In accordance with the laws and regulations of the PRC, after the payment of the PRC income taxes shall be allocated to the statutory surplus reserves and statutory public welfare fund for staff and workers. The proportion of allocation for reserve is 5 to 10 percent of the profit after tax until the accumulated amount of allocation for statutory reserve reaches 50 percent of the registered capital. Statutory surplus reserves are to be utilized to offset prior years’ losses, or to increase its share capital.
General reserve fund and statutory surplus fund are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of March 31, 2006, the Company had no reserves to these non-distributable reserve funds since it had no income from operations.
Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders’ equity, at March 31, 2006 are as follows:
Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders’ equity, at March 31, 2005 are as follows:
Item 2. | Management’s Discussion and Analysis or Plan of Operation |
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS FORM 10-QSB.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain financial information and statements regarding our operations and financial prospects of a forward-looking nature. Although these statements accurately reflect management’s current understanding and beliefs, we caution you that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to be made in this Prospectus. For this purpose, any statements contained in this Prospectus which are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “intend”, “expect”, “believe”, “anticipate”, “could”, “estimate”, “plan”, or “continue” or the negative variations of these words or comparable terminology are intended to identify forward-looking statements. There can be no assurance of any kind that such forward-looking information and statements in any way reflect our actual future operations and/or financial results, and any of such information and statements should not be relied upon either in whole or in part in any decision to invest in the shares. Many of the factors, which could cause actual results to differ from forward looking statements, are outside our control. These factors include, but are not limited to, the factors discussed above under “Risk Factors.”
The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the December 31, 2005 consolidated financial statements and notes thereto (the 2005 Consolidated Financial Statements), along with the MD&A included in Artcraft V, Inc.’s 2005 Annual Report on Form 10-KSB for the period ended December 31, 2005. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.
The information contained in this MD&A, other than historical information, contains “forward looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and assumptions. This MD&A should be read in conjunction with the sections entitled “Additional Factors That May Affect Future Results” and “Forward-Looking Statements.”
OVERVIEW
Artcraft V, Inc. was incorporated under the laws of the State of Delaware on June 7, 2004. On November 7, 2005, the Company entered into an Exchange Agreement with Top Interest International Limited (“Top Interest”). Top Interest owns 70% equity interest of Shenzhen Xin Kai Yuen Info Consult Co., Ltd. (“188.com”) which operates 188info.com, a professional information searching platform that categorized the information it provides based on geography. Top Interest was incorporated under the laws of the British Virgin Islands. 188.com was legally established under the laws of the People’s Republic of China. When used in these notes, the terms “Company”, “we”, “our” or “us” mean Artcraft V, Inc. and its subsidiaries.
On November 7, 2005, the Company entered into an Exchange Agreement with Top Interest, a company incorporated under the laws of the British Virgin Islands. Top Interest owns 70% of equity interest of 188.com which is incorporated under the laws of the People’s Republic of China, and is engaged in the business of providing information search engine, online web application and image designing, digital network service, online market research, online promotion and advertising services, and query searches for both individuals and businesses.
Pursuant to the Stock Purchase and Share Exchange Agreement, the Company purchased all of the issued and outstanding shares of Top Interest form the shareholders for issuance of a total of 10,000,000 shares of the Company’s common stock, or approximately 97.56% of the total issued and outstanding shares. This transaction closed on November 7, 2005.
As a result of the exchange agreement, the reorganization was treated as an acquisition by the accounting acquiree that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data have been retroactively restated. Accordingly, the financial statements include the following:
(1) The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer at historical cost.
(2) The statements of operations include the operations of the accounting acquirer for the period presented and the operations of the legal acquirer from the date of the merger.
We operate our business through our wholly owned subsidiary, Top Interest International Limited, which operates 188Info.
188Info provides a number of services including information search engine, online web application and image designing, digital network service, online market research, online promotion and advertising services, and query searches for both individuals and businesses.
188Info has a strong reputation among Shenzhen residents. Many Shenzhen residents use 188 Info to publish and search for information.
188Info enjoys several competitive advantages including innovative information categorization, sophisticated product and service categorization. For example, 188Info’s categories include career services, real estate, lodging accommodations, transportation, computer networking, communications electronics, furniture, gifts and apparel, printing presses, and other businesses. Information is presented in a variety of ways to enhance readability.
188Info has adopted a rapid development plan and has succeeded in becoming one of the major information websites for Chinese in a relatively short time period. 188Info has achieved its success on the basis of a modest initial investment.
During the past year, our operations have been devoted primarily to developing a business plan, developing and designing our website, preparing to bring the website online and raising capital for future operations and administrative functions. We are completing a website to be utilized in various real estate services such as relocation, listings of real estate sales or rentals, mortgage information and other real estate related information or content. We have not spent any money for research and development.
The Company is now engaged in the business of mobile phone, facsimile machines distribution.
PLAN OF OPERATIONS
During the next twelve months, we expect to take the following steps in connection with the development of our business and the implementation of our plan of operations:
1) Initiate substantive construction of our corporate website. We currently have constructed a comprehensive and well designed site webpage at www.188info.com which outlines the products and services that we offer and such website includes additional sub-pages, our phone and email information, navigational tools and a more detailed description of our products and services. 188 infonet features a wide range of Web advertisement. Web advertising can reach any part of the world equally fast, which is an impossible feat for conventional advertisement. Our multimedia presentation is rich in audio, and video. Our web content is interactive by nature. Current programs such as Flash, Shockwave provide vivid, animated interaction.
The next stage of web development will focus on promoting 188 infonet and expand its influence into people’s daily activities. Including a plan to discuss with various industries consultants to assist us, as well as companies within the industry to partner with; further promote of 188Info and develop related websites to attract a younger demographic and achieve one million hits on a daily basis; Establish a community information service in Shenzhen by cooperating with communities, Such as publish yellow pages in Shenzhen.
Incorporation of these services could run from $2,500 to $100,000 depending upon the level of detail in these services and the nature of the partnerships reached. If we reach partnerships whereby we incorporate other company’s services into our site and co-brand with partners, programming will be far simpler and thereby cheaper than if we have to offer users the ability to design their own service requests.
Further website expansion in 2006 and 2007 will be in various phases subject to revenue and capital availability.
2) Within 30 days of effectiveness of our SB-2 filed on January 13, 2006, we will seek a quotation for our common shares on the OTC Bulletin Board. We anticipate that the date of the application for the quotation will be by the end of the year and there are no fees to us for such filing. At such time, we will also begin discussions with various potential real estate consultants to assist us, as well as companies within the industry to partner with. We have already commenced the process of searching for consultants and partners and will continue to do so in an ongoing manner and we believe that such consultants will also be secured by the end of year. Our preference would be to structure deals that have little cash outlays and reward consultants with stock and percentages of revenue and profits, however, consultants could require monthly fees of $2,000 to $8,000 a month. We do not anticipate any costs being involved with our initial partnership as we will attempt to strike partnership deals that are revenue and profit-sharing arrangements;
3) Within 60 days of effectiveness of this prospectus, identify funding options to raise additional capital for the company and key geographic markets to target during our first phase of operations. We intend to seek funding options such as equity or debt financing. However, currently we have had no preliminary discussions with any group regarding such financing. As we develop and the overall economic climate improves, we expect to be in a better position to raise outside capital later in 2006. The only associated costs for such funding may be the due diligence costs or expenses associated with putting a financing deal together. The costs would be as much as 5%-6% of the funding raised, but any such fees would be taken out of the closing of the funding transaction. Searching for capital will likely be an ongoing process even if we raise an initial amount of funds. The only potential expenses would be if we decide to pay for outside research or if business trips are required.
4) Hire and train additional staff, including management, marketing staff, and administrative personnel; we anticipate hiring at a minimum 10 employees in the next twelve months. We anticipate hiring additional employees by the end of 2006. The number of employees hired will be dependent upon a variety of factors including our progress in implementing our business plan and available capital. Ultimately, we expect to require approximately $10,000 per month for payroll. We will need additional capital to meet these expenses and will scale down accordingly until we are in such a position. The hiring of employees will be an ongoing process during the company’s existence.
We intend to grow through internal development and strategic alliances.
Because of uncertainties surrounding our development and limited operating history, we anticipate incurring development stage losses in the foreseeable future. Our ability to achieve our business objectives is contingent upon its success in raising additional capital until adequate revenues are realized from operations.
RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations information for the three month periods ended March 31, 2006 and 2005. Certain columns may not add due to rounding.
| | 2006 | | | 2005 |
Sales, net | $ | 5,657 | | $ | 4,737 |
General and Administrative Expense | | 29,028 | | | 5,102 |
Income (Loss) from Operations | $ | (23,371) | | $ | (365) |
Net sales
Net sales for the three month periods ended March 31, 2006 totaled $5,657 compared to $4,737 as of the three month periods ended March 31, 2005, an increase of $920 or approximately 19.4%. The increase was due to the increase in the number of new clients.
Operating Expense
Operating expense for three month periods ended March 31, 2006 totaled $29,028 or approximately 513.3% of net sales, compared to $5,102 or approximately 107.7% for the three month periods ended March 31, 2005. The increase in operating expense of $23,926 or approximately 469% was due to increased expenses incurred during expansion of the business.
Loss from Operations
Loss from operations for the three month periods ended March 31, 2006 was $23,371 as compared to loss from operations of $365 for three month periods ended March 31, 2005, a decrease of $23,006 or approximately 6303%. The decrease was due reasons stated above.
Interest Expense
Interest expense for the three month periods ended March 31, 2006 totaled $73 compared to $0 for the three month periods ended March 31, 2005, an increase of $73. The increase in interest expense was due to the indebtedness related to the acquisition of fixed assets.
Net Loss
Net loss was $21,334 for the three month periods ended March 31, 2006 compared to net loss of $178 for three month periods ended March 31, 2005, a decrease of $21,156 or 11885%. The decrease was due to the increased operating expenses
LIQUIDTY AND CAPITAL RESOURCES
Cash has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $3,747 at March 31, 2006 and current assets totaled $90,395 at March 31, 2006. The Company’s total current liabilities were $110,890 at March 31, 2006. Working capital at March 31, 2006 was $(20,495). During the three month periods ended March 31, 2006, net cash used in operating activities was $13,925.
Our operations and short term financing does not currently meet our cash needs. We believe we will be able to generate revenues from sales and raise capital through private placement offerings of its equity securities to provide the necessary cash flow to meet anticipated working capital requirements. Our actual working capital needs for the long and short term will depend upon numerous factors, including our operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Our future expansion will depend on operating results and will be limited by its ability to enter into financings and raise capital.
Capital expenditures
Total capital expenditures during the three month periods ended March 31, 2006 and 2005 was $0 and $10,552, respectively for the purchase of fixed assets.
Working Capital Requirements
Historically operations and short term financing have been sufficient to meet our cash needs. We believe that we will be able to generate revenues from sales and raise capital through private placement offerings of its equity securities to provide the necessary cash flow to meet anticipated working capital requirements. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of financing products and raising capital.
Critical Accounting Policies
Artcraft V’s financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact its financial condition and results of operations, Artcraft V views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on Artcraft V’s consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Item 3. | Controls and Procedures |
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of March 31, 2006. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the first quarter of fiscal 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. | Legal Proceedings. |
The Company is currently not a party to any pending legal proceedings and no such action by, or to the |
best of its knowledge, against the Company has been threatened. | |
Item 2. | Changes in Securities. |
Item 3. | Defaults Upon Senior Securities. |
Item 4. | Submission of Matters to a Vote of Security Holders. |
No matter was submitted during the quarter ending March 31, 2006, covered by this report to a vote of the Company’s shareholders, through the solicitation of proxies or otherwise.
Item 5. | Other Information. |
Item 6. | Exhibits and Reports of Form 8-K. |
31.1 Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 |
32.1 Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
By: /s/ Li Te Xiao | |
Li Te Xiao | |
President, Chief Executive Officer, | |
Chief Financial Officer and Director |
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