The Company through its subsidiary, 188info.com, is governed by the Income Tax Laws of the PRC. Operations in the United States of America have incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future and hence the Company has not recorded any deferred assets as of September 30, 2007.
Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) is at a statutory rate of 33%, which is comprises of 30% national income tax and 3% local income tax. 188info.com qualified as a new technology enterprise and under PRC Income Tax Laws, they are subject to a preferential tax rate of 15%.
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 September 30, 2007, 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 September 30, 2007 are as follows:
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the company as a going concern. However, the Company has an accumulated deficit of $168,402 as of September 30, 2007 including losses of $72,933 and $43,682 for the nine months ended September 30, 2007 and 2006. The Company’s total liabilities exceed its total assets by $69,815. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and succeed in its future operations, The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. Management devoted considerable effort from inception through the nine months ended September 30, 2007, towards obtaining additional equity and management of accrued expenses and accounts payable.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
The following table presents certain consolidated statement of operations information for the three months ended September 30, 2007 and 2006. The discussion following the table is based on these results. Certain columns may not add due to rounding.
Net Revenue
Net sales for the three months ended September 30, 2007 totaled $7,248 compared to $5,198 for the three months ended September 30, 2006, an increase of $2,050 or approximately 39.4%. The increase was due to the increase in the number of new clients.
Operating Expense
General and administrative expenses for the three months ended September 30, 2007 totaled $34,962 or approximately 482.4% of net revenue compared to $16,806 or approximately 323.3% of net revenue for the three months ended September 30, 2006. The increase in operating expense of $18,156 or approximately 108% was due to increased expenses incurred for the expansion of the business.
Income (Loss) from Operations
Income (loss) from operations for the three months ended September 30, 2007 totaled $(27,714) or approximately 382.4% of net revenue compared to $(11,608) or approximately 223.3% of net revenue for the three months ended September 30, 2006, a decrease of $16,106 or approximately 138.7%. The decrease in income from operations was primarily due to increase in expenses as stated above.
Net Income (Loss)
Net income (loss) for the three months ended September 30, 2007 totaled $(26,565) compared to $(9,736) for the three months ended September 30, 2006, a decrease of $16,829 or approximately 172%. The decrease in net loss was primarily due to reason described above.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
The following table presents certain consolidated statement of operations information for the nine months ended September 30, 2007 and 2006. The discussion following the table is based on these results. Certain columns may not add due to rounding.
| | | 2007 | | | 2006 | |
| | | | | | | |
| Revenue, net | | $ | 18,812 | | | $ | 16,420 | |
| | | | | | | | | |
| General and administrative expenses | | | 96,109 | | | | 66,543 | |
Income from operations | | | (77,297 | ) | | | (50,123 | ) |
| | | | | | | | | |
| Other (Income) Expense | | | | | | | | |
| Interest income | | | (1,376 | ) | | | (3,350 | ) |
| Other income | | | - | | | | (525 | ) |
| Minority interest | | | (2,989 | ) | | | (2,689 | ) |
| Interest expense | | | - | | | | 123 | |
| Total Other (Income) Expense | | | (4,365 | ) | | | (6,441 | ) |
| | | | | | | | | |
| | | | | | | | | |
Net loss | | $ | (72,932 | ) | | $ | (43,682 | ) |
| | | | | | | | | |
Net Revenue
Net sales for the nine months ended September 30, 2007 totaled $18,812 compared to $16,420 for the nine months ended September 30, 2006, an increase of $2,392, or approximately 14.6%. The increase was due to the increase in the number of new clients.
Operating Expense
General and administrative expenses for the nine months ended September 30, 2007 totaled $96,109 or approximately 511% of net revenue compared to $66,543 or approximately 405.3% of net revenue for the nine months ended September 30, 2006. The increase in operating expense of $29,566 or approximately 44.4% was due to increased expenses incurred for the expansion of the business.
Income (Loss) from Operations
Income (loss) from operations for the nine months ended September 30, 2007 totaled $(77,297) or approximately 411% of net revenue compared to $(50,123) or approximately 305.3% of net revenue for the nine months ended September 30, 2006, a decrease of $27,174 or approximately 54.2%. The decrease in income from operations was primarily due to increase in expenses as stated above.
Net Income (Loss)
Net income (loss) for the nine months ended September 30, 2007 totaled $(72,933) compared to $(43,682) for the nine months ended September 30, 2006, a decrease of $29,251 or approximately 67%. The decrease in net loss was primarily due to reason described above.
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 $59,628 at September 30, 2007 and current assets totaled $205,020 at September 30, 2007. The Company's total current liabilities were $298,881 at September 30, 2007. Working capital at September 30, 2007 was $(93,861). During the nine months ended September 30, 2007, net cash used in operating activities was $(108,773).
We will continue to evaluate alternative sources of capital to meet our growth requirements, including other asset or debt financing, issuing equity securities and entering into other financing arrangements. There can be no assurance, however, that any of the contemplated financing arrangements described herein will be available and, if available, can be obtained on terms favorable to us.
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.
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.
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.
Recent Accounting Pronouncements
In September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The management is currently evaluating the effect of this pronouncement on financial statements.
In September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:
a. A brief description of the provisions of this Statement
b. The date that adoption is required
c. The date the employer plans to adopt the recognition provisions of this Statement, if earlier.
The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The management is currently evaluating the effect of this pronouncement on financial statements.
In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FAS 159 for their first quarter 2007 financial statements.
The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities.
Critical Accounting Policies
Artcraft V, Inc.’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, Inc.’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.
Item 3. Control 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 September 30, 2007. 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 third quarter of fiscal 2007 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.
We are currently not a party to any pending legal proceedings and, to the best of our knowledge, no such action against us has been threatened.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending September 30, 2007, covered by this report to a vote of the Company’s shareholders, through the solicitation of proxies or otherwise.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits
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
(b) Reports of Form 8-K
None.
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 |
| | | | |
Date: November 6, 2007
