Xinhua China Ltd.
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(Name of small business issuer in its charter) |
Nevada
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88-0437644
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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B-26F, Oriental Kenzo Dongcheng District
Beijing 100027
People’s Republic of China
(Address of principal executive offices)
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86-10-64168816 or 86-10-64168916
(Issuer’s telephone number)
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N/A
(Former name, former address and former fiscal year, if changed since last report)
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered:
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None
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Securities registered pursuant to Section 12(g) of the Act: | ||
Common Stock, $0.00001 par value
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||
(Title of Class)
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Large accelerated filer | o | Accelerated filer | o | Non-accelerated filer | o | Smaller reporting company | x |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:
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Class
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Outstanding as of December 1, 2012
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Common Stock $0.00001 par value
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499,911,400
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PART I – FINANCIAL INFORMATION | |||||
Item 1.
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Financial Statements
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4 | |||
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Item 2
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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23 | |||
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Item 3.
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Quantitative and Qualitative Discloses About Market Risk
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31 | |||
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Item 4.
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Controls and Procedures
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32 | |||
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Item 4T.
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Controls and Procedures
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33 | |||
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PART II – OTHER INFORMATION | |||||
Item 1.
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Legal Proceedings
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34 | |||
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Item 1A.
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Risk Factors
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34 | |||
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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34 | |||
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Item 3.
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Defaults Upon Senior Securities
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34 | |||
Item 4.
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Mining Safety Regulations
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34 | |||
Item 5.
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Other Information
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34 | |||
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Item 6.
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Exhibits
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35 |
Contents
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Pages
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Report of Registered Independent Public Accounting Firm
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6 | |||
Unaudited Balance Sheets
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7 | |||
Unaudited Statements of Income
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8 | |||
Unaudited Statements of Stockholders’ Equity
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9 | |||
Unaudited Statements of Cash Flows
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10 | |||
Notes to the Unaudited Financial Statements
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11-22 |
San Mateo, California | WWC, P.C. | |
September 21, 2012 | Certified Public Accountants |
(Audited)
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||||||||||||
December 31,
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June 30,
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|||||||||||
Notes
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2011
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2011
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||||||||||
ASSETS
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||||||||||||
Current Assets
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||||||||||||
Accounts Receivable, net
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3E | $ | 10,229 | $ | 10,229 | |||||||
Total Current Assets
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10,229 | 10,229 | ||||||||||
Total Assets
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$ | 10,229 | $ | 10,229 | ||||||||
LIABILITIES & STOCKHOLDERS' EQUITY
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||||||||||||
Liabilities
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||||||||||||
Current Liabilities
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||||||||||||
Accounts Payable and Accrued Liabilities
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4 | $ | 1,103,393 | $ | 1,063,176 | |||||||
Current portion of Loans Payable
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5 | 1,498,075 | 1,498,075 | |||||||||
Total Current Liabilities
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2,601,468 | 2,561,251 | ||||||||||
Long-term Liabilities
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||||||||||||
Loans Payable
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5 | 1,051,097 | 1,051,097 | |||||||||
Loans from Shareholders
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12,229,322 | 12,221,646 | ||||||||||
Total Long-term Liabilities
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13,280,419 | 13,272,743 | ||||||||||
Total Liabilities
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$ | 15,881,887 | $ | 15,833,994 | ||||||||
Stockholders' Equity
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Common Stock $0.00001 Par Value 500,000,000 Shares Authorized; 499,911,400 and 499,911,400 shares issued and outstanding at December 31, 2011 and June 30, 2011, accordingly.
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8 | $ | 4,999 | $ | 4,999 | |||||||
Additional Paid-In Capital
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12,493,577 | 12,269,318 | ||||||||||
Accumulated Other Comprehensive Income
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(26,565 | ) | (30,392 | ) | ||||||||
Accumulated Deficits
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(28,343,669 | ) | (28,067,690 | ) | ||||||||
Total Stockholders' (Deficit)/Equity
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(15,871,658 | ) | (15,823,765 | ) | ||||||||
Total Liabilities & Stockholders' Equity
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$ | 10,229 | $ | 10,229 |
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Three-month period ended
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Six-month period ended
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||||||||||||||||||
December 31,
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December 31,
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|||||||||||||||||||
Note
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2011
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2010
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2011
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2010
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||||||||||||||||
Revenue
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||||||||||||||||||||
Revenue, net
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3H | - | - | - | - | |||||||||||||||
Cost of Sales, net
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3I | - | - | - | - | |||||||||||||||
Gross Profit
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- | - | - | - | ||||||||||||||||
Operating Expenses
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||||||||||||||||||||
Selling, General, and Administrative Expenses
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8,332 | 164,385 | 26,019 | 194,385 | ||||||||||||||||
Total Opearting Expense
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8,332 | 164,385 | 26,019 | 194,385 | ||||||||||||||||
Operating Income/(Loss)
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(8,332 | ) | (164,385 | ) | (26,019 | ) | (194,385 | ) | ||||||||||||
Other Income (Expenses)
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||||||||||||||||||||
Interest Expense
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(125,207 | ) | (123,180 | ) | (249,960 | ) | (245,594 | ) | ||||||||||||
Loss on disposal of subsidiaries
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11 | - | - | - | (4,118,173 | ) | ||||||||||||||
Loss before Income Tax
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(133,539 | ) | (287,565 | ) | (275,979 | ) | (4,558,152 | ) | ||||||||||||
Income Tax
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3M | - | - | - | - | |||||||||||||||
Discontinued Operations, net of tax
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13 | - | - | - | (71,086 | ) | ||||||||||||||
Net Loss
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$ | (133,539 | ) | $ | (287,565 | ) | $ | (275,979 | ) | $ | (4,629,238 | ) | ||||||||
Other Comprehensive Income (Loss):
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||||||||||||||||||||
Foreign Currency Translation Adjustmnet
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- | - | 3,827 | (30,390 | ) | |||||||||||||||
Comprehensive income (loss)
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(133,539 | ) | (287,565 | ) | (272,152 | ) | (4,659,628 | ) | ||||||||||||
Basic & Diluted (Loss) Per Share
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3N,12 | $ | (0.0003 | ) | $ | (0.0006 | ) | $ | (0.0006 | ) | $ | (0.0093 | ) | |||||||
Weighted Average Shares Outstanding
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499,911,400 | 499,911,400 | 499,911,400 | 499,911,400 |
Additional
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Accumulated
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|||||||||||||||||||||||
Paid
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Other
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|||||||||||||||||||||||
Number of
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Common
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In
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Comprehensive
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Accumulated
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||||||||||||||||||||
Shares
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Stock
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Capital
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Income(Loss)
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Deficits
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Total
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|||||||||||||||||||
Balance, July 1, 2010
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499,911,400 | $ | 4,999 | $ | 11,831,075 | $ | 40,149 | $ | (24,299,563 | ) | $ | (12,423,340 | ) | |||||||||||
Adjustment to retained earnings from disposal of subsidiaries
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- | - | - | - | 3,650,207 | 3,650,207 | ||||||||||||||||||
Imputed interest on interest free advances from related party
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- | - | 438,243 | - | - | 438,243 | ||||||||||||||||||
Foreign Currency translation Adjustment
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- | - | - | (70,541 | ) | - | (70,541 | ) | ||||||||||||||||
Net Loss for the period
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- | - | - | - | (7,418,334 | ) | (7,418,334 | ) | ||||||||||||||||
Balance, June 30, 2011
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499,911,400 | $ | 4,999 | $ | 12,269,318 | $ | (30,392 | ) | $ | (28,067,690 | ) | $ | (15,823,765 | ) | ||||||||||
Balance, July 1, 2011
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499,911,400 | $ | 4,999 | $ | 12,269,318 | $ | (30,392 | ) | $ | (28,067,690 | ) | $ | (15,823,765 | ) | ||||||||||
Imputed interest on interest free advances from related party
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- | - | 224,259 | - | - | 224,259 | ||||||||||||||||||
Foreign Currency translation Adjustment
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- | - | - | 3,827 | 3,827 | |||||||||||||||||||
Net Loss for the period
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- | - | - | - | (275,979 | ) | (275,979 | ) | ||||||||||||||||
Balance, December 31, 2011
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499,911,400 | $ | 4,999 | $ | 12,493,577 | $ | (26,565 | ) | $ | (28,343,669 | ) | $ | (15,871,658 | ) |
Three-month period ended
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Six-month period ended
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December 31,
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December 31,
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|||||||||||||||
2011
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2010
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2011
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2010
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Cash Flow from Operating Activities:
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||||||||||||||||
Net (Loss)
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$ | (133,539 | ) | $ | (287,565 | ) | $ | (275,979 | ) | $ | (4,629,238 | ) | ||||
Changes in assets and liabilities:
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||||||||||||||||
Decrease/(Increase) in Accounts receivable
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- | 11,811 | - | 18,811 | ||||||||||||
Increase /(Decrease) in Accounts Payable and accrued liabilities
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21,183 | 17,850 | 40,217 | (434,228 | ) | |||||||||||
Cash Sourced/(Used) in Operating Activities
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(112,356 | ) | (257,904 | ) | (235,762 | ) | (5,044,655 | ) | ||||||||
Cash Flows from Investing Activities:
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||||||||||||||||
Disposal of subsidiaries
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- | - | - | 1,998,464 | ||||||||||||
Cash Used/(Sourced) in Investing Activities
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- | - | - | 1,998,464 | ||||||||||||
Cash Flows from Financing Activities:
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||||||||||||||||
Adjustment/(Repayment) of Loan to Highgate
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- | - | - | 18,600 | ||||||||||||
Loans from shareholders
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- | 147,574 | 7,676 | 2,808,035 | ||||||||||||
Additional Paid-in Capital
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112,356 | 110,330 | 224,259 | 219,556 | ||||||||||||
Cash Sourced/(Used) in Financing Activities
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112,356 | 257,904 | 231,935 | 3,046,191 | ||||||||||||
Net Increase/(Decrease) in Cash & Cash Equivalents for the Period
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- | - | (3,827 | ) | - | |||||||||||
Effect of Currency Translation
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- | - | 3,827 | - | ||||||||||||
Cash & Cash Equivalents at Beginning of Period
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- | - | - | - | ||||||||||||
Cash & Cash Equivalents at End of Period
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$ | - | $ | - | $ | - | $ | - |
1.
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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 B26-F, Oriental Kenzo, No. 48 Dongzhimenwai Street, Dongcheng District, Beijing 100027 People’s Republic of China.
As of May 31, 2006, the Company reduced its equity interest in Xinhua C&D from 56.14% to 7.98%. Subsequent to the deconsolidation of Xinhua C&D, the Company commenced the internet book distribution business through Beijing Joannes Information Technology Co., Ltd. (“Joannes”).
As of September 30, 2010, the Company disposed both subsidiaries at a loss. See note 12 – Loss on Disposal of Subsidiaries.
As of December 31, 2011, the Company does not have any direct or indirect interest in any investments that would require consolidating financial statements.
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2.
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GOING CONCERN UNCERTAINTIES
These 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 December 31, 2011, the Company had no working capital but current liabilities exceeding current assets by $14,820,559 and an accumulated deficit of $28,343,669 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 December 31, 2012. 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.
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3.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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(A.)
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Basis of Presentation
These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
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(B.)
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Use of Estimates
In preparing these 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 year reported. Actual results may differ from these Estimates.
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(C.)
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Basis of Consolidation
After disposal of the two subsidiaries on September 16, 2010, the Company has no subsidiaries; therefore, no consolidation is necessary.
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(D.)
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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.
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(E.)
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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.
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(F.)
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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.
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Asset Classification
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Depreciable Life
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Land Use right
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50 years
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Buildings
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50 years
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Motor Vehicles
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8 – 10 years
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Equipment and Machinery
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5 – 8 years
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Intangible Assets
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3 years
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Leasehold Improvement
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2 years
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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 statement of income.
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(G.)
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Impairment of Long-life Assets
In accordance with ASC 360, “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.
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(H.)
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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”.
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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 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 December 30, 2011, there were no shipping and handling costs included in selling, general and administrative expenses in the accompanying statements of income.
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(I.)
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Cost of Sales
Cost of sales includes depreciation of property, plant, and equipment and purchase costs to publishers.
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(J.)
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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.
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(K.)
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Advertising Expenses
The Company expenses advertising costs as incurred in accordance with the ASC No. 35, “Advertising Costs”. For the period ended December 31, 2011, advertising expenses amount to zero.
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(L.)
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Comprehensive Income
ASC No. 220, “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.
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(M.)
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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 ASC Topic 740, “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 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.
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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:
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Rate
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Over
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But Not Over
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Of Amount Over
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|||||||||||
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 | - | - |
Based on the net income/(loss) for the period ended December 31, 2011, the Company shall not be subject to income tax.
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(N.)
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Loss Per Share
The Company calculates loss per share in accordance with ASC 260, “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 499,911,400 and 499,911,400 of common stock at December 31, 2011 and June 30, 2011, 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.
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(O.)
|
Foreign Currencies Translation
The functional and reporting currency of the Company is the United States dollars (“U.S. dollars”). The accompanying 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.
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Exchange Rates
|
December 31, 2011
|
June 30,
2011
|
December 31, 2010
|
|||||||||
Period/year end RMB : US$ exchange rate
|
6.3523 | 6.4630 | 6.6627 | |||||||||
Average period/year RMB : US$ exchange rate
|
6.3789 | 6.4593 | 6.6632 |
(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 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.
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(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 ASC 470, Accounting for Convertible Debt.
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 financial statements comply with current requirements relating to warrants and embedded derivatives as described in SFAS 133 as follows:
|
§
|
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.
|
§
|
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.
|
§
|
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 statements of income.
|
(S.)
|
Recently Issued Accounting Standard
In January 2011, the FASB issued an Accounting Standard Update (“ASU”) No. 2011-01, “Receivables Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings in Update 2010-20. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. This new accounting is not expected to have a material impact on the Company’s financial position or results of the operations.
In June 2011, the FASB issued an Accounting Standard Update (“ASU” No. 2011-05, “Comprehensive Income (Topic 220). Under the amendments to Topic 220, Comprehensive Income, entities have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This new accounting is not expected to have a material impact on the Company’s financial position or results of the operations.
|
4.
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
Accounts payable and accrued liabilities as of December 31, 2011 and June 30, 2011 consists of the following:
|
December 31,
2011
|
June 30,
2011
|
|||||||
Accrued Liabilities
|
$ | 1,103,393 | $ | 1,063,176 |
5.
|
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:
|
Payment Date
|
Cash Payment
|
Conversion of 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, 2010 and year ended June 30, 2009; the debenture holders converted 9,600,000 and 266,655,667 shares against outstanding loan at a total conversion price of $11,436 and $144,532, respectively.
|
Loans Payable outstanding as of December 31, 2011 amount $2,549,172 of which $1,498,075 and $1,051,097 were attributed to current portion and long-term, respectively.
Loans Payable outstanding as of June 30, 2011 amount to $2,549,172 of which $1,498,075 and $1,051,097 were attributed to current portion and long-term, respectively.
|
6.
|
LOANS FROM SHAREHOLDERS
The total outstanding amount of $12,229,322 represents cash advanced from shareholders of the Company.
These shareholders’ loans are unsecured and not repayable within the next twelve months. For the six-month periods ended December 31, 2011 and 2010, there was $224,259 and $219,556 imputed interest, at 6.00% per annum, recorded.
|
7.
|
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 warrant is exercisable for one common share at $0.00001 per share, until expiration on November 22, 2010. As of December 31, 2011, zero shares of common stock were converted by the convertible debenture holders.
|
(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.
|
8.
|
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.
|
9.
|
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.
|
(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.
|
(C)
|
Economic and Political Risk
The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC.
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
|
(D)
|
Environmental Risks
The Company has procured environmental licenses required by the PRC government. The Company has both a water treatment facility for water used in its production process and secure transportation to remove waste off site. In the event of an accident, the Company has purchased insurance to cover potential damage to employees, equipment, and local environment.
|
(E)
|
Inflation Risk
Management monitors changes in prices levels. Historically inflation has not materially impacted the company’s financial statements; however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers could adversely impact the Company’s results of operations.
|
10.
|
11.
|
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 year.
|
The following table sets forth the computation of basic and diluted net loss per share for the period indicated:
|
For the three-month periods ended
|
For the six-month periods ended
|
|||||||||||||||
December 31, 2011
|
December 31, 2010
|
December 31, 2011
|
December 31, 2010
|
|||||||||||||
Net loss used in computing basic net (loss) per share
|
$ | (133,359 | ) | $ | (287,565 | ) | $ | (275,979 | ) | $ | (4,629,238 | ) | ||||
(b). Denominator:
|
||||||||||||||||
Weighted-average ordinary shares outstanding
|
499,911,400 | 499,911,400 | 499,911,400 | 499,911,400 | ||||||||||||
$ | (0.0003 | ) | $ | (0.0006 | ) | $ | (0.0006 | ) | $ | (0.0093 | ) |
For the period ended December 31, 2011 and 2010 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.
|
Results of Operations
for the three months ended
September 30, 2010
|
Beijing Joannes
|
Pac Poly Investment Ltd.
|
Total
|
||||||||||
Revenue
|
$ | - | $ | - | $ | - | ||||||
Cost of revenue
|
- | - | - | |||||||||
Gross profit
|
- | - | - | |||||||||
Selling expenses
|
- | - | - | |||||||||
64,086 | 7,000 | 71,086 | ||||||||||
64,086 | 7,000 | 71,086 | ||||||||||
Other income
|
- | - | - | |||||||||
- | - | - | ||||||||||
Other expense
|
- | - | - | |||||||||
Interest expense
|
- | - | - | |||||||||
(64,086 | ) | (7,000 | ) | (71,086 | ) | |||||||
Income tax
|
- | - | - | |||||||||
Minority interest income
|
- | - | - | |||||||||
$ | (64,086 | ) | $ | (7,000 | ) | $ | (71,086 | ) |
For Six Month Period Ended December 31, 2011
(unaudited)
|
For Six Month Period Ended December 31, 2010
(unaudited)
|
|||||||
Revenue
|
||||||||
Net revenue
|
-0- | -0- | ||||||
Cost of Sales
|
-0- | -0- | ||||||
Gross Profit
|
-0- | -0- | ||||||
Operating Expenses
|
||||||||
Selling, general and administrative expenses
|
$ | 26,019 | $ | 194,385 | ||||
Operating Income (loss)
|
(26,019 | ) | (104,385 | ) | ||||
Other Income (Expenses)
|
||||||||
Interest expense
|
(249,960 | ) | (245,594 | ) | ||||
Loss on disposal of subsidiaries
|
-0- | (4,118,173 | ) | |||||
Loss Before Income Tax
|
(275,979 | ) | (4,558,152 | ) | ||||
Discontinued Operations net of tax
|
-0- | (71,086 | ) | |||||
Net Loss
|
(275,979 | ) | (4,629,238 | ) | ||||
Foreign Currency Translation Adjustment
|
3,827 | (30,390 | ) | |||||
Comprehensive Income (Loss)
|
(272,152 | ) | (4,659,628 | ) |
Payment Date
|
Cash Payment
|
Conversion of 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 |
1.
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
|
2.
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
|
3.
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.
|
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.
|
101.INS **
|
XBRL Instance Document
|
|
101.SCH **
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL **
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF **
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB **
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE **
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
XINHUA CHINA LTD. | |||
Dated: December 4, 2012
|
By:
|
/s/ XIANPING WANG | |
Xianping Wang, President/Chief Executive Officer | |||
Dated: December 4, 2012 |
By:
|
/s/ XIANPING WANG | |
Xianping Wang, Acting as Interim Chief
Financial Officer
|