ITEM 1. BUSINESS
Xinyinhai Technology, Ltd. is a holding company that has two subsidiaries. Xinyinhai Technology owns 100% of the registered capital of Winner Sea Group Limited (“Winner Sea”), which owns 90% of the registered capital of Harbin Golden Sea Technology Printing Co., Ltd. (“Harbin Golden Sea”).
Winner Sea Group Limited
Winner Sea is a business company organized under the laws of the British Virgin Islands in 2006. It has conducted no business. It is a holding company whose only asset is shares in Harbin Golden Sea that represent 90% of the registered capital of that company. The remaining 10% of Harbin Golden Sea is owned by Xie Guihong. Ms. Xie is a member of the Board of Directors of Xinyinhai Technology.
Harbin Golden Sea Technology Printing Co., Ltd.
Harbin Golden Sea Technology Printing Co., Ltd. is a private company located in Harbin, China. Founded in 1998, Harbin Golden Sea has developed into a leading participant in China’s financial notes printing industry. Harbin Golden Sea is a company to which the Chinese government has issued the Special Industry Operating Permit and the Government Securities and Documents Duplicating Permit, which are the licenses required in order to be engaged in printing bank vouchers in China.
Harbin Golden Sea has in recent years developed a prestigious clientele and an established share of the market for financial notes printing in China. The three primary factors responsible for Harbin Golden Sea’s growth have been:
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Harbin Golden Sea provides printing services whose quality equals the highest standards worldwide. Harbin Golden Sea imports state-of-the-art printing equipment from Germany, and installs on its advanced software systems, such as anti-falsification software. Harbin Golden Sea’s investment in technology means that few competitors can offer China’s financial industry the level of service that Harbin Golden Sea offers.
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Harbin Golden Sea’s focus on providing high quality service has distinguished it from its competition. In 2000 Harbin Golden Sea received Certification of Compliance with the ISO 9000 International Standard. In 2003, Harbin Golden Sea’s quality management system was accredited under ISO 9001-2000, recognition that Harbin Golden Sea’s business practices meet the world’s highest standards. In 2006 Harbin Golden Sea achieved GB/T28001 Certification of Occupational Health and Security Management System as well as ISO14001 Environment Management System certification. Harbin Golden Sea has been awarded “Best Performance” and named “Most Creditworthy and Reliable” enterprise by the Chinese government every year since 2001.
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Harbin Golden Sea’s marketing acumen has brought it into exclusive relationships with many of China’s largest financial institutions and government agencies, including Bank of China, Agricultural Bank of China, and the Postal Savings Bank of China.
Harbin Golden Sea also earns a portion of its revenue (approximately 5% in 2010, 13% in 2009; 32% in 2008) from its position as a distributor of plasma arc cutting machinery and consumable parts manufactured by Hypertherm, Inc. of New Hampshire, U.S.A. Hypertherm’s plasma arc cutting systems are designed to provide metal workers with clean cuts for metal work that permits little tolerance for error, and are well-known worldwide.
Production
The documents printed by Harbin Golden Sea include bank deposit books, deposit receipts, computer bills and other financial notes, as well as standard forms for banks and insurance companies, single purpose invoices, and other certificates. Harbin Golden Sea performs most services in-house. However, it uses outsourced vendors for certain specialty services, such as large scale binding, binding in leather, and the like.
Harbin Golden Sea has, since its founding, focused its business plan on the high-end segment of the printing market. To attract market share, Harbin Golden Sea stresses the quality of its production and uses only the most advanced printing technology available in the world. Harbin Golden Sea’s automated production lines are imported from Germany’s Kuechler Company, which produces the world’s most sophisticated printers. Auxiliary equipment is mainly produced in China by foreign-invested joint ventures and domestic equipment manufacturers. As the market for Harbin Golden Sea’s services has expanded in the past ten years, Harbin Golden Sea has kept pace by maintaining an ongoing program of upgrading Harbin Golden Sea’s equipment and production capabilities every year. This trend will continue for the foreseeable future. Advanced equipment and world-class technology is the key to Harbin Golden Sea’s plan for continual development and success.
In recent years, the growth of Harbin Golden Sea’s business put a strain on its production capacity. To alleviate that strain, at the end of 2008 Harbin Golden Sea relocated its production equipment from a 6,000 m2 facility to a nearby facility with 20,696.5 m2 of floor space. In addition, during 2008 and 2009 Harbin Golden Sea invested approximately $1,700,000 in improvements to its new facility, including renovations to the building and installation of a gold stamping machine, slitting machine, four color rotary presses and a die cutting machine. The additional production space has substantially increased Harbin Golden Sea’s production capacity, and should alleviate its capacity issues for the immediate future.
Technology
Harbin Golden Sea employs a staff of five research analyst professionals. It is the responsibility of these individuals to insure that Harbin Golden Sea’s production staff utilizes state-of-the-art machinery in a cost-effective yet top quality manner. In particular, Harbin Golden Sea’s research staff is responsible for integrating advanced software systems, such as the anti-falsification system, into Harbin Golden Sea’s production system. The value added by these technological advantages is a key to Harbin Golden Sea’s competitive strength.
For the past several years, there has been little demand for new products. Harbin Golden Sea’s customers have established buying patterns and are currently comfortable with the products developed to date. For that reason, the salaries of Harbin Golden Seas research analysts are accounted for as general and administrative expenses, and Harbin Golden Sea has not recorded any specific research and development expense during the past three years.
Marketing of Printing Services
Because China has only in the past twenty years assumed an important position in world financial markets, China’s financial services industry has generally lagged behind the international industry. Recently, however, China’s government is moving to modernize the industry and force it to become more accountable. In 2005 China’s Commerce Ministry announced plans to increase the use of invoices and similar evidentiary documents, in part spurred by the need for greater tax compliance. The government is pushing banks, telecommunications companies, insurance companies, and the national postal service to assimilate international norms. One of the primary reforms that the government is encouraging is the use of variable data printing technology with anti-falsification encryption - technology currently provided by Harbin Golden Sea.
Harbin Golden Sea believes that this government emphasis on modernization of document use by China’s financial community will provide Harbin Golden Sea a unique opportunity for growth. The movement toward higher quality documentation with advanced technological aspects, such as anti-falsification technology, should have the effect of (a) creating an increased demand for the level of services that Harbin Golden Sea has traditionally offered, (b) forcing more institutions to outsource their printing to providers such as Harbin Golden Sea, and (c) driving many smaller commercial printing companies out of the market due to their inability to finance the purchase of advanced equipment. Management expects Harbin Golden Sea to take advantage of these phenomena, both through an expansion of its customer base and through a selective program of acquiring smaller printing companies that offer quality services but lack the capital necessary to compete technologically.
Harbin Golden Sea’s position as a member of the Chinese Anti-Falsification Technology Association and as a member of the Chinese Printing Committee has given Harbin Golden Sea exposure to the leaders of China’s financial community. The reputation for state-of-the-art specialty printing that Harbin Golden Sea has developed, combined with the skills of Harbin Golden Sea’s marketing personnel, have enabled Harbin Golden Sea to develop strong customer relationships with many leaders in that financial community. Among Harbin Golden Sea’s current customers are:
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Bank of China. The leader in China’s banking industry, and the only Chinese bank with a presence on five continents, Bank of China offers financial services through 560 offices worldwide. Harbin Golden Sea has an exclusive contract to provide printing services for the offices of the Bank of China in six of China’s provinces.
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Agricultural Bank of China. One of the four state-owned banks in China, the Agricultural Bank of China has $372 billion in assets and branches throughout China. Harbin Golden Sea has the exclusive contract to provide specialty printing services for the branches located in four provinces of China.
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China Construction Bank. Headquartered in Beijing, China Construction Bank has 14,250 branch offices. Harbin Golden Sea provides the specialty printing services for the Heilongjiang Province.
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Postal Savings Bank of China. Ranked as the fifth largest state-owned bank in China, Postal Savings Bank of China offers financial services throughout China. Harbin Golden Sea has an exclusive contract to provide deposit books for the offices of Postal Savings Bank of China in six of China’s provinces.
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China Life. The largest life insurance company in China, China Life was listed on the New York Stock Exchange in 2003.
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Sunlight Property Insurance. Established by a group of state-owned conglomerates in 2004, Sunlight Insurance now holds assets in excess of $100 billion. Harbin Golden Sea provides a portion of Sunlight’s specialty printing requirements on an exclusive basis.
During 2010 the Company did not have any customers who accounted for more than ten percent of Harbin Golden Sea’s revenues. During 2009 there were two customers such customers: Jilin Province Rural Credit Union (11%) and Heilongjiang Province Postal Savings Bank (10%).
With China’s accession into the WTO, opportunities for international expansion of Harbin Golden Sea’s market should develop. In 2006 the last quotas on exports by China’s printing industry were lifted. Harbin Golden Sea plans for the future include the development of an international market for Harbin Golden Sea’s specialty printing services.
Distribution of Plasma Arc Cutting Systems
Hypertherm, Inc. has been manufacturing high-tech cutting machinery since 1968. Today it manufactures a range of cutting products, but is known in particular for its plasma arc cutting systems. Hypertherm has appointed Harbin Golden Sea as its exclusive distributor for the Heilongjiang region of China of Hypertherm’s plasma arc systems. Harbin Golden Sea is also authorized to resell to other distributors throughout China. In 2007 and 2008 Harbin Golden Sea sold to distributors in several of China’s provinces, and the sales represented over 25% of the Company’s revenues. Currently Harbin Golden Sea and its distributors sell in only three provinces, and 2010 equipment sales revenues represented only 5% of the Company’s revenues. The relationship between Hypertherm and Harbin Golden Sea is on an at-will basis.
Harbin Golden Sea purchases the systems from Hypertherm Singapore Inc. and resells them at prices determined by Harbin Golden Sea. Harbin Golden Sea also resells the consumables that customers must employ with the systems. Our expectation is that the recent level of equipment sales will persist for the forseeable future.
Insurance
Harbin Golden Sea currently maintains insurance protecting it against liability to its employees for work-related injuries and reimbursing Harbin Golden Sea for the cost of worker’s retirement plans, lay-offs and pregnancy leaves. Harbin Golden Sea has also purchased employee health insurance.
Employees
Harbin Golden Sea has 183 employees, all of whom are full-time employees. 39 employees are involved in administration; 15 in marketing and business development, 5 are research analysts, and the remainder are technical and factory workers. None of Harbin Golden Sea’s employees belong to a labor union.
ITEM 1A.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below before buying our common stock. If any of the risks described below actually occurs, that event could cause the trading price of our common stock to decline, and you could lose all or part of your investment.
I. Risks attendant to our business
We may not be able to adequately protect our intellectual property, which could cause us to be less competitive.
We are continuously designing and developing new technology. We rely on a combination of copyright and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Unauthorized use of our technology could damage our ability to compete effectively. In China, monitoring unauthorized use of our products is difficult and costly. In addition, intellectual property law in China is less developed than in the United States and historically China has not protected intellectual property to the same extent as it is protected in other jurisdictions, such as the United States. Any resort to litigation to enforce our intellectual property rights could result in substantial costs and diversion of our resources, and might be unsuccessful.
Currency fluctuations may adversely affect our business.
We generate revenues and (with one exception) incur expenses and liabilities in Chinese RMB. However we report our financial results in the United States in U.S. Dollars. As a result, we are subject to the effects of exchange rate fluctuations between these currencies. If the RMB exchange rate is adjusted or is allowed to float freely against the U.S. dollar, our revenues, which are denominated in RMB, may fluctuate significantly in U.S. dollar terms. We have not entered into agreements or purchased instruments to hedge our exchange rate risks.
Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.
Our future success depends on our ability to attract and retain highly skilled engineers, draftsmen, and technicians, as well as sales personnel experienced in international sales. Qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand. Therefore we may not be able to successfully attract or retain the personnel we need to succeed.
We may have difficulty establishing adequate management and financial controls in China.
The People’s Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company. If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.
Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.
The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to fund our business activities outside China or to pay dividends to our shareholders.
Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.
China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Under the New EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management bodies as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the New EIT Law and its implementation non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operation reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial properties, accounting books, corporate board and shareholder minutes are kept in China; and (iv) directors with voting rights or senior management are resident in China. Such resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor are detailed measures on imposition of tax from non-domestically incorporated resident enterprises available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.
However, as our case substantially meets the foregoing criteria, there is a likelihood that we are deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. Second, although under the New EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived by our non-PRC shareholders from transferring our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2009 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.
If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be creditable against our U.S. tax.
We have limited business insurance coverage.
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.
Our bank deposits are not insured.
There is no insurance program in the PRC that protects bank deposits, in the way that bank deposits in the U.S. are given limited protection by the FDIC. If the bank in which we maintain our cash assets were to fail, it is likely that we would lose most or all of our deposits.
II. Risks attendant to our management
The absence of independent directors on our board of directors may limit the quality of management decision making.
Each of the three members of our Board of Directors is also an employee of Harbin Golden Sea. There is no audit committee of the board and no compensation committee. This situation means that the Board will determine the direction of our company without the benefit of an objective perspective and without the contribution of insights from outside observers. This may limit the quality of the decisions that are made. In addition, the absence of independent directors in the determination of compensation may result in the payment of inappropriate levels of compensation.
Our business development would be hindered if we lost the services of our Chairman.
Tian Ling is the Chief Executive Officer of Xinyinhai Technology, Ltd. and of its operating subsidiary, Harbin Golden Sea Technology Printing Co., Ltd. Mrs. Tian is responsible for strategizing not only our business plan but also the means of financing it. If Mrs. Tian were to leave Xinyinhai or become unable to fulfill her responsibilities, our business would be imperiled. At the very least, there would be a delay in the development of Xinyinhai until a suitable replacement for Mrs. Tian could be retained.
Xinyinhai is not likely to hold annual shareholder meetings in the next few years.
Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved. The current members of the Board of Directors were appointed to that position by the previous directors. If other directors are added to the Board in the future, it is likely that the current directors will appoint them. As a result, the shareholders of Xinyinhai will have no effective means of exercising control over the operations of Xinyinhai.
Your ability to bring an action against us or against our directors, or to enforce a judgment against us or them, will be limited because we conduct all of our operations in China and because our management resides outside of the United States.
We conduct all of our operations in China through our wholly-owned subsidiary. All of our directors and officers reside in China and all of the assets of those Chinese residents are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the United States and of China may render you unable to enforce a judgment against our assets or the assets of our directors.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
Harbin Golden Sea’s executive offices and production facility are located in facilities owned by Harbin Golden Sea at No. 4 Yantai Street, Haping Road Centralized Park in the Harbin Development Zone. The land area is 20,696.5 m2. The building area is 10,284.33 m2.
Harbin Golden Sea also owns a 6,000 m2 office and manufacturing facility located at No. 16 Dalian Road, Haping Road Centralized Park in the Harbin Development Zone in Harbin China, which was its primary manufacturing facility until December 2008. Harbin Golden Sea is currently using the facility as a warehouse, while management considers its ultimate disposition.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. (Reserved)
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market Information.
Our common stock is listed for quotation on the OTC Bulletin Board under the trading symbol “XNYH.” The following table sets forth the bid prices quoted for our common stock during each quarter of the past two fiscal years, as reported by the OTC Bulletin Board. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
(b) Holders. Our shareholders list contains the names of 108 registered stockholders of record of the Company’s Common Stock. Based upon information from nominee holders, the Company believes the number of owners of its Common Stock exceeds 300.
(c) Dividend Policy. Harbin Golden Sea declared a $1,376,594 dividend to its shareholders early in 2006, before it became a subsidiary of Xinyinhai Technology. Xinyinhai Technology itself, however, has not declared or paid cash dividends or made distributions in the past, and we do not anticipate that we will pay cash dividends or make distributions in the foreseeable future. We currently intend to retain and reinvest future earnings, if any, to finance our operations.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of December 31, 2010.
(e) Recent Sales of Unregistered Securities.
None.
(f) Repurchase of Equity Securities. The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the 4th quarter of 2010.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The recent global recession reduced demand for capital goods in China. Since late 2008, this situation has had a negative impact on both of our business segments. During 2010, the effect of the recession was most dramatic in our equipment distribution business, where revenues declined by 62% to $439,761 during 2010 from $1,147,696 during 2009. Revenue 2009 was, in turn, 74% lower than in 2008. This two year slide in equipment distribution reflects delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that we had experienced in 2008, and reduced this business segment to a 5% contribution to our overall revenue during 2010. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China. However, our expectation is that equipment sales revenue will stay at the current level for the forseeable future.
Revenue from our printing business, on the other hand, increased modestly overall, by 3%, to $7,707,195 during 2010, compared to $7,479,610 during 2009. The printing segment of our business had declined in 2008 and 2009, in part due to the weakening of the Chinese banking industry, as many of our customers were conserving cash pending stabilization of the international credit markets. The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008. The move necessitated delays in production, while our equipment was in transit, which in turn interfered with our sales effort, as our customers delayed orders until we could demonstrate that our facilities were up and running. Today, however, our new facility is fully operational, and we expect the current level of growth in our printing business to be sustained for the forseeable future. At March 31, 2011 we had $0.8 million in backlog of firm orders, all of which is for delivery during 2011. At March 24, 2010 we had $2.2 million in backlog.
The 30.5% gross margin realized by our subsidiary, Harbin Golden Sea, on sales in 2010 was inferior to the 31.9% gross margin realized in 2009. The gross margin was adversely affected by the decline of our equipment business, which operated at a loss during the 2010. However, margins from our printing business also remained lower than optimal. Our business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business. During the past two years, however, three factors caused margins from printing operations to fall below that standard:
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the disruption in the Chinese banking industry forced us to price our products more aggressively;
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our move at the end of 2008 to a larger manufacturing facility with upgraded equipment increased our annual depreciation expense by more than 50%; and
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the reduction in our sales volume led to inefficient use of the new larger facility.
As the Chinese banking industry is moving towards stabilization, our expectation is that we will be able to revive our sales growth and return our printing operations to the levels of profitability that they sustained prior to the international credit crisis.
We operated more efficiently during 2010 than during the prior year. Total operating expenses during 2010 were $1,147,794, a 16% decline from the $1,360,708 in operating expenses that we incurred during 2009. The decline was attributable to our continuing efforts to achieve efficiencies in our operations, leading to a decrease of $138,129 in our selling and distribution expenses and $74,785 in our general and administrative expenses for 2010 compared to 2009. When demand for our products returns to prior levels, we will endeavor to maintain the efficiencies that we implemented during the current slow period.
Despite our increased efficiency, our reduced gross margin resulted in a decline in income from operations by 3.6%, from $1,388,175 in 2009 to $1,339,663 in 2010. That decline in our financial results was exacerbated a sharp increase in interest expense. During the third quarter of 2009 we obtained a $2.9 million bank loan, which we repaid during the second quarter of 2010. During the third quarter of 2010, however, we replaced it with a $4.43 million bank loan. The finance charges attributable to those bank loans, $203,974 in 2010, further reduced our net income. Our net income before income taxes and provision for noncontrolling interests, therefore, fell in 2010 from $1,368,328 to $1,199,413.
Commencing in 2008, we became subject to preferential Chinese income tax rates of 9% for 2008, 10% for 2009 and 11% for 2010, respectively. As a result of this government allowance, we were taxed at a 10% rate in 2009, causing an expense of $181,930, and at an 11% rate in 2010, cause an expense of $155,180. In 2011 our income will be taxed at the national rate of 15% applicable to companies, such as Harbin Golden Sea, that have been awarded the high-tech enterprise certificate.
The operations of our subsidiary, Harbin Golden Sea, produced approximately $1,118,600 in income during 2010. However, because we own only 90% of Harbin Golden Sea, we deducted a “noncontrolling interests” of $111,860 before recognizing net income on our Consolidated Statements of Income and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income for 2010 was $932,373, representing $.048 per share, an 11% decrease from the net income we achieved in 2009.
Liquidity and Capital Resources
After our subsidiary, Harbin Golden Sea, was organized in 1998, the growth of its operations was funded by contributions to capital by our Chairman, Mrs. Tian. With the $2.4 million that she invested, Harbin Golden Sea built its facilities and funded its operations, resulting in profitable operations for the past several years. As a result, at December 31, 2010, we had working capital totaling $9,801,760 (an increase of $1,787,227 since the end of 2009) and no long-term liabilities.
The largest portion of our working capital is now invested in developing strategic relationships that will, we hope, benefit us in the future. Within the Chinese business community, the extension of interest-free loans is a normal method of securing good relations and future opportunities. For that reason, as of December 31, 2010, we had outstanding an unsecured, interest-free loan of $6,371,400 to Heilongjiang Jindi Real Estate Development Co., Ltd., in anticipation of future benefits to our real estate assets. That loan was repaid in January and February of 2011, and we do not anticipate further lending to Heilongjiang Jindi Real Estate Development Co., Ltd. We may, however, make loans to other parties from time to time in anticipation of future business benefits.
Over the longer term, the continued revenue growth in our printing services business will require further capital investment. As China’s banking industry rapidly modernizes, our customers will demand higher quality products similar to those available to the banking industry in Europe and the U.S. Our ability to meet that demand will determine the long term growth of our business. Immediately, the development of these new products will require substantial capital investment. For that purpose, we secured a $2.9 million collateralized loan during the third quarter of 2009, which we replaced during the third quarter of 2010 with a $4.43 million collateralized bank loan with an interest rate of 5.841%. We applied $748,379 to improvements in our plant and equipment during the second half of 2009. In 2010 we used a portion of the funds to increase our inventory in anticipation of growth, and used another portion to temporarily increase our loan to Heilongjiang Jindi. At the end of 2010, however, we had signed commitments to purchase $1,334,715 in plant and machinery. Since Heilongjiang Jindi repaid its loan in full early in 2011, we will apply a portion of those funds to payment for that capital improvement.
Our operations during 2010 provided us $832,468 in net cash. The disparity between our net income and net cash from operations was primarily attributable to the fact that during year we increased our miscellaneous outstanding other receivables (deposits, advances to staff, etc.) by $592,156. The largest component of that increase was a deposit for the purchase of equipment we will need to expand into the card-printing business. We are still reviewing the prospects in that business, and have not determined whether we will pursue it. If we decide not to enter the card-printing business, our deposit is redundable.
We held $3,692,174 in cash and equivalents at December 31, 2010, and $2,199,189 in trade receivables, of which only $376,205 were more than 90 days old. We have a $4.5 million debt payment due in 2011, but our liquid assets are more than adequate, and we expect to pay the loan in full at the end of June. We are cash positive in our operations, are operating profitably and hold over $6.4 million in fixed assets free of lien. Accordingly, we expect to be able to secure bank financing when our operations warrant capital expansion. For that reason, we expect our liquidity will be sufficient in the next year to fund our ongoing operations as well as our near-term growth.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
Critical Accounting Policies and Estimates
In preparing our financial statements we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for 2010, there were two estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results. These estimates were:
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Our decision, explained in Note 5 to the Consolidated Financial Statements, to record a 100% valuation allowance against the deferred asset arising from our net operating loss carryforward for U.S income taxes. The decision is based on our lack of assurance that the Company will realize income taxable in the U.S. in future periods.
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Our decision, set forth in Note 7 to the Consolidated Financial Statements, to record a $4,598 provision for doubtful accounts, against total trade receivables of $2,203,787. This decision was based on our knowledge of the customers and their history of full payment.
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Our decision, described in Note 8 to the Consolidated Financial Statements, to record no provision for obsolete inventories. This decision was based on fact that we have orders in house for all of our finished inventory and work in progress, while the raw materials are currently usable.
We have made no material changes to our critical accounting policies in connection with the preparation of financial statements for 2010.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Xinyinhai Technology, Ltd.
We have audited the accompanying consolidated balance sheets of Xinyinhai Technology, Ltd. (the “Company”) and its subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2010. 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 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. 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 the 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 consolidated financial position of the Company and its subsidiaries as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ PKF
Certified Public Accountants
Hong Kong, China
April 13, 2011
XINYINHAI TECHNOLOGY, LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
See the accompanying notes to consolidated financial statements
XINYINHAI TECHNOLOGY, LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Stated in US Dollars)
See the accompanying notes to consolidated financial statements
XINYINHAI TECHNOLOGY, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Stated in US Dollars)
See the accompanying notes to consolidated financial statements
XINYINHAI TECHNOLOGY, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
See the accompanying notes to consolidated financial statements
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
1. Corporation information
(a)
Xinyinhai Technology, Ltd. (“Xinyinhai” or the “Company”) was incorporated in Utah on October 18, 1985. It currently has two subsidiaries, Winner Sea Group Limited (“Winner Sea”) and Harbin Golden Sea Technology Printing Co., Ltd. (“Harbin Golden Sea”).
Winner Sea is a business company organized under the laws of the British Virgin Islands on January 12, 2006. It has conducted no business and is a holding company whose only asset is 90% equity interest in Harbin Golden Sea. Ms. Xie Guihong, a director of the Company, owns the remaining 10% equity interest in Harbin Golden Sea.
Harbin Golden Sea is a company located in Harbin City, Heilongjiang Province, the People’s Republic of China (“PRC”). Founded in 1998, Harbin Golden Sea has developed into a leading participant in the PRC’s financial note printing industry. It is one of the companies to which the PRC government has issued the Special Industry Operating Permit and the Government Securities and Documents Duplicating Permit, which are the licenses required in order to be engaged in printing bank vouchers in the PRC.
The Company ended its development stage after the share exchange transaction as detailed in note 1(b) to the financial statements.
(b)
On June 29, 2006, the Company executed a share exchange agreement (the “Share Exchange”) with the stockholders of Winner Sea whereby the stockholders of Winner Sea exchanged all their Winner Sea shares for 18,000,000 shares of the Company’s common stock, representing 98.3% of the outstanding stock of the Company.
The purchase method under reverse takeover accounting has been applied for the Share Exchange. These consolidated financial statements issued under the name of the legal parent, Xinyinhai, are a continuation of the financial statements of Winner Sea, which include Winner Sea’s majority owned subsidiary Harbin Golden Sea.
2. Description of business
The Company, through Harbin Golden Sea, is a leading participant in the PRC’s financial notes printing industry. It provides printing services whose quality equals the highest standards worldwide and imports state-of-the-art printing equipment from overseas that is installed on its advanced software systems, such as anti-falsification software.
The Company also earned approximately 5% of its revenue for the current reporting period from its position as a distributor of plasma arc cutting machinery and consumable parts. The plasma arc cutting systems are designed to provide metal workers with clean cuts for metal work that permits little tolerance for error, and are well-known worldwide.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies
Basis of presentation and consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
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 consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories and the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. As of December 31, 2010, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality. With respect to trade receivables, the Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. The Company maintains an allowance for doubtful accounts of trade receivables.
During the year ended December 31, 2010, the Company did not have any customers which represented 10% or more to the Company’s sales revenue.
During the year ended December 31, 2009, there were two customers, which contributed 10% or more to the Company’s consolidated revenues : Jilin finance Rural Credit Union and Heilongjiang Province Postal Savings Bank, which contributed respectively 11% and 10%.
During the reporting periods, customers representing 10% or more of the Company’s gross trade receivables are as follows:-
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies (Cont’d)
Cash and cash equivalents
Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months or less. As of December 31, 2010, the cash and cash equivalents were denominated in Renminbi (“RMB”) and are not freely convertible into foreign currencies.
Trade receivables
The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management’s assessment of the credit history with the customers and current relationships with them. Additional specific provision will be made against trade receivables to the extent that they are considered to be doubtful.
Bad debts are written off when identified. The Company does not accrue interest on trade receivables.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a weighted average basis and includes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition. In assessing the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.
Depreciation is provided to write off the cost of the assets to the estimated residual value on a straight-line basis over their estimated useful lives :-
Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies (Cont’d)
Land-use-right
Land-use-right is stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the terms of the lease of 39 years.
Noncontrolling interests
Noncontrolling interests result from the consolidation of 90% owned subsidiary, Harbin Golden Sea, where the Company has control over its operations.
Government grants
Government grants are received for compensation expenses already incurred or from the local government for the subsidy of informational communication paid to Harbin Golden Sea.
Government grants are received as compensation for expenses already incurred and for the subsidy of informational communication is recognized as income in the period the grant document was approved.
During the year ended December 31, 2010, the Company recorded government grants income of US$23,266 which was received from the relevant government authorities to reimburse the payment made to the defined contribution plan.
During the year ended December 31, 2009, the Company recorded government grants income of US$50,031. US$6,048 of the grant received from the relevant government authorities to reimburse the payment made to the defined contribution plan and US$43,983 received for the subsidy of informational communication.
Stock-based compensation
The Company adopted ASC 718 "Share-Based Payment" (previously SFAS No. 123R), using the modified prospective method. Under ASC 718, equity instruments issued to service providers for their services are measured at the grant-date fair value and recognized in the statement of income and comprehensive income over the vesting period.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies (Cont’d)
Revenue recognition
The Company derives revenues from the sales of printed products and trading of equipment. The Company recognizes its revenues net of related business taxes and value added taxes and when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
(a)
The Company recognizes revenue from the sale of printed forms upon delivery to the customers and the transfer of title and risk of loss. Because the majority of products are customized to meet customer specifications, product returns are not significant.
(b)
Trading of equipment, plasma arc cutting machines does not require significant modification or customization. Revenue from sale of the equipment and associated spare parts is recognized at the time of delivery of products to customers and when the title and ownership are passed to the customers.
Advertising, transportation and research and development expenses
Advertising, transportation, research and development, and other product-related costs are charged to expense as incurred.
Advertising expenses amounting to $415 and $10,397 for the years ended December 31, 2010 and 2009 respectively are included in selling and distribution costs.
Transportation expenses amounting to $106,245 and $124,871 for the years ended December 31, 2010 and 2009 respectively are included in selling and distribution costs.
No research and development expenses for the years ended December 31, 2010 and 2009 are included in general and administrative expenses.
Income taxes
The Company uses the asset and liability method of accounting for income taxes pursuant to ASC 740 “Income Taxes” (previously SFAS No. 109). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies (Cont’d)
Off-balance sheet arrangements
The Company does not have any off-balance sheet arrangements.
Comprehensive income
The Company has adopted ASC 220 “Comprehensive Income” (previously SFAS No. 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Components of comprehensive income include net income and foreign currency translation adjustments.
Foreign currency translation
The functional currency of the Company and Winner Sea is United States dollars (“US$”) while that of Harbin Golden Sea is RMB. The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, the financial statements of Harbin Golden Sea, which are prepared using the functional currency, have been translated into US$. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity. The exchange rates in effect at December 31, 2010 and 2009 were RMB1 for US$0.1517 and US$0.1467 respectively. There is no significant fluctuation in exchange rate for the conversion of RMB to US$ after the balance sheet date.
Fair value of financial instruments
The carrying values of the Company’s financial instruments, including cash and cash equivalents, trade and other receivables, customer deposits, collateralized bank loan, and trade and other payables approximate their fair values due to the short-term maturity of such instruments.
It is the management’s opinion that the Company is not exposed to significant foreign currency, interest, price or credit risks arising from these financial instruments.
Basic and diluted earnings per share
The Company reports basic earnings per share in accordance with ASC 260, “Earnings Per Share”, (previously SFAS No. 128). Basic earnings per share is computed using the weighted average number of shares outstanding during the periods presented. The weighted average number of shares of the Company represents the common stock outstanding during the reporting periods.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies (Cont’d)
Recently issued accounting standards
Accounting for Transfers of Financial Assets (Included in amended Topic ASC 860 “Transfers and Servicing”, previously SFAS No. 166, “Accounting for Transfers of Financial Assets - an Amendment of Financial Accounting Standard Board (“FASB”) Statement No. 140.”). The amended topic addresses information a reporting entity provides in its financial statements about the transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Also, the amended topic removes the concept of a qualifying special purpose entity, limits the circumstances in which a transferor derecognizes a portion or component of a financial asset, defines participating interest and enhances the information provided to financial statement users to provide greater transparency. The amended topic is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The adoption of this amended topic has no material impact on the Company’s financial statements.
Consolidation of Variable Interest Entities - Amended (Included in amended Topic ASC 810 “Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). The amended topic requires an enterprise to perform an analysis to determine the primary beneficiary of a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. The amended topic also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The amended topic is effective for the first annual reporting period beginning after November 15, 2009 and was effective for us as of January 1, 2010. The adoption of this amended topic has no material impact on the Company’s financial statements.
The FASB issued Accounting Standards Update (ASU) No. 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this ASU update on the Company’s financial statements.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies (Cont’d)
Recently issued accounting standards (Cont'd)
The FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Topic 820 to require the following additional disclosures regarding fair value measurements: (i) the amounts of transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) reasons for any transfers in or out of Level 3 of the fair value hierarchy and (iii) the inclusion of information about purchases, sales, issuances and settlements in the reconciliation of recurring Level 3 measurements. ASU 2010-06 also amends ASC Topic 820 to clarify existing disclosure requirements, requiring fair value disclosures by class of assets and liabilities rather than by major category and the disclosure of valuation techniques and inputs used to determine the fair value of Level 2 and Level 3 assets and liabilities. With the exception of disclosures relating to purchases, sales, issuances and settlements of recurring Level 3 measurements, ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009. The disclosure requirements related to purchases, sales, issuances and settlements of recurring Level 3 measurements will be effective for financial statements for annual reporting periods beginning after December 15, 2010. The management is in the process of evaluating the effect of disclosure requirements related to purchases, sales, issuances and settlements of recurring Level 3 measurements on its financial statements and result of operation and is currently not yet in a position to determine such effect.
The FASB issued ASU No. 2010-02, “Consolidation (Topic 810) Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification”. This amendment affects entities that have previously adopted Topic 810-10 (formally SFAS 160). It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The adoption of this ASU update has no material impact on the Company’s financial statements.
In February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements, which amends FASB ASC Topic 855, Subsequent Events. The update provides that SEC filers, as defined in ASU 2010-09, are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The update also requires SEC filers to evaluate subsequent events through the date the financial statements are issued rather than the date the financial statements are available to be issued. The Company adopted ASU 2010-09 upon issuance. This update had no material impact on the financial position, results of operations or cash flows of the Company.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
3. Summary of significant accounting policies (Cont’d)
Recently issued accounting standards (Cont'd)
In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. The objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. Under ASU 2010-20, an entity is required to provide disclosures so that financial statement users can evaluate the nature of the credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed to arrive at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. ASU 2010-20 is applicable to all entities, both public and non-public and is effective for interim and annual reporting periods ending on or after December 15, 2010. Comparative disclosure for earlier reporting periods that ended before initial adoption is encouraged but not required. However, comparative disclosures are required to be disclosed for those reporting periods ending after initial adoption. The management is in the process of evaluating the impact of adopting this ASU update on the Company’s financial statements.
4. Finance costs
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
5.
Income taxes
The Company is subject to the United States of America tax law at a tax rate of 34%. It had no taxable income for income tax purposes in the year ended December 31, 2010. The Company has not provided deferred taxes on undistributed earnings of its non-U.S. subsidiaries as of December 31, 2010, as it is the Company’s current policy to reinvest these earnings in non-U.S. operations.
Harbin Golden Sea is subject to PRC enterprise income tax that is computed according to the relevant laws and regulations in the PRC. It is registered as a new and high technology enterprise in the Harbin region of the PRC and is entitled to a 50% preferential reduction of the income tax rate. On May 1, 2006, Harbin Golden Sea became a wholly-owned foreign enterprise under a reorganization plan and the Taxation Bureau of Harbin City approved its income tax exemption. The new arrangement of exemption began in the first two years after Harbin Golden Sea became profitable, being 2006 and 2007, and a 50% income tax reduction for the following three years, being 2008 through 2010.
On March 16, 2007, the PRC’s legislative body, the National People’s Congress, adopted the unified enterprise income tax ("EIT") Law. This new tax law replaces the existing separate income tax laws for domestic enterprises and foreign-invested enterprises and became effective on January 1, 2008. Under the new tax law, a unified income tax rate is set at 25% for both domestic enterprises and foreign-invested enterprises. However, there will be a transition period for enterprises, whether foreign-invested or domestic, that are currently receiving preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and will transit into the new tax rate over a five year period beginning on the effective date of the EIT Law. Enterprises that are currently entitled to exemptions for a fixed term will continue to enjoy such treatment until the exemption term expires. Preferential tax treatment will continue to be granted to industries and projects that qualify for such preferential treatments under the new tax law. Accordingly, as approved by the Taxation Bureau of Harbin City, Harbin Golden Sea was still entitled to two years’ exemption from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by a 50% tax reduction for the immediate next three calendar years (“tax holiday”). The tax holiday of Harbin Golden Sea commenced in the fiscal financial year of 2006. Accordingly, Harbin Golden Sea was subject to preferential tax rate of 9% for 2008, 10% for 2009 and 11% for 2010 respectively.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
5.
Income taxes (Cont’d)
During the two years ended December 31, 2010 and 2009, the aggregate amounts of benefit from tax holiday were $202,943 and $231,234 and the respective effect on earnings per share effect was $0.009 and $0.01 respectively.
In July 2006, the FASB issued ASC 740 (previously Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s and its subsidiaries’ tax positions and considered that no additional provision for uncertainty in income taxes is necessary as of December 31, 2010.
Deferred tax asset as of the balance sheet dates is composed of the following:-
The Company has net operating loss carry forwards for income taxes amounting to approximately $427,706 and $353,415 as of December 31, 2010 and 2009 respectively. These losses are available to reduce future years’ taxable income and will expire, if not utilized, through 2028. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s limited operating history. Accordingly, a full deferred tax asset valuation allowance has been provided against the deferred tax asset.
6. Earnings per share - basic and diluted
The basic and diluted earnings per share is calculated using the net income attributable to Xinyinhai Technology, Ltd. common stockholders and the weighted average number of common stock outstanding during the years.
There were no dilutive instruments as of December 31, 2010 and 2009. Accordingly, the basic and diluted earnings per share are the same for both the reporting periods.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
7. Trade receivables
An analysis of the allowance for doubtful accounts for the years ended December 31, 2010 and 2009 are as follows :-
8. Inventories
The Company recorded no allowance of obsolete inventories during the years ended December 31, 2010 and 2009.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
9. Other receivables, deposits and prepayments and loans to third parties
(a)
Other receivables, deposits and prepayments
(b)
Loans to third parties
On July 1, 2009, Harbin KeHai Trade Co., Ltd. (“Harbin KeHai”) and Harbin Golden Sea had entered into a loan agreement. Pursuant to the loan agreement, the amount is unsecured, interest-free and repayable within 6 months after the drawdown date. During the months of September, October and December 2009, Harbin KeHai had drawn down a total amount of RMB2,455,540 (equivalent to $360,007) and repaid the amount of RMB794,000 (equivalent to $116,408), resulting to the outstanding loan balance of RMB1,661,540 (equivalent to $243,748) as of December 31, 2009.
During the months of January, February, March, May and June 2010, Harbin KeHai had drawn down a total amount of RMB3,056,726 (equivalent to $451,173) and repaid the amount of RMB4,718,266 (equivalent to $696,416) , resulting in no outstanding balance as of December 31, 2010.
On October 15, 2009, Heilongjiang Jindi Real Estate Development Co., Ltd. (“Heilongjiang Jindi”) and Harbin Golden Sea had entered into a loan agreement. Mr. Xia Songlin, the accountant of Harbin Golden Sea, is one of the shareholders of Heilongjiang Jindi. Pursuant to the loan agreement, the amount is unsecured, interest-free and repayable within 6 months after the drawdown date. During the months of October, November and December 2009, Heilongjiang Jindi had drawn down a total amount of RMB31,000,000 (equivalent to $4,547,700) as of December 31, 2009.
During the months of January, March, May, July, August and September 2010, Heilongjiang Jindi had drawn down a total amount of RMB29,530,000 (equivalent to $4,358,628) and repaid the amount of RMB18,530,000 (equivalent to $2,735,028) resulting to the outstanding loan balance of RMB42,000,000 (equivalent to $6,371,400) as of December 31, 2010. The whole amount was fully repaid during January and February 2011.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
9. Other receivables, deposits and prepayments and loans to third parties (Cont’d)
(b)
Loans to third parties (Cont’d)
On November 15, 2009, Heilongjiang BaoSen Century Pharmaceutical Co., Ltd (“Heilongjiang BaoSen”) and Harbin Golden Sea had entered into a loan agreement. Pursuant to the loan agreement, the amount is unsecured, interest-free and repayable within 6 months after the drawdown date. During the month of November 2009, Heilongjiang BaoSen had drawn down a total amount of RMB600,000 (equivalent to $88,020) as of December 31, 2009.
The whole amount of RMB600,000 (equivalent to $88,560) was repaid in May 2010, resulting in no outstanding balance as of December 31, 2010.
In the opinion of the management of the Company, the purpose of the short-term, interest-free loans to third parties is to develop strategic business relationships within the Chinese business community. As of December 31, 2010, a total of loan amounts of $6,371,400 was made to Harbin KeHai, Heilongjiang Jindi in anticipation of future benefits to trading, real estate and pharmaceutical industries respectively.
10. Property, plant and equipment, net and land-use-right
(a)
Property, plant and equipment, net
Depreciation expenses for the year ended December 31, 2010 and 2009 were $462,763 and $444,100 respectively and are included in:-
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
10. Property, plant and equipment, net and land-use-right (Cont’d)
(a) Property, plant and equipment, net (Cont’d)
During the year ended December 31, 2010, property, plant and equipment with carrying amounts of RMB32,967 (equivalent to $4,866) were disposed of at a consideration of $760 resulting in a loss of $4,106. No property, plant and equipment was disposed during the year ended December 31, 2009.
As of December 31,2010 and 2009, property, plant and equipment with net book values of $4,639,379 and $3,121,701 were pledged to a bank loan granted to Harbin Golden Sea (Note 11).
(b) Land-use-right
The land-use-right relates to the plot of land on which the office located at No. 4 Yantai Road, Centralized Park, Haping Road, Harbin Development Zone, Harbin, China. Harbin Golden Sea obtained the right from the relevant PRC land authority for a period of 39 years to use the land on which the office premises, production facilities and warehouse of Harbin Golden Sea is situated.
As of December 31, 2010 and 2009, the land-use-right of carrying amount of $Nil and $1,042,064 was pledged to a bank loan granted to Harbin Golden Sea (Note 11).
Amortization for the years ended December 31, 2010 and 2009 was $27,652 and $27,466 respectively.
The estimated aggregate amortization expenses for land-use-right for the five succeeding years is as follows :-
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
11. Collateralized bank loan
The above bank loan is denominated in RMB and carry an average interest rate at 5.841% per annum. The bank loan was secured by the following assets of the Company :-
12. Other payables and accrued liabilities
13. Commitments and contingencies
As of December 31, 2010, the Company had capital commitments in respect of the acquisition of plant and machinery amounting to $1,334,715, which was contracted for but not provided in these financial statements.
As of December 31, 2010, operating lease payments of $49,303 represent rentals receivable within 2011 by the Company for its building under non-cancelable operating lease.
The Company had no commitments or contingencies liabilities as of December 31, 2009.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
14. Stockholders’ equity
(a)
Common stock
(b)
In 2008, the Company entered into a consultancy agreement with a consultant whereby the Company agreed to issue to the consultant 300,000 shares of common stock and five-year warrants to purchase 200,000 shares of the Company's common stock in exchange for services on introducing potential source of capital by the consultant.
The common stock and warrants were issued to the consultant on July 22, 2008. The Company cancelled the issued warrants to the consultant on July 27, 2009.
The value of common stocks issued to the consultant was measured with reference to the trading prices of the Company’s common stocks as quoted on the OTCBB on the date of grant. The weighted-average grant-date fair value per share is $0.4.
The Company used the Black-Scholes option pricing method (Assumptions : volatility 149.52%, risk free rate 2.5%, five years expected life and zero dividend yield) to calculate the value of the warrant issued to the consultant. Using these assumptions a value of approximately $70,000 was assigned to the warrant and was fully charged to the statement of operations in 2008.
15. Statutory reserves
(a)
In accordance with the relevant laws and regulations of the PRC, the subsidiary is required to appropriate 10% of its net income reported under the PRC statutory accounts, after offsetting any prior years’ losses, to the statutory reserve. When the balance of such reserve reaches 50% of the subsidiary’s registered capital, any further appropriation is optional.
(b)
During the years ended December 31, 2010 and 2009, the Company appropriated in aggregate $128,910 and $161,048 respectively to the statutory reserve based on its net income reported under the PRC statutory accounts.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
16. Defined contribution plan
The Company has a defined contribution plan for all its qualified employees in the PRC. The Company and its employees are each required to make contributions to the plan at the rates specified in the plan. The only obligation of the Company with respect to retirement scheme is to make the required contributions under the plan. No forfeited contribution is available to reduce the contribution payable in future years. The defined contribution plan contributions were charged to the statement of operations. The Company contributed $58,347 and $63,101 for the years ended December 31, 2010 and 2009 respectively.
17. Equity incentive plan
The Company’s equity incentive plan became effective on October 6, 2006. The equity incentive plan aims to promote the success and enhance the value of the Company by linking the personal interests of participants to those of the Company's stockholders, and by providing participants with an incentive for outstanding performance.
The plan is administered by one or more committees of the Board. The Board, at any time and from time to time, may grant shares of stock or options to eligible persons in such amounts and upon such terms and conditions as the Board shall determine. No award may be made under the plan after December 31, 2014.
The maximum number of shares available for grant under the plan is 6,000,000 shares of the Company’s common stock, which may be either authorized but unissued or reacquired shares.
During the year ended December 31, 2006, the Company issued 6,000,000 shares of common stock to several consultants for the provision of consultancy services to the Company. The compensation cost was measured with reference to the trading prices of the Company’s common stocks as quoted on the OTCBB on the date of grant.
The compensation cost has been capitalized as an asset which is classified as prepaid expenses in the consolidated balance sheet and the amortization over the service period. The weighted-average grant-date fair value per share is $0.37. The prepaid expenses are expected to be recognized over a weighted- average period of 1 year.
The Company received a total of 5,233,870 shares of the Company’s common stock which were cancelled by certain consultants during the year ended December 31, 2008.
Other than the above transactions and the plan as disclosed in Note 14(b), no other options or awards have been made, exercised or lapsed during the years ended December 31, 2010 and 2009 under the equity incentive plan.
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
18. Segment information
The Company currently operates in two reportable segments, Sales of printed products and trading of equipment. The accounting policies of the segments are the same as described in the summary of significant accounting policies. The Company evaluates segment performance based on income from operations. As a result, the components of operating income for one segment may not be comparable to another segment. The following is a summary of the Company’s segment information for the years ended December 31, 2010 and 2009:-
XINYINHAI TECHNOLOGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
18. Segment information (Cont’d)
A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information.
Assets
All of the Company’s long-lived assets and customers are located in the PRC. Accordingly, no geographic information is presented.
19. Related party transactions
The Company had no material transactions with its related parties during the years reported in these financial statements.
20. Subsequent events
The Company has evaluated all subsequent events from the balance sheet date through the date the financial statements were issued and determined that there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements except for disclosures in note 9(b).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures.
The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that, as of the Evaluation Date, such controls and procedures were effective.
(b) Changes in internal controls.
The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
(c) Management’s Report on Internal Control over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of December 31, 2010, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control - Integrated Framework as a basis for our assessment.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified no material weaknesses in our internal control over financial reporting. Accordingly, management’s assessment is that the Company’s internal controls over financial reporting were effective as of December 31, 2010.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following individuals are the members of Xinyinhai Technology’s Board of Directors and its executive officers.
Name
Age
Position
Tian Ling
Chairman, Chief Executive Officer
Xie Guihong
Vice President, Director
Du Song
Chief Financial Officer, Director
Tian Ling founded the predecessor to Harbin Golden Sea in 1998, and has served as Chairman and Chief Executive Officer of that company since its founding. Mrs. Tian earned an MBA from Honolulu University with a concentration in Finance and Economics.
Xie Guihong has been employed as the Vice President of Harbin Golden Sea and its predecessors since 1998. From 1995 to 1998 Ms. Xie was employed as Director of Accountants by the Harbin Children’s Pharmaceutical Factory. Ms. Xie holds a B.S. degree in Accounting from the Harbin Workers College.
Du Song has been employed as Financial Controller of Harbin Golden Sea and its predecessors since 1998, with responsibility for implementing the financial management systems, budget management systems and internal accounting control systems. Ms. Du is accredited as a certified public accountant in China. She holds a B.S. degree in Accounting from China Nong Keng (Heilongjiang August First Land Reclamation) University.
Nominating, Compensation and Audit Committees
The Board of Directors does not have an audit committee, a compensation committee or a nominating committee, due to the small size of the Board. Decisions regarding nominations to the Board will be made by all currently-serving members of the Board. The Board will also not have an “audit committee financial expert” within the definition given by the Regulations of the Securities and Exchange Commission.
Code of Ethics
Harbin Golden Sea adopted a Code of Ethics that applies to its executive officers. Xinyinhai Technology will apply the same Code of Ethics while the officers of Xinyinhai Technology are also officers of Harbin Golden Sea. A copy of the Code of Ethics has been filed as an exhibit to the Company’s Current Report on Form 8-K filed on July 5, 2006.
Section 16(a) Beneficial Ownership Reporting Compliance
None of the officers, directors or beneficial owners of more than 10% of the Company’s common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2010.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or paid by Xinyinhai Technology, Ltd. and its subsidiaries to Tian Ling, its Chief Executive Officer. There were no other executive officers whose total salary and bonus for the fiscal year ended December 31, 2010 exceeded $100,000.
Equity Awards
The following tables set forth certain information regarding the stock options acquired by the executive officer named in the table above during the year ended December 31, 2010 and those options held by her on December 31, 2010.
Option Grants in the Last Fiscal Year
The following tables set forth certain information regarding the stock grants received by the executive officer named in the table above during the year ended December 31, 2010 and held by her unvested at December 31, 2010.
Unvested Stock Awards in the Last Fiscal Year
Employment Agreements
Each of our executive officers is employed on an at-will basis.
Remuneration of Directors
None of the members of the Board of Directors receives remuneration for service on the Board.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of the date of this prospectus by the following:
·
each shareholder known by us to own beneficially more than 5% of our common stock;
·
Tian Ling, our Chief Executive Officer
·
each of our directors; and
·
all directors and executive officers as a group.
Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Certain Relationships
None.
Director Independence
None of the members of the Board of Directors is independent, as “independent” is defined in the rules of the NASDAQ Stock Market.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
PKF Certified Public Accountants, Hong Kong, China, a member firm of the PKF International Limited network of legally independent firms (“PKF Hong Kong”), our independent registered public accounting firm, billed $45,000 to the Company for professional services rendered for the audit of our fiscal 2010 financial statements. PKF Hong Kong billed $45,000 to the Company for professional services rendered for the audit of our fiscal 2009 financial statements.
Audit-Related Fees
PKF Hong Kong billed $13,500 to the Company during fiscal 2010 for assurance and related services that are reasonably related to the performance of the 2010 review of the quarterly financial statements. PKF Hong Kong billed $12,000 to the Company during fiscal 2009 for assurance and related services that are reasonably related to the performance of the 2009 audit or review of the quarterly financial statements.
Tax Fees
PKF Hong Kong did not perform professional services rendered for tax compliance, tax advice and tax planning during fiscal 2010 or fiscal 2009.
All Other Fees
PKF Hong Kong did not perform any services for the Company in fiscal 2010 or fiscal 2009 that are not described above.
It is the policy of the Company’s Board of Directors that all services, other than audit, review or attest services, must be pre-approved by the Board of Directors, acting in lieu of an audit committee. All of the services described above were approved by the Board of Directors.
Subcontracted Services
The hours expended on PKF Hong Kong’s engagement to audit the Company’s financial statements for 2010 that were attributed to work performed by persons other than full-time permanent employees of PKF Hong Kong was not greater than 50% of the total hours expended.
ITEM 15.
ITEM 15. EXHIBITS
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
XINYINHAI TECHNOLOGY, LTD.
By: /s/ Tian Ling
Tian Ling, Chief Executive Officer
In accordance with the Exchange Act, this Report has been signed below on April 13, 2011 by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Tian Ling
Tian Ling, Director
Chief Executive Officer
/s/ Du Song
Du Song, Director
Chief Financial Officer
/s/ Xie Guihong
Xie Guihong, Director