HuaJu currently maintains a leased office of approximately 4500 square feet at: 10F, Section A, Building 1, Genetic International Center, Chaoyang District, Beijing, China. The term of the lease is one year at a monthly rental of $6000 from a non-affiliated landlord.
(a) Real Estate: None
(b) Equipment, library, and furniture at June 30, 2008: None.
In the ordinary course of business, the Company may be involved in legal proceedings from time to time.
On March 22, 2007, the British Columbia Securities Commission (the "Commission") sent the Company an Order for Production of certain documents and records. In August and September 2007, the Commission issued three Halt Trade Orders to the Company because the Commission claimed it became aware of unsolicited electronic mail (spam) promoting the Company's securities. The Company has responded to all inquires of the Commission and has advised the Commission that they were not involved in any way in the creation or dissemination of the spam, nor do they have any information as to its origin.
In April 2008, a legal action was brought by a third party against the Company alleging violations of the Pennsylvania Unsolicited Telecommunication Advertisement Act. The action, which sought total damages of approximately $7,100, was dismissed prior to June 30, 2008.
In July 2008, the Company received a letter from the attorney of the investor relations firm which received 1,400,000 restricted shares of common stock that had been issued as partial compensation for certain specified investor relations services for a period of 3 months commencing March 1, 2008. The letter asserts that the Company is obligated to issue an additional 841,600 shares of common stock to the investor relations firm and failure to do so will result in legal action. The Company believes that it has meritorious defenses to any legal action brought.
None
6
PART II
(a) The Company’s common stock is traded on the Over-the-Counter Bulletin Board maintained by the NASD under the trading symbol “CYTV.OB”. The following table sets forth high and low bid prices of the common stock for the year ended June 30, 2008 as quoted by the NASD over-the-counter-bulletin board as follows:
| 2008 | Bid (U.S. $) |
| | HIGH | LOW |
| First Quarter | 0.45 | 0.23 |
| Second Quarter | 0.37 | 0.10 |
| Third Quarter | 0.12 | 0.08 |
| Fourth Quarter | 0.07 | 0.05 |
Quotations, if made, represent only prices between dealers and do not include retail markups, markdowns or commissions and accordingly, may not represent actual transactions.
Because of the rules and regulations governing the trading of small issuers’ securities, the Company's securities are presently classified as "Penny Stock", a classification which places significant restrictions upon broker-dealers desiring to make a market in these securities. It has been difficult for management to interest broker-dealers in our securities and it is anticipated that these difficulties will continue until the Company is able to obtain a listing on NASDAQ, at which time market makers may trade its securities without complying with the stringent requirements. The existence of market quotations should not be considered evidence of an "established public trading market." The public trading market is presently limited as to the number of market markers in Company stock and the number of states within which its stock is permitted to be traded.
Holders
(b) As of September 18, 2008, China YouTV Corp. had approximately 47 shareholders of record of its common stock;
Dividends
(c) No dividends on outstanding common stock have ever been paid. The Company does presently have any plans regarding payment of dividends in the foreseeable future.
(d) Securities Authorized for Issuance under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities and Use of Proceeds.
None
Purchasers of Equity Securities by the Small Business Issuer and Affiliated Purchases
None
7
The following discussion and analysis summarizes the significant factors affecting our consolidated results of operations, financial condition and liquidity position for the years ended June 30, 2008 and 2007 and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on Form 10-K, particularly in the section entitled "Risk Factors".
Forward-looking statements
Statements contained in this report include "forward-looking statements" within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by the forward-looking statements not to occur or be realized. Forward-looking statements generally are based on our best estimates of future results, performances or achievements, based upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "could," "project," "expect," "believe," "estimate," "anticipate," "intend," "continue," "potential," "opportunity" or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions.
Potential risks and uncertainties include, among other things, such factors as:
| · | our business strategies and future plans of operations, |
| · | general economic conditions in the United States and elsewhere, as well as the economic conditions affecting the industries in which we operate, |
| · | the market acceptance and amount of sales of our products and services, |
| · | the competitive environment within the industries in which we compete, |
| · | our ability to raise additional capital, currently needed for expansion, the other factors and information discussed in other sections of this report and in the documents incorporated by reference in this report. |
Persons reading this report should carefully consider such risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause actual results to differ materially from those provided in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Company Overview
As more fully described in Item 1 – General Description and Development of Business, on March 16, 2007, the Company has signed a Definitive Agreement with HuaJu NetMedia to set up a Joint Venture in China and set foot in the Chinese Internet video sharing field. According to the Agreement, we own 51% of the joint venture company and will provide the required working capital for the Joint Venture. HuaJu will be in charge of the daily operation of the Joint Venture. HuaJu has agreed to conduct its video sharing business only through the Joint Venture, and has agreed to contribute its web site, www.CnBoo.com and customer contracts to the Joint Venture.
On February 18, 2008, the Joint Venture license was approved by the regulatory authorities of the People’s Republic of China (“PRC”). However, the required funding has not yet occurred and operations have not yet been transferred from Hua Ju to the Joint Venture. Upon satisfaction of these remaining conditions precedent to closing (which is expected to occur in October 2008), the 20,000,000 shares of Company common stock will be delivered to Hua Ju’s designee and the Company will expense the fair value of these incentive shares.
8
Critical Accounting Policies
Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable and allowance for doubtful accounts, intangible and long-lived assets, and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions in the preparation of our financial statements:
Recent Accounting Pronouncements:
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”, which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not yet determined the impact of applying SFAS No. 159.
In February 2007, the Financial Accounting Standards Board (“FASB”) issued FSP FAS 158-1. This FASB Staff Position (FSP) updates the illustrations contained in Appendix B of FASB No. 87, “Employers’ Accounting for Pensions”, Appendix B of FASB Statement No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, and Appendix C of FASB Statement No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”, to reflect the provisions of FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This FSP also amends the questions and answers contained in FASB Special Reports, “A Guide to Implementation of Statement 87 on Employers’ Accounting for Pensions, A Guide to Implementation of Statement 88 on Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and A Guide to Implementation of Statement 106 on Employers’ Accounting for Postretirement Benefits Other Than Pensions”, and incorporates them into Statements 87, 88, and 106 as Appendixes E, C, and F, respectively. This FSP supersedes those FASB Special Reports. Finally, this FSP makes conforming changes to other guidance and technical corrections to Statement 158. This FSP does not provide additional implementation guidance for Statement 158 beyond the conforming changes, nor does it change any of the provisions of Statement 158. Currently the Company does not have any employers’ Pensions and Postretirement Benefits which require the adoption of this Statement, so the Statement will have no impact on the financial statements.
9
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2008 AS COMPARED TO THE YEAR ENDED JUNE 30, 2007.
Revenues. The Company has not generated any revenue yet.
Loss from Operations. Loss from operations for 2008 was $492,843 compared to the 2007 operating loss of $162,075. This was caused largely by more activities in China during this fiscal year.
Net Loss. Net Loss to Common Stockholders in 2008 was $492,843 in contrast to a Net Loss of $161,753 in 2007. This was caused largely by more activities in China during this fiscal year.
Loss per Share. Loss per share was $0.02 in 2008 compared to loss per share of $0.01 in 2007.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2008, we had an aggregate of cash of $24,484.
Need for Additional Financing:
The Company does not have sufficient capital to meet its short-term cash needs and it will have to seek loans or equity placements to cover its cash needs to continue operations.
No commitments to provide additional funds have been made by management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to cover operation expenses.
If the Company couldn’t generate revenue in the future or its operations are unprofitable, the Company will be forced to develop another line of business, or to finance its operations through the sale of its assets, or enter into the sale of stock for additional capital, none of which may be feasible when needed. The Company has neither specific management ability, nor financial resources or plans to enter any other business as of this date.
The effect of inflation has not had a material impact on its operation, nor is it expected to in the immediate future.
The Company does not hold any derivatives or investments that are subject to market risk. The carrying values of any financial instruments, approximate fair value as of those dates because of the relatively short-term maturity of these instruments which eliminates any potential market risk associated with such instruments.
Future Trends:
The marketing of a video sharing site mainly consists of:
| 1. | Personal blog |
| 2. | Audi/video publishing and subscribing |
| 3. | Offer of 3G content services |
| 4. | Video storage and personal space |
| 5. | Online video ads |
| 6. | Business video demonstration |
| 7. | Download of digital programs |
| 8. | Charges for wireless value added services and personal value added services |
It is estimated that the scale of domestic market will reach US $15 billion by 2010. Future trends for this industry include the following aspects:
| • | Podcast, video sharing and cyberspace community. These communities grow up quietly but quickly, being expected to become a next Internet hotspot. |
| • | ITunes and RSS automatic subscription change people’s way to use the Internet, while the creation of a gathering zone for personal videos complies with the next trend of netizens’ use of Internet. |
| • | With upcoming full services of 3G and wireless network, digital content market encounters “vacuum”. |
| • | “Grass-root” culture, revitalize idol in commoner, and will speed up the development of video sharing service. |
Competition also becomes fierce in this industry. Main competitors include professional podcast video sharing sites such as other video sharing websites and classification websites with texts and pictures; portal and other entertainment sites such as Google Video, Yahoo Video, Sohu, My Music, My Show etc.
Off-Balance Sheet Arrangements
None
10
Risk Factors
This report and other reports filed by us contained certain forward-looking statements within the meaning of the Private Securities Litigation Reform act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain uncertainties set forth below and elsewhere in this report, as well as additional risks and uncertainties of which we are currently unaware. See Item 6. “Management’s Discussion and Analysis or Plan of Operation – Forward-Looking Statements”.
Risks Relating to Our Operations
Need for additional financing.
We need additional funds to cover our operating expenses and to implement our business plan. Management can give no assurance the funds obtained will be sufficient to fully implement the business plan, or that a full implementation of such business plan will result in the Company's profitability. If additional funds are raised though the issuance of equity or debt securities, such additional securities may have powers, designations, preferences or rights senior to our currently outstanding securities and, in the case of additional equity securities, the ownership of our existing shareholders will be diluted. No assurances can be given that we will be able to raise any additional financing. Any inability to obtain required financing on sufficiently favorable terms could have a material adverse effect on our business, results of operations and financial condition.
We had prior operating losses and are implementing a new business plan.
We are seeking funding to implement our business plan and our liability to provide working capital to the Joint Venture with HuaJu.
The Company’s proposed operations are subject to all of the risks inherent in the expansion of an early-stage business enterprise, including higher-than expected expenses and uncertain revenues. The likelihood of the success of the Company must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the expansion of an early-stage business.
We have a limited operating history and consequently face significant risks and uncertainties.
We initiated our current business strategy in 2007. As a result of our limited operating history, and our reporting responsibilities as a public company, we may need to expand operational, financial and administrative systems and control procedures to enable us to further train and manage our employees and coordinate the efforts of our accounting, finance, marketing, and operations departments.
We lack business diversification.
The Company’s prospects for success are dependent upon the success of CnBoo web site. We expect to finance our future operations through the sale of assets or the sale of equity or debt securities in order to raise additional capital, none of which may be feasible when needed. Unless we are able to raise substantial amounts of additional capital, we will not have the resources to diversify our operations or benefit from the possible spreading of risks or offsetting of losses.
Risks Related to Conducting Business in China
Since our main operation is in China, we will be subject to the following risks:
China's governmental and regulatory reforms may impact our ability to do business in China.
Since 1978, the Chinese government has been in a state of evolution and reform. The reforms have resulted in and are expected to continue to result in significant economic and social development in China. Many of the reforms are unprecedented or experimental and may be subject to change or readjustment due to a variety of political, economic and social factors. Multiple government bodies are involved in regulating and administrating affairs in the telecommunications industry, among which the MII, the National Development and Reform Commission (“NDRC”) and the State Asset Supervisory Administrative Commission (“SASAC”) play the leading roles. These government agencies have broad discretion and authority over all aspects of the telecommunications and information technology industry in China, including but not limited to, setting the telecommunications tariff structure, granting carrier licenses and frequencies, approving equipment and products, granting product licenses, specifying technological standards as well as appointing carrier executives, all of which may impact our ability to do business in China.
While we anticipate that the basic principles underlying the reforms should remain unchanged, any of the following changes in China’s political and economic conditions and governmental policies could have a substantial impact on our business:
| · | the promulgation of new laws and regulations and the interpretation of those laws and regulations; |
| · | inconsistent enforcement and application of the telecommunications industry’s rules and regulations by the Chinese government between foreign and domestic companies; |
| · | the restructuring of telecommunications carriers in China; |
| · | the introduction of measures to control inflation or stimulate growth; |
| · | the introduction of new guidelines for tariffs and service rates, which affect our ability to competitively price our products and services; |
| · | changes in the rate or method of taxation; |
| · | the imposition of additional restrictions on currency conversion and remittances abroad; or |
| · | any actions that limit our ability to develop, manufacture, import or sell our products in China, or to finance and operate our business in China. |
Under China’s current regulatory structure, the online video services that we offer in China must meet government and industry rules and regulations. In addition, we must ensure that the quality and content of the services will comply with related rules and regulations. MII and/or other related authorizations might perform spot checks to track and supervise the quality and content of our services. Any determination that our services fail to comply with applicable rules and regulations could result in a revocation of our license, which would have a material adverse effect on our business.
11
China's changing economic environment may impact our ability to do business in China.
Since 1978, the Chinese government has been reforming the economic system in China to increase the emphasis placed on decentralization and the utilization of market forces in the development of China’s economy. These reforms have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised by the Chinese government. While we may be able to benefit from the effects of some of these policies, these policies and other measures taken by the Chinese government to regulate the economy could also have a significant negative impact on economic conditions in China, which would result in a negative impact on our business.
China’s economic environment has been changing as a result of China’s entry, in December of 2001, into the World Trade Organization (the “WTO”). Entry into the WTO required that China reduce tariffs and eliminate non-tariff barriers, including quotas, licenses and other restrictions by early 2005, and we cannot predict the impact of these changes on China’s economy. Moreover, although China’s entry into the WTO and the related relaxation of trade restrictions may lead to increased foreign investment, it may also lead to increased competition in China’s markets from other foreign companies. If China’s entry into the WTO results in increased competition or has a negative impact on China’s economy, our business could suffer. In addition, although China is increasingly according foreign companies and foreign investment enterprises established in China the same rights and privileges as Chinese domestic companies as a result of its admission into the WTO, special laws, administrative rules and regulations governing foreign companies and foreign investment enterprises in China may still place foreign companies at a disadvantage in relation to Chinese domestic companies and may adversely affect our competitive position.
Uncertainties with respect to the Chinese legal system may adversely affect us.
We conduct our business in China primarily through our subsidiary incorporated in China. Our subsidiary is generally subject to laws and regulations applicable to foreign investment in China. Accordingly, our business will be affected by China’s developing legal system. Since 1978, many new laws and regulations covering general economic matters have been promulgated in China, and government policies and internal rules promulgated by governmental agencies may not be published in time, or at all. As a result, we may operate our business in violation of new rules and policies without having any knowledge of their existence. In addition, there are uncertainties regarding the interpretation and enforcement of laws, rules and policies in China. The Chinese legal system is based on written statutes, and prior court decisions have limited presidential value. Because many laws and regulations are relatively new and the Chinese legal system is still evolving, the interpretations of many laws, regulations and rules are not always uniform. Moreover, the relative inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation, and the interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Finally, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction. Any litigation in China may be protracted and result in substantial costs and diversion of resources and management’s attention.
We are subject to risks relating to currency rate fluctuations and exchange controls.
Because most of our sales will be made in China and denominated in Renminbi, and as the Renminbi is no longer fixed against the US Dollar and the Renminbi-US Dollar exchange rate could float, resulting in depreciation or appreciation relative to the U.S. dollar, any such currency rate fluctuations could adversely affect our sales and subject as to volatility in our financial reporting.
Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.
Because substantially all of our revenues will be denominated in RMB, the Chinese currency, any restrictions on currency exchange may limit our ability to use revenues generated in RMB to fund any business activities we may have outside China or to make dividend payments in U.S. dollars. The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended. Under these rules, RMB are freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loan or investment in securities outside China unless the prior approval of the State Administration of Foreign Exchange is obtained. Although China's government regulations now allow greater convertibility of RMB for current account transactions, significant restrictions still remain. For example, foreign exchange transactions, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange for capital expenditures. We cannot be certain that China's regulatory authorities will not impose more stringent restrictions on the convertibility of RMB, especially with respect to foreign exchange transactions.
12
Securities Risks
Difficulty of trading and obtaining quotations for Common Stock.
Our Common Stock is currently quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “CYTV.OB”. The bid and asked prices for our Common Stock have fluctuated significantly. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities. This severely limits the liquidity of the Common Stock, and would likely have a material adverse effect on the market price of the Common Stock and on our ability to raise additional capital.
Penny Stock Regulation.
Our Common Stock is subject to Rule 15g-9 under the Exchange Act. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors.” For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule could affect the ability of broker-dealers to sell our securities and could affect the ability of purchasers to sell any of our securities in the secondary market.
Risk Factors Affecting the Company's Business Operations.
Uncertain Regulatory Environment
The Company could be subject to fines, and possible exclusion from participation in providing online video services and other related services to its clients in China if it continues operations in the PRC and fails to comply with the laws and regulations applicable to its business or if those laws and regulations change.
If the Company is deemed to have violated these laws and regulations, the Company could be subject to fines and/or exclusion from participation in providing its current services. Changes in the telecommunications law, new interpretations of existing laws and regulations may have a dramatic effect on the Company’s business and results of operations.
Continued pressure could reduce the Company's margins and limit the Company's ability to maintain or increase its market share.
Certain competitors of the Company may have or may obtain significantly greater financial and marketing resources than the Company. As a result, the Company could encounter increased competition in the future that may increase pricing pressure and limit its ability to maintain or increase its market share. There is a great deal of competition in the Company’s business. Major competitors who have more financial support and broader influence in this market might force the Company to decrease price, give out more discounts and increase its costs to keep key employees. This would decrease the Company’s profit margin.
If we lost the services of James Wei, the Company's CEO, we might not be able to execute our current business in accordance with our current plans.
Our future success depends significantly on the skills, experience and efforts of our chief executive officer, James Wei and other key personnel. These individuals would be difficult to replace. Mr. Wei has developed, and is engaged in carrying out, the Company’s strategic business plan. The loss of the services of Mr. Wei could seriously harm the Company’s ability to implement its strategy. A failure to implement the Company’s business strategy could result in the cessation of the Company’s operations which would have a material adverse effect on our Company and on your investment.
The Company may be sued by third parties who claim that the Company’s product infringes on their intellectual property rights. Defending an infringement lawsuit is costly and the Company may not have adequate resources to defend. Any settlement or judgment against us could harm our future prospects.
The Company may be exposed to future litigation by third parties based on claims that its technology, product or activity infringes on the intellectual property rights of others or that the Company has misappropriated the trade secrets of others. This risk is compounded by the fact that the validity and breadth of claims covered in technology patents in general and the breadth and scope of trade secret protection involves complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against the Company, whether or not valid, could result in substantial costs, could place a significant strain on the Company’s financial and managerial resources, and could harm the Company’s reputation. In addition, intellectual property litigation or claims could force the Company to do one or more of the following:
| · | Cease selling, incorporating or using any of the Company's technology and/or product that incorporates the challenged intellectual property, which could adversely affect the Company's revenue; |
| · | Obtain a license from the holder of the infringed intellectual property right, which may be costly or may not be available on reasonable terms, if at all; or |
| · | Redesign the Company's product, which would be costly and time consuming. |
13
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
China YouTV Corp.
I have audited the accompanying balance sheet of China YouTV Corp. (the Company), a development stage company, as of June 30, 2008 and 2007 and the related statements of operations, stockholders’ equity(deficiency), and cash flows for the years ended June 30, 2008 and 2007, and for the period May 18, 2005 (date of inception) to June 30, 2008. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China YouTV Corp., a development stage company, as of June 30, 2008 and 2007 and the results of its operations and its cash flows for the year ended June 30, 2008 and 2007, and for the period May 18, 2005 (date of inception) to June 30, 2008 in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s present financial situation raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 8 to the financial statements, the Company restated its financial statements for the year ended June 30, 2007.
| | Michael T. Studer CPA P.C. Michael T. Studer CPA P.C. |
Freeport, New York
September 26, 2008
14
| China YouTV Corp. | | | | |
| (formerly Admax Resources Inc.) | | | | |
| (A Development Stage Company) | | | | |
| Balance Sheets | | | | |
| June 30, 2008 and 2007 | | | | |
| | | | | |
| | | | | |
| | | June 30, | | June 30, |
| (Expressed in U.S. Dollars) | | 2008 | | 2007 |
| | | | | (Restated) |
| ASSETS | | | | |
| Current assets | | | | |
| Cash | $ | 24,484 | $ | 7,922 |
| Prepaid expenses | | 2,136 | | 1,704 |
| Total current assets | | 26,620 | | 9,626 |
| | | | | |
| Other assets | | - | | - |
| | | | | |
| Total assets | $ | 26,620 | $ | 9,626 |
| | | | | |
| LIABILITIES | | | | |
| Current | | | | |
| Accounts payable and accrued liabilities | $ | 60,968 | $ | 36,795 |
| Due to related party (Note 4) | | 170,084 | | 62,120 |
| | | | | |
| Total liabilities | | 231,052 | | 98,915 |
| | | | | |
| STOCKHOLDERS' EQUITY (DEFICIENCY) | | | | |
| | | | | |
| Stockholders' Equity (Deficiency) | | | | |
| Preferred stock: $0.00001 par value; | | | | |
| authorized 1,000,000,000 shares, | | | | |
| issued and outstanding 0 and 0 shares, respectively | | - | | - |
| Common stock, $0.00001 par value; | | | | |
| authorized 1,000,000,000 shares, | | | | |
| issued and outstanding 30,060,000 and 24,160,000 shares, respectively | | 301 | | 242 |
| Additional paid-in capital | | 681,089 | | 270,948 |
| Deferred stock-based compensation | | (188,750) | | (156,250) |
| Accumulated deficit during the development stage | | (697,072) | | (204,229) |
| | | | | |
| Total stockholders' equity (deficiency) | | (204,432) | | (89,289) |
| | | | | |
| Total liabilities and stockholders' equity (deficiency) | $ | 26,620 | $ | 9,626 |
| (The accompanying notes are an integral part of these financial statements) | | | | |
15
| China YouTV Corp. | | | | | | |
| (formerly Admax Resources Inc.) | | | | | | |
| (A Development Stage Company) | | | | | | |
| Statements of Operations | | | | | | |
| For the years ended June 30, 2008 and 2007 and for the period | | | | |
| from May 18, 2005 (Inception) to June 30, 2008 | | | | | | |
| | | | | | | |
| | | | | | | Cumulative |
| | | | | | | during the |
| | | | | | | development |
| | | | | | | stage (May 18, |
| | | Year ended June 30, | | 2005 to |
| (Expressed in U.S. Dollars) | | 2008 | | 2007 | | June 30, 2008) |
| | | | | | | |
| Revenue | $ | - | $ | - | $ | - |
| | | | | | | |
| Expenses | | | | | | |
| General and administrative | | 492,843 | | 160,314 | | 689,600 |
| Impairment of mineral claim acquisition costs and | | | | | | |
| mineral claim exploration and carrying costs | | - | | 1,761 | | 7,794 |
| | | 492,843 | | 162,075 | | 697,394 |
| | | | | | | |
| Operating loss | | (492,843) | | (162,075) | | (697,394) |
| | | | | | | |
| Other income | | | | | | |
| Interest income | | - | | 322 | | 322 |
| | | | | | | |
| Net loss | $ | (492,843) | $ | (161,753) | $ | (697,072) |
| | | | | | | |
| Net loss per share | | | | | | |
| Basic and diluted | $ | (0.02) | $ | (0.01) | | |
| | | | | | | |
| Number of common shares used to | | | | | | |
| compute loss per share | | | | | | |
Basic and diluted | | 27,984,044 | | 23,865,041 | | |
| (The accompanying notes are an integral part of these financial statements) | | | | |
16
| China YouTV Corp. | | | | | | |
| (formerly Admax Resources Inc.) | | | | | | |
| (A Development Stage Company) | | | | | | |
| Statements of Stockholders' Equity (Deficiency) | | | | | | |
| For the period May 18, 2005 (Inception) to June 30, 2008 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | Deficit | |
| | | | | | Accumulated | Total |
| | Common Stock, $0.00001 | | Deferred | During the | Stockholders' |
| | Par Value | | Additional | Stock-Based | Development | Equity |
| (Expressed in U.S. Dollars) | Shares | Amount | paid-in capital | Compensation | Stage | (Deficiency) |
| | | | | | | |
| Common stock issued to two officers | | | | | | |
| and directors for cash on May 19, 2005 | | | | | | |
| at a price of $0.000001 per share | 10,000,000 | $ 100 | $ (90) | $ - | $ - | $ 10 |
| | | | | | | |
| Net loss for the period ended June 30, 2005 | - | - | - | - | (14,936) | (14,936) |
| | | | | | | |
| Balance, June 30, 2005 | 10,000,000 | 100 | (90) | - | (14,936) | (14,926) |
| | | | | | | |
| Common stock issued for cash | | | | | | |
| on September 29, 2005 at a price of | | | | | | |
| $0.0025 per share | 13,800,000 | 138 | 34,362 | - | - | 34,500 |
| | | | | | | |
| Net loss for the year ended June 30, 2006 | - | - | - | - | (27,540) | (27,540) |
| | | | | | | |
| Balance, June 30, 2006 | 23,800,000 | 238 | 34,272 | - | (42,476) | (7,966) |
| | | | | | | |
| Common stock contracted on March 10, | | | | | | |
| 2007 to be issued for services to be rendered | | | | | | |
| from April 1, 2007 to September 30, 2008 | | | | | | |
| (issued on July 1, 2007) | 250,000 | 3 | 187,497 | (187,500) | - | - |
| | | | | | | |
| Common stock issued on June 22, 2007 for | | | | | | |
| consulting services rendered | 100,000 | 1 | 44,679 | - | - | 44,680 |
| | | | | | | |
| Common stock issued on June 22, 2007 for | | | | | | |
| legal services rendered | 10,000 | - | 4,500 | - | - | 4,500 |
| | | | | | | |
| Amortization of stock-based compensation | - | - | - | 31,250 | - | 31,250 |
| | | | | | | |
| Net loss for the year ended June 30, 2007 | - | - | - | | (161,753) | (161,753) |
| | | | | | | |
| | | | | | | |
| Balance, June 30, 2007 (Restated) | 24,160,000 | 242 | 270,948 | (156,250) | (204,229) | (89,289) |
| | | | | | | |
| Common stock issued on October 1, 2007 for | | | | | | |
| services to be rendered from October 1, 2007 | | | | | | |
| to March 31, 2009 | 4,500,000 | 45 | 314,955 | (315,000) | - | - |
| | | | | | | |
| Common stock issued on March 4, 2008 for | | | | | | |
| investor relations services to be rendered | | | | | | |
| from March 1, 2008 to May 31, 2008 | 1,400,000 | 14 | 95,186 | (95,200) | - | - |
| | | | | | | |
| Amortization of stock-based compensation | - | - | - | 377,700 | - | 377,700 |
| | | | | | | |
| Net loss for the year ended June 30, 2008 | - | - | - | - | (492,843) | (492,843) |
| | | | | | | |
| | | | | | | |
| Balance, June 30, 2008 | 30,060,000 | $ 301 | $ 681,089 | $ (188,750) | $ (697,072) | $ (204,432) |
| (The accompanying notes are an integral part of these financial statements) | | | | |
17
| China YouTV Corp. | | | | | | |
| (formerly Admax Resources Inc.) | | | | | | |
| (A Development Stage Company) | | | | | | |
| Statements of Cash Flows | | | | | | |
| For the years ended June 30, 2008 and 2007 and for the period | | | | | | |
| from May 18 (Inception) to June 30, 2008 | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | Cumulative |
| | | | | | | during the |
| | | | | | | development |
| | | | | | | stage (May 18, |
| | | Year ended June 30, | | 2005 to |
| (Expressed in U.S. Dollars) | | 2008 | | 2007 | | June 30, 2008) |
| | | | | | | |
| Cash flows from (used in) operating activities | | | | | | |
| Net loss for the period | $ | (492,843) | $ | (161,753) | $ | (697,072) |
| Adjustments to reconcile net income (loss) to net cash used for | | | | | | |
| operating activities: | | | | | | |
| Impairment of mineral property costs and deferred exploration costs | | - | | - | | 6,033 |
| Stock-based compensation | | 377,700 | | 80,430 | | 458,130 |
| Changes in operating assets and liabilities: | | | | | | |
| Prepaid expenses | | (432) | | (1,704) | | (2,136) |
| Accounts payable and accrued liabilities | | 24,173 | | 31,795 | | 60,968 |
| Net cash used for operating activities | | (91,402) | | (51,232) | | (174,077) |
| | | | | | | |
| Cash flows from (used in) investing activities | | | | | | |
Mineral claim acquisition costs incurred | | - | | - | | (6,033) |
| Cash flows from (used in) investing activities | | - | | - | | (6,033) |
| | | | | | | |
| Cash flows from (used in) financing activities | | | | | | |
| Loans from related party | | 107,964 | | 41,631 | | 170,084 |
| Proceeds from sales of common stock | | - | | - | | 34,510 |
| Net cash provided by financing activities | | 107,964 | | 41,631 | | 204,594 |
| | | | | | | |
| Increase (Decrease) in cash | | 16,562 | | (9,601) | | 24,484 |
| | | | | | | |
| Cash, beginning of period | | 7,922 | | 17,523 | | - |
| Cash, end of period | $ | 24,484 | $ | 7,922 | $ | 24,484 |
| | | | | | | |
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Interest paid | $ | - | $ | - | $ | - |
| Income tax paid | $ | - | $ | - | $ | - |
| (The accompanying notes are an integral part of these financial statements) | | | | | | |
18
CHINA YOUTV CORP.
(formerly ADMAX RESOURCES INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
Note 1 - Basis of Presentation and Going Concern Uncertainty
China YouTV Corp. (the "Company") was incorporated in the State of Nevada on May 18, 2005 under the name Admax Resources Inc., which name was changed on February 9, 2007. From May 18, 2005 to March 15, 2007, the Company's business operations were limited to the acquisition of a mineral claim in British Columbia, Canada and the performance of a limited amount of exploration work. On March 16, 2007, the Company entered into a Joint Venture Agreement with Beijing Hua Ju Net Media Technology Co. Ltd. ("Hua Ju") for a term of 20 years to be organized in Beijing, People's Republic of China ("China"). The purpose of the Joint Venture is to conduct a video sharing website and other related internet interactive media businesses in China. See Note 3.
The Company is in the development stage and has not generated any revenues and has incurred losses of $697,072 since inception. At June 30, 2008, the Company had $24,484 cash and $231,052 in current liabilities. Further, the Company incurred a loss of $492,843 during the year ended June 30, 2008. In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. To meet these objectives, the Company continues to seek other sources of financing in order to support existing operations and expand the range and scope of its business. However, there are no assurances that any such financing can be obtained on acceptable terms, if at all. These financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern.
Note 2 - Summary of Significant Accounting Policies
(a) Principles of Accounting
These financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“US GAAP”).
(b) Accounting Estimates
The preparation of financial statements in conformity with US GAAP 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 can differ from those estimates and assumptions.
(c) Foreign Currency Transactions
The Company's management is based outside of the United States of America. It maintains its accounting records in U.S. dollars, as follows:
At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are re-measured by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations and are not material.
(d) Cash and Cash Equivalents
Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. The Company did not have any cash equivalents as of June 30, 2008 and 2007.
(e) Long-Lived Assets Impairment
Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable in accordance with the guidance established in Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
19
(f) Income Taxes
The Company has adopted SFAS No. 109, Accounting for Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
(g) Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
The carrying value of cash, accounts payable and accrued liabilities, and due to related party approximates their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
The Company operates outside of the United States of America and is exposed to foreign currency risk due to the fluctuation between the currency in which the Company operates in and the U.S. dollar.
(h) Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity (Deficiency). Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. Since inception, except for net loss, the Company has had no items included in comprehensive income (loss).
(i) Intangible Assets
The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite life are not amortized but rather tested at least annually for impairment. Intangible assets with a definite life are required to be amortized over their useful life or estimated useful life.
The Company has not recorded any goodwill or intangible assets since inception.
(j) Advertising Expenses
The Company expenses advertising costs as incurred. The Company did not incur any advertising expenses for the years ended June 30, 2008 and 2007.
(k) Related Party Transactions
A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
(l) New Accounting Pronouncements
In December 2007, the FASB ratified EITF No. 07-1, Accounting for Collaborative Arrangements that discusses how parties to a collaborative arrangement (which does not establish a legal entity within such arrangement) should account for various activities. The consensus indicates that costs incurred and revenues generated from transactions with third parties (i.e. parties outside of the collaborative arrangement) should be reported by the collaborators on the respective line items in their income statements pursuant to EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent., Additionally, the consensus provides that income statement characterization of payments between the participants in a collaborative arrangement should be based upon existing authoritative pronouncements; analogy to such pronouncements if not within their scope; or a reasonable, rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is effective for financial statements beginning after December 15, 2008 and is to be applied retrospectively to all periods presented for collaborative arrangements existing as of the date of adoption. The Company is evaluating the impact, if any, the adoption of this consensus will have on the results of operations, financial position or cash flows.
20
In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations”, and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. SFAS No. 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141 (R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company have not yet determined the effect on the consolidated financial statements, if any, upon adoption of SFAS No. 141 (R) or SFAS No. 160.
In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. This Statement identifies the sources for generally accepted accounting principles (“GAAP”) in the U.S. and lists the categories in descending order. An entity should follow the highest category of GAAP applicable for each of its accounting transactions. The adoption will not have a material effect on the Company’s consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position (“FSP”) No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)” (previously FSP APB 14-a), which will change the accounting treatment for convertible securities which the issuer may settle fully or partially in cash. Under the final FSP, cash settled convertible securities will be separated into their debt and equity components. The value assigned to the debt component will be the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference between the proceeds for the convertible debt and the amount reflected as a debt liability will be recorded as additional paid-in capital. As a result, the debt will be recorded at a discount reflecting its below market coupon interest rate. The debt will subsequently be accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance being reflected on the income statement. This change in methodology will affect the calculations of net income and earnings per share for many issuers of cash settled convertible securities. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of FSP No. APB 14-1 on the Company’s consolidated financial statements.
Note 3 - Joint Venture with Beijing Hua Ju Net Media Technology Co. Ltd. ("Hua Ju")
Under the Joint Venture Agreement, the Company is to contribute RMB510,000 ($72,728) to the Joint Venture, is to own 51% of the joint venture company, is to appoint a majority of the seats on the board of directors, is to provide the required working capital for the Joint Venture, and is to be in charge of the Joint Venture’s accounting management. Hua Ju is to contribute RMB490,000 ($69,876) to the Joint Venture, is to own 49% of the joint venture company, is to appoint a minority of the seats on the board of directors, is to contribute its website (www.cnboo.com) and customer contracts to the Joint Venture, and is to be in charge of the Joint Venture’s daily operations for at least three years.
Also under the Joint Venture Agreement, the Company has agreed to issue 20,000,000 newly issued shares of its common stock to Hua Ju or its designee as additional consideration for entering into the agreement, in an offering intended to be exempt from registration under the Securities Act of 1933, as amended (the "Act"), pursuant to Regulation S promulgated pursuant to the Act.
On February 18, 2008, the Joint Venture license was approved by the regulatory authorities of the People's Republic of China ("PRC"). However, the required funding has not yet occurred and operations have not yet been transferred from Hua Ju to the Joint Venture. Upon satisfaction of these remaining conditions precedent to closing (which is expected to occur in October 2008), the 20,000,000 shares of Company common stock will be delivered to Hua Ju's designee and the Company will expense the fair value of these incentive shares.
The President of the Company is also the President of Hua Ju.
Note 4 - Due to Related Party
The due to related party liability is due the Company's former president and current significant stockholder, does not bear interest, and is due on demand.
21
Note 5 - Stockholders' Equity
On January 29, 2007, the Company effectuated a 10 for 1 forward stock split. The financial statements have been retroactively adjusted to reflect this stock split.
On May 4, 2007, the Company registered 5,000,000 shares of its common stock pursuant to a Registration Statement on Form S-8 filed with the SEC. The shares may be issued to employees, directors, officers, consultants, advisors and other persons pursuant to the Company’s 2007 Non-Qualified Stock Compensation Plan.
On June 22, 2007, the Company issued 100,000 shares of common stock as compensation for services provided by a consultant (valued at $44,680) and 10,000 shares of common stock for legal services rendered (valued at $4,500).
On July 1, 2007, the Company issued a total of 250,000 shares of common stock to three consultants pursuant to a Consultancy Services Agreement dated March 10, 2007. Under this agreement, the consultants are to perform certain specified consulting services relating to an on-line video sharing business for a term of 18 months commencing April 1, 2007. The total consideration to be paid the consultants was 250,000 free trading shares of Company common stock (which was issued and delivered on July 1, 2007). The Company is amortizing the $187,500 estimated fair value of the 250,000 shares at March 10, 2007 ratably over the 18 month term of the agreement.
On October 1, 2007, the Company issued a total of 4,500,000 shares of common stock to five consultants pursuant to a Consultancy Services Agreement dated October 1, 2007. Under this agreement, the consultants are to perform certain specified consulting services relating to an on-line video sharing business for a term of 18 months commencing October 1, 2007. The total consideration to be paid the consultants was 4,500,000 free trading shares of Company common stock (which was issued and delivered on October 1, 2007). The Company is amortizing the $315,000 estimated fair value of the 4,500,000 shares at October 1, 2007 ratably over the 18 month term of the agreement.
On March 4, 2008, the Company issued 1,400,000 restricted shares of common stock as partial compensation for certain specified investor relations services for a period of 3 months commencing March 1, 2008. The Company is amortizing the $95,200 estimated fair value of the 1,400,000 restricted shares at March 4, 2008 ratably over the 3 month period.
The Company has not issued any stock options or other convertible securities.
Note 6 – Income Taxes
No provisions for income taxes have been recorded since the Company has incurred net losses since inception.
Deferred tax assets consist of:
| | | June 30, |
| | | 2008 | 2,007 |
| Net operating loss carryforward | $ | 134,163 | 60,543 |
| Less valuation allowance | | (134,163) | (60,543) |
| Net | $ | - | - |
Based on management's present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset of $134,163 attributable to the future utilization of the $383,322 net operating loss carryforward as of June 30, 2008 will be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at June 30, 2008. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforward expires in years 2025, 2026, 2027 and 2028 in the amounts of $14,936, $27,540, $130,503 and $210,343 respectively.
Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
The provision for benefit from income taxes differs from the amount computed by applying the statutory United States federal income tax rate to income (loss) before income taxes. The reconciliation is as follows:
22
| | Year ended June 30 |
| | | 2008 | | | 2007 |
| Expected tax at 35% | $ | (172,495) | | $ | (56,614) |
| Nondeductible stock-based | | | | | |
| compensation | | 98,875 | | | 10,938 |
| Change in valuation allowance | | 73,620 | | | 45,676 |
| Actual provision for income taxes | $ | - | | $ | - |
Note 7 - Commitments and Contingencies
On March 22, 2007, the British Columbia Securities Commission (the "Commission") sent the Company an Order for Production of certain documents and records. In August and September 2007, the Commission issued three Halt Trade Orders to the Company because the Commission claimed it became aware of unsolicited electronic mail (spam) promoting the Company's securities. The Company has responded to all inquires of the Commission and has advised the Commission that they were not involved in any way in the creation or dissemination of the spam, nor do they have any information as to its origin.
In April 2008, a legal action was brought by a third party against the Company alleging violations of the Pennsylvania Unsolicited Telecommunication Advertisement Act. The action, which sought total damages of approximately $7,100, was dismissed prior to June 30, 2008.
In July 2008, the Company received a letter from the attorney of the investor relations firm referred to in paragraph 6 of Note 5. The letter asserts that the Company is obligated to issue an additional 841,600 shares of common stock to the investor relations firm and failure to do so will result in legal action. The Company believes that it has meritorious defenses to any legal action brought.
Note 8 – Restatement of Previously Issued Financial Statements
The Company has restated its balance sheet at June 30, 2007 (which was previously included in a Form 10-KSB filed with the SEC on October 15, 2007). The purpose of the restatement is to correct an error relating to the previous accounting of the issuance of 250,000 shares of common stock to three consultants pursuant to a Consultancy Services Agreement dated March 10, 2007. The Company originally recorded the $187,500 estimated fair value of the 250,000 shares as a prepaid expense and amortized the $187,500 over the 18 month term of the agreement. The restatement adjustment decreases prepaid expenses and stockholders’ equity by reflecting the unamortized portion of the $187,500 ($156,250 at June 30, 2007) as a contra-equity account called “deferred stock-based compensation” rather than as a prepaid expense asset. The restatement adjustment had no effect on the reported net losses.
The effect of the restatement adjustment on the balance sheet at June 30, 2007 follows:
| | As previously | | Restatement | | As |
| | reported | | adjustment | | restated |
| | | | | | |
| Cash | $ 7,922 | | $ - | | $ 7,922 |
| Prepaid expenses | 157,954 | | (156,250) | | 1,704 |
| Total current assets and total assets | $ 165,876 | | $ (156,250) | | $ 9,626 |
| | | | | | |
| Total current liabilities and total liabilities | $ 98,915 | | $ - | | $ 98,915 |
| | | | | | |
| Common stock | 242 | | | | 242 |
| Additional paid-in capital | 270,948 | | | | 270,948 |
| Deferred stock-based compensation | - | | (156,250) | | (156,250) |
| Deferred accumulated during the development stage | (204,229) | | - | | (204,229) |
| Total stockholders' equity (deficiency) | 66,961 | | (156,250) | | (89,289) |
| | | | | | |
| Total liabilities and stockholders' equity (deficiency) | $ 165,876 | | $ (156,250) | | $ 9,626 |
23
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
(b) Management's Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Management assessed our internal control over financial reporting as of June 30, 2008, the end of our fiscal year. Management’s assessment included evaluation of the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on our assessment, management has concluded that our internal control over financial reporting was effective as of June 30, 2008 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
This Annual Report does not include an attestation report of the Company's registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting identified in connection with our evaluation of these controls as of the end of the period covered by this report that could have affected those controls to the date of the evaluation referred to in the previous paragraph, including any correction action with regard to deficiencies and material weakness.
There were no changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any deficiencies or material weaknesses of internal controls that would require corrective action.
None
24
PART III
(a) The following table furnishes the information concerning Company directors and officers as of the date of this report. The directors of the Registrant are elected every year and serve until their successors are elected and qualify.
| Name | Age | Title | Term |
| James Wei | 35 | President and Director | Annual |
| Jie Wang | 53 | Director | Annual |
The following table sets forth the portion of their time the directors devote to the Company:
The term of office for each director is one (1) year, or until his/her successor is elected at the Company annual meeting and is qualified. The term of office for each of the officers is at the discretion of the Board of Directors.
(b) Identification of Certain Significant Employees.
Strategic matters and critical decisions are handled by Company directors and executive officers: James Wei and Jie Wang. Day-to-day management is delegated to James Wei and partially by Jie Wang in China.
(c) Family Relationships. None
(d) Business Experience.
The following is a brief account of the business experience during the past five years of each of the Company’s directors and executive officers, including principal occupations and employment during that period and the name and principal business of any corporation or other organization in which such occupation and employment were carried on.
James Wei, President and Director, age 35.
Mr. Wei has his bachelor degree from the University of Science and Technology in Beijing, Majoring in Computer Science. Mr. Wei has over 11 years of work experience in the Internet industry. He is the CEO and chairman of the board of directors of the Registrant’s Joint Venture partner, HuaJu. Before that, Mr. Wei served as Vice President for one of the first Internet Service Providers in China. He also served as Vice President for an Internet company that specialized in the field of web design, web hosting and domain name registration and helped it to develop into the second largest company in China in its field. Mr. Wei is a successful and well known executive in China’s internet industry.
Jie Wang, Director, age 53.
Mr. Wang has his MBA degree from Concordia University in Montreal of Canada, bachelor degree from People University of China in Beijing, China, Majoring in Economy. Mr. Wang has years work experience in Investment Industry and Corporate Finance. Mr. Wang has been working as Partner and Managing Director of Hi-Gold Consultants Limited (Hong Kong/Beijing) since 2001. He currently also serves as Independent Director of a Shanghai listed public company and as Director in two other private companies in China.
Positions previously held by Mr. Wang include Managing Director of Beijing based OrienCentury Securities Investment Consultation, Senior Advisor to the Chairman and CEO of Guangxi Yuchai Machinery Company Ltd and China Yuchai International (a NYSE listed company), Deputy Director of Fund Management Department of Stock Exchange Executive Council (SEEC, Beijing), and Trader in Forex Funding Department of CITIC Industrial Bank.
25
(e) Audit Committee Financial Expert
We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Further, because we are only beginning our commercial operations, at the present time, we believe the services of a financial expert are not warranted.
(f) Conflicts of Interest
The only conflict that we foresee is that Mr. Wang, our officer and director devotes time to projects that do not involve us.
(g) Involvement in Certain Legal Proceedings
To our knowledge, during the past five years, no present or former director or executive officer of our company: (1) filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or present of such a person, or any partnership in which he was a general partner at or within two yeas before the time of such filing, or any corporation or business association of which he was an executive officer within two years before the time of such filing; (2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodity laws; (4) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity; (5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law and the judgment in subsequently reversed, suspended or vacate; (6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated.
(h) Audit Committee and Charter
We do not have a separately-designated audit committee of the board or any other board-designated committee. Audit committee functions are performed by our board of directors. None of our directors are deemed independent. All directors also hold positions as our officers. Our board of directors is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engagement by the audit committee.
(i) Audit Committee Financial Expert
None of our directors or officers has the qualifications or experience to be considered a financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of our limited operations, we believe the services of a financial expert are not warranted.
(j) Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the Code of Ethics is attached as Exhibit 14.1 hereto.
(k) Disclosure Committee and Charter
We have a disclosure committee and disclosure committee charter. Our disclosure committee is comprised of all of our officers and directors. The purpose of the committee is to provide assistance to the Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.
(l) Section 16(a) of the Securities Exchange Act of 1934
We are subject to the reporting requirements of section 16(a) of the Securities Exchange Act of 1934. Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and the Company is required to report, in this Form 10-KSB, any failure to comply therewith during the fiscal year ended June 2007. The Company believes that all of these filing requirements were satisfied by its executive officers, directors and by the beneficial owners of more than 10% of the Company’s common stock. In making this statement, the Company has relied solely on copies of any reporting forms received by it, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission.
26
No executives of the Company who served in such capacity at the end of the last fiscal year have total annual salary and bonus exceeded $100,000.
Executive Compensation
| Name | Fees Earned or Paid in Cash | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) |
| James Wei | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Jie Wang | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Officers who are also directors of China YouTV Corp. receive no cash compensation for services as a director. However, the directors will be reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at board and committee meetings.
Stock purchase options:
None
Persons and groups owning in excess of five percent of our Common Stock are required to file certain reports with the SEC disclosing such ownership pursuant to the Exchange Act. Based upon such reports, as of September 25, 2008 management knows of no persons other than those identified below who were beneficial owners of more than five percent of the outstanding shares of Common Stock.
The following table sets forth information with respect to the beneficial ownership of our issued and outstanding stock by each director, the Chief Executive Officer of the Company, the other named executive officers, all executive officers and directors as a group and beneficial owners of more than five percent of the 30,060,000 shares outstanding at September 26, 2008:
| Name of Beneficial Owner | Title of Class | Total Number of Securities Owned Beneficially | Percent of Class (1) |
| James Wei | Common Stock | 600,000 | 3% |
| Gao, ZhenYong | Common Stock | 5,000,000 | 21% |
| Total number of shares owned by directors and executive officers as a group | Common Stock | 5,600,000 | 24% |
Termination of Employment and Change of Control Arrangements:
Mr. Gao, ZhenYong, our former President and director of the Company resigned on June 1, 2007.
None
The following exhibits are filed pursuant to Item 601 of Regulation S-B.
| Exhibit No. | Document Description |
| 3.1 | Articles of Incorporation (incorporated by reference from Exhibit 3.1 to a registration statement on Form SB-2 filed with the Commission on December 30, 2005) |
| 3.2 | Bylaws (incorporated by reference from Exhibit 3.2 to a registration statement on Form SB-2 filed with the Commission on December 30, 2005) |
| |
| |
| |
| |
| |
27
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10Kor services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:
| 2008 | $ | 30,400 | | Michael T. Studer CPA P.C. |
| 2007 | $ | 29,500 | | Michael T. Studer CPA P.C. |
(2) Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:
| 2008 | $ | 0 | | Michael T. Studer CPA P.C. |
| 2007 | $ | 0 | | Michael T. Studer CPA P.C. |
(3) Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:
| 2008 | $ | 0 | | Michael T. Studer CPA P.C. |
| 2007 | $ | 0 | | Michael T. Studer CPA P.C. |
(4) All Other Fees
The aggregate fees billed in each of the last tow fiscal yeas for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:
| 2008 | $ | 0 | | Michael T. Studer CPA P.C. |
| 2007 | $ | 0 | | Michael T. Studer CPA P.C. |
(5) Our audit committee’s pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.
(6) The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full time, permanent employees was 0%.
28
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 3rd day of Ocrober, 2008.
| | CHINA YOUTV CORP. |
| | (Registrant) |
| | | |
| | BY: | /s/ James Wei |
| | | James Wei |
| | | President, Principal Executive Officer and a member of the Board of Directors |
| | | |
| | BY: | /s/ Jie Wang |
| | | Jie Wang |
| | | A member of the Board of Directors |
29
