Attached files
Exhibit
99.2A
CHONGQING
SYSWAY INFORMATION TECHNOLOGY CO., LTD
CONDENSED
BALANCE SHEETS
AS
OF
JUNE
30, 2009 and DECEMBER 31, 2008
|
JUNE
30, 2009
|
DECEMBER
31, 2008
|
|||||||
|
ASSETS
|
(Unaudited)
|
(Audited)
|
||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
& cash equivalents
|
$ | 44,098 | $ | 48,588 | ||||
|
Accounts
receivable, net
|
1,380,413 | 932,910 | ||||||
|
Retentions
receivable
|
1,084,047 | 49,610 | ||||||
|
Advance
to supplier
|
1,661 | 33,213 | ||||||
|
Other
receivables
|
132,186 | 207,298 | ||||||
|
Inventory
|
83,858 | 267,789 | ||||||
|
Intangible
assets
|
152,257 | - | ||||||
|
Total
current assets
|
2,878,520 | 1,539,408 | ||||||
|
RETENTIONS
RECEIVABLE
|
- | 42,358 | ||||||
|
PROPERTY
AND EQUIPMENT, net
|
37,265 | 39,282 | ||||||
|
TOTAL
ASSETS
|
$ | 2,915,785 | $ | 1,621,048 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable
|
$ | 991,463 | $ | 157,115 | ||||
|
Tax
payable
|
337,125 | 206,568 | ||||||
|
Accrued
liabilities and other payables
|
25,499 | 17,885 | ||||||
|
Total
current liabilities
|
1,354,087 | 381,568 | ||||||
|
CONTINGENCIES
AND COMMITMENTS
|
||||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Paid
in capital
|
1,360,497 | 1,208,240 | ||||||
|
Accumulated
other comprehensive income
|
104,782 | 104,271 | ||||||
|
Retained
earnings (accumulated deficit)
|
96,419 | (73,031 | ) | |||||
|
Total
stockholders' equity
|
1,561,698 | 1,239,480 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 2,915,785 | $ | 1,621,048 | ||||
1
CHONGQING
SYSWAY INFORMATION TECHNOLOGY CO., LTD
CONDENSED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR
THE SIX MONTHS ENDED
JUNE
30, 2009 and 2008
(UNAUDITED)
|
FOR
SIX MONTHS ENDED
|
||||||||
|
JUNE
30, 2009
|
JUNE
30, 2008
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Net
sales
|
$ | 2,337,032 | $ | 1,637,231 | ||||
|
Cost
of goods sold
|
(1,842,514 | ) | (1,231,682 | ) | ||||
|
Gross
profit
|
494,518 | 405,549 | ||||||
|
Operating
expenses
|
||||||||
|
Selling
expenses
|
(75,784 | ) | (61,465 | ) | ||||
|
General
and administrative expenses
|
(192,682 | ) | (194,381 | ) | ||||
|
Total
operating expenses
|
(268,466 | ) | (255,846 | ) | ||||
|
Income
from operations
|
226,052 | 149,703 | ||||||
|
Non-operating
income (expenses)
|
||||||||
|
Interest
income
|
43 | 176 | ||||||
|
Interest
expense
|
31 | (995 | ) | |||||
|
Reversal
of bad debt provision in prior years
|
- | 159,210 | ||||||
|
Subsidy
income
|
- | 25,824 | ||||||
|
Other
income
|
- | 1,558 | ||||||
|
Other
expenses
|
(192 | ) | (695 | ) | ||||
|
Total
non-operating income (expenses)
|
(118 | ) | 185,078 | |||||
|
Income before
income tax expense
|
225,934 | 334,781 | ||||||
|
Income
tax expense
|
56,483 | 83,696 | ||||||
|
Net
income
|
$ | 169,451 | $ | 251,085 | ||||
|
Other
comprehensive item
|
||||||||
|
Foreign
currency translation
|
511 | 50,990 | ||||||
|
Comprehensive
Income
|
$ | 169,962 | $ | 302,075 | ||||
2
CHONGQING
SYSWAY INFORMATION TECHNOLOGY CO., LTD
CONDENSED
STATEMENTS OF CASH FLOW
FOR
THE SIX MONTHS ENDED
JUNE
30, 2009 and 2008
(UNAUDITED)
|
FOR
SIX MONTHS ENDED
|
||||||||
|
JUNE
30, 2009
|
JUNE
30, 2008
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income
|
$ | 169,451 | $ | 251,085 | ||||
|
Adjustments
to reconcile net income to net cash
|
||||||||
|
provided
by operating activities:
|
||||||||
|
Depreciation
and amortization
|
7,382 | 8,959 | ||||||
|
Change
in allowance for doubtful accounts
|
- | (159,210 | ) | |||||
|
(Increase)
decrease in current assets:
|
||||||||
|
Accounts
receivable
|
(447,082 | ) | 808,915 | |||||
|
Retention
receivable
|
(991,927 | ) | 71,326 | |||||
|
Advance
to suppliers
|
31,561 | (50,913 | ) | |||||
|
Other
receivable
|
75,187 | (2,967 | ) | |||||
|
Inventory
|
184,015 | (83,051 | ) | |||||
|
Increase
(decrease) in current liabilities:
|
||||||||
|
Accounts
payable
|
834,189 | (1,253,646 | ) | |||||
|
Accrued
liabilities and other payable
|
7,606 | (50,122 | ) | |||||
|
Tax
payable
|
130,460 | 23,085 | ||||||
|
Net
cash provided by (used in) operating activities
|
842 | (436,539 | ) | |||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Acquisition
of property & equipment
|
(5,350 | ) | (11,890 | ) | ||||
|
Net
cash used in investing activities
|
(5,350 | ) | (11,890 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Short-term
loan
|
- | (49,945 | ) | |||||
|
Advance
from related parties
|
- | (77,922 | ) | |||||
|
Net
cash used in financing activities
|
- | (127,867 | ) | |||||
|
EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
|
18 | 21,712 | ||||||
|
NET
DECREASE IN CASH & CASH EQUIVALENTS
|
(4,490 | ) | (554,584 | ) | ||||
|
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
48,588 | 640,003 | ||||||
|
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
$ | 44,098 | $ | 85,419 | ||||
3
CHONGQING
SYSWAY INFORMATION TECHNOLOGY CO., LTD
NOTES
TO CONDENSED FINANCIAL STATEMENTS
JUNE
30, 2009 (UNAUDITED) and DECEMBER 31, 2008
(AUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Chongqing
Sysway Information Technology Co., Ltd. (the “Company” or “Chongqing Sysway”)
was incorporated in the Chongqing City, Sichuan Province, People’s Republic of
China (“PRC”) in 1999 as a State Owned Enterprise (“SOE”). In 2005,
the two SOE shareholders sold their ownership shares among other original
minority shareholders and since then, Chongqing Sysway began to operate as a
private enterprise mainly engaged in system integration services including
computer system installation, website design, system firewall setup, etc.,
particularly for tobacco industry.
The
unaudited condensed financial statements have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which are, in the
opinion of management, necessary to fairly present the operating results for the
respective periods. Certain information and footnote disclosures normally
present in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations. The results for the six months ended
June 30, 2009 are not necessarily indicative of the results to be expected for
the full year ending December 31, 2009.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with US
GAAP. The Company’s functional currency is the Chinese Renminbi;
however, the accompanying financial statements have been translated and
presented in United States Dollars ($).
Accounts
and Retentions Receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Based on historical
collection activity, the Company had $0 bad debt allowance at June 30, 2009 and
December 31, 2008, respectively.
At June
30, 2009 and December 31, 2008, the Company had retentions receivable for
product quality assurance in the amount of $1,084,047 and $91,968,
respectively. The retention rate varies from 3% to 5% of the sales
price with variable terms from 1 year to 3 years.
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with Securities and
Exchange Commission (SEC) Staff Accounting Bulletin (“SAB”) 104, (codified in
FASB ASC Topic 480). Sales revenue is recognized at the date of
shipment to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectibility is reasonably assured. Payments
received before all of the relevant criteria for revenue recognition are
recorded as unearned revenue.
4
The
Company records its revenue when certain milestones as defined in the service
contract are reached. These service contracts have clear milestones and
deliverables with distinct values assigned to each milestone. The
milestones do not require the delivery of multiple elements as noted in Emerging
Issues Task Force (“EITF”) Issue 00-21 “Revenue Arrangements with Multiple
Deliverables” ("EITF No. 00-21"), (codified in FASB ASC Topic 605).
In accordance with SAB No. 104, the Company treats each milestone as an
individual revenue agreement and only recognizes revenue for each milestone when
all the conditions of SAB 104 defined earlier are met.
Sales
revenue represents the invoiced value of products and services, net of
value-added tax (“VAT”). All of the Company’s products and service
that are sold and provided in the PRC are subject to Chinese value-added tax of
17% of the gross sales price. This VAT may be offset by VAT paid by
the Company on raw materials and other materials included in the cost of
producing their finished product. The Company recorded VAT payable
and VAT receivable net of payments in the financial statements. The
VAT tax return is filed offsetting the payables against the receivables. Sales
and purchases are recorded net of VAT collected and paid as the Company acts as
an agent for the government.
The
Company provides post-contract support (PCS). Maintenance revenues from
ongoing customer support services are billed on an annual basis with the revenue
being deferred and recognized ratably over the maintenance period. The Company
does not charge for PCS services separately for the first year from the date the
product is sold. The Company believes that this type of PCS does not have to be
accounted for as a separate unit in accordance with guidance provided by AICPA
Statement of Position (SOP) 97-2, codified in FASB ASC Topic 985. The Company
charges PCS services through a separate contact after the first year of the
sale.
Cost
of Revenue
Cost of
goods sold consists primarily of material costs, labor costs, and related
overhead which are directly attributable to the production of the service.
Write-down of inventory to lower of cost or market is also recorded in cost of
goods sold.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist
primarily of accounts receivable and other receivables. The Company does not
require collateral or other security to support these receivables. The Company
conducts periodic reviews of its clients' financial condition and customer
payment practices to minimize collection risk on accounts
receivable.
The
operations of the Company are located in the PRC. Accordingly, the
Company's business, financial condition, and results of operations may be
influenced by the political, economic, and legal environments in the PRC, as
well as by the general state of the PRC economy.
Basic
and Diluted Net Income per Share
The
Company is a limited company formed under the laws of the PRC. Like limited
liability companies (LLC) in the United States, limited liability companies
in the PRC do not issue shares to the owners. The owners however,
are called shareholders. Ownership interest is determined in proportion
to capital contributed. Accordingly, earnings per share data are
not presented.
5
New
Accounting Pronouncements
On June
10, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC
registrants, guidance issued by the SEC. The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC. The
Codification is amended to effect non-SEC changes to authoritative
GAAP. Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Consolidated Financial
Statements.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS 165 requires that public entities evaluate subsequent
events through the date that the financial statements are issued.
In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009.
FASB ASC
820-10 establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The changes to current practice resulting from
the application of this standard relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. This standard is effective for fiscal years beginning after
November 15, 2007; however, it provides a one-year deferral of the effective
date for non-financial assets and non-financial liabilities, except those that
are recognized or disclosed in the financial statements at fair value at least
annually. The Company adopted this standard for financial assets and financial
liabilities and nonfinancial assets and nonfinancial liabilities disclosed or
recognized at fair value on a recurring basis (at least annually) as of January
1, 2008. The Company adopted the standard for nonfinancial assets and
nonfinancial liabilities on January 1, 2008. The adoption of this standard did
not have a material impact on its financial statements.
FASB ASC
805 establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. This standard also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. This standard was adopted by the Company beginning January 1, 2009
and will change the accounting for business combinations on a prospective
basis.
6
FASB ASC
810-10 requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements. The standard
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that does not result in deconsolidation and expands
disclosures in the consolidated financial statements. This standard is effective
for fiscal years beginning after December 15, 2008 and interim periods within
those fiscal years. This standard is not currently applicable to the
Company.
FASB ASC
815-10 is effective January 1, 2009. This standard requires enhanced disclosures
about derivative instruments and hedging activities to allow for a better
understanding of their effects on an entity’s financial position, financial
performance, and cash flows. Among other things, this standard requires
disclosures of the fair values of derivative instruments and associated gains
and losses in a tabular formant. This standard is not currently applicable to
the Company since the Company does not have derivative instruments or hedging
activity.
FASB ASC
350-30 and 275-10 amend the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset. This standard is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. The adoption
of this standard did not have any impact on the Company’s financial
statements.
FASB ASC
260-10 provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. This standard is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company does not
currently have any share-based awards that would qualify as participating
securities. Therefore, application of this standard is not expected to have an
effect on the Company's financial reporting.
FASB ASC
470-20 will be effective for financial statements issued for fiscal years
beginning after December 15, 2008. The standard includes guidance that
convertible debt instruments that may be settled in cash upon conversion should
be separated between the liability and equity components, with each component
being accounted for in a manner that will reflect the entity's nonconvertible
debt borrowing rate when interest costs are recognized in subsequent periods.
This standard is currently not applicable to the Company since the Company does
not have any convertible debt.
FASB ASC
815-10 and 815-40 are effective for financial statements for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. The standard addresses the determination of whether an instrument (or an
embedded feature) is indexed to an entity’s own stock, which is the first part
of the scope exception for the purpose of determining whether the instrument is
classified as an equity instrument or accounted for as a derivative instrument
which would be recognized either as an asset or liability and measured at fair
value. The standard shall be applied to outstanding instruments as of the
beginning of the fiscal year in which this standard is initially applied. Any
debt discount that was recognized when the conversion option was initially
bifurcated from the convertible debt instrument shall continue to be amortized.
The cumulative effect of the change in accounting principles shall be recognized
as an adjustment to the opening balance of retained earnings. This standard is
currently not applicable to the Company.
7
FASB ASC
825-10 requires disclosures about the fair value of financial instruments for
interim reporting periods. This standard is effective for interim reporting
periods ending after June 15, 2009. The adoption of this standard did not have a
material impact on the Company’s financial statements.
FASB ASC
820-10 provides additional guidance for Fair Value Measurements when the volume
and level of activity for the asset or liability has significantly decreased.
This standard is effective for interim and annual reporting periods ending after
June 15, 2009. The adoption of this standard did not have a material effect on
its financial statements.
FASB ASC
320-10 amends the other-than-temporary impairment guidance for debt and equity
securities. This standard is effective for interim and annual reporting periods
ending after June 15, 2009. The adoption of this standard did not have a
material effect on its financial statements.
3.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following at June, 2009 and December 31, 2008 was
as below:
|
June
30,
2009
|
December
31,
2008
|
|||||||
|
Vehicle
|
$ | 51,230 | 51,210 | |||||
|
Office
and Equipment
|
272,894 | 267,437 | ||||||
|
Building
|
-- | -- | ||||||
| 324,124 | 318,647 | |||||||
|
Less:
Accumulated depreciation
|
(286,859 | ) | (279,365 | ) | ||||
| $ | 37,265 | 39,282 | ||||||
The
Company disposed its office building for $87,823 during 2008 (see note 5).
Depreciation expense for the six months ended June 30, 2009 and 2008 was $7,382
and $8,959, respectively.
4. MAJOR CUSTOMERS AND VENDORS
Three
customers accounted for 94% and 76% of the Company’s net revenue for six months
ended at June 30, 2009 and 2008, respectively. For the six months
ended June 30, 2009, each customer accounted for about 61%, 22% and 11% of the
sales. For the six months ended June 30, 2008, each customer accounted for about
35%, 31% and 10% of the sales. At June 30, 2009 the total receivable
balance due from these customers was $2,075,170.
Two and
one vendor provided 75% and 87% of the Company’s purchase of raw materials for
the six months ended June 30, 2009 and 2008, respectively. For the six months
ended at June 30, 2009, each vendor accounted for about 66% and 9% of the
purchases. At June 30, 2009 the account payable to these vendors was $
879,983.
8
5.
OTHER RECEIVABLES
Other
receivables consisted of the following at June 30, 2009 and December 31,
2008, respectively:
|
June
30,
2009
|
December
31,
2008
|
|||||||
|
Advance
to staff
|
$ | 11,330 | 44,914 | |||||
|
Advance
to third parties
|
9,002 | 1,683 | ||||||
|
Tax
rebate and retention for sales contract
|
13,843 | 15,593 | ||||||
|
Receivable
on disposal of asset
|
87,823 | 87,789 | ||||||
|
Receivable
for VAT paid but purchase invoices not yet received
|
10,188 | 57,319 | ||||||
| $ | 132,186 | 207,298 | ||||||
6.
INTANGIBLE ASSETS
Intangible
assets mainly consisted of computer core software that was developed by the
Company for sale. The Company recorded the value of the software for $152,257 at
June 30, 2009. The Company amortizes the software over 5 years.
7.
TAX PAYABLE
Tax
payable consisted of the following at June 30, 2009 and December 31, 2008,
respectively:
|
June
30,
2009
|
December
31,
2008
|
|||||||
|
Value
added tax payable
|
$ | 9,568 | 2,328 | |||||
|
Business
tax payable
|
84,186 | 23,751 | ||||||
|
Income
tax payable
|
234,357 | 178,663 | ||||||
|
Other
taxes payable
|
9,014 | 1,826 | ||||||
| $ | 337,125 | 206,568 | ||||||
8.
INCOME TAXES
The
Company is governed by the Income Tax Law of the PRC concerning the private-run
enterprises in Hi-Tech Zone, and is subject to tax at a statutory rate of 25%
for both 2009 and 2008 on income reported in the statutory financial statements
after appropriated tax adjustments.
9.
CONTINGENCIES
The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’ s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be transacted only
by authorized financial institutions. Remittances in currencies other than RMB
may require certain supporting documentation in order to affect the
remittance.
9