Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - INDESTRUCTIBLE 1, INC | f8k032510_indestruc1.htm |
| EX-2.1 - SHARE EXCHANGE AGREEMENT BY AND BETWEEN THE COMPANY AND DYNAMIC BHORIZON LIMITED, DATED MARCH 25, 2010 - INDESTRUCTIBLE 1, INC | f8k032510ex2i_indestruc1.htm |
| EX-16.1 - LETTER FROM GATELY & ASSOCIATES, LLC, DATED MARCH 25, 2010 - INDESTRUCTIBLE 1, INC | f8k032510ex16i_indestruc1.htm |
| EX-99.2 - THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF XINTAI AS OF DECEMBER 31, 2009 AND 2008 - INDESTRUCTIBLE 1, INC | f8k032510ex99ii_indestruc1.htm |
| EX-99.3 - THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF INDESTRUCTIBLE - INDESTRUCTIBLE 1, INC | f8k032510ex99iii_indestruc1.htm |
Exhibit 99.1
SICHUAN
XINTAI PHARMACEUTICAL CO., LTD.
FINANCIAL
STATEMENTS
JUNE
30, 2009 AND 2008
SICHUAN
XINTAI PHARMACEUTICAL CO., LTD.
INDEX
TO THE FINANCIAL STATEMENTS
| PAGES | |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1 |
|
BALANCE
SHEETS AT JUNE 30, 2009 AND 2008
|
2 |
|
STATEMENTS
OF INCOME FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
|
3 |
|
STATEMENTS
OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED JUNE
30, 2009 AND 2008
|
4 |
|
STATEMENTS
OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2009 AND
2008
|
5 |
|
NOTES
TO FINANCIAL STATEMENTS
|
6-19 |
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Shareholders
of Sichuan Xintai Pharmaceutical Co., Ltd.
We have
audited the accompanying balance sheets of Sichuan Xintai Pharmaceutical Co.,
Ltd. as of June 30, 2009 and 2008, and the related statements of income and
comprehensive income, shareholders’ equity, and cash flows for each of the years
in the two-year period ended June 30, 2009. Sichuan Xintai Pharmaceutical Co.,
Ltd.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sichuan Xintai Pharmaceutical Co.,
Ltd. as of June 30, 2009 and 2008, and the results of its operations and its
cash flows for each of the years in the two-year period ended June 30, 2009 in
conformity with accounting principles generally accepted in the United States of
America.
/S/Bagell
Josephs, Levine & Company, LLC
Bagell
Josephs, Levine & Company, LLC
Marlton,
New Jersey
October
30, 2009
1
|
June
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
& cash equivalents
|
$ | 620,596 | $ | 361,000 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts
|
3,582,261 | 3,587,116 | ||||||
|
Other
receivables, net of allowance for doubtful accounts
|
39,877 | 251 | ||||||
|
Inventories
|
59,693 | 396,628 | ||||||
|
Advance
to vendors
|
1,077,677 | 109,737 | ||||||
|
Prepaid
expenses
|
- | 17,300 | ||||||
|
Deferred
tax assets
|
360,302 | 778,720 | ||||||
|
Due
from shareholder
|
111,155 | - | ||||||
|
Total
current assets
|
5,851,561 | 5,250,752 | ||||||
|
Property,
plant and equipment, net
|
91,259 | 21,716 | ||||||
|
Long-term
loans to outside parties
|
1,129,944 | - | ||||||
|
Long-term
loans to related party
|
1,358,843 | - | ||||||
|
Other
asset
|
1,452,664 | 2,855,324 | ||||||
|
Total
Assets
|
$ | 9,884,271 | $ | 8,127,792 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 8,123,101 | $ | 9,119,296 | ||||
|
Advance
from customers
|
752,784 | 930,896 | ||||||
|
Other
payables and accrued liabilities
|
96,254 | 24,307 | ||||||
|
Taxes
payable
|
499,285 | 2,187 | ||||||
|
Due
to shareholder
|
- | 23,474 | ||||||
|
Total
current liabilities
|
9,471,424 | 10,100,160 | ||||||
|
Long-term
liabilities:
|
||||||||
|
Long-term
loan
|
86,199 | 85,842 | ||||||
|
Total
Liabilities
|
9,557,623 | 10,186,002 | ||||||
|
Shareholders'
equity
|
||||||||
|
Capital
contribution
|
250,973 | 250,973 | ||||||
|
Retained
earnings (accumulated deficits)
|
521,449 | (1,870,146 | ) | |||||
|
Accumulated
other comprehensive loss
|
(445,774 | ) | (439,037 | ) | ||||
|
Total
shareholders' equity
|
326,648 | (2,058,210 | ) | |||||
|
Total
Liabilities and Shareholders' Equity
|
$ | 9,884,271 | $ | 8,127,792 | ||||
The accompanying notes are an integral part of
these financial statements.
2
|
SICHUAN
XINTAI PHARMACEUTICAL CO., LTD.
|
||||||||
|
STATEMENTS
OF INCOME
|
||||||||
|
FOR
THE YEARS ENDED JUNE 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenues
|
$ | 17,127,474 | $ | 7,576,098 | ||||
|
Cost
of sales
|
12,278,936 | 5,565,409 | ||||||
|
Gross
profit
|
4,848,538 | 2,010,689 | ||||||
|
Operating
expenses
|
||||||||
|
Selling
and distribution expenses
|
457,938 | 174,031 | ||||||
|
General
and administrative expenses
|
1,189,112 | 502,238 | ||||||
|
Total
operating expenses
|
1,647,050 | 676,269 | ||||||
|
Operating
income
|
3,201,488 | 1,334,420 | ||||||
|
Other
expenses
|
||||||||
|
Interest
(expenses)/income
|
(1,480 | ) | 33 | |||||
|
Other
(expenses)
|
(8,329 | ) | (1,785 | ) | ||||
|
Total
other expenses
|
(9,809 | ) | (1,752 | ) | ||||
|
Income
before income taxes
|
3,191,679 | 1,332,668 | ||||||
|
Provision
for income taxes
|
800,084 | 397,660 | ||||||
|
Net
income
|
$ | 2,391,595 | $ | 935,008 | ||||
|
Other
comprehensive loss
|
||||||||
|
Foreign
currency translation adjustment
|
(6,737 | ) | (244,788 | ) | ||||
|
Comprehensive
income
|
$ | 2,384,858 | $ | 690,220 | ||||
|
Basic
and diluted income per common share
|
||||||||
|
Basic
|
$ | 1.20 | $ | 0.47 | ||||
|
Diluted
|
$ | 1.20 | $ | 0.47 | ||||
|
Weighted
average common shares outstanding
|
||||||||
|
Basic
|
2,000,000 | 2,000,000 | ||||||
|
Diluted
|
2,000,000 | 2,000,000 | ||||||
The accompanying notes are an integral part of
these financial statements.
3
|
SICHUAN
XINTAI PHARMACEUTICAL CO., LTD.
|
||||||||||||||||
|
STATEMENTS
OF SHAREHOLDERS' EQUITY
|
||||||||||||||||
|
FOR
THE YEARS ENDED JUNE 30, 2009 AND 2008
|
||||||||||||||||
|
Capital
|
Retained Earnings |
Accumulated
Other Comprehensive
Loss |
Total
|
|||||||||||||
|
Balance
at June 30, 2007
|
$ | 250,973 | $ | (2,805,154 | ) | $ | (194,249 | ) | $ | (2,748,430 | ) | |||||
|
Net
income of the year
|
935,008 | 935,008 | ||||||||||||||
|
Foreign
currency translation adjustments
|
(244,788 | ) | (244,788 | ) | ||||||||||||
|
Balance
at June 30, 2008
|
250,973 | (1,870,146 | ) | (439,037 | ) | (2,058,210 | ) | |||||||||
|
Net
income of the year
|
2,391,595 | 2,391,595 | ||||||||||||||
|
Foreign
currency translation adjustments
|
(6,737 | ) | (6,737 | ) | ||||||||||||
|
Balance
at June 30, 2009
|
$ | 250,973 | $ | 521,449 | $ | (445,774 | ) | $ | 326,648 | |||||||
The accompanying notes are an integral part of
these financial statements.
4
|
SICHUAN
XINTAI PHARMACEUTICAL CO., LTD.
|
||||||||
|
STATEMENTS
OF CASH FLOWS
|
||||||||
|
FOR
THE YEARS ENDED JUNE 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
income
|
$ | 2,391,595 | $ | 935,008 | ||||
|
Adjustments
to reconcile net income to net cash provided by
|
||||||||
|
operating
activities:
|
||||||||
|
Depreciation
|
8,484 | 3,065 | ||||||
|
Allowance
for doubtful accounts
|
924,451 | 369,297 | ||||||
|
Changes
in assets and liabilities:
|
||||||||
|
(Increase)
decrease in -
|
||||||||
|
Account
receivables
|
(904,692 | ) | (3,421,177 | ) | ||||
|
Other
receivables
|
(39,594 | ) | (60 | ) | ||||
|
Inventories
|
338,326 | (184,819 | ) | |||||
|
Advance
to vendors
|
(966,746 | ) | (103,443 | ) | ||||
|
Prepaid
expenses
|
17,359 | (19,890 | ) | |||||
|
Deferred
tax asset
|
421,336 | 397,660 | ||||||
|
Long-term
loans to outside parties
|
(1,129,084 | ) | - | |||||
|
Long-term
loans to related party
|
(1,357,808 | ) | - | |||||
|
Other
asset
|
1,413,458 | 348,721 | ||||||
|
Increase
(decrease) in -
|
||||||||
|
Accounts
payable
|
(1,033,336 | ) | 1,222,473 | |||||
|
Advance
from customers
|
(181,845 | ) | 629,567 | |||||
|
Other
payables and accrued liabilities
|
71,791 | 5,153 | ||||||
|
Tax
payable
|
496,710 | 2,062 | ||||||
|
Net
cash provided by operating activities
|
470,405 | 183,617 | ||||||
|
Cash
flows from investing activities
|
||||||||
|
Purchase
of fixed assets
|
(77,883 | ) | (13,389 | ) | ||||
|
Net
cash used in investing activities
|
(77,883 | ) | (13,389 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Proceeds
from long-term loan
|
- | 80,918 | ||||||
|
Proceeds
(payments) from (to) shareholder loans
|
(134,624 | ) | 22,128 | |||||
|
Net
cash provided by (used in) financing activities
|
(134,624 | ) | 103,046 | |||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
1,698 | 23,661 | ||||||
|
Net
increase in cash and cash equivalents
|
259,596 | 296,935 | ||||||
|
Cash
and cash equivalents, beginning of year
|
361,000 | 64,065 | ||||||
|
Cash
and cash equivalents, end of year
|
$ | 620,596 | $ | 361,000 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
| Interest paid | $ | 1,480 | $ | - | ||||
| Income taxes paid | $ | 4,249 | $ | 800 | ||||
The accompanying notes are an integral part of
these financial statements.
5
Note
1. ORGANIZATION AND BASIS OF PRESENTATION
Sichuan
Xintai Pharmaceutical Co., Ltd. (“Xintai” or the “Company”), was incorporated in
Chengdu City, Sichuan Province, People’s Republic of China in November 1999,
with registered capital in amount of RMB2,000,000 (equivalent to US$250,973).
Xintai is primarily engaged in pharmaceutical technology promotion, trading and
warehousing of traditional Chinese medicine and bio-chemistry
products.
The
Company’s financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“US
GAAP”).
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes, and disclosure of contingent
liabilities at the date of the financial statements. Estimates are used for, but
not limited to, the selection of the useful lives of property and equipment,
provision necessary for contingent liabilities, fair values, revenue
recognition, taxes, budgeted costs and other similar charges. Management
believes that the estimates utilized in preparing its financial statements are
reasonable and prudent. Actual results could differ from these
estimates.
Cash
and cash equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents. The Company
maintains bank accounts in the PRC. Total cash at June 30, 2009 and 2008
amounted to US$620,596 and US$361,000, respectively, of which no deposits are
covered by insurance. The Company has not experienced any losses in such
accounts and management believes it is not exposed to any risks on its cash in
bank accounts.
Accounts
receivable
Accounts
receivable consists of balances due from customers for the sale of
pharmaceutical products. Accounts receivable are recorded at net realizable
value consisting of the carrying amount less an allowance for uncollectible
amounts.
The
Company does periodical reviews as to whether the carrying values of accounts
have become impaired. The assets are considered to be impaired if the
collectability of the balances become doubtful, accordingly, the management
estimates the valuation allowance for anticipated uncollectible receivable
balances. When facts subsequently become available to indicate that the
allowance provided requires an adjustment, then the adjustment will be
classified as a change in estimate. As of June 30, 2009 and 2008, the total
allowance for doubtful debts was US$1,441,208 and US$513,915,
respectively
6
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
The
Company’s inventories are composed of pharmaceutical products. Inventories are
stated at the lower of cost (determined on a weighted average basis) or
market. The management compares the cost of inventories with the fair
market value and an allowance is made for writing down the inventories to fair
market value, if lower than the cost. As of June 30, 2009 and 2008,
no allowance for writing down the inventories to their fair market value is
considered necessary.
Advances
to vendors
Advances
to vendors consist of balances paid for pharmaceuticals that have not been
provided or received. Advances to vendors are reviewed periodically
to determine whether their carrying value has become impaired. The Company
considers the assets to be impaired if the collectability of the services and
materials become doubtful. The Company determines that no reserve is necessary
for the years ended June 30, 2009 and 2008.
Loans
to outside parties
Loans to
outside parties consist of various cash advances to unrelated companies with
which the Company has business relationships.
Loans to
outside parties are reviewed periodically as to whether their carrying value has
become impaired. The Company considers the assets to be impaired if the
collectability of the balances becomes doubtful. The Company determines that no
reserve is necessary for the years ended June 30, 2009 and 2008.
Property
and equipment
Property
and equipment are recorded at cost less accumulated depreciation and any
impairment losses. The cost of an asset comprises of its purchase
price and any directly attributable costs of bringing the asset to its working
condition and location for its intended use. Expenditure incurred
after the fixed assets have been put into operation, such as repairs and
maintenance and overhaul costs, is normally charged to the profit and loss
account in the year in which it is incurred.
In
situations where it can be clearly demonstrated that the expenditure has
resulted in an increase in the future economic benefits expected to be obtained
from the use of the asset beyond its originally assessed standard of
performances, the expenditure is capitalized as an additional cost of the
asset.
Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, less any estimated residual value. Estimated useful lives
of the assets are as follows:
7
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
| Office equipments | 5 years |
| Vehicle | 10 years |
Any gain
or loss on disposal or retirement of a fixed asset is recognized in the profit
and loss account and is the difference between the net sales proceeds and the
carrying amount of the relevant asset. When property and equipment are retired
or otherwise disposed of, the assets and
accumulated depreciation are removed from the accounts and the resulting profit
or loss is reflected in income.
Expenditures
for maintenance and repairs are charged to expense as incurred. Additions,
renewals and betterments are capitalized.
Long-lived
assets
The
Company applies the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets”, which was subsequently codified within Financial Accounting Standard
Board (“FASB”) Accounting Standards Codification (“ASC”) No. 360, “Property,
Plant and Equipment”. ASC 360 requires long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable through the estimated
undiscounted cash flows expected to result from the use and eventual disposition
of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value exceeds the
fair value.
The
Company tests long-lived assets, including property, plant and equipment and
other assets, for recoverability at least annually or more frequently upon the
occurrence of an event or when circumstances indicate that the net carrying
amount is greater than its fair value. Assets are grouped and
evaluated at the lowest level for their identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company
considers historical performance and future estimated results in its evaluation
of potential impairment and then compares the carrying amount of the asset to
the future estimated cash flows expected to result from the use of the
asset. If the carrying amount of the asset exceeds estimated expected
undiscounted future cash flows, the Company measures the amount of impairment by
comparing the carrying amount of the asset to its fair value. The
estimation of fair value is generally measured by discounting expected future
cash flows as the rate the Company utilizes to evaluate potential
investments. The Company estimates fair value based on the
information available in making whatever estimates, judgments and projections
are considered necessary. There was no impairment of long-lived
assets for years ended June 30, 2009 and 2008.
8
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Advance
from customers
Advance
from customers consist of amounts received from customers relating to the sales
of pharmaceuticals. The Company recognizes these funds as a current
liability until the revenue can be recognized.
Income
taxes
The
Company accounts for income taxes using an asset and liability approach which
allows for the recognition and measurement of deferred tax assets based upon the
likelihood of realization of tax benefits in future years. Under the
asset and liability approach, deferred taxes are provided for the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before the Company
is able to realize their benefits, or that future deductibility is
uncertain.
The
Company records a valuation allowance for deferred tax assets, if any, based on
its estimates of its future taxable income as well as its tax planning
strategies when it is more likely than not that a portion or all of its deferred
tax assets will not be realized. If the Company is able to utilize
more of its deferred tax assets than the net amount previously recorded when
unanticipated events occur, an adjustment to deferred tax assets would increase
the Company’s net income when those events occur. As of June 30, 2009
and 2008, the Company had deferred tax assets of US$360,302 and US$778,720,
respectively. And the Company determines that no valuation allowance was
necessary for the above years.
Commencing
January 1, 2008, the PRC’s new Enterprise Income Tax ("EIT") law replaced the
laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises
("FIEs"). The new standard EIT rate of 25% replaced the 33% rate
formerly applicable to both DES and FIEs.
Revenue
recognition
The
Company’s revenue policies are in compliance with the United States Accounting
Guide. The Company recognizes revenue when the following fundamental
criteria are met: (i) persuasive evidence of an arrangement exists, (ii)
delivery has occurred or services have been rendered, (iii) the price to the
customer is fixed or determinable and (iv) collection of the resulting
receivable is reasonably assured. Revenue is not recognized until
title and risk of loss is transferred to the customer, which occurs upon
delivery of goods, and objective evidence exists that customer acceptance
provisions have been met. Deposits or advance payments from customers
prior to delivery of goods and passage of title of goods are recorded as advance
from customers.
9
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Cost
of sales
Costs of
sales include costs of the pharmaceuticals sold and used, inbound freight costs,
cost of direct labor and overhead. Write-down of inventory to lower of cost or
market is also recorded in cost of sales.
Selling,
general and administrative costs
Selling,
general and administrative costs consist primarily of salaries and commissions
for sales representatives, salaries for administrative staffs, rent expenses,
depreciation expense and employee benefits for administrative
staffs.
Comprehensive
income
Statement
of Financial Accounting Standards ("FAS") No. 130, “Reporting Comprehensive
Income”, which was subsequently codified within ASC 220, “Comprehensive Income”,
requires disclosure of all components of comprehensive income and loss on an
annual and interim basis. Comprehensive income and loss is defined as the change
in equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Accumulated other comprehensive
income arose from the changes in foreign currency exchange rates.
Statement
of Cash Flows
In
accordance with SFAS 95, "Statement of Cash Flows," which was subsequently
codified within ASC 230, “Statement of Cash Flows”, cash flows from the
Company's operations is calculated based upon the local currencies. As a result,
amounts related to assets and liabilities reported on the statements of cash
flows will not necessarily agree with changes in the corresponding balances on
the balance sheets.
Fair
Value of Financial Instruments
The
Company’s financial instruments include cash and cash equivalents, accounts
receivable, advances to suppliers, other receivables, accounts payable, accrued
expenses, taxes payable, notes payable and other loans payable. Management has
estimated that the carrying amounts approximate their fair value due to the
short-term nature.
Subsequent
Events
The
Company has evaluated subsequent events that have occurred through the date of
this financial statement issuance.
10
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings
Per Share
The
Company computes earnings per share (“EPS’) in accordance with SFAS 128,
“Earnings Per Share”, which was subsequently codified within ASC 260, “Earning
Per Share”. ASC 260 requires companies with complex capital structures to
present basic and diluted EPS. Basic EPS is measured as net income divided
by the weighted average common shares outstanding for the period. Diluted
EPS is similar to basic EPS but presents the dilutive effect on a per share
basis of potential common shares (e.g., convertible securities, options and
warrants) as if they had been converted at the beginning of the periods
presented, or issuance date, if later. Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.
Foreign
currency translation
The
Company’s financial information is presented in US dollars. The functional
currency of the Company is Renminbi (“RMB”), the currency of the PRC.
Transactions at the Company which are denominated in currencies other than RMB
are translated into RMB at the exchange rate quoted by the People’s Bank of
China prevailing at the dates of the transactions. Exchange gains and losses
resulting from transactions denominated in a currency other than that RMB are
included in statements of operations as exchange gains. The financial statements
of the Company have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 52, “Foreign
Currency Translation”, which was subsequently codified within ASC 830, “Foreign
Currency Matters”. The financial information is first prepared in RMB and then
is translated into U.S. dollars at period-end exchange rates as to assets and
liabilities and average exchange rates as to revenue and expenses. Capital
accounts are translated at their historical exchange rates when the capital
transactions occurred. The effects of foreign currency translation adjustments
are included as a component of accumulated other comprehensive income in
shareholders’ equity.
|
June
30, 2009
|
June
30, 2008
|
||||
|
Year
end RMB: US$ exchange rate
|
6.8307
|
6.8359
|
|||
|
Average
yearly RMB: US$ exchange rate
|
6.8591
|
7.2765
|
|||
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US
dollars at the rates used in translation
11
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Concentration
of credit risk
Financial
instruments that potentially subject the Company to concentration of credit risk
consist primarily of accounts receivable and other receivables. The
Company does not require collateral or other security to support these
receivables. The Company conducts periodic reviews of its clients'
financial condition and customer payment practices to minimize collection risk
on accounts receivable.
Shipping
costs
Shipping
costs are expensed as incurred. Shipping costs were included in selling expenses
and amounted to $11,709 and $6,241 for the years ended June 30, 2009 and 2008,
respectively.
Advertising
Advertising
is expensed as incurred. Advertising expenses were included in selling expenses
and amounted to $25,995 and $2,226 for the years ended June 30, 2009 and 2008,
respectively.
Risks
and uncertainties
The
operations of the Company are located in the PRC. Accordingly, the Company's
business, financial condition, and results of operations may be influenced by
the political, economic, and legal environments in the PRC, as well as by the
general state of the PRC economy.
The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company’s results may be adversely affected by changes
in the
political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion, remittances abroad, and rates and methods of taxation,
among other things.
12
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Risks
of Losses
The
Company is potentially exposed to risks of losses that may result from business
interruptions, injury to others (including employees) and damage to
property. These losses may be uninsured, especially due to the fact that
the Company’s operations are in China, where business insurance is not readily
available. If: (i) information is available before the Company’s financial
statements are issued or are available to be issued indicates that such loss is
probable and (ii) the amount of the loss can be reasonably estimated, an
estimated loss will be accrued by a charge to income. If such loss is
probable but the amount of loss cannot be reasonably estimated, the loss shall
be charged to the income of the period in which the loss can be reasonably
estimated and shall not be charged retroactively to an earlier period. As
of June 30, 2009 and 2008, the Company has not experienced any uninsured losses
from injury to others or other losses.
Recent
accounting pronouncements
In
June 2009, FASB established Accounting Standards CodificationTM
(“Codification”) as the single source of authoritative accounting principles
recognized by the FASB in the preparation of financial statements in conformity
with the GAAP. The Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become
non-authoritative. The Codification is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. Adoption of
the Codification is not expected to have a material impact on the Company’s
results of operations or financial position.
In
June 2009, FASB updated the accounting standards related to the
consolidation of variable interest entities (“VIEs”). The standard amends
current consolidation guidance and requires additional disclosures about an
enterprise’s involvement in VIEs. The standard 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. The Company does not expect the adoption to
have a material impact on the Company’s results of operations or financial
position.
In
May 2009, FASB issued FAS No. 165, Subsequent Events, which was
subsequently codified within ASC 855, “Subsequent Events”. The standard
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 this standard does not have a material impact on the Company’s results of
operations or financial position.
13
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
In April
2009, the FASB updated the accounting standards to provide guidance on
estimating the fair value of a financial asset or liability when the trade
volume and level of activity for the asset or liability have significantly
decreased relative to historical levels. The standard requires entities to
disclose the inputs and valuation techniques used to measure fair value and any
changes in valuation inputs or techniques. In addition, debt and equity
securities as defined by GAAP shall be disclosed by major category. This
standard is effective for interim and annual reporting periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009,
and is to be applied prospectively. The adoption did not have a material effect
on the Company's results of operations and financial condition.
In
April 2009, the FASB updated the accounting standards for the recognition
and presentation of other-than-temporary impairments. The standard amends
existing guidance on other-than-temporary impairments for debt securities and
requires that the credit portion of other-than-temporary impairments be recorded
in earnings and the noncredit portion of losses be recorded in other
comprehensive income. The standard requires separate presentation of both the
credit and noncredit portions of other-than-temporary impairments on the
financial statements and additional disclosures. This standard is effective for
interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. At the date of
adoption, the portion of previously recognized other-than-temporary impairments
that represent the noncredit related loss component shall be recognized as a
cumulative effect of adoption with an adjustment to the opening balance of
retained earnings with a corresponding adjustment to accumulated other
comprehensive income (loss). The adaption of this standard did not have a
material effect on the preparation of the Company’s consolidated financial
statements.
In August
2009, the FASB updated the accounting standards to provide additional guidance
on estimating the fair value of a liability in a hypothetical transaction where
the liability is transferred to a market participant. The standard is effective
for the first reporting period, including interim periods, beginning after
issuance. The Company does not expect the adoption to have a material effect on
the Company's consolidated results of operations and financial
condition.
Note
3. ADVANCE TO VENDORS
The
Company periodically makes advances to certain vendors for purchases of
advertising materials and equipments and records those advances as advance to
vendors. Advances to vendors as of June 30, 2009 and 2008 amounted to $1,077,677
and $109,737, respectively.
14
Note
4. LOANS TO OUTSIDE PARTIES
As of
June 30, 2009, the loans to outside parties included the following:
|
Names
of Borrowers
|
Loan
Balance
|
Loan
Term
|
Annual
Rate
|
||||||
|
Harbin
Maidesen Artistic Design Co., Ltd.
|
$ | 46,599 |
From
Jul. 24, 2009 to Dec. 31, 2010
|
0.1% | |||||
|
Harbin
Maidesen Artistic Design Co., Ltd.
|
731,990 |
From
Jan. 31, 2009 to Dec. 31, 2011
|
0.1% | ||||||
|
Beijing
Anpudi Science & Technology Co., Ltd.
|
351,355 |
From
Dec 6, 2008 to Dec. 31, 2011
|
0.1% | ||||||
|
Total
|
$ | 1,129,944 | |||||||
The above
loans are unsecured. As of June 30, 2008, the company did not have loan to
outside parties.
Note
5. RELATED PARTY TRANSACTIONS
As of
June 30, 2009 and 2008, the Company had receivables from (+) and payable to (-)
related parties as follows:
|
As
of June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Beijing
Dongsheng Kexin Biology Curative Co.,Ltd
|
$ | 1,358,843 | $ | - | ||||
|
Zhu
Xiaomei
|
111,155 | (23,474 | ) | |||||
|
Total
|
$ | 1,469,998 | $ | (23,474 | ) | |||
Beijing
Dongsheng Kexin Biology Curative Co., Ltd. (“Dongshen Kexin”) is also owned by
the Mr. Xiaodong Zhu, CEO of the Xintai, who holds 95% of Xintai’s total shares.
The balance with Dongshen Kexin has a term from July 3, 2008 to December 31,
2011. The loan is unsecured and bears an annual interest of 0.1%.
Ms.
Xiaomei Zhu is the chief financial officer, who holds 5% of the company’s total
shares. The balance with Ms. Zhu is unsecured and bears no interest and has no
fixed repayment date. The company expects the entire amount of the loan be
settled within one year.
15
Note
6. PROPERTY, PLANT AND EQUIPMENTS
As of
June 30, 2009 and 2008, the detail of property, plant and equipments was as
follows:
|
As
of June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Office
equipment
|
$ | 77,122 | $ | 28,914 | ||||
|
Automobiles
|
29,854 | - | ||||||
|
Sub-total
|
106,976 | 28,914 | ||||||
|
Less:
accumulated depreciation
|
(15,717 | ) | (7,197 | ) | ||||
|
Property,
plant and equipment, net
|
$ | 91,259 | $ | 21,716 | ||||
Depreciation
expense for the years ended June 30, 2009 and 2008 was $8,484 and $3,065,
respectively.
Note
7. OTHER ASSETS
Other
assets represent value added taxes paid on purchases made with the relevant
supporting invoices (input VAT), which are to be used in the following years
(see Note 9 b). As of June 30, 2009 and 2008, the Company’s unused input VAT
amounted to US$1,452,664 and US$2,855,324, respectively.
Note
8. LONG-TERM LOAN
The
long-term loan represents working capital loan from Shenyang Zhonghai
Bio-Chemical Technology Co., Ltd. The loan term is from October 1, 2007 to
October 1, 2010. The loan is unsecured and bears an annual interest of
0.1%.
Note 9. TAXES
(a)
Corporation income tax (“CIT”)
The
Company did not generate any taxable income outside of the PRC for the years
ended June 30, 2009 and 2008. The Company is governed by the Income Tax Law of
the People’s Republic of China concerning the private-run enterprises, which are
generally subject to tax at a new statutory rate of 25% on income reported in
the statutory financial statements after appropriate tax
adjustments.
16
Note 9. TAXES (CONTINUED)
On March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the People’s Republic of China (the New CIT Law), which is effective
from January 1, 2008. Under the new law, the corporate income tax rate
applicable to all Companies, including both domestic and foreign-invested
companies, will be 25%, replacing the previous applicable tax rate of
33%. However, pending the detailed implementation rulings from the
tax authorities, we believe that some of the tax concession granted to eligible
companies prior to the new CIT laws will be grand fathered.
The
income expenses for the two years ended June 30, 2009 and 2007 are as
follows:
|
For
the years ended June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Income
Taxes Expenses
|
||||||||
|
Current
|
$ | 378,749 | $ | - | ||||
|
Deferred
|
421,336 | 397,660 | ||||||
|
Total
|
$ | 421,336 | $ | 397,660 | ||||
A
reconciliation between the statutory PRC income tax rate and the effective tax
rate is as follows:
|
For
the years ended June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Statutory
income tax rate
|
25 | % | 25 | % | ||||
|
Effect
of change in exacted tax rate in the PRC
|
- | 5 | % | |||||
|
Effective
tax rate
|
25 | % | 30 | % | ||||
Under the
Income Tax Laws of PRC, Chinese companies are generally subject to an income tax
at an effective rate on income reported in the statutory financial statements
after appropriate tax adjustments. The PRC local government has provided various
incentives to companies in order to encourage economic development. Such
incentives include reduced tax rates, loss carry-forward and other
measures. As of July 31, 2006, the Company had accumulated net
operating losses of RMB31,305,069. In January 2007, the Company obtained
approval from the local tax authority to carry forward these net operating
losses for income tax purpose for 5 years (from 2007 to 2011). The
utilization of the benefits from the losses carryforwards, together with the
reserve for doubtful accounts, give rise to the deferred tax assets shown as
follows:
17
Note 9. TAXES (CONTINUED)
|
For
the years ended June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current
Deferred Tax Assets
|
||||||||
|
Allowance
for doubtful accounts
|
$ | 360,302 | $ | 128,479 | ||||
|
Net
operating loss carry forwards
|
- | 650,241 | ||||||
|
Total
Current Deferred Tax Assets
|
$ | 360,302 | $ | 778,720 | ||||
(b)
Value added tax
The
Company is subject to value added tax ("VAT") for trading and warehousing
pharmaceutical products. The applicable VAT tax rate is 17% for products sold in
the PRC. The amount of VAT liability is determined by applying the applicable
tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on
purchases made with the relevant supporting invoices (input VAT). Under the
commercial practice of the PRC, the Company paid value added taxes ("VAT") based
on tax invoices issued. The tax invoices may be issued subsequent to the date on
which revenue is recognized, and there may be a considerable delay between the
date on which the revenue is recognized and the date on which the tax invoice is
issued. Such timing difference due to the input VAT ahead of output VAT may
result in VAT receivables. The Company records such VAT receivables
under other assets.
(c)
Tax payable
As of
June 30, 2009 and 2008, the Company had taxes payable as follows:
|
As
of June 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
VAT
payable
|
$ | 118,429 | $ | - | ||||
|
Income
tax payable
|
377,864 | - | ||||||
|
Other
taxes and fees
|
2,992 | 2,187 | ||||||
|
Total
|
$ | 499,285 | $ | 2,187 | ||||
18
Note
10. SHAREHOLDERS’ EQUITY
As of
June 30, 2009 and 2008, the Company’s registered capital was RMB2,000,000
(equivalent to US$250,973), which was fully contributed by two
shareholders.
The
industry practice in PRC does not require the issuance of stock certificates to
the shareholders, nor a third party transfer agent to maintain the records. For
the purpose of financial reporting, the Company elected to designate one (1)
common share for each RMB contributed. Accordingly, there were total 2,000,000
shares issued and outstanding for the years ended June 30, 20009 and
2008.
Note
11. COMMITMENTS
The
commitments are primarily the rental for the Company’s office space and
warehouse. As of June 30, 2009, the commitments related to the above
rental are as follows:
|
Years
Ending June 30,
|
RMB
|
US$
Equivalent
|
||||||
|
2010
|
635,155 | 92,915 | ||||||
|
2011
|
545,158 | 79,749 | ||||||
|
2012
|
446,751 | 65,354 | ||||||
|
2013
|
446,751 | 65,354 | ||||||
|
2014
|
297,834 | 43,569 | ||||||
|
Thereafter
|
- | - | ||||||
|
￥ 2,371,649
|
$ | 346,941 | ||||||
19