Attached files
file | filename |
---|---|
8-K - American Smooth Wave Ventures, Inc. | v208536_8k.htm |
EX-2.1 - American Smooth Wave Ventures, Inc. | v208536_ex2-1.htm |
EX-10.7 - American Smooth Wave Ventures, Inc. | v208536_ex10-7.htm |
EX-10.1 - American Smooth Wave Ventures, Inc. | v208536_ex10-1.htm |
EX-10.4 - American Smooth Wave Ventures, Inc. | v208536_ex10-4.htm |
EX-10.3 - American Smooth Wave Ventures, Inc. | v208536_ex10-3.htm |
EX-10.5 - American Smooth Wave Ventures, Inc. | v208536_ex10-5.htm |
EX-10.2 - American Smooth Wave Ventures, Inc. | v208536_ex10-2.htm |
EX-10.6 - American Smooth Wave Ventures, Inc. | v208536_ex10-6.htm |
EX-99.2 - American Smooth Wave Ventures, Inc. | v208536_ex99-2.htm |
EX-16.1 - American Smooth Wave Ventures, Inc. | v208536_ex16-1.htm |
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
1
|
|
Consolidated
Balance Sheets
|
2
|
|
Consolidated
Statements of Operations and Comprehensive Income
|
3
|
|
Consolidated
Statements of Stockholders’ Equity
|
4
|
|
Consolidated
Statements of Cash Flows
|
5
|
|
Notes
to Consolidated Financial Statements
|
6 -
19
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
Ailibao
International Investment Limited
We have
audited the accompanying consolidated balance sheets of Ailibao International
Investment Limited and its subsidiaries (collectively referred to as the
“Company”) as of December 31, 2009 and 2008, and the related consolidated
statements of operations and comprehensive income, stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31,
2009. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated 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 purposes
of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 2009 and 2008 and the results of its operations and cash
flows for each of the three years in the period then ended in conformity with
accounting principles generally accepted in the United States of
America.
/s/Baker
Tilly Hong Kong Limited
Baker
Tilly Hong Kong Limited
Certified
Public Accountants
Hong
Kong, SAR
Date:
January 21, 2011
AILIBAO
INTERNATIONAL INVESTMENT LIMITED
CONSOLIDATED
BALANCE SHEETS
As of December 31,
|
||||||||||
Notes
|
2009
|
2008
|
||||||||
Assets
|
||||||||||
Current
assets:
|
||||||||||
Cash
and cash equivalents
|
$ | 627,964 | $ | 816,600 | ||||||
Restricted
cash
|
3
|
420,457 | 497,618 | |||||||
Accounts
receivable
|
13,977,523 | 8,226,788 | ||||||||
Inventories
|
5
|
3,765,055 | 3,004,402 | |||||||
Due
from related parties
|
14
|
8,881,871 | 8,834,987 | |||||||
Other
current assets
|
6
|
2,703,202 | 1,912,713 | |||||||
Total
current assets
|
30,376,072 | 23,293,108 | ||||||||
Property,
plant and equipment, net
|
7
|
2,922,267 | 3,213,803 | |||||||
Construction
in progress
|
180,794 | 119,876 | ||||||||
Land
use rights
|
8
|
1,325,829 | 1,357,578 | |||||||
Deferred
tax assets
|
15
|
248,486 | 149,589 | |||||||
Deposits
paid for acquisition of buildings
|
323,767 | - | ||||||||
Total
assets
|
$ | 35,377,215 | $ | 28,133,954 | ||||||
Liabilities
and stockholders' equity
|
||||||||||
Current
liabilities:
|
||||||||||
Accounts
payable
|
9
|
$ | 8,234,560 | $ | 8,060,636 | |||||
Accrued
expenses and other payables
|
10
|
1,653,883 | 1,091,570 | |||||||
Short
term bank loans
|
11
|
1,684,760 | 219,861 | |||||||
Current
tax payable
|
2,531,741 | 1,878,773 | ||||||||
Dividend
payable
|
15,382,587 | 12,312,202 | ||||||||
Total
current liabilities and total liabilities
|
29,487,531 | 23,563,042 | ||||||||
Commitments
and contingencies
|
12
|
|||||||||
Stockholders'
equity:
|
||||||||||
Common
stock; par value $1;
50,000
shares authorized;
1,000
shares issued and outstanding
|
1,000 | 1,000 | ||||||||
Additional
paid-in capital
|
1,307,484 | 721,892 | ||||||||
Accumulated
other comprehensive income
|
1,096,177 | 1,086,716 | ||||||||
Statutory
surplus reserve
|
16
|
654,242 | 361,446 | |||||||
Retained
earnings
|
2,830,781 | 2,399,858 | ||||||||
Total
stockholders' equity
|
5,889,684 | 4,570,912 | ||||||||
Total
liabilities and stockholders' equity
|
$ | 35,377,215 | $ | 28,133,954 |
See
the accompanying notes to consolidated financial statements
2
AILIBAO INTERNATIONAL INVESTMENT
LIMITED
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years
ended December 31,
|
||||||||||||||
Notes
|
2009
|
2008
|
2007
|
|||||||||||
Revenue
|
17
|
$
|
81,513,360
|
$
|
65,044,642
|
$
|
48,142,358
|
|||||||
Cost
of revenue
|
(55,721,656
|
)
|
(45,439,400
|
)
|
(33,803,866
|
)
|
||||||||
Gross
profit
|
25,791,704
|
19,605,242
|
14,338,492
|
|||||||||||
Operating
expenses:
|
||||||||||||||
Selling
and distribution expenses
|
(1,712,346
|
)
|
(1,300,594
|
)
|
(1,017,579
|
)
|
||||||||
General
and administrative expenses
|
(2,474,134
|
)
|
(1,894,158
|
)
|
(1,483,132
|
)
|
||||||||
Total
operating expenses
|
(4,186,480
|
)
|
(3,194,752
|
)
|
(2,500,711
|
)
|
||||||||
Income
from operations
|
21,605,224
|
16,410,490
|
11,837,781
|
|||||||||||
Interest
and other income
|
6,709
|
10,662
|
9,710
|
|||||||||||
Finance
costs
|
(43,822
|
)
|
(11,194
|
)
|
(16,585
|
)
|
||||||||
Income
before income taxes
|
21,568,111
|
16,409,958
|
11,830,906
|
|||||||||||
Income
taxes
|
15
|
(5,461,805
|
)
|
(4,186,986
|
)
|
(3,953,120
|
)
|
|||||||
Net
income
|
16,106,306
|
12,222,972
|
7,877,786
|
|||||||||||
Other
comprehensive income:
|
||||||||||||||
Foreign
currency translation gain
|
9,461
|
511,390
|
553,983
|
|||||||||||
Total
comprehensive income
|
$
|
16,115,767
|
$
|
12,734,362
|
$
|
8,431,769
|
||||||||
Basic
and diluted earnings per share
|
$
|
16,106
|
$
|
12,223
|
$
|
7,878
|
||||||||
Weighted
average number of shares outstanding, basic and
diluted
|
1,000
|
1,000
|
1,000
|
See
the accompanying notes to consolidated financial statements
3
AILIBAO
INTERNATIONAL INVESTMENT LIMITED
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
Stock
|
||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||
Additional
|
other
|
Statutory
|
Total
|
|||||||||||||||||||||||||
Number
|
paid-in
|
comprehensive
|
surplus
|
Retained
|
stockholders'
|
|||||||||||||||||||||||
of
shares
|
Amount
|
capital
|
income*
|
reserve
|
earnings
|
equity
|
||||||||||||||||||||||
Balance,
January 1, 2007
|
1,000 | $ |
1,000
|
$ | 721,892 | $ | 21,343 | $ | 361,446 | $ | 2,014,036 | $ | 3,119,717 | |||||||||||||||
Net
income
|
- |
-
|
- | - | - | 7,877,786 | 7,877,786 | |||||||||||||||||||||
Currency
translation adjustment
|
- |
-
|
- | 553,983 | - | - | 553,983 | |||||||||||||||||||||
Dividend
declared
|
- |
-
|
- | - | - | (7,402,734 | ) | (7,402,734 | ) | |||||||||||||||||||
Balance,
December 31, 2007
|
1,000 |
1,000
|
721,892 | 575,326 | 361,446 | 2,489,088 | 4,148,752 | |||||||||||||||||||||
Net
income
|
- |
-
|
- | - | - | 12,222,972 | 12,222,972 | |||||||||||||||||||||
Currency
translation adjustment
|
- |
-
|
- | 511,390 | - | - | 511,390 | |||||||||||||||||||||
Dividend
declared
|
- |
-
|
- | - | - | (12,312,202 | ) | (12,312,202 | ) | |||||||||||||||||||
Balance,
December 31, 2008
|
1,000 |
1,000
|
721,892 | 1,086,716 | 361,446 | 2,399,858 | 4,570,912 | |||||||||||||||||||||
Capital
contribution
|
- | - | 585,592 | - | - | - | 585,592 | |||||||||||||||||||||
Net
income
|
- | - | - | - | - | 16,106,306 | 16,106,306 | |||||||||||||||||||||
Currency
translation adjustment
|
- | - | - | 9,461 | - | - | 9,461 | |||||||||||||||||||||
Dividend
declared
|
- | - | - | - | - | (15,382,587 | ) | (15,382,587 | ) | |||||||||||||||||||
Transfer
to statutory
|
||||||||||||||||||||||||||||
surplus
reserve
|
- | - | - | - | 292,796 | (292,796 | ) | - | ||||||||||||||||||||
Balance,
December 31, 2009
|
1,000 | $ | 1,000 | $ | 1,307,484 | $ | 1,096,177 | $ | 654,242 | $ | 2,830,781 | $ | 5,889,684 |
*
Accumulated other comprehensive income represented exchange reserve arising from
translation of foreign operations.
See
the accompanying notes to consolidated financial statements
4
AILIBAO
INTERNATIONAL INVESTMENT LIMITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 16,106,306 | $ | 12,222,972 | $ | 7,877,786 | ||||||
Adjustments
to reconcile net income to net cash
provided by operating activities:
|
||||||||||||
Depreciation
and amortization
|
320,782 | 310,088 | 276,024 | |||||||||
Deferred
income taxes
|
(98,902 | ) | 1,675 | (79,114 | ) | |||||||
Receipts
and payments through a related party
|
109,028 | 791,104 | (12,704,598 | ) | ||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
(5,750,735 | ) | (3,189,545 | ) | (1,010,817 | ) | ||||||
Inventories
|
(760,653 | ) | 234,101 | (1,814,613 | ) | |||||||
Other
current assets
|
(790,489 | ) | 687,110 | (1,601,171 | ) | |||||||
Due
from related parties
|
(155,912 | ) | (2,670,848 | ) | 3,395,586 | |||||||
Accounts
and other payables
|
736,237 | 756,383 | 2,980,000 | |||||||||
Current
tax payable
|
652,968 | (884,723 | ) | 2,602,331 | ||||||||
Net
cash provided by (used in) operating activities
|
10,368,630 | 8,258,317 | (78,586 | ) | ||||||||
Cash
flows from investing activities:
|
||||||||||||
Restricted
bank deposits made
|
(420,457 | ) | (497,618 | ) | (308,447 | ) | ||||||
Release
of restricted bank deposits
|
497,618 | 308,447 | 222,319 | |||||||||
Purchases
of property, plant and equipment
|
(60,935 | ) | (175,452 | ) | (107,890 | ) | ||||||
Deposits
paid for acquisition of plant and equipment
|
(323,767 | ) | - | - | ||||||||
Net
cash used in investing activities
|
(307,541 | ) | (364,623 | ) | (194,018 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Dividend
paid
|
(12,297,422 | ) | (7,772,356 | ) | - | |||||||
Proceeds
from short term bank loans
|
1,464,899 | - | - | |||||||||
Proceeds
of contributions from stockholders
|
585,592 | - | - | |||||||||
Net
cash used in financing activities
|
(10,246,931 | ) | (7,772,356 | ) | - | |||||||
(Decrease)
increase in cash and cash equivalents
|
(185,842 | ) | 121,338 | (272,604 | ) | |||||||
Effect
of foreign exchange rate changes on cash and
cash equivalents
|
(2,794 | ) | 575,421 | 341,268 | ||||||||
Cash
and cash equivalents at beginning of year
|
816,600 | 119,841 | 51,177 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 627,964 | $ | 816,600 | $ | 119,841 | ||||||
Supplemental
disclosures
of
cash flow information:
|
||||||||||||
Cash
paid for interest
|
$ | 43,822 | $ | 11,194 | $ | 16,585 | ||||||
Cash
paid for income taxes
|
$ | 4,907,261 | $ | 5,241,916 | $ | 1,547,176 | ||||||
Non-cash
transactions:
|
||||||||||||
Dividend
declared but unpaid
|
$ | 15,382,587 | $ | 12,312,202 | $ | 7,402,734 |
See
the accompanying notes to consolidated financial statements
5
AILIBAO
INTERNATIONAL INVESTMENT LIMITED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Organization
and summary of significant accounting
policies
|
Organization and nature of
operations: Ailibao International Investment Limited and its
subsidiaries (collectively referred to in these consolidated financial
statements as “Company”,“we”,“our” and “us”) specializes in the manufacture and
sales of sportswear. All our business operations are located in the People’s
Republic of China (“PRC”).
Basis of
presentation: The consolidated financial statements include
Ailibao International Investment Limited, its subsidiary and a variable interest
entity as listed below.
Name
|
Place of
incorporation |
Registered/
share capital
|
Percentage of
holdings |
Principal activities
|
||||||||
Direct
|
Indirect
|
|||||||||||
Ailibao
(Fujian)
Marketing
Management
Limited
|
The
PRC
|
Hong
Kong Dollars 5,600,000
|
100%
|
- |
Investment
holding
|
|||||||
Fujian
Jinjiang Chendai Ailibao Shoes and Clothes Co., Ltd. (“Ailibao
PRC”)
|
The
PRC
|
Renminbi
(“RMB”)
10,000,000
|
-
|
100%
|
Manufacture
and sales of
sportswear
|
All intercompany balances and transactions are eliminated upon
consolidation.
On November 18, 2010, the Company entered into certain contractual arrangements,
which obligates the Company to absorb a majority of the return or loss of
Ailibao PRC. The Company accounts for Ailibao PRC as its variable interest
entity under Accounting Standard Codification (“ASC”) 810,Consolidation of Variable Interest
Entities – An Interpretation of ARB No.
51, because the equity investors in Ailibao PRC do not have the
characteristics of a controlling financial interest and Ailibao (Fujian)
Marketing Management Limited should be considered as the primary beneficiary of
Ailibao PRC. Accordingly, the Company consolidates Ailibao PRC’s
results of operations, assets and liabilities (see note 18).
The entering into of those exclusive agreements by Ailibao (Fujian) Marketing
Management Limited, Ailibao PRC and their stockholders on November 18, 2010 has
been accounted for as a recapitalization of Ailibao PRC with no adjustment to
the historical basis of the assets and liabilities of Ailibao PRC and the
operations were consolidated as though the transaction occurred as of the
beginning of the first accounting period presented in these financial
statements. For the purpose of presenting the financial statements on a
consistent basis, the consolidated financial statements have been prepared as if
the Company and Ailibao PRC had been in existence since establishment of the
Company and throughout the whole periods covered by these financial
statements.
Accounting
period: We follow a fiscal reporting calendar ending December
31 each year.
Use of
estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America (“US GAAP”) requires us to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. On an ongoing basis, we evaluate our estimates, including, but
not limited to, those related to income taxes, litigation and settlement costs,
the collectability of accounts receivable, the valuation of inventory on a lower
of cost or market basis, expected future cash flows and useful lives of
intangible assets and other long-lived assets. We base our estimates
on historical experience and on other assumptions that we believe are reasonable
under the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities when those
values are not readily apparent from other sources. Actual results
may differ materially from our estimates.
6
1.
|
Organization
and summary of significant accounting policies
(Continued)
|
Fair value of financial
instruments: For certain of our financial instruments,
including cash and cash equivalents, accounts receivable, other current assets,
accounts payable and other current liabilities, the carrying amounts approximate
their fair value due to the relatively short maturity of these
items.
Cash and cash equivalents: We
consider all highly liquid debt instruments or deposits purchased with an
original maturity of 90 days or less to be cash equivalents.
Accounts receivable: We defer
recognition of revenue and the related receivable when we cannot estimate
whether collectability is reasonably assured at the time products are delivered
to our customer. We also provide allowances for doubtful
debt. In establishing the allowance for doubtful debt, we review the
customer’s payment history and information regarding their credit
worthiness. In 2009, 2008 and 2007, we made provision and written off
doubtful debt of $1,988, $24 and $5,556, respectively. We make provision for
doubtful debts of aged over one year.
Inventories: Inventories are
stated at the lower of weighted average cost or market. We evaluate
our ending inventories for excess quantities and obsolescence on a yearly
basis. This evaluation includes analysis of historical and forecasted
sales levels by product. A provision is recorded for inventories on
hand in excess of forecasted demand. In addition, we write off
inventories that are considered obsolete. Obsolescence is determined
from several factors, including competitiveness of product offerings, market
conditions and product life cycles. Increases to the allowance for
excess and obsolete inventory are charged to cost of revenue. At the
point of the loss recognition, a new, lower of cost or market basis for that
inventory is established, and subsequent changes in facts and circumstances do
not result in the restoration or increase in that newly established cost
basis. If this lower of cost or market inventory is subsequently
sold, the related allowance is matched to the movement of related product
inventory, resulting in lower costs and higher gross margins for those
products.
Property, plant and equipment:
Property, plant and equipment are stated at cost. Depreciation
is computed using the straight-line method based on the useful lives of the
assets. Repairs and maintenance costs are expensed as
incurred.
The
estimated useful lives are as follows:
Buildings
|
20
years
|
|
Plant
and machinery
|
10
years
|
|
Furniture
and equipment
|
5-10
years
|
The gain
or loss on disposal of property, plant and equipment is the difference between
the net sales proceeds and the carrying amount of the relevant assets, if any,
and is recognized in profit or loss.
Land use rights: Land use
rights are stated at cost, less accumulated amortization and are amortized over
lease terms from the date of acquisition (see note 8 below).
Revenue recognition: We
derive our revenue only from product sales. We recognize revenue for
product sales in accordance with ASC 605, Revenue Recognition (formerly
Staff Accounting Bulletin, or SAB No. 104,Revenue Recognition), under
which revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred or service has been rendered, the fee is fixed or
determinable and collectability is reasonably assured.
Revenue
from product sales is generally recognized upon shipment. Net sales of products
represent the invoiced value of goods, net of value added taxes (“VAT”). Ailibao
PRC is subject to VAT which is levied on its products at the rate of 17% on the
invoiced value of sales. Output VAT is borne by customers in addition to the
invoiced value of sales and input VAT is borne by Ailibao PRC in addition to the
invoiced value of purchases to the extent not refunded for export
sales.
Advertising and promotion
expenses: Advertising and promotion costs are expensed as
incurred. Total advertising and promotion expenses were $932,931, $791,169 and
$665,565 for the years ended December 31, 2009, 2008 and 2007,
respectively.
Foreign
currency: The reporting currency of the Company is the United
States dollar (“$” or “US$”). Transactions denominated in currencies other than
US$ are translated into US$ at the average rates for the period. Monetary assets
and liabilities denominated in currencies other than US$ are translated into US$
at the rates of exchange ruling at the balance sheet date. Equity
denominated in currencies other than US$ are translated into US$ at the rates
ruling at the date of transactions. The resulting exchange
differences are recorded in the other (expenses) income in the statement of
operations and comprehensive income.
7
1.
|
Organization
and summary of significant accounting policies
(Continued)
|
The
financial records of the Company’s operating subsidiary are maintained in their
local currency, RMB, which is the functional currency. Assets and liabilities
are translated at the exchange rates at the balance sheet date, equity accounts
are translated at historical exchange rates, and income and expenses items are
translated using the average rate for the period. The translation adjustments
are recorded in accumulated other comprehensive income under stockholders’
equity.
RMB is
not a fully convertible currency. All foreign exchange transactions involving
RMB must take place either through the People’s Bank of China (“PBOC”) or
other institutions authorized to buy and sell foreign monies. The exchange rates
adopted for the foreign exchange transactions are the rates of exchange quoted
by the PBOC. Translation of amounts from RMB into US$ has been made at the
following exchange rates for the respective years:
December
31, 2009
|
||
Balance
sheet
|
RMB6.8259
to US$1.00
|
|
Statement
of operations and comprehensive income
|
RMB6.8307
to US$1.00
|
|
December
31, 2008
|
||
Balance
sheet
|
RMB6.8225
to US$1.00
|
|
Statement
of operations and comprehensive income
|
RMB6.9477
to US$1.00
|
|
December
31, 2007
|
||
Balance
sheet
|
RMB7.2946
to US$1.00
|
|
Statement
of operations and comprehensive income
|
RMB7.6058
to
US$1.00
|
Concentration of credit
risk: Financial instruments which potentially subject us to
concentrations of credit risk consist primarily of cash and cash equivalents,
restricted cash and accounts receivable. Our cash, cash equivalents
and restricted cash are on deposit with major financial institutions. Such
deposits may be in excess of insured limits. We believe that the
financial institutions that hold our cash are financially sound and,
accordingly, minimal credit risk exists with respect to these
balances. We have not experienced any investment losses due to
institutional failure or bankruptcy. We perform ongoing credit evaluations
of our customers and generally do not require collateral for sales on
credit. We review our accounts receivable balances to determine if
any receivables will potentially be uncollectible and include any amounts that
are determined to be uncollectible in our allowance for doubtful debt
account.
Income
taxes: Income taxes are accounted for under an asset and
liability approach in accordance with ASC 740,IncomeTaxes(formerly SFAS
No. 109,Accounting for
Income Taxes). Deferred income taxes reflect the net tax
effects of any temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts reported for income
tax purposes, and any operating losses and tax credit carryforwards.
Deferred tax liabilities are recognized for future taxable amounts and deferred
tax assets are recognized for future deductions, net of any valuation allowance,
to reduce deferred tax assets to amounts that are considered more likely than
not to be realized.
Under ASC
740, Income Taxes
(formerly FASB Interpretation No. 48, Accounting for Uncertainty in
Income Tax ), the impact of an uncertain income tax position on the
income tax return must be recognized as the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized if it
has less than a 50% likelihood of being sustained. Additionally, ASC 740
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The total
amount of unrecognized tax benefits as of December 31, 2009 and 2008 were
$Nil.
Long-lived assets: We account
for long-lived assets, in accordance with ASC 360, Property, plant and
equipment. Long-lived assets are evaluated for impairment
whenever events or changes in circumstances, such as a change in technology,
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when the sum of
the undiscounted future net cash flows expected to result from the use of the
asset and its eventual disposal is less than its carrying amount.
Segments: The
Company operates in two reportable segments. Segment disclosures are
presented in note 17 “Segment information”.
Comprehensive
income: Comprehensive income consists of net income and other
comprehensive (loss) income. Other comprehensive (loss) income
includes certain changes in equity that are excluded from results of
operations. Foreign currency translation adjustments are included in
accumulated other comprehensive income in the accompanying consolidated balance
sheets.
8
1.
|
Organization
and summary of significant accounting policies
(Continued)
|
Recent accounting
pronouncements: In September 2009, the FASB reached a
consensus on Accounting Standards Update, or ASU 2009-13, Revenue Recognition (Topic 605)
– Multiple-Deliverable Revenue
Arrangements , or
ASU 2009-13 and ASU 2009-14, Software (Topic 985)
– Certain Revenue Arrangements That
Include Software Elements , or ASU
2009-14. ASU 2009-13 modifies the requirements that must be met for
an entity to recognize revenue from the sale of a delivered item that is part of
a multiple-element arrangement when other items have not yet been
delivered. ASU 2009-13 eliminates the requirement that all
undelivered elements must have either: i) vendor-specific objective evidence
(“VSOE”) or ii) third-party evidence (“TPE”) before an entity can recognize the
portion of an overall arrangement consideration that is attributable to items
that already have been delivered. In the absence of VSOE or TPE of
the standalone selling price for one or more delivered or undelivered elements
in a multiple-element arrangement, entities will be required to estimate the
selling prices of those elements. Overall arrangement consideration
will be allocated to each element (both delivered and undelivered items) based
on their relative selling prices, regardless of whether those selling
prices are evidenced by VSOE or TPE or are based on the entity’s estimated
selling price. The residual method of allocating arrangement
consideration has been eliminated. ASU 2009-14 modifies the software
revenue recognition guidance to exclude from its scope tangible products that
contain both software and non-software components that function together to
deliver a product’s essential functionality. These new updates are
effective for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. Early adoption is
permitted. We are currently evaluating the impact that the adoption
of these ASUs will have on our consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This ASU provides amendments that clarify
existing disclosures on levels of disaggregation, inputs and valuation
techniques to improve transparency in financial reporting. ASU
2010-06 also requires new disclosures on transfers in and out of Level 1 and
Level 2, and activity in Level 3 fair value measurements. This
amendment is effective for interim and annual reporting periods beginning after
December 15, 2009 except for the disclosures about purchases, sales, issuance
and settlements in the roll-forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010 and for interim periods within those fiscal
years. We are currently evaluating the impact that the adoption of
this ASU will have on our consolidated financial statements.
In February 2010, the FASB issued ASU 2010-9, Subsequent Events (Topic 855) Amendments to Certain
Recognition and Disclosure Requirements. ASU 2010-9 amends disclosure
requirements within Subtopic 855-10. An entity that is an SEC filer is not
required to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between Subtopic 855-10
and the SEC's requirements. ASU 2010-9 is effective for interim and annual
periods ending after June 15, 2010. The Company expects the adoption of ASU
2010-09 will not have a material impact on the Company’s results of
operations or financial position.
In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. ASU 2010-20
improves the disclosures that an entity provides about the credit quality of its
financing receivables and the related allowance for credit losses. As a result
of these amendments, an entity is required to disaggregate by portfolio segment
or class certain existing disclosures and provide certain new disclosures
about its financing receivables and related allowance for credit losses. For
public entities, the disclosures as of the end of a reporting period are
effective for interim and annual reporting period ending on or after December
15, 2010. The disclosures about activity that occurs during a reporting period
are effective for interim and annual reporting periods beginning on or after
December 15, 2010. The Company expects the adoption of ASU 2010-20 will not have
a material impact on the Company’s results of operations or financial
position.
In August 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments
to Various SEC Rules and Schedules. Amendments to SEC Paragraphs Pursuant to
Release No. 33-9026:
Technical Amendments to Rules, Forms, Schedules and Codification of Financial
Reporting Policies. ASU 2010-21 amends various SEC paragraphs pursuant to
the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms,
Schedules and Codification of Financial Reporting Policies. The Company expects
the adoption of ASU 2010-21 will not have a material impact on the Company’s
results of operations or financial position.
In
August 2010, the FASB issued ASU 2010-22, Accounting for Various
Topics-Technical
Corrections to SEC paragraphs (SEC Update). ASU 2010-22 amends various
SEC paragraphs based on external comments received and the issuance of Staff
Accounting Bulletin (“SAB”) 112, which amends or rescinds portions of certain
SAB topics. The Company expects the adoption of ASU 2010-22 will not have a
material impact on the Company’s results of operations or financial
position.
9
2.
|
Concentration
of credit risk and major customers and
suppliers
|
Financial
instruments which potentially expose the Company to concentrations of credit
risk consist of cash and accounts receivable as of December 31, 2009 and 2008.
The Company performs ongoing evaluations of its cash position and credit
evaluations to ensure collections and minimize losses.
As of
December 31, 2009 and 2008, the Company’s bank deposits (including restricted
cash) of $1,044,621 and $1,327,762, respectively, were all placed with banks in
the PRC where there is currently no rule or regulation in place for obligatory
insurance of bank accounts.
For the
years ended December 31, 2009, 2008 and 2007, all of the Company’s sales arose
in the PRC. In addition, all accounts receivable as of December 31, 2009 and
2008 also arose in the PRC.
Details
of customers accounting for 10% or more of the Company’s accounts receivable are
as follows:
As of December 31,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Customer
A
|
$ | 1,718,516 | 12 | % | $ | 925,510 | 11 | % | ||||||||
Customer
B
|
- | - | 786,132 | 10 | % | |||||||||||
Customer
C
|
1,488,201 | 11 | % | - | - | |||||||||||
Customer
D
|
1,382,317 | 10 | % | - | - |
Details
of the customers accounting for 10% or more of the Company’s revenue are as
follows:
Years ended December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
Customer
A
|
$ | - | - | $ | 6,652,421 | 10 | % | $ | 5,716,322 | 12 | % | |||||||||||||
Customer
B
|
- | - | - | - | 5,315,749 | 11 | % |
During
the years ended December 31, 2009, 2008 and 2007, the Company had no significant
concentration of suppliers.
3.
|
Restricted
cash
|
Restricted
cash consists of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Restricted
cash deposited with banks for
|
||||||||
collateralized
bank advances
|
$ | 420,457 | $ | 497,618 |
10
4.
|
Fair
values of assets and liabilities
|
ASC 820
Fair Value Measurements and
Disclosures defines fair value as “the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price).” The
standard establishes a consistent framework for measuring fair value and expands
disclosure requirements about fair value measurements. ASC 820, among
other things, requires us to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
Fair
Value Hierarchy
ASC 820
discusses valuation techniques, such as the market approach (comparable market
prices), the income approach (present value of future income or cash flow) and
the cost approach (cost to replace the service capacity of an asset or
replacement cost). The statement utilizes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those
three levels:
Level 1 – Valuation is
based upon quoted prices for identical instruments traded in active
markets.
Level 2 – Valuation is
based upon quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active, and
model-based valuation techniques for which all significant assumptions are
observable in the market.
Level 3 – Valuation is
generated from model-based techniques that use significant assumptions not
observable in the market. These unobservable assumptions reflect our
estimates of assumptions that market participants would use in pricing the asset
or liability. Valuation techniques include use of option pricing
models, discounted cash flows models and similar techniques.
The carrying values of
cash and cash equivalents, restricted cash, accounts receivable, amounts due
from related parties, other current assets, accounts and other payables, and
short term bank loans approximate their fair values due to the short maturities
of these instruments.
5.
|
Inventories
|
Inventories
consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Raw
materials
|
$ | 824,242 | $ | 994,284 | ||||
Work-in-process
|
379,705 | 220,341 | ||||||
Finished
goods
|
2,561,108 | 1,789,777 | ||||||
$ | 3,765,055 | $ | 3,004,402 |
6.
|
Other
current assets
|
Other
current assets consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Advances
to suppliers
|
$ | 2,694,009 | $ | 1,912,669 | ||||
Other
current assets
|
9,193 | 44 | ||||||
$ | 2,703,202 | $ | 1,912,713 |
11
7.
|
Property,
plant and equipment
|
Property,
plant and equipment consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Buildings
|
$ | 2,947,797 | $ | 2,949,266 | ||||
Plant
and machinery
|
1,209,087 | 1,209,690 | ||||||
Furniture
and equipment
|
319,785 | 319,944 | ||||||
4,476,669 | 4,478,900 | |||||||
Accumulated
depreciation
|
(1,554,402 | ) | (1,265,097 | ) | ||||
Property,
plant and equipment, net
|
$ | 2,922,267 | $ | 3,213,803 |
Depreciation
expenses for the years ended December 31, 2009, 2008 and 2007 were $289,731,
$279,560 and $248,137 respectively.
8.
|
Land
use rights
|
The
following is a summary of land use rights:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Land
use rights
|
$ | 1,554,416 | $ | 1,553,641 | ||||
Less:
accumulated amortization
|
(228,587 | ) | (196,063 | ) | ||||
Land
use rights, net
|
$ | 1,325,829 | $ | 1,357,578 |
Amortization
expenses for the years ended December 31, 2009, 2008 and 2007 were $31,051,
$30,528 and $27,887, respectively.
The
estimated amortization expenses for the five years ending December 31, 2010,
2011, 2012, 2013, 2014 and thereafter are as follows:-
Year
ending December 31,
|
||||
2010
|
$ | 31,073 | ||
2011
|
31,073 | |||
2012
|
31,073 | |||
2013
|
31,073 | |||
2014
and thereafter
|
1,201,537 | |||
$ | 1,325,829 |
12
9.
|
Accounts
payable
|
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Accounts
payable
|
$ | 7,393,645 | $ | 7,065,400 | ||||
Bills
payable
|
840,915 | 995,236 | ||||||
$ | 8,234,560 | $ | 8,060,636 |
Bills payable
represented commercial notes issued to suppliers for settlements. The amounts
are interest-free, secured by the restricted cash (see note 3) and repayable
within one year.
10.
|
Accrued
expenses and other payables
|
Accrued
expenses and other payables consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Accrued
salaries and staff welfare
|
$ | 696,515 | $ | 490,063 | ||||
Value
added tax payable
|
450,145 | 368,203 | ||||||
Other
accrued liabilities
|
507,223 | 233,304 | ||||||
$ | 1,653,883 | $ | 1,091,570 |
11.
|
Short
term bank loans and banking
facilities
|
Short
term bank loans
Short
term bank loans consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
8.093%
loan payable to Quanzhou City Commercial Bank, matured on May 29, 2009,
with interest due on month end and principal due at date of maturity,
secured by corporate guarantee from a third party
|
$ | - | $ | 219,861 | ||||
7.965%
loan payable to Quanzhou City Commercial Bank, matured on May 15, 2010,
with interest due on month end and principal due at date of maturity,
secured by corporate guarantee from a third party (note
(a))
|
219,751 | - | ||||||
6.903%
loan payable to Industrial and Commercial Bank of China Limited (located
at Jinjiang, the PRC), matured on April 1, 2010, with interest due on
month end and principal due at date of maturity, secured by corporate
guarantee from a third party (note (b))
|
1,465,009 | - | ||||||
$ | 1,684,760 | $ | 219,861 |
Note:-
(a)
|
Renewedon
May 15, 2010 with a new loan of the same amount and matures in May
2011.
|
(b)
|
Fully
repaid in 2010.
|
13
11.
|
Short
term bank loans and banking facilities
(Continued)
|
Banking
facilities
As of
December 31, 2008 and 2009, the Company had general banking facilities for bank
loans and bills payable.The general banking facilities utilized by the Company
are denominated in RMB and amounted to RMB17,240,000 and RMB8,290,000 as of
December 31, 2009 and 2008, respectively.
The
average bank loans were $952,311 and $212,746 for the years ended December 31,
2009 and 2008, respectively and the weighted average interest rates are 7.30%
and 8.28%, respectively.
The
Company’s general banking facilities, expressed in $, are detailed as
follows:
As
of December 31,
|
Terms
of banking facilities
as
of December 31,
|
||||||||||||||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
Interest
rates
|
Repayment
terms
|
||||||||||||||||||||||||||||
Available
|
Available
|
Utilized
|
Utilized
|
Unutilized
|
Unutilized
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||||||||||||||
Bills
payable
|
$
|
1,172,007
|
$
|
1,172,590
|
$
|
840,915
|
$
|
995,236
|
$
|
331,092
|
$
|
177,354
|
Nil
|
Nil
|
Repayable
in full within six months
|
||||||||||||||||||||
Bank
loans
|
1,684,760
|
219,861
|
1,684,760
|
219,861
|
-
|
-
|
7.97
|
%
|
8.09
|
%
|
Repayable
in full within one year
|
||||||||||||||||||||||||
|
$
|
2,856,767
|
|
$
|
1,392,451
|
$
|
2,525,675
|
$
|
1,215,097
|
$
|
331,092
|
$
|
177,354
|
|
|
|
|
The above
banking facilities were secured by the restricted cash of the Company and
corporate guarantees executed by independent third parties.
12.
|
Commitments
and contingencies
|
Commitments
As of
December 31, 2009, we had capital commitments with respect to construction of a
warehouse, which are dueas follows:
2011
|
$ | 484,000 |
Contingencies
As of
December 31, 2009, Ailibao PRC provided corporate guarantees to independent
third parties for banking facilities to the extent of $1,523,000. Subsequent to
the balance sheet date, the corporate guarantees were released and the Company
suffered no loss (see note 18).
13.
|
Defined
contribution retirement plans
|
As
stipulated by the regulations of the PRC government, companies operating in the
PRC have defined contribution retirement plans for their employees. The PRC
government is responsible for the pension liability to these retired employees.
The Company was required to make specified contributions to the state-sponsored
retirement plan based on the basic salary cost of their staff. Each of the
employees of the PRC subsidiaries is also required to contribute certain
percentage of his/her basic salary.
Contributions
to defined contribution retirement plan for the years ended December 31, 2009,
2008 and 2007 were $582,380, $411,437 and $319,351 respectively.These
contributions are recorded with the associated compensation as components of
cost of revenue, selling and distribution expenses, and general and
administrative expenses based upon the responsibilities of the related
employee.
14
14.
|
Related
party transactions
|
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Due
from related parties
|
||||||||
Ding
Changming, a director
|
$ | 8,881,871 | $ | 6,885,555 | ||||
Ding
Baofu, chief executive officer
|
- | 410,407 | ||||||
Ding
Baojian, chief operating officer
|
- | 1,539,025 | ||||||
$ | 8,881,871 | $ | 8,834,987 |
Balances
with related parties represent advances to or loans from the respective related
parties, which are interest free, unsecured, and have no fixed terms of
repayment.
15.
|
Income
taxes
|
On March
16, 2007, the National People’s Congress of the PRC determined to adopt the New
China Income Tax (“CIT”) Law. The New CIT Law unifies the application scope, tax
rate, tax deduction and preferential policy for both domestic and foreign
enterprises. The New CIT Law became effective on January 1, 2008. According to
the New CIT Law, the applicable income tax rate for the Company’s PRC
subsidiaries for 2008 and 2009is 25%. Before the New CIT Law, the applicable
income tax rate for 2007 is 33%.
The
Company is incorporated in the British Virgin Islands and income earned is not
subject to income tax.
The
income tax provision (benefit) is summarized as follows:
Years ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Current
– the PRC
|
$ | 5,560,707 | $ | 4,185,311 | $ | 4,032,234 | ||||||
Deferred
– the PRC
|
(98,902 | ) | 1,675 | (79,114 | ) | |||||||
Income
taxes, net
|
$ | 5,461,805 | $ | 4,186,986 | $ | 3,953,120 |
The tax
effects of significant items comprising our deferred tax assets are as
follows:
As ofDecember 31,
|
||||||||
2009
|
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Allowance
andother provisions
|
$ | 206,060 | $ | 100,331 | ||||
Depreciation
|
42,426 | 49,258 | ||||||
Total
deferred tax assets
|
$ | 248,486 | $ | 149,589 |
ASC 740,
Income Taxes,requires that the tax
benefit of temporary differences and credit carryforwards be recorded as an
asset to the extent that we assess that realization is “more likely than
not.” Deferred income taxes result principally from differences in
the recognition of certain assets and liabilities for tax and financial
reporting purposes.
15
15.
|
Income
taxes (Continued)
|
The
effective tax rate of our provision for income taxes differs from the CIT rate
as follows:
Years ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Income
before income taxes
|
$ | 21,568,111 | $ | 16,409,958 | $ | 11,830,906 | ||||||
Computed
at CIT rate of 25% for 2009 and 2008; 33% for 2007
|
$ | 5,392,028 | $ | 4,102,490 | $ | 3,904,199 | ||||||
Expenses
not deductible for tax purposes
|
58,784 | 70,767 | 75,291 | |||||||||
Other
|
10,993 | 13,729 | (26,370 | ) | ||||||||
Income
tax expenses, net
|
$ | 5,461,805 | $ | 4,186,986 | $ | 3,953,120 |
Our tax
filings for the fiscal years from 2007 to 2009 remain open in the PRC tax
jurisdictions. We do not anticipate that our unrecognized tax benefit
would change significantly in the coming 12-month period.
16.
|
Statutory
surplus reserves
|
In
accordance with the PRC Companies Law, Ailibao PRC is required to transfer 10%
of its profit after tax, as determined in accordance with accounting standards
and regulations of the PRC, to the statutory surplus reserve. The
statutory surplus reserve is non-distributable.
16
17.
|
Segment
information
|
The
Company follows FASB ASC 280 – Segment Reporting, which requires the Company to
disclose segment data based on how management makes decision about allocating
resources to segments and evaluating their performance. The Company
operates in two reportable segments: manufacture and sales of shoes (“Shoes”)
and sales of apparel (“Apparel”). The Company evaluates
segment performance based on income from operations. All
inter-company transactions between segments have been eliminated. As
a result, the components of operating income for one segment may not be
comparable to another segment. The following is a summary of the
Company’s segment information.
Segment
revenue and results
The
following is an analysis of the Company’s revenue and results from operations by
reportable segment.
Segment revenue
|
Segment profit
|
|||||||||||||||||||||||
Years ended December 31,
|
Years ended December 31,
|
|||||||||||||||||||||||
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
Shoes
|
$ | 63,115,968 | $ | 51,928,633 | $ | 37,642,704 | $ | 19,843,722 | $ | 15,511,518 | $ | 10,924,382 | ||||||||||||
Apparel
|
18,397,392 | 13,116,009 | 10,499,654 | 5,947,982 | 4,093,724 | 3,414,110 | ||||||||||||||||||
Total
for operations
|
$ | 81,513,360 | $ | 65,044,642 | $ | 48,142,358 | 25,791,704 | 19,605,242 | 14,338,492 | |||||||||||||||
Interest
income
|
33,216 | 34,186 | 19,063 | |||||||||||||||||||||
Operating
and other expenses
|
(4,212,987 | ) | (3,218,276 | ) | (2,510,064 | ) | ||||||||||||||||||
Finance
costs
|
(43,822 | ) | (11,194 | ) | (16,585 | ) | ||||||||||||||||||
Income
before income taxes
|
21,568,111 | 16,409,958 | 11,830,906 | |||||||||||||||||||||
Income
taxes
|
(5,461,805 | ) | (4,186,986 | ) | (3,953,120 | ) | ||||||||||||||||||
Net
income
|
$ | 16,106,306 | $ | 12,222,972 | $ | 7,877,786 |
Revenue
reported above represents revenue generated from external
customers. There were no inter-segment sales in
theyears.
17
17.
|
Segment
information (Continued)
|
Segment
assets and liabilities
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Segment
assets
|
||||||||
Shoes
|
$ | 18,698,852 | $ | 13,418,649 | ||||
Apparel
|
3,791,754 | 1,924,384 | ||||||
Total
segment assets
|
22,490,606 | 15,343,033 | ||||||
Unallocated
|
12,886,609 | 12,790,921 | ||||||
Consolidated
assets
|
$ | 35,377,215 | $ | 28,133,954 | ||||
Segment
liabilities
|
||||||||
Shoes
|
$ | 7,985,441 | $ | 6,658,364 | ||||
Apparel
|
249,118 | 1,402,272 | ||||||
Total
segment liabilities
|
8,234,559 | 8,060,636 | ||||||
Unallocated
|
21,252,972 | 15,502,406 | ||||||
Consolidated
liabilities
|
$ | 29,487,531 | $ | 23,563,042 |
For the purposes of monitoring segment
performance and allocating resources between segments:
-
|
all
assets are allocated to reportable segments other than deferred tax
assets; and
|
-
|
all
liabilities are allocated to reportable segments other than “other
payables”. Liabilities for which reportable segments are
jointly liable are allocated in proportion to segment
assets.
|
Other
segment information
Depreciation and amortization
|
Additions to long-lived assets
|
|||||||||||||||||||||||
Years ended December 31,
|
Years ended December 31,
|
|||||||||||||||||||||||
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
Shoes
|
$ | 112,907 | $ | 105,714 | $ | 89,334 | $ | 60,935 | $ | 175,452 | $ | 107,890 | ||||||||||||
Unallocated
|
207,875 | 204,374 | 186,690 | - | - | - | ||||||||||||||||||
Total
|
$ | 320,782 | $ | 310,088 | $ | 276,024 | $ | 60,935 | $ | 175,452 | $ | 107,890 |
18
18.
|
Subsequent
events
|
We have
evaluated subsequent events through January 21, 2011, the date the consolidated
financial statements were issued.
On
November 18, 2010, the Company entered into certain contractual arrangements,
which obligates the Company to absorb majority of the return or loss of Ailibao
PRC. The Company accounts for Ailibao PRC as its variable interest entity under
ASC 810 because the equity investors in Ailibao PRC do not have the
characteristics of a controlling financial interest and Ailibao (Fujian)
Marketing Management Limited should be considered as the primary beneficiary of
Ailibao PRC. Accordingly, the Company consolidates Ailibao PRC’s
results of operations, assets and liabilities (see note 1).
On
January 21, 2011, the Company executed a stock exchange agreement with American
Smooth Wave Ventures, Inc. (“ASWV”). Pursuant to the stock exchange agreement,
ASWV issued 317,409,000 shares of its common stock to stockholders of the
Company and 6,826,000 shares of its common stock to an introducing party,in
exchange for all outstanding shares of the Company, making the Company a
wholly-owned subsidiary of ASWV.
The above
stock exchange transaction resulted in the stockholders of the Company obtaining
a majority voting interest in ASWV. Generally accepted accounting principles in
the United States of America require that the company whose stockholders retain
the majority interest in a combined business be treated as the acquirer for
accounting purposes. Consequently, the stock exchange transaction has been
accounted for as a recapitalization of ASWV as the Company acquired a
controlling equity interest in ASWV as of January 21, 2011. The reverse
acquisition process utilizes the capital structure of ASWV and the assets and
liabilities of the Company are recorded at historical cost.
19