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EX-21 - UNI CORE HOLDINGS CORPv162500_ex21.htm
EX-31.1 - UNI CORE HOLDINGS CORPv162500_ex31-1.htm
EX-32.1 - UNI CORE HOLDINGS CORPv162500_ex32-1.htm
EX-32.2 - UNI CORE HOLDINGS CORPv162500_ex32-2.htm
EX-31.2 - UNI CORE HOLDINGS CORPv162500_ex31-2.htm
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
 
ý
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2009
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________ to __________________
 
 Commission File Number 0-30430
 
Intermost Corporation
(Exact name of registrant as specified in its charter)
 
Wyoming
87-0418721
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)

Suite 5204, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
(Address of principal executive offices, including zip code)
Registrant’ telephone number including area code        (852) 2827-6898
 
Securities pursuant to section 12(b) of the Act:
NONE
 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Yes o         No o
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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  ý             No o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer o
Accelerated filer  o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company  ý

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes o      No ý
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity: As of September 30, 2009, the aggregate value of voting and non-voting common equity held by non-affiliates was $5,769,496.

 
 

 

TABLE OF CONTENTS

     
Page
       
PART I
   
       
 
ITEM 1.
DESCRIPTION OF BUSINESS
3
 
ITEM 2.
DESCRIPTION OF PROPERTY
12
 
ITEM 3.
LEGAL PROCEEDINGS
12
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
12
       
PART II
   
       
 
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
13
 
ITEM 6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
14
 
ITEM 7.
FINANCIAL STATEMENTS
20
 
ITEM 8.
CONTROLS AND PROCEDURES
20
 
ITEM 8A.
OTHER INFORMATION
20
       
PART III
   
       
 
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
21
 
ITEM 10.
EXECUTIVE COMPENSATION
33
 
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
25
 
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
26
 
ITEM 13.
EXHIBITS
26
 
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
28
 
ITEM 15
FINANCIAL STATEMENT SCHEDULES
29
       
SIGNATURES AND EXHIBITS
55

 
 

 

Note Regarding Forward Looking Statements

 This Annual Report on Form 10-K and any information incorporated herein by reference contain “forward-looking statements.”  These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry and involve a number of risks and uncertainties, as well as assumptions that, if they ever materialize or if they prove incorrect, would likely cause our results to differ materially from those expressed or implied by such forward-looking statements.  Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us.  Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “could,” “should,” hope,” “seek,” “may,” and other similar expressions (including their use in the negative) identify forward-looking statements.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, the following:

 
·
our lack of capital and whether or not we will be able to raise capital when we need it,

 
·
government regulation of the Internet and Internet services in China,

 
·
our ability to successfully compete in our markets and industries,

 
·
our ability to find suitable acquisition targets and, once acquired, to integrate these acquisitions into our business;

 
·
adverse changes to the political, economic or social conditions in China

and other factors, some of which will be outside our control.  You are cautioned not to place undue reliance on these forward-looking statements, which relate only to events as of the date on which the statements are made.  We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.  You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission.

These statements include, but are not limited to, statements under the captions “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as other sections in this Annual Report.  You should be aware that the occurrence of any of the events discussed under the heading “Risk Factors” and elsewhere in this Annual Report could substantially harm our business, results of operations and financial condition.  If any of these events occurs, the trading price of our common stock could decline and you could lose all or a part of the value of your shares of our common stock.

The cautionary statements made in this Annual Report are intended to be applicable to all related forward-looking statements wherever they may appear in this Annual Report.  We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.

 
1

 

Information on Currency Translation

All amounts are in Renminbi (“Rmb”) unless indicated to be in United States Dollars (“$” or “US$”). Our sales are principally in Renminbi. The translation of Renminbi amounts into US dollars are for reference purposes only and have been made at the exchange rate of Rmb6.8302 for US$1.  The People’s Bank of China sets and publishes daily a base exchange rate with reference primarily to the supply and demand of Renminbi against the United States dollar in the market during the prior day.  The People’s Bank of China also takes into account other factors such as the general conditions existing in the international foreign exchange markets.  Although Chinese governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current amount items, conversion of Renminbi into any other currency for capital items, such as foreign direct investment, loans or security, requires the approval of the State Administration for Foreign Exchange.  Renminbi which had been tightly pegged at Rmb8.28 for US$1 for the previous decade, was revalued on July 21, 2005 to Rmb8.11 for US$1 following the removal of the peg to the US dollar and pressure for the United States.  The Peoples Bank of China also announced that the Renminbi would be pegged to a basket of foreign currencies, rather than being strictly tied to the US dollar and would trade within a narrow 0.3% band against this basket of currencies, which is dominated by the US dollar, Euro, Japanese Yen and South Korean Won, with a smaller proportion made up of the British pound, Thai Baht and Russian Ruble.  The translation of Renminbi amounts in this Annual Report on Form 10-K is not a representation that the Renminbi amounts could actually be converted into United States dollars at that rate or at any other rate on that date or on any other date.
 
 
2

 
 
PART I

ITEM 1.     DESCRIPTION OF BUSINESS

History and Development of the Company

Intermost Corporation (as used in this Annual Report on Form 10-K, unless the context otherwise requires, the terms “we,” “us,” “the Company,” “IMOT,” and “Intermost” refer to Intermost Corporation and its subsidiaries) was incorporated as La Med Tech, Inc. under the laws of the State of Utah on March 6, 1985.  The Company changed its name to Entertainment Concepts International in 1987, to Lord & Lazarus, Inc. in 1988, and to Utility Communication International, Inc. in 1996.

From the date of incorporation through October 1998, the Company’s operations were limited to efforts to identify and acquire, or merge with, one or more operating businesses.  In October 1998, the Company acquired all of the issued shares of Intermost Limited, a British Virgin Islands Company (“IML”), by issuing to the then shareholders of IML a total of 4,970,000 shares of the Company’s common stock, par value $0.001 per share (the “Merger”).  Following the Merger, (i) IML became a wholly-owned subsidiary of the Company, (ii) the shareholders of IML held 58.7% of all issued and outstanding shares of the Company, (iii) the Company changed its name to Intermost Corporation, (iv) the Company terminated all its prior business activities and adopted IML’s business plan, and (v) all officers and directors of the Company resigned and were replaced by officers and directors of IML.

In February 2003, the Company reincorporated from Utah to the State of Wyoming.

IML was incorporated in January 1998 to develop a Chinese-language Internet business portal and to render services in connection therewith in the People’s Republic of China (“China”).  During the period following the Merger, the Company entered into agreements with, and completed acquisitions of, some businesses that provided or supported Internet services in an effort to implement this business plan.  The Company also endeavored to develop its own Internet services businesses, including e-commerce business solutions.  However, the global decline in the demand for Internet services after mid-2000, which resulted in a significant economic slowdown that affected many of the companies with whom we do business, materially undermined the effectiveness of our efforts.  While we continued (and still continue) to offer web design and hosting services to customers in China through our subsidiary, ChinaE.com Information Technology Ltd. (“ChinaE”), we also began to look for ways to diversify or expand our business.

In November 2002 ChinaE purchased eight licenses for HanWEB Publishing Server 3.0, an online real time translation engine that translates traditional Chinese characters, used in most of the world, to simplified Chinese characters, which are used only in China, and vice versa, and six licenses for HanVoice Web to Phone Server 1.0, a real time Internet to telephone conversion server for Cantonese, Putonghua and English.  These were purchased from KanHan Technologies Ltd. (“KanHan”) at a cost of $150K.  The Company was one of two distributors of these licenses in China.

With the assistance of KanHan, the Company opened an office in Guangzhou in April 2003.  The office was staffed with two persons who were responsible for introducing these products to businesses and government agencies in Guangdong Province.  For a period of approximately one year, KanHan subsidized the costs related to maintaining this office and developing a market for these products.  The amount of the subsidy was approximately $12,800 per month.  The office was closed in March 2004 and the Company is no longer receiving the subsidy, although it continues to market the licenses.

 
3

 

In May, 2003, the Company’s wholly owned subsidiary, IMOT Information Technology (Shenzhen) Ltd. (“IMOT Technology”), received approval from the governments of Shenzhen and Shanghai for its proposed acquisition of 51% of the issued and outstanding shares of Shanghai Newray Photographic Equipment Co., Ltd. (“Shanghai Newray”) from Shanghai Newray Business Development Co., Ltd. (“Shanghai Newray Business”), the owner of 75.5% of the issued and outstanding capital stock of Shanghai Newray.  Shanghai Newray is located in Shanghai and is engaged in the sale of digital photographic equipment.  Approval of the governments of Shenzhen and Shanghai was required to complete the acquisition, which was memorialized by a Shareholding Transfer Agreement entered into on May 23, 2003 between IMOT Technology and Shanghai Newray Business.

Pursuant to the Shareholding Transfer Agreement, IMOT Technology paid Shanghai Newray Business Rmb200,000 (approximately $24,000) in cash to reimburse Shanghai Newray Business for certain expenses related to the acquisition and agreed to transfer to Shanghai Newray Business 4,000,000 shares of the Company’s restricted common stock.  The cash used to reimburse Shanghai Newray Business for its expenses was paid with the Company’s funds.

On October 3, 2003 IMOT Technology entered into an agreement for the acquisition of 25% of the issued and outstanding shares of Shanghai Fortune Venture Limited (“Shanghai Fortune”) from certain shareholders of Shanghai Fortune.  Shanghai Fortune has the right to operate equity exchange transactions in Shanghai, and through its investment in Xi’an Assets and Equity Exchange, operate an equity exchange in Xi’an. In China, equity, including intellectual property rights, may be listed on and transferred through such exchanges.  The share transfer was approved by the government of Shanghai on April 12, 2004.  The consideration for this acquisition was Rmb600,000, approximately $72,464, in cash plus 10 million shares of our restricted common stock.  The value of the common stock was determined to be $0.24 per share, based upon the average of the closing prices for the 10-day period from September 22, 2003 to October 1, 2003.  The shares were issued on April 14, 2004.

On May 23, 2006, IMOT signed an agreement to sell the 25% shareholding investment in Shanghai Fortune to Mr. Li Laohu.  The net asset value of Shanghai Fortune as of December 31, 2005, the latest audited financial statements date, was Rmb21,957,791.  The consideration received by IMOT for the sale of the 25% shareholding was agreed at redemption of 6,500,000 shares of restricted common stock of IMOT with a value of US$0.18 per share, which was the closing price of IMOT share of common stock as of May 23, 2006, held and transferred by Mr. Li Laohu, Mr. Li Xiaoqin and Ms. Huang Xiujuan.

Since December 6, 2002, Shanghai Fortune has been an official registered member of the Shanghai Technology Exchange (the “STE”) and was entitled to conduct exchange business with the STE. The STE was the major entity in the Shanghai Equity Exchange Market.  Shanghai Fortune had the exclusive right to manage and operate the North Shanghai Branch (the “NSB”) of the STE. The NSB had the right to conduct the same exchange business as STE and share 80% of the profits with the STE.

Shanghai Fortune was also a founder and major participant in the Yangtze River Delta Equity Exchange Market Place (the “YRDE”).  The YRDE included more than 14 major exchanges in Shanghai and the surrounding cities and was the largest equity exchange market place in China.

However, in December 2003, the STE and another exchange were merged into the Shanghai United Assets and Equity Exchange (the “SUAEE”).  The SUAEE is a non-profit government-sponsored organization.

As a result of the merger of the STE, although Shanghai Fortune continues to maintain its membership, it is currently still unclear how the NSB and the YRDE will conduct business going forward, and how Shanghai Fortune will participate in the equity exchange markets following the issuance of final regulations by the local PRC government.  Due to the uncertainty of the content and timing of governmental regulations, IMOT entered into the May 23, 2006 agreement for the sale of its interest in Shanghai Fortune

 
4

 

On August 10, 2004, we purchased 51% of the issued and outstanding shares of Golden Anke Technology Ltd. (“Golden Anke”) from two of its shareholders, Tu Guoshen and Li Zhiquan, to IMOT Technology for $3.24 million, payable by issuance of 12 million shares of our common stock.  The value of our common stock was determined by applying a 20% discount to the average closing price during the period from January 20 to March 19, 2004.  On or about February 15, 2007 we sold approximately two percent (2%) of the outstanding shares in Golden Anke to an unaffiliated minority stockholder so that this minority stockholder could seek an independent listing of Golden Anke on a UK exchange, thus reducing our ownership from approximately 51% to approximately 49%.  We recently discovered that Golden Anke is no longer seeking a public listing and negotiated an exit settlement under which they will buy back our 49% ownership interest at US$1 million.  To date we have collected $200,000 of this amount.

In September 2, 2004, IML incorporated a 100% owned subsidiary, ChinaE.com Technology (Shenzhen) Ltd. (“ChinaE Tech”), to take over the business of ChinaE to provide and support Internet services including, but not limited to, web-hosting, web design, domain name registration and software development.

On December 8, 2004, IMOT Technology entered into an agreement for the acquisition of 15% of the issued and outstanding shares of Shenzhen International Hi-Tech Exchange (“Hi-Tech Exchange”) from Shenzhen Merchant Technology Investment Co., Ltd.  Hi-Tech Exchange is an enterprise authorized by the PRC government to carry out business in the transfer of hi-tech property rights and corporate equity interests.  The share transfer was approved by the government of Shenzhen on February 25, 2005.  The consideration for this acquisition was 2,470,355 shares of our common stock.  The value of the common stock was determined to be $0.22 per share based upon the average of the closing prices for the period from October 18, 2004 to November 18, 2004.  The shares were issued on February 28, 2005.  Subsequently, on December 8, 2006, we redeemed all of these 2,470,355 shares for an aggregate redemption price of US$805,214.75.

On January 6, 2005, all necessary government approvals were obtained to complete the transfer of 80% of the issued and outstanding shares of Hainan Concord Financial Products Development Co., Ltd. (“Hainan Concord”) from Guangzhou Ditai Communication Co., Ltd. and Zhai Xiya to IMOT Technology.  Pursuant to the Share Transfer Agreement signed on December 11, 2004 the purchase price paid for the stock was $917,874.  On January 12, 2005 we issued to the selling shareholders 5,000,000 shares of our restricted common stock, in full payment of the purchase price.  The value of our common stock was determined by applying a 15% discount to the average closing price for the 10 day trading period from November 16, 2004 to November 30, 2004.  Hainan Concord’s principal business is to issue and manage multi-functional membership cards for the people who participate in private equity exchange in Hainan.  Hainan Concord also provides financial institutions with research and development services for their financial products and instruments.

On October 19, 2005, all necessary government approvals were obtained to complete the transfer of 21% of the issued and outstanding shares of Hainan Special Economic Zone Equity Exchange Center (the “Exchange Center”) from Hainan Concord Investment Holding Co., Ltd. and Guangzhou Keensheng Science and Technology Development Co., Ltd. Pursuant to the Stock Exchange Agreement, the Company issued to the Exchange Center Stockholders 5,000,000 shares of the Company’s common stock having a value of RMB8,799,350 (approximately US$1,085,000).  The consideration for the transaction was agreed to after arm’s-length negotiations between the parties, which are unrelated to each other.  On October 19, 2005, we issued to the selling shareholders 5,000,000 shares of our common stock, in full payment of the purchase price.

On July 13, 2006, IML incorporated a 100% owned subsidiary, Leader Palace International Ltd. (“LPI”), to explore businesses in Taiwan region.  LPI started to negotiate an investment in touch panel manufacturing and such acquisition was still ongoing.

Management is continuing efforts to identify and explore acquisition, merger and development opportunities.

 
5

 

Products and Services

Internet Services

Through ChinaE Tech, our subsidiary, we offer web design, web hosting, domain name registration, software development and office automation software to our clients.  We operate within what is commonly referred to as the “business-to-business” segment of the Internet market, where products and services are offered principally to businesses, as compared to the “business-to-consumer” segment of the Internet services market, where products and services are offered to consumers directly.

We locate web design and hosting customers and secure web design and hosting projects primarily through the efforts of our sales team.  We currently employ 10 sales persons for our Internet solution services.  All of our sales team members are based in Shenzhen, but occasionally travel throughout China, as necessary.  Our sales persons are paid a base salary, and earn commissions on revenues we receive from the customers they secure.

Equity Exchange

Equity exchanges are platforms that permit privately-owned and state-owned equity transactions.  Subject to the parameters established by the government of China, equity exchanges provide services for the purchase and sale of equity rights, debts, intellectual property rights and technology property rights.  Equity listed on the exchanges may be traded through negotiation, auction and bids.

Our subsidiary, Hainan Concord’s principal business is to issue and manage multi-functional membership cards for the people who participate in private equity exchange in Hainan, and has an exclusive agreement with Hainan Exchange Centre Non-Public Company Registration Co., Ltd. to issue multi-functional membership and credit cards to their members.

Through our 9% investment in Hi-Tech Exchange and 12.6% investment in Exchange Center, we have further expanded our investment in Shenzhen and Hainan, China.  Hi-Tech Exchange and Exchange Center are authorized by the government of China to engage in the business of transferring equity and corporate equity interests in Shenzhen and Hainan.

At this time the various equity exchanges in China work, for the most part, independently of one another.  We believe that this is inefficient.  We are in the process of using our software technology to develop, and we hope to eventually implement, an electronic information and trading platform for equity exchanges that will enable the flow of information regarding rights transfers, as well as payments, among the different equity exchanges in China, including those owned and operated by Hi-Tech Exchange and Exchange Center.

 
6

 

Competition

Internet Services

The market for Internet services and software is intensely competitive and we expect it to become more competitive in the future.  Increased competition could result in pricing pressures, low operating margins and the realization of little or no market value.  Currently, our competitors are primarily other Chinese owned and operated Internet services and software development companies.

Most of our current and potential competitors may have longer operating histories, larger customer bases, greater brand recognition and greater financial, marketing and other resources than we do, and may enter into strategic or commercial relationships on more favorable terms than we can.  In addition, new technologies and the expansion of existing technologies may increase competitive pressure on us.

Equity Exchange

There is no national equity exchange in China.  It has been estimated that there are approximately 100 equity exchanges in China, most of them small in scale and serving only the local area.  There are also a few large equity exchanges serving the largest cities in China, including the Beijing Equity Exchange Center, the Tianjin Equity Exchange Center and the Shanghai Equity Exchange Center.  Even the operations of the large equity exchanges are localized.

Currently, because of the localized nature of equity exchanges, there is not significant competition among them.  However, further development and expansion of other large equity exchanges, or the nationalization of equity exchanges, would be likely to result in an increase in competition.  If that were to happen, it could have a material adverse effect on our ability to attract property owners to list their properties for sale on our exchange and to identify and secure investors or buyers for the properties we list.

Regulation

Since we operate principally through our subsidiaries in China, we are subject to and affected by laws, regulations, administrative determinations, court decisions and similar constraints that apply to business operations located in China.

China has enacted regulations governing Internet connection and the distribution of information via the Internet.  Pursuant to Article 6 of the Revised Provisional Regulations Governing the Management of Chinese Computer Information Networks Connected to International Networks, individuals or entities operating computer networks within China, which are connected to the Internet and conduct international information exchange, must use the international access channels provided by the Ministry of Information Industry (“MII”) and obtain various licenses and approvals.  Our relevant subsidiaries have secured the necessary licenses and approvals, and access the Internet through ChinaNet, an approved channel of MII.

The operation of our equity exchange will be largely dependent upon the development of China’s policies and laws relating to the transfer of private and state-owned equity.  The transfer and management of state-owned equity are subject to the supervision of the Administrative Bureau of State-owned Assets, whereas the equity of privately-owned enterprises must be transferred in compliance with the Company Law and related regulations.

According to the Provisional Procedures on the Administration of the Transfer of State-owned Equity in Enterprises, all the transfers of state-owned equity must be carried out through duly authorized equity exchange centers.  NSB and Xi’an Assets and Equity Exchange have secured the necessary licenses and approvals for their operations and qualify to transfer state-owned equity.

 
7

 

We work diligently to assure compliance with all applicable regulations which impact our business, including cooperating with the MII, the Ministry of Public Security and the Administrative Bureau of State-owned Assets.  There can be no assurance, however, that additional regulations will not be enacted that might adversely affect our operations.

Employees

As of June 30, 2009, we employed 28 full-time employees consisting of 2 management executives and 26 administrative and clerical staff.  None of our employees are members of any labor union, and we have never experienced any business interruption as a result of any labor disputes.  We do not provide any special benefit or incentive programs for our employees.  We believe that we enjoy good relations with all of our employees.

RISK FACTORS

In addition to other information in this Form 10-K, including many risks presented in our Management’s Discussion and Analysis, the following risk factors should be carefully considered in evaluating our business since it operates in a highly changing and complex business environment that involves numerous risks, some of which are beyond our control.  The following discussion highlights a few of these risk factors, any one of which may have a significant adverse impact on our business, operating results and financial condition.  As a result of the risk factors set forth below and elsewhere in this 10-K, and the risks discussed in our other Securities and Exchange Commission filings, actual results could differ materially from those projected in any forward-looking statements.

We face significant risks, and the risks described below may not be the only risks we face.  Additional risks that we do not know of or that we currently consider immaterial may also impair our business operations.  If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be harmed and the trading price of our common stock could decline.

Our success depends on identifying and closing acquisitions of emerging and growing businesses in China.

Our success is largely dependent on our identifying good acquisition targets, negotiating and structuring transactions that are beneficial to us, closing those transactions, finding suitable management to operate those businesses and successfully operate and grow the businesses we acquire.

We must work cooperatively with governmental authorities.

We are engaged in business in a country with a planned economy heavily influenced by government activities and we must work cooperatively with a variety of national, federal, regional, state, provincial, and local government authorities and entities.  The economy of China differs significantly from the economies of the “western” industrialized nations in such respects as structure, level of development, gross national product, growth rate, capital reinvestment, resource allocation, self-sufficiency, rate of inflation and balance of payments position, among others.  Only recently has the Chinese government encouraged substantial private economic activities.  The Chinese economy has experienced significant growth in the past several years, but such growth has been uneven among various sectors of the economy and geographic regions.  Actions by the Chinese government to control inflation have significantly restrained economic expansion in the recent past.  Similar actions by the Chinese government in the future could have a significant adverse effect on economic conditions in China and the results of operations of the Company.

 
8

 
 
If we deliver products with defects, our credibility will be harmed and the sales and market acceptance of our products will decrease.

Our product and services are complex and may at times contain errors, defects and bugs.  If we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products would be harmed.  Further, if our products contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such problems.  We may agree to indemnify our customers in some circumstances against liability arising from defects in our products. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We carry product and information liability and errors and omissions insurance, but in the event that we are required to defend more than a few such actions, or in the event that we are found liable in connection with such an action, our business and operations may be severely and materially adversely affected.

We compete with large companies.

We operate in a highly competitive industry.  Although we believe that some of our technology is unique, can be protected, and, if adopted, will confer benefits that will be otherwise unavailable for some time, we face very large competitors with greater resources who may adopt various strategies to block or slow our market penetration, thereby straining our more limited resources.  We are aware of efforts by competitors to introduce doubt about our financial stability as we compete to make sales and win customers and business.  Large competitors may also seek to hinder our operations through attempts to recruit key staff with exceptionally attractive terms of employment, including signing bonuses, or by offer of highly competitive terms to potential or newly acquired customers.

We will need to continue our product development efforts.

We believe that our market will be characterized by increasing technical sophistication.  We also believe that our eventual success will depend on our ability to continue to provide increased and specialized technical expertise.  There is no assurance that we will not fall technologically behind competitors with greater resources.  Although we believe that we enjoy a lead in our product development, and are hopeful that our patents provide some protection, we will likely need significant additional capital in order to continue to enjoy such a technological lead over competitors with more resources.

If we are unable to protect our intellectual property, our competitive position would be adversely affected.

We may rely on patent protection, as well as trademark and copyright law, trade secret protection and confidentiality agreements with our employees and others to protect our intellectual property.  Despite our precaution, unauthorized third parties may copy our products and services or reverse engineer or obtain and use information that we regard as proprietary.  We have filed eleven patent applications with the United States Patent and Trademark Office and intend to file more.  Six patents have been granted; however, we do not know if the remaining applications will be granted or whether we will be successful in prosecuting any future patents.  In addition, the laws of some foreign countries do not protect proprietary rights to the same extent, as do the laws of the United States.  Our means of protecting our proprietary rights may not be adequate and third parties may infringe or misappropriate our patents, copyrights, trademarks and similar proprietary rights.  If we fail to protect our intellectual property and proprietary rights, our business, financial condition and results of operations would suffer.  We believe that we do not infringe upon the proprietary rights of any third party, and no third party has asserted an infringement claim against us.  It is possible, however, that such a claim might be asserted successfully against us in the future.  We may be forced to suspend our operations to pay significant amounts to defend our rights, and a substantial amount of the attention of our management may be diverted from our ongoing business, all of which would materially adversely affect our business.

 
9

 

We focus on the research and development of our proprietary technologies and the marketing of our first product.

We believe that these technologies are the basis for marketable commercial products.  However, there can be no assurance of this, and it is possible that our proprietary technologies and products will have no commercial benefit or potential.  In addition, from our inception to the present, we have not recognized any substantial operating revenues.

We depend on our key personnel and may have difficulty attracting and retaining the skilled staff we need to execute our growth plans.

Our success will be dependent largely upon the efforts of our management team.  The loss of key staff could have a material adverse effect on our business and prospects.  To execute our plans, we will have to retain current employees. Competition for highly skilled employees with technical, management, marketing, sales, product development and other specialized training is intense.  We may not be successful in retaining such qualified personnel. Specifically, we may experience increased costs in order to retain skilled employees. If we are unable to retain experienced employees as needed, we would be unable to execute our business plan.

We may face rapid technological change.

The market for our products and services may be characterized by rapidly changing technologies, extensive research and the introduction of new products and services. We believe that our future success will depend in part upon our ability to continue to enhance our existing products and to develop, manufacture and market new products and services. As a result, we expect to continue to make a significant investment in engineering, research and development.  There can be no assurance that we will be able to develop and introduce new products and services or enhance our initial products in a timely manner to satisfy customer needs, achieve market acceptance or address technological changes in our target markets. Failure to develop products and services and introduce them successfully and in a timely manner could adversely affect our competitive position, financial condition and results of operations.

If we experience rapid growth, we will need to manage such growth well.

We may experience substantial growth in the size of our staff and the scope of our operations, resulting in increased responsibilities for management.  To manage this possible growth effectively, we will need to continue to improve our operational, financial and management information systems, will possibly need to create entire departments that do not now exist, and hire, train, motivate and manage a growing number of staff.  Due to a competitive employment environment for qualified technical, marketing and sales personnel, we expect to experience difficulty in filling our needs for qualified personnel.  There can be no assurance that we will be able to effectively achieve or manage any future growth, and our failure to do so could delay product development cycles and market penetration or otherwise have a material adverse effect on our financial condition and results of operations.

We could face information and product liability risks and may not have adequate insurance.

Our products may be used in connection with critical business applications. We may become the subject of litigation alleging that one or more of our products are ineffective or disruptive in our treatment of data, or with regard to critical business information.  Thus, we may become the target of lawsuits from injured or disgruntled businesses or other users.  In the event that we are required to defend more than a few such actions, or in the event that it is found liable in connection with such an action, our business and operations may be severely and materially adversely affected.

Future profitability is not guaranteed.

We have not recognized any substantial operating revenues to date.  Assuming we can attract sufficient financing, and revenues increase, there is no assurance that our plans will be realized or that we will achieve break-even status or profitability in the future.

 
10

 

Changes to financial accounting standards may affect our results of operations and cause us to change business practices.

We prepare financial statements in conformity with U.S. generally accepted accounting principles.  These accounting principles are subject to interpretation by the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the SEC and various other bodies formed to interpret and create appropriate accounting principles.  A change in those principles can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced.  Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.  For example, accounting principles affecting many aspects of our business, including rules relating to equity-related compensation, have recently been revised.  The Financial Accounting Standards Board and other agencies finalized changes to U.S. generally accepted accounting principles that required us, starting January 1, 2006, to record a charge to earnings for employee stock option grants and other equity incentives. We will have significant ongoing accounting charges resulting from option grant and other equity incentive expensing that could reduce net income or increase losses.  In addition, since we historically used equity-related compensation as a component of our total employee compensation program, the accounting change could make the use of equity-related compensation less attractive and therefore make it more difficult to attract and retain employees.

There is a limited market for our common stock.

Our common stock is not listed on any exchange and trades in the over-the-counter (the “OTC”) market.  Additionally, one stockholder holds a majority of our stock.  As such, the market for our common stock is limited and is not regulated by the rules and regulations of any exchange. Further, the price of our common stock and its volume in the OTC market may be subject to wide fluctuations. Our stock price could decline regardless of our actual operating performance, and stockholders could lose a substantial part of their investment as a result of industry or market-based fluctuations. Our stock trades relatively thinly.  If a more active public market for our stock is not sustained, it may be difficult for stockholders to sell shares of our common stock.  Because we do not anticipate paying cash dividends on our common stock for the foreseeable future, stockholders will not be able to receive a return on their shares unless they are able to sell them.  The market price of our common stock will likely fluctuate in response to a number of factors, including but not limited to, the following:

 
·
sales, sales cycle and market acceptance or rejection of our product;
 
·
economic conditions within our industry;
 
·
our failure to meet performance estimates or the performance estimates of securities analysts;
 
·
the timing of announcements by us or our competitors of significant products, contracts or acquisitions or publicity regarding actual or potential results or performance thereof; and
 
·
domestic and international economic, business and political conditions.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to and reporting on these assessments.  If we fail to adequately maintain compliance with, or maintain the adequacy of, our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC.  If we cannot favorably assess, or our independent registered public accounting firm is unable to provide an unqualified attestation report on our assessment of the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

 
11

 


ITEM 2.     DESCRIPTION OF PROPERTY

Our principal executive office consists of approximately 200 square feet of office space that is located at Suite 5204, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.  The premises are leased from a related third party with free rental.

Our operating offices in China consists of approximately 5,600 square feet of office space located at Suite 1506-09, Landmark, 4028 Jintian Road, Futian District, Shenzhen 518026, PRC and 800 square feet of office space located at Room 10C, Tower 2, Freelight Building, No.6017 Shennan Road, Futian District Shenzhen 518048, PRC.  The premises are leased from an unrelated third party with rental payments and management fees of approximately $113,000 and $10,000 per year respectively.  These leases will expire in February 2011 and June 2010 respectively .

All of our office facilities are in good condition and we believe they are adequate to support our operations for the foreseeable future.

ITEM 3.     LEGAL PROCEEDINGS

We had no legal proceedings outstanding as at June 30, 2009.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were put before our shareholders for a vote during the last quarter of our fiscal year.

 
12

 

PART II

ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the National Association of Securities Dealers, Inc. Over-The-Counter Electronic Bulletin Board (the “OTC Bulletin Board”), and is traded under the symbol “IMOT”.

The following table represents the high and low bid prices for our common stock on the OTC Bulletin Board for each quarter during the last two fiscal years.

   
High
   
Low
 
             
Fiscal 2008
           
             
Quarter ended September 30, 2007
    0.25       0.15  
Quarter ended December 31, 2007
    0.255       0.092  
Quarter ended March 31, 2008
    0.20       0.12  
Quarter ended June 30, 2008
    0.15       0.06  
                 
Fiscal 2009
               
                 
Quarter ended September 30, 2008
    0.12       0.05  
Quarter ended December 31, 2008
    0.09       0.01  
Quarter ended March 31, 2009
    0.08       0.01  
Quarter ended June 30, 2009
    0.06       0.01  

The above bid information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

As of September 6, 2009, there were approximately 609 holders of record of the Company’s common stock.  This number does not include an indeterminate number of shareholders whose shares are held by brokers in street name.

We have never declared or paid any cash dividend on our common stock and do not expect to declare or pay any cash dividend in the foreseeable future.

In the fiscal year ended June 30, 2009, the Company issued common stock to various parties and redeemed common stock.  The following transactions have not been reported by the Company in previous quarterly reports.  The value of the common stock for each issuance was based on one of the following: the market price of the shares on the date of the transactions, the market price of the shares on the date the negotiations between the parties began or on the fair value of services received.  The issuances were as follows:

On September 16, 2008 we authorized the issuance of 500,000 shares of common stock with a value of $0.05 per share to Deng Xiang Xiong for the compensation of negotiating in the case of Golden Anke.  The stock was delivered on August 19, 2009 and issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

Equity Compensation Plan

On December 1, 2003 our Board of Directors adopted, and on January 28, 2004 our stockholders approved, the Intermost Corporation 2003 Equity Incentive Plan.  As of June 30, 2009, no awards had been granted from the Plan.

 
13

 

ITEM 6.     MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Critical Accounting Policies and Estimates

Management’s discussion and analysis of results of operations and financial condition are based upon the Company’s consolidated financial statements.  These statements have been prepared in accordance with the generally accepted accounting principles as used in the United States of America.  These principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies rely upon assumptions, judgments and estimates and were used in the preparation of the Company’s consolidated financial statements:

Revenue Recognition

Revenues are recognized (i) with respect to services, at the time a project (or a milestone thereof) is completed and accepted by the customer, and (ii) with respect to products, at the time products are delivered to customers and collectability for such sales is reasonably assured. We have adopted Staff Accounting Bulletin No.101, Revenue Recognition (“SAB 101”) in our financial statements. SAB 101 provides in part further interpretive guidance for public companies on the recognition, presentation, and disclosure of revenues in financial statements. The adoption of SAB 101 did not have a material impact on our revenue recognition practices.

Accounts Receivable

We typically extend credit to our customers.  From time to time, e-commerce solution services are provided under fixed-price contracts where the revenues and the payment of related receivable balances are due upon the achievement of certain milestones. Management estimates the probability of collection of the receivable balances and provides an allowance for doubtful accounts based upon its judgment in assessing the realization of these receivable balances taking into account aging, historical experience, the customer’s financial condition and general economic conditions.

Long-lived assets and goodwill

The Company periodically evaluates the carrying value of long-lived assets held or used whenever events and circumstances indicate that the carrying value of the asset may no longer be recoverable.  An impairment loss, measured on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying value of the assets.

We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets”.  Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit.  The fair values of the reporting units are estimated using discounted cash flows approach.  If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any.

 
14

 
Overview

We believe that the People’s Republic of China represents an exciting emerging world market whose role in the global economy is increasing steadily.  China’s economic growth rate, measured by its gross domestic product, has consistently been higher than 7% over the past 10 years.  This economic growth is attributable to many factors, including investment in the country’s infrastructure, increased privatization of businesses and an abundant source of labor.  Currently, we offer products and services to businesses and consumers located primarily in China.  Our plan is to take advantage of China’s economic growth to expand our existing businesses and, possibly, in the future, to sell our products and services outside of China.  We also have begun to acquire diverse businesses that are not dependent on, or directly related to, each other.  We believe that diversification is a good hedge against the collapse of a single industry, such as the global collapse of the technology industry that occurred in 2000.  We expect that any acquisitions we make will improve our financial condition, although we cannot guarantee any such result.

Currently our revenues are generated primarily by our subsidiaries, ChinaE and ChinaE Tech both of which distributes licenses for Chinese language translation software and offer web design and hosting services.

In response to the economic recovery, we began to diversify our business, so that we will no longer be dependent on one market for revenue.   Generally, the issuance of our common stock represents some or all of the purchase price we pay for an acquired business.  We believe that the continued active trading of our common stock will be important to the principals of target companies and future acquisitions may be dependent on the active trading of our common stock.  However, our common stock has not been actively traded and, if our common stock continues to trade with limited volume and at current levels we may not be able to make acquisitions as planned.

During the fiscal year ended June 30, 2009 we incurred a net operating loss of $2,435,707.  Our auditor, Albert Wong & Co., CPA, has issued a “going concern” opinion for our financial statements as of June 30, 2009.

 
15

 

Results of Operations

Following is summary financial information reflecting our operations for the periods indicated.

   
Year Ended June 30
 
   
2009
   
2008
 
Net revenues
  $ 4,023     $ 26,108  
Cost of revenues
    (4,717 )     (68,328 )
Gross profit/(loss)
    (694 )     (42,220 )
Selling, general and administrative expenses
    (1,410,651 )     (1,565,844 )
Exchange differences
    1,814       8,734  
Amortization of intangible assets
    (6,747 )     (5,862 )
Written off loan receivables
    (427,080 )     -  
Written off trade receivables
    (282,931 )     -  
Interest income
    34,523       81,123  
Investment income
    250,110       277,755  
Loss from operations
    (1,841,656 )     (1,246,314 )
Impairment of associate company
    (1,265,148 )     -  
Loss on disposal of a subsidiary
    -       (353,377 )
Other income, net
    94,908       42,097  
Loss before taxation
    (3,011,896 )     (1,557,594 )
Taxation
    -       -  
Loss before minority interest
    (3,011,896 )     (1,557,594 )
Minority interest
    576,189       540  
Net loss
    (2,435,707 )     (1,557,054 )

Year Ended June 30, 2009 Compared to Year Ended June 30, 2008

Net revenues.

Net revenues for the year ended June 30, 2009 decreased by $22K1, or 85%, to $4K from $26K for the year ended June 30, 2008.

Net revenues during fiscals 2009 and 2008 were derived principally from e-commerce solutions.  The term “e-commerce solutions” includes web site design and development and web hosting.

The following table reflects the total net revenues and percentage of net revenues by major category for the periods indicated:

   
Year Ended June 30
   
Year Ended June 30
 
   
2009
   
2008
   
2009
   
2008
 
   
US$
   
US$
             
E-commerce solutions
                       
- website design and development
    4,023       26,108       100 %     100 %

 
16

 

Costs of Revenues.

Costs of revenues consist principally of subcontracting cost to third parties for the year ended June 30, 2009. The costs of revenues for the year ended June 30, 2008 consist principally salaries for computer network technicians, depreciation, and other costs including travel employee benefits, office expenses and related expenses allocated to the engineering and technician staff.

The following table reflects the principal components of costs of revenues and the percentage of net revenues represented by each component for the periods indicated:

   
Total Cost of Revenues
   
Percentage to Total Net Revenues
 
   
Year Ended June 30
   
Year Ended June 30
 
   
2009
   
2008
   
2009
   
2008
 
   
US$
   
US$
             
Engineers/technician salaries
    0       33,921       0.00 %     129.93 %
Sub-contracting fee
    3,803       0       94.53 %     -  
VOIP services
    0       166       0.00 %     0.64 %
Depreciation
    0       19,574       0.00 %     74.97 %
Other
    914       14,667       22.72 %     56.18 %
Total
    4,717       68,328       117.25 %     261.71 %

Compared to the 2008 fiscal year, the total costs of revenues for the 2009 fiscal year decreased by $63K, or 93%, to $5K. The decrease in costs of revenues was due to the exclusion of cost from VOIP services, cost of e-commerce has been outsourced to third parties at a lower cost.

Selling, General and Administrative Expense.

Selling, general and administrative expense (“SG&A”) consists principally of (1) sales commissions, advertising, trade show and seminar expenses, and direct-field sales expense, (2) salaries for administrative and sales staff, (3) corporate overhead, and (4) allowances for bad and doubtful accounts.  The following table reflects the principal components of SG&A and the percentage of net revenues represented by each component for the periods indicated:

   
Total SG & A
   
Percentage to Total Net Revenues
 
   
Year Ended June 30
   
Year Ended June 30
 
   
2009
   
2008
   
2009
   
2008
 
   
US$
   
US$
             
Sales and marketing salaries and commission
    178,249       42,407       4430.75 %     162.43 %
Other sales and marketing expenses
    70,079       13,009       1741.96 %     49.83 %
Rental obligation
    134,053       50,802       3332.16 %     194.58 %
Administrative salaries
    395,317       274,587       9826.42 %     1051.74 %
Corporate overhead
    632,953       1,185,039       15733.36 %     4538.99 %
Total
    1,410,651       1,565,844       35064.65 %     261.71 %

 
17

 

The principal components of SG&A during the 2009 year were sales and marketing salaries and commissions, other marketing expenditures, administrative salaries and benefits, and other corporate expenses, which includes legal and professional fees, general office expenses, traveling expenses, general employee benefit expense, depreciation consultancy fees, and allowance for bad and doubtful accounts.

For the 2009 fiscal year, SG&A decreased by $155K or 10%, to $1,411K as compared to $1,566K for the 2008 fiscal year.  Sales and marketing salaries and commissions increased by$ 136K or 320% during the 2009 fiscal year, to $178K, as compared to $42K for the 2008 fiscal year.  During the 2009 fiscal year, administrative salaries increased by $120K or 44%, to $395K during the 2009 fiscal year, as compared to $275K in the 2008 fiscal year.  Other corporate expense decreased during the 2009 fiscal year, by $552K or 47%, to $633K, as compared to $1,185K in the 2008 fiscal year.  The decrease in SG&A was principally attributable to the payment in 2008 to Mr. Rocky Wulianghai in term of IMOT shares as a one-time bonus for services already rendered to IMOT.

Minority Interest.

We reported a minority interest in our losses of $576K for the 2009 fiscal year, reflecting the proportionate interest in the losses of the group operating losses of China Equity Platform Holding Group Ltd. owned by other parties as compared to a minority interest in a loss of $1K for the 2008 fiscal year, reflecting the ownership of third parties in Intermost Focus Advertising Company Ltd.

Liquidity and Capital Resources

To date, we have funded our operations with cash from our operating activities, sales of our securities and by using our common stock to make acquisitions and purchases.

At June 30, 2009 we had cash and cash equivalents of $576K and working capital of $1,268K as compared to $640K of cash and cash equivalents and $1,747K of working capital as of June 30, 2008.

Net cash provided by operating activities totaled $375K during the 2009 fiscal year while net cash used in operating activities was $1,300K during the 2008 fiscal year. Cash generated from operating activities was partially offset by non-cash charges, including depreciation expense in the amount of $46K and amortization of intangible assets in the amount of $4K.

Net cash used in investing activities was $97K for the 2009 fiscal year while net cash provided by investing activities was $134K for the 2008 fiscal year.  Funds used in investing activities consisted of addition of office equipment.

Net cash used in financing activities was $323K for the 2009 fiscal year while net cash provided by financing activities was $555K for the 2008 fiscal year.  Funds used in financing activity were the decrease in amount due to a related company during the 2009 fiscal year.

We had no long term debt as of June 30, 2009.  Except as otherwise described herein, we have no plans to make any major capital expenditures during the next 12 months and we are not aware of any trends or uncertainties that could affect sales of our products.  We do not have any off balance sheet arrangements.

We have implemented various cost management measures to reduce our overhead.  The Company will likely need to borrow money or obtain additional equity financing in order to sustain operations.  At present, we have no commitments for funding and there is no assurance that funding will be available to us, or that any such funding would be on acceptable terms.  If we need financing and cannot obtain it, we may be required to severely curtail, or even cease, our operations.

 
18

 


Our operating results have been, and will continue to be, affected by a wide variety of factors that could have a material adverse effect on revenues and profitability during any particular period. Some of these factors include:

 
·
Our ability to successfully implement our business plan;

 
·
Whether or not we will be able to obtain the additional capital necessary to support our operations;

 
·
Whether or not we will find joint venture prospects or acquisition prospects with which to enhance our business;

 
·
Whether or not we can successfully integrate acquisitions that we make into our business;

 
·
The level and rate of acceptance of our products and services by the Chinese people;

 
·
Continued growth in the use of the Internet in China;

 
·
Entry of new competition (including established companies from outside China and companies with substantially greater resources) into our market;

 
·
Fluctuations in the level of orders for services delivered in a quarter;

 
·
Rescheduling or cancellation of orders by customers;

 
·
Competitive pressures on selling prices;

 
·
Changes in product, service or customer mix;

 
·
Rapid changes in technology, which result in our technology becoming obsolete;

 
·
Availability and cost of computer technicians;

 
·
Loss of any strategic relationships;

 
·
Loss of our largest customers;

 
·
Our ability to introduce new products and services on a timely basis;

 
·
New product and service introductions by our competitors;

 
·
Fluctuations in exchange rates, and

 
·
Adverse changes in the general economic, social or political conditions in the People’s Republic of China.

 
19

 

ITEM 7.             FINANCIAL STATEMENTS

Refer to Item 15 Finanacial Statement Schedules, pages 37 to 42.

ITEM 8.             CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to record, process, summarize and disclose this information within the time periods specified by the SEC.  Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by management, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective to ensure that we are able to record, process, summarize and report the information we are required to disclosure in the reports we file with the SEC within the required time periods.

Management is responsible for establishing and maintaining adequate internal control over financing reporting as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended.  Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of June 30, 2009.  We concluded that our internal control over financial reporting was effective as of June 30, 2009.

Change in Internal Controls Over Financing Reporting

During the year ended June 30, 2009 there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 8A           OTHER INFORMATION

None.

 
20

 

PART III

ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS, AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Identification of Directors, Executive Officers and Certain Significant Employees

The following table sets forth certain information regarding the directors and executive officers of the Company.

Name
 
Age
 
Position
         
Fred Peck
 
50
 
Director
         
Chia Hsun Wu
 
48
 
Director and Chief Executive Officer
         
Hiroshi Shinohara
 
53
 
Director
         
Rocky Wulianghai
 
50
 
President, Chief Executive Officer and Director
         
Thomas Lee
 
59
 
Chief Financial Officer

There are no family relationships among any of the directors or officers of the Company.

None of our directors or executive officers has, during the past five years,

 
·
had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time,

 
·
been convicted in a criminal proceeding and none of our directors or executive officers is subject to a pending criminal proceeding,

 
·
been subject to any order, judgment, or decree not subsequently reversed, suspended or vacated of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities, or

 
·
been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Business Experience

Fred Peck has served as a director of the Company since December 6, 2005. Mr. Peck is a funds manager, transaction superintendent and vice president of Boston Bank Taiwan Branch. Over 15 years experience in portfolio investment, risk investment, capital management, fundraising, acquisition and merger, project fund raising privatization.

 
21

 

Chia Hsun Wu has served as a director of the Company since November 3, 2006 and was appointed as the Chief Executive Officer of the Company on October 1, 2009.  Mr. Wu has extensive management and industrial experience and is a graduate from Oriental Institute of Technology. Mr. Wu has conducted scientific research at the National Taiwan University of Science and Technology. Mr. Wu is currently the Managing Director of FFBC Holdings Group and Presidents of KG Hospitality Management Co., Ltd. and Chain-Hsun Development Co., Ltd.

Hiroshi Shinohara has served as a director of the Company since February 18, 2008.  Mr. Shinohara graduated from Osaka University, with extensive experience in corporate financial analysis, business in merging and acquisition.  Mr. Shinohara is currently the Managing Director of FFBC Management Co., Ltd., Japan.

Rocky Wulianghai has served as a director of the Company since December 6, 2005. Mr. Wulianghai was appointed as President and Chief Executive Officer on June 13, 2007.  Mr. Wulianghai graduated from University of Michigan with a Masters Degree in electronic engineering.  Mr. Wulianghai is an experienced manager in capital management, a well-known writer in finance and was once a journalist, specifically editor-in-chief and a general editor in Taiwan Television.  Mr. Wulianghai served as General Manager of Asia Capital Management Inc. (1998) and as director of FFBC Holdings Group (2001). Mr. Wulianghai voluntarily resigned as Director, President and Chief Executive Officer of the Company on September 30, 2009.

Thomas Lee was appointed as Chief Financial Officer of the Company on June 13, 2007.  Mr. Lee was Chief Financial Officer of Management Recruiters International from June to September 2002.  Mr. Lee simultaneously worked on a project for Superstore International Ltd. which began in September 2002 and ended in August 2003.  From September 2003 to August 2004, Mr. Lee established a public relations company and reviewed a China architecture and re-design project.  In 2004, Mr. Lee rejoined Management Recruiters International as Chief Financial Officer.  In the same year, he joined the Ladies Recreations Club (Hong Kong) as Financial Consultant and Bund 18 Real Estate Management, Ltd (Shanghai) where he continues to serve as the Group Financial Officer.

Term of Office

All directors named above will serve until the next annual meeting of the Company’s shareholders and until their successors are elected and qualified.  Officers will hold their positions at the pleasure of the Board of Directors.

Compliance With Section 16(a) of Exchange Act

Section 16(a) of the Securities Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership of our common stock with the Securities and Exchange Commission.  Directors, executive officers and persons who own more than 10% of our common stock are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms they file.

Based sole upon there being no reports furnished to us, the Company believes that, with respect to its fiscal year ended June 30, 2009, none of the Company’s directors and officers and none of the persons known to the Company to own more than 10% of the Company’s common stock, filed beneficial ownership reports with the Securities and Exchange Commission.

 
22

 

ITEM 10.           EXECUTIVE COMPENSATION

Our “executive officers” include our current Chief Executive Officer, Chia Hsun Wu; our former Chief Executive Officer and President, Rocky Wulianghai, who resigned on September 30, 2009;and our Chief Financial Officer, Thomas Lee.

The following table sets forth information concerning cash and non-cash compensation paid or accrued to our executive officers during the past fiscal year:

Summary Compensation Table
The amounts in the table below are calculated as of June 30, 2009
 
Name and
Principal
Position
(a)
 
Year
(b)
 
Salary
($)
(c)
   
Bonus
($)
(d)
   
Stock
awards
($)
(e)
   
Option
Awards
($)
(4)
(f)
   
Non-Equity
Incentive Plan
Compensation
($)
(g)
   
Non-Qualified
Deferred
Compensation
Earnings
($)
(h)
   
All Other
Compensation
($)
(i)
   
Total
($)
(j)
 
Rocky Wulianghai,
CEO and President (1)
 
2009
    52,655       0       0       0       0       0       0       52,655  
Chia Hsun Wu,
CEO (2)
 
2009
    0       0       0       0       0       0       0       0  
Thomas Lee,
CFO (3)
 
2009
   
100,460
      0       0      
0
      0       0       0      
100,460
 
 
(1) Mr. Rocky Wulianghai was appointed as Director of the Company on December 6, 2005 and Chief Executive Officer and President of the Company on June 13, 2007 and resigned as Director, President and Chief Executive Officer on September 30, 2009.

(2) Mr. Chia Hsun Wu was appointed as Director of the Company on November 3, 2006 and Chief Executive Officer on October 1, 2009.

(3) Mr. Thomas Lee was appointed as Chief Financial Officer of the Company on June 13, 2007.

Director Compensation Table
The amounts in the table below are calculated as of June 30, 2009.

Name
(a)
 
Fees Earned
or Paid in
Cash ($)
(b)
   
Stock
Awards ($)
(c)
   
Option Awards
($)
(d)
   
Non-Equity
Incentive Plan
Compensation ($)
(e)
   
Nonqualified
Deferred
Compensation
Earnings
(f)
   
All Other
Compensation
($)
(g)
   
Total ($)
(h)
 
Rocky Wulianghai
    52,655       0       0       0       0       0       52,655  
Chia Hsun Wu
    0       0       0       0       0       0       0  

 
23

 

Director’s Compensation

The Company reimburses its directors for out-of-pocket expenses incurred on behalf of the Company.

Other Compensation and Employment Arrangements

The Company has adopted and the stockholders have approved the Intermost Corporation 2003 Equity Incentive Plan.  The following discussion is qualified in its entirety by the terms and provisions of the Plan.

The Plan authorizes awards of options, awards of stock (“Stock Award”) and the granting of bonus stock (“Stock Bonus”).  Persons eligible to receive awards under the Plan include the Company's employees, officers and directors and its consultants, independent contractors and advisors.  As of June 30, 2009, all of the Company’s employees, officers and directors were eligible to receive awards under the Plan.  The number of persons covered by the Plan may increase if we add additional employees (including officers) and directors.  As of the date of this Annual Report, no awards have been granted from the Plan.

The Company’s Board of Directors administers the Plan.  For purposes of this discussion, the body administering the Plan will be referred to as the Administrator.  The Administrator has the authority to determine, at its discretion, the number and type of awards that will be granted, the recipients of the awards, any exercise or purchase price required to be paid, when options may be exercised and the term of option grants.  Awards under the Plan are not defined as to any group.  The term of the Plan is 10 years from the date the Plan was adopted by the Board of Directors.  We have reserved 20,000,000 shares of our common stock for awards to be made under the Plan.

The exercise price for stock options granted to officers and directors must be the fair market value of the common stock on the date of grant.  The exercise price for stock options granted to eligible persons other than officers and directors may not be less than 85% of the fair market value of the common stock on the date of grant.  The term of an option may not exceed 10 years.

A Stock Award is an offer by the Company to sell to an eligible person shares of common stock that may or may not be subject to restrictions.  Stock Awards granted to officers and directors must be granted at the fair market value of the common stock on the date of the award.  Stock Awards granted to eligible persons who are not officers or directors may not be granted at less than 85% of the fair market value of the common stock on the date of the award.  Stock Awards may be subject to vesting conditions, as determined by the Administrator.

A Stock Bonus is a grant of shares that may be awarded to an eligible person.  A Stock Bonus may be subject to vesting conditions, as determined by the Administrator.  A Stock Bonus may be awarded for any reason determined by the Administrator, including, but not limited to, extraordinary services rendered to the Company by an eligible person, as an award for performance achieved by the Company or upon satisfaction of performance goals by the eligible person.

In the United States, a recipient will not recognize any taxable income at the time an option is granted.  However, upon exercise of an option, the recipient will include in income as compensation an amount equal to the difference between the fair market value of the shares on the date of exercise and the recipient's exercise price.  The included amount will be treated as ordinary income by the recipient and may be subject to withholding.  Upon resale of the shares by the recipient, any subsequent appreciation or depreciation in the value of the shares will be treated as capital gain or loss.  There is no tax consequence to the Company as a result of either the grant or the vesting of stock options.

 
24

 

ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Common Stock

The following table is furnished as of June 30, 2009, to indicate beneficial ownership of shares of the Company’s common stock by (1) each shareholder of the Company who is known by the Company to be a beneficial owner of more than 5% of the Company’s common stock, (2) each director and named officer of the Company, individually, and (3) all officers and directors of the Company as a group.

Class of
Stock
 
Name and Address of Beneficial
Owner
 
Number of
Shares
Beneficially
Owned
   
Percent of
Class
 
Common
 
Fred Peck1
   
102,881,950
 
    48.24 %
Common
 
Rocky Wulianghai2
   
6,000,000
 
    2.81 %
Common
 
Chia Hsun Wu
   
-
      N/A  
Common
 
Hiroshi Shinohara
   
-
      N/A  
Common
 
Thomas Lee
   
-
      N/A  

(1) Includes shares owned by Alfredo Properties Limited, wholly-owned by Mr. Peck, 20,881,950 shares; and shares owned by the following entities controlled by Mr. Peck: First Core Capital Finance Limited, 22,000,000 shares; First Federal Holdings Limited, 40,000,000; Magnate Trading Services Limited, 6,666,000 shares; Piaster Assets Inc., 6,666,000 shares; and Original Group Holdings Limited, 6,668,000 shares.
 
(2) Resigned on 30th September 2009.

Equity Compensation Plan Information

Plan Category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
 
Number of securities
remaining available for
future issuance under
Equity compensation
plans (excluding
securities reflected in
column (a))
(c)
 
Equity compensation plans approved by security holders
    0  
Not applicable
    20,000,000  
Equity compensation plans not approved by security holders
    0  
Not applicable
    0  
Total
    0  
Not Applicable
    20,000,000  
 

 
25

 

ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

No directors, executive officers or immediate family members of such individuals were engaged in transactions with us or any of our subsidiaries during the fiscal years ended June 30, 2006, June 30, 2007, June 30, 2008 and June 30, 2009.  Furthermore, we have no “interlocking” relationships in which any of our executive officers are a member of the board of directors of another entity whose executive officers are a member of our Board of directors.

ITEM 13. 
EXHIBITS AND REPORTS ON FORMS 8-K

(a)
 
Exhibits
     
Exhibit
   
Number
 
Description of Exhibit
     
2.1
 
Articles of Merger (1)
3.1
 
Articles of Incorporation (1)
3.2
 
Bylaws (1)
10.1
 
Cooperative Agreement re: formation of Jiayin E-Commerce joint venture (2)
10.2
 
Agreement Regarding Transfer of Properties on 38th Floor, Guomao Building (3)
10.3
 
Shareholding Transfer Agreement dated May 23, 2003 between IMOT Information Technology (Shenzhen) Ltd. and Shanghai Newray Business Development Co., Ltd. (4)
10.4
 
Share Transfer Agreement among IMOT Information Technology (Shenzhen) Ltd., Shenzhen Golden Anke Technology Co. Ltd., Intermost Corporation, Tu Guoshen and Li Zhiquan (5)
10.5
 
Sale and Purchase Agreement among IMOT Information Technology (Shenzhen) Ltd., Shanghai Fortune Venture Limited, North Shanghai Branch of Shanghai Technology Property Right Exchange Center and Intermost Corporation (6)
10.6
 
Distributorship Agreement dated November 28, 2002 between KanHan Technologies Limited and ChinaE.com Information Technology Ltd. (7)
10.7
 
Intermost Corporation 2003 Equity Incentive Plan (8)
10.8
 
Joint Venture Agreement among Intermost Corporation and Entities and/or Individuals Collectively Referred to as “Investors.”*
14
 
Code of Ethics (9)
16
 
Letter on Change in Certifying Accountant (10)
21
 
Significant Subsidiaries *
31.1
 
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a)*
31.2
 
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a)*
32.1
 
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2
 
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 
26

 

(1)
 
Incorporated by reference to the respective exhibits filed with the Registrant’s 10-KSB Amendment filed with the SEC on October 15, 2004
     
(2)
 
Incorporated by reference to the respective exhibits filed with Registrant’s Registration Statement on Form 10-SB (Commission File No. 0-30430).
     
(3)
 
Incorporated by reference to the respective exhibits filed with the Registrant’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000.
     
(4)
 
Incorporated by reference to the exhibit filed with the Registrant’s Current Report on Form 8-K filed with the SEC on June 9, 2003.
     
(5)
 
Incorporated by reference to the exhibit filed with the Registrant’s Current Report on Form 8-K filed with the SEC on August 17, 2004.
     
(6)
 
Incorporated by reference to the exhibit filed with the Registrant’s Current Report on Form 8-K filed with the SEC on April 26, 2004.
     
(7)
 
Incorporated by reference to the exhibit filed with the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2003.
     
(8)
 
Incorporated by reference to the exhibit filed with the Registrant’s Proxy Statement filed with the SEC on January 6, 2004.
     
(9)
 
Incorporated by reference to the exhibit filed with the Registrant’s 10-KSB Amendment filed with the SEC on October 25, 2004.
     
(10)
 
Incorporated by reference to the exhibit filed with the Registrant’s Current Report on Form 8-K filed with the SEC on March 8, 2004.
     
*
 
Filed herewith.

(b)           Reports on Form 8-K

On August 15, 2008 the Registrant filed a Current Report disclosing that the Registrant approved a settlement agreement (the “Settlement Agreement”) by and among the Company, IMOT Information Technology (Shenzhen) Co., Ltd., Shenzhen Inter-Anke Digital Technology Co., Ltd. (“Anke”), and ChinaE.com Equity Platform Holding (Group) Co., Ltd., effective on August 11, 2008.  The Settlement Agreement provides for (i) Anke to pay to the Company the sum of USD$1,000,000, (ii) the Company to transfer to Anke all of the shares of stock representing the Company’s 49% ownership interest in Anke, and (iii) a termination of the Share Transfer Agreement by among the Company and Anke executed March 31, 2004, pursuant to which the Company initially acquired the Anke shares.

On August 15, 2008 the Registrant filed a Current Report disclosing certain material impairments of certain investment and long-lived assets and the non-reliance on its audit report for the year ended June 30, 2007.

On August 18, 2008 the Registrant filed a Current Report disclosing the dismissal of Gruber & Company, LLC as the Company’s independent accountant, effective on May 15, 2007.

On October 14, 2008 the Registrant filed a Current Report therein disclosing that it had concluded that, in the same context and for the same reasons as the prior nonreliance and restatements, the Company would amend its quarterly reports for the periods ended September 30, 2007 and March 31, 2008, and also disclosing that the Registrant had moved its principal executive offices to:  Suite 5204, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.

On March 26, 2009 the Registrant filed a Current Report disclosing the Board ratified an amendment to the Joint Venture Agreement with certain investors, under which the Company transferred certain subsidiaries to a newly formed joint venture corporation in consideration for stock in the joint venture corporation and certain investment into the joint venture corporation.

 
27

 

On July 23, 2009 the Registrant filed a Current Report disclosing the Company received approval from Haikou Intermediate People’s Court of the People’s Republic of China on June 25, 2009 thereby allowing the Company, IMOT Information Technology (Shenzhen) Co., Ltd., Guangzhou Ditai Communication Co., Ltd., Hainan Special Economic Zone Property Rights Exchange Centre, Hainan Exchange Center Non-Public Company Equity Registration Co., Ltd. and Zhai, Xiya to settle their dispute over a stock exchange agreement entered into on December 11, 2004.

On September 3, 2009 the Registrant filed a Current Report disclosing the Board approved to dismiss The Corporate Law Group and appoint David J. Levenson as the Company attorney in US law and Yuen & Partners as Company attorney in Hong Kong law, with effective on August 8, 2009.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth fees billed to us by our auditors during the fiscal years ended June 30, 2009 and June 30, 2008 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services by our auditor that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and tax planning, and (iv) all other fees for services rendered.

   
June 30, 2009
   
June 30, 2008
 
              
(i)     Audit Fees
  $ 30,000 *   $ 45,000 *
(ii)    Audit Related Fees
  $     $  
(iii)   Tax Fees
 
$
    $  
(iv)   All Other Fees
 
$
    $  

*  Audit fee for fiscal years ended June 30, 2009and June 30, 2008 were accrued to the auditors, Albert Wong & Co., CPA.

 
28

 

Item 15.  Exhibits and Financial Statement Schedules

The following auditor’s report and financial statements are filed as part of this annual report:

 
PAGE
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
30
   
CONSOLIDATED BALANCE SHEET 
31
   
CONSOLIDATED STATEMENT OF INCOME
33
   
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
34
   
CONSOLIDATED STATEMENT OF CASH FLOWS
35
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
37

[Intentionally Left Blank]

 
29

 

ALBERT WONG & CO.
CERTIFIED PUBILC ACCOUNTANTS
7th Floor, Nan Dao Commercial Building
359-361 Queen’s Road Central
Hong Kong
Tel : 2851 7954
Fax: 2545 4086
 
ALBERT WONG
 
B Soc., Sc., ACA., LL.B., CPA(Practising)
 
 

 
To:      The board of directors and stockholders of
            Intermost Corporation

Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated balance sheet of Intermost Corporation and subsidiaries as of June 30, 2009 and 2008 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Intermost Corporation as of June 30, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 15. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
Hong Kong
Albert Wong & Co.
September 30, 2009
Certified Public Accountants

 
30

 

INTERMOST CORPORATION

CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2009 AND 2008
(Stated in US Dollars)

 
Notes
 
2009
   
2008
 
ASSETS
             
Current assets
             
Cash and cash equivalents
2(e)
  $ 575,523     $ 640,200  
Accounts receivable, net
2(g)
    1,464       3,949,653  
Deposits, prepayment and other receivables
3
    741,680       1,318,880  
Other loan receivables
5
    474,825       670,288  
Total current assets
    $ 1,793,492     $ 6,579,021  
Restricted cash
2(f)
    -       313,732  
Unlisted investment
2(h)
    943,072       937,363  
Plant and equipment, net
6
    119,690       74,568  
Goodwill
4
    -       -  
Intangible assets, net
      12,416       16,365  
Investment in associated companies
2(l)
    1       1,258,742  
TOTAL ASSETS
    $ 2,868,671     $ 9,179,791  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Current liabilities
                 
Accounts payable
    $ -     $ 3,353,240  
Accrued liabilities and other payable
7
    518,927       759,353  
Customers deposits
      5,468       83,999  
Advance from a shareholder
      -       159,600  
Advance from a related company
9
    -       475,173  
Business and other taxes payable
      1,034       1,047  
Total current liabilities
    $ 525,429     $ 4,832,412  
TOTAL LIABILITIES
    $ 525,429     $ 4,832,412  

See accompanying notes to consolidated financial statements

31

 
INTERMOST CORPORATION

CONSOLIDATED BALANCE SHEETS (Continued)
AS AT JUNE 30, 2009 AND 2008
(Stated in US Dollars)

 
Notes
 
2009
   
2008
 
               
Minority interests
    $ 446,361     $ 12,418  
                   
STOCKHOLDERS’ EQUITY
                 
                   
Common stock at $0.001 par value, 500,000,000 shares authorized, 213,281,873 shares issued and outstanding at June 30, 2009;
10
    213,282       213,282  
Additional paid-in capital
10
    24,997,931       24,843,131  
Accumulated deficit
      (23,282,270 )     (20,846,563 )
Accumulated other comprehensive income
2(s),10
    (32,062 )     125,111  
      $ 1,896,881     $ 4,334,961  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
    $ 2,868,671     $ 9,179,791  

See accompanying notes to consolidated financial statements

 
32

 

INTERMOST CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

 
Notes
 
2009
   
2008
 
               
Net revenues
2(m)
  $ 4,023     $ 26,108  
Cost of net revenues
      (4,717 )     (68,328 )
Gross loss
    $ (694 )   $ (42,220 )
Selling, general and administrative expenses
      (1,415,584 )     (1,562,972 )
Loss from operations
    $ (1,416,278 )   $ (1,605,192 )
Investment income
      250,110       277,755  
Interest income
      34,523       81,123  
Other income
      94,908       42,097  
Bad debts written off
3(d)
    (710,011 )     -  
      $ (1,746,748 )   $ (1,204,217 )
Unusual items
                 
Loss on disposal of a subsidiary
      -       (353,377 )
Impairment of associate company
13
    (1,265,148 )     -  
Loss before income taxes and minority interests
    $ (3,011,896 )   $ (1,557,594 )
Income taxes
8
    -       -  
Net loss before minority interests
    $ (3,011,896 )   $ (1,557,594 )
Minority interests
      576,189       540  
Net loss
    $ (2,435,707 )     (1,557,054 )
Net loss per share:
                 
-Basic and diluted
    $ (0.0114 )   $ (0.0074 )
Weighted average no. of common stock
                 
-Basic and diluted
    $ 213,281,873     $ 211,069,111  

See accompanying notes to consolidated financial statements

 
33

 

INTERMOST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

                     
Additional
   
Accumulated
             
   
No.
               
paid
   
Other
             
   
shares
   
Common
   
Treasury
   
In
   
comprehensive
   
Accumulated
       
   
outstanding
   
stock
   
Stock
   
capital
   
Income/(loss)
   
deficit
   
Total
 
                                           
Balance, July 1, 2007
    215,370,278     $ 215,371     $ (8,970 )   $ 24,216,705     $ (444,805 )   $ (19,289,509 )   $ 4,688,792  
Net loss
    -       -       -       -       -       (1, 557,054 )     (1,557,054 )
Redemption of common stocks
    (8,970,355 )     (8,970 )     8,970       -       -       -       -  
Issuance of common stocks
    6,881,950       6,881       -       626,426       -       -       633,307  
Foreign currency translation
adjustment
    -       -       -       -       415,116       -       415,116  
Adjustment on shares paid for
compensation
 
- 
   
- 
      -       -    
154,800 
   
- 
   
154,800 
 
Balance, June 30, 2008
    213,281,873     $ 213,282     $ -     $ 24,843,131     $ 125,111     $ (20,846,563 )   $ 4,334,961  
                                                         
Balance, July 1, 2008
    213,281,873     $ 213,282     $ -     $ 24,843,131     $ 125,111     $ (20,846,563 )   $ 4,334,961  
Net loss
    -       -       -       -       -       (2,435,707 )     (2,435,707 )
Adjustment on shares paid for
compensation
    -       -       -       154,800       (154,800 )     -       -  
Foreign currency translation
adjustment
    -       -       -       -       (2,373 )     -       (2,373 )
Balance, June 30, 2009
    213,281,873     $ 213,282       -       24,997,931       (32,062 )     (23,282,270 )     1,896,881  

See accompanying notes to consolidated financial statements

 
34

 
 
INTERMOST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

 
Note
 
2009
   
2008
 
Cash flows from operating activities
             
Net loss
    $ (2,435,707 )   $ (1,557,054 )
Amortization of intangible assets
      4,044       5,862  
Bad debts
3(d)
    710,011       -  
Depreciation
      46,100       30,587  
Loss on disposal of fixed assets
      5,921       -  
Loss on disposal of a subsidiary
      -       353,377  
Impairment of associate company
13
    1,265,148       -  
Minority interests
      433,436       (540 )
                   
Adjustments to reconcile net loss to net cash provided by operating activities:
                 
Accounts receivable, net
      170,474       549,614  
Deposits, prepayment and other receivable
      356,909       278,181  
Short-term loan
      -       69,726  
Accounts payables
      -       (947,404 )
Accrued liabilities and other payable
      (102,178 )     (64,306 )
Customers deposits
      (79,357 )     (8,079 )
Deferred revenue
      394       (10,710 )
Business and other taxes payable
      (20 )     667  
Net cash provided by/(used in) operating activities
    $ 375,175     $ (1,300,079 )
Cash flows from investing activities
                 
Acquisition of plant and equipment
    $ (96,645 )   $ (50,862 )
Increase in short-term investment
      -       27,651  
Deposit of investment
      -       156,876  
Net cash (used in)/provided by investing activities
    $ (96,645 )   $ 133,665  
Cash flows from financing activities
                 
Advance from a related party
    $ (477,592 )   $ 447,878  
Advance from a shareholder
      (160,412 )     (16,903 )
Redemption of common stocks
      -       (8,970 )
Proceeds from issuance of common stocks, net
      -       110,949  
Restricted cash
      315,329       21,729  
Net cash (used in)/provided by financing activities
    $ (322,675 )   $ 554,683  

 
35

 
 
INTERMOST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

   
2009
   
2008
 
             
Net decrease in cash and cash equivalents
  $ (44,145 )   $ (611,731 )
Effect of foreign currency translation on cash and cash equivalents
    (20,532 )     721,463  
Cash and cash equivalents–beginning of year
    640,200       530,468  
Cash and cash equivalents–end of year
  $ 575,523     $ 640,200  
 
   
2009
   
2008
 
Supplementary cash flow information:
           
Interest received
  $ 5,892     $ 30,280  

See accompanying notes to consolidated financial statements

 
36

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

1.
ORGANIZATION AND PRINCIPAL ACTIVITIES

Intermost Corporation (hereinafter referred to as the “Company”, including its subsidiaries and associated companies when the context so requires) was originally incorporated in the State of Utah on March 6, 1985 under the name Utility Communications International, Inc. The Company changed its name from Utility Communications International, Inc. to Intermost Corporation on October 23, 1998. In February 2003, the Company re-domiciled from the State of Utah to the State of Wyoming.

On October 23, 1998, the Company acquired a 100% interest in Intermost Limited ("IL"), a company incorporated in the British Virgin Islands, by issuing 4,970,000 shares of its common stock with a par value of US$0.001 per share (after the redenomination of par value and a stock split) to the shareholders of IL.

The acquisition of IL by the Company was treated as a reverse acquisition since IL was the continuing entity as a result of the exchange reorganization.

The Company is engaged in providing, directly and through its subsidiaries and associated companies, business equity and financial consulting services in the People’s Republic of China (the "PRC" or "China").   The Company's fiscal year-end is June 30.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Method of Accounting

The Group maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The consolidated financial statements and notes are representations of management.  Accounting policies adopted by the Group conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of consolidated financial statements, which are compiled on the accrual basis of accounting.

(b)
Principles of Consolidation

The consolidated financial statements include the accounts of Intermost Corporation (the Company) and its eleven subsidiaries (of which three were totally impaired), two associate companies (of which one was totally impaired) and one affiliated company, constituting the group. Significant inter-company transactions have been eliminated in consolidation. The consolidated financial statements include 100% of the assets and liabilities of these majority-owned subsidiaries, and the ownership interests of minority investors are recorded as minority interests.

 
37

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b)
Principles of Consolidation (continued)

The Company’s subsidiaries and affiliated companies and their principal activities as of June 30, 2009 are summarized as follows:
Name
 
Place of
incorporation of
organization
 
Percentage of
Equity Interest
Attributable to
the Company
       
Principal Activities
Intermost Limited (“IL”)
 
British Virgin Islands
    100 %
Investment holding
Leader Palace International Limited (LP)
 
British Virgin Islands
    100 %
Inactive
Intermost (H.K.) Limited (“IHKL”)
 
Hong Kong
    100 %
Inactive
IMOT Information Technology (Shenzhen) Ltd. (“IITSL”)*
 
PRC
    100 %
Investment holding
China Equity Platform Holding Group Limited (“CEPHGL”)**
 
British Virgin Islands
    60 %
Investment holding
ChinaE.com E-Commerce Co. Ltd. (Formerly known as China E.com Information Technology Ltd. (“CECITL”))***
 
PRC
    60 %
Business equity and financial consulting services
ChinaE.com Technology (Shenzhen) Ltd.(“CECTSL”)***
 
PRC
    60 %
Business equity and financial consulting services
ChinaE.com Investment Consultants (Shenzhen) Company Ltd. (“CECICSL”)****
 
PRC
    60 %
Inactive
Intermost Focus Advertising Company Ltd.(“IFACL”)****
 
PRC
    54 %
Inactive
Shenzhen International Hi-Tech Property Right Exchange Centre (“SIHTPREC”)*****
 
PRC
    9 %
Private equity exchange
Hainan Special Economic Zone Property Right Exchange Center (PREC)*****
 
PRC
    12.6 %
Private Property Right Exchange

* IITSL is wholly foreign owned enterprises established in the PRC to be operated until 2018.              .

** During the fiscal year of June 30, 2009, the Company has transferred the subsidiary companies, CECITL, CECICSL, IFACL & CECTSL and investments in PRC companies, SIHTPREC & PREC to CEPHGL in exchanging 60% of shareholdings in CEPHGL. The group operations of CEPHGL are consolidated into the Company’s financial statements.

 
38

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b)
Principles of Consolidation (continued)

*** CECTSL and CECITL are wholly foreign owned enterprises established in the PRC to be operated until 2014 and 2018 respectively. They are subsidiaries of CEPHGL and their operations are consolidated into CEPHGL’s financial statements. 

**** IFACL and CECICSL are equity joint ventures established in the PRC to be operated until 2010 and 2026 respectively. They are subsidiaries of CEPHGL and their operations are consolidated into CEPHGL’s financial statements. 
  
*****   PREC is equity joint venture established in the PRC to operate for a period of years until   2033. PREC is associated companies of CEPHGL and is accounted for under the equity method of accounting. SIHTPREC is an affiliated company and is accounted for under the cost method.

The Company owns certain of its subsidiaries through trusts that were created by a Declaration of Trust executed by Huang Liqiong and Jun Liang in February 2000. The trusts were created by, and therefore are revocable by, IL. Accordingly, IL consolidates the operations of CECITL since it is the beneficial owner of a majority of the outstanding interests and, through its ability to revoke the trusts, retains control of these interests.  CECITL has transferred to CEPHGL.

(c)
Use of estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

(d)
Economic and political risks

The Company’s operations are mainly conducted in the PRC and Taiwan (ROC). Accordingly, the Company’s business, financial condition and results of operations in the PRC and Taiwan may be influenced by the political, economic and legal environment in the PRC and Taiwan, and by the general state of the PRC and Taiwan economy.

The Company’s major operations in the PRC and Taiwan are subject to special considerations and significant risks not typically associated with companies in North America. 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 Taiwan, and by changes in government administration, governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

 
39

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(e)
Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  The Company maintains bank accounts only in the PRC, Taiwan and Hong Kong. The Company does not maintain any bank accounts in the United States of America.

(f)
Restricted cash

Restricted cash represents time deposit accounts in Mega International Commercial Bank under one year Performance Guarantee Contract between Innocom Telecom Holdings and Leader Palace International Limited to secure the performance of Innocom as a service provider to Chunghwa Telecom Co. Ltd. The contract was ended at April 9, 2008 and renewed another year to April 9, 2009. Due to the breach of contract of Innocom and Chunghwa Telecom Co. Ltd., the Mega International Commercial Bank has withdrawn US$197,830 to compensate Chunghwa Telecom Co. Ltd. during the year.

(g)
Account receivable

Accounts receivable is carried at the net invoiced value charged to customer.  The Company records an allowance for doubtful accounts to cover estimated credit losses. Management reviews and adjusts this allowance periodically based on historical experience and its evaluation of the collectability of outstanding accounts receivable. The Company evaluates the credit risk of its customers utilizing historical data and estimates of future performance.

(h)
Investments

The non-marketable equity security investments are presented at historical cost because the Company does not have significant influence over the underlying investments. These investments are subject to a periodic impairment review. To the extent any impairment is considered other-than-temporary, the investment is written down to its fair value and the loss is recorded as interest income and other, net.  The amount of unlisted investment is RMB 6,441,372 of Shenzhen International Hi-Tech Property Right Exchange Centre (“SIHTPREC”), no impairment has been found necessary.

 
40

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(i)
Property and equipment

Plant and equipment are carried at cost less accumulated depreciation.  Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

     Computer equipment
3 years
     Furniture and office equipment
5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

(j)
Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis. See Note 4 for goodwill impairment details.

(k)
Accounting for the impairment of long-lived assets

Impairment of Long-Lived Assets is evaluated for impairment at a minimum on an annual basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". An asset is considered impaired if its carrying amount exceeds the future net cash flow the asset is expected to generate. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. The recoverability of long-lived assets is assessed by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets. The amount of impairment, if any, is measured based on projected discounted future net cash flows using a discount rate reflecting the Company's average cost of capital.

See Note 4 for impairment of goodwill and Note 13 for impairment of investment in associated company.

 
41

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(l)
Associated Company

An associated company is a business enterprise in which the Company owns between 20% and 50% of the equity capital, and does not have direct or indirect or joint control, and therefore, has only limited ability to participate in financial and operating policy decisions.

The Company's investment in associated companies is accounted for under the equity method of accounting, whereby the investment is initially recorded at cost and the carrying amount is adjusted thereafter for the post acquisition change in the Company's share of the associated company's results of operations. See Note 13 for investment in associated company impairment details.

(m)
Revenue recognition

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. The Company recognizes revenue when the significant risks and rewards of ownership have been transferred to the customer pursuant to PRC law, including factors such as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, sales and value-added tax laws have been complied with, and collectability is probable.

Revenue from web-site development contracts is recognized based on the terms of the contract. The Company uses either the percentage of completion when the contract is long-term or the completed contract method when the contract is short-term to recognize such revenue. Contracts are short-term in nature and require acceptance by the customer pursuant to the respective contracts are accounted for under the completed contract method. Revenues are allocated to the elements of the contract based on the fair values of the elements. Provisions for estimated contract losses are recognized in the year the loss becomes probable and can be reasonably estimated.

Revenue from maintenance contracts is recognized on a straight-line basis over the term of the maintenance contract, generally twelve months. The unearned portion of maintenance revenue is classified as deferred revenue and amortized over the life of the contract.

(n)
Stock compensation

The Company may periodically issue shares of common stock for services rendered or for financing costs. Such shares are valued based on the market price of the shares on the transaction date.

The Company may periodically issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs.

The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which establishes a fair value method of accounting for stock-based compensation plans.

 
42

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(n
Stock compensation (continued)

The provisions of SFAS No. 123 allow companies to either record an expense in the financial statements to reflect the estimated fair value of stock options to employees, or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", but to disclose on an annual basis the pro forma effect on net income (loss) and net income (loss) per share had the fair value of the stock options been recorded in the financial statements. SFAS No. 123 was amended by SFAS No. 148, which now requires companies to disclose in interim financial statements the pro forma effect on net income (loss) and net income (loss) per common share of the estimated fair market value of stock options issued to employees. The Company has elected to continue to account for stock-based compensation plans utilizing the intrinsic value method. Accordingly, compensation cost for stock options will be measured as the excess, if any, of the fair market price of the Company's common stock at the date of grant above the amount an employee must pay to acquire the common stock.

In accordance with SFAS No. 123, the cost of stock options and warrants issued to non-employees is measured at the grant date based on the fair value of the award. The fair value of the stock-based award is determined using the Black-Scholes option-pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive benefit, which is generally the vesting period.

Stock options issued to non-employee directors at fair market value will be accounted for under the intrinsic value method.

The Company did not have any stock options outstanding during the year ended June 30, 2009. Accordingly, no pro forma financial disclosure is provided herein.

(o)
Advertising

The Company expensed all advertising costs as incurred.  Advertising expenses included in selling expenses were $11,298 and $1,220 for the years ended June 30, 2009 and 2008 respectively.

(p)
Income taxes

The Company uses the accrual method of accounting to determine and report its taxable income and tax credit in the year in which they are available.  The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.

 
43

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(p)
Income taxes (continued)

Income tax liabilities computed according to the United States, People’s Republic of China (PRC), Taiwan (ROC) and Hong Kong SAR tax laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for financial and tax reporting.  The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  Deferred taxes also are recognized for operating losses that are available to offset future income taxes.  A valuation allowance is created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

In respect of the Company’s subsidiaries domiciled and operated in China, Taiwan and Hong Kong, the taxation of these entities can be summarized as follows:

The subsidiaries incorporated in PRC are subject to the corporation income tax rate of 25% for 2009 and 2008. However, in accordance with the relevant tax laws and regulations of PRC, the local corporation income tax rate is 15%.

The subsidiary incorporated in BVI while operated in Taiwan will be considered a non-resident for tax purposes to the profit-seeking enterprise income tax which is from 0% to 25%. However, it will be subject to profit-seeking enterprise income tax only for its income derived from Taiwan sources.

The subsidiaries are subject to Hong Kong profits tax rate of 16.5% (2008: 17.5%).

The Company is subject to United States federal corporate income tax according to Internal Revenue Code Sections 951 and 957.  Corporate income tax is imposed on graduated rates in the range of:

Taxable Income
Rate
 
Over
   
But not over
   
Of Amount Over
 
15%
    -       50,000       -  
25%
    50,000       75,000       50,000  
34%
    75,000       100,000       75,000  
39%
    100,000       335,000       100,000  
34%
    335,000       10,000,000       335,000  
35%
    10,000,000       15,000,000       10,000,000  
38%
    15,000,000       18,333,333       15,000,000  
35%
    18,333,333       -       -  

 
44

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(q)
Earnings per share

The Company computes net income (loss) per share in accordance with SFAS No. 128. “Earnings per Share”.  SFAS No. 128 requires presentation of both basic and diluted earnings per Share (EPS) on the face of the income statement.  Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method.  In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.   Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.

(r)
Foreign currency translation

The accompanying consolidated financial statements are presented in United States dollars. The functional currencies of the Company are Hong Kong Dollar (HKD), Taiwan Dollar (TWD) and Renminbi (RMB).  The consolidated financial statements are translated into United States dollars from HKD, TWD and RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

   
June 30, 2009
   
June 30, 2008
 
Year end HKD : US$ exchange rate
    7.7499       7.8037  
Average yearly HKD : US$ exchange rate
    7.7643       7.7949  

   
June 30, 2009
   
June 30, 2008
 
Year end TWD : US$ exchange rate
    32.7927       30.4355  
Average yearly TWD : US$ exchange rate
    32.8048       31.8569  

   
June 30, 2009
   
June 30, 2008
 
Year end RMB : US$ exchange rate
    6.8302       6.8718  
Average yearly RMB : US$ exchange rate
    6.8370       7.2906  

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$ at the rates used in translation.

(s)
Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.  Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other consolidated financial statements.  The Company’s current components of other comprehensive income are the foreign currency translation adjustment.

 
45

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(t)
Reclassification

Certain amounts in the prior year have been reclassified to conform to the current year’s presentation.

(u)
Recent accounting pronouncements

In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 161 “Disclosures about Derivative Instruments and Hedging Activities”. SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of SFAS 161 on its consolidated financial statements but does not expect it to have a material effect.

In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60." Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. The adoption of FASB 163 is not expected to have a material impact on the Company's financial position.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.”  This Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. The company adopted this Statement in the year ended June 30, 2009 is not expected to have a material impact on the Company’s consolidated financial results.

 
46

 
 
INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(u)
Recent accounting pronouncements (continued)

In June 2009, the FASB issued SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (QSPEs). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The adoption of these standards is not expected to have any material impact on the Company’s Consolidated Financial Statements

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” SFAS No. 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The adoption of these standards is not expected to have any material impact on the Company’s Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the Codification). The Codification, which was launched on July 1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy contained in SFAS No. 162 and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The implementation of this Statement is not expected to have change to the company’s Consolidated Financial Statements.

 
47

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

3.
DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Deposits, prepayments and other receivables are summarized as follow:

   
2009
   
2008
 
             
Rental and utilities deposits
  $ 42,862     $ 27,671  
Advance to employees
    7,412       6,785  
Deposit for legal advice
    16,353          
Prepaid expenses
    1,234       2,428  
Interest receivable
    63,081       68,350  
Other Loan
    -       92,843  
Trade deposit paid (a)
    1,442       -  
Other receivables (b)
    600,000       1,000,000  
Others
    9,296       120,803  
    $ 741,680     $ 1,318,880  

(a)
Trade deposit of security systems and spare parts prepaid to the suppliers for the sales orders placed by the customers.

(b)
Other receivables are the amount that will be collected from an associated company, Golden Anke Technology, Ltd. It is unsecured, non-interest bearing, and, due and payable on demand.

(c)
The initial deposit $1,400,000 was paid to an unrelated company in Taiwan for a pending acquisition. In June 2007, the company was no longer active in the acquisition. The Company received $150,000 refund on June 9, 2009. The remaining part of the deposit $1,250,000 less $32,525 translation adjustment, at $1,217,475, was impaired and written-off in the year ended June 30, 2007.

(d)
The bad debt written-off in June 30, 2009 was $710,011 which was included trade debts written-off US$282,931 (2008: nil) and loan receivable written-off US$427,080 (2008: nil).

 
48

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

4.
GOODWILL

Pursuant to the Stock Exchange Agreement between the Company and China Equity Platform Holding Group Limited (CEPHGL), the Company has transferred the subsidiary companies, CECITL, CECICSL, IFACL & CECTSL and investments in PRC companies, SIHTPREC & PREC to CEPHGL in exchanging 60% of shareholdings in CEPHGL during the fiscal year end of June 30, 2009. The calculation of goodwill is list as below:

   
RMB
   
USD
 
100% common stock of CECITL
  $ (13,920,093 )   $ (2,038,021 )
100% common stock of CECICSL
    2,083,043       304,975  
90% common stock of IFACL
    (131,979 )     (19,323 )
100% common stock of CECTSL
    15,142,471       2,216,988  
10% common stock of SIHTPREC
    1,941,372       284,234  
14% common stock of PREC
    8,649,826       1,266,409  
Aggregate value
    13,764,640       2,015,262  
                 
60% common stock of CEPHGLL
    (10,354,200 )     (1,515,944 )
Goodwill balance at June 30, 2009
  $ 3,410,440     $ 499,318  

Goodwill of $499,318 represented the excess of the purchase price over the fair value of the net tangible asset acquired through the transaction of spin-off of the above-listed subsidiaries.

   
RMB
   
USD
 
Goodwill acquired in CEPHGLL transaction during June 30, 2009
  $ 3,410,440     $ 499,318  
Foreign currency translation adjustment
    -       -  
Impairment for the year ended June 30, 2009
    -       -  
Elimination: Gain on spin-off subsidiaries
    (3,410,440 )     (499,318 )
Consolidated Balance at June 30, 2009
  $ -     $ -  

According to SAB No. 30 (Topic 5E) and SAB No, 81 (Topic 5U), the gain on spin-off subsidiaries are eliminated in the Company’s consolidated financial statements to reverse the immediate gain recognition on the spin-off subsidiaries transaction.

 
49

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

5.
OTHER LOAN RECEIVABLES

The Company made a loan to an un-related third party of US$250,000 and US$350,000 on November 28, 2005 and December 12, 2005, respectively with interest rate at 12% p.a. and due and payable on September 28, 2006 and September 12, 2006 respectively. The Company had partially collected US$125,175.  The US$ 474,825 balances of the loans are still outstanding and the Company is continuously charging the loan interest accordingly.

6.
PLANT AND EQUIPMENT, NET

Plant and equipment comprise the followings:

   
2009
   
2008
 
At cost
           
Computer equipment
  $ 138,407     $ 116,047  
Furniture and office equipment
    92,238       71,276  
    $ 230,645     $ 187,323  
Less: Accumulated depreciation
    (110,955 )     (112,755 )
    $ 119,690     $ 74,568  

Depreciation expenses were $46,100 and $30,587 for the years ended June 30, 2009 and 2008 respectively.

7.
ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables are summarized as follows:

   
2009
   
2008
 
Wages and bonus
  $ 35,637     $ 27,202  
Consultancy fees
    25,000       100,097  
Legal and professional fees
    -       23,637  
Audit and review fees
    30,000       45,000  
Loan interest payable
    33,750       59,106  
Loan from shareholder
    386,513       500,000  
Other
    8,027       4,311  
    $ 518,927     $ 759,353  

 
50

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

8.
INCOME TAXES

The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate.

The Company is subject to the United States federal corporate income tax at a rate of 33%. IL was incorporated under the International Business Companies Act of the British Virgin Islands and, accordingly, is exempted from payment of the British Virgin Islands income taxes.  The subsidiaries (IITSL, CEPHGL, CECITL, CECTSL, CECICSL and IFACL) established in the PRC are subject to PRC enterprise income taxes at a rate of 15%.   The subsidiary (LP) established in the British Virgin Islands while operated in Taiwan is subject to Taiwan non-resident profit-seeking enterprise income tax, which is from 0% to 25%, only for the income derived from Taiwan sources. IHKL is subject to Hong Kong profits tax at a rate of 16.5%.

The reconciliation of the United States federal income tax rate to the effective income tax rate based on loss before income taxes stated in the consolidated statements of operations is as follows:

Deferred taxation consisted of:
 
   
2009
   
2008
 
             
Net operating loss carry forwards
  $ 2,435,707     $ 1,557,054  
Valuation allowance
    (2,435,707 )     (1,557,054 )
Deferred tax assets, net
  $ -     $ -  

The change in valuation allowance from June 30, 2008 to June 30, 2009 is primarily related to the tax effects of the increase in the net operating loss in the current fiscal year. The Company has net operating loss carry forwards totaling approximately $23 million as of June 30 2009, primarily relating to operations in the PRC and Taiwan. A valuation allowance has been established for the full amount of the deferred tax benefit related to those loss carry forwards and other deferred tax assets as management believes that their realization is uncertain.

9.
ADVANCE FROM A RELATED PARTY

As at June 30, 2008, there was an advance from a related party, China Equity Platform Holding Group Ltd. The advance is unsecured, interest free and with no fixed term of repayment.

 
51

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

10.
STOCKHOLDERS’ EQUITY

Year ended June 30, 2009

The number of common stock does not have change during the year.

Year ended June 30, 2008

On June 16, 2008, we authorize the issuance of 881,950 and 6,000,000 shares of common stock with a value of $0.001 per share to Alfredo Properties Ltd. and Mr. Rocky Wulianghai for private placement and director’s compensation respectively. The stock was issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. There was no general solicitation or advertising engaged in by the Company in making this offering and the offeree and the parties they designated to receive the stock were accredited investor.

On June 12, 2008, the Company approved to issue 6,000,000 shares of common stock at the price of $0.1258 per share to the chief executive officer of the Company, Mr. Rocky Wulianghai, for the compensation of services $754,800 for the calendar years of 2006 and 2007.  The shares were allotted on June 16, 2008.  On the date of allotment, the share market value of common stock was $0.1 per share, the Company had recorded the common stock $6,000 and additional paid-in capital $594,000 and recognized the difference as adjustment to other comprehensive income $154,800.

11.
COMMITMENTS

Operating Leases - The Company has operating lease agreements for office premises, which expiring through February 2011. Future minimum rental payments under agreements classified as operating leases with non-cancelable terms for the next one year and thereafter are as follows:

June 30,
     
2010
    124,000  
2011 and thereafter
    76,000  
    $ 200,000  

Rental expense paid for the years ended June 30, 2009 and 2008 were US$134,053 and $54,864 respectively.

 
52

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

12.
SEGMENT INFORMATION

The Group is principally engaged in the operation of business equity and financial consulting services in the PRC. Nearly all identifiable assets of the Group are located in the PRC. All revenues are derived from customers in the PRC. Accordingly, no analysis of the Group’s sales and assets by geographical market is presented.

13.
IMPAIRMENT OF INVESTMENT IN ASSOCIATED COMPANY

An investment in an associated company Hainan Special Economic Zone Property Right Exchange Center (PREC) with an equity balance of 1,258,742 was found being impaired and written-off in last year statement of income.

   
2009
   
2008
 
   
US$
   
US$
 
At July 1, 2008
    1,258,742       1,258,742  
Add: Foreign currency gain
    6,407       -  
Less: Impairment loss
    (1,265,148 )     -  
At June 30, 2009
    1       1,258,742  

 
53

 

INTERMOST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)

14.
GOING CONCERN

As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $2,435,707 for the year ended June 30, 2009 and has an accumulated deficit of $ 23,282,270 as of June 30, 2009.  The Company also continues to experience negative cash flows from operations. The Company will be required to raise additional capital to fund its operations, and will continue to attempt to raise capital resources from both related and unrelated parties until such time as the Company is able to generate revenues sufficient to maintain itself as a viable entity. These factors have raised substantial doubt about the Company's ability to continue as a going concern. There can be no assurances that the Company will be able to raise additional capital or achieve profitability. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company plans to strengthen its core business, control its overall expenditures, improve the efficiency of its operations and continue its efforts to expand by acquiring other business opportunities.

15.
SUBSEQUENT EVENT

The board of directors authorized the issuance of 500,000 shares of common stock with a value of $0.05 per share to Mr. Deng Xiang Xiong on August 18, 2009, for the compensation of services during 2009 which has been accounted for in the accruals during the year ended June 30, 2009.   The Company has issued 500,000 common shares on 19 August 2009 and forfeited 1,750,000 common shares during the fiscal year ended June 30, 2009. These transactions are already dispatched to the common stock transfer agent and pending on the formal execution procedure completion.

16.
COMPARATIVE AMOUNTS

Prior year comparative amounts have been reclassified to conform to current year’s presentation.

17.
RE-INSTATEMENT

On March 14, 2009, the Company was inactive due to administrative dissolution by the State of Wyoming for delinquent register agent and delinquent tax. The Company has appointed Incorp Services, Inc. as register agent and is working on the reinstatement of the Corporation.

 
54

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
INTERMOST CORPORATION
   
 
By: 
/s/ Chia Hsun Wu
   
Chia Hsun Wu
   
Chief Executive Officer
   
 
By:
/s/ Thomas Lee
   
Thomas Lee
   
Chief Financial Officer

Dated:   October 9, 2009

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date:  October 9, 2009
         
/s/ Fred Peck
 
Director
   
Fred Peck
       
         
/s/ Chia Hsun Wu
 
Director and Chief Executive Officer
   
Chia Hsun Wu
       
         
/s/ Hiroshi Shinohara
 
Director
   
Hiroshi Shinohara
       

 
55