NOTE 1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION |
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
It is management's opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
Chinese Manufacturers Online Corp. (hereinafter “the Company”) was incorporated on December 9, 2005 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. TheDuring the six months ended June 30, 2008, the Company began its principle operations and has been inexited the development stage since its formation and has not realized any revenue from operations.stage. The Company’s year end is December 31.
On July 2, 2007, pursuant to a Stock Purchase Agreement and Share Exchange between Guoyou Lin and Michael Raleigh, the sole shareholder of 4308, Inc. (the "Agreement"), Mr. Lin obtained all of the issued and outstanding shares of 4308, Inc. Pursuant to the Agreement, Mr. Lin changed our name to Chinese Manufacturers Online Corp. (“CMO”) to better reflect our new business plan.
We are currently located in New Jersey and expect to open an office in the Los Angeles area. CMO provides high-level expertise in promoting online business for Chinese manufacturers and international buyers, business related channel development, distribution strategies, and marketing of Chinese-manufactured products. On May 16, 2008, CMO developed a distribution network through its 100% owned subsidiary, Chinese Manufacturers Online (Caribbean) Limited (TCMP-CMO), in Trinidad and Tobago. On April 1, 2008, CMO purchased a sign store to promote its local distribution business.
(B) Principles of Consolidation
The accompanying 2008 condensed consolidated financial statements include the accounts of Chinese Manufacturers Online Corp. and its 100% owned subsidiaries Chinese manufacturers Group (USA) Corp. (from August 22, 2007, date of incorporation) and United Industries Group (USA) Corp. (from August 23, 2007, date of incorporation), and Chinese Manufacturers Online (Caribbean) Ltd (TCMP-CMO) (established on May 16, 2008 in the Republic of Trinidad and Tobago). The 2007 condensed financial statements include the accounts of Chinese Manufacturers Online Corp. All intercompany accounts have been eliminated in the consolidation.
CHINESE MANUFACTURERS ONLINE CORP.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2008
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(C) Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
(C)(D) Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
(D)
CHINESE MANUFACTURERS ONLINE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited)
(E) Basic and Diluted Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128, which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings (loss) per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. For the periods reported, diluted net income (loss) per share is the same as basic net income (loss) per share as there were no common stock equivalents outstanding.outstanding.
(E)(F) Research and Development Costs
The Company expenses all research and development costs as incurred for which there is no alternative future use. These costs also include the expensing of employee compensation and employee stock based compensation.
(F)(G) Income Taxes
Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (hereinafter “SFAS No. 109”). Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against the deferred tax asset if management does not believe the Company has met the “more likely than not” standard imposed by SFAS No. 109 to allow recognition of such an asset.
CHINESE MANUFACTURERS ONLINE CORP.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2008
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(G)(H) Stock-Based Compensation
The Company has adopted the provisions of SFAS No. 123R and related interpretations as provided by SAB 107. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, as required by SFAS No. 123(R), which is measured as of the date required by EITF Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” In accordance with EITF 96-18, the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.
(H) Business Segments(I) Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been translated into U.S. dollars in accordance with SFAS No. 52, Foreign Currency Translation (SFAS 52). All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date. Income statement amounts have been translated using an appropriately weighted average exchange rate for the year. The translation gains and losses resulting from the changes in exchange rates during 2008 have been reported in accumulated other comprehensive income, except for gains and losses resulting from the translation of intercompany receivables and payables, which are included in earnings for the period.
The Company has two subsidiaries, Chinese Manufacturers Group and United Industries Group. These two subsidiaries have no activities since inception.
(I)CHINESE MANUFACTURERS ONLINE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited)
(J) Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”. This statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require; the ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 affects those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We are currently evaluating the disclosure implications of this statement.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. SFAS 162 is effective 60 days following the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have a material impact on the Company’s financial position.
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB 163 is not expected to have a material impact on the Company’s financial position. CHINESE MANUFACTURERS ONLINE CORP.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2008
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(J)(K) Revenue Recognition
The Company recognizes revenue from product sales when the products are shipped and title passes to customers. Outbound shipping charges are included in net sales with the corresponding cost included in cost of sales. Other service revenue is recognized when services are performed and billable. Since the establishment of Chinese Manufacturers Online (Caribbean) Limited and the sign shop in Edison , New Jersey, revenue is also recognized from direct sales of products to CMO’s dealers and customers when the products are shipped and title passes and collectability is resonably assured.
(K)(L) Fair Value of Financial Instruments
The Company's financial instruments as defined by Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," include cash, accounts payable and accrued expenses. All such instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at SeptemberJune 30, 2007.2008.
(L)
CHINESE MANUFACTURERS ONLINE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited)
(M) Property and Equipment
The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life. The Company uses a three year life for software and five year life for computer equipment and a seven year life for furniture and equipment.
(M)(N) Concentration of Credit Risk
The Company at times has cash in banks in excess of FDIC insurance limits. At March 31,June 30, 2008 and December 31, 2007, the Company had $281,980$0 and $451,551 in excess of FDIC insurance limits, respectively.
(O) Intangible Assets
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets and, as required, the Company does not amortize indefinite lived intangible assets. Intangible assets that do not have indefinite lives are amortized over the useful lives and reviewed for impairment in accordance with SFAS no. 144.
(P) Reclassification
Certain amounts from prior period have been reclassified to conform to the current period presentation.
NOTE 2 BUSINESS SEGMENTS
The Company, (CMO) has three subsidiaries, Chinese Manufacturers Group (CMG) and United Industries Group (UIG), and Chinese Manufacturers Online (Caribbean) Ltd. (TCMP-CMO). Chinese Manufacturers Group and United Industries Group have had no activities since inception. TCMP-CMO is an overseas subsidiary in the Republic of Trinidad and Tobago. The TCMP-CMO began its operation on May 16, 2008.
The Company has changed their operating segments in 2008 as a result of a change of the internal organization structure by management. Each segment operates exclusively. The Company’s CMO segment provides online website B-to-B operational services to international buyers to reach manufacturers and their product information as well as other trading businesses. The Company’s Sign Store segment provides regular signage and artistic designs to its customers while assisting the Company to expand its distribution business to local sign stores. The Company’s (TCMP-CMO) segment provides importing and wholesale services to a distribution network within Trinidad and Tobago. The accounting policies of the segments are the same as described in the summary of significant accounting policies. There are no inter-segment sales. During 2007, the Company only had one segment, CMO.
For the Six Months Ended June 30, 2008 | | CMO | | | SIGN STORE | | | TCMP – CMO | | | Total | |
Revenue | | $ | 23,251 | | | $ | 18,248 | | | $ | 32,717 | | | $ | 74,216 | |
Loss from operations | | | (793,218) | | | | (23,020) | | | | (46,750) | | | | (862,988) | |
Depreciation and amortization | | | 1,724 | | | | - | | | | - | | | | 1,724 | |
-Equipment and intangible assets | | | 14,705 | | | | 17,737 | | | | - | | | | 32,442 | |
-Deferred charges and debt discount | | | - | | | | - | | | | - | | | | - | |
Interest expense | | | - | | | | - | | | | - | | | | - | |
Assets | | | 146,602 | | | | 17,737 | | | | 83,111 | | | | 247,450 | |
Capital Expenditures | | | - | | | | 24,000 | | | | - | | | | 24,000 | |
| | | | | | | | | | | | | | | | |
NOTE 3STOCKHOLDERS’ EQUITY
CHINESE MANUFACTURERS ONLINE CORP.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2008
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 | STOCKHOLDERS’ DEFICIT |
(A) Common Stock Issued for Cash
For the twelve months ending December 31, 2007, the Company issued 626,000 shares of common stock for cash of $156,500 at the price of 0.25 per share and 1,474,000 shares of common stock for cash of $737,000 at the price of $0.50 per share.
(B) Common Stock Issued for Services
For the twelve months ending December 31, 2007, the Company issued 7,900,000 of common stock at a fair value of $0.25 per share to its board members for service valued at $1,975.000. The value of the shares will be amortized over the service period of six months. As of December 31, 2007,For the Company has recognized $1,616,801 of stock compensation expense. As of March 31,six months ended June 30, 2008, the Company has recognized $ 1,866,667$358,199 of stock compensation expense.
(D)Preferred Stock
The Company is authorized to issue 10,000,000 shares of $0.001 per value preferred stock. As of March 31,CHINESE MANUFACTURERS ONLINE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008 there are no shares of preferred stock outstanding.
(Unaudited)
(D) In-Kind Contribution(B) Cancellation of Subscription Receivable
On May 1, 2008, the Board of Directors accepted a cancellation of 20,000 share subscription from CMO’s former Chief Marketing Officer, Dr. Moritz, under the name of his wife, Ms. Ingrid Moritz.
During the twelve months ended December 31, 2007, the company recorded $67,500 of in-kind contribution by its principal stockholder.
NOTE 34 COMMITMENTS AND CONTINGENCIES
(A) Employment Agreement
On August 1, 2007, the Company entered into a one year employment agreement with its Chief Executive Officer. The agreement calls for an annual salary of $135,000 in 2007 and an annual salary of $250,000 in 2008 plus all reasonable benefits as the company may offer to employees. In addition, he will receive an annual bonus of 2% of the annual net profit during the term of the agreement.agreement
CHINESE MANUFACTURERS ONLINE CORP.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2008
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On August 1, 2007, the Company entered into a one year employment agreement with its Chief Marketing Officer. The agreement calls for an annual salary of $100,000 for the first four months and $200,000 for the last eight months plus all reasonable benefits as the company may offer to employees. In addition, he will receive an annual bonus of 1% of the annual net profit during the term of the agreement. The agreement was terminated on April 30, 2008 when the CMO resigned.
(B) Operating Agreement
On July 9, 2007, the Company entered into a one-year lease agreement for office space. The lease calls for monthly payment of $1,650 plus utilities. On June 4, 2008 this lease was extended through July 8, 2009.
On April 1, 2008, the Company purchased a sign store and continues the lease at the existing store space for seventeen months, ending on August 30, 2009. These lease calls for monthly payment of $1,800 plus utilities.
On May 15, 2008, the Company’s subsidiary in the Republic of Trinidad and Tobago entered into a one-year lease agreement for office space. The lease calls for monthly payment of $2,300 plus utilities.
(C) Board of Directors Agreement
During the year ending December 31, 2007, the Company issued 7,900,000 of common stock at a fair value of $0.25 per share to its board members for service valued at $1,975.000. The value of the shares will be amortized over the service period of six months and issuance of shares is contingent upon successfully completing a six month term. As of December 31, 2007, the Company has recognized $1,616,801 of stock compensation expense asexpense. As of March 31,June 30, 2008, the Company has recognized $1,866,667$1,975,000 of stock compensation expense.
(D) Cooperate Business Contract
On February 15, 2008 CMO entered into a cooperative business contract with a consultant to conduct marketing and promotion sales activity in buying of Chinese manufactured products and marketing and selling them to both the private and public sectors in the Trinidad and Tobago market. CMO will formformed a new business entity called TCMP – CMO in Trinidad. CMO owns 100% of the newly formed business (TCMP-CMO) and the consultant holds no ownership interest. The new entity will conduct all business under the joint effort with the consultant. This agreement is effective until December 31, 2019. CMO will receiveshare in 70% of the profit/loss associates with this contract. The consultant will receiveshare in 30% of the profit /loss associates with this contract.
CHINESE MANUFACTURERS ONLINE CORP.
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2008AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited)
During 2007, the Company was engaged with a marketing and information technology support company in China. One of the Company’s directors is also the president of this marketing and information technology support company. During 2007, the company and the related party agreed to terminate the agreement and the related party agreed to return $79,052. A total of $116,000 was paid for services performed for the Company. At year end it was determined that only $36,948 worth of services was earned due to related party conflicts. At March 31,June 30, 2008 and December 31, 2007 $50,015 and $79,052 is recorded as a receivable from this marketing and information technology support company.
During 2007, the company advanced the Chief Marketing Officer $7,500 as part of a relocation package. As at March 31, 2008 $6,650 was outstanding. The balance was repaid when the CMO resigned on April 30, 2008.