Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
Report: February 12, 2010
China
Executive Education Corp.
(Exact
name of registrant as specified in its charter)
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Nevada
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333-153574
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75-3268300
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(State
or Other Jurisdiction
of
Incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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Hangzhou
MYL Business Administration Consulting Co. Ltd.
Room
307, Hualong Business Building,
110 Moganshan Road,
Hangzhou, P.R.China
(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
310005
(Zip
Code)
(86)
0571-8880-8109
(Registrant's
telephone number, including area code)
N/A
(Former
Name or Former Address if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
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Forward
Looking Statements Some of the statements contained in this Form 8-K that are
not historical facts are "forward-looking statements" which can be identified by
the use of terminology such as "estimates," "projects," "plans," "believes,"
"expects," "anticipates," "intends," or the negative or other variations, or by
discussions of strategy that involve risks and uncertainties. We urge you to be
cautious of the forward-looking statements, that such statements, which are
contained in this Form 8-K, reflect our current beliefs with respect to future
events and involve known and unknown risks, uncertainties and other factors
affecting our operations, market growth, services, products and licenses. No
assurances can be given regarding the achievement of future results, as actual
results may differ materially as a result of the risks we face, and actual
events may differ from the assumptions underlying the statements that have been
made regarding anticipated events. Factors that may cause actual results, our
performance or achievements, or industry results, to differ materially from
those contemplated by such forward-looking statements include without
limitation: our ability to attract and retain management, and to integrate and
maintain technical information and management information systems; our ability
to raise capital when needed and on acceptable terms and conditions; o The
intensity of competition; and General economic conditions. Please see Risk
Factors for discussion in detail. All written and oral forward-looking
statements made in connection with this Form 8-K that are attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements. Given the uncertainties that surround such statements,
you are cautioned not to place undue reliance on such forward-looking
statements.
Item
1.01 Entry into a Material Definitive Agreement
The
disclosure set forth below under Item 2.01(Completion of Acquisition or
Disposition of Assets) is hereby incorporated by reference to this Item
1.01.
Item
2.01 Completion of Acquisition or Disposition of
Assets
On February
12, 2010, On Demand Heavy Duty Corp., a Nevada Corporation (the “Company”)
acquired all of the outstanding capital stock of Surmounting Limit Marketing
Adviser Limited, a Hong Kong corporation (“SLM”), through China Executive
Education Corp., a Nevada corporation (the “Merger Sub”) wholly owned by the
Company. SLM is a holding company whose asset, held through a
subsidiary, is 100% of the registered capital of Hangzhou MYL Business
Administration Consulting Co., Ltd. (“MYL Business”), a limited liability
company organized under the laws of the People’s Republic of China (“China” or
“PRC”). Substantially all of SLM's operations are conducted in China through MYL
Business, and through contractual arrangements with several of MYL Business’s
consolidated affiliated entities in China, including Hangzhou MYL Commercial
Services Co., Ltd. (“MYL Commercial”) and its subsidiaries.MYL Commercial is a
fast-growing executive education company with dominant operation in Shanghai,
the commercial center of China.
In connection
with the acquisition, the following transactions took place:
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The
Merger Sub issued 20 shares of the common stock of the Merger Sub which
constituted no more than 10% ownership interest in the Merger Sub to the
shareholders of SLM, in exchange for all the shares of the capital stock
of SLM (the “Share Exchange” or “Merger”). The 10 shares of the common
stock of the Merger Sub were converted into approximately 21,560,000
shares of the common stock of the Company so that upon completion of the
Merger, the shareholders of SLM own approximately 98% of the common stock
of the Company.
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Post
the transaction contemplated in the Merger Agreement, there were
22,000,000 shares of common stock issued and
outstanding.
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Cody
Love resigned as the Company’s Chief Executive Officer, Secretary and
Treasurer on Feb 12, 2010.
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Kaien
Liang, Chairman of SLM and MYL Business, was elected to serve on our
Board of Directors as Chairman of, and was appointed as Chief Executive
Officer of the Company.
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Pokai
Hsu, Chief Executive Officer of SLM and MYL Business, was appointed
as Chief Operating Officer of the
Company.
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Tingyuan
Chen, Chief Strategy Officer of SLM and MYL Business, was appointed as
Chief Strategy Officer of the
Company.
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Zhiwei
Huang, Chief Financial Officer of SLM and MYL Business, was appointed as
Chief Financial Officer of the
Company.
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As
part of the Merger, pursuant to a stock purchase agreement (the “Stock
Purchase Agreement”), the Company transferred all of the outstanding
capital of its subsidiary, On Demand Heavy Duty Holdings,
Inc. (“Holdings”) to certain of its shareholders in exchange
for the cancellation of 3,000,000 shares of the Company’s common stock
(the “Split Off Transaction”). Holdings was engaged in the
business of internet travel planning. To date, Holdings’
activities were limited to capital formation, organization, set-up of a
website and development of its business plan and target customer
market. Following the Merger and the Split-Off Transaction, the
Company discontinued its former business and is now engaged in the
executive education business.
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As
part of the Merger, the Company’s name was changed from “On Demand Heavy
Duty Corp.” to the Merger Sub’s name “China Executive Education Corp.” The
Company is communicating with FINRA for the name change and trading symbol
change on the OTC Bulletin Board.
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As a result
of these transactions, persons affiliated with Surmounting Limit Marketing
Adviser Limited now own securities that in the aggregate represent
approximately 98% of the equity in the Company.
New
Management
Upon the
completion of the Merger, the new executive officers and directors of the
Company will be:
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Name
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Age
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Positions with the
Company
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Kaien
Liang
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37
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Director,
Chairman & Chief Executive Officer
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Pokai
Hsu
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38
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Chief
Operation Officer
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Tingyuan
Chen
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44
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Chief
Strategy Officer
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Zhiwei
Huang
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42
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Chief
Financial Officer
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All directors
hold office until the next annual meeting of our shareholders and until their
successors have been elected and qualify. Officers serve at the
pleasure of the Board of Directors.
Kaien Liang,
37, Chairman of the Company. Born in Taiwan, in 1973. Before establishing the
company, he has served as president of Singapore Magic of Success Training Co.,
Ltd from 2004 to 2006. Prior to that, Mr. Liang worked as Marketing Director at
Asia Magic Your Life Group between 2000 and 2003, and Marketing Director of
Success Magazine in
Taiwan from 1997 to 2000. During that period, he had participated in and made
huge investment in learning from several professional training programs by
directly learning from 38 world-class masters in different management fields.
Mr. Liang holds 14 internationally accredited certificates in respect of
negotiation, marketing, sale, public speaking, customer service, etc. His total
audience exceeds 500,000. His books, Never Say
Impossible, Who is the Next
Magic have been published and sold well.
Pokai Hsu, 38,
Chief Executive Officer. Born in Taiwan in 1972. He joined Asia Magic Your Life
Group in 2003. He has served as the General Manager at Beijing Hongyuan Yingtong
Cultural Press Co., Ltd. Between 2002 and 2003. Prior to that, he worked in Du
Yunsheng Consulting Co., Ltd. as the Chief Consultant for 2 years.
Mr. Hsu is a master for potential motivating. By integrating his learning and
achievements in motivational training in UK, USA, and Japan, Mr. HSU has created
an efficient training system in unleashing employee potential. He has given
lectures for over 2,300 times in the last 8 years, with the audience of over
200,000. In 2006, his bestseller, How to Be No.1 in
China,
broke the Guinness record on sale of book signing event.
Tingyuan Chen,
44, Chief Strategy Officer. Born in Taiwan in
1966. Prior to joining Asia Magic Your Life Group in 2003, he worked
for Steve Chen Training Entity as a lecturer for 4 years. As a
student of Mr. Abraham, the world “marketing wizard”, Mr. Chen specialized in
teaching and coaching people in time management and strategic decision. Mr. Chen
was graduated from National United University in Taiwan in 1986.
Zhiwei Huang,
42, Chief Financial Officer of the Company. Mr. Huang joined the company in
April, 2009. Prior to that, he has served as Financial Manager in Hangzhou
Tai-Yang-Shen Marketing Co., Ltd. for 16 years. Before that, he
served as Accountant in Zhejiang Hangzhou Shipping Corp between 1989 and 1993.
Mr. Huang was graduated from Wuhan River Transport College in 1989 and graduated
from Zhejiang University of Finance & Economics in 2004.
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Please note
that the information provided below relates to the combined Company after the
Share Exchange, unless otherwise specifically indicated.
OVERVIEW
The Company,
Surmounting Limit Marketing Adviser Limited (“SLM”) was incorporated in Hong
Kong under the Chapter 32 Companies Ordinance on October 17, 2007 as limited
company. The Company has had no operation until it established 100% stake of MYL
Business, a People’s Republic of China (“PRC”) company, on April 23,
2009.
To comply
with the PRC laws and regulations while providing our education services in
China, SLM, through its WOFE subsidiary, MYL Business, entered into contractual
agreements (known as “variable interest entity” (VIE) arrangement) with Hangzhou
MYL Commercial Service Co. Ltd., (“MYL Commercial”), in May 2009, under which
SLM provides exclusive management and technical services (the “Service
Agreements”) to MYL Commercial and its related entities in exchange for
substantially all of the net income of MYL Commercial. As collateral to ensure
MYL Commercial and its subsidiaries’ payments under the Service Agreements, the
shareholders of MYL Commercial and its subsidiaries, through an equity pledge
agreement, pledged all of their rights and interests in MYL Commercial and its
subsidiaries, including voting rights and dividend rights, to SLM. In addition,
the shareholders of MYL Commercial, through an exclusive option agreement,
granted to SLM an exclusive, irrevocable and unconditional right to purchase
part or all of the equity interests in MYL Commercial and its subsidiaries when
the purchase becomes permissible under the relevant PRC Law.
We are a
fast-growing executive education company in China. We operate comprehensive
business training programs through our controlled affiliates and subsidiaries in
Hangzhou and Shanghai, which are two prosperous and commercial cities of China.
Our executive training programs are designed to fit the needs of Chinese
entrepreneurs, and to improve their leadership skill, management skills and
marketing skills, as well as bottom-line results. Our comprehensive business
training initiatives integrate research-based, proprietary content with
processes that are specifically and explicitly connected to the critical
business issues that most private Chinese companies are facing. This allows the
trainees to better utilize achieve their potentials and better align individual
goals and competencies with organizational objectives of their employers or
business. We have developed 22 training courses which include a core course,
named “Seven Essential Classes for Business Executives”.
We derive our
sales revenue from selling our proprietary training courses. We also generate
sales revenue from our “Featured Lectures” events which are organized by us
periodically with the presence of world masters or well-known keynote speakers.
In 2009, we have organized four (4) such Featured Lectures in Shanghai. The
featured speakers are Mr. Mark Hansen, Writer of Chicken Soup for the Soul,
Roger Dawson, the top US negotiator, Joe Girard, top sales executive and the
keeper of Guinness Record, and Mr. John C. Maxwell, the World Master of
Leadership.
We sell our
training programs through our own sales team which consists of 220
self-motivated sales staff. We also promote our services through the internet.
Our websites are www.magicyourlife101.com
and www.myl101.com . The
domain name of www.magicyourlife101.com
was registered by Mr. Kaien LIANG in the name of Surmounting Limit Marketing
Adviser Limited (Shanghai). The registered operator of this website is Shanghai
Kaiye Investment Consulting Co., Ltd.. The domain name of www.myl101.com is
registered by Dreamer Marketing Adviser (Shanghai) Co., Ltd.. The registered
operator of this website is MYL Commercial.
Since our
business inception in April 2009, we have experienced rapid and steady business
growth. During the nine (9) months in operation in 2009, we have enrolled
approximately 2,874 trainees to our program, and generated approximately
US$12.76 million of fee payment, of which US $9.14 million has been
recognized as sales revenue and US$ 3.31 million as the net profit in Year 2009.
The operation results are set forth as follows:
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In
USD Million
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3
Months ended June 30, 2009
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3
months ended September 30, 2009
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3
months ended December 31, 2009
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Fee
Payment*
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2.70
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4.22
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5.84
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Enrollments
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392
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889
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1593
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Note: *
Fee Payment is different from Sales Revenue, because of revenue recognition
method and contractual arrangement.
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Hangzhou
MYL Business Administration Consulting Co., Ltd.
MYL Business
was incorporated as a limited liability company in April 23, 2009 under PRC law.
It is currently 100% owned by SLM
which is further 100% owned by Magic Dream Enterprises Ltd. Our
business is currently conducted through contractual arrangements among us, our
subsidiary and our consolidated affiliated entities in China, principally MYL
Commercial and its subsidiaries. MYL Commercial and several of its
subsidiaries hold the requisite licenses to provide executive education services
in China. These contractual arrangements enable us to:
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exercise
effective control over MYL Commercial and its
subsidiaries;
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receive
a substantial portion of the economic benefits from MYL
Commercial and its subsidiaries;
and
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have
an exclusive option to purchase all or part of the equity interests in MYL
Commercial and all or part of the equity interests in MYL Commercial’s
subsidiaries that are owned by MYL Commercial or its nominee holders, as
well as all or part of the assets of MYL Commercial , in each case when
and to the extent permitted by PRC
law.
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OUR
STRUCTURE
*non-active subsidiaries with
no operations.
5
CONTRACTUAL
ARRANGEMENTS
We need
to use the following contractual arrangement to exercise effective
control.
Agreements
that Transfer Economic Benefits to Us
Pursuant to
our contractual arrangements with MYL Commercial and its subsidiaries, MYL
Business provides management and consulting services to MYL Commercial and its
subsidiaries in exchange for service fees. The service fees shall equal to 95%
of the total income of MYL Commercial and its subsidiaries which can be waived
by MYL Business from time to time in its sole discretion.
Agreements
that Provide Effective Control over MYL Commercial and Its
Subsidiaries
We have
entered into the following agreements with MYL Commercial and its subsidiaries
that provide us with effective control over MYL Commercial and its
subsidiaries:
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an
exclusive service agreement, pursuant to which MYL
Commercial and its Subsidiaries irrevocably entrust to MYL
Business the right of management and operation of MYL
Commercial and its subsidiaries and the responsibilities and
authorities of their shareholders and directors of MYL Commercial and its
subsidiaries;
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a
voting rights proxy agreement, pursuant to which the shareholder of MYL
Commercial and its subsidiaries have granted the personnel
designated by MYL Business the right to appoint directors and senior
management of MYL Commercial and its subsidiaries and to
exercise all of their other voting rights as shareholders of MYL
Commercial and its subsidiaries, as the case may be, as
provided under the articles of association of each such
entity;
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a
call option agreement, pursuant to
which:
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neither
MYL Commercial nor any of its subsidiaries may enter into any
transaction that could materially affect its assets, liabilities, equity
or operations without the prior written consent of MYL
Business;
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neither
MYL Commercial nor any of its subsidiaries will distribute any
dividends without the prior written consent of MYL Business
and
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MYL
Business or its designee has an exclusive option to purchase all or part
of the equity interests in MYL Commercial, all or part of the equity
interests in MYL Commercial ’s subsidiaries owned by MYL
Commercial or its nominee holders, or all or part of the assets
of MYL Commercial , in each case when and to the extent permitted by PRC
law. In case of MYL Business exercising the call option in its sole
discretion upon the occurrence of the situation in which such call option
exercise become feasible under the relevant laws in PRC, any additional
consideration paid other than the $1.00 which may be required under
the laws of China to effect such purchase to comply with such legal
formalities shall be either cancelled or returned to the company
immediately with no additional compensation to the owners;
and
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an
equity pledge agreement pursuant to which each of shareholders of MYL
Commercial has pledged his or its equity interest in MYL
Commercial and its subsidiaries, as the case may be, to MYL
Business to secure their obligations under the relevant contractual
control agreements, including but not limited to, the obligations of MYL
Commercial and its subsidiaries under the exclusive services
agreement, the call option agreement, the voting rights proxy agreement
described above, and each of them has agreed not to transfer, sell,
pledge, dispose of or create any encumbrance on their equity interest in
MYL Commercial or its subsidiaries without the prior written consent of
MYL Business.
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See
“Related Party Transactions” for further information on our contractual
arrangements with these parties.
In the
opinion of AllBright Law Offices, our PRC legal counsel:
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the
ownership structures of MYL Business, MYL Commercial and its
subsidiaries, both currently and after giving effect to this merger, are
in compliance with existing PRC laws and
regulations;
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the
contractual arrangements among MYL Business, MYL Commercial and
its subsidiaries governed by PRC law are valid, binding and enforceable,
and will not result in any violation of PRC laws or regulations currently
in effect; and
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the
business operations of MYL Business and MYL Commercial and their
respective subsidiaries, as described in this Form 8-K, are in compliance
with existing PRC laws and regulations in all material
respects.
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However,
in spite of the above, there are substantial uncertainties regarding the
interpretation and application of current and future PRC laws and regulations.
Accordingly, there can be no assurance that the PRC regulatory authorities, in
particular the SAIC which regulates executive education companies, will not in
the future take a view that is contrary to the above opinion of our PRC legal
counsel. If the PRC government finds that the agreements that establish the
structure for operating our PRC executive education business do not comply with
PRC government restrictions on foreign investment in executive education
businesses, we could be subject to severe penalties. See “Risk Factors — If
the PRC government finds that the agreements that establish the structure for
operating our China business do not comply with PRC governmental restrictions on
foreign investment in the executive education industry, we could be subject to
severe penalties”, “— Our business operations may be affected by
legislative or regulatory changes” and “— The PRC legal system embodies
uncertainties which could limit the legal protections available to you and
us”.
COMPETITION
We face
the competition on two different fronts. One is from those major Chinese
university and business schools. They provide EMBA program targeting on
corporation executives and entrepreneurs. The most popular EMBA programs
available in China are from Euro-China International Business College in
Shanghai, Cheung Kong Graduate School of Business, Tsinghua University and
Shanghai Jiaotong University, etc. Those universities’ EMBA programs provide
their students with around 300 hours of formal in-class training programs in the
curriculum, and issue degree certificates to students at graduation. The tuition
ranges from RMB 60,000 (approximately USD 9,000) to RMB 568,000 (approximately
USD 85,000) for the whole program. Each year, each of the top business school
enrolls 400 to 600 students. Their strict admission requirements have kept many
young and less qualified candidates away from the program. Besides, the long
study periods also inconvenience many business owners and
executives.
Open-enrollment
program provided by private education institution, like us, has emerged and
constituted serious competition to those top business schools which provide
formal executive training program. On the other hand, those peer companies also
constitute direct competition with us. Among them, Jucheng Group (founded in
2003 in Shenzhen), Action Success International Education Group (founded in 2001
in Shanghai), and Sparta Group (founded in 2002 in Beijing) are most prominent
companies in our business sector. We compete with them primarily on the basis of
training courses, lecturers, prices, effectiveness of training execution and our
brand name. Since those three companies have been in business longer than us and
they have cross-region presence, they possess their strength in market coverage
and pricing. However, we believe that we also have our competitive advantage in
our international network and broad offering.
OUR
STRATEGIES, RISKS AND UNCERTAINTIES
In order
to enhance our position as one of the top executive education providers in
China, we intend to expand our network, promote our brand name, create
increasingly channels and explore new opportunities. Our ability to realize our
business objectives and execute our strategies is subject to risks and
uncertainties, including the following:
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our
limited operating history for our current operations and the short history
of executive education sector that make it difficult for you to evaluate
the viability and prospects of our
business;
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competition
from present and future competitors in China’s growing executive education
market; and
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the
possibility that the PRC government could determine that the agreements
that establish our operating structure do not comply with PRC government
restrictions on foreign investment in the executive education industry,
which could potentially subject us to severe
penalties.
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These
risks and uncertainties, along with others, are also described in the Risk
Factors section of this Current Report on Form 8-K.
7
RISK
FACTORS
An
investment in our common stock or other securities involves a number of
risks. You should carefully consider each of the risks described
below before deciding to invest in our common stock. If any of the
following risks develops into actual events, our business, financial condition
or results of operations could be negatively affected, the market price of our
common stock or other securities could decline and you may lose all or part of
your investment.
The
risk factors presented below are all of the ones that we currently consider
material. However, they are not the only ones facing our
Company. Additional risks not presently known to us, or which we
currently consider immaterial, may also adversely affect us. There
may be risks that a particular investor views differently from us, and our
analysis might be wrong. If any of the risks that we face actually
occur, our business, financial condition and operating results could be
materially adversely affected and could differ materially from any possible
results suggested by any forward-looking statements that we have made or might
make. In such case, the trading price of our common stock could
decline, and you could lose part or all of your investment.
We have a limited operating
history, which may make it difficult for you to evaluate our business and
prospects.
We began
our current business operations in April 2009. Accordingly, we have a limited
operating history for our current operations upon which you can evaluate the
viability and sustainability of our business and its acceptance by private
business owners and executives. It is also difficult to evaluate the viability
of our business model because we do not have sufficient experience to address
the risks frequently encountered by early stage companies using new means to
deliver education programs and entering new and rapidly evolving markets. These
circumstances may make it difficult for you to evaluate our business and
prospects.
Our senior management and
employees have worked together for a short period of time, which may make it
difficult for you to evaluate their effectiveness and ability to address
challenges.
Due to
our limited operating history and recent additions to our management team,
certain of our senior management and employees have worked together at our
company for only a relatively short period of time. As a result, it may be
difficult for you to evaluate the effectiveness of our senior management and
other key employees and their ability to address future challenges to our
business.
Failure to manage our growth
could strain our management, operational and other resources, which could
materially and adversely affect our business and growth
potential.
We have
been rapidly expanding, and plan to continue to rapidly expand, our operations
in China. We must continue to expand our operations to meet the demands of
customers for executive training for larger and more diverse market coverage.
This expansion has resulted, and will continue to result, in substantial demands
on our management resources. To manage our growth, we must develop and improve
our existing administrative and operational systems and, our financial and
management controls and further expand, train and manage our work force. We have
already begun selling our executive education training program through our sales
agents who operate in the inland provinces and may in the future expand our
presence to some major cities in China. As we continue this effort, we may incur
substantial costs and expend substantial resources in connection with any such
expansion. We may encounter difficulties when we expand into other cities or if
we begin operations in other inland provinces in China due to different business
practice, local government regulations and cultural factors. We may not be able
to manage our current or future cross-region operations effectively and
efficiently or compete effectively in such markets. We cannot assure you that we
will be able to efficiently or effectively manage the growth of our operations,
recruit top talent and train our personnel. Any failure to efficiently manage
our expansion may materially and adversely affect our business and future
growth.
We may need additional
capital and we may not be able to obtain it, which could adversely affect our
liquidity and financial position.
To
further expand our executive education business, we may require additional cash
resources. If these sources are insufficient to satisfy our cash requirements,
we may seek to sell additional equity or debt securities or obtain a credit
facility. The sale of convertible debt securities or additional equity
securities could result in additional dilution to our shareholders. The
incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our
operations and liquidity.
8
Our
ability to obtain additional capital on acceptable terms is subject to a variety
of uncertainties, including:
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investors’
perception of, and demand for, securities of alternative executive
education companies;
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conditions
of the U.S. and other capital markets in which we may seek to raise
funds;
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our
future results of operations, financial condition and cash
flows;
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PRC
governmental regulation of foreign investment in executive education
companies in China;
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economic,
political and other conditions in China;
and
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PRC
governmental policies relating to foreign currency
borrowings.
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We cannot
assure you that financing will be available in amounts or on terms acceptable to
us, if at all. Any failure by us to raise additional funds on terms favorable to
us could have a material adverse effect on our liquidity and financial
condition.
We may be subject to
intellectual property infringement claims, which may force us to incur
substantial legal expenses and, if determined adversely against us, may
materially disrupt our business.
We cannot
be certain that our lectures or other aspects of our business do not or will not
infringe upon patents, copyrights or other intellectual property rights held by
third parties. Although we are not aware of any such claims, we may become
subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of our business. If we
are found to have violated the intellectual property rights of others, we may be
enjoined from using such intellectual property, and we may incur licensing fees
or be forced to develop alternatives. In addition, we may incur substantial
expenses in defending against these third party infringement claims, regardless
of their merit. Successful infringement or licensing claims against us may
result in substantial monetary liabilities, which may materially and adversely
disrupt our business.
If the PRC government finds
that the agreements that establish the structure for operating our China
business do not comply with PRC governmental restrictions on foreign investment
in the executive education industry, we could be subject to severe
penalties.
Substantially
all of our operations are or will be conducted through our indirectly
wholly-owned operating subsidiaries in China, which we collectively refer to as
our PRC operating subsidiaries, and through our contractual arrangements with
our consolidated affiliated entities in China. PRC regulations still have strict
restriction on foreign entities operating in the executive education industry in
China. Accordingly, our PRC operating subsidiaries which are directly owned by
non-PRC subsidiaries of ours, which we collectively refer to as wholly-foreign
owned, or WOFE, operating subsidiaries, are currently ineligible to apply for
the required licenses for providing executive education services in China. Our
non-PRC subsidiaries are ineligible to apply for such required licenses too. As
such, our executive education businesses are currently primarily provided
through contractual arrangements between our WOFE operating subsidiaries and our
consolidated affiliated entities in China, which we collectively refer to as our
PRC operating affiliates. These PRC operating affiliates include MYL Commercial,
MYL Business, Hangzhou Gongshu MYL Training School and Shanghai MYL Business
Administration Consulting Co. Ltd.. Accordingly, our executive education
businesses are currently conducted by (i) our indirect PRC operating
subsidiaries and (ii) our PRC operating affiliates. Our PRC operating
affiliates, which we control through contractual relationship are owned by
either (i) one or more PRC citizens designated by us, (ii) one or more
PRC entities owned by our subsidiaries or by our designated appointees or
(iii) a combination of PRC citizens and PRC entities owned by our
subsidiaries designated by us or our designated appointees. Our PRC operating
affiliates, certain of their respective subsidiaries and certain of our indirect
PRC operating subsidiaries hold the requisite licenses to provide executive
education services in China. Our PRC operating affiliates and their respective
subsidiaries directly operate our executive education business. While our
indirect PRC operating subsidiaries are eligible for the required licenses for
providing executive education services in China and some of our indirect PRC
operating subsidiaries have obtained such licenses, we have been using and are
expected to continue to use PRC operating affiliates and their subsidiaries to
operate a significant portion of our executive education business for the
foreseeable future. We have entered into contractual arrangements with PRC
operating affiliates and their respective subsidiaries, pursuant to which we,
through our PRC operating subsidiaries or non-PRC subsidiaries, provide
technical support and consulting services to our PRC operating affiliates and
their subsidiaries. In addition, we have entered into agreements with our PRC
operating affiliates and each of their shareholders which provide us with the
substantial ability to control these affiliates and their existing and future
subsidiaries.
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revoking
the business and operating licenses of our PRC subsidiaries and
affiliates;
discontinuing
or restricting our PRC subsidiaries’ and affiliates’ operations;
imposing
conditions or requirements with which we or our PRC subsidiaries and affiliates
may not be able to comply;
requiring
us or our PRC subsidiaries and affiliates to restructure the relevant ownership
structure or operations; or
restricting
or prohibiting our use of the proceeds of this offering to finance our business
and operations in China.
The
imposition of any of these penalties would result in a material and adverse
effect on our ability to conduct our business.
We rely on contractual
arrangements with MYL Commercial and its subsidiaries and shareholders for
a substantial portion of our China operations, which may not be as effective in
providing operational control as direct ownership.
We rely
on contractual arrangements with MYL Commercial and its subsidiaries and
shareholders to operate our executive education business. For a description of
these contractual arrangements, see “Corporate Structure” and “Related Party
Transactions”. These contractual arrangements may not be as effective in
providing us with control over MYL Commercial as direct ownership. If we had
direct ownership of MYL Commercial, we would be able to exercise our rights as a
shareholder to effect changes in the board of directors of MYL Commercial which
in turn could effect changes, subject to any applicable fiduciary obligations,
at the management level. However, under the current contractual arrangements, as
a legal matter, if MYL Commercial or any of its subsidiaries and shareholders
fails to perform its or his respective obligations under these contractual
arrangements, we may have to incur substantial costs and resources to enforce
such arrangements, and rely on legal remedies under PRC law, including seeking
specific performance or injunctive relief, and claiming damages, which we cannot
assure you to be effective. For example, if the shareholders of MYL Commercial
were to refuse to transfer his equity interest in MYL Commercial to us or our
designee when we exercise the purchase option pursuant to these contractual
arrangements, or if the shareholders of MYL Commercial were otherwise to act in
bad faith toward us, then we may have to take legal action to compel them to
fulfill their contractual obligations.
Many of
these contractual arrangements are governed by PRC law and provide for the
resolution of disputes through either arbitration or litigation in the PRC.
Accordingly, these contracts would be interpreted in accordance with PRC law and
any disputes would be resolved in accordance with PRC legal procedures. The
legal environment in the PRC is not as developed as in other jurisdictions, such
as the United States. As a result, uncertainties in the PRC legal system could
limit our ability to enforce these contractual arrangements. In the event we are
unable to enforce these contractual arrangements, we may not be able to exert
effective control over our operating entities, and our ability to conduct our
business may be negatively affected.
Contractual
arrangements we have entered into among our subsidiaries and affiliated entities
may be subject to scrutiny by the PRC tax authorities and a finding that we owe
additional taxes or are ineligible for our tax exemption, or both, could
substantially increase our taxes owed, and reduce our net income and the value
of your investment.
Under
PRC law, arrangements and transactions among related parties may be subject
to audit or challenge by the PRC tax authorities. If any of the transactions we
have entered into among our subsidiaries and affiliated entities are found not
to be on an arm’s-length basis, or to result in an unreasonable reduction in tax
under PRC law, the PRC tax authorities have the authority to disallow our tax
savings, adjust the profits and losses of our respective PRC entities and assess
late payment interest and penalties.
As a
result of this risk, you should evaluate our results of operations and financial
condition without regard to these tax savings.
Our business is dependent
upon the PRC government’s educational policies and programs.
As a
provider of educational services, we are dependent upon governmental educational
policies. Almost all of our revenue to date has been generated from the sale of
lectures and materials relating to executive training. To the extent that the
government adopts policies changes that significantly alter what is allowed in
China, our products could become obsolete, which would affect our ability to
generate revenue and operate profitably. We cannot assure you that the PRC
government agencies would not adopt such changes.
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We are subject to numerous
PRC rules and regulations which restrict the scope of our business and could
have a material adverse impact on us.
We are
subject to numerous rules and regulations in the PRC, including, without
limitation, restrictions on foreign ownership of internet and education
companies and regulation of Internet content. Many of the rules and regulations
that we face are not explicitly communicated, but arise from the fact that
education and the internet are politically sensitive areas of the
economy. We are not aware that any of our agreements or our current
organizational structure is in violation of any governmental requirements or
restrictions, explicit or implicit. However, there can be no
assurance that we are in compliance now, or will be in the
future. Moreover, operating in the PRC involves a high risk that
restrictive rules and regulations could change. Indeed, even changes
of personnel at certain ministries of the government could have a negative
impact on us. The determination that our structure or agreements are
in violation of governmental rules or regulations in the PRC would have a
material adverse impact on us, our business and on our financial
results.
Our business may be subject
to seasonal and cyclical fluctuations in sales.
We may
experience seasonal fluctuations in our revenue in some regions in the PRC,
based on economic situation and the tendency of executives to make commitment
relating to their education during the year. Any seasonality may
cause significant pressure on us to monitor the development of materials
accurately and to anticipate and satisfy these requirements.
Our business is subject to
the health of the PRC economy.
The
purchase of educational lectures and materials not provided by the state
educational system is discretionary and dependent upon the ability and
willingness of executives and businesses to spend available funds on extra
educational products. A general economic downturn either in our market or a
general economic downturn in the PRC could have a material adverse effect on our
revenue, earnings, cash flow and working capital.
We depend on our senior
officers to manage and develop our business.
Our
success depends on the management skills of Mr. Kaien Liang, Chairman and Chief
Executive Officer, and his relationships with educators, administrators and
other business contacts. We also depend on successfully recruiting
and retaining highly skilled and experienced authors, teachers, managers, sales
persons and other personnel who can function effectively in the
PRC. In some cases, the market for these skilled employees is highly
competitive. We may not be able to retain or recruit such personnel,
which could materially and adversely affect our business, prospects and
financial condition. We do not maintain key person insurance on these
individuals. The loss of Mr. Hsu would delay our ability to implement
our business plan and would adversely affect our business.
We may not be successful in
protecting our intellectual property and proprietary rights.
Our
intellectual property consists of lectures and formats, which are contained in
our library, and courseware which we developed by engaging authors and educators
to develop these materials. Our proprietary products are primarily
protected by trade secret laws. Although we require our authors and
employees to sign confidentiality and non-disclosure agreements, we cannot
assure you that we will be able to enforce those agreements or that our authors
and software development employees will not be able to develop competitive
products that do not infringe upon our proprietary rights. We do not know the
extent that PRC courts will enforce our proprietary rights.
Others may bring defamation
and infringement actions against us, which could be time-consuming, difficult
and expensive to defend.
As a
distributor of educational materials, we face potential liability for
negligence, copyright, patent or trademark infringement and other claims based
on the nature and content of the materials that we publish or
distribute. Any claims could result in us incurring significant costs
to investigate and defend regardless of the final outcome. We do not
carry general liability insurance that would cover any potential or actual
claims. The commencement of any legal action against us or any of our
affiliates, whether or not we are successful in defending the action, could both
require us to suspend or discontinue the distribution of some or a significant
portion of our educational materials and require us to allocate resources to
investigating or defending claims.
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We depend upon the
acquisition and maintenance of licenses to conduct our business in the
PRC.
In order
to conduct business in the PRC, we need licenses from the appropriate government
authorities, including general business licenses and an education service
provider license. The loss or failure to obtain or maintain these
licenses in full force and effect will have a material adverse impact on our
ability to conduct our business and on our financial condition.
Our growth may be inhibited
by the inability of potential customers to fund purchases of our products and
services.
Many
businesses in the PRC, do not have sufficient funds to purchase textbooks,
educational materials or lectures and course materials. In addition,
provincial and local governments may not have the funds to support the
implementation of a curriculum using our educational products or may allocate
funds to programs which are different from our products. Our failure to be able
to sell our products and services to students in certain areas of the PRC may
inhibit our growth and our ability to operate profitably.
Changes in the policies of
the government in the PRC could significant impact our ability to operate
profitably.
The
economy of the PRC is a planned economy subject to five-year and annual plans
adopted by the government that set down national economic development
goals. Government policies can have significant effect on the
economic conditions of the PRC generally and the educational system in
particular. Although the government in the PRC has confirmed that
economic development will follow a model of market economy under socialism, a
change in the direction of government planning may materially affect our
business, prospects and financial condition.
Inflation in the PRC could
negatively affect our profitability and growth.
While the
economy in the PRC has experienced rapid growth, such growth has been uneven
among various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. If prices for our services rise at a rate that is insufficient to
compensate for the rise in our costs, it may have an adverse effect on
profitability. In order to control inflation in the past, the government has
imposed controls in bank credits, limits on loans for fixed assets purchase, and
restrictions on state bank lending. Such an austerity policy can lead to a
slowing economic growth which could impair our ability to operate
profitably.
If we make any acquisitions,
they may disrupt or have a negative impact on our business.
If we
make acquisitions, we could have difficulty integrating personnel and operations
of the acquired companies with our own. In addition, the key personnel of the
acquired business may not be willing to work for us. We cannot predict the
affect expansion which may have on our core business. Regardless of whether we
are successful in making an acquisition, the negotiations could disrupt our
ongoing business, distract our management and employees and increase our
expenses. In addition to the risks described above, acquisitions are accompanied
by a number of inherent risks, including, without limitation, the
following:
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the
difficulty of integrating acquired products, services or
operations;
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the
potential disruption of the ongoing businesses and distraction of our
management and the management of acquired
companies;
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the
difficulty of incorporating acquired rights or products into our existing
business;
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difficulties
in disposing of the excess or idle facilities of an acquired company or
business and expenses in maintaining such
facilities;
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difficulties
in maintaining uniform standards, controls, procedures and
policies;
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the
potential impairment of relationships with employees and customers as a
result of any integration of new management
personnel;
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the
potential inability or failure to achieve additional sales and enhance our
customer base through cross-marketing of the products to new and existing
customers;
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the
effect of any government regulations which relate to the business
acquired;
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potential
unknown liabilities associated with acquired businesses or product lines,
or the need to spend significant amounts to retool, reposition or modify
the marketing and sales of acquired products or the defense of any
litigation, whether of not successful, resulting from actions of the
acquired company prior to our
acquisition.
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Our
business could be severely impaired to the extent that we are unable to succeed
in addressing any of these risks or other problems encountered in connection
with these acquisitions, many of which cannot be presently identified, these
risks and problems could disrupt our ongoing business, distract our management
and employees, increase our expenses and adversely affect our results of
operations.
Our operations and assets in
the PRC are subject to significant political and economic
uncertainties.
Government
policies are subject to rapid change, and the government of the PRC may adopt
policies which have the effect of hindering private economic activity and
greater economic decentralization. There is no assurance that the government of
the PRC will not significantly alter its policies from time to time without
notice in a manner which reduces or eliminates any benefits from its present
policies of economic reform. In addition, a substantial portion of productive
assets in the PRC remains government-owned. For instance, all lands are state
owned and leased to business entities or individuals through governmental
granting of state-owned land use rights. The granting process is typically based
on government policies at the time of granting, which could be lengthy and
complex. The government of the PRC also exercises significant control over its
economic growth through the allocation of resources, controlling payment of
foreign currency and providing preferential treatment to particular industries
or companies. Uncertainties may arise with changing of governmental policies and
measures. In addition, changes in laws and regulations, or their interpretation,
or the imposition of confiscatory taxation, restrictions on currency conversion,
imports and sources of supply, devaluations of currency, the nationalization or
other expropriation of private enterprises, as well as adverse changes in the
political, economic or social conditions in the PRC, could have a material
adverse effect on our business, results of operations and financial
condition.
Recent regulations relating
to offshore investment activities by PRC residents may increase the
administrative burden we face and create regulatory uncertainties that could
restrict our overseas and cross-border investment activity, and a failure by our
shareholders who are PRC residents to make any required applications and filings
pursuant to such regulations may prevent us from being able to distribute
profits and could expose us and our PRC resident shareholders to liability under
PRC law.
The PRC
National Development and Reform Commission, or NDRC, and SAFE recently
promulgated regulations that require PRC residents and PRC corporate entities to
register with and obtain approvals from relevant PRC government authorities in
connection with their direct or indirect offshore investment activities. These
regulations apply to our shareholders who are PRC residents and may apply to any
offshore acquisitions that we make in the future.
Under the
SAFE regulations, PRC residents who make, or have previously made, direct or
indirect investments in offshore companies will be required to register those
investments. In addition, any PRC resident who is a direct or indirect
shareholder of an offshore company is required to file with the local branch of
SAFE, with respect to that offshore company, any material change involving
capital variation, such as an increase or decrease in capital, transfer or swap
of shares, merger, division, long term equity or debt investment or creation of
any security interest over the assets located in China. If any PRC shareholder
fails to make the required SAFE registration, the PRC subsidiaries of that
offshore parent company may be prohibited from distributing their profits and
the proceeds from any reduction in capital, share transfer or liquidation, to
their offshore parent company, and the offshore parent company may also be
prohibited from injecting additional capital into their PRC subsidiaries.
Moreover, failure to comply with the various SAFE registration requirements
described above could result in liability under PRC laws for evasion of
applicable foreign exchange restrictions.
13
The PRC tax authorities may
require us to pay additional taxes in connection with our acquisitions of
offshore entities that conducted their PRC operations through their affiliates
in China.
Our
operations and transactions are subject to review by the PRC tax authorities
pursuant to relevant PRC laws and regulations. However, these laws, regulations
and legal requirements change frequently, and their interpretation and
enforcement involve uncertainties. For example, in the case of some of our
acquisitions of offshore entities that conducted their PRC operations through
their affiliates in China, we cannot assure you that the PRC tax authorities
will not require us to pay additional taxes in relation to such acquisitions. In
the event that the sellers failed to pay any taxes required under PRC law in
connection with these transactions, the PRC tax authorities might require us to
pay the tax, together with late-payment interest and penalties.
If any of our PRC affiliates
becomes the subject of a bankruptcy or liquidation proceeding, we may lose the
ability to use and enjoy those assets, which could reduce the size of our
executive education distribution network and materially and adversely affect our
business, ability to generate revenue and the market price of our
stock.
To comply
with PRC laws and regulations relating to foreign ownership restrictions in the
executive education business, we currently conduct our operations in China
through contractual arrangements with MYL Commercial, its shareholders and
subsidiaries. As part of these arrangements, MYL Commercial and its subsidiaries
hold certain of the assets that are important to the operation of our business.
If any of these entities goes bankrupt and all or part of their assets become
subject to liens or rights of third-party creditors, we may be unable to
continue some or all of our business activities, which could materially and
adversely affect our business, financial condition and results of operations. If
any of MYL Commercial and its subsidiaries undergoes a voluntary or involuntary
liquidation proceeding, its shareholders or unrelated third-party creditors may
claim rights to some or all of these assets, thereby hindering our ability to
operate our business, which could materially and adversely affect our business,
our ability to generate revenue and the market price of our stock.
Restrictions on currency
exchange may limit our ability to utilize our revenues
effectively.
Substantially
all of our revenues and operating expenses are denominated in Renminbi. The
Renminbi is currently convertible under the “current account”, which includes
dividends, trade and service-related foreign exchange transactions, but not
under the “capital account”, which includes foreign direct investment and loans.
Currently, MYL Business may purchase foreign exchange for settlement of “current
account transactions”, including payment of dividends to us, without the
approval of the State Administration of Foreign Exchange. However, we cannot
assure you that the relevant PRC governmental authorities will not limit or
eliminate our ability to purchase foreign currencies in the future. Since a
significant amount of our future revenues will be denominated in Renminbi, any
existing and future restrictions on currency exchange may limit our ability to
utilize revenues generated in Renminbi to fund our business activities outside
China, if any, or expenditures denominated in foreign currencies. Foreign
exchange transactions under the capital account are still subject to limitations
and require approvals from, or registration with, the State Administration of
Foreign Exchange and other relevant PRC governmental authorities. This could
affect MYL Business’s ability to obtain foreign exchange through debt or equity
financing, including by means of loans or capital contributions from
us.
Because
our earnings and cash and cash equivalent assets are denominated in Renminbi and
the net proceeds from this offering will be denominated in U.S. dollars,
fluctuations in exchange rates between U.S. dollars and Renminbi will affect the
relative purchasing power of these proceeds and our balance sheet and earnings
per share in U.S. dollars following this offering. In addition, appreciation or
depreciation in the value of the Renminbi relative to the U.S. dollar would
affect our financial results reported in U.S. dollar terms without giving effect
to any underlying change in our business or results of operations. Since
July 2005 the Renminbi is no longer pegged solely to the U.S. dollar.
Instead, it is reported to be pegged against a basket of currencies, determined
by the People’s Bank of China, against which it can rise or fall by as much as
0.3% each day. This change in policy has resulted in the gradual increase in the
value of the Renminbi against the U.S. dollar over time. As of March 31,
2009, the Renminbi had appreciated approximately 17.4% against the U.S. dollar
since July 21, 2005. On March 31, 2008, the Renminbi was valued
against the U.S. dollar at approximately RMB6.8240 to the U.S. dollar. The
Renminbi may appreciate or depreciate significantly in value against the U.S.
dollar in the long term, depending on the fluctuation of the basket of
currencies against which it is currently valued or it may be permitted to enter
into a full float, which may also result in a significant appreciation or
depreciation of the Renminbi against the U.S. dollar. Fluctuations in the
exchange rate will also affect the relative value of any dividend we issue in
the future which will be exchanged into U.S. dollars and earnings from and the
value of any U.S. dollar-denominated investments we make in the
future.
Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. We do not intend to enter into any hedging transactions. Even if we may
decide to enter into hedging transactions in the future, the availability and
effectiveness of these hedges may be limited and we may not be able to
successfully hedge our exposure at all. In addition, our currency exchange
losses may be magnified by PRC exchange control regulations that restrict our
ability to convert Renminbi into foreign currency.
14
Price controls may affect
both our revenues and net income.
The laws
of the PRC provide the government broad power to fix and adjust prices. We need
to obtain government approval in setting our prices for classroom coursework and
tutorials. Although the sale of educational materials over the Internet is not
presently subject to price controls, we cannot give you any assurance that they
will not be subject to controls in the future. To the extent that we are subject
to price control, our revenue, gross profit, gross margin and net income will be
affected since the revenue we derive from our services will be limited and we
may face no limitation on our costs. As a result, we may not be able to pass on
to our students any increases in costs we incur, or any increases in the costs
of our faculty. Further, if price controls affect both our revenue and our
costs, our ability to be profitable and the extent of our profitability will be
effectively subject to determination by the applicable PRC regulatory
authorities.
Our operations may not
develop in the same way or at the same rate as might be expected if the PRC
economy were similar to the market-oriented economies of most developed
countries.
The
economy of the PRC has historically been a nationalistic, “planned economy,”
meaning it functions and produces according to governmental plans and pre-set
targets or quotas. In certain aspects, the PRC’s economy has been making a
transition to a more market-oriented economy, although the government imposes
price controls on certain products and in certain industries. However, we cannot
predict the future direction of these economic reforms or the effects these
measures may have. The economy of the PRC also differs from the economies of
most developed countries including with respect to the amount of government
involvement, level of development, growth rate, control of foreign exchange and
allocation of resources. As a result of these differences, our business may not
develop in the same way or at the same rate as might be expected if the economy
of the PRC were similar to those of other developed countries.
Because our officers and
directors reside outside of the United States, it may be difficult for you to
enforce your rights against them or enforce United States court judgments
against them in the PRC.
Our
directors and our executive officers reside in the PRC and all of our assets are
located in the PRC. It may therefore be difficult for United States investors to
enforce their legal rights, to effect service of process upon our directors or
officers or to enforce judgments of United States courts predicated upon civil
liabilities and criminal penalties of our directors and officers under federal
securities laws. Further, it is unclear if extradition treaties now in effect
between the United States and the PRC would permit effective enforcement of
criminal penalties of the federal securities laws.
We may have limited legal
recourse under PRC law if disputes arise under contracts with third
parties.
All of
our agreements, which are made by our PRC subsidiaries, are governed by the laws
of the PRC. The PRC legal system is a civil law system based on written
statutes. Accordingly decided legal cases have little precedential value. The
government of the PRC has enacted some laws and regulations dealing with matters
such as corporate organization and governance, foreign investment, commerce,
taxation and trade. However, these laws are relatively new and their experience
in implementing, interpreting and enforcing these laws and regulations is
limited. Therefore, our ability to enforce commercial claims or to resolve
commercial disputes may be uncertain. The resolution of these matters may be
subject to the exercise of considerable discretion by the parties charged with
enforcement of the applicable laws. Any rights we may have to specific
performance or to seek an injunction under PRC law may be limited, and without a
means of recourse, we may be unable to prevent these situations from occurring.
The occurrence of any such events could have a material adverse effect on our
business, financial condition and results of operations.
Because we may not be able
to obtain business insurance in the PRC, we may not be protected from risks that
are customarily covered by insurance in the United States.
Business
insurance is not readily available in the PRC. To the extent that we suffer a
loss of a type which would normally be covered by insurance in the United
States, such as product liability and general liability insurance, we would
incur significant expenses in both defending any action and in paying any claims
that result from a settlement or judgment.
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Because our funds are held
in banks which do not provide insurance, the failure of any bank in which we
deposit our funds could affect our ability to continue in
business.
Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit. As a result, in the event of a bank failure, we may not have access
to funds on deposit. Depending upon the amount of money we maintain in a bank
that fails, our inability to have access to our cash could impair our
operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue in
business.
Failure to comply with the
United States Foreign Corrupt Practices Act could subject us to penalties and
other adverse consequences.
We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Foreign companies, including some that may compete with us, are not
subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices occur from time-to-time in the PRC. We can make
no assurance, however, that our employees or other agents will not engage in
such conduct for which we might be held responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse effect on our
business, financial condition and results of operations.
Fluctuations in the exchange
rate could have a material adverse effect upon our business.
We
conduct our business in the Renminbi. The value of the Renminbi against the U.S.
dollar and other currencies may fluctuate and is affected by, among other
things, changes in political and economic conditions. On July 21, 2005, the PRC
government changed its decade old policy of pegging its currency to the U.S.
currency. Under the current policy, the Renminbi is permitted to fluctuate
within a narrow and managed band against a basket of certain foreign currencies.
This change in policy has resulted in an approximately 17% appreciation of the
Renminbi against the U.S. dollar between July 21, 2005 and March 23, 2009.
However, there remains significant international pressure on the PRC government
to adopt an even more flexible currency policy, which could result in a further
and more significant appreciation of the RMB against the U.S. dollar. To the
extent our future revenues are denominated in currencies other the United States
dollars, we would be subject to increased risks relating to foreign currency
exchange rate fluctuations which could have a material adverse affect on our
financial condition and operating results since our operating results are
reported in United States dollars and significant changes in the exchange rate
could materially impact our reported earnings.
Recent recalls of PRC
products may affect the market for our stock.
Although
we do not sell consumer products in the international market, the recent recalls
of PRC products in the United States and elsewhere could affect the market for
our stock by causing investors to invest in companies that are not based on the
PRC.
Certain of our stockholders
control a significant amount of our common stock.
Approximately
80% of our outstanding common stock is owned by our chairman, Mr. Kaien
Liang. Mr. Liang presently has the voting power to elect all of the
directors and approve any transaction requiring stockholder
approval.
The terms on which we may
raise additional capital may result in significant dilution and may impair our
stock price.
We cannot
assure you that we will be able to get additional financing on any terms, and,
if we are able to raise funds, it may be necessary for us to sell our securities
at a price which is at a significant discount from the market price and on other
terms which may be disadvantageous to us. In connection with any such financing,
we may be required to provide registration rights to the investors and pay
damages to the investor in the event that the registration statement is not
filed or declared effective by specified dates. The price and terms of any
financing which would be available to us could result in both the issuance of a
significant number of shares and significant downward pressure on our stock
price.
16
Risks
Associated with Investing in our Common Stock
The rights of the holders of
common stock may be impaired by the potential issuance of preferred
stock.
Although
we do not have any authorized preferred stock at the moment, we cannot assure
you that there will not be preferred stock in the future, which may have
superior liquidation rights, voting rights and other rights.
Failure to achieve and
maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and
operating results and stockholders could lose confidence in our financial
reporting.
Internal
controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. If we cannot provide reliable financial reports or
prevent fraud, our operating results could be harmed. Under the current SEC
regulations, we will be required to include a management report on internal
controls over financial reporting in our Form 10-K annual report for the year
ended December 31, 2009, and we will be required to include an auditor’s report
on internal controls over financial reporting for the year ended December 31,
2010. Failure to achieve and maintain an effective internal control environment,
regardless of whether we are required to maintain such controls, could also
cause investors to lose confidence in our reported financial information, which
could have a material adverse effect on our stock price. Although we are not
aware of anything that would impact our ability to maintain effective internal
controls, we have not obtained an independent audit of our internal controls,
and, as a result, we are not aware of any deficiencies which would result from
such an audit. Further, at such time as we are required to comply with the
internal controls requirements of Sarbanes Oxley, we may incur significant
expenses in having our internal controls audited and in implementing any changes
which are required.
Because of our cash
requirements and potential government restrictions, we may be unable to pay
dividends.
Payment
of dividends to our shareholders would require payment of dividends by our PRC
subsidiaries to us. This, in turn, would require a conversion of Renminbi into
US dollars and repatriation of funds to the United States. Although our
subsidiaries’ classification as wholly-owned foreign enterprises under PRC law
permits them to declare dividends and repatriate their funds to us in the United
States, any change in this status or the regulations permitting such
repatriation could prevent them from doing so. Any inability to repatriate funds
to us would in turn prevent payments of dividends to our
shareholders.
Because we may be subject to
the “penny stock” rules, you may have difficulty in selling our common
stock.
Because
our stock price is less than $5.00 per share, our stock may be subject to the
SEC’s penny stock rules, which impose additional sales practice requirements and
restrictions on broker-dealers that sell our stock to persons other than
established customers and institutional accredited investors. The application of
these rules may affect the ability of broker-dealers to sell our common stock
and may affect your ability to sell any common stock you may own.
According
to the SEC, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
|
·
|
Control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or
issuer;
|
|
·
|
Manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
|
|
·
|
“Boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
|
·
|
Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
|
·
|
The
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor
losses.
|
17
As an issuer of “penny
stock” the protection provided by the federal securities laws relating to
forward looking statements does not apply to us.
Although
the federal securities law provide a safe harbor for forward-looking statements
made by a public company that files reports under the federal securities laws,
this safe harbor is not available to issuers of penny stocks. As a result, if we
are a penny stock we will not have the benefit of this safe harbor protection in
the event of any based upon an claim that the material provided by us contained
a material misstatement of fact or was misleading in any material respect
because of our failure to include any statements necessary to make the
statements not misleading.
Our stock price may be
affected by our failure to meet projections and estimates of earnings developed
either by us or by independent securities analysts.
Although
we do not make projections relating to our future operating results, our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would likely be
materially adversely affected.
The volatility of and
limited trading market in our common stock may make it difficult for you to sell
our common stock for a positive return on your investment.
The
public market for our common stock has historically been very limited. Over the
last two years, the market price for our common stock has not been traded. Any
future market price for our shares is likely to be very volatile. Further, our
common stock is not actively traded, which may amplify the volatility of our
stock. These factors may make it more difficult for you to sell shares of common
stock.
The registration and
potential sale, either pursuant to a prospectus or pursuant to Rule 144, by
certain of our selling stockholders of a significant number of shares could
encourage short sales by third parties.
There may
be significant downward pressure on our stock price caused by the sale or
potential sale of a significant number of shares by certain of our selling
stockholders pursuant to this prospectus, which could allow short sellers of our
stock an opportunity to take advantage of any decrease in the value of our
stock. The presence of short sellers in our common stock may further depress the
price of our common stock.
If the
selling stockholders sell a significant number of shares of common stock, the
market price of our common stock may decline. Furthermore, the sale or potential
sale of the offered shares pursuant to a prospectus and the depressive effect of
such sales or potential sales could make it difficult for us to raise funds from
other sources.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our consolidated financial statements
and the related notes included elsewhere in this document. The following
discussion contains forward-looking statements. MYL Business is referred to
herein as “we”, “us”, “our”, or the “Company.” The words or phrases “would be,”
“will allow,” “expect to”, “intends to,” “will likely result,” “are expected
to,” “will continue,” “is anticipated,” “estimate,” or similar expressions are
intended to identify forward-looking statements. Such statements include, among
others, those statements concerning our expected financial performance, our
corporate strategy and operational plans. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of risks and uncertainties, including, among others: (a) those risks and
uncertainties related to general economic conditions in China, including
regulatory factors that may affect such economic conditions; (b) whether we are
able to manage our planned growth efficiently and operate profitable operations,
including whether our management will be able to identify, hire, train, retain,
motivate and manage required personnel or that management will be able to
successfully manage and exploit existing and potential market opportunities; (c)
whether we are able to generate sufficient revenues or obtain financing to
sustain and grow our operations; and (d) whether we are able to successfully
fulfill our primary requirements for cash which are explained below under
“Liquidity and Capital Resources”. Unless otherwise required by applicable law,
we do not undertake, and we specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or any other circumstances after the date of such statement unless
required by law. For additional information regarding these risks and
uncertainties, see “Risk Factors”. Our consolidated financial statements have
been prepared in accordance with U.S. GAAP. In addition, our consolidated
financial statements and the financial data included in this document reflect
the Merger and have been prepared as if our current corporate structure had been
in place throughout the relevant periods.
18
We mainly
operate through MYL Business. We are a fast-growing executive
education company in China, we operate comprehensive training programs through
our controlled companies and subsidiaries in Hangzhou and Shanghai, two
prosperous and commercial cities of China. We provide Chinese business
executives with systematic training in leadership development. We also
provide highly effective personal skill development programs, such as, decision
making skills, negotiation skills, presentation skills and people skills. Such
practical skills development programs have been well accepted by increasing
number of Chinese entrepreneurs, business executives and corporation senior
management.
Our
open-enrollment training programs include our proprietary training courses and
featured lectures. Our proprietary training courses include one package of 7
courses for CEO and C-Level managers, as well as 21 leadership and personal
development courses, which are on the topic of management skills, negotiation
skills, leadership skills, public speaking skills, etc. Featured
Lectures are delivered by world masters invited by us. Those World
Masters are experts or well-known speakers in each relevant
field. Lectures are delivered to a large audience. MYL Business’s
network of speaking professionals is a leading platform in China at
inspiring audiences to new levels of motivation and commitment.
Since the
formal launching of our operation in April 2009, we have provided our training
programs to 2,874 of Chinese business owners and executives. They come from
different provinces and from different industries. And they also represent
different sizes of business. Some of our top corporation clients have
multi-million dollars of sales, such as, Tieniu Group, Jiangsu Shenhua Real
Estate Co.,Ltd., Beijing Holliland Enterprise Investment Management Co., Ltd.,
WanLong Ski Resort, Shenzhen Baoan Fenda Industrial Co., Ltd. and so
on
|
Top
Five Clients
|
Enrollment
Fee Paid
|
|
Tieniu
Group
|
$940,849.19
|
|
Jiangsu
Shenhua Real Estate Co.,Ltd.
|
$341,712.44
|
|
Beijing
Holliland Enterprise Investment Management Co.,Ltd.
|
$242,108.34
|
|
WanLong
Ski Resort
|
$188,978.03
|
|
Shenzhen
Baoan Fenda Industrial Co., Ltd.
|
$93,844.8
|
In year
2009 with 9 months of operation, we have generated RMB 62.44 million
(approximately USD 9.14 million) in revenue and RMB 25.09 million (approximately
USD 3.31 million) of net profit. Both client base and sales have experienced
continuous growth from month to month.
Our
Industry
We
operate in China’s professional training industry, which is one of the fastest
growing sectors in China’s education industry. According to the China Education
Yearbook, China’s total educational expenditures were approximately RMB1, 214.8
billion in 2007 (approximately $178.6 billion), representing a compound annual
growth rate, or CAGR, of approximately 15.4%, since 2000, as illustrated in the
following chart. The school system run by the State and local government
accounts for over 60% of the funding and expenditure.
19
Annual
Education Expenditure of China
RMB Billion
According
to the Report of Investment
Analysis and Prospect of China Training Industry 2010-2015, as of the end
of 2007,
the estimated size of the vocational training and professional training market
was around RMB 300 billion (approximately USD 44 billion). And as one of the
major segments of the professional training industry, China’s executive training
has emerged and grown rapidly in the last few years. The market was
estimated with a size about RMB 2 billion (approximately $294 million) in 2002;
then was increased to over RMB 16 billion (approximately 2.35 billion) in 2004,
and jumped to RMB 30 billion (approximately $4.41 billion) in 2006.
China’s
professional training industry has also been further divided in more
sub-segments, such as, career development training, foreign language training,
technique and skills training, and executive training. As Chinese companies and
working force confront competition in the global market, the needs for steady
improvement of the skills and efficiency on different levels will stimulate
continuing growth in demand for specialized professional education services in
different fields.
Executive
training is a special business segment. The target clients for executive
training business are corporation executives, C-level managers and private
business owners. The training programs mainly include leadership development,
corporation strategy, decision making and other personal skill development.
China’s executive education sector is characterized with the following
nature:
|
·
|
Young
and in early development stage. In comparison with other professional
training segments, China’s executive training industry is young and just
has 10 years history. It was first introduced by foreign education
institute to top Chinese business schools in late 1990s, then expanded to
the private sector with many active
participants.
|
|
·
|
Strong
market demand. Driven by the booming Chinese economy and spirit of
entrepreneurism in the private business sector, demand for
open-enrollment and easy access high-level education program from more
than 6 million of Chinese private business owners and over 10
million business executives in China is
strong.
|
|
·
|
Fragmented
market. Because low entry barrier, now there are thousands of executive
training providers in China. There is no dominant player in the national
market yet. According to the study conducted by China
Investment & Industry Research Center, there were more than 70,000
training companies nationwide, of which more than 10,000 located in
Beijing and Shanghai, but quite few of them have generated RMB 10 million
or more of sales revenue annually.
|
Factors
Affecting Our Results of Operation
The
increase in our operating results was attributable to a number of factors, which
include the strong market demand for quality executive training programs in
China, and our effective execution of our business formation plan in Hangzhou
and Shanghai, We believe that our business model and quick establishment in the
target market have given us a considerable advantage over our
competitors. We expect our business will continue its growth in the
years to come, and our future growth will depend primarily on the following
factors:
20
Increasing
Domestic Spending in Executive Training in China
The
demand for our training program is directly related to the training spending in
China. The increase in training spending is largely determined by the economic
conditions in our country. According to the data released by National Bureau of
Statistics of China on January 21, 2010, China’s economy has expanded by 8.7% in
2009, and its annual growth rate has been in the range of 8% to 13% in the
recent decade. We believe, the fast growing economy is going to generate more
demand for professional training, including business executive training
programs. We expect the training spending in China will maintain its
double-digit growth in the years to come. However, we cannot give you
any assurance that post growth will continue or stay the same.
Increasing
Numbers of Private Businesses
According
to the Report
of Investment Analysis and Prospect of China Training Industry 2010-2015
by China Investment &
Industry Research Center in January 2010, there were approximately 31.5
million of small and middle-sized business in China in 2006,
increased by 11.2% compared to 2005,
and in the coming three years, the number of small and middle-sized
company is expected to keep growing at annual growth rate of 7%-8%. It is
estimated that by 2012, the number of small and middle-sized company will reach
approximately 50 million. The business owners and executives are eager to
improve their skills of management, leadership, marketing, negotiating and
investment skills.
Promotion
of Our Brand Name to Attract More Clients Cross the Country
We plan
to promote our brand name, Magic Your Life TM in China. We believe that the
enhancement of public awareness to our brand name will help to broaden our
client base all over China.
Network
with and Retain More Masters
Since
Featured Lectures are one of the major revenue generating venues for us, we need
to expand business networking and retain more top talents to our lecturer and
guest speaker team. In 2010, we intend to host more Featured Lectures
or large session of events to attract more enrollments and sell our programs to
more clients.
New
Training Program Offer for the Rich 2nd Generation
As China
become the country with the 2nd largest number of billionaires and super-rich
people. The inheritance of the wealth and business has become a big concern to
the Country and the families. We intend to develop and launch our special
training programs for the children of the most affluent Chinese. The program
will help this specific group of clients to improve their business management
skills and personal skills. We believe that this business initiative
will help to further expand our business in the following years.
Intellectual
Property
MYL
Business has officially filed with the respective trademark offices in the PRC,
Hong Kong, and the US the application for registration of 
(FORBOSS Business Mentor Group) as registered trademark.
Such application is subject to review and authorization by the respective
trademark offices. In Hong Kong, the said application is pending as it has been
challenged by third parties. Ms. Chiayeh LIN, one of the management of MYL, has
officially filed with the trademark office of the PRC the application for
registration of 
(Magic You Life)
as registered trademark, Such application is subject to review and authorization
by the trademark office of the PRC.
(FORBOSS Business Mentor Group) as registered trademark.
Such application is subject to review and authorization by the respective
trademark offices. In Hong Kong, the said application is pending as it has been
challenged by third parties. Ms. Chiayeh LIN, one of the management of MYL, has
officially filed with the trademark office of the PRC the application for
registration of (Magic You Life)
as registered trademark, Such application is subject to review and authorization
by the trademark office of the PRC.Mr. Kaien
Liang, our Chairman and controlling shareholder of MYL, is the writer of his
books Who is The Next
Magic and Never Say
Impossible, which sell in thousands. Meanwhile, Mr. Pokai Hsu, is the
writer of How to be No.1 in
China.
Marketing
We market
our executive training service directly to business executives. As of December
31, 2009, we had 220 sales and marketing personnel. Our sales team generates
sales and sales leads through tele-marketing campaign, mass-mailing campaign,
and business referrals. We also market our training program by organizing or
sponsoring business seminars or other social and business events.
We will
further increase the size of our sales and marketing team as we continuously
grow our business and add more training programs.
21
Employees
MYL
Business currently has around 274 full-time employees as of December
31, 2009, including 10 in research and development, 19 in administration and HR
department, 8 in financial department, 12 in customer service department, 5 in
network department and 220 in sales and marketing.
Growth
Strategy
We intend
to grow our business by pursuing the following:
Increase our market coverage.
We expect to increase our market coverage through extensive
tele-marketing campaign and mass mailing. We also intend to establish and expand
our sales agent network in inland provinces. We believe there are
many untouched opportunities there.
Expand course
offerings. We intend to expand our executive training program
by adding more courses, such as, Effective Corporation Finance Management,
Strategic Investment, and Capital Market Operation, etc. We also intend to add
our course offerings to the 2nd
generation of the affluent families.
Pursue strategic
acquisitions. During recent years, we have made strategic
acquisitions to expand into other C-level management training segment, which has
much big potential client base. We also seek acquisition opportunities in other
major commercial centers to expand our business presence.
Strengthen our international
network. We intend to establish strategic alliances with major
international executive training and leadership development
institutions. Leveraging their capacity and bringing them to our
classes will generate more value to our clients. We also seek the
opportunity of business cooperation with major international education
institutions and develop some jointly operated programs.
Management
Discussion and Analysis of Results of Operation
Operation
Results for the Fiscal Year Ended December 31, 2009
Revenue
We have
an operating history of less than one year, having started operation in April,
2009. The following table sets forth information from our statements
of operations for the nine months ended December 31, 2009, in
dollars
|
Revenue
|
|
|
Our
Proprietary Training Courses
|
US$
4,649,105
|
|
Featured
Lectures
|
US$
4,491,061
|
|
Total
Revenue
|
US$
9,140,166
|
During
the period ended December 31, 2009, we had revenues of $ 9,140,166
22
Cost
of Revenue
During
the period ended December 31, 2009, our cost of revenue was
$2,861,710
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses, totaled $975,108 during the
period ended December 31, 2009
Interest
Expense
Interest
expense was $ nil during the period ended
December 31, 2009.
Net
Income Attributable to SLM
As a
result of the factors described above, we had net income attributable to
SLM in the amount
of $ 3,307,048 during the period ended December 31, 2009
Comprehensive
Income
Our
business operates primarily in Chinese Renminbi (“RMB”), but we report our
results in U.S. Dollars. The conversion of our accounts from RMB to U.S. Dollars
results in translation adjustments. As a result of a currency translation
adjustment gain, our comprehensive income was $1,591 during the
period ended December 31, 2009.
Liquidity
and Capital Resources
Presently,
our principal sources of liquidity were generated from our
operations. As of December 31, 2009, we were able to generate $
3,307,048 of net income attributable to SLM and our operating have
produced a positive cash flow of $ 6,381,770 for the period ended
December 31, 2009. Based on our current operating plan, we believe
that our existing resources, including cash generated from operations, will be
sufficient to meet our working capital requirement for our current operations.
In order to fully implement our business plan and continue our growth, however,
we will require additional capital either from our shareholders or from outside
sources.
Operating
Activities
Cash
provided by operating activities totaled $6,478,315 for the period ended
December 31, 2009
Investing
Activities
Cash used
in investing activities was $ 186,008 for acquiring fixed asset and property use
right for the period ended December 31, 2009
Financing
Activities
The
Company has raised $87,871 by issuing equity stock to its founder. And the
Company has not raised any money through debt instrument in 2009. Therefore, the
cash provided from financing activities for the period ended December 31, 2009
is $87,871.
23
Properties
All land
in the PRC is owned by the government and cannot be sold to any individual or
entity. Instead, the government grants or allocates landholders a "land use
right," which we sometimes refer to informally as land ownership. There are four
methods to acquire land use rights in the PRC: (1) grant of the right to use
land; (2) assignment of the right to use land; (3) lease of the right to use
land; and (4) allocated land use rights In comparison with Western common law
concepts, granted land use rights are similar to life estates and allocated land
use rights are in some ways similar to leaseholds. Granted land use rights are
provided by the government in exchange for a grant fee, and carry the rights to
pledge, mortgage, lease, and transfer within the term of the grant. Land is
granted for a fixed term, generally 70 years for residential use, 50 years for
industrial use, and 40 years for commercial and other use. The term is renewable
in theory. Unlike the typical case in Western nations, granted land must be used
for the specific purpose for which it was granted. Allocated land use
rights are generally provided by the government for an indefinite period
(usually to state-owned entities) and cannot be pledged, mortgaged, leased, or
transferred by the user. Allocated land can be reclaimed by the government at
any time. Allocated land use rights may be converted into granted land use
rights upon the payment of a grant fee to the government.
MYL
Business operates in two offices, one of which is located at Room 307, Hualong
Business Building, 110 Moganshan Road, Gongshu District, Hangzhou, China. This
office consists of approximately 517 square feet which we leased from Ms. Weili
Yan and Mr. Xiaowei Zhu for $ 4,878 a year. The agreement will be
renewed every year. The other office is located in Cimic Square, 800 Shangcheng
Road, Pudong Mew District, Shanghai, China. This office consists of
approximately 17,018 square feet which we leased from Shanghai Shengkang Cimic
Realty Investment Co.,Ltd for $ 278,817 a year. The agreement will be renewed
every other year.
MYL
Business holds the Certificate of Ownership of property of the People’s Republic
of China, which indicates:
|
Certificate
No.
|
Location
|
Purpose
|
Area
(sq.m.)
|
Registration
date
|
||||
|
F.Q.Z.K.Z.No.
A94134
|
1-12-2
Building No.56, Haiyi Residential Quarters, Dalian Economic &
Technology Development Zone
|
Residential
|
72.03
|
October
13, 2009
|
*Under
the law of the PRC, the registered owner to the property shall be deemed the
legal and beneficial owner thereof. Therefore, MYL Business lawfully owns the
said apartment.
Executive
Compensation
None of
the individuals who served as officers of the Company during the
past period will remain an officer or director of the
Company after the merger.
The
following table sets forth all compensation paid or accrued by MYL Business to
the individuals who will become the officers and directors of the Company for
services rendered during fiscal year 2009. The compensation comprises base
salary and bonus.
Summary
Compensation Table
|
Name
and Principal Position
|
Year
|
Salary
($)(1)
|
Bonus
($)(2)
|
Nonequity
Incentive Plan Compensation ($)
|
All
Other Compensation ($)
|
Total
($)
|
|
Kaien
LIANG
|
2009
|
11,713
|
-
|
-
|
11,713
|
|||||||||||||||||
|
Chief
Executive Officer and
|
-
|
-
|
||||||||||||||||||||
|
Chairman
of the Board
|
||||||||||||||||||||||
|
Pokai
HSU
|
2009
|
9,370
|
-
|
-
|
9,370
|
|||||||||||||||||
|
Chief
Operation Officer
|
-
|
-
|
||||||||||||||||||||
|
Tingyuan
CHEN
|
2009
|
9,370
|
-
|
-
|
-
|
9,370
|
||||||||||||||||
|
Chief
Strategy Officer
|
-
|
-
|
-
|
|||||||||||||||||||
|
Zhiwei
HUANG
|
2009
|
8785
|
-
|
-
|
8,785
|
|||||||||||||||||
|
Chief
Financial Officer
|
-
|
-
|
-
|
-
|
-
|
(1) The
Company pays salaries in RMB to all executive officers and directors of the
board every month. The RMB amount is translated into USD when the Company files
SEC documents. The exchange rates used were the average rates of 2009, i.e.
6.83.
24
Employment
Agreements
MYL Business
has signed with its officers the employment agreements of indefinite term, which
implies that such employment will remain until the occurrence of the statutory
conditions on revocation or termination of the employment agreements. Their
monthly salaries vary from RMB 8,000 to RMB 10,000.
MYL Business
has signed with its regular employees, mainly administrative staff, the
employment agreements of indefinite term, which implies that such employment
will remain until the occurrence of the statutory conditions on revocation or
termination of the employment agreements. Their monthly salaries consist of the
basic salary of RMB 1,500 plus bonus.
Additionally,
MYL Business has retained the service of leased employees, mainly salesmen, from
Zhejiang Foreign Service Corporation Ningbo Branch (“ZFS”), under which the ZFS
shall lease its employees to MYL Business while MYL Business shall pay the fees
on such leased employment, consisting of the service fees for ZFS at the monthly
rate of RMB 70 every leased employee, as well as the social insurance fees
relevant to and the pay for the leased employees.
Security
Ownership of Certain Beneficial Owners and Management
Upon
completion of the Merger and Splitoff, there were 22,000,000 shares of the
Company’s common stock issued and outstanding.
The following
table sets forth information known to us with respect to the beneficial
ownership of our common stock as of February 12, 2010 by the
following:
|
§
|
each
shareholder who beneficially owns more than 5% of our
common;
|
|
§
|
each
of our named executive officers;
|
|
§
|
Each
of our directors; and
|
|
§
|
Executive
officers and directors as a group.
|
Beneficial
ownership is determined in accordance with the rules of the SEC, which deem a
person to beneficially own any shares the person has or shares voting or
dispositive power over and any additional shares obtainable within 60 days
through the exercise of options, warrants or other purchase rights. Shares of
our common stock subject to options, warrants or other rights to purchase that
are currently exercisable or are exercisable within 60 days of February 12, 2010
(including shares subject to restrictions that lapse within 60 days of February
12, 2010) are deemed outstanding for purposes of computing the percentage
ownership of the person holding such shares, options, warrants or other rights,
but are not deemed outstanding for purposes of computing the percentage
ownership of any other person. Unless otherwise indicated, each person possesses
sole voting and investment power with respect to the shares identified as
beneficially owned.
|
Name and
Address of Beneficial Owner(1)
|
Amount
and Nature
of
Beneficial
Ownership
|
Percentage
of
Class
|
||||||
|
Kaien
LIANG
|
17,600,000
|
(1)
|
80
|
%
|
||||
|
Pokai
HSU
|
1,760,000
|
8
|
%
|
|||||
|
Tingyuan
CHEN
|
1,100,000
|
5
|
%
|
|||||
|
All such directors
and executive officers as a group (3
persons)
|
20,460,000
|
93
|
%
|
|||||
|
Five
Percent Shareholders (other than directors and named executive
officers)
|
||||||||
(1) All
shares are owned beneficially through Magic Dream Enterprises Ltd. Except as
otherwise noted, each shareholder’s address is c/o Hangzhou MYL Business
Administration Consulting Co., Ltd., Room 307, Hualong Business Building, 110
Moganshan Rd., Gongshu District, Hangzhou, China.
25
Critical
Accounting Policies and Estimates
The
Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of our financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. In the Company's opinion,
the consolidated financial statements contain all the adjustments necessary
(consisting only of normal recurring accruals) to make the financial position of
the Company and the results of operations and cash flows not misleading.
Critical accounting policies are those that require the application of
management's most difficult, subjective, or complex judgments, often because of
the need to make estimates about the effect of matters that are inherently
uncertain and that may change in subsequent periods. In preparing the financial
statements, the Company utilized available information, including its past
history, industry standards and the current economic environment, among other
factors, in forming the Company's estimates and judgments, giving due
consideration to materiality. Actual results may differ from these estimates. In
addition, other companies may utilize different estimates, which may impact the
comparability of the Company's results of operations to those of companies in
similar businesses. We believe that of the Company's significant accounting
policies, the following may involve a higher degree of judgment and
estimation.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, as well as controlled consolidated affiliates. All
inter-company transactions and balances were eliminated.
Foreign
Currency
The
Company's principal country of operations is in The People's Republic of China
("PRC"). The financial position and results of operations of the Company are
determined using the local currency ("RMB") as the functional currency. The
results of operations denominated in foreign currency are translated at the
average rate of exchange during the reporting period. Assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the applicable rate of exchange in effect at that date. The registered equity
capital denominated in the functional currency is translated at the historical
rate of exchange at the time of capital contribution. All translation
adjustments arising from the translation of the financial statements into the
reporting currency ("US Dollars") are included as a separate component within
shareholders' equity as "Accumulated Other Comprehensive Income". Translation
adjustments for the period beginning from April 23, 2009 to December 31, 2009
totaled $ 1,591 . As of December 31, 2009 , the exchange rate was 6.8282RMB per
U.S. Dollar and average exchange rate for the operating year 2009 was 6.8314 RMB
per U.S. Dollar.
Revenue
recognition
The
Company's revenue recognition policies are in compliance with Staff Accounting
Bulletin ("SAB") 104. 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 collectability is reasonably assured. Revenues consist of the invoice value
of the sale of goods net of sales returns and allowances.
26
Taxation
Income taxes
are provided in accordance with the FASB Accounting Standards Classification. A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss carry forwards.
Deferred tax expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Potential
benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted SFAS No. 109 “Accounting for Income Taxes”
as of its inception. Pursuant to SFAS No. 109 the Company is required to compute
tax asset benefits for net operating losses carried forward. Potential benefit
of net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will utilize
the net operating losses carried forward in future years. Income taxes are
accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
losses. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is entirely
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment.
Recently
Issued Accounting Pronouncements
In September
2006, FASB issued SFAS No. 157. Effective June 1, 2008, the Group
adopted the measurement and disclosure other than those requirements related to
nonfinancial assets and liabilities in accordance with guidance from FASB Staff
Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157,” which
delayed the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until fiscal year beginning after November 15, 2008. The Group does not
expect the adoption of SFAS No. 157 for nonfinancial assets and liabilities
will have a significant effect on the Group’s consolidated financial position or
results of operations or cash flows.
In December
2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combination”.
This standard replaces SFAS No. 141, “Business Combination”. The standard
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and
understand the nature and financial effect of the business combination. SFAS
No. 141R applies prospectively to business combinations with acquisition
dates on or after the beginning of the first annual reporting period on or after
December 15, 2008. An entity may not apply SFAS No. 141R before that
date. The Group does not expect that the adoption of SFAS No. 141(R) would
have a significant effect on its consolidated financial position or results of
operations or cash flows
In December
2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” to improves the relevance, comparability, and
transparency of financial information provided to investors by requiring all
entities to report non-controlling (minority) interests in subsidiaries in the
same way as required in the consolidated financial statements. Moreover, SFAS
No. 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and non-controlling interests by requiring they
be treated as equity transaction. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Group’s adoption of
SFAS 160 did not have a material effect on its consolidated financial position
or results of operations, other than the expected reclassification of minority
interests to shareholder’s equity on June 1, 2009.
In March
2008, The FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard 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 Group is currently evaluating whether the adoption of SFAS
No. 161 will have a significant effect on its consolidated financial
position, results of operations or cash flows.
27
In April
2008, the FASB issued FSP FAS142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, “Goodwill and
Other Intangible Assets”. This FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. The guidance for determining the useful life of a
recognized intangible asset in this FSP shall be applied prospectively to
intangible assets acquired after the effective date. The Company is currently
evaluating whether the adoption of FSP 142-3 will have a significant effect on
its consolidated financial position or results of operations or cash
flows.
At the
November 24, 2008 meeting, the FASB ratified the consensus reached by the
Task Force in Issue (“EITF”) No. 08-6, “Equity Method Investment Accounting
Considerations”. Because of the significant changes to the guidance on
subsidiary acquisitions and subsidiary equity transactions and the increased use
of fair value measurements as a result of SFAS No. 141R and SFAS
No. 160, questions have arisen regarding the application of that accounting
guidance to equity method investments. EITF 08-6 provides guidance for entities
that acquire or hold investments accounted for under the equity method. This
issue is effective for transactions occurring in fiscal years and interim
periods beginning on or after December 15, 2008. Early adoption is not
permitted. The Company is currently evaluating whether the adoption of EITF 08-6
will have a significant effect on its consolidated financial position or results
of operations or cash flows.
On
April 1, 2009, the FASB issued a FSP No. 141(R)-1, “Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies”. This FSP amends and clarifies SFAS 141(R) to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. FSP FAS 141(R)-1 shall be
effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
Group does not expect that the adoption of FSP FAS 141(R)-1 would have a
significant effect on its consolidated financial position or results of
operations or cash flows.
On
June 12, 2009, the FASB issued SFAS No. 166, Accounting for Transfers
of Financial Assets (“SFAS No. 166”). SFAS No. 166 amends the
de-recognition guidance in Statement 140 and eliminates the exemption from
consolidation for qualifying special-purpose entities (QSPEs). As a result, a
transferor will need to evaluate all existing QSPEs to determine whether they
must now be consolidated in accordance with Statement 167. Statement 166 is
effective is for financial asset transfers occurring after the beginning of an
entity’s first fiscal year that begins after November 15, 2009. The Group
is currently evaluating whether the adoption of SFAS No. 166 may have on
its consolidated financial position or results of operations or cash
flows.
On
June 12, 2009, the FASB issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R) (“SFAS 167”). SFAS No. 167 amends the
consolidation guidance applicable to variable interest entities. The amendments
will significantly affect the overall consolidation analysis under
Interpretation 46(R). While the Board’s discussion leading up to the issuance of
Statement 167 focused extensively on structured finance entities, the amendments
to the consolidation guidance affect all entities and enterprises currently
within the scope of Interpretations 46(R), as well as QSPEs that are currently
excluded from the scope of Interpretation 46(R). The Statement is effective as
of the beginning of the first fiscal year that begins after November 15,
2009. The Group is currently evaluating whether the adoption of SFAS
No. 167 may have on its consolidated financial position or results of
operations or cash flows.
Off-Balance
Sheet Arrangements
None.
28
Controls
and Procedures
The term
"disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to
the controls and procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange
Commission. The Company's management, including its chief executive officer and
chief financial officer, have evaluated the effectiveness of disclosure controls
and procedures as of the end of the period covered by this report. Based upon
that evaluation, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this report.
There were no changes to the Company's internal control over financial reporting
during its last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Audit
Committee Financial Expert
Our board of
directors currently acts as our audit committee. Because we only recently
executed the share exchange and the private placement, our Board of Directors is
still in the process of finding an "audit committee financial expert" as defined
in Regulation S-K and directors that are "independent" as that term is used in
Section 10A of the Securities Exchange Act.
Audit
Committee
We have not
yet appointed an audit committee. At the present time, we believe that the
members of Board of Directors are collectively capable of analyzing and
evaluating our financial statements and understanding internal controls and
procedures for financial reporting. We do, however, recognize the importance of
good corporate governance and intend to appoint an audit committee comprised
entirely of independent directors, including at least one financial expert, in
the near future.
Compensation
Committee
We do not presently have a compensation committee. Our board of directors currently acts as our compensation committee.
Nominating
Committee
We do not
presently have a nominating committee. Our board of directors currently acts as
our nominating committee. We are in search for qualified independent board
members to staff this committee.
Section
16(a) beneficial reporting compliance
Pursuant to
Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, our directors and executive officers and any persons holding more
than 10% of our common stock are required to file with the SEC reports of their
initial ownership of our common stock and any changes in ownership of such
common stock. Copies of such reports are required to be furnished to us. We are
not aware of any instances in fiscal year ended December 31, 2009 when an
executive officer, director or any owner of more than 10% of the outstanding
shares of our common stock failed to comply with the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934.
Code
of Ethics
We do not
currently have a Code of Ethics applicable to our principal executive, financial
or accounting officer and are in the process of adopting such a
code.
29
RELATED
PARTY TRANSACTIONS
Agreements
Among Us, Hangzhou MYL Business Administration Consulting Co., Ltd., Hangzhou
MYL Commercial Service Co., Ltd. and Its Subsidiaries
We have
entered into a series of contractual arrangements with Hangzhou MYL Commercial
Service Co., Ltd and its subsidiaries, including contracts relating to the
provision of services and certain shareholder rights and corporate governance
matters.
The
following is a summary of the material provisions of these agreements. For more
complete information you should read these agreements in their entirety which
are attached to this Form 8-K as exhibits.
Transfer
of Ownership When Permitted by Law
Pursuant
to the call option agreement by and among MYL Business, MYL
Commercial, MYL Commercial’s shareholders and subsidiaries dated as of May 1,
2009, each of MYL Commercial, MYL Commercial’s shareholders has granted MYL
Business or its designee an exclusive option to purchase all or part of their
equity interests in MYL Commercial and its subsidiaries, or all or part of the
assets of MYL Commercial, in each case, at any time determined by MYL Business
and to the extent permitted by PRC law.
Voting
Arrangement
Pursuant
to the voting rights proxy agreement by and among MYL Business , MYL Commercial,
MYL Commercial’s shareholders and subsidiaries dated as of May 1, 2009, the
shareholders of MYL Commercial and its subsidiaries have granted the personnel
designated by MYL Business the right to appoint directors and senior management
of MYL Commercial and its subsidiaries and to exercise all of their other voting
rights as shareholders of MYL Commercial and its subsidiaries, as the case may
be, as provided under the articles of association of each such entity. Under the
voting rights proxy agreement, there are no restrictions on the number, to the
extent allowed under the respective articles of association of MYL Commercial
and its subsidiaries, or identity of those persons we can appoint as directors
and officers.
Equity
Pledge Agreement
Pursuant
to the equity pledge agreement by and among MYL Business, MYL Commercial, MYL
Commercial’s shareholders and subsidiaries, dated as of May 1, 2009, each of
shareholders has pledged his or its equity interest in MYL
Commercial and its subsidiaries, as the case may be, to MYL Business
to secure their obligations under the relevant contractual control agreements to
which each is a party, including but not limited to, the obligations of MYL
Commercial and its subsidiaries under the exclusive services agreement, call
option agreement and voting rights proxy agreement entered into with MYL
Business . Under this equity pledge agreement, shareholders have agreed not to
transfer, assign, pledge or otherwise dispose of their interest in MYL
Commercial or its subsidiaries, as the case may be, without the prior written
consent of MYL Business.
Exclusive
Services Agreement
Pursuant
to the exclusive services agreement by and among MYL Business, MYL Commercial,
and its subsidiaries, dated May 1, 2009, MYL Commercial and its subsidiaries
irrevocably entrust to MYL Business the right of management and operation of MYL
Commercial and its subsidiaries and the responsibilities and authorities of
their shareholders and directors of MYL Commercial Subsidiaries. The service fee
to be paid by MYL Commercial and its subsidiaries shall equal to 95% of their
total income which can be waived by MYL Business from time to time in its sole
discretion
DESCRIPTION
OF SECURITIES
The Board
of Directors of the Company is authorized to issue:
75,000,000
shares of Common Stock, $ 0.001 par value per share, of which 6,510,000 shares
were outstanding before the Merger;
30
Common
Stock. The
Company's Certificate of Incorporation authorizes the issuance of 75,000,000
shares of common stock, $0.001 par value per share. Holders of shares of common
stock are entitled to one vote for each share on all matters to be voted on by
the stockholders. Holders of shares of common stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the board
of directors in its discretion, from funds legally available therefore. In the
event of a liquidation, dissolution, or winding up of the Company, the holders
of shares of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. Holders of common stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to such shares. Delaware law
does not have any anti-takeover provision that would delay or prevent a change
in control.
MARKET
PRICE AND DIVIDENDS ON COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
Information
regarding the market price of the Company’s common equity, payment of dividends,
and other shareholder matters is set forth in is set forth under market for
Common Equity and Related Stockholder Matter of the Company’s Form
S-1 registration statement, which was filed with the Securities and Exchange
Commission on and went effective August 21, 2009 .
LEGAL
PROCEEDINGS
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. We are currently not a party to
any legal proceeding and are not aware of any legal claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
Articles and By-Laws of the Company have no specific provisions to allow for the
indemnification of the officer and director in regard to his carrying out the
duties of his offices. Indemnification of directors and officers is as provided
by the General Nevada Statutes. In the event that a claim for indemnification
against such liabilities is asserted by our director, officer, or other
controlling person in connection with the securities registered, we will, unless
in the opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court's decision.
Item
3.02 Unregistered Sale of Equity Securities
The
information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated by reference into this Item 3.02.
Item
3.03 Material Modification to Rights of Security
holders
The
information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated by reference into this Item 3.02.
Item
4.01 Changes in Registrant’s Certifying
Accountant
On
February 12, 2010, the Company’s Board of Directors approved the change of its
principal independent accountants. On such date, George Stewart, CPA was
dismissed from serving as the Company’s principal independent accountants and on
the same day, Stan Jeong-Ha Lee, CPA was engaged as the Company’s new principal
independent accountants.
The
Dismissal of George Stewart, CPA
George
Stewart, CPA was the independent registered public accounting firm for the
Company from May 9, 2008 to February 12, 2010. None of George Stewart, CPA’s
reports on the Company’s financial statements, including its reports on the
Company’s most recent fiscal year ended April 30, 2009 contained an adverse
opinion or disclaimer of opinion or was qualified or modified as to uncertainty,
audit scope, or accounting principles.
31
During
the Company’s most recent fiscal year ended April 30,
2009 and through the dismissal date of February 12, 2010, there
were no disagreements with George Stewart, CPA on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of George
Stewart, CPA, would have caused it to make reference to the subject matter of
the disagreements in connection with its reports. None of the reportable events
set forth in Item 304(a)(1)(v) of Regulation S-K occurred during the period in
which George Stewart, CPA served as the Company’s principal independent
accountants.
In
accordance with Item 304(a)(3), the Company has provided George Stewart, CPA
with a copy of this disclosure and has requested that George Stewart, CPA
furnish it with a letter addressed to the U.S. Securities and Exchange
Commission stating whether it agrees with the above statements, and if not,
stating the respects in which it does not agree. A copy of the letter from
George Stewart, CPA addressed to the U.S. Securities and Exchange Commission is
filed as Exhibit 16.1 to this 8-K Report.
The
Engagement of Stan Jeong-Ha Lee, CPA
Prior to
February 12, 2010, the date that Stan Jeong-Ha Lee, CPA was retained as the
principal independent accountants of the Company:
(1) The
Company did not consult Stan Jeong-Ha Lee, CPA regarding either the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on Company’s
financial statements;
(2) Neither
a written report nor oral advice was provided to the Company by Stan Jeong-Ha
Lee, CPA that they concluded was an important factor considered by the Company
in reaching a decision as to the accounting, auditing or financial reporting
issue; and
(3) The
Company did not consult Stan Jeong-Ha Lee, CPA regarding any matter that was
either the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions) or any of the reportable events set
forth in Item 304(a)(1)(iv) of Regulation S-K.
Item
5.01 Changes in Control of Registrant
The
information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated by reference into this Item 5.01.
Item
5.02 Departure of Directors or Certain Officers; Election
of Directors; Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers
The
information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated by reference into this Item 5.02.
Item
5.03 Amendments to the Articles of Incorporation or Bylaws; Change
in Fiscal Year.
Effective
immediately, the fiscal year of the Company shall be changed to end on December
31 from April 30
32
Item
5.06 Change in Shell Company Status
As a
result of the consummation of the Merger described in Item 1.01 of this
Current Report on Form 8-K, we believe that we are no longer a shell corporation
as that term is defined in Rule 405 of the Securities Act and
Rule 12b-2 of the Exchange Act.
Item
9.01 Financial Statements and Exhibits
Financial
Statements
|
Page
|
||
|
Consolidated
Financial Statements of Surmounting Limit Marketing Adviser Limited for
the period beginning April 23, 2009 to December 31, 2009
(Audited)
|
F-2
|
|
|
Notes
to Consolidated Financial Statements (Audited)
|
F-7
|
|
Exhibits
|
Exhibit
No.
|
Description
|
|
3.1
|
Articles
of Incorporation as filed with the Secretary of State of Nevada.
Incorporated by reference to Exhibit 3.1 to the Registrant’s registration
statement on Form S-1 filed on August 21, 2009.
|
|
3.2
|
Bylaws.
Incorporated by reference to Exhibit 3.1 to the Registrant’s registration
statement on Form S-1 filed on August 21, 2009.
|
|
10.1
|
Agreement
and Plan of Merger dated February 12, 2010 among the Company and the
shareholders of Magic Dream Enterprises Ltd. *
|
|
10.2
|
Exclusive
Service Agreement *
|
|
10.3
|
Equity
Pledge Agreement *
|
|
10.4
|
Call
Option Agreement *
|
|
10.5
|
Shareholders’
Voting Rights Proxy Agreement *
|
|
10.6
|
Contract
for Lease with Zhejiang Foreign Service Corporation Ningbo Branch
*
|
|
10.7
|
Employment Contract with Kaien LIANG * |
| 10.8 | Employment Contract with Pokai HSU * |
| 10.9 | Employment Contract with Tingyuan CHEN * |
| 10.10 | Employment Contract with Shuiyuan HUNG * |
| 10.11 | Employment Contract with Chiayeh LIN * |
| 10.12 | Employment Contact with Zhiwei HUANG * |
| 10.13 | Employment Contact with Yan HAN * |
| 10.14 | Contract for Lease of Property with Weichao YAN, Xiaowei ZHU * |
|
10.15
|
Contract
for Lease of Property in Shanghai Prepared by Shanghai Administration for
Property and Land Resource & Shanghai Administration for Industry and
Commerce in November 2000 *
|
|
16.1
|
Consent
from George Stewart, CPA dated February 12, 2010 *
|
| 16.2 | Consent from Stan J.H. Lee CPA dated February 9, 2010 * |
* Filed
herewith.
** To be
filed by amendment.
33
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Dated:
February 12, 2010
|
By:
|
/s/
Kaien Liang
|
|||
|
Name:
Kaien Liang
Title:
Chairman and Chief Executive
Officer
|
||||
34
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
|
3.1
|
Articles
of Incorporation as filed with the Secretary of State of Nevada.
Incorporated by reference to Exhibit 3.1 to the Registrant’s registration
statement on Form S-1 filed on August 21, 2009.
|
|
3.2
|
Bylaws.
Incorporated by reference to Exhibit 3.1 to the Registrant’s registration
statement on Form S-1 filed on August 21, 2009.
|
|
10.1
|
Agreement
and Plan of Merger dated February 12, 2010 among the Company and the
shareholders of Magic Dream Enterprises Ltd. *
|
|
10.2
|
Exclusive
Service Agreement *
|
|
10.3
|
Equity
Pledge Agreement *
|
|
10.4
|
Call
Option Agreement *
|
|
10.5
|
Shareholders’
Voting Rights Proxy Agreement *
|
|
10.6
|
Contract
for Lease with Zhejiang Foreign Service Corporation Ningbo Branch
*
|
|
10.7
|
Employment Contract with Kaien LIANG * |
| 10.8 | Employment Contract with Pokai HSU * |
| 10.9 | Employment Contract with Tingyuan CHEN * |
| 10.10 | Employment Contract with Shuiyuan HUNG * |
| 10.11 | Employment Contract with Chiayeh LIN * |
| 10.12 | Employment Contact with Zhiwei HUANG * |
| 10.13 | Employment Contact with Yan HAN * |
| 10.14 | Contract for Lease of Property with Weichao YAN, Xiaowei ZHU * |
|
10.15
|
Contract
for Lease of Property in Shanghai Prepared by Shanghai Administration for
Property and Land Resource & Shanghai Administration for Industry and
Commerce in November 2000 *
|
|
16.1
|
Consent
from George Stewart, CPA dated February 12, 2010 *
|
| 16.2 | Consent from Stan J.H. Lee CPA dated February 9, 2010 * |
* Filed
herewith.
** To be
filed by amendment.
35
SURMOUNTING
LIMIT MARKETING ADVISER LIMITED
Consolidated Financial
Statements
As of December 31, 2009 and
for the Period from
April 23, 2009 ( Inception)
to December 31, 2009
|
Financial Statements
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Statements
of Financial Position
|
F-3
|
|
Statements
of Operations
|
F-4
|
|
Statements
of Stockholders’ Equity
|
F-5
|
|
Statement
of Cash Flows
|
F-6
|
|
Notes
to Financial Statements
|
F-7
|
| Schedule 1 | F-17 |
F-1
Stan J.H.
Lee, CPA
2160
North Central Rd. Suite 203 tFort
Lee t NJ 07024
P.O. Box
436402 t San Ysidro t CA 92143
619-623-7799
Fax 619-564-3408 E-mail)
stan2u@gmail.com
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Management of
Surmounting
Limit Marketing Adviser Limited;
We have
audited the accompanying balance sheets of Surmounting Limit Marketing Adviser
Limited as of December 31, 2009 and the related statements of operations,
changes in shareholders’ equity and cash flows for the period from April 23,
2009 ( its inception) to December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. 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 audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Surmounting Limit Marketing Adviser
Limited. as of December 31, 2009 , and the results of their
operations and its cash flows for the period then ended in conformity with U.S.
generally accepted accounting principles.
/s/ Stan J.H. Lee, CPA
__________________________________
Stan
J.H. Lee, CPA
January
29, 2010
Fort Lee,
NJ 07024
F-2
SURMOUNTING LIMITED MARKETING ADVISER
LIMITED
Consolidated Statements of Financial
Position
|
ASSETS
|
|||||||||
|
As
of December 31
|
As
of December 31
|
||||||||
|
NOTE
|
2009
|
2009
|
|||||||
|
CURRENT
ASSETS
|
(in USD)
|
(in RMB)
|
|||||||
|
Cash
|
NOTE
2-g
|
$ | 6,381,770 | ¥ | 43,576,000 | ||||
|
Accounts
receivable
|
33,324 | 227,540 | |||||||
|
Prepaid
accounts
|
731,365 | 4,993,904 | |||||||
|
Other
current assets ( Deposits and advances)
|
1,008,565 | 6,886,683 | |||||||
|
TOTAL
CURRENT ASSETS
|
8,155,024 | 55,684,127 | |||||||
|
Property
and equipment - net of accumulated depreciation of
$ 7,134
|
NOTE
3
|
87,369 | 596,576 | ||||||
|
Real
property rights held for investment
|
91,505 | 624,817 | |||||||
|
TOTAL
OTHER ASSETS
|
178,874 | 1,221,393 | |||||||
|
TOTAL
ASSETS
|
$ | 8,333,898 | ¥ | 56,905,520 | |||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
|||||||||
|
Minority
Interest
|
(94,955 | ) | - ¥ 648,669 | ||||||
|
Commitments
and Contingencies
|
NOTE
11
|
||||||||
|
CURRENT
LIABILITIES
|
|||||||||
|
Advance
from customers
|
NOTE
4
|
$ | 3,628,810 | 24,778,237 | |||||
|
Accrued
wages and benefits
|
90,419 | 617,399 | |||||||
|
Corporation
income and business taxes payable
|
NOTE
5
|
537,541 | 3,670,438 | ||||||
|
Other
payables
|
592,788 | 4,047,675 | |||||||
|
TOTAL
CURRENT LIABILITIES
|
4,849,558 | 33,113,749 | |||||||
|
|
|||||||||
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|||||||||
|
Common
stock
|
NOTE
6
|
87,871 | 600,000 | ||||||
|
Statutory
reserve
|
358,026 | 2,445,822 | |||||||
|
Retained
earnings
|
3,131,806 | 21,394,618 | |||||||
|
Other
comprehensive loss - foreign currency translation
|
NOTE
8
|
1,591 | - | ||||||
| - | |||||||||
|
TOTAL
STOCKHOLDERS' EQUITY
|
3,579,295 | 24,440,440 | |||||||
|
|
|||||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 8,333,898 | ¥ | 56,905,520 | |||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
SURMOUNTING LIMITED MARKETING ADVISER
LIMITED
Consolidated Statements of
Operations
|
From
inception
|
From
inception
|
||||||||
|
(
April 23,2009) to
|
(
April 23,2009) to
|
||||||||
|
December
31
|
December
31
|
||||||||
|
NOTE
|
2009
|
2009
|
|||||||
|
(in USD)
|
(in RMB)
|
||||||||
|
Revenue
|
NOTE
2-l& 10
|
$ | 9,140,166 | ¥ | 62,440,133 | ||||
|
Less)
Tax on operating income
|
(466,149 | ) | (3,184,447 | ) | |||||
|
TOTAL
NET REVENUE
|
8,674,017 | 59,255,686 | |||||||
|
COST
OF REVENUES
|
2,861,710 | 19,549,485 | |||||||
|
GROSS
PROFIT
|
5,812,307 | 39,706,201 | |||||||
| - | |||||||||
|
OPERATING
COSTS
|
|||||||||
|
Selling
expenses
|
65,345 | 446,400 | |||||||
|
General
and administrative expenses
|
902,629 | 6,166,220 | |||||||
|
Depreciation
expense
|
NOTE
3
|
7,134 | 48,736 | ||||||
|
Total
Operating Costs
|
975,108 | 6,661,356 | |||||||
|
OPERATING
INCOME (LOSS)
|
4,837,199 | 33,044,845 | |||||||
|
OTHER
INCOME & (EXPENSES)
|
|||||||||
|
Donation
for earthquake relief
|
(146,383 | ) | (1,000,000 | ) | |||||
|
Non
operating expense
|
(9,140 | ) | (62,440 | ) | |||||
|
Interest
income
|
1,577 | 10,773 | |||||||
|
Total
Other Income & (Expenses)
|
(153,946 | ) | (1,051,667 | ) | |||||
|
NET
INCOME BEFORE INCOME TAX & BENEFIT
|
4,683,253 | 31,993,178 | |||||||
|
Current
income taxes
|
NOTE
5
|
(1,193,421 | ) | (8,152,739 | ) | ||||
|
Minority
interest, net of taxes
|
(182,784 | ) | (1,248,669 | ) | |||||
|
NET
INCOME
|
$ | 3,307,048 | ¥ | 22,591,770 | |||||
|
COMPREHENSIVE
LOSS:
|
|||||||||
|
Unrealized
foreign currency translation loss
|
NOTE
8
|
1,591 | - | ||||||
|
COMPREHENSIVE
LOSS
|
$ | 3,308,639 | 22,591,770 | ||||||
|
EARNINGS
PER SHARE - BASIC & DILUTED
|
NOTE
2-p
|
$ | 330.70 | 2,259 | |||||
| ¥ | |||||||||
|
WEIGHTED
AVERAGE NUMBER OF
|
|||||||||
|
COMMON
SHARES OUTSTANDING
|
10,000 | 10,000 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SURMOUNTING LIMITED MARKETING ADVISER
LIMITED
Consolidated Statements of Stockholders' Equity
(Deficit)
|
|
|||||||||||||||||||||||||
|
in USD
|
|
||||||||||||||||||||||||
|
|
|
|
|
Total
|
|||||||||||||||||||||
|
Common Shares |
Common Stock |
Capital Surplus |
Statutory Reserve |
Retained Earnings |
Other Item |
Stockholders'
Equity
|
|||||||||||||||||||
|
Balance,
April 23, 2009 ( Inception)
|
|
$ | 87,871 | $ | - | - | - | $ | 87,871 | ||||||||||||||||
|
Net
Income for the period
|
|
3,672,616 | 3,672,616 | ||||||||||||||||||||||
|
Minority
Interest, net of changes
|
(182,784 | ) | (182,784 | ) | |||||||||||||||||||||
|
Transfer
to statutory reserve
|
358,026 | (358,026 | ) | - | |||||||||||||||||||||
| - | |||||||||||||||||||||||||
|
Foreign currency translation
adjustment
|
1,591 | 1,591 | |||||||||||||||||||||||
|
Balance,
December 31, 2009
|
|
$ | 87,871 | $ | - | 358,026 | $ | 3,131,806 | $ | 1,591 | $ | 3,579,295 | |||||||||||||
|
in RMB
|
|||||||||||||||||||||||||
|
|
Total
|
||||||||||||||||||||||||
|
Common Shares |
Common Stock |
Capital Surplus |
Retained Earnings |
Other Item |
Stockholders'
Equity
|
||||||||||||||||||||
|
Balance,
April 23, 2009 ( Inception)
|
|
¥ | 600,000 | - | - | - | ¥ | 600,000 | |||||||||||||||||
|
Net
Income for the period
|
24,489,109 | 24,489,109 | |||||||||||||||||||||||
|
Minority
interest, net of changes
|
(648,669 | ) | (648,669 | ) | |||||||||||||||||||||
|
Transfer
to statutory reserve
|
2,445,822 | (2,445,822 | ) | - | |||||||||||||||||||||
|
|
- | - | |||||||||||||||||||||||
|
Balance,
December 31, 2009
|
|
¥ | 600,000 | - | ¥ | 2,445,822 | ¥ | 21,394,618 | $ | - | ¥ | 24,440,440 | |||||||||||||
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
SURMOUNTING LIMITED MARKETING ADVISER
LIMITED
Consolidated Statements of Cash Flows
|
From
inception
|
From
inception
|
|||||||
|
(
April 23,2009) to
|
(
April 23,2009) to
|
|||||||
|
December
31
|
December
31
|
|||||||
|
2009
|
2009
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
in USD
|
in RMB
|
||||||
|
Net income ( including minority interest loss)
|
$ | 3,489,832 | ¥ | 23,840,440 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||
|
Minority
Interest
|
(94,955 | ) | (648,669 | ) | ||||
|
Depreciation
of fixed assets
|
7,134 | 48,736 | ||||||
|
Decrease
(increase) of accounts receivable
|
(33,324 | ) | (227,540 | ) | ||||
|
Decrease
(increase) of prepaid accounts
|
(731,365 | ) | (4,993,904 | ) | ||||
|
Decrease
(increase) of other current assets
|
(1,008,565 | ) | (6,886,683 | ) | ||||
|
Increase
(decrease) of advance from customers
|
3,628,810 | 24,778,237 | ||||||
|
Increase
(decrease) of accured wages
|
90,419 | 617,399 | ||||||
|
Increase
(decrease) of corporation income and business taxes
payable
|
537,541 | 3,670,438 | ||||||
|
Increase
(decrease) of other payables
|
592,788 | 4,047,675 | ||||||
|
|
||||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
6,478,315 | 44,246,129 | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase
of fixed assets
|
(94,503 | ) | (645,312 | ) | ||||
|
Acquisition
of real property rights held for investment
|
(91,505 | ) | (624,817 | ) | ||||
|
Net
Cash Provided by (Used in) Investing Activities
|
(186,008 | ) | (1,270,129 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Cash
from issuance of common stock
|
87,871 | 600,000 | ||||||
|
|
||||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
87,871 | 600,000 | ||||||
|
Effect
of exchange rate on cash
|
1,591 | 0 | ||||||
|
Net
Increase (Decrease) in Cash
|
6,381,770 | 43,576,000 | ||||||
|
Cash
at Beginning of Year
|
- | |||||||
|
Cash
at End of Year
|
$ | 6,381,770 | ¥ | 43,576,000 | ||||
|
Supplemental Cash
Flow Disclosures:
|
||||||||
|
Cash
paid during year for interest
|
$ | - | ¥ | - | ||||
|
Cash
paid during year for taxes
|
$ | 1,193,421 | ¥ | 8,152,739 | ||||
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
Surmounting
Limit Marketing Adviser Limited
Notes
to Financial Statements
(
in USD unless otherwise noted)
December 31,
2009
Note1. Organization and
Nature of Business
Organization
Surmounting
Limit Marketing Adviser Limited ( the “Company”) was incorporated in
Hong Kong under the Chapter 32 Companies Ordiance on October 17, 2007 as limited
company. The Company has had no operation until it acquired Hangzhou MYL
Business Adminstration Consulting Co. Ltd a People Republic of China ( “ PRC”)
on April 23, 2009 through transfer of shares to the
Company.
Initial
registered capital is $ 87,912 (600,000 RMB). The Company is wholly owned by
Magic Dream Enterprises Ltd., incorporated in the British Virgin Islands as a
BVI Business Company on March 26, 2009.
Nature of Business,
Description of Services
The
Company core business includes consulting on business administration, marketing
strategy, designing of enterprise image, consulting on corporate investment and
commerce, conference service, consulting on education information and
professional training.
As of
December 31, 2009, details of the Company’s subsidiaries and variable interest
entity and its subsidiaries were as follows;
|
Name
|
Date
of Incorporation or establishments
|
Place
of
incorporation
|
Percentage
of ownership
|
Primary
activities
|
||
|
Subsidiries
of Surmounting Limit Marketing Adviser Limited
|
||||||
|
Most
Wise Development Limited
|
October
8, 2009
|
Hong
Kong
|
100% |
Inactive
|
||
|
Hangzhou
MYL Business Administration Co. Ltd
|
April
23, 2009
|
PRC
Domestic
|
100% |
Active
- Training and consulting
|
||
|
Magic
Yourlife Mentor Group Limited
|
December
2, 2009
|
Hong
Kong
|
100% |
Inactive
|
||
|
Top
Creation International Investment Limited
|
October
5, 2009
|
Hong
Kong
|
100% |
Inactive
|
||
|
Top
Wealth Capital Investment Limited
|
September
17, 2009
|
Hong
Kong
|
100% |
Inactive
|
||
|
Subsidiaries
of Hangzhou MYL Business Administration Co. Ltd.
|
||||||
|
Shanghai
MYL Consulting Co. Ltd.
|
September
4, 2009
|
PRC
Domestic
|
100% |
Inactive
|
||
|
Variable
Interest Entities
|
||||||
|
Hangzhou
MYL Commercial Service Co. Ltd.
|
PRC
Domestic
|
100% |
Active
- Marketing and administration
|
|||
|
Operating
division of Hangzhou MYL Commercial Service Co. Ltd.
|
||||||
|
Hangzhou
Gongshu MYL Training School
|
Unincorporated
|
100% |
Inactive
|
|||
F-7
2. Summary
of Significant Accounting Policies
This
summary of significant account policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and the notes are the representation of the Company's management, who
are responsible for their integrity and objectivity. These accounting policies
conform to U.S. generally accepted accounting principles ( “USGAAP”) and have
been consistently applied in the preparation of the financial
statements.
a) Consolidation of Variable
Interest Entities (“VIE”)
Regulations
of the PRC restrict direct foreign ownership of business entities providing
educational services in the PRC where certain licenses are required. To comply
with the PRC laws and regulations, the Company provides a significant portion of
its services in China through its variable interest entity, Hangzhou MYL
Commercial Service Co. Ltd., ( “ MYL Commercial” ) for which the Company is the
primary beneficiary. The Company, through its wholly owned subsidiaries in
China, has entered into exclusive technical and other services agreements with
MYL Commercial in May 2009, under which the Company provides
technical and other services (the “Service Agreements”) to MYL
Comercial and its related entities in exchange for significantly all
of the net income of MYL Commercial. As collateral to ensure MYL Commercial and
its subsidiaries’ payments under the Service Agreements, the shareholders of MYL
Commercial and its subsidiaries, through an equity pledge agreement dated May
2009, pledged all of their rights and interests in MYL Commercial and its
subsidiaries, including voting rights and dividend rights, to the Company. In
addition, the shareholders of MYL Commercial , through an exclusive option
agreement, granted to the Company an exclusive, irrevocable and unconditional
right to purchase part or all of the equity interests in MYL Commercial and its
subsidiaries when the purchase becomes permissible under the relevant PRC
Law.
Through
the contractual agreements described above, MYL Commerical is a variable
interest entity in accordance with Financial Accounting Standard Board (“FASB”)
Interpretation No. 46 (revised) “Consolidation of Variable Interest
Entities—an Interpretation of ARB No. 51” (“FIN 46R”) because the equity
owners (1) lack the right to receive the expected residual returns of MYL
Commercial and its subsidiaries, (2) lack the ability to make decisions
about MYL Comemrcial and its subsidiaries’ activities that have a significant
effect on their success, and (3) substantially all of MYL Commercial and
its subsidiaries’ businesses are conducted on behalf of the Company. The Company
is the primary beneficiary of MYL Commercial because it holds all the
variable interests in MYL Commercial. As a result, the accounts and operations
of MYL Comemrcial and its subsidiaries are included in the accompanying
consolidated financial statements effective as of the date of the above
agreements. Because the Company and MYL Commercial are under common
control by the same shareholder group, MYL Commercial and its subsidiaries are
accounted for as common control transfer and are consolidated on a carryover
basis.
b) Basis of Presentation and
Consolidation
These
financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States, and are expressed
in US dollars. The Company’s fiscal year-end is December 31. The consolidated
financial statements include the financial statements of the Company, its wholly
owned subsidiaries and its variable interest entity, Hangzhou MYL Commercial
Service Co. Ltd. And its operating division. All inter-company transactions and
balances have been eliminated upon consolidation.
F-8
c) Use of
Estimates
The
preparation of financial statements in conformity with United States generally
accepted accounting principles 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company regularly evaluates estimates and
assumptions related to useful life and recoverability of long-lived assets,
donated expenses, and deferred income tax valuation allowances. The Company
bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are
not readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company’s estimates. To the
extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
d)
Reclassification
It is the
Company’s accounting policy that certain account reclassifications are made to
the financial statements of the prior year in order to conform to
classifications used in the current year. These changes had no impact on
previously stated financial statements of the Company.
e) Comprehensive Income
(Loss)
SFAS No.
130, “Reporting Comprehensive
Income,” establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements. As at December 31, 2009, the
Company’s only component of comprehensive income consisted of foreign currency
translation adjustments.
f) Cash and Cash
Equivalents
The
Company considers all highly liquid instruments with maturity of three months or
less at the time of issuance to be cash equivalents.
g) Concentration of Credit
Risks
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash. The Company places its cash with
high credit quality financial institutions in China. The Company has
not experienced any losses in such bank accounts through December 31,
2009. At December 31, 2009, our bank deposits were
as follows:
| Country | 12/31/2009 | |||
| China | $ | 6,381,770 | ||
| Total cash and cash equivalents | $ | 6,381,770 | ||
In an
effort to mitigate any potential risk, the Company periodically evaluates the
credit quality of the financial institutions at which it holds
deposits.
h) Property and
Equipment
Property
and equipment consists of furniture, office equipment, computer equipment and
software and leasehold improvement, is recorded at cost. The property and
equipment other than leasehold improvement is depreciated on a straight line
basis over an estimated useful life of three years. Leasehold improvement is
depreciated on a straight line basis over the lease period.
F-9
i) Land use rights,
net
Land use
rights are recorded at cost less accumulated amortization. Amortization is
provided on a straight-line basis over the estimated useful lives which are
generally 50 years and represent the shorter of the estimated usage periods or
the terms of the agreements.
j) Long-Lived
Assets
In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, the Company tests long-lived assets or
asset groups for recoverability when events or changes in circumstances indicate
that their carrying amount may not be recoverable. An impairment loss is
recognized when the carrying amount is not recoverable and exceeds fair
value.
k) Financial Instruments and
Fair Value Measures
SFAS No.
157 “Fair Value
Measurements” requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. SFAS No.
157 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A
financial instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement. SFAS No. 157 prioritizes the inputs into three levels that may be
used to measure fair value:
l) Revenue
Recognition
The
Company follows the guidance of the Securities and Exchange Commission's Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements". In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the various
revenues streams of the Company:
The
Company generates revenue from the delivery of professional services
and records revenues when the services are completed, already
collected or collectability is reasonably assured, there is no future obligation
and there is remote chance of future claim or refund to the customers. It is
reported net of business taxes and refunds.
Revenue
is recognized when risk of ownership and title pass to the buyer, generally upon
the delivery of professional services. Pricing is fixed and
determinable according to the Company’s published brochures and price
lists.
m) Advertising
costs
The
Company expenses advertising costs as incurred. The total advertising
expense were USD $ 65,345 and have been included as part of selling an marketing
expenses.
n) Income
Taxes
Income
taxes are provided in accordance with the FASB Accounting Standards
Classification. A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting and net operating loss carry
forwards. Deferred tax expense (benefit) results from the net change during the
year of deferred tax assets and liabilities.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
F-10
Potential benefits of
income tax losses are not recognized in the accounts until realization is more
likely than not. The Company has adopted SFAS No. 109 “Accounting
for Income Taxes” as of its inception.
Pursuant to SFAS No. 109 the Company is required to compute tax asset benefits
for net operating losses carried forward. Potential benefit of net operating
losses have not been recognized in these financial statements because the
Company cannot be assured it is more likely than not it will utilize the net
operating losses carried forward in future years. Income taxes are
accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
losses. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is entirely
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment.
o) Foreign Currency
Translation
The
Company’s functional currency is the Chinese RMB. The financial statements are
translated to United States dollars in accordance with SFAS No. 52 “Foreign Currency Translation”
using period-end rates of exchange for assets and liabilities, and
average rates of exchange for the year for revenues and expenses. Translation
gains (losses) are recorded in accumulated other comprehensive income (loss) as
a component of stockholders’ equity (deficit). Gains and losses arising on
translation or settlement of foreign currency denominated transactions or
balances are included in the determination of income. Foreign currency
transactions are primarily undertaken in United States dollars. The Company has
not, to the date of these financial statements, entered into derivative
instruments to offset the impact of foreign currency fluctuations.
p) Basic and Diluted Net
Income (Loss) Per Share
The
Company computes net income (loss) per share in accordance with the FASB
Accounting Standards Codification (“ASC”). The ASC specifies the computation,
presentation and disclosure requirements for earnings (loss) per share for
entities with publicly held common stock.
Basic net
earnings (loss) per share amounts are computed by dividing the net earnings
(loss) by the weighted average number of common shares outstanding. Diluted
earnings (loss) per share are the same as basic earnings (loss) per share due to
the lack of dilutive items in the Company.
F-11
Basic and
diluted earnings per common share have been computed based on the following as
of December 31, 2009;
| 12/31/2009 | ||||
| Basic: | ||||
| Numerator, net income | $ | 3,307,048 | ||
| Denominator: Average number of common shares outstanding | 10,000 | |||
| Basic earnings per common share | $ | 330.70 | ||
| Diluted | ||||
| Numerator, net income | $ | 3,307,048 | ||
| Denominator: Average number of common shares outstanding | 10,000 | |||
| Effect of dilutive stock optioins - Not Applicable | -- | |||
| Diluted earnings per common share | $ | 330.70 | ||
q) Stock-based
Compensation
The
Company records stock-based compensation in accordance with the FASB Accounting
Standards Classification using the fair value method. All transactions in which
goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measurable. Equity instruments issued to employees and the cost of the
services received as consideration are measured and recognized based on the fair
value of the equity instruments issued.
r) Impact of New Accounting
Standards
The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position, or cash flow.
Note 3. Property and
Equipment
Fixed
assets are summarized by classifications as follows
F-12
Major classes of property, plant,
and equipment are:
| 12/31/2009 | ||||
| Computer and electronics equipment | 39,170 | |||
| Other equipment | 8,042 | |||
| Leasehold improvements | $ | 47,291 | ||
|
|
94,503 | |||
| (Less) accumulated depreciation | (7,134 | ) | ||
| Property and equipment, net | $ | 87,369 | ||
Depreciation
expense was $ 7,134 for the period ended December 31, 2009.
Note
4. Advance from Customers
The
company customarily receive deposit from customers in anticipation of future
training sessions.
Advance
from customer is refundable in case if the training doesn’t occur within the
specified time. Advance becomes earned revenue when the trainings are conducted
and completed. Refund made to customers for the period is negligible
and immaterial amount.
As of
December 31, 2009, the balance of advance from customers was $
3,542,404.
Note 5. Income
Taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
the recognition of deferred tax assets and liabilities for both the expected
impact of differences between the financial statements and the tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax losses and tax credit carryforwards. SFAS 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. Realization of deferred tax assets are dependent upon
future earnings, if any, of which the timing and amount are uncertain.
Accordingly, the net deferred tax asset related to the Canada net operating loss
carryforward has been fully offset by a valuation allowance. The Company is
governed by the Income Tax Law of the Chinese government.
Note 6. Capital
Stock
The
company is authorized to issue unlimited shares of common stocks , no
value share. As of December 31, 2009 , there was 10,000 common share issued and
outstanding and registered amount of capital was $ 87,871.
Note 7. Related Party
Transactions
Agreements
Among Us, Hangzhou MYL Business Administration Consulting Co., Ltd., Hangzhou
MYL Commercial Service Co., Ltd. and Its Subsidiaries
We have
entered into a series of contractual arrangements with Hangzhou MYL Commercial
Service Co., Ltd and its subsidiaries, including contracts relating to the
provision of services and certain shareholder rights and corporate governance
matters.
The
following is a summary of the material provisions of these
agreements.
Transfer
of Ownership When Permitted by Law
Pursuant
to the call option agreement by and among MYL Business, MYL Commercial, MYL
Commercial’s shareholders and subsidiaries dated as of May 1, 2009, each of MYL
Commercial, MYL Commercial’s shareholders has granted MYL Business or its
designee an exclusive option to purchase all or part of their equity interests
in MYL Commercial and its subsidiaries, or all or part of the assets of MYL
Commercial, in each case, at any time determined by MYL Business and to the
extent permitted by PRC law.
F-13
Voting
Arrangement
Pursuant
to the voting rights proxy agreement by and among MYL Business , MYL Commercial,
MYL Commercial’s shareholders and subsidiaries dated as of May 1, 2009, the
shareholders of MYL Commercial and its subsidiaries have granted the personnel
designated by MYL Business the right to appoint directors and senior management
of MYL Commercial and its subsidiaries and to exercise all of their other voting
rights as shareholders of MYL Commercial and its subsidiaries, as the case may
be, as provided under the articles of association of each such entity. Under the
voting rights proxy agreement, there are no restrictions on the number, to the
extent allowed under the respective articles of association of MYL Commercial
and its subsidiaries, or identity of those persons we can appoint as directors
and officers.
Equity
Pledge Agreement
Pursuant
to the equity pledge agreement by and among MYL Business, MYL Commercial, MYL
Commercial’s shareholders and subsidiaries, dated as of May 1, 2009, each of
shareholders has pledged his or its equity interest in MYL Commercial and its
subsidiaries, as the case may be, to MYL Business to secure their obligations
under the relevant contractual control agreements to which each is a party,
including but not limited to, the obligations of MYL Commercial and its
subsidiaries under the exclusive services agreement, call option agreement and
voting rights proxy agreement entered into with MYL Business . Under this equity
pledge agreement, shareholders have agreed not to transfer, assign, pledge or
otherwise dispose of their interest in MYL Commercial or its subsidiaries, as
the case may be, without the prior written consent of MYL Business.
Exclusive
Services Agreement
Pursuant
to the exclusive services agreement by and among MYL Business, MYL Commercial,
and its subsidiaries, dated May 1, 2009, MYL Commercial and its subsidiaries
irrevocably entrust to MYL Business the right of management and operation of MYL
Commercial and its subsidiaries and the responsibilities and authorities of
their shareholders and directors of MYL Commercial Subsidiaries. The service fee
to be paid by MYL Commercial and its subsidiaries shall equal to 95% of their
total income which can be waived by MYL Business from time to time in its sole
discretion
Note 8. Foreign Currency
Translation
Accounting
for the Company is conducted in Chinese RMB currency. As per our
audit, we convert figures on a period basis in accordance with FASB #
52. The functional currency is in Chinese RMB
currency. The Companies balance sheets as of December 31, 2009 were
translated at their period ended rate of 6.8282 (Chinese currency to US
currency). Statements of operations and cash flows were reported on the weighted
average for the period from April 23, 2009 to December 31, 2009 as
required by FASB # 52. at the rate of 6.8314 (Chinese currency to US
currency).
Transactions
and balances originally denominated in U.S. dollars are presented at their
original amounts. Transactions and balances in other currencies are converted
into U.S. dollars in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, "Foreign Currency Translation", and are included in determining
net income or loss.
The
cumulative translation adjustment and effect of exchange rate changes on cash at
December 31, 2009 was $1,591. Translation adjustments resulting from the process
of translating the local currency financial statements into U.S. dollars are
included in determining accumulated comprehensive loss.
Note 9. Operating
Risk
(a)
Concentration of credit risk
Financial
instruments that potentially expose the Company to concentration of credit risk
consist primarily of cash. The Company places its cash with
financial institutions with high credit ratings.
(b)
Country risk
Revenues
of the Company are mainly derived from the sale in China. The Company hopes to
expand its operations to other Cities and Provinces in China, however, such
expansion has not been commenced and there are no assurances that the Company
will be able to achieve such an expansion successfully. Therefore, a downturn or
stagnation in the economic environment of China could have a material adverse
effect on the Company's financial condition.
(c)
Product risk
The
Company might have to compete with larger companies who have greater funds
available for expansion, marketing, research and development and the ability to
attract more qualified personnel. There can be no assurance that
Company will remain competitive should this occur.
F-14
(d)
Exchange risk
The
Company cannot guarantee that the current exchange rate will remain steady,
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate
of Chinese RMB were converted to U.S. dollars on that date. The
exchange rate could fluctuate depending on changes in the political and economic
environments without notice.
(e) Key
personnel risk
The
Company's future success depends on the continued services of few individuals
and loss of one or several of their service would be detrimental to
the Company and could have an adverse effect on business development. The
Company does not currently maintain key man insurance on their life but plan to
implement in near future. Future success is also dependent on the ability to
identify, hire, train and retain other qualified managerial and other
employees.
Note 10. Segment
Information
The
following information is presented in accordance with SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. In period ended
December 31, 2009 , the Company operated in single reportable
business segments, professional training.
The
Company's reportable segments are strategic business units that offer different
products. The Company's reportable segments, although integral to the success of
the others, offer distinctly different products and services and require
different types of management focus. As such, these segments are managed
separately.
Condensed
information with respect to these reportable business segments for the period is
as follows:
| Income from Training - gross | $ | 9,140,166 |
Note 11. Commitments and
Contingencies
11.1 Lease
Commitments
Company
leases its office space in Shanghai and
Hangzhou China which expires on September 30, 2011 and April 26,
2009, respectively Its total monthly minimum rental is $ 29,597.
The
minimum obligations under such commitments for the years ending December 31 (
unless otherwise stated) until its expiration are;
| Year 2010 | $ | 348,664 | ||
| Year 2011 | $ | 259,060 |
Company
also leases several residential properties to house key employees under
short-term rental agreements which expires throughout the year 2010. Its total
monthly minimum rental is $ 24,153.
Rental
expense for the period ended December 31, 2009 were $
239,399.
11.2 Litigation
None
11.3
Employment agreements
The
Company has employment contracts with several key employees, Rocky Liang, Albert
Hsu, Sam Hong, Jack Chen and Tracy Lin. Each of the employment contract
commenced on April 1, 2009 and has no definite termination date. Respective
contract provides for regular salary but no mention of bonus or other in-kind
compensation.
F-15
Note 12. Subsequent
Event
There is
no reportable subsequent event as of the date of auditor’s report, January 29,
2010.
F-16
Surmounting
Limit Marketing Adviser Limited
Additional
Information – Condensed Financial Statements Schedule 1
Financial
Information of
Hangzhou
MYL Business Administration Co. Ltd. – consolidated basis
(
in USD unless otherwise noted)
December 31,
2009
SURMOUNTING
LIMIT MARKETING ADVISER LIMITED
Consolidated
Statements of Financial Position
|
ASSETS
|
||||||||
|
As
of December 31
|
As
of December 31
|
|||||||
|
2009
|
2009
|
|||||||
|
CURRENT
ASSETS
|
(in USD)
|
(in RMB)
|
||||||
|
Cash
|
$ | 4,238,049 | ¥ | 28,938,246 | ||||
|
Other
receivables
|
573,750 | 3,917,679 | ||||||
|
Prepaid
accounts
|
731,365 | 4,993,904 | ||||||
|
TOTAL
CURRENT ASSETS
|
5,543,164 | 37,849,829 | ||||||
|
Property
for investment
|
91,505 | 624,817 | ||||||
|
Property
and equipment - net of accumulated depreciation of
$ 555
|
85,473 | 583,625 | ||||||
|
Long-term
investment
|
||||||||
|
TOTAL
OTHER ASSETS
|
176,978 | 1,208,442 | ||||||
|
TOTAL
ASSETS
|
$ | 5,720,142 | ¥ | 39,058,271 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Advance
from customers
|
$ | 1,563,827 | ¥ | 10,678,121 | ||||
|
Accrued
wages and benefits
|
90,419 | 617,399 | ||||||
|
Corporation
income and business taxes payable
|
481,249 | 3,286,062 | ||||||
|
Other
payables
|
5,268 | 36,249 | ||||||
|
TOTAL
CURRENT LIABILITIES
|
2,140,762 | 14,617,831 | ||||||
|
|
||||||||
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
|
Common
stock
|
87,912 | 600,000 | ||||||
|
Additional
paid-in capital
|
- | |||||||
|
Statutory
reserve
|
358,026 | 2,445,822.00 | ||||||
|
Retained
earnings
|
3,131,806 | 21,394,618 | ||||||
|
Other
comprehensive loss - foreign currency
|
1,635 | - | ||||||
|
TOTAL
STOCKHOLDERS' EQUITY
|
3,579,379 | 24,440,440 | ||||||
|
|
||||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 5,720,142 | ¥ | 39,058,271 | ||||
The accompanying notes are an integral part of
these consolidated financial statements.
F-17
F-19
SURMOUNTING
LIMIT MARKETING ADVISER LIMITED
Consolidated
Statements of Operations
|
From
inception
|
From
inception
|
|||||||
|
(
April 23,2009) to
|
(
April 23,2009) to
|
|||||||
|
December
31, 2009
|
December
31, 2009
|
|||||||
|
(in USD)
|
(in RMB)
|
|||||||
|
Revenue
|
$ | 9,142,709 | ¥ | 62,440,133 | ||||
|
Less)
Tax on operating income
|
(466,278 | ) | (3,184,447 | ) | ||||
|
TOTAL
REVENUE
|
8,676,431 | 59,255,686 | ||||||
|
COST
OF REVENUES
|
2,861,710 | 19,549,485 | ||||||
|
GROSS
PROFIT
|
5,813,925 | 39,706,201 | ||||||
|
OPERATING
COSTS
|
||||||||
|
Operating
expenses
|
65,363 | 446,400 | ||||||
|
Adminstration
expenses
|
902,807 | 6,165,720 | ||||||
|
Depreciation
expense
|
7,136 | 48,736 | ||||||
|
Total
Operating Costs
|
975,307 | 6,660,856 | ||||||
|
OPERATING
INCOME (LOSS)
|
4,838,619 | 33,045,345 | ||||||
|
OTHER
INCOME & (EXPENSES)
|
||||||||
|
Non
operating expense
|
155,566 | 1,062,440 | ||||||
|
Interest
expense
|
(1,560 | ) | (10,651 | ) | ||||
|
Total
Other Income & (Expenses)
|
154,007 | 1,051,789 | ||||||
|
NET
INCOME BEFORE INCOME TAX & BENEFIT
|
4,684,612 | 31,993,556 | ||||||
|
Current
income taxes
|
(1,193,753 | ) | (8,152,739 | ) | ||||
|
NET
INCOME
|
$ | 3,490,858 | ¥ | 23,840,817 | ||||
|
COMPREHENSIVE
LOSS:
|
||||||||
|
Unrealized
foreign currency translation loss
|
1,635 | |||||||
|
COMPREHENSIVE
LOSS
|
$ | 3,492,493 | € | 23,840,817 | ||||
|
EARNINGS
PER SHARE - BASIC & DILUTED
|
N/A | N/A | ||||||
|
WEIGHTED
AVERAGE NUMBER OF
|
||||||||
|
COMMON
SHARES OUTSTANDING
|
N/A | N/A | ||||||
The accompanying notes are an
integral part of these consolidated financial statements.
F-18
Surmounting
Limit Marketing Adviser Limited
Notes
to Additional Information
|
1.
|
BASIS
FOR PREPARATION
|
The
condensed financial information of the Company has been prepared using the same
accounting policies as set out in the Company’s consolidated financial
statements except that the Company used the equity method to account for
investments in its subsidiaries and variable interest entity.
|
2.
|
INVESTMENTS
IN SUBSIDIARIES AND VARIABLE INTEREST
ENTITY
|
The
Company and its subsidiaries and variable interest entity were included in the
consolidated financial statements where the inter-company balances and
transactions were eliminated upon consolidation. For purpose of the Company’s
stand-alone financial statements, its investments in subsidiaries and variable
interest entity were reported using the equity method of accounting. The
Company’s share of income and losses from its subsidiaries and variable interest
entity were reported as equity in earnings of subsidiaries and variable interest
entity in the accompanying parent company financial statements.
F-19