UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
_______________
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to______.
ARTCRAFT V, INC.
(Exact name of registrant as specified in Charter
| Delaware | | 26-0744863 | | |
(State or other jurisdiction of incorporation or organization) | | (Commission File No.) | | (IRS Employee Identification No.) |
Room 1131, XianKeJiDian Building
BaGuaSi Road Futian District
Shenzhen City, China 518029
(Address of Principal Executive Offices)
_______________
011-86775 23990959
(Issuer Telephone number)
_______________
(Former Name or Former Address if Changed Since Last Report)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes T No *
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes x No o
As of March 11, 2008, the Company had 10,250,000 shares of common stock outstanding.
ARTCRAFT V, INC.
FORM 10-Q
March 31, 2008
PART I-- FINANCIAL INFORMATION
| |
| Management’s Discussion and Analysis of Financial Condition |
| Quantitative and Qualitative Disclosures About Market Risk |
| Control and Procedures |
PART II-- OTHER INFORMATION
| Legal Proceedings |
| Unregistered Sales of Equity Securities and Use of Proceeds |
| Defaults Upon Senior Securities |
| Submission of Matters to a Vote of Security Holders |
| Other Information |
| Exhibits and Reports on Form 8-K |
ITEM 1. FINANCIAL INFORMATION
The financial statement of the Company are included following the signature page of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, "Management's Discussion and Analysis or Plan of Operation," references to "we," "us," "our," and "ours" refer to Artcraft V, Inc. and its subsidiary.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-KSB. The following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements.
Critical Accounting Policies:
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. We based our estimates on historical experience and on other various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis from making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and/or conditions.
Overview:
We operate our business through our wholly owned subsidiary, Top Interest International Limited, which operates our "188Info" service. 188Info provides a number of services including an information search engine, an online web application and an 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 188Info 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.
We are also 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.
Plan of Operation:
We intend to grow through internal development and strategic alliances. Because of uncertainties surrounding our growth and limited operating history, we anticipate incurring losses in the foreseeable future. We have already incurred significant net losses, with a net loss of $1,781 in 2005 and a net loss of $92,812 in 2006. The difference was due to an increase in operating expenses, and as we attempt to grow are business, these expenses will certainly increase. Also, we may incur substantial net losses in the future due to the relatively high risk associated with our revenue and the high level of planned operating and capital expenditures, including sales and marketing costs, personnel hires, and product development. Also, maintaining and further expanding our brand is critical to our ability to expand our user base and our revenues. We believe that the importance of brand recognition will increase as the number of Internet users in China grows. In order to attract and retain Internet users, advertisers, subscribers, and wireless and e-commerce customers, we may need to substantially increase our expenditures for creating and maintaining brand loyalty. If our revenues do not increase proportionately, our results of operations and liquidity will suffer. For some periods, we may have net profits; however, we may not sustain profitability over time.
Accordingly, our ability to achieve our business objectives is contingent upon our success in raising additional capital until adequate revenues are realized from operations. During the next twelve months, we expect to take the following steps in connection with the expansion of our business and the continuance of our operations:
1) Initiate substantive construction of our corporate website. We currently have constructed a comprehensive 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 expansion 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 2008 will be in various phases subject to revenue and capital availability.
2) We are currently identifying 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 grow and the overall economic climate improves, we expect to be in a better position to raise outside capital later. 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. Any such fees, however, 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.
3) 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. 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 growth and strong competition, we anticipate incurring 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.
Employees
As of March 11, 2008, we have 10 full time employees located in China. We intend to hire and train additional staff, including management, marketing staff, and administrative personnel. We anticipate hiring a minimum of 10 employees in the next twelve months. The number of employees hired will depend on 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
The following table presents certain consolidated statement of operations information for the three months ended March 31, 2008 and 2007. The discussion following the table is based on these results. Certain columns may not add due to rounding.
| | | Three months ended March 31, 2008 | | | Three months ended March 31, 2007 | |
| | | | | | | |
| Revenue, net | | $ | 7,389 | | | $ | 4,783 | |
| | | | | | | | | |
| General and administrative expenses | | | 16,170 | | | | 23,684 | |
| Income from operations | | | (8,780 | ) | | | (18,901 | ) |
| | | | | | | | | |
| Other (Income) Expense | | | | | | | | |
| Interest income | | | (2 | ) | | | (1,814 | ) |
| Income tax | | | 111 | | | | - | |
| Interest expense | | | - | | | | 39 | |
| Total Other (Income) Expense | | | 109 | | | | (1,775 | ) |
| | | | | | | | | |
| Minority Interest | | | - | | | | 1,040 | |
| | | | | | | | | |
| Net loss | | $ | (8,889 | ) | | $ | (16,086 | ) |
Net Revenue
Net sales for the three months ended March 31, 2008 totaled $7,389 compared to $4,783 for the three months ended March 31, 2007, an increase of $2,606 or approximately 54.5%. In 2008, due to marketing department’s hard working and technical department’s development, our website was improved with more categories and information available to our users.
Operating Expense
General and administrative expenses for the three months ended March 31, 2008 totaled $16,170 compared to $23,684 for the three months ended March 31, 2007. The decrease in operating expense of $7,514 or approximately 31.7% was because we did not have to write-off of bad debt recognized from loan and other receivable that realized in the three months ended March 31, 2007.
Income (Loss) from Operations
Income (loss) from operations for the three months ended March 31, 2008 totaled $(8,780) compared to $(18,901) for the three months ended March 31, 2007, an improvement of $10,121or approximately 53.5%. The improvement in income from operations was primarily due to a decrease in expenses as stated above.
Net Income (Loss)
Net income (loss) for the three months ended March 31, 2008 totaled $(8,889) compared to $(16,086) for the three months ended March 31, 2007, an improvement of $7,197 or approximately 44.7%. The increase in net loss was primarily due to the reasons described above.
LIQUIDTY AND CAPITAL RESOURCES
We have limited liquidity and capital resources. Earnings were insufficient in three months ended March 31, 2008 to meet the liquidity needs of operations in that period. 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.
On November 7, 2005, pursuant to the closing of the Stock Purchase Agreement and Share Exchange with Top Interest International Limited, we ceased being a "blank check" company, as that term is defined in rule 419 of Regulation C under the rules of the Securities Act of 1933, and began operating an a professional information searching platform that categorizes the information it provides based on geographical boundaries.
Our cash requirements consist of general and administrative expenses, and professional fees, which are expected to average $1,700 per month for the next 12 months. We believe we have sufficient cash to meet our minimum development and operating costs for the next 12 months. We will need to raise additional capital to continue our operations past 12 months, and there is no assurance we will be successful in raising the needed capital. Due to difficult market conditions, we are focusing on growing through strategic alliances without the necessity of outlaying cash.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates. The Company does not undertake any specific actions to limit those exposures.
Foreign Currency Exchange Rate Risk
The Company has operations located overseas. As such, its financial results could be indirectly affected by the weakening of the dollar. If that were to occur, and if it were material enough in movement, the financial results of the Company could be affected, but not immediately because the Company has entered into contracts with these vendors which establish product pricing levels for up to one year. Management believes these contracts provide a sufficient amount of time to mitigate the risk of changes in exchange rates.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures - - Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, have concluded that, based on the evaluation of these controls and procedures, that our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports or filed or submitted 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 the Company’s disclosure and controls are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
Currently we are not aware of any litigation pending or threatened by or against the Company.
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.
None.
None
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits
31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
(b) Reports of Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | ARTCRAFT V, INC | | | |
| | | | | |
| Date: May 12, 2008 | By: | By: /s/ Li Te Xiao | | |
| | | Li Te Xiao | |
| | | President, Chief Executive Officer, | | | |
| | | Chief Financial Officer and Director | | | |
ARTCRAFT V, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
| Unaudited Condensed Consolidated Balance Sheets | F2 |
| | |
| Unaudited Condensed Consolidated Statements of Operations | F3 |
| | |
| Unaudited Condensed Consolidated Statements of Cash Flow | F4 |
| | |
| Notes to unaudited Condensed Consolidated Financial Statements | F5 |
| ARTCRAFT V, INC. AND SUBSIDIARIES | |
| CONSOLIDATED BALANCE SHEETS | |
| MARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007 | |
| ASSETS | |
| | | | | | | |
| | | March 31, 2008 | | | December 31, 2007 | |
| | | (Unaudited) | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | 124,829 | | | $ | 18,070 | |
Other receivable from related parties | | | 286 | | | | 274 | |
Loan receivable, net | | | - | | | | 26,250 | |
Total Current Assets | | | 125,115 | | | | 44,594 | |
| | | | | | | | | |
| | | | | | | | | |
| Property & equipment, net | | | 15,178 | | | | 15,777 | |
| | | | | | | | | |
| Intangible assets, net | | | 6,220 | | | | 6,636 | |
| | | | | | | | | |
| | | $ | 146,513 | | | $ | 67,006 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
Accounts payable and accrued expenses | | $ | 23,461 | | | $ | 36,142 | |
Loan payable to related party | | | 304,633 | | | | 265,721 | |
Deferred revenue | | | 14,387 | | | | 3,313 | |
Total Current Liabilities | | | 342,481 | | | | 305,176 | |
| | | | | | | | | |
| Stockholders' Deficit | | | | | | | | |
Common stock, $.001 par value, 100,000,000 | | | | | | | | |
shares authorized, 10,250,000 issued and outstanding | | | 10,250 | | | | 10,250 | |
Additional paid in capital | | | 109,431 | | | | 108,872 | |
Subscription receivable | | | - | | | | (50,000 | ) |
Other accumulated comprehensive gain | | | 7,203 | | | | 6,673 | |
Accumulated deficit | | | (322,852 | ) | | | (313,965 | ) |
Total Stockholders' Deficit | | | (195,969 | ) | | | (238,170 | ) |
| | | | | | | | | |
| | | $ | 146,513 | | | $ | 67,006 | |
| | | | | | | | | |
| | | | | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| ARTCRAFT V, INC. AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF OPERATIONS | |
| FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 | |
| | (UNAUDITED) | | | | |
| | | | | | | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Revenue, net | | $ | 7,389 | | | $ | 4,783 | |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | |
General and administrative expenses | | | 16,170 | | | | 23,684 | |
| | | | | | | | | |
| Loss from operations | | | (8,780 | ) | | | (18,901 | ) |
| | | | | | | | | |
| Other (Income) Expense | | | | | | | | |
Interest income | | | (2 | ) | | | (1,814 | ) |
Income tax | | | 111 | | | | - | |
Interest expense | | | - | | | | 39 | |
| | | | | | | | | |
Total Other (income) expense | | | 109 | | | | (1,775 | ) |
| | | | | | | | | |
| Loss before minority interest | | | (8,889 | ) | | | (17,126 | ) |
| | | | | | | | | |
| Minority interest | | | - | | | | 1,040 | |
| | | | | | | | | |
| Net loss | | | (8,889 | ) | | | (16,086 | ) |
| | | | | | | | | |
| Other comprehensive income | | | | | | | | |
| Foreign currency translation | | | 530 | | | | 1,107 | |
| | | | | | | | | |
| Comprehensive loss | | $ | (8,359 | ) | | $ | (14,979 | ) |
| | | | | | | | | |
| Net loss per share: | | | | | | | | |
Basic & diluted | | $ | (0.0009 | ) | | $ | (0.0015 | ) |
| | | | | | | | | |
| Weighted average number of shares outstanding: | | | | | | | | |
Basic & diluted | | | 10,250,000 | | | | 10,100,000 | |
| | | | | | | | | |
| Weighted average number of shares for dilutive securities has not been taken since the effect of dilutive securities is anti-dilutive | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| ARTCRAFT V, INC. AND SUBSIDIARIES | |
| FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 | |
| (UNAUDITED) | |
| | | | | | | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net loss | | $ | (8,889 | ) | | $ | (16,086 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | |
provided by (used in) operating activities: | | | | | | | | |
Depreciation & amortization | | | 1,905 | | | | 2,163 | |
Minority interest | | | - | | | | (1,040 | ) |
Payment of rental by an officer | | | 559 | | | | - | |
Decrease/ (increase) in current assets: | | | | | | | | |
Other receivables | | | 26,250 | | | | (1,813 | ) |
Increase/ (decrease) in current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | | (13,038 | ) | | | (16,091 | ) |
Deferred revenue | | | 10,704 | | | | 4,443 | |
| | | | | | | | | |
Total adjustments | | | 26,380 | | | | (12,338 | ) |
| | | | | | | | | |
| | | | | | | | | |
Net cash provided by (used in) operations | | | 17,491 | | | | (28,424 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| | | | | | | | | |
| Loan from related party | | | 88,912 | | | | 29,967 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 355 | | | | 78 | |
| | | | | | | | | |
| Net increase in cash and cash equivalents | | | 106,759 | | | | 1,622 | |
| | | | | | | | | |
| Cash and cash equivalents, beginning balance | | | 18,070 | | | | 7,750 | |
| | | | | | | | | |
| Cash and cash equivalents, ending balance | | $ | 124,829 | | | $ | 9,372 | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES: | | | | | | | | |
| | | | | | | | | |
Cash paid during the year for: | | | | | | | | |
| | | | | | | | | |
Income tax payments | | $ | - | | | $ | - | |
Interest payments | | $ | - | | | $ | - | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Note 1 – ORGANIZATION
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 Yuan Info Consult Co., Ltd. (“188info.com”) which operates 188info.com, a professional information searching platform that 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. Top Interest was incorporated under the laws of the British Virgin Islands. 188info.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.
Pursuant to the Stock Purchase and Share Exchange Agreement, the Company purchased all of the issued and outstanding shares of Top Interest from the shareholders for issuance of a total of 10,000,000 shares of the Company’s common stock, or approximately 99% of the total issued and outstanding shares. This transaction closed on November 7, 2005 and has been accounted for as a reverse acquisition.
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared by Artcraft V, Inc., pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) Form 10-QSB and Item 310 of Regulation S-B, and generally accepted accounting principles for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-KSB. The results of the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company’s functional currency is the Chinese Renminbi (CNY); however the accompanying consolidated financial statements have been translated and presented in United States Dollars.
Principles of Consolidation
The consolidated financial statements include the accounts of Artcraft V, Inc. and its wholly owned subsidiary Top Interest International and majority owned subsidiary Shenzhen Xin Kai Yuan Info Consult Co., Ltd., collectively referred to within as the Company. All material intercompany accounts, transactions and profits have been eliminated in consolidation.
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Exchange Gain (Loss)
During the three month periods ended March 31, 2008 and 2007, the transactions of Shenzhen were denominated in foreign currency and were recorded in CNY at the rates of exchange in effect when the transactions occur. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.
Translation Adjustment
As of March 31, 2008, the accounts of Shenzhen were maintained, and its financial statements were expressed, in CNY. Such financial statements were translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation,” with the CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholder’s equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component of shareholders’ equity.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Property, Plant & Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:
| Automobile | 5 years |
| Office equipment | 5 years |
As of March 31, 2008 and December 31, 2007, Property, Plant & Equipment consist of the following:
| | | 2008 | | | 2007 | |
| Automobile | | $ | 12,453 | | | | 11,957 | |
| Office equipment | | | 21,660 | | | | 20,794 | |
| | | | | | | | | |
| | | | 34,112 | | | | 32,751 | |
| | | | | | | | | |
| Accumulated depreciation | | | (18,934 | ) | | | (16,974 | ) |
| | | | | | | | | |
| | | $ | 15,178 | | | $ | 15,777 | |
| | | | | | | | | |
Depreciation expenses were $1,228 and $1,539 for the three month periods ended March 31, 2008, and 2007.
Intangible Assets
Intangible assets consist of software for information search engine and online web application. The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. As of March 31, 2008, there is no impairment of intangible assets.
As of March31, 2008 and December 31, 2007 intangible assets consist of the following:
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
| | | 2008 | | | 2007 | |
| Software | | $ | 13,823 | | | | 13,271 | |
| | | | | | | | | |
| | | | 13,823 | | | | 13,271 | |
| | | | | | | | | |
| Accumulated amortization | | | (7,603 | ) | | | (6,635 | ) |
| | | | | | | | | |
| | | $ | 6,220 | | | $ | 6,636 | |
Amortization expenses were $677 and $624 for the three month periods ended March 31, 2008 and 2007.
Amortization expenses for the next 3 years are as follows:
| Year Ending | | | |
| 2009 | | $ | 2,765 | |
| 2010 | | | 2,765 | |
| 2011 | | | 691 | |
| | | | | |
| Total | | | 6,220 | |
Long-Lived Assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of March 31, 2008 there were no significant impairments of its long-lived assets.
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
Revenue Recognition
The Company’s revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Revenue from marketing services through World Wide Web is recognized when services are rendered. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as deferred revenue. As of March 31, 2008 and December 31, 2007, deferred revenue was $14,387 and $3,313 respectively.
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and related interpretations with proforma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company uses the intrinsic value method prescribed by APB 25 and has opted for the disclosure provisions of SFAS No.123. During the three month period ended March 31, 2008, the company did not grant or issue any option or warrant.
Advertising
Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred. The company did not incur any advertising expense during the three month periods ended March 31, 2008 and 2007.
Income Taxes
The Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Basic and Diluted Earnings (Loss) Per Share
Earnings (loss) per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net income (loss) per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Basic and diluted loss per share were $0.0009 and $0.0015 for the three month ended March 31, 2008 and 2007 respectively.
Statement of Cash Flows
In accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the Company’s operations is based upon the local currencies. As a result, amounts related to assets and liabilities
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Segment Reporting
Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company’s consolidated financial statements as the Company consists of one reportable business segment. All revenue is from customers in People’s Republic of China. All of the Company’s assets are located in People’s Republic of China.
Recent accounting pronouncements
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. |
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company’s fiscal year beginning October 1, 2009. Management is currently evaluating the effect of this pronouncement on financial statements.
In March, 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. FASB Statement No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk–related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important. Based on current conditions, the Company does not expect the adoption of SFAS 161 to have a significant impact on its results of operations or financial position.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company’s fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Note 3- LOAN RECEIVABLE
As of December 31, 2007, the Company has advanced loans to an ex-shareholder. The loan receivable of $62,129 is unsecured, non interest-bearing and due on demand. Another loan receivable of $84,038 is due on demand and interest bearing to the same ex-shareholder. Interest receivable of $5,263 has been accrued as of December 31, 2007 on the loan at the prevailing bank deposit interest rate of 2.25% per China Renmin Bank.
On January 1, 2008, the Company entered a new loan agreement with the ex-shareholder for the outstanding loans amounting to $146,167 as of December 31, 2007, included the original loan principal of $140,904 and accrued interest of $5,263. The new due date for the loan is on December 31, 2008 with interest rate 8% annually and no secure. The interest income was $0 and $1,813 for the three month periods ended March 31, 2008 and 2007.
On December 31, 2007, the management of the Company determined that the loan was doubtful and therefore provided an allowance ofr bad debts against the loan, amounting $146,167.
The Company has loan receivables of $26,250 to third parties as of December 31, 2007. These loans are unsecured, non interest-bearing and due on demand. The loans of $26,250 was recovered as of March 31, 2008.
Note 4- RELATED PARTY TRANSACTION
As of March 31, 2008 and December 31, 2007, the Company advanced $267 and $274, respectively, to a shareholder of a subsidiary .
Note 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of March 31, 2008, account payable and accrued expenses were $23,461, including accrued professional expenses of $15,625, accrued payroll and welfare expenses of $7,571 and other payable of $266.
As of December 31, 2007, account payable and accrued expenses were $36,142, including $26,344 accrued professional expenses and $9,798 accrued payroll and welfare expenses.
Note 6 – LOAN PAYBLE TO RELATED PARTIES
As of March 31, 2008, total loan payable to related parties were $304,633, including a non interest-bearing, unsecured and due on demand note payable to an officer of a subsidiary amounting $84,000 and a non interest-bearing, unsecured and due on demand note payable to a shareholder of the Company in the amount of $220,633.
As of December 31, 2007, total loan payable to related parties were $265,721, including a non interest-bearing, unsecured and due on demand note payable to an officer of a subsidiary amounting $84,000 and a non interest-bearing, unsecured and due on demand note payable to a shareholder of the Company in the amount of $181,721.
Note 7 – COMMON STOCK
On May 17, 2005, the Company agreed to issue 150,000 shares of common stock to individuals for subscriptions receivable of $60,000 ($0.40 per share). The shares were issued during the month of August 2007. However, the physical certificates were not issued as the company was still waiting for the SB-2 filing to become effective. The Company plans to issue the certificates in next few months.
On November 7, 2005, the Company issued 10,000,000 shares of common stock at par of $0.001 per share for purchase all of the issued and outstanding shares of Top Interest from its shareholders.
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Note 8 – ADDITIONAL PAID-IN CAPITAL
The Company utilizes office space arranged by an officer of the Company, free of charge. The fair market rent value amounting $559 has been taken as a contribution to the capital from officer and credited to the additional paid in capital as of March 31, 2008.
The Company utilizes office space arranged by an officer of the Company, free of charge. The fair market rent value amounting $6,322 has been taken as a contribution to the capital from officer and credited to the additional paid in capital as of December 31, 2007.
Note 9 – INCOME TAXES
The Company is registered in the State of Delaware and has operations in primarily two tax jurisdictions - the PRC and the United States. For certain operations in the US and PRC, the Company has 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. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of March 31, 2008 and 2007, and the Company has recorded income tax provisions for the periods as follows:
| | | 3/31/2008 | | | 3/31/2007 | |
| US Current Income Tax Expense (Benefit) | | | | | | |
| Federal | | $ | - | | | $ | - | |
| State | | | | | | | | |
| | | | | | | | | |
| PRC Current Income Expense (Benefit | | | 111 | | | | - | |
| | | | | | | | | |
| Total Provision for Income Tax | | $ | 111 | | | $ | - | |
| | | | | | | | | |
| Tax expense (credit) at statutory rate - federal | | | 34 | % | | | 34 | % |
| State tax expense net of federal tax | | | 6 | % | | | 6 | % |
| Changes in valuation allowance | | | (40 | %) | | | (40 | %) |
| Foreign income tax - PRC | | | 14 | % | | | 15 | % |
| Exempt from income tax due to net loss | | | 0 | % | | | (15 | %) |
| Tax expense at actual rate | | | 14 | % | | | 0 | % |
United States of America
As of March 31, 2008, the Company in the United States had approximately $7,986in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The deferred tax assets for the United States entities at March 31, 2008 consists mainly of net operating loss carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future.
The following table sets forth the significant components of the net deferred tax assets for operation in the US as of March 31, 2008 and December 31, 2007.
| | | March 31, 2008 | | | December 31, 2007 | |
| Net operation loss carry forward | | $ | 7,986 | | | $ | 87,002 | |
| Total deferred tax assets | | | 60,500 | | | | 57,800 | |
| Less: valuation allowance | | | (60,500 | ) | | | (57,800 | ) |
| Net deferred tax assets | | $ | - | | | $ | - | |
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
People’s Republic of China (PRC)
Pursuant to the PRC Income Tax Laws, the Company's subsidiary is generally subject to Enterprise Income Taxes ("EIT") at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax. The subsidiary is qualified as a new technology enterprises and under PRC Income Tax Laws, it subject to a preferential tax rate of 15%.
Beginning January 1, 2008, the new Enterprise Income Tax ("EIT") law will replace the existing laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises ("FIEs"). The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs. The Company’s applicable EIT rate under new EIT law is differ from the amounts computed by applying the EIT primarily. The local government has implemented a special tax rate based on income rather than net income for the enterprises reported operation loss continuously for more than two years. Pursuant to the special tax rate, the Company’s subsidiary is first subject to a tax rate of 6% on their income and than multiply that by the standard tax rate of 25% or simply 1.5% of income. Income tax expenses for the three month periods ended March 31, 2008 and 2007 were $111 and $0 respectively.
| | | 2008/3/31 | | | 2007/3/31 | |
| | | | | | | |
| Loss from China | | | (791 | ) | | | (3,408 | ) |
| | | | | | | | | |
| Income tax expense for operation in the PRC | | $ | 111 | | | $ | - | |
| | | | | | | | | |
| Tax expense at actual rate | | | 14 | % | | | 0 | % |
Note 10 – STATUTORY RESERVE
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. Statutory public welfare fund is no longer requested for the companies invested by foreign countries in 2006.
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, 2008, the Company had no reserves to these non-distributable reserve funds since it had no income from operation.
Note 11 – OTHER COMPREHENSIVE INCOME (LOSS)
Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in Stockholders’ Deficit, at March 31, 2008 and December 31, 2007 are as follows:
| | | Foreign Currency Translation Adjustment | |
| Balance at December 31, 2007 | | $ | 6,673 | |
| Change for 2008 | | | 530 | |
| | | | | |
| Balance at March 31, 2008 | | $ | 7,203 | |
| | | | | |
| | | Foreign Currency Translation Adjustment | |
| Balance at December 31, 2006 | | $ | 3,581 | |
| Change for 2007 | | | 3,092 | |
| | | | | |
| Balance at December 31, 2007 | | $ | 6,673 | |
| | | | | |
ARTCRAFT V, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
Note 12 – CURRENT VULNERABILITY DUE TO RISK FACTORS
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Note 13 – GOING CONCERN
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 $322,852 and $313,965 as of March 31, 2008 and December 31, 2007 including losses of $218,495 and $92,812 for the years ended December 31, 2007 and 2006. The Company’s current liabilities exceed its current assets by $267,366 and $260,581 as of March 31, 2008 and December 31, 2007. 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 three month ended March 31, 2008, 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.
F15
