Attached files
Exhibit
99.2B
HAINAN
JIEN INTELLIGENT ENGINEERING 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
|
$ | 710,552 | $ | 68,101 | ||||
|
Restricted
cash
|
- | 3,449 | ||||||
|
Accounts
receivable, net
|
2,420,881 | 1,415,415 | ||||||
|
Retentions
receivable
|
271,770 | 53,716 | ||||||
|
Prepaid
expenses
|
238,275 | 257,305 | ||||||
|
Other
receivables
|
154,237 | 108,333 | ||||||
|
Inventory
|
134,087 | 118,800 | ||||||
|
Total
current assets
|
3,929,802 | 2,025,119 | ||||||
|
RETENTIONS
RECEIVABLE
|
- | 202,666 | ||||||
|
PROPERTY
AND EQUIPMENT, net
|
45,102 | 78,919 | ||||||
|
TOTAL
ASSETS
|
$ | 3,974,904 | $ | 2,306,704 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable
|
$ | 1,442,990 | $ | 409,221 | ||||
|
Tax
payable
|
405,263 | 235,774 | ||||||
|
Accrued
liabilities and other payables
|
182,371 | 80,740 | ||||||
|
Unearned
revenue
|
- | 268,725 | ||||||
|
Advance
from related party
|
108,245 | - | ||||||
|
Short-term
loan
|
32,056 | - | ||||||
|
Total
current liabilities
|
2,170,925 | 994,460 | ||||||
|
CONTINGENCIES
AND COMMITMENTS
|
||||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Paid
in capital
|
120,824 | 120,824 | ||||||
|
Statutory
reserve
|
67,737 | 67,737 | ||||||
|
Accumulated
other comprehensive income
|
83,591 | 83,015 | ||||||
|
Retained
earnings
|
1,531,827 | 1,040,668 | ||||||
|
Total
stockholders' equity
|
1,803,979 | 1,312,244 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 3,974,904 | $ | 2,306,704 | ||||
1
HAINAN
JIEN INTELLIGENT ENGINEERING CO., LTD.
CONDENSED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR
SIX MONTHS ENDED
JUNE
30, 2009 and 2008
(UNAUDITED)
|
FOR
THE SIX MONTHS ENDED
|
||||||||
|
JUNE
30, 2009
|
JUNE
30, 2008
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Net
sales
|
$ | 3,025,835 | $ | 3,106,608 | ||||
|
Cost
of goods sold
|
(2,300,666 | ) | (2,629,202 | ) | ||||
|
Gross
profit
|
725,169 | 477,406 | ||||||
|
Operating
expenses
|
||||||||
|
Selling
expenses
|
(2,502 | ) | (20,123 | ) | ||||
|
General
and administrative expenses
|
(226,998 | ) | (143,098 | ) | ||||
|
Total
operating expenses
|
(229,500 | ) | (163,221 | ) | ||||
|
Income
from operations
|
495,669 | 314,185 | ||||||
|
Non-operating
income (expenses)
|
||||||||
|
Interest
income
|
12 | - | ||||||
|
Interest
expense
|
(83 | ) | - | |||||
|
Other
income
|
20 | - | ||||||
|
Other
expenses
|
(4,461 | ) | (17,498 | ) | ||||
|
Total
non-operating expenses
|
(4,512 | ) | (17,498 | ) | ||||
|
Net
income
|
491,157 | 296,687 | ||||||
|
Other
comprehensive item
|
||||||||
|
Foreign
currency translation
|
576 | 60,022 | ||||||
|
Comprehensive
Income
|
$ | 491,733 | $ | 356,709 | ||||
2
HAINAN
JIEN INTELLIGENT ENGINEERING CO., LTD.
CONDENSED
STATEMENTS OF CASH FLOW
FOR
SIX MONTHS ENDED
JUNE
30, 2009 and 2008
(UNAUDITED)
|
FOR
THE SIX MONTHS ENDED
|
||||||||
|
JUNE
30, 2009
|
JUNE
30, 2008
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income
|
$ | 491,157 | $ | 296,687 | ||||
|
Adjustments
to reconcile net income to net cash
|
||||||||
|
provided
by operating activities:
|
||||||||
|
Depreciation
and amortization
|
33,844 | 8,568 | ||||||
|
Change
in allowance for doubtful accounts
|
27,939 | 1,749 | ||||||
|
(Increase)
decrease in current assets:
|
||||||||
|
Accounts
receivable
|
(1,032,728 | ) | (2,499,527 | ) | ||||
|
Retention
receivable
|
(15,285 | ) | 203,885 | |||||
|
Prepayment
|
19,130 | (40,027 | ) | |||||
|
Other
receivable
|
(45,855 | ) | 26,392 | |||||
|
Inventory
|
(15,238 | ) | (155,681 | ) | ||||
|
Increase
(decrease) in current liabilities:
|
||||||||
|
Accounts
payable
|
1,033,487 | 2,014,353 | ||||||
|
Unearned
revenue
|
(268,800 | ) | - | |||||
|
Accrued
liabilities and other payable
|
101,587 | (15,181 | ) | |||||
|
Tax
payable
|
169,376 | 39,025 | ||||||
|
Net
cash provided by (used in) operating activities
|
498,614 | (119,757 | ) | |||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Acquisition
of property & equipment
|
- | (18,601 | ) | |||||
|
Net
cash used in investing activities
|
- | (18,601 | ) | |||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Short-term
loan
|
32,052 | (2,125 | ) | |||||
|
Advance
from related parties
|
108,232 | (1,181 | ) | |||||
|
Net
cash provided by (used in) financing activities
|
140,284 | (3,306 | ) | |||||
|
EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
|
3,553 | 14,370 | ||||||
|
NET
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
|
642,451 | (127,294 | ) | |||||
|
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
68,101 | 291,129 | ||||||
|
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
$ | 710,552 | $ | 163,835 | ||||
3
HAINAN
JIEN INTELLIGENT ENGINEERING CO., LTD.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
JUNE
30, 2009 (UNAUDITED) and DECEMBER 31, 2008
(AUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Hainan
Jien Intelligent Engineering Co. Ltd. (the “Company” or “Jien”) was incorporated
in the Hainan Province, People’s Republic of China (“PRC”) in
1999. Jien is engaged in providing full service of design and
installation of intelligentized equipment for business and residential
communities.
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 made allowance of approximately $27,942 and
$27,931 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 $271,770 and$256,832,
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.
The
Company is qualified as a small business so that all of the Company’s products
sold or services provided in the PRC are subject to a fixed low value-added tax
(“VAT”) of 4% of the gross sales price regardless of the VAT
paid. Sales revenue represents the invoiced value of goods or
services, net of VAT. This VAT cannot be offset by VAT paid by the
Company on raw materials and other materials included in the cost of producing
their finished. Sales are recorded net of VAT collected as the
Company acts as an agent for the government.
The
standard warranty of the Company is provided to its customers and is not
considered an additional service; rather it is considered an integral part of
the product and services’ sale. The Company believes that the existence of its
standard product warranty in a sales contract does not constitute a deliverable
in the arrangement and thus there is no need to apply the EITF 00-21
separation and allocation model for a multiple deliverable arrangement. FAS 5
specifically address the accounting for standard warranties and neither SAB 104
nor EITF 00-21 supersedes FAS 5 (codified in FASB ASC Topic Warranty). The
Company believes that accounting for its standard warranty pursuant to FAS 5
does not impact revenue recognition because the cost of honoring the warranty
can be reliably estimated.
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 30, 2009 and December 31, 2008,
respectively:
|
June
30,
2009
|
December
31,
2008
|
|||||||
|
Leasehold
Improvement
|
$ | 41,632 | 100,692 | |||||
|
Office
equipment
|
100,731 | 41,615 | ||||||
|
Less:
Accumulated depreciation
|
(97,261 | ) | (63,388 | ) | ||||
| $ | 45,102 | 78,919 | ||||||
Depreciation
expense for the six months ended June 30, 2009 and 2008 was $33,844 and $8,568,
respectively.
4.
PREPAID EXPENSES
Prepaid
expenses consisted of prepayments to vendors for materials and parts for the
projects which have not commenced at balance sheet date. Prepaid
expenses were $ 238,275 and $ 257,305 at June 30, 2009 and December 31, 2008,
respectively.
5.
OTHER RECEIVABLES
Other
receivables consisted of prepayment to sub-contractors and cash advances to
employees for normal business purposes such as travelling expense. At June 30,
2009 and December 31, 2008, the amount was $ 154,237 and $108,333,
respectively.
6. MAJOR CUSTOMERS AND VENDORS
Six major
customers accounted for 93% of the Company’s net revenue for the six months
ended June 30, 2009, each customer accounted for approximately 24%, 19%, 18%,
11% 11% and 10% of net sales. At June 30, 2009, the total receivable balance due
from these customers was $1,869,938.
Three
major customers accounted for 89% of the Company’s net revenue for the six
months ended June 30, 2008, each customer accounted for approximately 55%, 19%
and 15% of net sales.
Five and
three major vendors provided 68% and 92% of the Company’s purchases of raw
materials for the six months ended June 30, 2009 and 2008, respectively. For the
six months ended June 30, 2009, each customer accounted for 17%, 16%, 13%, 12%
and 10% of the purchases. And for the six months ended June 30, 2008, each
customer accounted for 54%, 26% and 12% of the purchases. The Company had total
accounts payable to these vendors of $369,297 at June 30, 2009.
8
7.
TAX PAYABLE
Tax
payable consisted of the following at June 30, 2009 and December 31, 2008 was as
follows:
|
June
30,
2009
|
December
31,
2008
|
|||||||
|
Income
tax payable
|
$ | 250,421 | 147,620 | |||||
|
Value
added tax payable
|
6,509 | 648 | ||||||
|
Business
tax payable
|
136,240 | 83,370 | ||||||
|
Other
taxes payable
|
12,093 | 4,136 | ||||||
| Total | $ | 405,263 | 235,774 | |||||
8.
OTHER PAYABLES AND ACCRUED LIABILITIES
Other
payables and accrued liabilities consisted of the following at June 30, 2009 and
December 31, 2008, respectively:
|
June
30, 2009
|
December 31,
2008
|
|||||||
|
Payable
to Subcontractors
|
$
|
73,745
|
$
|
17,482
|
||||
|
Salary
and welfare payable
|
4,349
|
4,258
|
||||||
|
Payable
to employees for expense reimburse
|
37,635
|
12,100
|
||||||
|
Warranty
reserve
|
45,375
|
44,772
|
||||||
|
Deposit
from customers for construction
|
1,444
|
-
|
||||||
|
Accrued
expenses
|
14,350
|
|||||||
|
Other
payables
|
5,473
|
2,128
|
||||||
|
Total
|
$
|
182,371
|
$
|
80,740
|
||||
9.
ADVANCE FROM RELATED PARTY
Advance
from related party represented loan from the Company’s shareholder with no
interest, payable upon demand. At June 30, 2009 and December 31, 2008, advance
from related party was $108,245 and $0, respectively.
9
10.
SHORT TERM LOAN
In June
of 2009, the Company obtained a short term loan from Shenzhen Development Bank
for the amount of approximately $32,056, interest rate at 5.832% per annum, with
maturity date due within five months from the borrowing date. The Company repaid
the loan on November 7, 2009.
11.
INCOME TAXES
The
Company is qualified as a small business in the construction industry in
PRC. The Company was subject to 2.7% and 2.4% tax rate on net sales
in 2008 and 2007, respectively. The tax rate will increase to 3% of net sales in
2009. Since the tax is based on sales, under US GAAP, it is not income tax.
Accordingly, $80,506 and $17,756 have been recorded as general and
administrative expense for the six months ended June 30, 2009 and 2008,
respectively.
12.
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.
10