U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the six month period ended March 31, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NUMBER: 000-33195
XINHUA CHINA LTD.
_________________
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 88-0437644
______ __________
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
B-26F, ORIENTAL KENZO DONGCHENG DISTRICT
BEIJING 100027
PEOPLE'S REPUBLIC OF CHINA
__________________________
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
86-10-64168816 OR 86-10-64168916
________________________________
(ISSUER'S TELEPHONE NUMBER)
SUITE 304, BUILDING #1, YUANJIA INTERNATIONAL APARTMENT
NO. 40 DONGZHONG ST., DONGCHENG DISTRICT
BEIJING 100027
PEOPLE'S REPUBLIC OF CHINA
__________________________
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
SECURITIES REGISTERED PURSUANT TO SECTION NAME OF EACH EXCHANGE ON WHICH
12(B) OF THE ACT: REGISTERED:
NONE
____
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.00001 PAR VALUE
________________________________
(TITLE OF CLASS)
Indicate by checkmark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X ] No[ ]
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] Yes [X] No
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS.
N/A
Indicate by checkmark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed by a court.
Yes[ ] No[ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding
of each of the issuer's classes of common
stock, as of the most practicable date: Outstanding as of May 15, 2009
Class
Common Stock $0.000001 par value 393,898,813
XINHUA CHINA LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Discloses About Market Risk
Item 4. Controls and Procedures
Item 4T. Controls and Procedures
.. PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
AVAILABLE INFORMATION
Xinhua China Ltd. files annual, quarterly, current reports, proxy statements,
and other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy documents referred to in this Quarterly
Report on Form 10-Q that have been filed with the Commission at the Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XINHUA CHINA LTD.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009 AND JUNE 30, 2008
(STATED IN US DOLLARS)
XINHUA CHINA LTD.
CONTENTS PAGES
Report of Registered Independent Public Accounting Firm F-1
Consolidated Balance Sheet F-2 - F-3
Consolidated Statement of Income F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to the Financial Statements F-7 - F-20
Board of Directors and Stockholders
Xinhua China Ltd.
REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
We have reviewed the accompanying interim consolidated Balance Sheets of Xinhua
China Ltd. ("the Company") as of March 31, 2009 and June 30, 2008, and the
related statements of income, stockholders' equity, and cash flows for the
three-months and nine-months ended March 31, 2009 and 2008. These interim
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim consolidated financial statements for them
to be in conformity with U.S. generally accepted accounting principles.
South San Francisco, California Samuel H. Wong & Co., LLP
April 24, 2009 Certified Public Accountants
F-1
XINHUA CHINA LTD.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2009 AND JUNE 30, 2008
(STATED IN US DOLLARS)
NOTES MARCH 31, 2009 JUNE 30, 2008
________________________ __________________
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents 3D 25,466 38,733
Accounts Receivable, NET 3E 74,016 411,782
Note Receivable - 1,625,000
Other Receivables and Prepayments 4 224,404 223,231
________________________ __________________
Total Current Assets 323,886 2,298,746
LONG-TERM ASSETS
Property, Plant & Equipment, NET 3F,5 57,630 73,786
________________________ __________________
Total Long-term Assets 57,630 73,786
________________________ __________________
Total Assets $ 381,516 $ 2,372,532
======================== ==================
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities 6 658,731 1,095,538
Deferred Revenue - 18,355
Current portion of Loans Payable 7 1,530,843 1,635,443
________________________ __________________
Total Current Liabilities 2,189,575 2,749,336
LONG-TERM LIABILITIES
Loans Payable 7 1,058,261 1,058,261
Loans from Shareholders 8 5,824,727 5,410,256
________________________ __________________
Total Long-term Liabilities 6,882,988 6,468,517
________________________ __________________
Total Liabilities 9,072,563 9,217,853
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT
F-2
NOTE MARCH 31, 2009 JUNE 30, 2008
________________________ __________________
STOCKHOLDERS' EQUITY
Common Stock $0.00001 Par Value 500,000,000
Shares Authorized; 282,707,780 and 98,655,733
shares issued and outstanding at March 31,
2009 and June 30, 2008, accordingly. 9 2,827 987
Additional Paid-In Capital 11,260,680 10,903,997
Accumulated Other Comprehensive
Income 38,772 38,149
Accumulated Deficit (19,993,326) (17,788,454)
________________________ __________________
Total Stockholders' (Deficit)/Equity (8,691,048) (6,845,321)
________________________ __________________
Total Liabilities & Stockholders' Equity $ 381,516 $ 2,372,532
========================= ===================
See Accompanying Notes to the Financial Statements and Accountant's Report
F-3
XINHUA CHINA LTD.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2009 AND 2008
(STATED IN US DOLLARS)
NOTE FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
REVENUE MARCH 31, 2009 MARCH 31, 2008 MARCH 31, 2009 MARCH 31, 2008
_________________ _________________ _________________ ________________
Revenue, NET 3H $ - $ - $ - $ -
Cost of Sales, NET 3I - - - -
Gross Profit - - - -
OPERATING EXPENSES
Selling, General, and Administrative
Expenses 145,682 16,704 483,491 187,458
_________________ _________________ _________________ ________________
Total Operating Expense 145,682 16,704 483,491 187,458
_________________ _________________ _________________ ________________
Operating Income/(Loss) (145,682) (16,704) (483,491) (187,458)
_________________ _________________ _________________ ________________
OTHER INCOME (EXPENSES)
Other Income - - - -
Interest Income 7 13,781 50 27,581
Gain on debt restructuring - 12,644 73,427 12.644
Gain from writing off accounts
payable - - 179,621 -
Impairment loss on Boheng investment 13 - (1,625,000) -
Other Expense - - - -
Interest Expense (98,971) (180,106) (349,380) (408,856)
_________________ _________________ _________________ ________________
Loss before minority interest and income tax (244,646) (170,385) (2,204,872) (557,089)
Minority interest in net loss of
consolidated subsidiaries - - - -
_________________ _________________ _________________ ________________
Loss before Income Tax (244,646) (170,385) (2,204,872) (557,089)
Income Tax 3M - - - -
_________________ _________________ _________________ ________________
Net Loss $ (244,646) $ (170,385) $ (2,204,872) $ (557,089)
================ ================= ================= ================
_________________ _________________ _________________ ________________
Basic & Diluted Earnings Per Share 3N,14 $ (.0012) $ (.0027) $ (.0110) $ (.0088)
================ ================= ================= ================
Weighted Average Shares Outstanding 199,873,539 63,463,287 199,873,539 63,463,287
_________________ _________________ _________________ ________________
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT
F-4
XINHUA CHINA LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
ADDITIONAL OTHER
NUMBER OF COMMON PAID IN COMPREHENSIVE ACCUMULATED
SHARES STOCK CAPITAL INCOME(LOSS) DEFICIT TOTAL
_______________ ___________ ______________ __________________ _______________ ______________
Balance, July 1, 2007 54,638,890 546 10,423,526 8,749 (17,097,530) (6,664,709)
Additional Paid-in Capital - - 151,760 - - 151,760
Imputed interest on interest
free advances from related party - - 328,711 - - 328,711
Issuance of shares to Highgate 44,016,843 441 - - - 441
Foreign Currency translation - - - 29,400 - 29,400
Net Loss for year - - - - (690,924) (690,924)
_______________ ___________ ______________ __________________ _______________ ______________
Balance, June 30, 2008 98,655,733 987 10,903,997 38,149 (17,788,454) (6,845,321)
=============== =========== ============== ================== =============== ==============
Balance, July 1, 2008 98,655,733 987 10,903,997 38,149 (17,788,454) (6,845,321)
Additional Paid-in Capital - - 102,760 - - 102,760
Imputed interest on interest
free advances from related party - - 253,923 - - 253,923
Issuance of shares to Highgate 184,052,047 1,840 - - - 1,840
Foreign Currency translation - - - 623 - 623
Net Loss for quarter - - - - (2,204,872) (2,204,872)
_______________ ___________ ______________ __________________ _______________ ______________
Balance, March 31, 2009 282,707,780 2,827 11,260,680 38,772 (19,993,326) (8,691,048)
=============== =========== ============== ================== =============== ==============
ACCUMULATED COMPREHENSIVE INCOME/(LOSS)
MARCH 31, 2009 JUNE 30, 2008
_______________________ __________________
COMPREHENSIVE INCOME(LOSS)
Net Loss $ (2,204,872) $ (690,924)
OTHER COMPREHENSIVE INCOME
Foreign Currency Translation Adjustment 623 29,400
_______________________ __________________
Total Comprehensive Income $ (2,204,249) $ (661,524)
======================= ==================
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT
F-5
XINHUA CHINA LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2009 AND 2008
(STATED IN US DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, 2009 MARCH 31, 2008 MARCH 31, 2009 MARCH 31, 2008
__________________ _________________ _________________ _________________
CASH FLOW FROM OPERATING ACTIVITIES:
Net (Loss) $ (244,646) $ (246,639) $(2,204,873) $ (557,089)
Adjustments to reconcile net earnings(loss) to
net cash used in operating activities:
Depreciation 5,527 3,186 16,156 5,740
Imputed interest expense 98,971 244,111 310833 443,770
Amortization of deferred imputed interest
from note receivable - - - 13,768
CHANGES IN ASSETS AND LIABILITIES:
Decrease/(Increase) Accounts receivable (4,351) (12,607) 337,765 (80,341)
Decrease/(Increase) Other receivables and
prepayments - (8,718) (812) (17,264)
Decrease/(Increase) Accounts Payable and
accrued liabilities 26,041 115,964 (463,812) 267,467
Decrease/(Increase) in Deferred Revenue - (13,768) (18,355) (41,303)
__________________ _________________ _________________ _________________
Cash Sourced/(Used) in Operating Activities (118,456) 81,529 (2,009,328) 34,748
123984
__________________ _________________ _________________ _________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds of note receivable - Boheng - - - -
Purchase of plant and equipment - (16,160) 1,625,000 (73,191)
Loss on impairment of asset - - - -
__________________ _________________ _________________ _________________
Cash Used/(Sourced) in Investing Activities - (16,160) 1,625,000 (73,191)
__________________ _________________ _________________ _________________
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock Issue to Highgate on debt conversion 1,337 - 1,839 -
Repayment of Loan to Highgate (43,100) (89,565) (87,274) (89,565)
Loans from shareholders 142,068 14,143 414,472 100,931
Additional Paid-in Capital 41,763 - 41,763 -
__________________ _________________ _________________ _________________
Cash Sourced/(Used) in Financing Activities 142,068 (75,422) 370,800 11,366
__________________ _________________ _________________ _________________
NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS
FOR THE YEAR 23,652 (10,053) (13,266) (27,077)
EFFECT OF CURRENCY TRANSLATION 41 4,770 252 39,070
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,814 20,009 38,733 2,733
__________________ _________________ _________________ _________________
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 25,466 $ 14,726 $ 25,466 $ 14,726
================== ================= ================= =================
Cash paid for interest expenses $ - $ - $ - $ -
================== ================= ================= =================
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT
F-6
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
1. ORGANIZATION AND BUSINESS BACKGROUND
Xinhua China Ltd. (the "Company", formerly Camden Mines Limited) was
incorporated in the State of Nevada, United States of America, on
September 14, 1999. Until September 2004, the Company was a
non-operating shell company and considered as a development stage
enterprise since its inception. Effective from October 12, 2004, the
Company changed to its current name. The Company established an office
in Vancouver, Canada; however, this office was closed down in December
2006. The Company established its principal executive office at B-26F,
Oriental Kenzo, Dongcheng District, Beijing, 100027, People's Republic
of China.
Details of the Company's subsidiaries as of March 31, 2009 are
described below:
PLACE OF
INCORPORATION PARTICULARS OF EFFECTIVE
AND KIND OF PRINCIPAL ACTIVITIES ISSUED/REGISTERED INTEREST
NAME LEGAL ENTITY AND PLACE OF OPERATION SHARE CAPITAL HELD
____ ____________ ______________________ _________________ _________
Sales and
Beijing Joannes Information PRC, a company with distribution of Registered capital
Technology Co., Ltd. limited liability books, PRC US$1,250,000 100%
British Virgin Islands, a 10,000,000 ordinary
Pac-Poly Investment Ltd. company with limited Investment holding, shares of US$1 par
liability PRC value 100%
2. GOING CONCERN UNCERTAINTIES
These consolidated financial statements have been prepared assuming
that Company will continue as a going concern, which contemplates the
realization of assets and the discharge of liabilities in the normal
course of business for the foreseeable future.
As of March 31, 2009, the Company had no working capital but current
liabilities exceeding current assets by $1,865,689 and an accumulated
deficit of $19,993,326 because the Company continued to incur losses
over the past several years. Management has taken certain action and
continues to implement changes designed to improve the Company's
financial results and operating cash flows. The actions involve certain
cost-saving initiatives and growing strategies, including (a)
reductions in headcount and corporate overhead expenses; and (b)
development of e-commerce business. Management believes that these
actions will enable the Company to improve future profitability and
cash flow in its continuing operations through June 30, 2009. As a
result, the financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of the Company's ability
to continue as a going concern.
F-7
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A.) BASIS OF PRESENTATION
These accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the
United States of America ("US GAAP").
(B.) USE OF ESTIMATES
In preparing these consolidated financial statements, management makes
estimates and assumptions that affect the reported amounts of assets
and liabilities in the balance sheets and revenues and expenses during
the period reported. Actual results may differ from these Estimates.
(C.) BASIS OF CONSOLIDATION
The interest of the Company in the subsidiaries was acquired by means
of exchange of shares in the Company pursuant to a share exchange
agreement on September 14, 2004. The transaction is considered a
transfer between entities under common control, within the meaning of
US GAAP. Accordingly, the assets and liabilities transferred have been
accounted for at historical cost or at their "fair value" at the date
of their original acquisition and have been included in the foregoing
financial statements as of the beginning of the periods presented. The
consolidated financial statements include the financial statements of
the Company and its subsidiaries. Subsidiaries are those entities in
which the Company, directly or indirectly, controls more than one half
of the voting power; has the power to govern the financial and
operating policies; to appoint or remove the majority of the members of
the board of directors; or to cast majority of votes at the meeting of
directors. All significant inter-company balances and transactions
within the Company have been eliminated on consolidation.
(D.) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried at cost and represent cash on
hand, demand deposits placed with banks or other financial institutions
and all highly liquid investments with an original maturity of three
months or less as of the purchase date of such investments.
(E.) ACCOUNTS RECEIVABLE, NET
Accounts receivable are recorded at the invoiced amount and do not bear
interest. 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 determined based on
managements' assessment of known requirements, aging of receivables,
payment history, the customer's current credit worthiness, and the
economic environment.
F-8
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
(F.) PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses, if any. Depreciation is
calculated on the straight-line basis over the following expected
useful lives from the date on which they become fully operational.
ASSET CLASSIFICATION DEPRECIABLE LIFE
Motor Vehicles 8 - 10 years
Equipment and Machinery 5 - 8 years
Leasehold Improvement 2 years
Expenditure for maintenance and repairs is expensed as incurred. The
gain or loss on the disposal of property, plant, and equipment is the
difference between the net sales proceeds and the carrying amount of
the relevant assets and is recognized in the consolidated statement of
operations.
(G.) IMPAIRMENT OF LONG-LIFE ASSETS
In accordance with SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF', a
long-lived assets and certain identifiable intangible assets held and
used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. For the purposes of evaluating the
recoverability of long-lived assets, the recoverability test is
performed using undiscounted net cash flows related to the long-lived
assets. The Company reviews long-lived assets, if any, to determine
whether the carrying values are not impaired.
(H.) REVENUE RECOGNITION
Sales revenue is recognized when persuasive evidence of an arrangement
exists, the price is fixed and final, delivery has occurred and there
is reasonable assurance of collection of the sales proceeds. The
Company generally obtains purchase authorizations from its customers
for a specified amount of products at a specified price and considers
delivery to have occurred when the customer takes possession of the
products. Net sales incorporate offsets for discounts and sales
returns. Revenue is recognized upon delivery, risk and ownership of the
title is transferred and a reserve for sales returns is recorded even
though invoicing may not be completed. The Company has demonstrated the
ability to make reasonable and reliable estimates of products returns
in accordance with SFAS No. 48, "REVENUE RECOGNITION WHEN RIGHT OF
RETURN EXISTS".
F-9
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
Shipping and handling fees billed to customers are included in sales.
Costs related to shipping and handling are part of selling, general,
and administrative expenses in the consolidated statements of
operations. EITF No. 00-10, "ACCOUNTING FOR SHIPPING AND HANDLING FEES
AND COSTS" allows for the presentation of shipping and handling
expenses in line items other than cost of sales. For the period ended
March 31, 2009, there were no shipping and handling costs included in
selling, general and administrative expenses in the accompanying
consolidated statements of operations.
(I.) COST OF SALES
Cost of sales includes depreciation of property, plant, and equipment
and purchase costs to publishers.
(J.) VALUE-ADDED TAX
The Company is subject to value added tax ("VAT") imposed by the PRC on
sales. The output VAT is charged to customers who purchase books from
the Company and the input VAT is paid when the Company purchases books
from publishers. The VAT rate is 13%. The input VAT can be offset
against the output VAT.
(K.) ADVERTISING EXPENSES
The Company expenses advertising costs as incurred in accordance with
the American Institute of Certified Public Accountants ("AICPA")
Statement of Position 93-7, "REPORTING FOR ADVERTISING COSTS". For the
period ended March 31, 2009, advertising expenses amount to zero.
(L.) COMPREHENSIVE INCOME
SFAS No. 130, "REPORTING COMPREHENSIVE INCOME", establishes standards
for reporting and display of comprehensive income, its components, and
accumulated balances. Comprehensive income as defined includes all
changes in equity during a period from non-owner sources. Accumulated
comprehensive income, as presented in the accompanying statement of
changes in owners' equity consists of changes in unrealized gains and
losses on foreign currency translation. This comprehensive income is
not included in the computation of income tax expense or benefit.
(M.) INCOME TAXES
The Company uses the accrual method of accounting to determine and
report its taxable reduction of income taxes for the year in which they
are available. The Company has implemented Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Income tax liabilities computed according to the United States and
People's Republic of China (PRC) tax laws are provided for the tax
effects of transactions reported in the financial statements and
consists of taxes currently due plus deferred taxes related primarily
to differences between the basis of fixed assets and intangible assets
for financial and tax reporting. The deferred tax assets and
F-10
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
liabilities represent the future tax return consequences of those
differences, which will be either taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes also are
recognized for operating losses that are available to offset future
income taxes. A valuation allowance is created to evaluate deferred tax
assets if it is more likely than not that these items will either
expire before the Company is able to realize that tax benefit, or that
future realization is uncertain.
In respect of the Company's subsidiaries domiciled and operated in
China:
o Beijing Joannes Information Technology Co., Ltd. is located in the
PRC and Pac-Poly Investment Ltd. is located in the British Virgin
Islands; all of these entities are subject to the relevant tax laws
and regulations of the PRC and British Virgin Islands in which the
related entity domiciled. The maximum tax rates of the subsidiaries
pursuant to the countries in which they domicile are: -
SUBSIDIARY COUNTRY OF DOMICILE INCOME TAX
RATE
______________________________ ______________________ __________
Beijing Joannes Information PRC 25.00%
Technology Co., Ltd. Pac-Poly British Virgin Islands 0.00%
Investment Ltd.
o Effective January 1, 2008, PRC government implemented a new 25% tax
rate across the board for all enterprises regardless of whether
domestic or foreign enterprise without any tax holiday which is
defined as "two-year exemption followed by three-year half
exemption" hitherto enjoyed by tax payers. As a result of the new
tax law of a standard 25% tax rate, tax holidays terminated as of
December 31, 2007. However, PRC government has established a set of
transition rules to allow enterprises already started tax holidays
before January 1, 2008, to continue enjoying the tax holidays until
being fully utilized.
o The Company is subject to United States Tax according to Internal
Revenue Code Sections 951 and 957. Corporate income tax is imposed
on progressive rates in the range of: -
TAXABLE INCOME
RATE OVER BUT NOT OVER OF AMOUNT OVER
____ ____ ____________ ______________
15% 0 50,000 0
25% 50,000 75,000 50,000
34% 75,000 100,000 75,000
39% 100,000 335,000 100,000
34% 335,000 10,000,000 335,000
35% 10,000,000 15,000,000 10,000,000
38% 15,000,000 18,333,333 15,000,000
35% 18,333,333 - -
F-11
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
Based on the consolidated net income for the period ended March 31,
2009, the Company shall not be subject to income tax.
(N.) LOSS PER SHARE
The Company calculates loss per share in accordance with SFAS No. 128,
"EARNINGS PER SHARE". Basic loss per share is computed by dividing the
net loss by the weighted-average number of common shares outstanding.
Diluted loss per share is computed similar to basic loss per share,
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common stock equivalents had been issued and if the
additional common shares were dilutive. The effect of outstanding stock
options, stock purchase warrants and convertible debenture, which could
result in the issuance of 282,707,780 and 98,655,733 of common stock at
March 31, 2009 and June 30, 2008, respectively, are anti-dilutive. As a
result, diluted loss per share data does not include the assumed
exercise of outstanding stock options, stock purchase warrants, or
conversion of convertible debenture and has been presented jointly with
basic loss per share.
(O.) FOREIGN CURRENCIES TRANSLATION
The functional and reporting currency of the Company is the United
States dollars ("U.S. dollars"). The accompanying consolidated
financial statements have been expressed in U.S. dollars. The
functional currency of the Company's foreign subsidiaries is the
Renminbi Yuan ("RMB"). The balance sheet is translated into United
States dollars based on the rates of exchange ruling at the balance
sheet date. The statement of operations is translated using a weighted
average rate for the year. Translation adjustments are reflected as
cumulative translation adjustments in stockholders' equity.
EXCHANGE RATES MARCH 31, 2009 JUNE 30, 2008 MARCH 31, 2008
______________ ______________ _____ ________ ______________
Period/year end RMB : US$ exchange rate 6.8359 6.8718 7.0222
Average period/year RMB : US$ exchange rate 6.8357 7.0726 7.3968
(P.) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, which
include cash and cash equivalents, accounts receivables, other payable
and accrued liabilities, approximate their fair values due to the
short-term maturity of these instruments.
(Q.) RELATED PARTIES
For the purposes of these financial statements, parties are considered
to be related if one party has the ability, directly or indirectly, to
control the party or exercise significant influence over the party in
F-12
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
making financial and operating decisions, or vice versa, or where the
Company and the party are subject to common control or common
significant influence. Related parties may be individuals or other
entities.
(R.) CONVERTIBLE DEBENTURE ISSUED WITH STOCK PURCHASE WARRANTS
The Company accounts for the issuance of and modifications to the
convertible debt issued with stock purchase warrants in accordance with
APB No. 14, ACCOUNTING FOR CONVERTIBLE DEBT AND DEBT ISSUED WITH STOCK
PURCHASE WARRANTS , EITF No. 98-5, ACCOUNTING FOR CONVERTIBLE
SECURITIES WITH BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY
ADJUSTABLE CONVERSION RATIOS, and EITF No. 00-27, APPLICATION OF ISSUE
NO. 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS and SFAS No. 15, ACCOUNTING
BY DEBTORS AND CREDITORS FOR TROUBLED DEBT RESTRUCTURINGS.
Due to the indeterminate number of shares, which might be issued under
the embedded convertible host debt conversion feature of these
debentures, the Company is required to record a liability relating to
both the detachable warrants and embedded convertible feature of the
notes payable (included in the liabilities as a "derivative
liability").
The accompanying consolidated financial statements comply with current
requirements relating to warrants and embedded derivatives as described
in SFAS 133 as follows:
|X| The Company treats the full fair market value of the derivative and
warrant liability on the convertible secured debentures as a discount
on the debentures (limited to their face value). The excess, if any, is
recorded as an increase in the derivative liability and warrant
liability with a corresponding increase in loss on adjustment of the
derivative and warrant liability to fair value.
|X| Subsequent to the initial recording, the change in the fair value
of the detachable warrants, determined under the Black-Scholes option
pricing formula and the change in the fair value of the embedded
derivative (utilizing the Black-Scholes option pricing formula) in the
conversion feature of the convertible debentures are recorded as
adjustments to the liabilities as of September 30, 2006.
|X| The expense relating to the change in the fair value of the
Company's stock reflected in the change in the fair value of the
warrants and derivatives is included in interest expense in the
accompanying consolidated statements of operations.
(S.) RECENTLY ISSUED ACCOUNTING STANDARD
In March 2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133" ("SFAS 161"). SFAS 161 applies to all derivative
instruments and related hedged items accounted for under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 161 requires entities to provide greater transparency about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
SFAS 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial
F-13
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
position, results of operations and cash flows. SFAS 161 is effective
for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the
sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
generally accepted accounting principles (the GAAP hierarchy).
Statement 162 will become effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles."
In May 2008, the FASB issued FSP Accounting Principles Board ("APB")
14-1 "Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB
14-1"). FSP APB 14-1 requires the issuer of certain convertible debt
instruments that may be settled in cash (or other assets) on conversion
to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the
issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective
for fiscal years beginning after December 15, 2008 on a retroactive
basis.
In September 2008, FASB issued FSP No. 133-1 and FIN 45-4, "Disclosures
about Credit Derivatives and Certain Guarantees", an amendment of FASB
Statement No. 133 and FASB Interpretation No. 45; and Clarification of
the Effective Date of FASB Statement No. 161. This FSP is intended to
improve disclosures about credit derivatives by requiring more
information about the potential adverse effects of changes in credit
risk on the financial position, financial performance, and cash flows
of the sellers of credit derivatives. The provisions of the FSP that
amend Statement 133 and FIN 45 are effective for reporting periods
(annual or interim) ending after November 15, 2008.
This FSP amends FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, to require disclosures by sellers
of credit derivatives, including credit derivatives embedded in hybrid
instruments. This FSP also amends FASB Interpretation (FIN) No. 45,
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES,
INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS TO OTHERS, to require an
additional disclosure about the current status of the
payment/performance risk of a guarantee. The provisions of the FSP that
amend Statement 133 and FIN 45 are effective for reporting periods
(annual or interim) ending after November 15, 2008.
Finally, this FSP clarifies the effective date in FASB Statement No.
161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
The disclosures required by Statement 161 should be provided for any
reporting period (annual or quarterly interim) beginning after November
15, 2008. For example, an entity with a March 31 fiscal year-end should
provide the disclosures for its fourth quarter interim period ending
March 31, 2009, in its 2009 annual financial statements. This
clarification of the effective date of Statement 161 is effective upon
issuance of the FSP. The Company is currently evaluating the potential
impact, if any, of the adoption of the above recent accounting
pronouncements on its consolidated results of operations and financial
condition.
F-14
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
4. OTHER RECEIVABLES AND PREPAYMENT
MARCH 31, 2009 JUNE 30, 2008
______________ _____________
Prepayments $ 224,404 $ 223,231
============== =============
The carrying amounts of prepayments approximate their fair value.
5. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment consist of the following:
MARCH 31, 2009 JUNE 30, 2008
______________ _____________
Equipment and machinery $ 53,387 $ 53,108
Motor vehicles 39,666 39,458
Leasehold Improvement 16,296 16,211
______________ _____________
109,349 108,777
LESS: Accumulated Depreciation (51,719) (34,991)
______________ _____________
$ 57,630 $ 73,786
============== =============
Depreciation expense for the nine months ended March 31, 2009 and the
year ended June 30, 2008 were $16,156 and $10,157, respectively.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of March 31, 2009 and June
30, 2008 consists of the following:
MARCH 31, 2009 JUNE 30, 2008
______________ _____________
Accounts Payable $ 397,571 $ 1,095,538
Other Payables 261,160 -
______________ _____________
$ 658,731 $ 1,095,538
=============== =============
F-15
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
7. LOANS PAYABLE/CONVERTIBLE DEBENTURE
On November 23, 2005, the Company entered into a debt financing
agreement (the "Agreement") with an institutional investor, and on
March 23, 2006, the Agreement was modified to include an additional
institutional investor, who is an affiliate of the original
institutional investor (both institutional investors collectively
referred to as "the Investors"). The Investors committed to purchase up
to $4,000,000 of a secured convertible debenture ("the debenture") that
shall be convertible into shares of the Company's common stock.
After two closings on December 13, 2005 and March 23, 2006, the Company
received gross proceeds of $3,250,000 (net proceeds $2,989,460) for the
secured convertible debenture. The Company and debenture-holders
entered into a Forbearance and Settlement Agreement on December 29,
2006 because of default in debt service, whereby the Company agreed to
make cash payment and to grant rights to the creditors to cashless
purchase the Company's common stock by exercising the warrant at
200,000 shares in every three month period beginning on December 29,
2006 according to the following payment plan:
CONVERSION OF
PAYMENT DATE CASH PAYMENT DEBENTURE
__________________ ___________________ __________________
March 10, 2007 $ 250,000 250,000
September 30, 2007 375,000 375,000
October 31, 2007 375,000 375,000
January 31, 2008 250,000 250,000
July 31, 2008 625,000 625,000
___________________ __________________
$ 1,875,000 1,875,000
=================== ==================
The Company paid $250,000 for the payment due March 10, 2007 and the
debenture holders exercised 100,000 shares and 125,000 shares on March
1, 2007 and April 18, 2007, respectively. During the period ended March
31, 2009, the debenture holders converted 133,708,772 shares against
outstanding loan at a total conversion price of $43,100.
Loans Payable outstanding as of March 31, 2009 amount to $2,589,104 of
which $1,530,843 and $1,058,261 were attributed to current portion and
long-term, respectively.
8. LOANS FROM SHAREHOLDERS
The total outstanding amount of $5,824,727 represents cash advanced
from shareholders of the Company.
These shareholders' loans are unsecured and not repayable within the
next twelve months. For the quarter ended March 31, 2009, there was
$86,169 imputed interest, at 6.00% annum, recorded. For the year ended
June 30, 2008, there was $314,865 imputed interest, at 6.00% per annum,
recorded.
F-16
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
9. COMMON STOCK AND WARRANTS
A. COMMON STOCK
During 2005, the authorized capital stock of the Company
increased from $1,000 consisting of 100,000,000 shares of
common stock of par value $0.00001 each to $5,000 consisting
of 500,000,000 shares of common stock of par value $0.00001
each.
B. WARRANTS
(1) The Company completed a private placement in 2005 with certain
individuals for 622,690 units at $3.25 per unit for total cash
proceeds of $2,023,800. Each unit consists of one share of common
stock and one-half of one non-transferable share purchase warrant.
The warrant will expire on the earlier of:
(i) two years from the date of issuance; and
(ii) fifteen business days from date that the Company provides
notice in writing to the subscriber that the Company's common
shares have been trading or traded at a price of $7 or more
for a period of ten days.
The warrant shares shall have an exercise price of $4.50 per
warrant share for the first twelve months, and if still available
after twelve months, the warrant shares shall have an exercise
price of $4.60 per warrant share starting on the first day of the
second twelve month period and increasing by $0.10 on the first
day of each subsequent month thereafter until expiration of the
warrants.
(2) SHARE PURCHASE WARRANT ISSUED FROM CONVERTIBLE DEBENTURE On
December 13, 2005, the Company issued to the holder of the
convertible debenture 1,035,000 warrants. One share purchase
warrants is exercisable for one common share at $0.00001 per
share, until expiration on November 22, 2010. As of March 31,
2009, 230,728,061 shares of common stock have been converted by
the convertible debenture holders at an aggregate amount of
$481,800.
(3) SHARE WARRANT ISSUED FOR SERVICE On May 1, 2006, the Company
issued 100,000 warrants at $1.47 per share to Mr. Peter Shandro,
the VP Business Strategy of the Company, in association with the
planning and execution of the on-line ecommerce initiative of the
Company. Compensation expense of $94,775 was recorded with the
issuance of these warrants.
F-17
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
10. CHINA CONTRIBUTION PLAN
Full-time employees of the Company are entitled to staff welfare
benefits including medical care, welfare subsidies, unemployment
insurance and pension benefits through a China government-mandated
multi-employer defined contribution plan. The Company is required to
accrue for these benefits based on certain percentages of the
employees' salaries. The total contributions made for such employee
benefits were $ 25,273 and $23,854, for the quarter ended March 31,
2009 and the year ended June 30, 2008, respectively.
11. STATUTORY RESERVES
The Company is required to make appropriations to reserves funds,
comprising the statutory surplus reserve, statutory public welfare fund
and discretionary surplus reserve, based on after-tax net income
determined in accordance with generally accepted accounting principles
of the People's Republic of China (the "PRC GAAP"). Appropriation to
the statutory surplus reserve should be at least 10% of the after-tax
net income determined in accordance with the PRC GAAP until the reserve
is equal to 50% of the Company's registered capital. Appropriation to
the statutory public welfare fund is 10% of the after-tax net income
determined in accordance with the PRC GAAP. Appropriations to the
discretionary surplus reserve are made at the discretion of the Board
of Directors. The statutory public welfare fund is established for
providing employee facilities and other collective benefits to the
employees and is non-distributable other than in liquidation. The
Company made no appropriations to the statutory reserve, as it did not
have a pre-tax profit.
12. GAIN ON DEBT RESTRUCTURING
On December 29, 2006, the Company completed a debt restructuring with
its Investors, namely Cornell Capital Partners, L.P. ("Cornell") and
Highgate House Funds, Ltd. ("Highgate") under the Forbearance and
Settlement Agreement (the "Forbearance and Settlement Agreement").
Pursuant to the Forbearance and Settlement Agreement, the Company
agreed to make certain payments to the Investors, with respect to the
Securities Purchase Agreement (the "Securities Purchase Agreement")
entered into between the Company and the Investors on November 23,
2005, as amended on March 23, 2006, on the convertible debentures in
the amounts of $1,250,000 (to Highgate on November 23, 2005) and
$2,000,000 (to Cornell on March 23, 2006) (the "Convertible
Debentures") in accordance with the terms and conditions set forth in
the Forbearance and Settlement Agreement.
In accordance with the Forbearance and Settlement Agreement, the
Company agrees to use the proceeds from the disposal of Boheng to repay
the principal and interest due to the Investors under the Convertible
Debentures in exchange for the Investors agreeing to:
(i) Waive on a one-time basis only any accrued liquidated damages
owing to the Investors;
(ii) Not apply the redemption premium on the scheduled repayments;
(iii) Converting the Convertible Debentures in an amount equal to
at least the amount of a scheduled repayment subject to
certain conditions;
F-18
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
(iv) No additional liquidated damages accruing during the term of
the Forbearance and Settlement Agreement;
(v) Permitting the Company to withdraw the Registration Statement
filed on March 28, 2006 with the SEC in connection with the
Convertible Debentures;
(vi) During the term of the Forbearance and Settlement Agreement,
waiving the requirement for the Company to receive written
consent of each Buyer for any organizational change (as
defined in the Securities Purchase Agreement) to be directly
or indirectly consummated by the Company, and that the
company will not effectuate any stock splits for at least
nine months without the consent of the Investors; and
(vii)Terminate the provisions for security shares as set forth in
Section 9 of the Securities Purchase Agreement and in Section
2 of the Transfer Agent Instructions upon receipt by the
Investors of the first scheduled repayment amount.
As a result of the debt restructuring arrangement, the Company's
liabilities on warrants, conversions, discounts were discharged
resulting to a net gain of $1,500,132 attributable as follows:
o Liabilities on Conversion discharged $ 2,334,198
o Liabilities on Warrants discharged 891,537
o Loans discharged 225,000
o Unamortized discounts (1,950,603)
______________
$ 1,500,132
13. IMPAIRMENT LOSS ON BOHENG INVESTMENT
As a result of the termination of the acquisition of Beijing Boheng
Investments and Management Co., Ltd. by Purchaser, the Company
repossessed Boheng as its 95% interest subsidiary on August 25, 2008 at
a value of $1,625,000 equal to the unpaid purchase price due by the
Purchaser. After the repossession of Boheng, the Company conducted an
evaluation of its carrying value and determined that an impairment loss
in amount of $1,625,000 was incurred although Boheng still owns 7.98%
equity interest in Xinhua C&D. This impairment loss was accordingly
reflected in the income statement for the quarter ended December 31,
2008.
14. CONCENTRATION OF RISK
(A). MAJOR CUSTOMERS AND VENDORS
100% of the Company's revenues were derived from customers located
in the PRC, and there are no customers and vendors who account for
10% or more of revenues and purchases. The Company's assets are
all located in the PRC.
F-19
XINHUA CHINA LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009
(STATED IN US DOLLARS)
(B). CREDIT RISK
There are no concentrations of credit risk because the Company,
while in operation, entered into large number of cash sale
transactions without deploying financial instruments, which may
potentially drive to significant concentrations.
15. NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number
of the ordinary shares outstanding during the year. Diluted net loss
per share is computed using the weighted average number of ordinary
shares and ordinary share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted net
loss per share for the period indicated:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
Basic and diluted net loss per share MARCH 31, 2009 MARCH 31, 2008 MARCH 31, 2009 MARCH 31, 2008
calculation: ______________ ______________ ______________ ______________
a). Numerator:
Net loss used in computing basic
net loss per share (244,646) (170,385) (2,204,872) (557,089)
(b). Denominator:
Weighted-average ordinary shares
outstanding 199,873,539 63,463,287 199,873,539 63,463,287
Basic and diluted net loss per share (.0012) (.0027) (.0151) (.0088)
For the period ended March 31, 2009 in which the Company had a net
loss, inclusion of warrants outstanding would have been anti-dilutive
and therefore not included in the computation of diluted losses per
share.
F-20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS DEVELOPMENT
Xinhua China Ltd. was incorporated September 14, 1999 under the laws of the
State of Nevada as Camden Mines Limited ("Camden"). On October 12, 2004, Camden
changed its name from "Camden Mines Limited" to its current corporate name
"Xinhua China Ltd." We have certain digital media distribution and related
rights in "China" where we mostly operate and seek to pursue our business. We
are in the development stage seeking to grow our company.
SUBSIDIARIES
PAC-POLY INVESTMENTS LIMITED/BEIJING BOHENG INVESTMENTS LIMITED
As of the date of this Quarterly Report, we hold of record 100% of the total
issued and outstanding shares of Pac-Poly Investments Limited ("Pac-Poly"),
which is our wholly-owned subsidiary. Pac-Poly is an investment holding company.
We maintain a 7.98% effective interest in Xinhua C&D through Pac-PolyAs of the
date of this Quarterly Report, we hold of record 95% of the total issued and
outstanding shares of Beijing Boheng Investments Limited ("Beijing Boheng"). We
re-acquired our interest in Beijing Boheng on August 25, 2008 at a value of
$1,625,000, which amount was equal to the unpaid purchase price due by the
original purchaser.
BEIJING JOANNES INFORMATION TECHNOLOGY CO. LT.
On May 9, 2006, we formed Beijing Joannes Information Technology Co. Lt.
("Beijing Joannes"), as our Chinese wholly owned subsidiary, to launch a digital
media content initiative. We held of record 100% of the total issued and
outstanding shares of Beijing Joannes. Beijing Joannes was formed for the
purpose of launching a digital media content initiative with the web site
branded WWW.GEEPIP.COM. The business focus is building online communities with
connectivity to an ecommerce engine, which allows for the online purchase of
e-books, e-audio, and computer games. Hard copies of books can also be purchase
through the portal. A unique customer loyalty program and digital redemption or
trade-in strategy will be a market differentiator. Subsequent to the
deconsolidation of Xinhua C&D as discussed below, we have commenced the internet
book distribution business through Beijing Joannes.
RECENT BUSINESS OPERATIONS
We are focused to develop a plan for funding, sales, marketing and other
benefits relating to China and this plan may include other related pursuits such
as assisting one or more USA or international companies to navigate the
regulatory demands of doing related business in China and to possibly join with
us by joint venture or similar arrangement to pursue business in one of the
world's if not the world's most rapidly growing financial and consumer
population environments. As part of this we still seek to establish ourselves as
a leader in the digital media industry first in China and then possibly
elsewhere. We intend to maximize our strategic position in the publishing
industry.
We are developing a new business plan focused on fiscal year 2009 to achieve
several key areas or goals: restructure certain aspects of our organization and
relationships after careful consideration as part of our plan to grow our
Company and revenues; focus on market awareness primarily making those investors
in the USA stock markets aware of us, given our arrangements, discussed below,
with the People's Republic of China (China) seek how we can expand our business
in both our core license rights and to possibly obtain other benefits or rights
similar in nature, and seek acquisitions of mainly China companies or assets
that may be the subject of registrations or "spin-off" transactions in the USA
markets, both stock and business trade, given the extensive energy, time and
expense we have been through in learning about the markets. These plans need to
be developed and approved by the Board of Directors, which we also plan to
restructure by adding Directors to expand.
We are subject to many risks and there is no assurance of success in our plans.
RESULTS OF OPERATION
The summarized consolidated financial data set forth in the tables below and
discussed in this section should be read in conjunction with our consolidated
financial statements and related notes for the nine-month period ended March 31,
2009 and 2008, which financial statements are included elsewhere in this
Quarterly Report.
FOR NINE MONTH PERIOD FOR NINE MONTH PERIOD
ENDED MARCH 31, 2009 ENDED MARCH 31, 2008
(UNAUDITED) (UNAUDITED)
REVENUE
Net revenue -0- -0-
Cost of Sales -0- -0-
GROSS PROFIT -0- -0-
OPERATING EXPENSES
Selling, general and administrative expenses $483,491 $187,458
OPERATING INCOME (LOSS) (483,491) (187,458)
OTHER INCOME (EXPENSES)
Interest income 50 27,581
Gain on debt restructuring 73,427 12,644
Gain from writing off accounts payable 179,621 -0-
Interest expense (349,380-) (408,856)
Impairment loss on Boheng investment (1,625,000) -0-
NET LOSS (2,204,872) (557,089)
RESULTS OF OPERATION
FOR NINE MONTH PERIOD ENDED MARCH 31, 2009 COMPARED TO NINE MONTH PERIOD ENDED
MARCH 31, 2008.
REVENUES AND GROSS MARGIN AND COST OF SALES
We had net sales of $-0- for both nine month periods ended March 31, 2009 and
March 31, 2008. Our cost of sales for both nine month periods ended March 31,
2009 and March 31, 2008 was $-0-. The lack of sales during both the nine month
periods ended March 31, 2009 and March 31, 2008 was due to the divesture of
certain interests in our assets.
OPERATING EXPENSES
Our total operating expenses were $483,491 for the nine month period ended March
31, 2009 as compared to total operating expenses of $187,458 for the nine month
period ended March 31, 2008. The increase in operating expenses during the nine
month period ended March 31, 2009 as compared to the nine month period ended
March 31, 2008 was due to a variety of expenditures relating to our
restructuring efforts.
Selling, general and administrative expenses increased to $483,491 for the nine
month period ended March 31, 2009 compared to selling, general and
administrative expenses of $187,458 for the nine month period ended March 31,
2008. The increase in selling, general and administrative expenses was a result
of an increase of fees to our consultants and professional, including legal and
accounting, in relation to our fund raising and restructuring.
INTEREST EXPENSE
We incurred $349,380 in interest expense during the nine month period ended
March 31, 2009 as compared to $408,856 incurred as interest expense during the
nine month period ended March 31, 2008. Interest expense incurred consisted
primarily of interest charged on loans from related parties and increased due to
the increase in loan activity relating to our restructuring.
INTEREST INCOME/IMPAIRMENT LOSS ON INVESTMENT
We earned interest income of $50 during the nine month period ended March 31,
2009 as compared to interest income of $27,581 during the nine month period
ended March 31, 2008. We, however, recognized an impairment loss on the Boheng
investment of ($1,625,000) during the nine month period ended March 31, 2009
compared to $-0- during the nine month period ended March 31, 2008.
Thus, we incurred a net loss of ($2,204,872) for the nine month period ended
March 31, 2009 compared to a net loss of ($557,089) incurred during the nine
month period ended March 31, 2008. This difference resulted primarily from
recognition of the impairment on the Boheng investment and the increase in
selling, general and administrative expenses resulting from the restructuring
efforts.
FOR THREE MONTH PERIOD ENDED MARCH 31, 2009 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 2008.
REVENUES AND GROSS MARGIN AND COST OF SALES
We had net sales of $-0- for both three month periods ended March 31, 2009 and
March 31, 2008. Our cost of sales for both three month period ended March 31,
2009 and March 31, 2008 was $-0-. The lack of sales during both the three month
periods ended March 31, 2009 and March 31, 2008 was due to the divesture of
certain interests in our assets.
OPERATING EXPENSES
Our total operating expenses were $145,682 for the three month period ended
March 31, 2009 as compared to total operating expenses of $16,704 for the three
month period ended MJarch 31, 2008. The increase in operating expenses during
the three month period ended March 31, 2009 as compared to the three month
period ended March 31, 2008 was due to a variety of expenditures relating to our
restructuring efforts.
Selling, general and administrative expenses increased to $145,682 for the three
month period ended March 31, 2009 compared to selling, general and
administrative expenses of $16,704 for the three month period ended March 31,
2008. The increase in selling, general and administrative expenses was a result
of an increase of fees to our consultants and professional, including legal and
accounting, in relation to our fund raising and restructuring.
INTEREST EXPENSE
We incurred $98,971 in interest expense during the three month period ended
March 31, 2009 as compared to $180,106 incurred as interest expense during the
three month period ended March 31, 2008. Interest expense incurred consisted
primarily of interest charged on loans from related parties and increased due to
the increase in loan activity relating to our restructuring.
INTEREST INCOME
We earned interest income of $7 during the three month period ended March 31,
2009 as compared to interest income of $13,781 during the three month period
ended March 31, 2008.
Thus, we incurred a net loss of ($244,646) for the three month period ended
March 31, 2009 compared to a net loss of ($170,385) incurred during the three
month period ended March 31, 2008. This difference resulted primarily from the
increase in selling, general and administrative expenses resulting from the
restructuring efforts.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTH PERIOD ENDED MARCH 31, 2009
Our financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation.
As at the nine month period ended March 31, 2009, our current assets were
$323,886 and our current liabilities were $2,189,575, resulting in a working
capital deficit of $1,865,689. As at the nine month period ended March 31, 2009,
current assets were comprised of: (i) $25,466 in cash and cash equivalents; (ii)
$74,016 in net accounts receivable; and (iii) $224,404 in other receivables and
prepayments. As at the nine month period ended March 31, 2009, our current
liabilities were comprised of: (i) $658,731 in accounts payable and accrued
liabilities; and (ii) $1,530,843 in current portion of loans payable. See " -
Material Commitments."
As at the nine month period ended March 31, 2009, our total assets were $381,516
comprised of: (i) $323,886 in current assets; and (ii) $57,630 in net property,
plant and equipment. The decrease in total assets during the nine month period
ended March 31, 2009 from fiscal year ended June 30, 2008 was primarily due to
the note receivable in the amount of $1,625,000 and the decrease in accounts
receivable. The note receivable represented the sales proceeds of $1,875,000
from the disposal of Beijing Boheng in accordance with the terms and provisions
of the disposal agreement.
As at the nine month period ended March 31, 2009, our total liabilities were
$9,072,563 comprised of: (i) $2,189,575 in current liabilities; (ii) $1,058,261
in loans payable; and (iii) $5,824,727 in loans from shareholders. The slight
decrease in total liabilities during the nine month period ended March 31, 2009
from fiscal year ended June 30, 2008 was primarily due to the decrease in
accounts payable and accrued liabilities.
Stockholders' deficit increased from ($6,845,321) for June 30, 2008 to
($8,691,048) for March 31, 2009.
OPERATING ACTIVITIES
We have not generated positive cash flows from operating activities. For the
nine month period ended March 31, 2009, net cash flow used in operating
activities was ($2,009,328) compared to net cash sourced from operating
activities of $34,748 during the nine month period ended March 31, 2008. Net
cash flow from operating activities during the nine month period ended March 31,
2009 consisted primarily of a net loss of ($2,204,873) adjusted by $16,156 in
depreciation and $310,833 in imputed interest expense. Changes in assets and
liabilities consisted of a decrease of $337,765 in accounts receivable, an
increase of $463,812 in accounts payable, an increase of $18,355 in deferred
revenue and a further increase of $18,355 in deferred revenue.
INVESTING ACTIVITIES
During the nine month period ended March 31, 2009, net cash flow used in
investing activities was $1,625,000 compared to net cash flow sourced from
investing activities of ($73,191) for the nine month period ended March 31,
2008. Net cash flow used in investing activities during the nine month period
ended March 31, 2009 was primarily the result of $1,625,000 as the impairment
loss of the Boheng Investment.
FINANCING ACTIVITIES
During the nine month period ended March 31, 2009, net cash flow provided by
financing activities was $370,800 compared to net cash flow provided by
financing activities of $11,366 for the nine month period ended March 31, 2008.
Net cash flow provided from financing activities during the nine month period
ended March 31, 2009 pertained primarily to $414,472 received as loan from
shareholders, $1,839 in stock issued to Highgate on debt conversion and $41,763
as additional paid-in capital, which was offset by $87,274 in repayment of loan
to Highgate.
PLAN OF OPERATION
The local and regional distribution business for books is competitive and
fragmented in the People's Republic of China. Estimates range up to 500 as to
the number of entrants in this field. It is our plan that economy of scale,
relationships with Chinese publishers and also with sub-distributors and
retailers and our nationwide scope which allows us the flexibility to distribute
books in any region will assist us in maintaining and enhancing our competitive
position.
Our goal is to expand our business to include electronic sales, delivery and
distribution of media contents. We also plan to partner with foreign publishers
to provide foreign media contents in China. We seek to achieve our goal on a
national scale to maximize opportunities in one of the largest and fastest
growing economies in the world.
To execute on our strategy to become a digital media company we formed our new
subsidiary, Beijing Joannes. Beijing Joannes is intended to be our digital media
company and it is expected to distribute all digital content for Xinhua C&D and
others. Beijing Joannes has anticipated in operating its business to consumer
(B2C) e-commerce portal as www.geezip.com, and expects to allow customers to
purchase electronic and hard copies of books on-line.
We expect to also establish a co-publishing company which anticipates on
co-publishing agreements with both domestic and foreign publishers, publishing
both hard copy and digital works.
Existing working capital, further advances and possible debt instruments,
warrant exercises, further private placements, monetization of existing assets,
and anticipated cash flow are expected to be adequate to fund our operations
over the next two months. We have no lines of credit or other bank financing
arrangements. Generally, we have financed operations to date through the
proceeds of the private placement of equity and debt securities and loans from
our shareholders. In connection with our business plan, management will delay
additional increases in operating expenses and capital expenditures. We intend
to utilize our best efforts to settle current finance accounts payables and
liabilities with further issuances of securities, debt and or advances,
monetization of existing assets, and revenues from operations. We will need to
raise additional capital and increase revenues to meet both short term and
long-term operating requirements.
We have undertaken certain actions and continue to implement changes designed to
improve our financial results and operating cash flows. The actions involve
certain cost-saving initiatives and growing strategies, including: (i)
reductions in headcounts and corporate overhead expenses; and (ii) continue to
develop e-commerce business through Beijing Joannes. We believe that these
actions will enable us to improve future profitability and cash flow in our
continuing operations through June 30, 2009.
The report of the independent registered public accounting firm that accompanies
our June 30, 2008 and June 30, 2007 consolidated financial statements contains
an explanatory paragraph expressing substantial doubt about our ability to
continue as a going concern. The consolidated financial statements have been
prepared "assuming that we will continue as a going concern," which contemplates
that we will realize our assets and satisfy our liabilities and commitments in
the ordinary course of business.
MATERIAL COMMITMENTS
LOANS PAYABLE/CONVERTIBLE DEBENTURE
During 2007/8, a material commitment for us relates to the Forbearance and
Settlement Agreement with Cornell and Highgate. On December 29, 2006, we
completed the debt restructuring with Cornell and Highgate under the Forbearance
and Settlement Agreement. Pursuant to the Forbearance and Settlement Agreement,
we agreed to make certain payments to Cornell and Highgate with respect to the
Securities Purchase Agreement previously entered into by us with Cornell and
Highgate dated November 23, 2005 and amended on March 23, 2006, and the two
convertible debentures in the amounts of $1,250,000 to Highgate dated November
23, 2005 and $2,000,000 to Cornell dated March 23, 2006 (collectively, the
"Convertible Debentures") in accordance with the terms and conditions set forth
in the Forbearance and Settlement Agreement.
In further accordance with the Forbearance and Settlement Agreement, we agreed
to use the proceeds from the disposal of Beijing Boheng to repay the principal
and interest due to Cornell and Highgate under the Convertible Debentures in
exchange for the agreement of Cornell and Highgate to: (i) waive on a one-time
basis only any accrued liquidated damages owing to Cornell and Highgate; (ii) no
application of the redemption premium on the scheduled repayments; (iii)
conversion of the Convertible Debentures in an amount equal to at least the
amount of a scheduled repayment subject to certain conditions; (iv) no
additional liquidated damages accruing during the term of the Forbearance and
Settlement Agreement; (v) permitting us to withdraw the registration statement
filed on March 28, 2006 with the Securities and Exchange Commission in
connection with the Convertible Debentures; (vi) during the term of the
Forbearance and Settlement Agreement, waiving the requirement for us to receive
written consent of Cornell and Highgate for any organizational change (as
defined in the Securities Purchase Agreement) to be directly or indirectly
consummated by us, and that we will not effectuate any stock splits for at least
nine months without the consent of Cornell and Highgate; and (vii) terminating
the provisions for security shares as set forth in Section 9 of the Securities
Purchase Agreement and in Section 2 of the transfer agent instructions upon
receipt by Cornell and Highgate of the first scheduled repayment amount.
The payment plan under the Forbearance and Settlement Agreement is as follows:
Conversion of
Payment Date Cash Payment Debenture
_________________ ______________________ _____________________
March 10, 2007 $ 250,000 250,000
June 30, 2007 375,000 375,000
October 31, 2007 375,000 375,000
January 31, 2008 250,000 250,000
July 31, 2008 625,000 625,000
______________________ _____________________
$ 1,875,000 1,875,000
====================== =====================
As of March 31, 2008, we paid $250,000 for the payment due March 10, 2007 and
issued 100,000 shares of our common stock on March 1, 2007 and 125,000 shares on
April 18, 2007, respectively, pursuant to exercise rights. The scheduled
payments of $375,000 due on September 30, 2007 and October 31, 2007,
respectively, were not paid as of March 31, 2008. During the nine month period
ended March 31, 2009, an aggregate of 133,708,772 shares of our common stock
were issued pursuant to conversion of the debt at a total conversion price of
$43,100. As of March 31, 2009, an aggregate of $2,589,104 remains due and owing.
LOANS FROM SHAREHOLDERS
During fiscal year 2007/8, a material commitment for us relates to the loans
from shareholders. The outstanding amount of $5,824,727 represents cash advanced
to us from our shareholders. These shareholder loans are unsecured and not
repayable within the next twelve months. For the three month period ended March
31, 2009, we calculated imputed interest expense of $86,169 in relation to the
shareholders loans at its effective interest rate of 6% per annum and accounted
for it in the consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse change in foreign currency
and interest rates.
EXCHANGE RATE
Our reporting currency is United States Dollars ("USD"). The Chinese Renminbi
("RMB") has been informally pegged to the USD. However, China is under
international pressure to adopt a more flexible exchange rate system. If the RMB
were no longer pegged to the USD, rate fluctuations may have a material impact
on the Company's consolidated financial reporting and make realistic revenue
projections difficult. Recently (July 2005) the Renminbi was allowed to rise 2%.
This has not had an appreciable effect on our operations and seems unlikely to
do so.
As Renminbi is the functional currency of Joannes and Boheng, the fluctuation of
exchange rates of Renminbi may have positive or negative impacts on the results
of operations of the Company. However, since all sales revenue and expenses of
these two subsidiary companies are denominated in Renminbi, the net income
effect of appreciation and devaluation of the currency against the US Dollar
will be limited to the net operating results of the subsidiary companies
attributable to us.
INTEREST RATE
Interest rates in China are low and stable and inflation is well controlled, due
to the habit of the population to deposit and save money in the banks (among
with other reasons, such as the People's Republic of China's perennial balance
of trade surplus). Our loans relate mainly to trade payables and are mainly
short-term. However our debt is likely to rise with physical plant in connection
with expansion and, were interest rates to rise at the same time, this could
become a significant impact on our operating and financing activities.
We have not entered into derivative contracts either to hedge existing risks or
for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the SECURITIES
EXCHANGE ACT OF 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our president (also our principal
executive officer) and our secretary, treasurer and chief financial officer
(also our principal financial and accounting officer) to allow for timely
decisions regarding required disclosure.
As of March 31, 2009, the end of our third quarter covered by this report, we
carried out an evaluation, under the supervision and with the participation of
our president (also our principal executive officer and our principal financial
and accounting officer), of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our president (also
our principal executive officer and chief financial officer also our principal
financial and accounting officer) concluded that our disclosure controls and
procedures were effective in providing reasonable assurance in the reliability
of our financial reports as of the end of the period covered by this quarterly
report.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
Internal control over financial reporting has inherent limitations which include
but is not limited to the use of independent professionals for advice and
guidance, interpretation of existing and/or changing rules and principles,
segregation of management duties, scale of organization, and personnel factors.
Internal control over financial reporting is a process which involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements on a timely basis, however these inherent limitations
are known features of the financial reporting process and it is possible to
design into the process safeguards to reduce, though not eliminate, this risk.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. 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 or procedures
may deteriorate.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no significant changes in our internal controls over financial
reporting that occurred during the quarter ended March 31, 2009 that have
materially or are reasonably likely to materially affect, our internal controls
over financial reporting.
AUDIT COMMITTEE
Our Board of Directors has not established an audit committee. The respective
role of an audit committee has been conducted by our Board of Directors. We are
contemplating establishment of an audit committee during fiscal year 2009. When
established, the audit committee's primary function will be to provide advice
with respect our financial matters and to assist our Board of Directors in
fulfilling its oversight responsibilities regarding finance, accounting, and
legal compliance. The audit committee's primary duties and responsibilities will
be to: (i) serve as an independent and objective party to monitor our financial
reporting process and internal control system; (ii) review and appraise the
audit efforts of our independent accountants; (iii) evaluate our quarterly
financial performance as well as its compliance with laws and regulations; (iv)
oversee management's establishment and enforcement of financial policies and
business practices; and (v) provide an open avenue of communication among the
independent accountants, management and our Board of Directors.
ITEM 4T. CONTROLS AND PROCEDURES
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
Management is not aware of any legal proceedings contemplated by any
governmental authority or any other party involving us or our properties. None
of our directors, officers or affiliates are (i) a party adverse to us in any
legal proceedings, or (ii) has an adverse interest to us in any legal
proceedings. Management is not aware of any other legal proceedings pending or
that have been threatened against us or our properties.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
CORNELL CAPITAL PARTNERS LP/HIGHGATE HOUSE FUNDS LTD.
We previously entered into a forbearance and settlement agreement (the
"Forbearance and Settlement Agreement") with Cornell Capital Partners LP
("Cornell") and Highgate House Funds, Ltd. ("Highgate"). On December 29, 2006,
we completed a debt restructuring with Cornell and Highgate under the
Forbearance and Settlement Agreement. Pursuant to the Forbearance and Settlement
Agreement, we agreed to make certain payments to Cornell and Highgate with
respect to the Securities Purchase Agreement previously entered into by us with
Cornell and Highgate dated November 23, 2005 and amended on March 23, 2006, and
the two convertible debentures in the amounts of $1,250,000 to Highgate dated
November 23, 2005 and $2,000,000 to Cornell dated March 23, 2006 (collectively,
the "Convertible Debentures") in accordance with the terms and conditions set
forth in the Forbearance and Settlement Agreement.
In further accordance with the Forbearance and Settlement Agreement, we agreed
to use the proceeds from the disposal of Beijing Boheng to repay the principal
and interest due to Cornell and Highgate under the Convertible Debentures in
exchange for the agreement of Cornell and Highgate to: (i) waive on a one-time
basis only any accrued liquidated damages owing to Cornell and Highgate; (ii) no
application of the redemption premium on the scheduled repayments; (iii)
conversion of the Convertible Debentures in an amount equal to at least the
amount of a scheduled repayment subject to certain conditions; (iv) no
additional liquidated damages accruing during the term of the Forbearance and
Settlement Agreement; (v) permitting us to withdraw the registration statement
filed on March 28, 2006 with the Securities and Exchange Commission in
connection with the Convertible Debentures; (vi) during the term of the
Forbearance and Settlement Agreement, waiving the requirement for us to receive
written consent of Cornell and Highgate for any organizational change (as
defined in the Securities Purchase Agreement) to be directly or indirectly
consummated by us, and that we will not effectuate any stock splits for at least
nine months without the consent of Cornell and Highgate; and (vii) terminating
the provisions for security shares as set forth in Section 9 of the Securities
Purchase Agreement and in Section 2 of the transfer agent instructions upon
receipt by Cornell and Highgate of the first scheduled repayment amount.
The payment plan under the Forbearance and Settlement Agreement is as follows:
Conversion of
Payment Date Cash Payment Debenture
_________________ ______________________ _____________________
March 10, 2007 $ 250,000 250,000
June 30, 2007 375,000 375,000
October 31, 2007 375,000 375,000
January 31, 2008 250,000 250,000
July 31, 2008 625,000 625,000
______________________ _____________________
$ 1,875,000 1,875,000
====================== =====================
As of March 31, 2008, we paid $250,000 for the payment due March 10, 2007 and
issued 100,000 shares of our common stock on March 1, 2007 and 125,000 shares on
April 18, 2007, respectively, pursuant to exercise rights. The scheduled
payments of $375,000 due on September 30, 2007 and October 31, 2007,
respectively, were not paid as of March 31, 2008.
During the nine month period ended March 31, 2009, an aggregate of 133,708,772
shares of our common stock were issued pursuant to conversion of the debt at a
total conversion price of $43,100. As of March 31, 2009, an aggregate of
$2,589,104 remains due and owing.
SETTLEMENT OF DEBT
We had incurred an aggregate of $3,426,444 (the "Debt") as of March 1, 2008 to
our President/Chief Executive Officer, Xianping Wang, consisting of sums of
money loaned by Mr. Wang to us for funding and working capital purposes. We have
been unable to repay the Debt. At the time the Debt was incurred, we had agreed
that in the event we were unable to repay the Debt, the Debt would be satisfied
by conversion of the Debt into shares of our common stock at $0.0001 per share.
On approximately March 1, 2009, Mr. Wang assigned his right, title and interest
in the Debt to Lily Wang. On approximately March 30, 2009, Lily Wang elected to
convert a portion of the Debt into 57,000,000 shares of our common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
The following exhibits are filed as part of this Quarterly Report:
Exhibit
31.1 Certification under Rule 13a-14(a).
31.2 Certification under Rule 13a-14(a).
32.1 Certification under Section 1350.
32.2 Certification under Section 1350.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
XINHUA CHINA LTD.
Dated: May 18, 2009 By: /s/XIANPING WANG
_______________________________________
Xianping Wang, President/Chief
Executive Officer
Dated: May 18, 2009 By: /s/ XIANPING WANG
_______________________________________
Xianping Wang, Acting as Interim Chief
Financial Officer