Attached files
file | filename |
---|---|
8-K/A - Action Acquisition CORP | v204332_8ka.htm |
EX-10.5 - Action Acquisition CORP | v204332_ex10-5.htm |
EX-10.4 - Action Acquisition CORP | v204332_ex10-4.htm |
EX-10.16 - Action Acquisition CORP | v204332_ex10-16.htm |
EX-10.14 - Action Acquisition CORP | v204332_ex10-14.htm |
EX-10.12 - Action Acquisition CORP | v204332_ex10-12.htm |
EX-10.8 - Action Acquisition CORP | v204332_ex10-8.htm |
EX-4.1 - Action Acquisition CORP | v204332_ex4-1.htm |
EX-10.11 - Action Acquisition CORP | v204332_ex10-11.htm |
EX-10.7 - Action Acquisition CORP | v204332_ex10-7.htm |
EX-10.15 - Action Acquisition CORP | v204332_ex10-15.htm |
EX-10.9 - Action Acquisition CORP | v204332_ex10-9.htm |
EX-10.6 - Action Acquisition CORP | v204332_ex10-6.htm |
EX-10.10 - Action Acquisition CORP | v204332_ex10-10.htm |
EX-10.13 - Action Acquisition CORP | v204332_ex10-13.htm |
EX-99.2 - Action Acquisition CORP | v204332_ex99-2.htm |
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and
Stockholders
of Shenzhen ORB-FT New Materials Co., Ltd.
We have
audited the accompanying balance sheets of Shenzhen ORB-FT New Materials Co.,
Ltd. as of December 31, 2009 and 2008, and the related statements of
operations and comprehensive income, stockholders' equity and cash
flows for the years then ended. Shenzhen ORB-FT New Materials Co., Ltd.’s
management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Shenzhen ORB-FT New Materials Co.,
Ltd. as of December 31, 2009 and 2008, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/Morison
Cogen LLP
Bala
Cynwyd, Pennsylvania
March 8,
2010
1
SHENZHEN
ORB-FT New Material Co., Ltd
BALANCE
SHEETS
AS
OF DECEMBER 31, 2009 and 2008
2009
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
& cash equivalents
|
$ | 299,719 | $ | 58,849 | ||||
Accounts
receivable, net
|
1,138,081 | 811,410 | ||||||
Bills
receivable
|
87,871 | 23,926 | ||||||
Other
receivables, net
|
217,383 | 270,939 | ||||||
Deposit
|
9,538 | 19 | ||||||
Prepayment
|
468,771 | 220,583 | ||||||
Inventory
|
546,968 | 287,388 | ||||||
Total
current assets
|
2,768,331 | 1,673,114 | ||||||
PROPERTY
AND EQUIPMENT, net
|
421,575 | 467,372 | ||||||
TOTAL
ASSETS
|
$ | 3,189,906 | $ | 2,140,486 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 55,575 | $ | 197,008 | ||||
Accrued
liabilities and other payables
|
10,685 | 128,614 | ||||||
Tax
payable
|
549,979 | 222,545 | ||||||
Amount
due to related party
|
- | 224,553 | ||||||
Total
current liabilities
|
616,239 | 772,720 | ||||||
COMMITMENTS
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Paid
in capital
|
241,648 | 241,648 | ||||||
Statutory
reserve
|
140,590 | 101,769 | ||||||
Accumulated
other comprehensive income
|
111,177 | 109,400 | ||||||
Retained
earnings
|
2,080,252 | 914,949 | ||||||
Total
stockholders' equity
|
2,573,667 | 1,367,766 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 3,189,906 | $ | 2,140,486 |
The
accompanying notes are an integral part of these financial
statements
2
SHENZHEN
ORB-FT NEW MATERIAL CO., LTD
THE
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
|
||||||||
2009
|
2008
|
|||||||
Net
sales
|
$ | 4,306,946 | $ | 2,686,576 | ||||
Cost
of goods sold
|
2,287,228 | 1,507,773 | ||||||
Gross
profit
|
2,019,718 | 1,178,803 | ||||||
Operating
expenses
|
||||||||
Selling
expenses
|
221,182 | 215,528 | ||||||
General
and administrative expenses
|
196,897 | 117,901 | ||||||
Research
and development expense
|
89,766 | 111,889 | ||||||
Total
operating expenses
|
507,845 | 445,318 | ||||||
Income
from operations
|
1,511,873 | 733,485 | ||||||
Non-operating
income (expenses)
|
||||||||
Interest
income
|
683 | 443 | ||||||
Other
income
|
286 | - | ||||||
Other
expenses
|
(2,092 | ) | (4,339 | ) | ||||
Total
non-operating expenses, net
|
(1,123 | ) | (3,896 | ) | ||||
Income
before income tax
|
1,510,750 | 729,589 | ||||||
Income
tax expense
|
306,626 | 135,991 | ||||||
Net
income
|
$ | 1,204,124 | $ | 593,598 | ||||
Other
comprehensive item
|
||||||||
Foreign
currency translation
|
1,777 | 57,810 | ||||||
Comprehensive
Income
|
$ | 1,205,901 | $ | 651,408 |
The
accompanying notes are an integral part of these financial
statements
3
SHENZHEN
ORB-FT NEW MATERIAL CO., LTD
STATEMENT
OF STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31,2009 AND 2008
Common stock
|
Other comprehensive
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Paid in capital
|
Statutory reserves
|
income
|
Retained earnings
|
Total
|
||||||||||||||||||||||
Balance
at January 1, 2008
|
- | $ | - | $ | 241,648 | $ | 42,409 | $ | 51,590 | $ | 380,711 | $ | 716,358 | |||||||||||||||
Net
income for the year
|
- | - | - | - | - | 593,598 | 593,598 | |||||||||||||||||||||
Transfer
to statutory reserves
|
- | - | - | 59,360 | - | (59,360 | ) | - | ||||||||||||||||||||
Foreign
currency translation gain
|
- | - | - | - | 57,810 | - | 57,810 | |||||||||||||||||||||
Balance
at December 31, 2008
|
- | - | 241,648 | 101,769 | 109,400 | 914,949 | 1,367,766 | |||||||||||||||||||||
Net
income for the year
|
- | - | - | - | - | 1,204,124 | 1,204,124 | |||||||||||||||||||||
Transfer
to statutory reserves
|
- | - | - | 38,821 | - | (38,821 | ) | - | ||||||||||||||||||||
Foreign
currency translation gain
|
- | - | - | - | 1,777 | - | 1,777 | |||||||||||||||||||||
Balance
at December 31, 2009
|
- | $ | - | $ | 241,648 | $ | 140,590 | $ | 111,177 | $ | 2,080,252 | $ | 2,573,667 |
The
accompanying notes are an integral part of these financial
statements
4
SHENZHEN
ORB-FT NEW MATERIAL CO., LTD
STATEMENTS
OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 1,204,124 | $ | 593,598 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
53,837 | 52,562 | ||||||
Allowance
for doubtful account
|
6,809 | - | ||||||
Decrease(Increase)
in current assets:
|
||||||||
Accounts
receivable
|
(331,494 | ) | 48,959 | |||||
Bill
receivable
|
(63,896 | ) | (23,546 | ) | ||||
Prepayment
|
(247,880 | ) | (181,644 | ) | ||||
Other
receivables
|
52,696 | (132,811 | ) | |||||
Inventory
|
(259,204 | ) | (211,504 | ) | ||||
Deposit
|
(9,515 | ) | - | |||||
Increase
(decrease) in current liabilities:
|
||||||||
Accounts
payable
|
(141,560 | ) | 9,190 | |||||
Accrued
liabilities and other payables
|
(118,001 | ) | (146,161 | ) | ||||
Tax
payable
|
327,091 | 115,884 | ||||||
Net
cash provided by operating activities
|
473,007 | 124,527 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Acquisition
of property & equipment
|
(7,621 | ) | - | |||||
Net
cash used in investing activities
|
(7,621 | ) | - | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Advance
from related parties
|
(224,671 | ) | (217,416 | ) | ||||
Net
cash used in financing activities
|
(224,671 | ) | (217,416 | ) | ||||
EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
|
155 | 8,163 | ||||||
NET
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
|
240,870 | (84,726 | ) | |||||
CASH
& CASH EQUIVALENTS, BEGINNING OF YEAR
|
58,849 | 143,575 | ||||||
CASH
& CASH EQUIVALENTS, END OF YEAR
|
$ | 299,719 | $ | 58,849 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest expenses
|
$ | - | $ | - | ||||
Cash
paid for income tax
|
$ | 17,781 | $ | 1,017 |
The
accompanying notes are an integral part of these financial
statements
5
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Shenzhen
ORB-FT New Materials Co., Ltd. (the “Company” or “Shenzhen ORB”) was
incorporated in Guangdong Province, People’s Republic of China (PRC) in 2005.
The Company is a hi-tech enterprise primarily engaged in the development,
manufacture and sale of high-performance adhesive seal materials in the PRC. The
Company provides glass bonding solutions to a wide range of industries,
including automobile, ships and boats, construction, and electronics, but
currently focusing on the automobile windshields area. The Company is also in
the process of producing other auto parts such as bumper, harness, lamp, and
cooling liquid.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with United
States generally accepted accounting principles (US GAAP). The Company’s
functional currency is the Chinese Renminbi (“RMB”); however the accompanying
financial statements have been translated and presented in United States Dollars
(“$” or “USD”).
Use
of Estimates
In
preparing financial statements in conformity with US GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting year. Significant estimates, required by
management, include the recoverability of long-lived assets and the valuation of
inventories. Actual results could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on account
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Based on management’s analysis noted
above, the bad debts allowance was determined by calculating 0.5% of accounts
receivable amount at the balance sheet date. Based on historical collection
activity, the Company made allowance of $5,719 and $0 at December 31, 2009 and
2008, respectively. The Company did not have any bad debts being
write-off in 2009 and 2008.
Inventories
Inventories
are valued at the lower of cost or net realizable value with cost determined on
a weighted average basis. Management compares the cost of inventories with the
net realizable value and allowance is made for writing down their inventories to
net realizable value, if lower.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
improvements are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation is removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets without salvage value and estimated lives of
5-10 years.
Computer
and office equipment
|
5 years
|
Plant
and machinery
|
10 years
|
6
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Research
and Development
Research
and development costs are related primarily to the Company testing its new
materials in the development stage. Research and development costs are expenses
as incurred. For the year ended December 31, 2009 and 2008, the
research and development expense was $ 89,766 and $ 111,889,
respectively.
Income
Taxes
The
Company utilizes the Financial Accounting Standard Board (“FASB”), Accounting
Standard Codification (“ASC”) Topic 740, “Income Taxes”, which requires
recognition of deferred tax assets and liabilities for expected future tax
consequences of events that were included in the financial statements or tax
returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The
Company adopted the provisions of ASC Topic 740, “Income Taxes”. When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities
upon examination.
Interest
associated with unrecognized tax benefits is classified as interest expense and
penalties are classified as selling, general and administrative expense in the
statements of income. The adoption of FASB ASC Topic 740 did not have a material
impact on the Company’s financial statements. At December 31, 2009 and 2008, the
Company had not taken any significant uncertain tax position on its tax return
for 2009 and prior years.
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with Securities and
Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) 104, (codified in
FASB ASC Topic 605). Sales revenue is recognized at 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. No revenue is recognized if
there are significant uncertainties regarding the recovery of the consideration
due or the possible return of goods; generally, sales revenue is recognized when
the delivery is completed. Payments received before all of the relevant criteria
for revenue recognition are recorded as unearned revenue.
Sales
revenue represents the invoiced value of goods, net of value-added taxes
(“VAT”). All Company products are sold in the PRC and subject to the Chinese VAT
of 17% of the gross sales price. This VAT may be offset by VAT paid by the
Company on raw materials and other materials included in the cost of producing
the finished product. The Company records VAT payable and VAT receivable net of
payments in the financial statements. The VAT tax return is filed offsetting the
payables against the receivables. Sales and purchases are recorded net of VAT
collected and paid as the Company acts as an agent for the
government.
7
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Cost
of Goods Sold
Cost of
goods sold consists primarily of material costs, labor costs, and related
overhead which are directly attributable to the production of the Company’s
products. Write-down of inventory to the lower of cost or net realizable
value is also recorded in the cost of goods sold.
Environmental
Costs and Liabilities
Liabilities
related to environmental compliance and future remedial costs are recorded when
the compliance or remedial efforts are probable and the costs can be reasonably
estimated. The PRC adopted environmental laws and regulations that affect the
operations of the auto industry. The outcome of environmental liabilities under
proposed or future environmental legislation cannot be reasonably estimated at
present, and could be material. Under existing legislation, however, Company
management believes there are no probable liabilities that will have a material
adverse effect on the financial position of the Company.
Shipping
and handling costs
Shipping
and handling costs related to delivery of finished goods are included in selling
expenses. During the years ended December 31, 2009 and 2008, shipping and
handling costs were $96,922 and $59,468.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist
primarily of accounts and other receivables. The Company does not require
collateral or other security to support these receivables. The Company conducts
periodic reviews of its clients' financial condition and customer payment
practices to minimize collection risk on accounts receivable.
The
operations of the Company are in the PRC. Accordingly, the Company's
business, financial condition, and results of operations may be influenced by
the political, economic, and legal environments in the PRC, as well as by the
general state of the PRC economy.
Statement
of Cash Flows
In
accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from
the Company's operations are calculated based upon local
currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows may not necessarily agree with changes
in the corresponding balances on the balance sheet.
Basic
and Diluted Net Income Per Share
The
Company is a limited company formed under the laws of the PRC. Similar to
limited liability companies (LLC) in the United States, limited
liability companies in the PRC do not issue shares to the
owners. The owners however, are called shareholders. Ownership interest is
determined in proportion to capital contributed. Accordingly,
earnings per share data is not presented.
Fair
Value of Financial Instruments
Some of
the Company’s financial instruments, including cash and cash equivalents,
accounts receivable, other receivables, accounts payable, accrued liabilities
and short-term debt, have carrying amounts that approximate their fair values
due to their short maturities. ASC Topic 820, “Fair Value Measurements and
Disclosures,” requires disclosure of the fair value of financial instruments
held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value
and establishes a three-level valuation hierarchy for disclosures of fair value
measurement that enhances disclosure requirements for fair value
measures. The carrying amounts reported in the balance sheets for
receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of their fair values because of the short period of
time between the origination of such instruments and their expected realization
and their current market rate of interest. The three levels of valuation
hierarchy are defined as follows:
·
|
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or
liabilities in active
markets.
|
8
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
·
|
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the
financial instrument.
|
·
|
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value
measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC
Topic 815, “Derivatives and Hedging.”
As of
December 31, 2009 and 2008, the Company did not identify any assets and
liabilities required to be presented on the balance sheet at fair
value.
Foreign
Currency Translation and Comprehensive Income
The
Company’s functional currency is the RMB. For financial reporting purposes, RMB
were translated into USD as the reporting currency. Assets and liabilities are
translated at the exchange rate in effect at the balance sheet date. Revenues
and expenses are translated at the average rate of exchange prevailing during
the reporting period. Translation adjustments arising from the use of different
exchange rates from period to period are included as a component of
stockholders' equity as "Accumulated other comprehensive income". Gains and
losses resulting from foreign currency transactions are included in income.
There was no significant fluctuation in exchange rate for the conversion of RMB
to USD after the balance sheet date.
The
Company uses ASC Topic 220 “Comprehensive Income”. Comprehensive income is
comprised of net income and all changes to the statements of stockholders’
equity, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders. Comprehensive income for the years
ended December 31, 2009 and 2008 included net income and foreign currency
translation adjustments.
Segment
Reporting
ASC Topic
280, "Segment Reporting" requires use of the “management approach” model for
segment reporting. The management approach model is based on the way
a company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any
other manner in which management disaggregates a company.
ASC Topic
280 has no effect on the Company's financial statements as substantially all of
the Company's operations are conducted in one industry segment. The
Company consists of one reportable business segment. All of the
Company's assets are located in the PRC and all of the Company’s revenue is
generated in the PRC.
New
Accounting Pronouncements
As of
September 30, 2009, the Company adopted Accounting Standards Update (“ASU”)
No. 2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC
registrants, guidance issued by the SEC. The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC. The
Codification is amended to effect non-SEC changes to authoritative
GAAP. Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Financial Statements.
9
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS 165 requires that public entities evaluate subsequent
events through the date that the financial statements are issued. Subsequent
events have been evaluated through March 8, 2010.
In April
2009, the FASB issued FSP No. SFAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP
No. SFAS 157-4”). FSP No. SFAS 157-4, which is codified in
FASB ASC Topics 820-10 and 820-10, provides additional guidance for estimating
fair value and emphasizes that even if there has been a significant decrease in
the volume and level of activity for the asset or liability and regardless of
the valuation technique(s) used, the objective of a fair value measurement
remains the same. The Company adopted FSP No. SFAS 157-4 beginning
July 1, 2009. This FSP had no material impact on the Company’s financial
position, results of operations or cash flows.
FASB ASC
820-10 (formerly, SFAS No. 157) establishes a framework for measuring fair value
and expands disclosures about fair value measurements. The changes to current
practice resulting from the application of this standard relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. This standard is effective
for fiscal years beginning after November 15, 2007; however, it provides a
one-year deferral of the effective date for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually. The Company adopted this
standard for financial assets and financial liabilities and nonfinancial assets
and nonfinancial liabilities disclosed or recognized at fair value on a
recurring basis (at least annually) as of January 1, 2008. The Company adopted
the standard for nonfinancial assets and nonfinancial liabilities on January 1,
2009. The adoption of this standard did not have a material impact on its
financial statements.
As of
December 31, 2009, the FASB has issued Accounting Standards Updates (ASU)
through No. 2009-17. None of the ASUs have had an impact on the Company’s
financial statements.
Recently
Issued Accounting Pronouncements Not Yet Adopted
As of
December 31, 2009, there are no recently issued accounting standards not yet
adopted which would have a material effect on the Company’s financial
statements.
3.
INVENTORY
Inventory
consisted of finished goods and raw material at December 31, 2009 and 2008 as
following:
2009
|
2008
|
|||||||
Finished
goods
|
$
|
531,387
|
$
|
283,713
|
||||
Raw
material
|
15,581
|
3,675
|
||||||
$
|
546,968
|
$
|
287,388
|
4.
PROPERTY AND EQUIPMENT, NET
As of
December 31, 2009 and 2008, Property and equipment consisted of the
following:
2009
|
2008
|
|||||||
Office
equipment
|
$
|
11,320
|
$
|
3,692
|
||||
Plant
and machinery
|
527,225
|
526,732
|
||||||
Less:
Accumulated depreciation
|
(116,970
|
)
|
(63,052
|
)
|
||||
$
|
421,575
|
$
|
467,372
|
Depreciation
expense was $53,837 and $52,562 for the year ended December 31, 2009 and 2008,
respectively.
10
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
5.
PREPAYMENT
Prepayment
was mainly the payment to original equipment manufacturing (OEM) factories. As
the transactions are not yet started or not completed, the amounts were recorded
as prepayment instead of cost of sale. At December 31, 2009 and 2008, the
prepayment consisted of the following:
2009
|
2008
|
|||||||
Payment
to OEM factories
|
$
|
468,771
|
$
|
216,881
|
||||
House
rental
|
-
|
3,702
|
||||||
$
|
468,771
|
$
|
220,583
|
6.
BILLS RECEIVABLE
Bills
receivable represented an instrument which contains an unconditional order to
pay a certain amount on an agreed date. It was used as an assurance
for customers making the payment on time according to the agreed terms when the
goods are sold on credit and payment is deferred to a future date. As
of December 31, 2009 and 2008, bills receivable was $87,871 and $23,926,
respectively.
7. OTHER RECEIVABLES
Other
receivables represented cash advances to employees and short term advances to
non-related parties, with no interest bearing and payable upon
demand. Based on historical collection activity, the Company made allowance
of $1,092 and $0 at December 31, 2009 and 2008, respectively, the net amounts of
other receivables were $217,383 and $270,939 at December 31, 2009 and 2008,
respectively.
8.
MAJOR CUSTOMERS AND VENDORS
Two and
one major customers accounted for 79% (50% and 29% for each) and 68% of sales
for the years end December 31, 2009 and 2008, respectively. Accounts receivable
from these customers amounted to $830,748 and $477,088 as of December 31, 2009
and 2008, respectively. If these customers were lost, it is unlikely that the
Company would be able to replace the lost revenue, at least in the near
term.
The
Company purchased its products from four major vendors during the year ended
December 31, 2009 with each accounting for 60%, 15%, 10% and 10% of purchases,
respectively. Accounts payable to these vendors were $46,866 as of December 31,
2009. The Company had two major vendors during 2008 with each vendor accounting
for 74% and 15% of the total purchases. Accounts payable to these vendors was
$182,103 as of December 31, 2008.
9.
OTHER PAYABLE AND ACCRUED LIABILITIES
Other
payables and accrued liabilities consisted of the following at December 31, 2009
and 2008, respectively:
2009
|
2008
|
|||||||
Other
payables
|
$
|
-
|
$
|
75,766
|
||||
Receipt
in advance
|
-
|
12,619
|
||||||
Accrued
salaries
|
10,685
|
40,229
|
||||||
Total
|
$
|
10,685
|
$
|
128,614
|
10.
DUE TO RELATED PARTY
Due to
related party represented payments of $224,553 made by a director for the
Company’s expenses in 2008, it had no interest and stated term, and was
unsecured. This borrowing was repaid in full in 2009.
11
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
11.
TAXES PAYABLE
Taxes
payable consisted of the following at December 31, 2009 and 2008,
respectively:
2009
|
2008
|
|||||||
Value-added
tax payable
|
$
|
48,209
|
$
|
8,853
|
||||
Education
surtax and other taxes payable
|
1,928
|
3,011
|
||||||
Income
tax payable
|
499,842
|
210,681
|
||||||
Total
|
$
|
549,979
|
$
|
222,545
|
12.
INCOME TAXES
The
Company is governed by the Income Tax Law of the PRC concerning the private-run
enterprises in special district. Prior to 2008, Shenzhen ORB was
subject to tax at a statutory rate of 15% on income reported in the statutory
financial statements after appropriated tax adjustments. According to
the new income tax law that became effective January 1, 2008, for those
enterprises to which the 15% tax rate was applicable previously, the applicable
rates shall be gradually increasing over a five-year period to reach the new
statutory income tax rate of 25% as follows:
Year
|
Tax Rate
|
|||
2007
|
15
|
%
|
||
2008
|
18
|
%
|
||
2009
|
20
|
%
|
||
2010
|
22
|
%
|
||
2011
|
24
|
%
|
||
2012
|
25
|
%
|
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the years ended December 31, 2009 and 2008:
2009
|
2008
|
|||||||
US
statutory rates
|
34.0
|
%
|
34.0
|
%
|
||||
Tax
rate difference
|
(14.0
|
)%
|
(16.0
|
)%
|
||||
NOL
utilized
|
-
|
%
|
-
|
%
|
||||
Valuation
allowance
|
-
|
%
|
-
|
%
|
||||
Tax
per financial statements
|
20.0
|
%
|
18.0
|
%
|
There
were no material temporary differences on deferred tax as of December 31, 2009
and 2008.
13.
STATUTORY RESERVES
Pursuant
to the corporate law of the PRC effective January 1, 2006, the Company is now
only required to maintain one statutory reserve by appropriating from its
after-tax profit before declaration or payment of dividends. The statutory
reserve represents restricted retained earnings.
Surplus reserve
fund
The
Company is now only required to transfer 10% of its net income, as determined
under PRC accounting rules and regulations, to a statutory surplus reserve fund
until such reserve balance reaches 50% of the Company’s registered capital. For
the year ended December 31, 2009, the Company transferred $38,821 to the
reserve. For the year ended December 31, 2008, the Company transferred $59,360
to this reserve.
The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their equity interest or by increasing the par
value of the shares currently held by them, provided that the remaining reserve
balance after such capital issuance is not less than 25% of the registered
capital.
12
SHENZHEN
ORB-FT NEW MATERIAL COMPANY LIMITED
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
14.
COMMITMENTS
The
Company leased an office in Chongqing city under a long term, non-cancelable
lease agreement on December 1, 2008 with expiration date on November 30, 2011
for monthly rent of approximately $527 (RMB 3,600). Based on the lease
agreement, the Company will be required to pay penalty for early lease
termination, which is the deposit for the lease along with the remaining rents
up to the original lease termination date.
As of
December 31, 2009, future minimum rental payments required under this operating
lease is as follows:
Year
ending December 31,
|
Amount
|
|||
2010
|
$
|
6,300
|
||
2011
|
5,800
|
|||
Total
|
$
|
12,100
|
Total
rental expense for the year ended December 31, 2009 and 2008 was $25,479 and
$15,032, respectively.
15.
OPERATING RISKS
The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be transacted only
by authorized financial institutions. Remittances in currencies other than RMB
may require certain supporting documentation in order to affect the
remittance.
13