reporting
requirements. Other than the changes listed above, there have been no
changes in our Company’s internal control over financial reporting
(as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
second quarter of fiscal year 2009 that have materially affected, or are
reasonably likely to materially affect, our Company’s internal control over
financial reporting.
PART
II.
OTHER
INFORMATION
The following exhibits
are filed as part of this report or incorporated by reference:
No.
|
Description
|
|
|
31.1*
|
Rule
13a-14(a) Certification of Chief Executive Officer.
|
|
|
31.2*
|
Rule
13a-14(a) Certification of Chief Financial Officer.
|
|
|
32.1**
|
Certification
of Chief Executive Officer furnished pursuant to 18 U.S.C. Section
1350.
|
|
|
32.2**
|
Certification
of Chief Financial Officer furnished pursuant to 18 U.S.C. Section
1350.
|
SIGNATURES
In accordance
with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated:
November 6, 2009
|
HONG
KONG WINALITE GROUP, INC.
|
|
|
|
By:
/s/ Hongxing
Gao
Hongxing
Gao
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
By:
/s/ Jianquan
Li
Jianquan
Li
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
23
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