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EX-31 - RULE 13A-14(A) CERTIFICATION - CEO AND CFO - Vantone International Group, Inc. | vnti10q20091231ex31.htm |
EX-32 - RULE 13A-14(B) CERTIFICATIONS - CEO AND CFO - Vantone International Group, Inc. | vnti10q20091231ex32.htm |
U.
S. Securities and Exchange Commission
Washington,
D. C. 20549
FORM
10-Q
[X]
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended December 31, 2009
[
] TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _____ to _____
Commission
File No. 0-28683
VANTONE
INTERNATIONAL GROUP, INC.
|
(Name
of Registrant as Specifiedin its
Charter)
|
Nevada
|
41-1954595
|
(State
or Other Jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
NO.
195 ZHONGSHAN RD, HEPING DISTRICT
SHENYANG,
LIAONING PROVINCE
PEOPLE’S REPUBLIC OF
CHINA
|
(Address
of principal executive offices)
|
86-24-2286-6686
|
(Registrant’s
telephone number including area
code)
|
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [
]
Indicate
by check mark 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 shell company (as defined in Rule
12b-2 of the Exchange Act) Yes [ ] No [X]
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
Accelerated filer
Non-accelerated filer
Small reporting company [X]
APPLICABLE
ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of
each of the Registrant's classes of common stock, as of the latest practicable
date: On February 11, 2009, there were 29,901,000 shares of Common Stock, par
value $.001 per share, outstanding.
VANTONE
INTERNATIONAL GROUP, INC.
(formerly
SENIOR OPTICIAN SERVICE, INC.)
FORM
10-Q
QUARTERLY
PERIOD ENDED DECEMBER31, 2009
TABLE OF
CONTENTS
PART
I - FINANCIAL INFORMATION
|
||
Item
1: Financial Statements
|
3
|
|
Item
2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
|
20
|
|
Item
3: Quantitative and Qualitative Disclosures about Market
Risk
|
23
|
|
Item
4: Controls and Procedures
|
23
|
|
PART
II - OTHER INFORMATION
|
||
Item
1A: Risk Factors
|
23
|
|
Item
2: Unregistered Sales of Equity Securities and Use of
Proceeds
|
24
|
|
Item
6: Exhibits
|
24
|
Part
I
Financial
Information
Item
1. Financial
Statements
Vantone
International Group, Inc. (f/k/a Senior Optician Services Inc.) and
Subsidiaries
|
||||||||
Condensed
Consolidated Balance Sheets
|
||||||||
December
31, 2009
|
March
31, 2009
|
|||||||
Assets
|
(Unaudited)
|
(Audited)
|
||||||
Current
Assets
|
||||||||
Cash
and equivalents
|
$ | 2,825,472 | $ | 1,441,411 | ||||
Accounts
receivable
|
407,956 | 886,539 | ||||||
Advanced
to suppliers
|
103,610 | 10,037 | ||||||
Inventories
|
656,571 | 405,030 | ||||||
Advanced
to stockholders/officers, net
|
2,367,885 | 371,354 | ||||||
Loan
to related parties, net
|
- | 148,092 | ||||||
Prepayments
and other current assets
|
249,864 | 1,785,393 | ||||||
Deferred
income tax assets-current
|
256,947 | 181,873 | ||||||
Total
Current Assets
|
6,868,305 | 5,229,729 | ||||||
Property
and Equipment - Net
|
3,109,434 | 3,190,850 | ||||||
Deferred
Income Tax Assets-Noncurrent
|
958 | 691 | ||||||
Total
Assets
|
9,978,697 | 8,421,270 | ||||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
578,995 | 155,138 | ||||||
Customer
deposits
|
309,692 | 8,540 | ||||||
Taxes
payable
|
389,599 | 85,038 | ||||||
Other
current liabilities
|
229,103 | 13,448 | ||||||
Total
Current Liabilities
|
1,507,389 | 262,164 | ||||||
Total
Liabilities
|
1,507,389 | 262,164 | ||||||
Stockholders'
Equity
|
||||||||
Common
stock - $0.001 par value, 100,000,000 shares
|
||||||||
authorized,
29,901,000 shares issued and outstanding *
|
29,901 | 29,901 | ||||||
Additional
paid-in capital
|
1,919,899 | 1,914,891 | ||||||
Reserve
funds
|
720,716 | 630,710 | ||||||
Retained
earnings
|
5,071,015 | 4,767,563 | ||||||
Accumulated
other comprehensive income
|
657,650 | 651,018 | ||||||
Total
Vantone International Group, Inc. Stockholders' Equity
|
8,399,181 | 7,994,083 | ||||||
Noncontrolling
interest
|
72,127 | 165,023 | ||||||
Total
Equity
|
8,471,308 | 8,159,106 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 9,978,697 | $ | 8,421,270 | ||||
*:
As restated to show recapitalization.
|
||||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
F-1
Vantone
International Group, Inc. (f/k/a Senior Optician Services Inc.) and
Subsidiaries
|
||||||||||||||||
Condensed
Consolidated Statements of Operations (Unaudited)
|
||||||||||||||||
For
Fiscal Three Months
Ended
December 31,
|
For
Fiscal Nine Months
Ended
December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Revenues
|
||||||||||||||||
Products
sold
|
$ | 480,309 | $ | 71,816 | $ | 4,407,340 | $ | 1,619,318 | ||||||||
Service
rendered
|
24,087 | 47,873 | 270,119 | 173,645 | ||||||||||||
Franchise
joining fees
|
439 | - | 2,196 | - | ||||||||||||
Total
Revenues
|
504,835 | 119,689 | 4,679,655 | 1,792,963 | ||||||||||||
Cost
of Goods Sold
|
||||||||||||||||
Products
sold
|
298,420 | 20,348 | 2,641,347 | 348,685 | ||||||||||||
Service
rendered
|
20,303 | 47,159 | 264,048 | 104,594 | ||||||||||||
Franchise
joining fees
|
22 | - | 120 | - | ||||||||||||
Total
Cost of Good Sold
|
318,745 | 67,507 | 2,905,515 | 453,279 | ||||||||||||
Gross
Profit
|
186,090 | 52,182 | 1,774,140 | 1,339,684 | ||||||||||||
Operating
Expenses
|
||||||||||||||||
Selling
expenses
|
82,857 | 27,541 | 287,488 | 384,455 | ||||||||||||
General
and administrative expenses
|
286,442 | 284,836 | 951,339 | 816,850 | ||||||||||||
Total
Operating Expenses
|
369,299 | 312,377 | 1,238,827 | 1,201,305 | ||||||||||||
(Loss)
Income From Operations
|
(183,209 | ) | (260,195 | ) | 535,313 | 138,379 | ||||||||||
Other
Expenses
|
||||||||||||||||
Interest
income, net
|
1,492 | 4,296 | 4,932 | 11,603 | ||||||||||||
Other
income (expenses), net
|
106,501 | (4,594 | ) | 107,462 | (16,843 | ) | ||||||||||
Loss
on inventories disposal
|
(4,253 | ) | - | (10,478 | ) | - | ||||||||||
Loss
on fixed assets disposal
|
(6,043 | ) | (33,735 | ) | (6,043 | ) | (48,373 | ) | ||||||||
Total
Other Income (Expenses)
|
97,697 | (34,033 | ) | 95,873 | (53,613 | ) | ||||||||||
(Loss)
Income Before Taxes
|
(85,512 | ) | (294,228 | ) | 631,186 | 84,767 | ||||||||||
Provision
for Income Taxes
|
12,508 | (30,827 | ) | 252,375 | 103,492 | |||||||||||
(Loss)
Income Before Noncontrolling Interest
|
(98,020 | ) | (263,401 | ) | 378,811 | (18,725 | ) | |||||||||
Less:
Net Loss attributable to the noncontrolling interest
|
(4,423 | ) | (7,307 | ) | (14,647 | ) | (19,760 | ) | ||||||||
Net
(Loss) Income Attributable to Vantone International
|
||||||||||||||||
Group,
Inc.
|
$ | (93,597 | ) | $ | (256,094 | ) | $ | 393,458 | $ | 1,035 | ||||||
Net
(Loss) Income Per Common Share:
|
||||||||||||||||
-
Basic and Diluted
|
$ | (0.00 | ) | $ | (0.01 | ) | $ | 0.01 | $ | 0.00 | ||||||
Weighted
Common Shares Outstanding *
|
||||||||||||||||
-
Basic and Diluted
|
29,901,000 | 29,901,000 | 29,901,000 | 29,901,000 | ||||||||||||
*:
As restated to show recapitalization.
|
||||||||||||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
F-2
Vantone
International Group, Inc. (f/k/a Senior Optician Services Inc.) and
Subsidiaries
|
||||||||
Condensed
Consolidated Statements of Comprehensive Income
(Unaudited)
|
||||||||
For
Fiscal Nine Months Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Net
Income Before Noncontrolling Interest
|
$ | 378,811 | $ | (18,725 | ) | |||
Other
Comprehensive Income:
|
||||||||
Foreign
Currency Translation Income
|
6,632 | 165,996 | ||||||
Comprehensive
Income
|
$ | 385,443 | $ | 147,271 | ||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
F-3
Vantone
International Group, Inc. (f/k/a Senior Optician Services Inc.) and
Subsidiaries
|
||||||||||||||||||||||||||||||||
Condensed
Consolidated Statements of Stockholders' Equity (Loss)
(Unaudited)
|
||||||||||||||||||||||||||||||||
For
Nine Months Ended December 31, 2009
|
||||||||||||||||||||||||||||||||
Vantone
International Group, Inc. Stockholders' Equity
|
||||||||||||||||||||||||||||||||
Return | ||||||||||||||||||||||||||||||||
Earnings | Other | |||||||||||||||||||||||||||||||
Common
Stock
|
Additional Paid | (Accumulated | Comprehensive | Noncontrolling | ||||||||||||||||||||||||||||
Shares
|
Amount
|
-in
Capital
|
Reserve
Fund
|
Deficit)
|
Income
(Loss)
|
Interest
|
Total
|
|||||||||||||||||||||||||
Balance
as of March 31, 2008
|
29,901,000 | $ | 29,901 | $ | 2,332,387 | $ | 569,325 | $ | 4,676,121 | $ | 462,403 | $ | 183,122 | $ | 8,253,259 | |||||||||||||||||
Sold
Two Subsidiaries to Related Interest Parties
|
- | - | (417,496 | ) | - | - | - | - | (417,496 | ) | ||||||||||||||||||||||
Liyuan
Reserve Fund Prior to April 24, 2008
|
- | - | - | 3,004 | - | - | - | 3,004 | ||||||||||||||||||||||||
Reserve
Fund
|
- | - | - | 58,381 | (58,381 | ) | - | - | - | |||||||||||||||||||||||
Net
Income
|
- | - | - | - | 149,823 | - | (18,099 | ) | 131,724 | |||||||||||||||||||||||
Foreign
Currency Translation Gain
|
- | - | - | - | - | 188,615 | - | 188,615 | ||||||||||||||||||||||||
Balance
as of March 31, 2009
|
29,901,000 | $ | 29,901 | $ | 1,914,891 | $ | 630,710 | $ | 4,767,563 | $ | 651,018 | $ | 165,023 | $ | 8,159,106 | |||||||||||||||||
Purchase
Stock from Minority Stockholders
|
- | - | 5,008 | - | - | - | (78,249 | ) | (73,241 | ) | ||||||||||||||||||||||
Reserve
Fund
|
- | - | - | 90,006 | (90,006 | ) | - | - | - | |||||||||||||||||||||||
Net
Income
|
- | - | - | - | 393,458 | - | (14,647 | ) | 378,811 | |||||||||||||||||||||||
Foreign
Currency Translation Gain
|
- | - | - | - | - | 6,632 | - | 6,632 | ||||||||||||||||||||||||
Balance
as of December 31, 2009
|
29,901,000 | $ | 29,901 | $ | 1,919,899 | $ | 720,716 | $ | 5,071,015 | $ | 657,650 | $ | 72,127 | $ | 8,471,308 | |||||||||||||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
F-4
Vantone
International Group, Inc. (f/k/a Senior Optician Services Inc.) and
Subsidiaries
|
||||||||
Condensed
Consolidated Statements of Cash
Flows (Unaudited)
|
||||||||
For
Fiscal Nine Months Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Cash
Flows From Operating Activities
|
||||||||
Net
Income
|
$ | 393,458 | $ | 1,035 | ||||
Adjustments
to Reconcile Net Income to Net Cash
|
||||||||
Provided
by (Used in) Operating Activities
|
||||||||
Depreciation
|
120,727 | 126,402 | ||||||
Net
loss attributable to noncontrolling interest
|
(14,647 | ) | (19,760 | ) | ||||
Deferred
income tax benefits
|
(80,062 | ) | (80,164 | ) | ||||
Loss
on counting inventory
|
10,478 | - | ||||||
Loss
on disposal of fixed assets
|
6,043 | 48,373 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
478,978 | (3,857 | ) | |||||
Advanced
to suppliers
|
(93,473 | ) | - | |||||
Inventories
|
(261,384 | ) | (142,293 | ) | ||||
Prepayments
and other current assets
|
231,562 | (777,585 | ) | |||||
Accounts
payable and accrued expenses
|
423,297 | (88,584 | ) | |||||
Accounts
payable - related parties
|
- | (133,995 | ) | |||||
Customer
deposit
|
300,852 | (430,097 | ) | |||||
Taxes
payable
|
304,184 | (76,564 | ) | |||||
Other
current liabilities
|
215,433 | 2,637 | ||||||
Net
Cash Provided by (Used in) Operating Activities
|
2,035,446 | (1,574,452 | ) | |||||
Cash
Flows From Investing Activities
|
||||||||
Payment
for goodwill
|
- | (41,824 | ) | |||||
Payment
for purchase of property and equipment
|
(42,309 | ) | (170,560 | ) | ||||
Proceeds
from related parties return loan
|
760,983 | 944,950 | ||||||
Payment
to related parties
|
(612,747 | ) | (71,593 | ) | ||||
Net
Cash Provided by Investing Activities
|
105,927 | 660,973 | ||||||
Cash
Flows From Financing Activities
|
||||||||
Payment
to acquired subsidiaries of variable interest entities
|
- | (414,478 | ) | |||||
Payment
for acquired noncontrolling interest
|
(73,241 | ) | - | |||||
Proceeds
from stockholders/officers return advances
|
137,057 | 1,322,662 | ||||||
Payment
to stockholders/officers
|
(831,031 | ) | (44,282 | ) | ||||
Net
Cash (Used in) Provided by Financing Activities
|
(767,215 | ) | 863,902 | |||||
Net
Increase (Decrease) in Cash and Equivalents
|
1,374,158 | (49,577 | ) | |||||
Effect
of Exchange Rate Changes on Cash
|
9,903 | 231 | ||||||
Cash
and Equivalents at Beginning of Period
|
1,441,411 | 2,332,659 | ||||||
Cash
and Equivalents at End of Period
|
$ | 2,825,472 | $ | 2,283,313 | ||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Interest
paid
|
$ | - | $ | - | ||||
Income
taxes paid
|
$ | 162,509 | $ | 253,657 | ||||
Supplemental
Schedule of Non-Cash Investing and Financing Activities:
|
||||||||
Other
receivable converted to stockholders/officers loan
|
$ | (1,304,208 | ) | $ | - | |||
Recorded
deferred interest expenses for discount on loan to related
parties
|
$ | (37,986 | ) | $ | - | |||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
F-5
Vantone International Group, Inc.
(f/k/a Senior Optician Services Inc.) and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
|
1.
|
Interim
financial statements:
|
The
unaudited condensed consolidated financial statements of Vantone International
Group, Inc. (formerly “Senior Optician Service Inc.”) and subsidiaries (the
"Company") have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and pursuant to the
requirements for reporting on Form 10-Q. Accordingly, they do not include all
the information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements.
However, the information included in these interim financial statements reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for the fair presentation of the
consolidated financial position and the consolidated results of operations.
Results shown for interim periods are not necessarily indicative of the results
to be obtained for a full year. The consolidated balance sheet information as of
March 31, 2009 was derived from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K. These interim financial
statements should be read in conjunction with that report.
The
unaudited condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany balances and
transactions have been eliminated.
|
2.
|
Organization
and Nature of Operations
|
As
permitted by Nevada General Corporation Law, in order to better represent the
Company’s business, the Company has adopted a resolution to change the name of
the Company from Senior Optician Service Inc. (“Senior Optician”) to “Vantone
International Group, Inc.” (“Vantone International”) The Certificate of
Amendment of Certificate of Incorporation was filed on August 4, 2009, effective
on August 17, 2009.
On May
14, 2009, Senior Optician acquired all of the outstanding capital stock of
Vantone USA, Inc. (formerly: Vantone International Group Inc.) (“Vantone
USA”)
Vantone
USA was incorporated under the laws of Nevada on December 5, 2007. It is a
holding company that has owned 100% of the equity in Shenyang Vantone Healthcare
Products Manufacturing Co., Ltd. (“Vantone Manufacturing”) since July 14, 2008.
Most of Vantone USA’s activities are conducted through its wholly own
subsidiary, Vantone Manufacturing, and Vantone Manufacturing’s variable interest
entities in The People’s Republic of China (“PRC”).
Upon
completion of the Share Exchange, there were 29,901,000 shares of Vantone
International (formerly “Senior Optician”) common stock issued and
outstanding. The recapitalizations are described in further detail in Note
11 to the accompanying consolidated financial statements.
Vantone
International (formerly “Senior Optician”), Vantone USA, Vantone Manufacturing,
and all of Vantone Manufacturing’s variable interest entities listed below will
be called “the Company” in the accompanying unaudited condensed consolidated
financial statements.
F-6
Vantone
Manufacturing
Vantone
Manufacturing is a foreign owned enterprise that was incorporated under the laws
of LiaoNing Province in the PRC on January 9, 2007. Vantone Manufacturing was
incorporated under the name “Shenyang Vantone Healthcare Food Co., Ltd.,” but
adopted its current name on June 20, 2007. Its registered term of operations is
fifteen years, from January 9, 2007 to January 8, 2022. Vantone Manufacturing
engages in manufacturing, processing, and marketing of daily commodities, water
purifying equipment, and kitchen and bath equipment. Up to March 2008, Vantone
Manufacturing had outsourced all of its manufacturing activities to enterprises
in the PRC that are dedicated to manufacturing products exclusively for Vantone
Manufacturing.
Entrusted
Management of Vantone Yuan
On April
1, 2007, Vantone Manufacturing signed three agreements (Entrusted Management
Agreement, Proxy Agreement, and Purchase Option and Cooperation Agreement) with
the shareholders of Shenyang Vantone Yuan Trading Co., Ltd. (“Vantone
Yuan”). Vantone Yuan is a private enterprise that was incorporated
under the laws of LiaoNing Province. It was incorporated under the
name “Shenyang Tongbida Trading Co., Ltd.,” but adopted its current name on June
21, 2007. The Entrusted Management Agreement stipulates that Vantone
Manufacturing will enjoy all of the profits and bear all of the losses arising
from the business of Vantone Yuan during Vantone Manufacturing’s management
period. The effective terms of these agreements are ten years starting from
April 1, 2007. The terms may be extended by the written agreement
among the parties upon the expiration of the agreement. By reason of the
Entrusted Management Agreement and its ancillary agreements, Vantone
Manufacturing is considered to be the primary beneficiary of the business of
Vantone Yuan. Therefore the financial statements of Vantone Yuan and
its subsidiaries are required to be consolidated with the financial statements
of Vantone Manufacturing, in accordance with accounting principles generally
accepted in the United States (“US GAAP”). See Note 11 for detailed
information regarding the Entrusted Management Agreements.
Vantone
Yuan engages in the distribution and sale of daily commodities, consumer electronics, home
appliances, health and beauty products and equipment. It also
engages in the import/export of various merchandise and technologies through a
self-conducted trade model or agency arrangement. In March and
October 2008, Vantone Yuan established a branch office in Jilin Province and in
Heilongjiang Province, respectively. Both offices engage in the distribution and
sales of daily commodities, and are licensed by the Industry and Commercial
Bureau of the PRC to operate until March 29, 2012.
During
the periods covered by these financial statements, Vantone Yuan also operated
through the following subsidiaries:
Kang Ping Vantone Trading Co., Ltd
(“Kang Ping”) and Kang
Ping Vantone Yuan Trading Co., Ltd., (“Kang Ping Vantone Yuan”) which
were incorporated under the laws of LiaoNing Province in the PRC on March 20,
2008 and December 23, 2008, respectively. Vantone Yuan owned 100% of the
registered capital of both subsidiaries. They each engaged in the
distribution and sales of daily commodities, consumer electronics, home
appliances, and also engaged in the import/export of various merchandise
and technologies through a self-conducted trade model or agency arrangement in
Kangping County of Shenyang District. Kang Ping Vantone Yuan filed a cancelation
of registration of incorporation with KangPing County Industrial and Commercial
Bureau in July 2009, effective on October 29, 2009.
F-7
Shenyang Vantone Liyuan Trading Co.,
Ltd. (“Liyuan”), in which Vantone Yuan had a 36.36% ownership interest
from December 3, 2007 to April 24, 2008, and had a 100% ownership interest since
April 24, 2008. Because Vantone Yuan did not have majority control
over Liyuan during the year ended March 31, 2008, Vantone Yuan recorded its
investment in Liyuan by the equity method for the year ended March 31, 2008.
However, since acquiring 100% ownership of Liyuan on April 24, 2008 (which was
approved by the Industrial and Commercial Bureau in Shenyang PRC on April 30,
2008), Vantone Yuan has consolidated Liyuan’s financial results with its
own. Liyuan engaged in the distribution and sales of daily
commodities, and also engaged in the import/export of various merchandise and
technologies through a self-conducted trade model or agency arrangement. Liyuan
filed a cancelation of registration of incorporation with Shenyang City
Industrial and Commercial Bureau in August 2009, effective on October 23,
2009.
Liaoning Vantone Insurance Agent
Co., Ltd. (“Vantone Insurance”), in which Vantone Yuan has held a 78%
ownership interest since November 16, 2007. On June 8, 2009 Vantone
Yuan purchased a 10% ownership interest from other shareholder. Therefore
Vantone Yuan has held a 88% ownership interest since this change. Vantone
Insurance engages in the insurance agency business, mainly representing the
insurance products of New China Life Insurance Co., Ltd. and Ping An Insurance
Corporation in the Shenyang District of the PRC.
Jilin Qunfeng Insurance Agent Co.,
Ltd. (“Qunfeng”), in which Vantone Yuan held a 100% ownership interest
after its acquisition was approved on September 26, 2008 by the Jilin Industrial
and Commercial Bureau of the PRC. Qunfeng is an insurance agency
company in Jilin Province that mainly represents the property insurance products
of Sunshine Property and Casualty Insurance Co., Ltd. and An Hua Agricultural
Insurance Co., Ltd. However, on March 30, 2009 the Jilin Industrial and
Commercial Bureau of the PRC approved the transfer of Vantone Yuan‘s ownership
of Qunfeng to Mr. Honggang Yu, Chairman of Vantone Yuan, and Mrs. Hongfen
Cao.
Heilongjiang DiAn Insurance Agent
Co., Ltd (“DiAn”), which Vantone Yuan purchased for 500,000 RMB
(approximately $73,099) on September 26, 2008. This acquisition had been
approved by the Heilongjiang Industrial and Commercial Bureau of the PRC on
October 23, 2008. However, DiAn did not receive the correct amended business
operation certificate until January 8, 2009. DiAn engages in the insurance
agency business, mainly representing the insurance products of TaiPing Insurance
Co. and Sunlight Agricultural Mutual Insurance Co. in Helongjiang Province.
However, on March 26, 2009 the Heilongjiang Industrial and Commercial Bureau of
the PRC approved the transfer of Vantone Yuan’s ownership of DiAn to Mr.
Honggang Yu, Chairman of Vantone Yuan, and Mrs. Hongfen Cao.
F-8
|
3.
|
Basis
of Presentation
|
a.
|
Fiscal
Year
|
The
Company’s fiscal year ends on March 31. The accompanying condensed consolidated
financial statements of operations and cash flows included activities for the
nine months ended December 31, 2009 and 2008, respectively.
b.
|
Principle
of Consolidation
|
The
accompanying consolidated financial statements present the financial position,
results of operations and cash flows of the Company and all entities in which
the Company has a controlling voting interest. The condensed consolidated
financial statements also include the accounts of any variable interest entities
in which the Company is considered to be the primary beneficiary and such
entities are required to be consolidated in accordance with accounting
principles generally accepted in the United States (“US GAAP”). These condensed
consolidated financial statements include the financial statements of Vantone
International (formerly “Senior Optician”), Vantone USA, Vantone Manufacturing,
and Vantone Manufacturing’s variable interest entities. All significant
intercompany transactions and balances are eliminated in
consolidation.
The
accompanying consolidated financial statements are prepared in accordance with
US GAAP. This basis of accounting differs from that used in the statutory
accounts of some of the Company’s subsidiaries, which were prepared in
accordance with the accounting principles and relevant financial regulations
applicable to enterprises with foreign investment in the PRC (“PRC GAAP”).
Necessary adjustments made to the subsidiary statutory accounts to conform to US
GAAP were included in these consolidated financial statements.
|
4.
|
Summary
of Significant Accounting Policies
|
a.
|
Use
of Estimates
|
The
preparation of condensed consolidated financial statements in conformity with
accounting principal generally accepted in United States requires management to
make estimates and assumptions that affect the amount reported in the
consolidated financial statements and the accompany notes. Actual results could
differ from those estimates.
b.
|
Foreign
Currency Translation
|
The
accompanying unaudited condensed consolidated financial statements are presented
in United States dollars. The Company’s functional currency is the Renminbi
(“RMB”). The consolidated financial statements are translated to U.S. dollars
using year-end rates of exchange for assets and liabilities, average rates of
exchange for the period for revenues, costs, and expenses, and historical
capital contribution rate of exchange for capital contribution. Net gains and
losses resulting from foreign exchange transactions are included in the
statements of operations.
F-9
The
following rates are used in translating the RMB to the U.S. Dollar presentation
disclosed in these condensed consolidated financial statements for the nine
months ended December 31, 2009 and 2008, respectively.
For
Fiscal Nine Months Ended December 31,
|
|||||||
2009
|
2008
|
||||||
Assets
and liabilities
|
period
ended rate of RMB
|
¥ 6.8270
|
/per
USD
|
¥ 6.8225
|
/per
USD
|
||
Revenue
and expenses
|
average
rate of RMB
|
¥ 6.8294
|
/per
USD
|
¥ 6.8779
|
/per
USD
|
c.
|
Revenue
Recognition
|
Revenue
includes sales of products and services rendered. Products revenue represents
the invoiced value of goods sold recognized upon the delivery of goods to
customers, net of allowance for estimated returns, when both title and risk of
loss transfer to the customer, provided that no significant obligations remain.
Deferred revenue represents the undelivered portion of invoiced value of goods
sold to customers. Service income is recognized when services are provided.
Revenue from service contracts, for which the Company is obligated to perform,
is recorded as deferred revenue and subsequently recognized over the term of the
contract or when the service is completed. Sales transactions not meeting all
the conditions of the full accrual method are accounted for using the deposit
method of accounting. Under the deposit method, all costs are capitalized
as incurred, and payments received from the buyer are recorded as customer
deposits. Revenue is represented net of value added taxes (“VAT”) for the sales
revenue from PRC subsidiaries.
d.
|
Income
Taxes
|
Vantone
International (formerly: Senior Optician) and Vantone USA file federal
consolidated income taxes and annual franchise taxes with the State of Nevada.
The Company’s PRC subsidiary, Vantone Manufacturing, files income tax returns
under the Income Tax Law of the People's Republic of China concerning Foreign
Investment Enterprises and Foreign Enterprises and local income tax laws.
Vantone Yuan and its subsidiaries file income tax returns under the Income Tax
Law of the People's Republic of China.
The
Company follows the FASB issued ASC740 - Accounting for Income Taxes, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Deferred taxes also are
recognized for operating losses that are available to offset future income
taxes.
e.
|
Segment
Reporting
|
ASC 280,
Disclosure about Segments of
an Enterprise and Related Information, requires disclosure of reportable
segments used by management for making operating decisions and assessing
performance. Reportable segments are categorized by products and services,
geography, legal structure, management structure, or any other manner in which
management disaggregates a company. ASC 280 has effect on the Company’s
financial statements. The Company generated two categories of revenues: products
sold and commission received for insurance agency business, see segment
reporting spreadsheet on Note 13.
F-10
f. Recent Accounting
Pronouncements
In
June 2009, the FASB issued ASC 105, the FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162. The FASB Accounting Standards
Codification TM (“Codification”) will become the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) recognized by FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. On the effective date of ASC 105, the Codification
will supersede all then-existing non-SEC accounting and reporting standards. All
other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. ASC 105 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. Adoption of ASC 105 is not expected to have a material impact on the
Company’s results of operations or financial position.
In
June 2009, the FASB issued ASC 810, Amendments to FASB Interpretation
No. 46(R), which improves financial reporting by enterprises involved with
variable interest entities. ASC 810 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities , as a result of the elimination of
the qualifying special-purpose entity concept in SFAS 166 and (2) concerns
about the application of certain key provisions of FIN 46(R), including those in
which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise’s involvement in a
variable interest entity. ASC 810 shall be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within the first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. Adoption of ASC 810 is not expected to have a
material impact on the Company’s results of operations or financial
position.
In
May 2009, the FASB issued ASC 855, Subsequent Events, which establishes
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. An entity should apply the requirements of ASC 855 to
interim or annual financial periods ending after June 15, 2009. Adoption of
ASC 855 did not have a material impact on the Company’s results of operations or
financial position.
|
5.
|
Inventories
|
Inventories
as of December 31, 2009 and March 31, 2009 consisted of the
following:
December
31, 2009
|
March
31, 2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Raw
materials
|
$ | 47,926 | $ | 17,071 | ||||
Finished
goods
|
608,645 | 361,282 | ||||||
Other
items
|
- | 26,677 | ||||||
Total
|
$ | 656,571 | $ | 405,030 |
|
6.
|
Advanced
to Stockholders/ Officers, Net
|
Amounts
advanced to stockholders/officers are unsecured, non-interest bearing, and have
no set repayment date. As of December 31 and March 31, 2009, the total net
amounts of advanced to the stockholders/officers were $2,367,885 and $371,354
respectively. This represented the net amounts lent by the Company to
stockholders/officers. All advances to Mr. Honggang Yu occurred before May 14,
2009, the “Share Exchange” date.
December
31, 2009
|
March
31, 2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Mr.
Honggang Yu
|
$ | 2,367,885 | $ | 367,549 | ||||
Ms.Hongfen
Cao
|
- | 3,805 | ||||||
Total
|
$ | 2,367,885 | $ | 371,354 |
F-11
|
7.
|
Loan
to Related Parties, Net
|
Kangping
Wanxin Materials Recycling Co. (“Kangping Wanxin”) was incorporated under the
laws of Kang Ping County LiaoNing Province in the PRC on July 1, 2009. A family
member of the chief executive officer of the Company owns 100% of
Kangping Wanxin. In order to support Kangping Wanxin’s operations, the Company
had a loan agreement with Kangping Wanxin on July 22, 2009, and agreed to loan
RMB 4,001,065 to Kangping Wanxin for one year starting from July 22, 2009. This
loan does not bear interest and is unsecured. Kangping Wanxin fully paid back
this loan amount to the Company in December 2009.
The chief
executive officer of the Company and his spouse owned 100% of Jilin Qunfeng
Insurance Agent Co., Ltd. (“Qunfeng”). In order to support Qunfeng’s operations,
the Company advanced funds to Qunfeng in the amount of $82,832 (equivalent to
RMB 565,800) from October 2008 to January 2009. Qunfeng paid off all prior
advances on July 24, 2009. However, before end of July 2009, the Company
advanced $2,864 (equivalent to RMB19,550) to Qunfeng. This advance also was
fully paid off in December 2009.
The chief
executive officer of the Company and his spouse also owned 100% of
Heilongjiang Dian Insurance Agent Co., Ltd. (“DiAn”). From time to time DiAn and
the Company had loaned funds to each other in order to support operations. In
December 2009, DiAn paid off all the balance due to the Company. However, DiAn
had a balance due to the Company in the amount of 64,726 (equivalent to RMB
442,315) as of March 31, 2009.
Loans
from the Company to these related parties may be prohibited by Sarbanes-Oxley
Act of 2002 (SOX), if they are made to companies owned by the family members of
the Company’s Chief Executive Officer and board member.
Net
amount of loan to related parties, net as of December 31 and March 31, 2009,
consisted of the following:
December
31, 2009
|
March
31, 2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Jilin
Qunfeng Insurance Agent Co., Ltd
|
$ | - | $ | 83,366 | ||||
Heilongjiang
Dian Insurance Agent Co., Ltd
|
- | 64,726 | ||||||
Total
Loan to Related Parties, Net
|
$ | - | $ | 148,092 |
F-12
|
8.
|
Property
and Equipment - Net
|
Property
and equipment, less accumulated depreciation, consisted of the
following:
Estimated
|
December
31, 2009
|
March
31, 2009
|
||||||||||
Life
|
(Unaudited)
|
(Audited)
|
||||||||||
Buildings
|
20 | $ | 3,166,993 | $ | 3,163,931 | |||||||
Vehicles
|
3-5 | 178,168 | 177,995 | |||||||||
Equipments
and office furniture
|
5 | 72,366 | 62,579 | |||||||||
Software
|
3 | 42,651 | 20,264 | |||||||||
Subtotal
|
3,460,178 | 3,424,769 | ||||||||||
Less:
Accumulated depreciation
|
350,744 | 233,919 | ||||||||||
Total
|
$ | 3,109,434 | $ | 3,190,850 |
Depreciation
expenses charged to operations were $120,727 and $126,402 for the nine months
ended December 31, 2009 and 2008, respectively.
|
9.
|
Taxation
|
a. Corporation
Income Tax (“CIT”)
Vantone
International (formerly: Senior Optician) and Vantone USA file federal
consolidated income tax returns and annual franchise taxes to the State of
Nevada. Vantone Manufacturing files income tax returns under the Income Tax Law
of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and
local income tax laws. Vantone Yuan and its subsidiaries file income tax returns
under the Income Tax Law of the PRC concerning China Private Enterprises and
local income tax laws.
In
accordance with the relevant PRC tax laws and regulations, Vantone Manufacturing
is subject to CIT at 27% and 25% tax rate before, on and after January 1, 2008,
respectively. Vantone Yuan and its subsidiaries are subject to CIT at 33% and
25% tax rate before, on and after January 1, 2008, respectively. However,
Vantone Yuan had been exempted from CIT for a period from April 12, 2007 to
December 31, 2007 by Shenyang City Heping Region National Tax Authority.
Commencing from April 1, 2009, Kang Ping became a general VAT tax payer in PRC,
a general VAT tax rate of 17% is applicable.
F-13
On July
30, 2009, Kang Ping Vantone Yuan was approved for cancellation of national tax
registration by Liaoning Kangping National Tax Bureau. It was
approved for cancellation of local tax registration by Snenyang City Kangping
District Local Tax Bureau on September 7, 2009. It was approved for cancellation
of registration of incorporation by KangPing County Industrial and Commerical
Bureau on October 29, 2009.
On August
7, 2009, Liyuan was approved for cancellation of national tax registration by
Shenyang Heping National Tax Bureau. It was approved for cancellation of local
tax registration by Shenyang City Local Tax Bureau on August 26, 2009. It was
approved for cancellation of registration of incorporation by Shenyang City
Industrial and Commerical Bureau on October 23, 2009.
On August
14, 2009, Vantone Yuan Jilin office has been approved for cancellation of
national tax registration by Changchun City, South Gate District National Tax
Bureau while it had been approved for cancellation of local tax registration by
Changchun City, South Gate District Local Tax Bureau on October 20,
2009.
On
September 24, 2009, Vantone Yuan Heilongjiang office has been approved for
cancellation of national tax registration by Harbin City, Xiangfang District
National Tax Bureau while it had been approved for cancellation of local tax
registration by Harbin City, Xiangfang District Local Tax Bureau on December 15,
2009.
The
deferred tax assets, current and noncurrent, in the accompanying balance sheet
were $257,905 and $182,564 as of December 31 and March 31, 2009, respectively.
There were no deferred tax liabilities and valuation allowance as of December 31
and March 31, 2009. The deferred tax assets primary results from tax credit
carry forwards.
The
components of income tax benefits related to continuing operations were as
follows:
For
Fiscal Nine Months Ended December 31,
|
|||||||||
2009
|
2008
|
||||||||
Unaudited
|
Unaudited
|
||||||||
Current
|
$ | 332,437 | $ | 183,656 | |||||
Deferred
income tax benefits
|
(80,062 | ) | (80,164 | ) | |||||
Total
|
$ | 252,375 | $ | 103,492 |
b. Value
Added Tax (“VAT”)
Vantone
Manufacturing and Vantone Yuan’s subsidiaries are subject to VAT on
merchandise sales in PRC. Since Vantone Manufacturing engages in the
manufacture and processing business, a small scale VAT rate of 6% was applicable
before January 1, 2009. For Vantone Yuan’s subsidiaries whichever engage in
distribution and sales of daily commodities, a small scale VAT rate of 4% was
applicable prior to January 1, 2009 According to China VAT regulations,
commencing from January 1, 2009, all small scale VAT rates have been changed to
3%. On July 1, 2009, Vantone Manufacturing becomes a general taxpayer and the
tax rate was changed from 3% to 17%.
F-14
Kang Ping
is subject to VAT on merchandise sales in the PRC. A small scale VAT rate of 4%
was applicable prior to January 1, 2009, a rate of 3% was applicable after
January 1, 2009, and a general VAT rate of 17% is applicable for the merchandise
sales on and after April 1, 2009, since its sales amount within one year had
achieved a level which subject to general VAT rate of 17%.
Vantone
Yuan is also subject to VAT on merchandise sales in the PRC. A small scale VAT
rate of 4% was applicable prior to February 1, 2008, and a general VAT rate of
17% was applicable for the merchandise sales on and after February 1, 2008,
respectively.
c. Business
Tax (“BT”)
The
Company is also subject to business tax, which is charged on the service income
at a rate of 5% in accordance with the tax law in LiaoNing Province of
PRC.
d. Taxes
Payable
As of
December 31, and March 31, 2009, tax payable consisted of the
following:
December
31, 2009
|
March
31, 2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Value-added
tax
|
$ | 21,705 | $ | 18,711 | ||||
Corporate
income tax provision
|
359,922 | 52,313 | ||||||
Business
tax
|
550 | 6,577 | ||||||
Individual
income tax withholdings
|
(5 | ) | 2,276 | |||||
City
construction, education, and other taxes
|
7,427 | 5,161 | ||||||
Total
|
$ | 389,599 | $ | 85,038 |
|
10.
|
Operating
Lease Commitments
|
The
Company leases certain office spaces under operating lease agreements. The
rental expenses under operating leases were $17,678 and $19,957 for the nine
months ended December 31, 2009 and 2008, respectively. The following is a
schedule of future minimum rental payments required under operating leases that
had initial or remaining non-cancelable lease terms beyond December 31,
2009.
For Fiscal Nine Months Ending December 31, |
Amount
|
|||
2010
|
$ | 39,256 | ||
2011
|
34,512 | |||
2012
|
32,089 | |||
Total
minimum rental payments required
|
$ | 105,857 |
F-15
a.
|
Common
Stock
|
The
Company is authorized to issue 100,000,000 shares of Common Stock, $0.001 par
value per share, of which 29,901,000 shares are outstanding and
issued.
Before
the Share Exchange with Vantone USA, Vantone International (formerly “Senior
Optician”) had 5,954,000 shares of common stock issued and
outstanding.
In
exchange for the outstanding shares of Vantone USA, Vantone International
(formerly “Senior Optician”) issued 23,947,000 shares of its common stock to the
shareholders of Vantone USA (the “Share Exchange”). Those shares represent
80.1 % of the outstanding shares of Vantone International (formerly “Senior
Optician”). 19,157,600 of the shares were issued to Honggang Yu, although
he immediately assigned 14,368,200 of them to other shareholders for whom he
served as nominee. Honggang Yu is the Chief Executive Officer of Vantone USA, as
well as the Chief Executive Officer of Vantone International (formerly “Senior
Optician”). The remaining 4,789,400 shares were issued to Jichun Li, the
Chief Financial Officer of Vantone International (formerly “Senior Optician”) l,
although he immediately assigned 3,831,520 of them to other shareholders for
whom he serves as nominee. As a result of these transactions, persons
associated with Vantone now own securities that represent 97.4% of the equity in
Vantone International (formerly “Senior Optician”).
Upon
completion of the Share Exchange, there were 29,901,000 shares of the Company’s
common stock issued and outstanding.
b.
|
Additional
Paid-In Capital
|
The
additional paid-in capital represents the excess of the aggregate fair value of
the capital contributed over the par value of the stock issued. There was
$1,919,899 and $1,914,891 additional paid-in capital as of December 31, and
March 31, 2009, respectively
c. Dividends
and Reserves
Under the
regulations and laws of the PRC, net income after taxation can only be
distributed as dividends after appropriation has been made for the following:
(i) cumulative prior years' losses, if any; (ii) allocations to the "Statutory
Surplus Reserve" of at least 10% of net income after taxes, as determined under
PRC accounting rules and regulations, until the fund amounts to 50% of the
Company's registered capital; and (iii) allocations to any discretionary surplus
reserve, if approved by shareholders.
The
Company has not accrued "discretionary surplus reserve”, since it had not been
approved by the shareholders of the Company.
The
Company established and segregated in retained earnings an aggregate amount of
$720,716 and $630,710 for the Statutory Surplus Reserve as of December 31, and
March 31, 2009, respectively.
F-16
|
12.
|
Proxy
Agreement, Entrusted Management Agreement, and Purchase Option and
Cooperation Agreement
|
Effective
as of April 1, 2007, Vantone Manufacturing entered into three agreements with
Vantone Yuan and/or the shareholders of Vantone Yuan: the Entrusted
Management Agreement, the Proxy Agreement, and the Purchase Option and
Cooperation Agreement. Summaries of the agreements
follow:
Proxy
Agreement: In this agreement, the shareholders of
Vantone Yuan assigned to Vantone Manufacturing their voting rights and all other
shareholders rights, including the right to attend and vote such shares at any
shareholder’s meeting of the Company (or by written consent in lieu of a
meeting) without any limitations. The effective term of this agreement shall be
ten (10) years and may be extended by the written agreement among the parties
upon the expiration of this agreement.
Entrusted Management
Agreement: In this agreement, the shareholders of Vantone Yuan
entrusted Vantone Manufacturing to manage all assets and debts of Vantone Yuan.
The term of this Entrusted Management Agreement shall be from April 1, 2007 to
the earlier of the following:
1)
|
March
31, 2017, or
|
2)
|
the
winding up of Vantone Yuan, or
|
3)
|
the
termination date of this Entrusted Management Agreement to be determined
by the parties, or
|
4)
|
the
date on which Vantone Manufacturing completes the acquisition of Vantone
Yuan.
|
In
exchange for the services of Vantone Manufacturing pursuant to this Entrusted
Management Agreement, Vantone Yuan and its shareholders shall pay an entrusted
management fee to Vantone Manufacturing. The entrusted management fee shall
equal Vantone Yuan’s net profits, being the monthly revenues after deduction of
operating costs, expenses, and taxes. If the net profit is zero, Vantone Yuan is
not required to pay the entrusted management fee; if Vantone Yuan sustains
losses, all such losses will be carried over to next month and deducted from
next month's entrusted management fee. Vantone Manufacturing and
Vantone Yuan shall calculate, and Vantone Yuan and its shareholders shall pay,
the monthly entrusted management fee at the conclusion of each
month.
In
addition, Vantone Manufacturing shall assume all operation risks arising out of
the operations of Vantone Yuan and bear all losses of Vantone Yuan. If Vantone
Yuan does not have sufficient funds to repay its debts, Vantone Manufacturing is
responsible for paying these debts on behalf of Vantone Yuan. If Vantone Yuan's
net assets are lower than its registered capital, Vantone Manufacturing is
responsible for funding the deficit.
Purchase Option and Cooperation
Agreement: In this agreement, the shareholders of
Vantone Yuan granted to Vantone Manufacturing the exclusive option to
acquire, at any time upon satisfaction of the requirements under the PRC law,
the entire or a portion of all shareholders’ shares of equity or/assets owned by
Vantone Yuan.
By reason
of these three agreements, Vantone Manufacturing is considered to be the primary
beneficiary of Vantone Yuan and its subsidiaries. Vantone Yuan and its
subsidiaries are considered to be the variable interest entities of Vantone
Manufacturing. Since Vantone International is the 100% equity owner of Vantone
Manufacturing, Vantone Manufacturing and Vantone
Manufacturing’s variable interest entities shall be required to be consolidated
into the Company’s financial statements in accordance with accounting principles
generally accepted in the United States (“US GAAP”).
F-17
|
13.
|
Segment
Reporting
|
The
Company engages in two types of business activities: sales of daily commodities,
consumer electronics, and home
appliances, and insurance agency service. The chief operating decision
makers evaluate performance, make operating decisions, and allocate resources
based on the separated type of business financial data. Gross profit, operating
income, income from operations, and income taxes are allocated to specific
business activities within the organization. In accordance with ASC 280
“Disclosures about Segments of an Enterprise and Related Information” the
Company is considered to have two reportable segments. The Company is required
to disclose certain information about profit or loss, total assets and
liabilities, geographic areas, regulatory environments, major customers, and
long-lived assets. Following is a summary of segment information for the nine
months ended December 31, 2009 and 2008:
For
Fical Nine Months Ended December 31, 2009
|
||||||||||||
Products
Sold
|
Insurance
|
|||||||||||
and
Related Service
|
Agency
Service
|
Total
|
||||||||||
Total
assets
|
$ | 9,186,265 | $ | 792,432 | $ | 9,978,697 | ||||||
Total
long - lived assets, net
|
$ | 2,594,722 | $ | 515,670 | $ | 3,110,392 | ||||||
Total
liabilities
|
$ | 1,369,625 | $ | 137,764 | $ | 1,507,389 | ||||||
Total
revenue
|
$ | 4,409,536 | $ | 270,119 | $ | 4,679,655 | ||||||
Income
(loss) from operations
|
$ | 674,891 | $ | (139,578 | ) | $ | 535,313 | |||||
Depreciation
expenses
|
$ | 97,266 | $ | 23,461 | $ | 120,727 | ||||||
Interest
revenue
|
$ | 11,959 | $ | 470 | $ | 12,429 | ||||||
Interest
expenses
|
$ | 7,497 | $ | - | $ | 7,497 | ||||||
Minority
interest
|
$ | - | $ | (14,647 | ) | $ | (14,647 | ) | ||||
Income
tax expenses (benefits)
|
$ | 286,905 | $ | (34,530 | ) | $ | 252,375 |
For
Fiscal Nine Months Ended December 31, 2008
|
||||||||||||
Products
Sold
|
Insurance
|
|||||||||||
and
Related Service
|
Agency
Service
|
Total
|
||||||||||
Total
assets
|
$ | 7,155,544 | $ | 894,540 | $ | 8,050,083 | ||||||
Total
long - lived assets, net
|
$ | 2,689,857 | $ | 637,635 | $ | 3,327,492 | ||||||
Total
liabilities
|
$ | 77,748 | $ | 49,049 | $ | 126,797 | ||||||
Total
revenue
|
$ | 1,683,282 | $ | 109,681 | $ | 1,792,963 | ||||||
Income
(loss) from operations
|
$ | 312,122 | $ | (173,743 | ) | $ | 138,379 | |||||
Depreciation
expenses
|
$ | 101,432 | $ | 24,970 | $ | 126,402 | ||||||
Interest
revenue
|
$ | 10,830 | $ | 773 | $ | 11,603 | ||||||
Minority
interest
|
$ | - | $ | (19,760 | ) | $ | (19,760 | ) | ||||
Income
tax expenses (benefits)
|
$ | 148,920 | $ | (45,428 | ) | $ | 103,492 |
F-18
|
14.
|
Geographical
Risks
|
Substantially
all of the Company's operations are carried out in the PRC. Accordingly, the
Company's business is subject to considerations and risks atypical to those in
the United States, including changes in the political, economic, social, legal,
and tax environments in PRC, as well as changes in inflation and interest rates.
Changes in laws and regulations concerning PRC’s purchases and sales of daily
commodities, consumer
electronics, home appliances, and insurance agency business could
significantly affect the Company’s future operating results and financial
position.
|
15.
|
Concentration
of Business
|
a. Major
Customers
The
following summarizes products sold to major customers (each 10% or more of total
products sold):
Sold
to Major
|
Number
of
|
Percentage
of
|
||||
For
Fiscal Nine Months Ended December 31,
|
Customers
|
Customers
|
Total
Products Sold
|
|||
2009
|
$ 1,167,982
|
2
|
26.50%
|
|||
2008
|
$ 181,214
|
1
|
11.19%
|
The
following summarizes insurance agency service fees received from major insurance
company (each 10% or more of total insurance agency service fees
received):
Revenue
from
|
Number
of
|
Percentage
of
|
||||
For
Fiscal Nine Months Ended December 31,
|
Major
Insurance Co.
|
Insurance
Co.
|
Total
Service Rendered
|
|||
2009
|
$ 234,648
|
1
|
86.87%
|
|||
2008
|
$ 140,883
|
2
|
81.13%
|
b. Major
Suppliers
The
following summarizes raw materials and products purchased from major suppliers
(each 10% or more of total raw material and products purchased):
Purchased
from
|
Number
of
|
Percentage
of
|
||||
For
Fiscal Nine Months Ended December 31,
|
Major
Suppliers
|
Suppliers
|
Total
Purchased
|
|||
2009
|
$ 1,203,502
|
3
|
41.92%
|
|||
2008
|
$ 136,743
|
3
|
94.77%
|
F-19
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In
addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use of the words
“believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,”
“projects,” or similar expressions. These forward-looking statements represent
Management’s belief as to the future of Vantone International Group,
Inc. Whether those beliefs become reality will depend on many factors
that are not under Management’s control. Many risks and uncertainties
exist that could cause actual results to differ materially from those reflected
in these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in the section entitled “Risk
Factors” contained in the Company’s Annual Report on Form 10-K for the year
ended March 31, 2009. Readers are cautioned not to place undue reliance on these
forward-looking statements. We undertake no obligation to revise or publicly
release the results of any revision to these forward-looking
statements.
Result of
Operations
Vantone
Yuan commenced its operations in 2007, and grew to achieve a significant
position in the Chinese market for health and beauty aids. During the
year ended March 31, 2008, the combined revenues of Vantone Manufacturing and
Vantone Yuan totalled $8,820,089.
During
the fiscal year ended March 31, 2009, however, we implemented a major adjustment
of our sales model and business development strategy. Our goal is to take
advantage of the distribution network that we have developed for health and
beauty products to enter the rapidly growing Chinese market for insurance
policies. In order to achieve that goal, it is necessary that we
convert our marketing network from a franchise model to an agency
model. So for the past year we have been gradually transforming our
franchisees into sales agents, capable of marketing both household supplies and
insurance policies.
This
transformation of our marketing network caused disruption in our sales effort
during the fiscal year ended March 31, 2009. During the same period,
we suspended distribution of the bamboo products that had accounted for nearly
40% of our sales revenue during the year ended March 31, 2008. We
determined that the seasonality of the products and the limited geographic area
in which they can be successfully marketed made them a disadvantageous
foundation for our marketing effort. Primarily as a result of these
two adjustments, our revenues during the fiscal year ended March 31, 2009
dropped to $2,958,731 from $8,820,089 for the fiscal year ended March 31,
2008.
In
February 2009, we began to supplement our existing product lines by entering the
market for the distribution of consumer electronics and home appliances in
China: televisions, air conditioners, refrigerators, cellular phones,
cooking appliances, etc. In April 2009 we began to sell those
products. We are entering this market at this time, in part because
the Chinese government recently established a 2 billion RMB stimulus package,
consisting of subsidies to assist low income families in purchasing new
electronics and home appliances. This stimulus package creates a significant
business opportunity for the distribution of the targeted products through our
existing distribution network.
20
Recognizing
this business opportunity, we plan to develop a combination of our current sales
agent, service system and an E-commerce platform to distribute consumer
electronics and home appliances. We have negotiated arrangements with several
famous brand name manufacturers of televisions, refrigerators, air conditioners,
cellular phones, and other consumer electronics manufacturers in China. We now
offer these products through our sales agents. We also plan to use
the most updated software to establish an efficient and safe platform for
internet purchases. For the products sold through our name, we will provide a
set of after-sale customer services. We have also started to train our sales
agents and service team to get them ready for our expansion in the consumer
electronics and home appliance distribution industry. With all these efforts, we
intend to establish our own brand name in the sales of consumer electronics and
home appliances.
Our
revenues during the nine months ended December 31, 2009 arose from our two
business segments: distribution of consumer products and marketing of insurance
policies. Our revenues from the sale of our consumer products during the first
three quarters of fiscal 2010 totaled $4,407,340, or 94% of our revenues for the
period. The revenue from our insurance agency services was $270,119, or 6% of
our revenues for the nine months ended December 31, 2009. Our total
revenue for the first three quarters of fiscal 2010 was $4,679,655, an increase
of 161% from our revenue during nine months ended December 31,
2008.
Revenue
in the third quarter of fiscal 2010 totaled only $504,835, although this was an
improvement over the third quarter of fiscal 2009, when we realized only
$119,689 in revenue. During the third quarter of fiscal 2010, due to adverse
market condition for home renovation and decoration in Northeast Provinces of
China, the demand for customer electronics, home appliances, and custom made
water purification systems declined. Accordingly, our third quarter results are
lower than other quarters of fiscal 2010.
Our cost
of goods sold in the nine months ended December 31, 2008 was abnormally
low. This occurred because we were transforming our business model in
that earlier quarter, and liquidated inventory that had already been paid
for. During the nine months ended December 31, 2009 our overall cost
of goods sold was 62% of total revenue. Since we have only recently
initiated our new selling program, it is not possible to predict whether the
margins realized in the recent quarters will be sustained in the
future.
Since our
overhead has not changed significantly since 2007, our selling, general and
administrative expenses remained relatively stable from period to period –
operating expenses in the nine months ended December 31, 2009 were $37,522 more
than operating expenses in the nine months ended December 31, 2008. This
increase primary due to the additional administration cost occurred for
initially forming an office in California USA during the three months ended
December 31, 2009. We expect that our selling, general and administrative
expenses will increase in proportion to the revitalization in our business
activity in the coming periods. In addition, since our operating
company was acquired by a U.S. public shell company in May 2009, we will now
bear the ongoing expenses attributable to being a U.S. public, reporting
company.
21
Due to
the low level of revenue in the quarter ended December 31, 2009, we realized a
loss from operations of $183,209, slightly better than the loss from operations
of $260,195 that we reported for the three months ended December 31, 2008. The
loss was partially offset, however, by a net “other income” of
$106,501. This income was primarily attributable to a RMB750,000
(equivalent to $109,819) government grant from the Commission of Finance of the
Liaoning Province of China to subsidize the expenses that the Company incurred
when acquiring overseas high-tech enterprises.. As a result, our net
loss for the quarter was reduced to $93,597.
Due to
the low level of cost of goods sold in the nine months ended December 31, 2008,
our net income for the nine months ended December 31, 2009 exceeded net income
in the nine months ended December 31, 2008 by only $392,423, despite the 161%
increase in revenue. For the nine months ended December 30, 2009, our
net income represented $.01 per share, compared to $.00 per share during the
nine months ended December 31, 2008.
Our
business operates primarily in Chinese Renminbi (“RMB”), but we report our
results in our SEC filings in U.S. Dollars. The conversion of our accounts
from RMB to Dollars will result in translation adjustments. While our net
income will be added to the retained earnings on our balance sheet; the
translation adjustments will be added to a line item on our balance sheet
labelled “accumulated other comprehensive income,” since they will be more
reflective of changes in the relative values of U.S. and Chinese currencies than
of the success of our business. During the nine months ended on December
31, 2009, the effect of converting our financial results to Dollars was to add
$6,632 to our accumulated other comprehensive income. In the
comparable quarter of the prior year, when the exchange rate had been much more
volatile, $165,996 was added to our accumulated other comprehensive
income.
Liquidity and Capital
Resources
After our shareholders made the initial
contribution of our registered capital, the growth of our business has been
funded, primarily, by the revenues resulted from our business operations. As a
result, at December 31, 2009, we had no long term debts.
Our working capital at December 31,
2009 totaled $5,360,916, an increase of $393,351 from our $4,967,565 in working
capital as of March 31, 2009. The increase was approximately equal to our net
income. Our cash flow from operations substantially exceeded net
income, however, as operations in the nine months ended December 31, 2009
produced $2,035,446 in cash. The excess over net income was primarily
the result of our collection of accounts receivable, an increase in our several
categories of payables, as well as $300,852 in customer deposits received during
the nine months. These customer deposits will be liquidated as
revenue in future periods as the customers (i.e. our sales agents) take delivery
of products.
Our
business plans contemplates that we will expand our current sales agent and
service system, and establish an E-commerce platform to distribute the daily
commodities, consumer electronics, home appliances, and insurance products. The
goal is to expand to 1,000 the number of stores carrying the Vantone brand
within the next two years, and that we will develop 20 regional sales agents
across China.
Implementation of this plan will require significant
funds. The funds are needed in order to:
22
|
●
|
Implement
our direct marketing program, including development of internet commerce,
calling center and an online
presence;
|
|
●
|
Acquire
10 insurance agencies to expand our insurance agency
business;
|
|
●
|
Establish
stores throughout China; and
|
|
●
|
Implement
an advertising and marketing program adequate to assure us of substantial
market presence.
|
Our plan
is to sell a portion of our equity in order to obtain the necessary funds, which
will reduce the equity share of our existing shareholders. To date,
however, we have received no commitment from any source for funds.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition or results of
operations.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and
procedures.
The term “disclosure controls and
procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under the Securities
Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and
reported within required time periods. The Company’s management, with the
participation of the Chief Executive Officer and the Chief Financial Officer,
has evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by this report (the “Evaluation
Date”). Based on that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer have concluded that, as of the Evaluation Date, such
controls and procedures were effective.
(b) Changes in internal
controls.
The term “internal control over
financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a
company that is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. The Company’s management, with the participation of the Chief
Executive Officer and Chief Financial Officer, has evaluated any changes in the
Company’s internal control over financial reporting that occurred during the
fiscal quarter covered by this report, and they have concluded that there was no
change to the Company’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
23
PART
II - OTHER INFORMATION
Item
1A. Risk Factors
There has
been no material change in the risk factors set forth in Item 1A of the
Company’s Annual Report on Form 10-K for the year ended March 31,
2009.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
We have
not sold any equity securities during the quarter ended December 31, 2009 that
were not previously disclosed in a current report on Form 8-K that was filed
during that period.
Item
6. Exhibits
31
|
Rule
13a-14(a) Certification – CEO and
CFO
|
32
|
Rule
13a-14(b) Certifications – CEO and
CFO
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange
Act of 1934, the Registrant has
duly caused this Report to
be signed on its behalf by the undersigned
thereunto duly authorized.
VANTONE
INTERNATIONAL GROUP, INC.
|
|
Date:
February 15, 2010
|
By:
/s/ Honggang
Yu
|
Honggang
Yu, Chief Executive Officer and
|
|
Chief
Financial Officer
|
24